WASHINGTON — Student advocacy groups are urging the Treasury Department to prevent a new $200 billion consumer-lending program from benefiting private student lenders, which they say are largely unregulated and prey on students with risky, high-interest loans.
The program, announced this week and developed by the Treasury and Federal Reserve, is not aimed specifically at the student loan market. Its much broader goal is to encourage lending to consumers — including car loans and credit cards — as well as help the financial system by increasing liquidity in the credit markets.
But groups including Consumers Union, the nonprofit group that publishes Consumer Reports magazine, and the American Association of Collegiate Registrars and Admissions Officers say the money will also help prop up private student-loan providers, which often offer high and variable interest rates but not the consumer protections guaranteed under the federal government’s loan programs.
Private student loans, which were a primary focus of a nationwide conflict-of-interest scandal last year, are the fastest-growing segment of the $85 billion-a-year student loan market.
“A bailout for the providers of usurious private student loans will not solve the college affordability crisis caused by the failing economy, and would actually be detrimental to many students and consumers,” nine advocacy groups wrote in a letter sent last week to Treasury Secretary Henry Paulson, after he signaled that the department was developing the program.
The plan’s impact on student lending highlights the potential unintended consequences from the enormous bailout program.
Michelle Smith, a spokeswoman for the Federal Reserve, said the formulators of the program were solely concerned with trying to salvage the economy, not with broader discussions of the government’s approach to student loan policy.
Lending industry officials hailed the new lending plan as a critical step toward ensuring that the private student loan market does not collapse.
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