What similarities do you see between the student loan industry and the auto industry?
Both industries display nostalgia for their traditional business model and a claim on government to help preserve that business model, even though the economic environment has profoundly changed.
How might the student loan industry benefit from a stronger focus on the higher education industry that it serves?
The student loan industry is evidently not seen as a partner by members of the higher education industry. That's surprising to me.
I don't see how higher education can continue to do what it has done without the support of a healthy private student loan industry. Instead of a partnership, there's actually evidence of tension, a tension that resonates between the appearance of high prices and high interest rates.
Might a new product or two emerge from a change of lender viewpoint?
In a changing market environment, one expects to see new products. A new product that comes to mind is one that stimulates the end-user of higher education—the employer—to play a role in student loan repayment. We may also see more schools financing their students' educations directly.
What's in store for lenders, borrowers and colleges from the Federal Reserve?
First, more regulation. Second, more capital market intitiatives. The Truth In Lending requirements for student loans are being amended for a summer deadline. The Fed may also be thinking about UDAP (unfair and deceptive acts or practices) rules. Having recently issued new UDAP-based credit card rules in December, I suspect the Fed will apply their UDAP authority to student loans.
What limit exists on Andrew Cuomo's regulation of student loans?
None of his investigations were ever reviewed by a court, because none of the companies he challenged chose to defend. So we don’t really know. One could expect a state court to give an attorney general a wide field of action. On the other hand, all courts set limits. If a court were to set limits, one such might be geographical. Another might be a requirement to produce an injured party—a consumer with a legitimate damage claim or fraud complaint. Another limit might show up in money settlements. They would be negotiated in a courtroom setting. They would likely be paid to consumers rather than the prosecuting attorney.
What do you think is the rationale for Cuomo's vigorous enforcement activities?
It’s my impression that Mr. Cuomo believes education finance should be regulated in a manner similar to housing finance. Before he became New York’s attorney general, Mr. Cuomo was the U.S. secretary of Housing and Urban Development (HUD). Houses and college admissions are purchases that consumers don’t make very often. So the sellers are repeat players, while the consumer is not, and consequently the consumer may be at a disadvantage. In both industries there are deals and arrangements between parties on the selling side that are not necessarily disclosed to consumers. For example, in the housing industry the RESPA statute has prevented the payment of referral fees since the 1970s. The Community Reinvestment ACT has prohibited red-lining neighborhoods by mortgage lenders since 1977. Both are paradigms that may influence Mr. Cuomo’s enforcement of student loans.
What facts should Mr. Cuomo himself divulge?
How has he used the 13-15 million dollars in settlement money he’s received so far? And how does he plan to use what’s left? Now that there are new federal laws that regulate marketing practices and consumer disclosures in student lending, will he perhaps stand down?
How much longer do you think student loan borrowers will be barred from discharging their loans in bankruptcy?
It depends on whether we see a major revision to the bankruptcy laws. If we do, we’ll likely see an elimination or modification of those non-dischargeability provisions.
