The CFPA Should Have Full Authority Over All Private Student Lenders
AFFIL and many of our Partners sent this letter (PDF) to Congress supporting the CFPA’s jurisdiction over all private student lenders. Here’s an excerpt:
Private student loans are one of the riskiest ways to pay for college, yet a growing number of students have private student loans as well as, or instead of, federal student loans. Private student loans are expensive, mostly variable-rate loans that cost more for those who can least afford them. They lack the fixed rates, consumer protections and flexible repayment options of federal student loans, and are not financial aid any more than a credit card is when used to pay for textbooks or tuition.
At for-profit colleges, which are attended disproportionately by African-American and Latino students, 42 percent of undergraduate students took out private loans in 2007-08. Several large for-profit colleges, including Corinthian Colleges, Inc., ITT Educational Services Inc., and Career Education Corporation, now make private loans directly to their students. Corinthian Colleges has told investors that it plans to make $130 million in such loans this year even though it expects 56 to 58 percent of the borrowers to default. The company considers these loans good investments because they will increase enrollment and with it a profitable flow of federal grant and loan dollars that outweighs the planned write-offs. Financial analysts describe these schools as having “significant internal lending exposure” (Height Analytics report, September 23, 2009).
To effectively protect consumers, the CFPA must have full authority to regulate private student loans regardless of the institution offering them.