Schools that provide private student loans using ‘illegal practices’ face a crackdown from Biden’s top consumer watchdog
The CFPB has announced it is looking into the “illegal practices” of schools granting private student loans.
Schools can withhold transcripts and delay graduation if students are behind in paying their debts.
Debt held by schools is generally not part of the $1.5 trillion federal student loan program.
If students at certain colleges do not promptly repay the money they borrow from their school, they may be prevented from enrolling in classes or graduating. And their debt will continue to grow.
President Joe Biden’s top consumer watchdog wants to make sure none of this is happening illegally.
Last week, the Consumer Financial Protection Bureau (CFPB) announced it would review the operations of for-profit and not-for-profit colleges that provide private loans directly to students, also known as institutional student loans. These loans are usually non-federal and are designed to help students and families pay college expenses, but if the debt is not repaid within the set time frame, the college has the power to withhold the college’s transcript. the student and to block course registration. The CFPB is considering the legality of these consequences.
“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.”
Specifically, the CFPB examines five practices that can harm students:
Restrict course enrollment for students who are behind on their loan repayments, thereby delaying graduation
Withholding transcripts from students who owe school debt, preventing them from showing their academic progress to employers
Accelerate loan recovery by making the loan immediately payable if a student withdraws from the program
Do not issue a refund if a student withdraws early
And having an inappropriate relationship with the lender can cause students to pay more than necessary for a loan.
Over the past decade, a number of schools — like the now-defunct Corinthian Colleges and ITT Tech — have come under fire for what the CFPB has called “predatory lending,” in which for-profit schools misled students into taking out private student loans. cover tuition, but they charged such high interest rates on loans that many students couldn’t pay them and defaulted.
Insider previously reported on the burden of institutional student debt. Ithaka S+R, a nonprofit that researches education, estimated last year that there could be up to $15 billion in outstanding balances at colleges and universities, c That’s why a number of schools — especially HBCUs — have used Biden’s stimulus money to wipe out that debt for their students since the pandemic began.
Student debt held by schools is separate from the $1.5 trillion federal student debt crisis, which the CPFB is also monitoring. Over the summer, the agency released a report detailing the deceptive practices of student loan companies that issue federal loans, pushing borrowers into more debt than they could afford.
There is little discussion about the power of schools to cancel institutional student debt, but when it comes to federal student debt, there is controversy over the legality of Biden using his executive powers to act. Still, some advocates and lawmakers believe it’s time for the president to do what schools have done and enact broad loan forgiveness — something he promised voters he would do during his campaign.
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