Wall Street Reform and Student Loans

Like many pieces of major legislation, the financial reform measure on which Congressional negotiators reached final agreement late last week satisfies no one entirely. Some consumer advocates and others who had pushed the Obama administration to try to radically alter the way Wall Street and financial institutions operate complain that the bill falls short of the transformative changes they had sought, depending instead on tougher regulation; banks and other lenders, meanwhile, argue that the changes would let the government, and its new regulatory powers, intrude too far into their business.

The financial reform measure, which is expected to come to a final vote in Congress this week, has significant implications for the student loan industry, and the shape of the bill’s impact on lending largely mirrors the pattern above. Advocates for students heralded the legislation as a major advance in oversight of non-federal, or private, student loans, to which families and students have increasingly turned in recent years to fill the gap between federal, state and institutional financial aid and the rapidly increasing full cost of attendance at many colleges.

The most significant change won by supporters of greater oversight for private loans was the decision by lawmakers to give the newly created Consumer Financial Protection Bureau authority over virtually all types of non-federal student loans, including those that for-profit colleges make to their own students. (Those colleges had pushed to have such loans excluded, arguing that the loans — like all alternative student loans — are already covered under the existing Truth in Lending Act, which Congress toughened in 2008.) The legislation would give the Consumer Financial Protection Bureau supervision over loans made by all non-banks, and by banks with more than $10 billion in assets.

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