More Protection Is Needed For Private Student Loans
"With the confirmation of Richard Cordray, the Consumer Financial Protection Bureau is poised to extend greater protections to students and parents who borrow private education loans," NASFAA President Justin Draeger writes in The New York Times' "Room for Debate."
"Private student loans now contain far fewer consumer protections than federal loans. Yet private loans are just as impossible to discharge in bankruptcy and even death. Once dubbed the “Wild West” by several state attorneys general when the private education market made up 26 percent of total education borrowing, private education loans now only make up roughly 7 percent, according to the College Board. But that proportion is on the rise again, primarily due to lower, fixed-rate interest rate options in the private loan market that undercut federal loans.
Voluntary actions by lenders should become federal requirements as the private loan market continues to grow.
It is worth noting that many lenders have recently taken voluntary steps to increase borrower protections, such as loan discharge in the case of a student’s death. In addition, most lenders now work through colleges to require institutional certification and counseling before disbursing any loans.
But these recent voluntary trends should not lull us into a false sense of security. These changes are still not federal requirements and as credit becomes more widely available and the private education loan market continues to grow, it is imperative that we codify better protections for students and parents.
Last year, the C.F.P.B. delivered a report to Congress that outlined several ways in which lawmakers could improve private student loan protections. Those recommendations included: Allowing private student loans to be discharged in bankruptcy like other forms of consumer debt; requiring private student loans to be certified by the higher education institution; and creating a database for private student loans to help students track their debt and make payments.
Examining ways to standardize repayment processes and properly disclose vital information to current and future borrowers is work that the CFPB is specifically well positioned to conduct. More than other agencies, the C.F.P.B. engages with the public on consumer-protection issues and utilizes consumer feedback to develop policy initiatives and recommendations. That collaborative process is often missing from other federal initiatives, where bureaucrats determine what’s in the best interests of consumers.
The time to mandate increased borrower protections is now, through partnerships with students, lenders, and colleges and universities. We must ensure all private education loan borrowers receive the protections they need."