A congressional panel voted Thursday to increase federal oversight of private student loan lenders but rejected a proposal to include for-profit institutions, such as universities, in that oversight.
The U.S. House of Representatives Committee on Financial Services approved legislation to create a new agency that will regulate and monitor student loans issued by private banks. The committee voted down an amendment introduced by Rep. Maxine Waters, D-Calif., that would place secondary educational institutions under the purview of the agency to prevent the use of predatory lending practices by schools.
“These schools have a long history of taking money from students without providing the education they signed up for. Too many have ended up saddled with debt and with no diploma to show for it,” Waters said in a letter to fellow House members Tuesday.
Specifically, the amendment proposal requests “no exclusion for proprietary institutions of higher education.”
Under the approved legislation, the federal government will treat student loans from private banks and other private lenders with the same oversight that they apply to credit cards and home mortgages, said Steve Adamske, spokesman for the legislation’s sponsor, Rep. Barney Frank, D-Mass. The goal is to ensure that students are not taken advantage of in the way predatory mortgage lenders and credit card companies have historically taken advantage of consumers, he said.
The legislation creates a new Consumer Financial Protection Agency that will be charged with writing rules and regulations and then enforcing them to see that “loans have the ability to be paid back and are not abusive in nature or unfair,” Adamske said.
Frank supported Waters’ decision to introduce the amendment and intends to try again to work the provision that would include for-profit institutions into the legislation later in the process, Adamske said.
The University issues short-term institutional loans for tuition and cash, usually to students waiting for other loans to come in, said Thomas Melecki, director of the UT Office of Student Financial Services. These loans have 30 to 60 day terms, and students sign a short-term promissory note upon accepting them.
“Our objective in giving tuition and cash loans is to prevent students from having to drop out of school because they run into a temporary money problem,” Melecki said. “My understanding is that the default rates are fairly low on these, usually because [federal] financial aid arrives in time to pay them off.”
Melecki said problems only arise from these loans in situations where a student fails to receive anticipated financial aid from another source and is forced to default. In those instances, the University may bar the student from enrolling in classes until they can pay back the loan. Even in these cases, extenuating circumstances may allow the University to lift the bar and issue another loan to cover the new semester’s tuition, he said.
Melecki said he understands Waters’ argument for the amendment to include schools under the supervision of the new agency. Low-income students who do not have the credit standing required to get loans from traditional banks often fall victim to predatory lending practices, he said.
If the amendment is included in the final legislation, Melecki said he hopes that schools can work with the agency to make sure meaningful loan information is disclosed to students.
“Students are particularly susceptible to being victims of these [practices],” Melecki said. “I just don’t think UT fits into that category.”
Waters is working to ensure that her amendment is included in final legislation on the agency, said Sean Bartlett, a spokesman for Waters’ office.
A full House vote will be the bill’s next step.
