CFPB Set to “Open up the Books” on student loans to institutions

On January 19, 2022, the CFBP announced that it would begin studying colleges’ in-house loan practices for students. The announcement says it will investigate “the operations of post-secondary schools, such as for-profit colleges, that extend private loans directly to students.

” Also, the possibility that these loans could be provided “by banks, non-profits, nonbanks, credit unions, state-affiliated organizations, and institutions of higher education, including both for-profit schools and non-profit schools.” The announcement also explains that loans made directly to students by the institution they attend are commonly called “institutional student loans,” and that these loans generally do not have any connection to those of the U.S. Department of Education’s Title IV federal student loan program. Students have many other loan options. They can look at Payday Champion site.

“Schools that offer students loans to attend their classes have a lot of power over their students’ education and financial future,” CFPB Director Rohit Chopra stated in an announcement. “It’s time to open up the books on institutional student lending to ensure all students with private student loans are not harmed by illegal practices.”

Fixing past issues

The CFPB’s announcement expresses concern regarding institution-based loans “because of past abuses at schools, like those operated by Corinthian and ITT, where students were subjected to high interest rates and strong-arm debt collection practices.” The CFPB claims that during the 2000s, schools and lenders were involved with lenders in “kickback arrangements” where lenders encouraged post-secondary institutions to lead students to take out loans.

The CFPB, therefore, has changed their education Loan examination Procedures to add a brand new section on institution-based student loans for schools that are explicitly providing institutional loans to their students in addition to the examination of all general private student loan lending concerns, the CFPB will be specifically looking at “Additional Concerns for Institutional Loans,” like whether the school

  • Refuses transcripts or refuses to acknowledge graduation of students who owe due to the school
  • Limits enrollment based on the student’s repayment status;
  • Imposes additional charges or tuition increases on institutional loan borrowers, based on their repayment status

Unlawfully speeds up payments, for example, the case where a student who withdraws from a program or school is liable for more than the amount of the period they were enrolled within the course.

The announcement of the CFPB follows previous actions by CFPB to stop its Income Share Agreement (ISA) industry. ISAs are financial agreements in which students are required to pay an uninvolved lender a portion of their income for a specified amount of time and until they hit a limit. In the past year, the CFPB’s enforcement actions against an ISA provider named Better Future Forward, Inc. resulted in an agreement on September 20, 2021. 

This Consent Order required Better Future Forward to, among other things, stop declaring its ISAs do not qualify as “not loans,” provide Truth in Lending Act (TILA) disclosures and amend its contracts to remove certain penalties for prepayment. Better Future Forward entered into the Consent Order without admitting or disproving any of the order’s substantial conclusions of fact or findings of law.

Conclusion

Reforming student loans is a major concern for The Biden Administration. With demands for universal student loan cancellation, it is reported that the U.S. Department of Education is pushing for a regulatory expansion and expansion of the Borrower Defense to Repayment Program. It has also redesigned its Public Service Loan Forgiveness Program and is taking other steps geared towards borrowers to eliminate $15 billion of federal student loans within a single year. For-profit education, in particular, is under more scrutiny by Federal authorities, specifically under the current administration. The CFPB’s latest concentration on institutional lending is a continuation of the trend of trying to reform the student loans offered by private institutions market and putting for-profit institutions at the center of attention.

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