On Thursday, the CFPB announced it will begin examining the operations of post-secondary schools, such as for-profit colleges, that extend private loans directly to students. The CFPB is issuing an update to its exam procedures including a new section on institutional student loans. As the CFPB begins its supervision, the exam procedures inform industry about practices that CFPB examiners will review, including placing enrollment restrictions, withholding transcripts, improperly accelerating payments, failing to issue refunds, and maintaining improper lending relationships.
Private education loans are extensions of credit made to students or parents to fund undergraduate, graduate, and other forms of postsecondary education. Private education loans may be offered by banks, non-profits, nonbanks, credit unions, state-affiliated organizations, and institutions of higher education, including both for-profit schools and non-profit schools. These loans are typically not affiliated with federal student loan programs administered by the U.S. Department of Education. When the loans are made directly to students by the school they attend, they are often referred to as institutional student loans.
The CFPB said it is concerned about the borrower experience with institutional loans because of past abuses at schools, like those operated by Corinthian and ITT, where students were subjected to high interest rates and strong-arm debt collection practices. Schools have not historically been subject to the same servicing and origination oversight as traditional lenders.