HOW DODD-FRANK DISTORTS THE FACTS ABOUT COLLEGE STUDENTS LOANS
Last month, the Consumer Financial Protection Bureau – a rogue creation of Dodd-Frank – released the first annual report from its private student loan "ombudsman." And boy, does the report illustrate how far off the rails government has gotten.
Start with the focus: private student loans. These and for-profit colleges have gotten huge, damning attention from Washington – and much of the higher ed commentariat – over the last few years. But even if they were true devil’s spawn, private loans are absolutely not the main problems in higher ed.
Even at their very brief peak in 2007-08, private student loans constituted only 12.5 percent of total student aid. In 2011-12 they were just 2.6 percent. The vast majority of funds have always come from other sources, first and foremost the federal government. Yes, it is primarily "aid" from Washington that lets colleges raise their prices with impunity, and enables students to take on substantial debt for often less-than-substantial studies.
Government, not private lending, is the Lex Luthor here. But to be fair, private lending is the CFPB’s bailiwick, so you can’t blame the agency for putting out the report. You can sure as heck, though, blame politicians for creating a bureau whose job seems simply to be pointing fingers at private companies.
You can also blame the CFPB for the content of its report, which is simply a summary of complaints the bureau has received from disgruntled borrowers. Fairly early on it even states that "the report does not attempt to present a statistically significant picture of issues faced by borrowers" (as if its findings are empirical at all). Unfortunately, it goes on to say that the report "can help to illustrate where there is a mismatch between borrower expectations and actual service delivered."
Actually, no it can’t. At least not reliably. All it can tell you is what people complained to the CFPB about. It can’t tell you if the complaints had bases in fact. It can’t tell you if complaint-lodgers were really just motivated by a desire not to pay. And it can’t tell you what the lenders’ sides of the stories are.
Okay, it probably could do the last thing, but it seems the ombudsman chose not to. There is not an ounce of response from any lender to the anecdotes that essentially are this report. In other words, the report seems to be doing exactly what the bureau’s opponents feared CFPB would do: functioning as an unaccountable propaganda machine against private companies. And don’t be surprised to hear this report invoked repeatedly by Sen. Tom Harkin (D-IA) and other profit-haranguers as damning proof that private student lenders are out of control.
Sadly, the prominent role of government in student lending is ignored even when it is obvious from data on private lending. As one table shows, 46 percent of complaints received were about loans connected to Sallie Mae, and 12 percent about loans from American Education Services, an offshoot of the Pennsylvania Higher Education Assistance Agency (PHEAA).
Sallie Mae, of course, is the student-loan cousin of Fannie Mae and Freddie Mac, the federal creations at the heart of bad mortgage lending. And PHEAA? "Created in 1963 by the Pennsylvania General Assembly, PHEAA has evolved into one of the nation's leading student aid organizations."
Yup, more than half of the complaints about ostensibly private lending were really about government-created lenders. But don’t expect to find even a footnote in the report hinting that government might be the real problem.
It’s hard not to conclude that the major goal of the CFPB is to bash private companies, and in so doing justify more and more government control of the economy. If that’s the case, and if this report is any indication, then the CFPB is doing its job. Too bad that job serves the public so poorly.