A new report finds startling similarities between the private student loan crisis and the subprime mortgage crisis, which many economists believe triggered the greatest economic collapse since the Great Depression.
The report was issued by the Consumer Financial Protection Bureau, a new federal watchdog agency created by the Obama administration that focuses, to some extent, on student loans. As I’ve blogged about frequently, private student loans stink because they do not have the protections or assistance programs that are available for federal student loans. The private student loan industry has glaring similarities to the pre-recession subprime mortgage market: widely available and easy-to-get loans, bare minimum credit checks, and variable interest rates that can become crippling.
But the report also found some additional similarities, including remarkably unhelpful customer service systems, few options for borrowers facing financial hardship, arbitrary fees, and hidden or difficult-to-understand terms and conditions. None of this comes as a surprise to many private student loan borrowers, nor is it particularly surprising that this has led approximately 850,000 private student loan borrowers to default on at least $8 billion of private student loan debt. But the similarities to the subprime mortgage crisis are unnerving, to say the least, and one has to wonder if this will lead to another economic collapse.