Via The Chronicle:
The same kind of lending frenzy that created the subprime-mortgage crisis also fueled a dangerous boom in private student loans, says a report released on Friday by the Consumer Financial Protection Bureau and the U.S. Department of Education.
The rise in private student loans, which now account for about $150-billion of the more than $1-trillion in outstanding student debt, has left hundreds of thousands of borrowers stuck with bigger loans than they needed under repayment terms that are less flexible than those for federal loans, the report says.
Richard Cordray, the bureau's director, said the "aggressive lending" practices of the banks were "strikingly similar" to those of the mortgage industry during the same period. "Borrowers who took out loans at the height of the boom are still suffering from those excesses," he said on Thursday during a briefing for reporters.
The report says some of the demand was driven by investors who, as they did with mortgages, would buy the loans from the banks and then repackage and sell them as asset-backed securities. "With little skin in the game, many lenders employed risky practices like avoiding the school's financial-aid office and loosening underwriting standards," the report says. "Many borrowers accepted more money than they needed. The result: more borrowers and more debt."
Many of the 850,000 private loans that are now in default were issued in that period, bureau officials said...
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