Lead by its newly appointed director, Richard Cordray, the Consumer Financial
Protection Bureau is turning up the heat on nontraditional lenders to students
at for-profit colleges and trade schools that have high rates of default.
Cordray drew a parallel between the practices employed by some private, non-bank
student loans to those of the subprime mortgage lending business that lead to
the housing collapse. "We're seeing some of the schools anticipating as much as
a 50 percent default rate on their students, yet they're making those loans
anyway," he said. In November, the CFPB and the Education Department issued a
joint request for information from consumers on the private student loan market.
But Cordray said the bureau already has seen evidence of problems in the market.
"One of the things we see and have seen is lenders who market loans for
borrowers knowing that those borrowers are unlikely to be able to pay those
loans," the director said. The Association of Private Sector Colleges and
Universities said the claims are "not substantiated."