Buried Under Student Loan Debt? The Government Is Here to Help

College debt"I'm from the government, and I'm here to help."

Those nine words may terrify many people, but to today's ex-students -- some of whom feel helplessly crushed under a mountain of student loan debt -- those words may be the most reassuring thing they've ever heard.

The Consumer Financial Protection Bureau announced last week that it will be soliciting comments from the public about how best to alleviate the crushing loan burden some students are facing in this post-financial-crash economy, one without without the jobs they counted on to make good on that loan burden.

You're on your own, kid
"Too many private student loan borrowers are struggling with unwieldy debt that prevents them from climbing the economic ladder," CFPB Director Richard Cordray said in the release announcing the plan.

Indeed. Having tens of thousands of dollars in debt hanging over your head from the get-go -- with no employment in sight -- means buying a car or getting a mortgage is most likely out of the question.

With this call for comments, the CFPB is looking to address private student loan debt in particular. Out of the $1 trillion in total outstanding student debt, 15 percent of it is private, not backed by the federal government.

For those with government-backed student loans, there's a hardship option that at least lets students avoid default through an income-based repayment scheme. So if you don't make a lot, you don't have to pay a lot. But if you have private student loans, you're on your own with the bank you borrowed from.

Trying to avoid Financial Crisis 2.0
Aside from the personal pain this mountain of private student-loan debt is causing, the other concern the CFPB has is the effect it could have on the economy as a whole.

Alongside the mortgage-lending boom of the 2000s, there was also a private student-lending boom. As with the mortgage-lending boom, there was an excess of lending to people who never should have gotten loans in the first place. And again as with the mortgage-lending boom, a lot of this private student-loan debt was packaged into asset-backed securities for sale to investors.

Five-plus years ago, when homeowners started defaulting en masse on their mortgages, the securities these mortgages had been packaged into also began to default, triggering the financial crisis.

If private-student-loan borrowers begin defaulting on their loans now, the thinking goes, the securities their loans were packaged into could also default, potentially triggering another financial crisis -- this one generated by defaulting private student loans instead of defaulting home loans.

United we're solvent
One of most interesting aspects of the CFPB's comment solicitation project is that the agency is looking for help in solving this problem not just from distressed borrowers, but also from banks and other vested parties.

"We want to hear from borrowers, lenders, schools, and everyone with a stake in the success of this market," Rohit Chopra, the CFPB's student-loan ombudsman, said in a statement announcing the plan.

This makes sense. The banks who made these loans -- even if they lent in a predatory manner -- have as much of a vested interest in working out a payment scheme with defaulting borrowers as the borrowers themselves do.

So whether you're a debt-soaked ex-student, a banker, or even just a concerned citizen, you have until April 8, 2013, to make your voice heard to the CFPB on this issue. Who knows? Your comment may be the one that makes the student-loan debt burden for you or someone you know far more bearable, and keep the country on a far more stable financial footing.

The Most Depressing Student Loan Stories
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Buried Under Student Loan Debt? The Government Is Here to Help

Charice is only a year out of college but she's $30,000 in debt and has no job prospects. "I'm sitting here living with my boyfriend and his family," she says. "It's pathetic. It really is."

Watch Charice's video here.

"I wish I hadn't gone to school," says Mark, who graduated in 2005 with degrees in psychology and music and $875 monthly payments on $80,000 worth of student loans. "I had to claim bankruptcy ... which of course did nothing to the student loans." (Student loan debt is nearly impossible to discharge through bankruptcy.)

Watch Mark's video here.

At 23, Katie will start paying off her $40,000 student loan in September -- with no job prospects on the horizon. "If I could turn back time I would consider not going to college," she says. "I could have started a job right away, worked my way up to management, and not be $40,000 in debt with interest growing every month."

Watch Katie's video here.

Sue has spent 20 years trying to pay back $29,000 in student loans that have more than doubled to $70,000. "It just started jumping in $5,000 increments every year or two," she says. "I put myself in this coffin, or straight jacket, of a situation unknowingly."

Watch Sue's video here.

"In just a few months I'm going to turn 62 years old," says William, who took out $44,000 in private loans to study psychology. "I've been attempting to pay back my student loan debt for 22 years ... I've worked at times four jobs to try to pay back the debt." He still has nearly  $130,000 to pay off.

Watch William's video here.

Architecture was Artie's dream career, but he's too busy working two jobs to pay off $207,000 in private student loans to find work in the field. "I'm paying as much as I can through interest-only payments and income-based repayment plans," he says. "[Monthly payments] would be $2,200 per month, which is basically another mortgage payment for me."

Watch Artie's video here.

When Nick was denied federal student loans, he took out a $30,000 Smart Option loan from private lender Sallie Mae. "I'm in a spot where I can't pay it off," he says. "I literally lose sleep thinking about ... if I didn't go to school, I'd probably be better off."

Watch Nick's video here.

The $85,000 in private student loans Hilary took out has ballooned to $350,000 thanks to an 8 percent variable interest rate. "I was denied the license to practice in my profession because of my student loans," she says. "I make $8.50 an hour as a cashier at ACE Hardware and I receive food stamps."

Watch Hilary's video here.

Paul sunk more than $120,000 into undergraduate and graduate studies in visual arts, but he has yet to find a job in his field. "I'm almost 30 and the monthly student loan payments are crippling me," he says. "I'll have the financial security to buy a car, buy a house, settle down and start a family when I'm in my 50s." He owes $150,000 today.

Watch Paul's video here.


John Grgurich is a regular contributor to The Motley Fool. Follow his dispatches from the bleeding heart of capitalism on Twitter @TMFGrgurich.
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