The federal government and lenders must do more to help borrowers struggling to pay back expensive private student loans, according to a report released yesterday by the National Consumer Law Center.
"In recent years, Wall Street funded and profited from a dramatic surge in the marketing of expensive private loans to students," said Deanne Loonin, an NCLC staff attorney and the author of the report. "Now, in the midst of a recession that has thrown millions of Americans out of work, former students and their families need relief from mounting debt."
The annual volume of new private student loans soared over the past decade to exceed $19 billion, as college tuitions grew, grant aid stagnated, and the government set limits on its loans. The report details the failure of most lenders to voluntarily provide flexibility and other assistance to the neediest borrowers.
Many of these loans were destined to fail due to high rates and limited borrower ability to repay, according to NCLC. The organization recommends urgent action to help borrowers "climb out from underneath debilitating debt loads that resulted from high-priced, aggressively marketed loans."
The report recommends:
- The federal government to require lenders and servicers to provide relief by offering private student loan borrowers loan restructuring and repayment flexibility.
- Congress to restore the rights of financially distressed borrowers to discharge private student loans in bankruptcy.
- Existing private loan obligations to be canceled for students who signed up for unlicensed, unaccredited schools that closed or are currently in bankruptcy.
- More stringent regulations should be imposed on the private student loan market, including:
- underwriting standards that limit loan availability only to borrowers likely to be able to repay, and
- restrictions on fees and interest rates.
In addition, consumer protection laws must guarantee victims of lending abuse the right to file individual and class action law suits, hit violators with strong remedies and penalties, and prohibit mandatory arbitration clauses in loan contracts, according to the report.
"We need to fight to open the doors to higher education to low-income and disadvantaged students by increasing the availability of grant aid and inexpensive loans funded or insured by the government," Loonin said, "We also need government intervention to provide assistance to those burdened with oppressive debts from existing private student loans. Otherwise, they may become the overlooked casualties of this terrible economic crisis."
Media Coverage
Consumer-Law Advocacy Group Calls for Student-Loan Reform The Chronicle of Higher Education
Report Finds Few Options for 'Distressed' Private Loan Borrowers Inside Higher Ed
New report: Students struggling to pay high-cost private student loans The Plain Dealer
Posted 04/10/09 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web site questions or comments to Web@NASFAA.org.
