According to a new study published this week by the nonpartisan research and policy center Demos, the U.S. Public Interest Research Group (US PIRG), and the United States Students Association, a loophole in the proposed Consumer Financial Protection Agency legislation exposes these students and grads to growing risk.
The study finds that 67 percent of the U.S. bachelor?s degree graduates last year had student debt, averaging about $23,200 per indebted student. While most of that debt is in safer, lower-interest federal loans, a significant amount is in private loans that can carry interest rates of over 18 percent. It also shows that nearly 3 million American students took out private loans last year, up from less than 1 million just four years before.
Demos and PIRG also published six additional state briefing papers on the private loan markets in California, Colorado, Connecticut, Indiana, Massachusetts, and Montana.
?For many student borrowers, taking out a private loan for college is almost like charging tuition on a high-interest credit card,? said Heather McGhee, Director of Demos? Washington, DC Office and author of the study. ?And like credit cards, private loans carry costly penalties and fees and are marketed heavily to students regardless of need, resulting in unnecessary and damaging levels of expensive debt that can strain young adults? finances well into adulthood .?
Protection needed
The three groups have called on Congress to pass a strong Consumer Financial Protection Agency with the power to protect young borrowers from unfair and deceptive private student loan practices. The groups say a strong CFPA would allow millions of young Americans to finish school with lower debt burdens, enabling them to invest in their futures instead of owing thousands each year to private lenders.
?Americans overwhelmingly support a strong CFPA that can, like the FDA does for drugs and the Consumer Product Safety Commission does for toys and electronics, keep us safe from toxic financial products,? said McGhee.
The report points out, however, that a loophole in the House CFPA bill could allow certain colleges?those that are run on a profit basis?to make private loans to students without abiding by the CFPA?s consumer protections. That leaves over two million students who attend for-profit schools vulnerable to abusive loans, the groups maintain.
The groups' study says for-profit college students are already burdened with the highest average debt loads in the nation, at $32,650 nationwide, versus $22,380 for private non-profits and just $17,700 for public colleges.
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