Nothing is hurting the housing recovery in such a nuanced way as student loan debt, according to Rohit Chopra, the student loan ombudsman for the Consumer Financial Protection Bureau.
Chopra made those statements while speaking at the ABS East 2013 conference in Miami. Chopra said that since the CFPB formed as the new regulator of lenders, he has been pouring over the data to try to find correlations in borrower behavior.
After crucnhing all the numbers, Chopra had some bad news to share with the industry.
Chopra outlined for a crowd of structured finance professionals the current student loan debt crisis and it's harming macroeconomic growth. He also said the industry should seek a securitization cure to help create a more financially responsible industry.
As it stands, the Department of Education and related servicers holds so much power in getting debt recovered, without consideration to the wider impact of such actions. Like the mortgage market, Chopra noted, the $1.2 trillion a year industry is backed primarily by the federal government. And the debt is onerously collateralized, with options such a wage garnishment impacting borrower repayment activity.
"We are already seeing signs of economic drag from student loan debt," Chopra said. "The impact on the housing market is the most troubling part."
Chopra dispelled the "myth" that quantitative easing benefits the student loan space. Despite keeping historically low rates everywhere else, most student loans are not variable and typical charge 8% or above. Further, an estimated 7 million borrowers are in default.
"The fact is student indebtness impacts the credit profile of first-time homebuyers," Chopra said. "Three-fourths of the fall in household formation can be directly correlated to student debt."
The CFPB is hoping to fix these issues going forward as the new regulator oversees the student loan servicing and lending space.
One participant took pause to Chopra's remarks on the state of the industry. Chopra earlier suggested investors and servicers allow a higher degree of refinancing in the space, considering the high levels of default and the psychological barrier to borrowing. He told Chopra in no uncertain terms that if he wants change he should go to Congress instead of blaming student loan financiers.
"There is no blame here," Chopra said. "This is an area of great opportunity, we want to see more openness in this market place."
