The Dream Center Foundation, a religious missionary organization based in Los Angeles, plans to buy EDMC, a struggling for-profit chain that enrolls 65,000 students. The resulting nonprofit college group will be secular.
College students have particular reason to be concerned about the hostility toward the CFPB, given how effective the agency has been in solving their problems with debt. But taxpayers should be alarmed, too.
One of the vulnerable populations receiving special attention at the agency, college students over the past several decades have experienced increasing financial barriers to their educational paths, despite our intent to remove those barriers. To ensure that all qualified students get the education that we want them to pursue, we, the taxpayers, support the federal financial aid programs by spending $128 billion on them in 2015, not to mention spending billions more to fund public institutions in every state.
Despite that support, student debt remains a huge obstacle for graduates. Sixty-nine percent of college students are graduating with an average of $28,950 in debt. This debt is a drag on individual borrowers, who will see a decrease in their lifetime savings as their money is spent paying down educational debt. It has also become a drag on the economy as a whole, as borrowers put off purchasing a home and starting a family until they achieve the firmer footing we hoped they’d have at graduation.
These problems stem from shrinking state budgets for education and grant programs that don’t keep pace. But they are exacerbated when students lose even more money to tricky financial products and predatory lending schemes that are marketed right on campuses.
During the financial crisis, 67 percent of students reported being stopped on campus to be offered a credit card application. Often, these offers were accompanied by freebies -- pizza, a tee shirt or even a chance to get an iPod -- if the student just applied. Unfortunately, the rates paid by those with the worst credit, such as traditional-aged students with their spotty to non-existent credit histories, were upward of 20 percent, plus an additional 23 percent in fees on their balances. Now, the CFPB is the leading watchdog of the campus credit card marketplace, conducting a bi-annual survey of the trends on campuses.
Students, as the captive audience they are, have become targets for higher-priced private loans than what they can get on the open market. In 2007, then-Attorney General Andrew Cuomo found that students and families were assuming pricey private loans because their college aid offices, enticed by banks hoping to gain more federal loan customers at the institutions, were pushing them over other products, sometimes even including loan offers in aid awards. CFPB generates an annual report on the private loan marketplace to Congress, highlight the troubling developments.
Also, in 2009 the for-profit chain Corinthian Colleges revealed to investors that it would issue $130 million in private loans for the year to its students, even as it admitted its students wouldn’t be able to repay them. Now, CFPB has specific authority to investigate deceptive lending practices on campuses, which has led to lawsuits against prominent for-profit college chains such as ITT Tech, Bridgepoint, and Corinthian. For instance, it won $480 million in relief for borrowers at Corinthian schools, who were tricked into assuming private loans that carried interest at almost 10 percent.
And recently the agency announced a lawsuit against Navient, the student loan servicing giant formerly known as Sallie Mae, which services 12 million borrowers. The lawsuit alleges that the firm cheated borrowers out of their right to lower monthly payments and lower interest accrual by downplaying enrollment and renewal deadlines for those programs.
These problems are especially outrageous on two fronts. First, they undermine the ability of students to get an education. Second, they devalue the investment that taxpayers have made in our college students, as our financial aid dollars end up flowing away from the students we aim to help, and toward predatory lenders that are breaking the law.
As over 50 student and consumer and educational groups declared in a recent letter to Congress, neither students nor taxpayers should have to tolerate these problems. Now is not the time to render ineffective the agency that is stepping in on our behalf.
Christine Lindstrom is the higher education program director for U.S. Public Interest Research Group student chapters.