As members of Congress dance around affirming President Obama’s nominee to head up the new Consumer Financial Protection Bureau, students are among those that stand to be hit the hardest, some groups say.
Without a leader, the agency can’t fully regulate consumer practices across all sectors, including private student lenders, according to The Institute for College Access & Success.
That leaves college-hopefuls all the more vulnerable as they start looking at ways to cover tuition, the group said Tuesday.
Without the right information, more students may fall into the trap of taking on high-interest private loans to pay for education that they might never be able to afford.
”I think when you’re 17 years old, there’s a fair assumption that you won’t know what (taking out private loans) means,” said Cheri Parrag, a student from Montana who took out tens of thousands of dollars in private loans to pay for her studies at New York University.
After graduating, Parrag was hit with high-interest payments that she couldn’t afford and had no clear source of information on how to handle them.
Because she — like most student borrowers — asked family or friends to be co-signers on the loans, their credit scores were also endangered.
Her story is all too-common among college graduates who were referred to private lenders for loans, said Pauline Abernathy, vice president of TICAS.
The problem is students and their parents often don’t know the differences between private and federal loans, Abernathy said. For example, private loans generally come with variable interest rates — which means they can increase monthly — while federal loans can have fixed rates.
Federal loans also offer much more flexible repayment plans, making it simple for students to defer payments for months after graduating until they start bringing in a steady income.
Although universities and colleges sometimes strike up deals with lending institutions to offer private loans to students, new regulations have mandated they be more upfront about such deals when pushing private loans to new students, Abernathy said.
The CFPB would be instrumental in enforcing these regulations and collecting data on institutions that are funelling students to private lenders, but it can’t do so until a new director is appointed, according to Lisa Donner, executive director of Americans for Financial Reform, which works closely with the CFPB.
“Without a director in place…it’s just that much harder to do the job of standing up for consumers and standing up to industry specialists,” Donner said.
In the meantime, President Obama and the CFPB are pushing forward with an initiative to allow students consolidate their federal student loans to simplify the repayment process. The plan, however, would not benefit private loan borrowers.
For these borrowers, the agency’s Private Education Loan Ombudsman is enlisted to respond to complaints from private education loans.