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Private student loans and the CFPB report a reaction
NEW YORK (7/24/12)--The Consumer Financial Protection Bureau's (CFPB) report on improving private student lending is an "accurate, historical view of the industry prior to 2007" and its recommendations are "widely in practice now," says  Vince Passione, CEO of Fynanz, which powers the CUStudentLoans.org website.

Fynanz is a CUNA Strategic Services provider.

The CFPB report said Congress could revise the Truth in Lending Act to clarify the definition of "private student loans" to improve the market for students, families, schools and financial institutions. The report found loosened lending standards between 2005 and 2007 made private student loans risky for many consumers and led to many students borrowing more than they needed to finance their educational expenses.  CFPB is recommending full transparency in private student lending, with the loans 100% certified by the schools.

Prior to 2007, there were lax underwriting standards by some lenders, schools were not actively involved in the lending process and career preparatory schools were not ensuring students could find employment after school, Passione told News Now.  As a result many students and their parents ended up with extensive student loan debt.  "But the industry has learned from it."

"In post-2007, industry regulations and pressures on the industry shifted," he said noting that loan volume has gone down--from a $23 billion student loan industry to $11 billion and then $6 billion as all lenders tightened their underwriting standards.

Fynanz launched its private lending program, Credit Union Student Loans, in 2009 and the 215 credit unions it works with have incorporated these lessons, working with schools and with families and educating students about the student lending process so they don't go into excessive debt.  The CUStudentLoans.org website is one example of the financial education aspect of private student lending.

"The [school certification] concept is very important, and as far as our program, it's already being done. The defaults are very low, Passione said.

"The school certification is highly recommended and is widely in practice now,"  he told News Now.  "That is a good thing," he said, because "there is a need for these loans, which make up for the significant gap" between the coverage by federal loans and the actual cost of the education.

"The average cost is $34,000 per year. Even if you maximize Stafford loans, and have government involvement, families still need the ability to finance the gap," Passione said.

Of the 150 credit union lenders Fynanz works with and the 50 who do their own private student loans, all these are 100% certified by the schools and it helps ensure that the student has exhausted all the federal avenues before tapping into a private loan.

It will be important to process lending electronically to track the financial aid.  "If you have a scholarship that's $10,000, a Pell grant of $5,500 and an unsubsidized Stafford loan, and the student is applying for too big of a private student loan, the school must go back and tell the lender that the loan is too high." It gives the student full transparency, he added.

"There is a need for these loans," said Passione. "If they are done correctly, they are good for the student, good for the school, and good for the lending institutions."
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