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Safeguarding Students
George Santayana was onto something when he wrote, "Those who cannot remember the past are condemned to repeat it."
Earlier this month, the newly appointed head of the Consumer Financial Protection Bureau (CPFB), Richard Cordray, announced his agency would be increasing its oversight over nontraditional lenders of student loans to students attending for-profit institutions and trade schools that have high rates of default.
Comparing the practices of these lenders to those who offered the risky subprime mortgages which led to the financial crisis, Mr. Cordray said, “One of the things we see and have seen is lenders who market loans for borrowers knowing that those borrowers are unlikely to be able to pay those loans, but they may have other incentives that lead them to make those loans nonetheless. We clearly saw that in the mortgage market in the run-up to the financial crisis, when that market got broken. We also see it, say, in student lending as well.”
Private student loans differ from federal student loans because they are less likely to come with safeguards in place which act to help prevent students from defaulting. Therefore, increased oversight is necessary to prevent them from being taken advantage of by these nontraditional lenders who lend despite the knowledge that their loans will be difficult or impossible to pay back.
Minnesota college graduates already have the fourth-highest student loan debt in the country, and that doesn't even take into account the numbers from for-profit institutions because they are not required to report them. With tuition costs ever-rising, more and more students resort to these nontraditional lenders to fill the gap between the sticker price and the price they're able to afford.
In hindsight, increased oversight of the risky subprime mortgage lenders would have been ideal in the years leading up to the financial crisis. Nowadays, increased oversight of nontraditional lenders of student loans is ideal in the years leading up to a would-be educational crisis.
In the midst of what will likely be another contentious legislative session, the values of investing in public higher education must be kept at the forefront of both legislators' and their constituents' minds alike. Along with increased oversight by the CFPB, well-funded MnSCU campuses located in 47 communities, which already serve the same mission as most for-profit institutions at a fraction of the cost, could also diminish the opportunity for nontraditional lenders to take advantage of students if more students favor them and dismiss the for-profit route altogether.
Posted in Education | Related Topics: Higher Education Regulation Federal Government