Consumer Financial Protection Bureau will review private student loans
- The Consumer Financial Protection Bureau will review the operations of colleges that offer private loans directly to students, he said Thursday.
- The CFPB is updating its review procedures to review a category of loans often referred to as institutional student loans. They are not normally affiliated with the U.S. Department of Education’s federal student loan program, but are offered by the colleges themselves.
- According to the CFPB, colleges and other post-secondary education providers that extend lines of credit to families have not received the same origination and service oversight as other lenders. The agency is concerned about institutional lending because of past examples of high interest rates and “heavy-duty debt collection practices,” it said in a press release, citing actions taken by two for-profit college operators that closed in the mid-2010s, Corinthian Colleges and ITT Educational Services.
Overview of the dive:
The CFPB will examine actions against students that only colleges are able to take: restricting the enrollment or class attendance of students who are behind in their loan payments and withholding transcripts from students who are in debt. These actions can delay students’ graduation or make it difficult for them to find jobs.
Other practices the agency will examine are accelerating payments for students who withdraw from programs, not issuing refunds when borrowers withdraw, and establishing preferential relationships with lenders. Institutions that refer students to certain lenders could risk getting students to pay more on their loans, according to the CFPB.
The agency referenced kickback schemes from the mid-2000s in which colleges were incentivized to push students into specific loans. Congress has since banned certain practices, changed loan disclosure, and allowed the CFPB to oversee the making of private educational loans.
“Schools that offer students loans to attend their courses have a lot of power over the education and financial future of their students,” CFPB Director Rohit Chopra said in a statement. “It is time to open the books on institutional student loans to ensure that all students with private student loans are not harmed by illegal practices.”
Action by the CFPB could help prevent bad student loan behavior, according to Robert Shireman, director of excellence in higher education and senior fellow at the Century Foundation, a progressive think tank.
“Institutional loans have been key parts of some of the worst scams, so having a cop on this beat will help prevent predatory behavior,” Shireman said in an email. Shireman served as deputy US undersecretary of education at the start of the Obama administration when Congress made major changes to student loans.
Thursday’s decision follows other recent moves by federal and state powers to crack down on student lending practices.
In September, the CFPB announced a consent order with revenue-sharing agreement provider Better Future Forward that required the nonprofit to amend its ISA contracts, provide loan information and cease say that ISAs are not loans.
Then last week, 39 state attorneys general struck a $1.85 billion deal with student loan giant Navient. The bulk of that settlement represents $1.7 billion in canceled debt balances for 66,000 private student borrowers following allegations that Navient gave subprime loans to borrowers it knew would not be. able to repay them.
Navient denied the allegations. Attorneys general said private borrowers mostly frequent for-profit institutions.
Interest groups often associate the issue of private college loans with for-profit colleges. A 2020 report from the Student Borrower Protection Center said for-profit colleges often use financial products to circumvent a federal student aid requirement that these institutions receive no more than 90% of their income from government programs. Title IV. For-profit companies that do not participate in Title IV programs often turn to “high-cost, high-risk credit or debt products,” the report said.
A trade group representing for-profit institutions, career colleges and universities, will work with the CFPB, its leader said in a statement.
“We look forward to working with the Bureau and the higher education community to ensure that all institutional loan programs meet student needs and provide appropriate collateral,” said Jason Altmire, President and CEO of CECU.
Public institutions are also steering students into risky forms of private debt, the Center for Student Borrower Protection argued. He said in a June report that “public institutions of higher learning across the country, from flagship state universities to local community colleges, are pushing students to take on perhaps billions of dollars in dangerous student debt.” , often through online program managers they hire. develop online courses.