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Policymakers who stood by and watched the mortgage bubble inflate, and then explode, ought to pay attention to what's happening in the student loan market. The parallels may not be precise, but they are pretty darn scary.
November 9 -
The Obama Administration, including the Consumer Financial Protection Bureau and Department of Education, unveiled initiatives this week aimed at bringing transparency to the student lending market and making repayment easier for recent college graduates.
October 26
WASHINGTON — The Consumer Financial Protection Bureau is asking for information from consumers, schools and industry players on the opaque private student loan market as it begins work on a joint report to Congress.
The notice and request for information, published Wednesday, follows a handful of student lending initiatives announced by the Obama administration last month aimed at easing the burden of student debt. It also highlights the priority that the agency is placing on this sector of the financial industry.
"The private student loan market is one of the least understood consumer credit markets. It has been operating in the shadows for too long," Raj Date, the bureau's interim leader, said in a press release Wednesday. "Shedding light on this industry will benefit students, lenders, and the market as a whole."
Under the Dodd-Frank Act, the bureau must issue a joint report to Congress with the Department of Education — in consultation with the Justice Department and Federal Trade Commission — on private education loans and lenders by July 21, 2012.
The agency is asking the public, including students and their families, higher education institutions, and private student loan lenders and servicers, to submit information about the market voluntarily. It is seeking a broad swath of information, including the information available to shop for student loans; the role of schools in the marketplace; underwriting criteria; repayment terms and behavior; the impact on a student's choice of field of study and career; servicing and loan modification; and financial education and default avoidance.
The comment period is open for 60 days.
Private student loans are not originated through the federal student loan program — a change in the administration's health care law eliminated government guarantees for student loans made by private lenders. They are made by banks, credit unions, state agencies, nonprofits, marketers, servicers and schools themselves, and may not include certain consumer protection features for borrowers facing hardship, the agency said in a press release.
But many students, especially those attending private schools, use the loans to finance their education, resulting in billions of dollars of unpaid debt.
"The bureau is particularly interested in learning what information would help students make informed decisions about which financial services and products are right for them and what approaches would best assist recent graduates facing (or about to face) difficulty making private education loan payments," the notice said.
Although this is the first official request for information, the bureau has been collecting information from students since July about their experiences with student loan debt.
On Oct. 26, the bureau and the Department of Education unveiled a
It includes the cost of attending the college, including tuition, fees and other expenses; clear distinctions between scholarships and loans; a list of all the federal loans available to students; the total estimated student loan debt at graduation; and estimated monthly debt payments after graduation.
The White House also announced a plan to cap monthly student loan payments to 10% of a borrower's discretionary income, using an executive order to move up a change that wasn't scheduled to go into effect until July 2014. It will also offer a 0.5% reduction in a student's interest rate if they consolidate their federal loans, and allow them to make only one monthly payment on the loans, beginning in January.
Although the agency will be able to address some student lending issues — including compliance with the Truth In Lending Act and Fair Debt Collection Act — it won't be able to address some servicing issues or regulate nonbank lenders until it has a permanent director.
