Findings from the Student Borrower Protection Center estimate that more than 2 million borrowers would be eligible for loan discharge if they declare bankruptcy. Additionally, the Consumer Financial Protection Bureau has begun to review the practices of institutions that offer private student loans. Here’s what to know about this week’s student loan trends.
2 Current Student Loan Trends for the Week of January 24, 2022
1. New Report Says Billions of Dollars in Private Student Loans Would Be Eligible for Bankruptcy Discharge
A report released last week by the Student Borrower Protection Center (SBPC) claims that up to $50 billion in private student loans could be eligible for bankruptcy discharge. The report says predatory lending practices and dishonest communications from managers kept borrowers away from filing for bankruptcy when it could have been a viable option.
Canceling a private student loan due to bankruptcy has always been a difficult – and sometimes impossible – process for borrowers. Borrowers must demonstrate “undue hardship” by following strict guidelines and having sufficient evidence to qualify for release. Even those who qualify face tough legal battles as the courts are yet to settle on the discharge of the private student loan through bankruptcy.
The SBPC says that “despite public perceptions,” only a small subset of private lending faces heightened bankruptcy hurdles. He says many borrowers have loans that do not meet the legal definition of a “qualified student loan” and are therefore eligible for release. These include bar school loans, career loans from unaccredited schools, and direct-to-consumer loans.
How it affects student loans
While no official investigation is underway, the SBPC is urging lawmakers and regulators to step in and investigate managers who misrepresent borrowers’ ability to service their student loan debt in the event of bankruptcy.
“It is high time for the Consumer Financial Protection Bureau, the Federal Trade Commission, state attorneys general and state financial regulators to eliminate this fraud once and for all,” the press release read. “Federal and state law enforcement should use their ability to prohibit and remedy ‘unfair, deceptive, and abusive acts and practices’ at every stage of the student loan lifecycle with respect to misrepresentation regarding release loan.”
Take away key
A report by the Student Borrower Protection Center estimates that more than 2 million borrowers have student loan debt that would qualify for bankruptcy discharge.
2. The CFPB begins to review institutional student loan practices
The Consumer Financial Protection Bureau (CFPB) recently announced that it will begin to look into the potentially fraudulent lending practices of post-secondary schools that lend private student loans directly to their students. “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 press release. “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.”
The new exam criteria are driven by past misconduct by schools like ITT Tech and Corinthian Colleges, which led to several waves of loan releases for former students in 2021. Students at these schools have been offered loans at high interest rates and were subject to forced debt collection. practices.
In addition to assessing general loans, CFPB examiners will ensure that schools are not:
- Restrict enrollment for delinquent borrowers.
- Withholding of transcripts.
- Improperly expedited payments.
- Do not issue refunds.
- Establish privileged relationships with certain lenders.
How it affects student loans
The CFPB has yet to say anything about which institutions it will review. However, new oversight from the CFPB would ensure that students who take on institutional debt would have some protection against fraud. If you currently have concerns about the student loans offered to you by your school, you can file a formal complaint with the CFPB through its online portal.
Take away key
The Consumer Financial Protection Bureau reviews institutional private student loan practices to prevent future misconduct.
Here’s how you can prepare
Whether you’re new to student loans or in the process of repaying, it’s wise to stay informed about how your student loan rates might change. In 2022, more opportunities for cheaper loans or loan forgiveness may open up; keep an eye on the Bankrate student loan news hub for the latest trends.