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Forum Post: Student Loans Bear 'Uncanny Resemblance' to Subprime Crisis

Posted 2 years ago on Oct. 16, 2012, 5:39 p.m. EST by PeterKropotkin (1050) from Oakland, CA
This content is user submitted and not an official statement

Techniques currently used by student loan lenders bear an "uncanny resemblance" to those used by subprime mortgage lenders leading up to the subsequent housing bubble burst and financial crisis of 2008, according to a new report by the Consumer Financial Protection Bureau.

(Photo: Creative Commons License / thisisbossi / flickr) Students are facing impossible barriers in paying off their loans due to unexpected changes in steep rates and fees and, more specifically, the impossibility of getting help from their lenders who are increasingly aloof, unhelpful, and inaccessible.

As a result, students who took out student loans leading up to the 2008 crisis are showing high levels of default, "reflecting the risky lending practices at the time," Reuters reports Tuesday.

"Graduates don't have a fair chance to pay back their debts if they are faced with surprises, runarounds, and dead-ends by student loan servicers," said CFPB Director Richard Cordray.

“Student loan borrower stories of detours and dead ends with their servicers bear an uncanny resemblance to problematic practices uncovered in the mortgage servicing business,” CFPB student loan ombudsman Rohit Chopra said in a statement.

For the report, CFPB collected accounts of student struggle from a database of complaints opened to student loan borrowers on the website ConsumerFinance.gov. The data deals specifically with private student loans as opposed to federal student loans. Private student loans face less regulation than federal student loans, which provide more repayment options, fixed interest rates and a generally more accessible customer service system.

However, both federal and private student debt is damaging the livelihoods of students throughout the country. Total student debt has passed the $1 trillion mark this year, and nearly one in five American households are now strapped with student loans.

Governmental watchdogs and private firms have increasingly warned of a student loan bubble burst as the rate of default continues to rise.

Chopra called Tuesday's report an "early warning" in a system that needs to make serious changes.

http://www.commondreams.org/headline/2012/10/16-2

5 Comments

5 Comments


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[-] 3 points by beautifulworld (21328) 2 years ago

Not a good situation. Thanks for shining a light on it.

[-] 2 points by shadz66 (19985) 2 years ago

Important forum-post. Thanx 'PK' & true to form, good work ;-)

radix omnium malorum est cupiditas ...

[-] 1 points by Builder (4202) 2 years ago

Can students refinance their loans?

Current interest rates have never been lower.

Australians fought for the right to refinance their mortgages, and won it with government assistance. Lenders who tried to impose penalties for refinancing were prosecuted for their attempts.

One more reason why people need to come together to fight as a group, rather than succumbing to feelings of facing a corp alone, which is what they want you to feel.

Solidarity. It makes all the difference.

[-] 0 points by jph (2652) 2 years ago

Yes this is another sick and twisted bankster scam,. debt that not even bankruptcy will provide release from,. imagine that! and govt' BONDS are next! when interest rises as it must,. bonds will lose value,. what then?

[-] 0 points by 71353933 (85) 2 years ago

ufortunately the government wants their money back and are seeking their preferred private firms dogs to go after students......forever until loan are paid back

the root of the problem is at the university level.....where you can liken the value THEY place on an education as way out of whack with reailty ......just like housing prices were out of whack

thats because universities are run by borgeoise adminstrators and tenured professors who want their inflated retirements and escalating salaries guaranteed by your loans you take out for an inflated cost of a college education.