Under the pending financial reform bill, a newly created consumer protection agency would oversee private student loans, including those that for-profit colleges make to students. The bill would also create an ombudsman position, to give borrowers a place to turn for help with loan problems.
To help pay the staggering costs of medical school, most med students turn to private student loans. Many higher education officials have complained that these private loans -- unlike federal student loans -- are virtually unregulated. That may soon change, as the financial reform bill now being considered in Congress would add some protections for student borrowers.
Under the terms of the bill, the newly created Consumer Financial Protection Bureau would oversee all types of non-federal student loans, including those that for-profit colleges make to their own students. The bill would also create a student-loan ombudsman, which would give borrowers a place to turn to for help with loan problems. Because of the disjointed nature of the private student loan industry, borrowers have often been unable to find help with any problems they encounter.
These consumer protections are needed, say student advocates, because students and their families are often the victims of unscrupulous lenders. Also, the loans typically come with uncapped variable rates, and do not have the deferment options, structured repayment plans, loan-forgiveness programs, and cancellation rights in cases of death or severe disability that federal loans offer, according to the Institute for College Access & Success. Private student loans are also nearly impossible to discharge under bankruptcy protection.
One provision that didn’t make the cut in the proposed legislation would have required a lender to contact the school to certify that the student is eligible for the loan. According to student aid officials, this would have given the school a chance to counsel the student about the availability of other, possibly less expensive, sources of funds.
Whether these changes become reality, however, will depend on the outcome of congressional votes, which remain under debate. The bill -- until just recently thought of as a done deal -- faces difficulties in the Senate, where the death of West Virginian Democrat Sen. Robert C. Byrd deprives it of a crucial vote. The last-minute addition of a $19 billion tax on big banks has also rankled some Republican supporters of the bill, increasing the chances of a filibuster.