Students could face new loan regulations after the House of Representatives voted Dec. 11 to increase borrowing restrictions, an effort to curb rising student debt rates.
If passed by the Senate, the Wall Street Reform and Consumer Protection Act would create the Consumer Financial Protection Agency, a watchdog organization meant to protect students from predatory private loans by enforcing heightened verification laws.
Private loans offer a greater degree of flexibility than federal loans, but also have interest rates that can reach up to 18 percent and high repayment fees.
In the 2007-08 academic year, students took out $17 billion in private loans — an increase of 592 percent from 10 years earlier.
Under the new verification laws, all private lending organizations would be required to verify the enrollment status of potential student borrowers and determine whether they are still eligible for federal loans. Students would be required to attend a financial-aid counseling session prior to taking out a private loan and learn all the other options available to them.
“The act is designed to benefit any consumer and any student and protect them from deceptive tactics,” said Angela Peoples, legislative director of the United States Student Association.
Peoples said the provision ensures that students are fully aware of federal loan options, considering as many as 64 percent of students who are eligible for federal loans take out private ones instead.
“Since [students] don’t have to come to the office, sometimes [they’ll] take out a loan before they realize that they are eligible for federal loans,” Peoples said. “We are trying to create educated and well-protected consumers.”
“We support having the school certify the student’s eligibility for a private loan,” Klein said in a statement. “This would ensure that the student has an opportunity to utilize other financial aid available before taking the private loan, as well as not overstating the amount the student may need to borrow.”
The bill also requires that loans not exceed the cost of attendance. Peoples said that this requirement is meant to curb rising student debt.
In the 2008-2009 school year, 700 students at UCSD took out $7 million in private loans. According to Klein, these numbers are relatively small because 65 percent of undergraduates received a total of $236 million in financial aid last year.
According to Peoples’, the bill’s passage is a top priority for the Obama Administration and Senator Christopher Dodd (D-Connecticut).
Readers can contact Sarah Smith at [email protected].
