(Washington, DC)  Today, the House of Representatives voted to approve of Congressman John Yarmuth’s (KY-3) legislation that protects students from unscrupulous lenders who exploit them. 

The measure targets lenders who buy their way on to universities’ “preferred lenders” list by lavishing the administrations with gifts ranging from software to vacations in the Caribbean.  Once the lenders acquire their preferred status, the universities recommend them to students in need of private financial aid—an area which lent $17 billion last year alone. 

The lenders in question then charge the students interest as high as 19%, frequently crippling the finances of the students long after graduation.  By contrast, federal student loans are repaid at a rate of 6.8%.  Congressman Yarmuth co-sponsored HR 5, which has passed the House and will lower that rate to 3.4% over the next five years.

“For the thousands of students who graduate from our high schools each year and attend schools away from home, their must be safeguards against university administrators who abuse the trust of their students and our children,” Yarmuth said.  He went on to add, “We are fortunate in Louisville to have universities that have consistently acted ethically and in the best interests of its students.”

The measure will take the following actions to expose and prevent further abuses by universities and lenders:

• Ban lenders from offering gifts worth more than $10 to college employees, including travel, lodging, entertainment, and in-kind services that lenders provide to college financial aid offices;
• Require full disclosure of special arrangements that lenders and institutions of higher education have to offer loan products at the institution;
• Require full disclosure of the reasons why an institution of higher education has selected a lender for its “preferred lender” list, including any special arrangements the lender has with the school;
• Encourage borrowers to maximize their borrowing through the government’s loan programs before taking out alternative loans and direct-to-consumer loans with higher interest rates.

Yarmuth introduced the legislation with Reps. George Miller (CA-7), Ruben Hinojosa (TX-15), Tim Bishop (NY-1), and Joe Courtney (CT-2).  H.R. 890 was approved by a vote of 414-3 and now heads to the Senate for further consideration.