Feds launch investigation into private student loans made by for-profit colleges – National Consumer News | Educating and Helping American Consumers | Disclose Fraudulent Advertising

The Consumer Financial Protection Bureau (CFPB) says it will review the operations of post-secondary schools, such as for-profit colleges, that provide private loans directly to students.

The CFPB publishes an update to its examination procedures including a new section on institutional student loans. As CFPB Begins Oversight, Examination Procedures Inform Industry of Practices CFPB Examiners Will Examine, Including Imposition of Enrollment Restrictions, Withholding of Transcripts, Undue Expedition of Payments , failure to issue repayments and maintaining improper loan relationships.

“Schools that offer students loans to attend their courses have a lot of power over their students’ education and financial future,” CFPB Director Rohit Chopra said. “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.”

Private education loans are extensions of credit given to students or parents to finance undergraduate, graduate, and other forms of post-secondary education. Private education loans may be offered by banks, non-profit organizations, non-bank organizations, credit unions, government-affiliated organizations, and institutions of higher education, including schools for-profit and non-profit schools. These loans are generally not affiliated with federal student loan programs administered by the United States Department of Education. When loans are given directly to students by the school they attend, they are often called institutional student loans.

The CFPB is concerned about borrowers’ experience with institutional loans due to past abuses in schools, such as those operated by Corinthian and ITT, where students have been subjected to high interest rates and collection practices. strong debts. Historically, schools have not been subject to the same service and origination oversight as traditional lenders.

In the mid-2000s, many lenders and higher education institutions were caught making kickback arrangements that incentivized schools to refer students to certain loans. Congress subsequently enacted student loan disclosure reforms and outlawed certain practices. Congress also gave the CFPB oversight authority over entities that issue private education loans, including institutional loans. When reviewing institutions that offer private education loans, in addition to looking at general loan issues, reviewers will look at the facts regarding certain actions that only schools can take against their students. Specifically, CFPB examiners will examine:

  • Place registration restrictions: Students who fall behind on their loan payments may be prevented from enrolling or attending classes, which could delay graduation and prevent them from finding employment.
  • Withholding of transcripts: When a school withholds the transcripts of students who owe it debt, it prevents students from using their transcripts to demonstrate their level of education in the job market.
  • Improperly Accelerated Payments: Schools that use acceleration clauses in their loans when a student withdraws from the program could impose a heavy financial burden on the student by making the loan immediately due and collectible.
  • Failure to issue refunds: If a borrower withdraws from a program early, they may be entitled to certain reimbursements by the school.
  • Maintaining inappropriate loan relationships: Schools that have special relationships with certain lenders may pose risks to students because, for example, they may end up paying more for their loan.

The Education Loan Exam Procedures manual is intended for use by CFPB examiners, and the Office makes it available as a resource for anyone taking its examinations. These procedures will be incorporated into the general CFPB oversight and review manual.

Students and their families can find help on how to tackle their student debt through CFPB’s Paying for College suite of tools. Student borrowers experiencing problems with student loan repayment or debt collection can also file a complaint with the CFPB.

More information is available at consumerfinance.gov/students.###

The Consumer Financial Protection Bureau is a 21st century agency that implements and enforces federal consumer finance law and ensures that markets for consumer financial products are fair, transparent and competitive. For more information, visit consumerfinance.gov.

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