On 1/20/2022, the CFPB announced that it will begin examining the operations of post-secondary schools, such as for-profit colleges, that extend private loans directly to students. In line with this, the CFPB has updated its exam procedures to include a new section on institutional student loans.
In light of past abuses at schools where students were subjected to high interest rates and forceful debt collection practices, the CFPB is concerned about the borrower experience with institutional loans. In the mid-2000s, many lenders and institutions of higher education were caught engaging in kickback arrangements that gave schools the incentive to steer students into certain loans. With this, the Congress enacted reforms to student loan disclosures and gave the CFPB supervisory authority over entities that originate private education loans, including institutional loans.
Practices that the CFPB examiners will review include:
Placing enrollment restrictions: Students who are late on their loan payments may be restricted from enrolling in or attending classes, which could delay their graduation and prevent them from finding employment.
Withholding transcripts: When a school withholds academic transcripts from students that owe the school a debt, this prevents students from using their transcripts to demonstrate their education levels in the job market.
Improperly accelerating payments: Schools that use acceleration clauses in their loans when a student withdraws from the program could be putting a heavy financial burden on the student by making the loan immediately due and collectible.
Failing to issue refunds: If a borrower withdraws from a program early, they may be entitled to some refunds by the school.
Maintaining improper lending relationships: Schools that have preferential relationships with certain lenders may pose risks to students because, for example, they may end up paying more for their loan.
Read the CFPB’s full release here.
See the Education Loan Examination Procedures here.