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Student loan company used deceptive practices, CFPB says: Tips for choosing a reputable lender

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The CFPB issued a consent order for one college financing company after ruling its ISA program was a form of consumer credit and must adhere to federal financial laws. (iStock)

The Consumer Financial Protection Bureau (CFPB) is cracking down on a student lender that provides an alternative college financing option known as an income share agreement (ISA), the bureau recently announced. An ISA is a college funding option that sets minimum payments based on your future salary. 

ISA provider Better Future Forward, Inc. (BFF) falsely represented that its products are not loans and has used this loophole to sidestep federal law. The CFPB is now requiring Better Future Forward to comply with federal protections and stop misleading borrowers. But considering that Better Future Forward demonstrated good faith and substantial cooperation, the bureau chose not to impose financial penalties. 

"The ISA industry has tried to evade oversight by claiming that its products are not loans."

- Statement from CFPB Acting Director Dave Uejio

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Uejio continued, "regardless of the name on the label, these products are credit and have to comply with federal consumer protections. The ISA industry cannot pretend that core consumer protection laws do not apply to their products."

Keep reading to learn how to choose a legitimate private student loan lender in light of the CFPB's action against ISA financing. You can browse student loan offers from reputable lenders on Credible's online loan marketplace, so you can get the best private student loan for your needs.

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How to find a reputable private student loan lender

Deciding how to pay for higher education can be a complicated process. Fortunately, there are plenty of traditional loan options to choose from — including federal student aid and private loans. Federal student loans are a good first choice when paying for college, and private student loans are a valuable way to bridge the financing gap if federal loans come up short.

Whereas federal student loans are offered by the government, private student loans are typically issued by a bank, online lender, credit union or some other type of financial institution. Here are a few ways to choose a trustworthy private lender:

  • See if your school's financial aid office offers a list of private lenders
  • Confirm that any potential lender works with your college of choice
  • Ask for a Truth-in-Lending Disclosure Statement (TIL Disclosure), which is required by federal law

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The TIL Disclosure is an overview of the loan's repayment terms, including the annual percentage rate (APR), finance charges as a dollar amount, and total payments, including interest charges. You can use a student loan calculator to estimate your monthly payment. 

If you're considering borrowing a private student loan, you should browse rates across multiple lenders to get the best rate possible for your situation. Visit Credible to see your private student loan options without impacting your credit score.

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3 red flags to avoid when borrowing money for college

The Truth in Lending Act (TILA) was introduced in 1968 as a way to provide federal oversight regarding consumer credit to help borrowers make informed financial transactions. Student loans were no exception. 

Under federal law, student loan lenders had to provide financial disclosures. They're also forbidden from charging unlawful prepayment penalties. Better Future Forward violated federal protections by:

  1. Falsely representing that ISAs are not loan products.
  2. Denying borrowers their financial disclosures.
  3. Charging fees for repaying their loans early.

When choosing a private student loan, any of the above violations are red flags that the lender may be engaging in misleading practices. 

You can compare offers from legitimate private student loan lenders on Credible. Some of their partner lenders include Sallie Mae, Citizens Bank and College Ave Student Loans.

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Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at moneyexpert@credible.com and your question might be answered by Credible in our Money Expert column.

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