A Congressional panel voted today to expand federal oversight over private student loans, but refused to clarify that institutional "gap loans" would be covered.
By a vote of 33 to 35, the U.S. House of Representatives Financial Services Committee rejected an amendment to legislation (HR 3126) to create a new Consumer Financial Protection Agency that would have put loans made by for-profit institutions under the agency’s purview. Consumer advocates have warned that the loans, called gap loans because they cover the difference between federal aid and the cost of college, could be exempt under language that was added to the bill to protect small businesses.
"I believe we have an obligation to ensure that these schools are not allowed to continue to prey on students," said Rep. Maxine Waters, a Democrat of California, the amendment’s sponsor, in prepared remarks. "By subjecting these schools to CFPA’s authority, the quality of the student loans these schools provide will improve."
For-profit institutions had urged lawmakers to reject the amendment, arguing that their loans already would be regulated under new "Truth in Lending" rules that take effect in February. They asked lawmakers to wait and see if the new rules worked before adding a new layer of oversight.
"This is a clear case of a solution in search of a problem," said Harris N. Miller, president of the Career College Association. "Our schools should not be saddled with additional compliance requirements simply because they are attempting to help those in financial need get the education necessary to build better, more succesful lives."
Before approving the overall legislation, on a vote of 39 to 29, the committee also rejected an amendment by Rep. Tom Price, a Republican of Georgia, that would have exempted all student-loan providers from the agency’s oversight.