Here's a puzzle of modern finance: during a period when borrowing costs are at rock-bottom levels and tens of millions of borrowers have refinanced their mortgages, it remains impossible for many gainfully employed Americans to refinance their student loan debt.

As debt burdens have spiked — the latest government estimate of total outstanding student loans is $1.2 trillion, up from $1 trillion less than two years earlier — one might expect lenders to be tripping over each other in a rush to peddle more affordable student loans.

But while a handful of companies have begun to serve the most credit-worthy borrowers, most lenders remain unconvinced that refinancing student debt is worth their time and effort. For potential new entrants, high acquisition costs are a barrier, and the established student lenders appear to have no incentive to refinance their existing customers.

The result is a situation that's bad for borrowers and may be harmful to the broader economy.

"Borrowers, even after graduating and attaining employment, find themselves unable to take advantage of their improved credit profile and today's historically low interest rates," Rohit Chopra, student loan ombudsman at the Consumer Financial Protection Bureau, lamented in a speech Monday.

Chopra suggested that hefty student loan payments may be preventing many consumers from purchasing homes. Even though they have landed in solid jobs and are now making their payments on time, they are locked into interest rates that are commensurate with their credit risk from a decade earlier, rather than today.

"It's kind of crazy that an employed law school graduate who's making $160,000 a year would be paying the same interest rate as a college freshman," says Derek Kaknes, chief executive officer of Prime Student Loan, a company that seeks to match consumers with lenders who will refinance their student debt.

In the last two years, a few lenders have begun to serve low-risk borrowers in the federal loan market.

Social Finance, a startup that goes by the nickname SoFi, refinances loans for graduates of 100 colleges and universities, including many of the most selective schools in the country. Fellow startup CommonBond currently focuses on business schools. Darien Rowayton Bank, a $270 million-asset bank in Connecticut, has begun refinancing loans for alumni of high-paying graduate programs including law, medicine and engineering.

These companies offer good deals to certain graduates who are paying the highest interest rates under the federal student loan program. They're providing fixed-rate loans with annual percentage rates starting from around 4.75% to 6%. The only downside for the borrowers is that by moving out of the federal loan market and into the private market, they lose certain protections.

There are also a few lenders that are targeting borrowers locked into high interest rates on private student loans. Wells Fargo (WFC) and SunTrust Banks (STI) consolidate private loans at fixed rates starting around 7.25%. And LendKey Technologies, operating under the name cuStudentLoans, works with credit unions to provide similar loans.

There's no solid data on the current volume of student loan refinancing, but even those in the business acknowledge that there's not much competition.

"There's definitely room to grow," says David Klein, CommonBond's CEO. "What I can tell you is that the traditional players have not really come into the market."

Observers point out that major participants in the private student loan market such as Sallie Mae (SLM) and Discover Financial Services (DFS) have little incentive to refinance their existing customers.

That's in part because many borrowers are locked into high fixed interest rates, and in part because under federal bankruptcy law, it is extremely difficult to shake free from student loan debt.

Furthermore, some of the nation's largest banks, including JPMorgan Chase (JPM), Bank of America (BAC) and Citigroup (NYSE: C), have exited the private student loan business amid the financial crisis and in the wake of a 2010 law that ended banks' role in originating government-backed student loans.

Andy Josuweit, CEO of Student Loan Hero, a firm that helps borrowers manage their debt, doesn't expect large financial institutions to get into the refinance market.

"I don't think you're going to see big banks entering," he says. "I'm talking to a lot of banks, and they're saying that they're not going to be able to see the yield that they want."

Of course, many consumers who have student debt aren't good candidates for a refinancing, either because they are already paying low interest rates on federal loans, or because they're in financial distress.

To cite just one relevant data point: at for-profit colleges, only 29% of students who enrolled in associate's degree programs are making payments that reduce the balance they owe, according to a new report from the Center for American Progress.

But even borrowers who are good candidates can be difficult to acquire as customers. Marketing can be expensive, and margins can get squeezed further when borrowers' existing lenders decide to compete by making the consumer a counter-offer.

"They will fight to retain their customers," says David Bergeron, vice president of postsecondary education at the Center for American Progress.

Yet some observers insist there is an opportunity to make money refinancing more student loans — and not just to graduates of elite schools who have six-figure incomes.

"My expectation is that there will continue to be more players entering the market, because it is an attractive proposition from a lender's perspective," says Stephen Dash, founder of JoinStampede.com, a firm that pools borrowers in an effort to renegotiate their interest rates collectively.

If the market is to grow significantly, it may ultimately be the result of growing investor demand for the loans. Though numerous other securitized asset classes, including consumer debt consolidation loans, offer higher yields than refinanced student loans, it was a positive sign for the market when SoFi announced recently that it is planning its first loan securitization.

"I think eventually securitization is going to drive our cost of funds down," says Rob Lavet, SoFi's general counsel. "I think once we execute, others are going to deconstruct it. We do think it's a way for our business to grow."

Still, if the student loan refinancing market is to ever take off, it will need to happen soon. That's because once interest rates rise by a couple of percentage points, it will be far harder for fixed-rate borrowers to find any savings in a refi.

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