On the eve of its August recess, Congress finally agreed to undo much of a sharp rise in the interest charged on federal student loans. Before the deal could even be signed into law, however, a group of private lenders was angling to postpone the day when they would have to say how the cost of their loans compares to the new, lower-than-feared cost of the government’s loans.
In a letter to Richard Cordray, Director of the Consumer Financial Protection Bureau, the Consumer Bankers Association, the Student Loan Servicing Alliance, the Education Finance Council and the National Council of Higher Education Resources pleaded for a 30-day ”grace period” on the disclosure requirement. They were making a “very reasonable request,” the private lenders argued, in view of the “multiple application processes (electronic, paper and telephone) that must be changed and tested prior to implementation” and the difficulty of coordinating with “multiple vendors.”
But this is no ordinary 30 days. As the lenders themselves pointed out in their letter, August is “peak season for lending… as students and their families put together the financing they will need to start school in the fall term.” To put it another way, this is precisely the time when students have the greatest need to “know before they owe” – that is, to understand the higher cost of a private loan before they forego a federal loan.
“Private loans are one of the riskiest, most expensive ways to pay for college,” Lauren Asher, President of the Institute for College Access & Success, declared in a letter of response to the CFPB. Private loans, she added, “do not provide the important deferment, income-based repayment, and loan forgiveness options that accompany federal student loans.”
Disclosure is crucial because, as the TICAS letter points out, “a majority of undergraduate private loan borrowers do not borrow the maximum amount in safer federal student loans first… Indeed, we are concerned that private lenders appear to be increasingly marketing private loans as an alternative to federal loans, rather than a supplement.”
If the Department of Education doesn’t need a grace period on implementing the new federal loan interest rates, Asher argued, private lenders shouldn’t need any extra time to provide honest disclosure.
In fact, they have shown some pretty serious chutzpah by even asking for such an extension.
— Jim Lardner