Private Student Loans: An analysis of the Consumer Financial Protection Bureau and Department of Education report on the Private Student Lending Industry

July 2012
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Private Student Loans: An analysis of the Consumer Financial Protection Bureau and Department of Education report on the Private Student Lending Industry

At a glance

This report highlights shortcomings in the practices of the Private Student Lending (PSL) industry leading up to the 2008 financial crisis and changes since then. PSL lenders are encouraged to focus on better underwriting, loss mitigation options, and increasing transparency.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) mandated that the Consumer Financial Protection Bureau (CFPB) and the Department of Education (DE) review and analyze the Private Student Loan (PSL) industry and submit a report to Congress on its findings.  On July 20, 2012, the CFPB and the DE unveiled this report.

Our attached point of view document summarizes and analyzes the key recommendations made within the report and highlights actions that PSL lenders should consider in relation to these recommendations. It also highlights broader challenges within the student lending market place including those within federal loan programs that are not covered by the CFPB report, and discusses the need for appropriate balance between oversight and the need for lenders to be able to realize a sufficient return in the market.

In summary, the report highlights a number of perceived shortcomings in the practices of the PSL industry leading up to the 2008 financial crisis; the changes that have occurred since then; and those that remain to be tackled. The report’s authors call for PSL lenders to focus on a number of areas going forward including:

  • Continuing to develop underwriting approaches to reflect the unique characteristics of student lending;
  • Identifying loss mitigation options to assist borrowers unable to meet their financial obligations; and
  • Increasing transparency to assist borrowers in making a financially prudent decision.

The report also draws attention to the 2005 bankruptcy code change that prevented financially burdened borrowers from including qualified education expenses in bankruptcy filings. The CFPB and the DE have requested that Congress review and potentially revise the code.

This point-of-view will help those in the private student lending industry and those related to it understand the contents of the report as well as provide an analysis of what the impacts of the report recommendations could be and how PwC can help you prepare for upcoming changes.