Today, Congressman Patrick Murphy's (D-PA, 8th District) legislation requiring certification for all private student loans passed the House of Representatives as an amendment to H.R. 4173, the Wall Street Reform and Consumer Protection Act of 2009. Requiring certification of private student loans is a vital step in extending critical consumer protections to college students, some of the most vulnerable borrowers.
The legislation is a common sense strategy to provide college students with all the information they need to make smart borrowing decisions. It requires private lenders to hold off on granting a private loan until the school has certified that the borrower is enrolled as a student, that the loan amount does not surpass the student's financial need, and that the school has consulted with the student about all private and federal loan options. This last piece is particularly important, as many students are not aware of their federal aid options, and still more do not exhaust their full aid eligibility. In fact, it has been reported that nearly 2 out of 3 students with private loans borrowed less than they could have in federal Stafford loans, and more than 1 out of 4 borrowers took out no Stafford loans at all.
Private loans are almost always more expensive than federal student loans, with rates reaching as high as 18%. This amendment will give students full knowledge of their options, allowing them and their families to make better choices, thereby greatly reducing their chances of incurring overwhelming long term debt.
"For too long, college students and their families have faced a mountain of debt after securing student loans without the best information available to them, and it compromises their futures," said Rep. Murphy. "This legislation takes a fundamental step toward protecting students and making sure loan options are as clear and straightforward as possible."
Congressman Murphy's legislation has been endorsed by 25 student, higher education, and consumer advocacy organizations, including the American Association of State Colleges and Universities, the Institute for College Access and Success, the NAACP, the National Association for College Admission Counseling, the National Association of Student Financial Aid Administrators, and the United States Student Association.
Congressman Murphy began advocating for stricter standards in loan certification after Lehigh Valley College, a for-profit institution in Pennsylvania, was found to be engaging in egregious practices such as pushing student loans with interest rates as high as 15%, misrepresentations leading to students' inability to transfer credits, tuition fees that were five to seven times higher than their community college counterparts, and the lack of quality in the education students received. Hundreds of students were left deeply in debt, and many were left without a completed degree or even a chance of transferring. Unfortunately, these actions are not limited to Lehigh Valley College, but are indicative of problems at many proprietary schools. Ultimately, Lehigh Valley College was shut down, subjected to investigation, and fined.