Feds To Probe In-House Student Loans for Potential Abuses

Colleges That Lend to Their Own Students Need More Scrutiny, Watchdog Says

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A government watchdog that enforces laws against lending abuses is expanding its focus to for-profit colleges and other schools that loan money to their own students.

Examiners at the Consumer Financial Protection Bureau will begin reviewing institutional student loans to determine if schools are taking improper advantage of being a student’s lender as well as their educator. Potential abuses would include restricting class enrollment for students late on their payments, withholding transcripts of students that owe them money, or failing to issue refunds if a student withdraws from a program early, the bureau said Thursday.

“Schools that offer students loans to attend their classes have a lot of power over their students’ education and financial future,” Rohit Chopra, director of the bureau, said in a statement. “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.”

In-house lending—when schools and colleges lend money to their own students to finance their educations—is a small corner of the student loan market that hasn’t been subject to the same oversight as traditional loans, the bureau said, and it has already proven to be a concern. The CFPB had previously sued for-profit colleges ITT and Corinthian, both now defunct, accusing them of pushing students into high-cost loans destined to default. The ITT case resulted in almost $500 million in debt relief for its former students, and more than $480 million owed by former Corinthian students was forgiven.

The new focus brings more scrutiny to the student loan market, which has been a hot topic for a number of reasons. Borrowers with federal student loans haven’t had to make payments since the COVID-19 pandemic began (they are set to resume in May) and President Joe Biden has raised the prospect of forgiving at least $10,000 in loans for every borrower with a federal loan. 

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  1. Consumer Financial Protection Bureau. “Consumer Financial Protection Bureau to Examine Colleges' In-House Lending Practices.”

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