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The student lending industry argues that the problems the CFPB is finding in the market are more related to federal loans than private ones and disagree with the agency's push to allow student loans to be charged off in bankruptcy.
October 16 -
The swelling trillion-dollar student loan market is missing key data and regulations necessary to head off another financial crisis, according to Rohit Chopra, the Consumer Financial Protection Bureau's top official in charge of dealing with student loans.
November 18 -
The Consumer Financial Protection Bureau is raising concerns about a caveat in private student loan contracts that allows lenders to automatically put a borrower in default when a co-signer faces certain kinds of hardship.
April 22 -
The Consumer Financial Protection Bureau is urging policymakers to reconsider how student loan debt is treated under the bankruptcy code.
October 16
The Consumer Financial Protection Bureau's recent report on private student loans drew a sharp critique from lenders, who claim that the CFPB
Congress instructed the CFPB to pay special attention to private loans precisely because they have a problematic history of causing long-term financial distress to borrowers. In the early 2000s, private student loans followed a path similar to mortgage lending. Securitization led to mushrooming growth of questionably underwritten, variable- and high-interest-rate loans, which suffered high default rates after the economy crashed. Many borrowers today suffer from the loans made before the market corrected.
Recent data does suggest that some lenders have improved their private student loan underwriting standards, but problems remain. Federal student loans offer greater consumer protections than private loans, yet many of the students who take out private loans do not first exhaust their federal options. This means that they are unable to access such options as guaranteed income-based repayment and loan forgiveness plans, assistance for getting out of default and discharges for disability or death. Since both federal and private student loans are much more difficult to discharge in bankruptcy than other kinds of debt, these protections are crucial.
Colleges can play a role in helping students accurately compare private loans to federal loans. Stronger
Private loans taken out by students at for-profit colleges also deserve particular attention. Twelve percent of all students attending for-profit colleges in 2011-2012 had private student loans, down from 40% in 2007-2008, according to the
Private lenders and servicers should also work harder to find ways to help distressed student borrowers. As the CFPB report details, many distressed borrowers want to repay their loans but cannot get help modifying their terms. Last year, lenders claimed that accounting principles hindered them from offering workouts to private student loan borrowers. Regulators have since made clear that banks
The CFPB report draws proper attention to this area of student lending. Congress unambiguously mandated that the CFPB collect, analyze, and report on private student loan complaints. Consumer complaints have always been a key way for law enforcement to identify possible violations of the law and for policymakers to identify areas of concern. Now that authorities have the information they need, they should act to address problems in this market.
Maura Dundon is senior policy counsel at the Center for Responsible Lending. Follow her on Twitter at