BOULDER, Colo. (5/21/14)--Consumer Financial Protection Bureau Director Richard Cordray spoke at the 2014 Boulder Summer Conference on Consumer Financial Decision Making Monday, addressing the many ways in which student loan debt can have a ripple effect on other areas of the economy.
He recalled numerous instances of the CFPB hearing from consumers that student debt prevented them from buying a house, opening a small business or starting a family. Referring to the $1.2 trillion in student loan debt in America, Cordray said "we are now standing at a precipice" when it comes to the current economy.
"This is not debt that can be quickly erased--it can take many years to pay it back, which means that it may prevent borrowers from achieving other financial milestones for at least that long," he said. "A recent Pew study found that about 40% of younger households--those headed by someone under the age of 40--have student loan debt, and we can see no reason why this percentage will not continue to grow."
According to the CFPB, more than seven million Americans are in default of a student loan. Those who are in default at a young age can see their credit score affected negatively, which can have an effect on everything from employment background checks to the home-buying process.
A recent Pew research survey said that more than one-third of people age 18 to 31 are living with their parents, which is 18% higher than it was at the start of the recession. This leads to fewer households being created, which Cordray said is a key driver of economic growth.
Student loan debt also has consequences that can follow individuals later in life as well, Cordray said. He quoted a study that said student loan debt can cost more than $200,000 in net assets, including nearly $135,000 in net retirement savings over the course of a career.
"If the consequences of student loan debt weigh down individuals and markets, it is inevitable that they hold back communities as well. Recent research has shown that for every $10,000 in additional student debt, young graduates are 6% less likely to pursue a career in public service, especially careers as teachers," he said. "Rural areas in particular struggle to attract and retain doctors, nurses, and other young professionals. In many of these places, ownership of a car is a prerequisite for employment and rental housing may be scarce."
Cordray said the CFPB plans to combat these trends by:
- Using supervisory authority over financial institutions to send examination teams into firms to assess compliance with the law;
- Working with regulators to incentivize student loan servicers to provide more loan modification and refinancing options; and
- Created the "Financial Aid Shopping Sheet," which gives college-bound students hard numbers in a common-sense format in partnership with the Department of Education. This has been adopted by more than 2,000 schools.
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