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Feds to focus on student loans

By Steve Bucci ·
Monday, December 16, 2013
Posted: 4 pm ET

In a few months, federal officials will take an in-depth look at the seven of the largest student loan companies. The action stems from concern by the Consumer Financial Protection Bureau that students are being gouged by hefty late fees and little to no credit for those who pay off loans early.

It makes sense that the government is making this move now. From the end of 2011 to May 2013, total student loan debt grew by 20 percent, and the amount held or guaranteed by the federal government has swelled to more than $1 trillion. But I believe the regulatory process should start earlier.

Student loans begin with America's colleges and universities, and the regulatory spotlight should be expanded to include them. Investigators should look for colleges and universities that oversell and underdisclose the costs and risks of their products to unsuitable purchasers.

There's already some justification for a move like this. The CARD Act protects students from accessing credit cards, so it would make sense that they should also be protected from taking out loans for tens of thousands of dollars.

Besides the added regulation, I think college students should be educated about the responsibilities associated with taking on debt. They need to be told exactly what their monthly and total loan payments will be after they graduate. They need to understand the risks associated with carrying this debt. And they need to understand that if they fail to complete their education for any reason, they will still need to make loan payments.

Adequate disclosure of risks and suitability standards have been bedrock requirements before any investment can be sold to anyone. Selling an investment in a college education should have the same protections.

What do you think?

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