Colleges' Use Of 'Strong-Arm' Debt Collections Against Students Probed By Regulators

The U.S. Consumer Financial Protection Bureau (CFPB) said it will begin examining the operations of for-profit colleges that extend private loans directly to students in an effort to curb abuse where some students were subjected to high interest rates and strong-arm debt collection practices.

The regulator said that in addition to looking at general lending issues, “examiners will review the facts around certain actions only schools can take against their students.” Those actions specifically will focus on punitive practices such as restricting students from enrolling for class, withholding transcripts, accelerating payments, and failing to issue refunds for early withdrawal from a program.

The CFPB also said it will look into improper lending relationships that schools have with certain preferential lenders. Such a practice may pose risks to students who could potentially end up paying more for their loan, the bureau said.

Citing past predatory lending practices at institutions such as Corinthian College and ITT Educational Services, the CFPB said it is concerned about the borrower experience with institutional loans “where students were subjected to high interest rates and strong-arm debt collection practices,” It added that schools have not historically been subject to the same servicing and origination oversight as traditional lenders.

“Schools that offer students loans to attend their classes have a lot of power over their students’ education and financial future,” CFPB director Rohit Chopra, said in a statement. “It’s time to open up the books on institutional student lending to ensure all students with private student loans are not harmed by illegal practices.”

The CFPB pointed out that many lenders and institutions of higher education in the mid-2000s “were caught engaging in kickback arrangements that gave schools the incentive to steer students into certain loans.” But Congress rooted out certain practices by enacting reforms to student loan disclosures and giving the CFPB supervisory authority over private education lenders.