AFR Comment Letter: Private Student Loans Among Riskiest Ways to Pay for College

Read the pdf of our comment letter to the CFPB regarding private student loans here.


January 17, 2012




Ms. Monica Jackson


Office of the Executive Secretary


Consumer Financial Protection Bureau


1500 Pennsylvania Ave., NW


(Attn: 1801 L Street)


Washington, DC 20220




(sent via email to:




Dear Ms. Jackson:




On behalf of Americans for Financial Reform, a coalition of more than 250 national and state organizations working together for strong Wall Street reform, we submit these comments in response to the “Request for Information Regarding Private Education Loans and Private Educational Lenders” (FR Doc. 2011–29737, Docket No. CFPB–2011–0037). We appreciate the opportunity to comment as the Consumer Financial Protection Bureau (Bureau) prepares its report required by Section 1077 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.




Private student loans are one of the riskiest ways to pay for college.  No more a form of financial aid than a credit card, private student loans typically have uncapped variable interest rates that are highest for those who can least afford them. Even when fixed rates are offered, private loans lack the basic consumer protections and flexible repayment options of federal student loans, such as unemployment deferment, income-based repayment, and loan forgiveness programs.




Publicly available data provide a troubling, but incomplete, picture of the private education lending market in the United States and its impact on students and families.  What data exist underscore the need for the Bureau to strengthen consumer protections and provide consumers with the information they need to “know before they owe” and make sound decisions about how to pay for college.  For example, the current disclosures required by the Higher Education Opportunity Act of 2008 and promulgated by the Federal Reserve are clearly inadequate and need to be improved.  Among other deficiencies, co-signers often do not realize they are liable for loans and lenders are not required to send the final disclosure with the actual loan terms to all co-signers and do not extend cancellation rights to co-signers.




The critical context for private student loan issues is that, due to the lack of a bankruptcy option or any federally mandated relief, students with little experience in financial matters can incur tens and even hundreds of thousands of dollars of completely unaffordable debt that will follow them and damage their credit for their entire lives.  Available data indicate that many private student loans have high default rates that are likely to climb.  Private student lenders have failed to adopt any meaningful policies, such as long-term repayment options or loan modifications, to help students who are buried in debt, and lenders often refuse to cancel loans even in the event of the student’s death.




The most recent federal data show rapid growth in the share of undergraduates using private loans, from 5 percent in 2003-04 to 14 percent in 2007-08. For-profit colleges had the largest proportion of students taking out private loans in 2007-08, and the largest increase compared to four years earlier.[1] In fact, a majority of the graduates of for-profit colleges leave with private loans.[2]




Because of the high risks and costs associated with private loans, experts agree that students should always exhaust all available financial aid, including federal loans, before even considering a private student loan. However, the most recent federal data show that a majority of private loan borrowers could have borrowed more in federal loans before turning to private loans.[3]  For this reason, we urge the Bureau to use its authority to require private education lenders to obtain certification from a student’s school that the student is eligible for the loan and has been notified of any outstanding federal aid eligibility before the loan is disbursed.




More and better information is needed about the types of private education lending products being offered, what types of lenders, colleges, and other entities are involved in making and marketing these products, how they are advertised and delivered to customers, and how well students and families understand them. Currently, the most comprehensive source of data on the extent and types of private lending, the characteristics of private loan borrowers, and the colleges they attend is a federal survey conducted every four years, with little data at the state level and none at the college level. It is important for students, policymakers, and the public to have timely and accurate information about all student borrowing at the national, state, and college level to inform decision making and hold colleges accountable for their policies and practices. There is also very little publicly available information about the rates and terms of private loans when they are first issued, or when they are in repayment.  We urge the Bureau will work with the Department of Education and others to collect detailed annual data on private loan usage and terms at the college, state and national levels.




Finally, a recent report from the National Consumer Law Center (NCLC) documents the surge in institutional lending at several large for-profit colleges that are making loans to students they know, at the outset, will not be able to repay them.[4]  In its ongoing investigation of the for-profit college industry, the Senate Health, Education, Labor and Pensions Committee has found expected default or write-off rates for institutional loans at for-profit colleges in the 40 to 80 percent range and institutional loan interest rates as high as 18 percent.[5] Such predatory lending cries out for attention and action by the Bureau.




Thank you for the opportunity to comment.








Americans for Financial Reform




[1] The Project on Student Debt at TICAS. 2011. Private Loan Facts and Trends. Also see: U.S. Department of Education. NCES. 2011. The Expansion of Private Loans in Postsecondary Education. These figures are for private loans to undergraduates from banks/lenders, excluding state/institutional loans.

[2] College Board. 2009. Who Borrows Most Bachelor’s Degree Recipients with High Levels of Student Debt. Table 2.

[3] The Project on Student Debt at The Institute for College Access & Success (TICAS). 2011. Private Loans: Facts and Trends.

[4] National Consumer Law Center. 2011. Piling It On: The Growth of Proprietary School Loans

And the Consequences for Students.

[5] See: Documents from U.S. Senate. Committee on Health, Education, Labor and Pensions, June 7, 2011. Accessed January 16, 2012.