Study: Private student loans parallel subprime

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by Associated Press

WHAS11.com

Posted on July 20, 2012 at 10:10 AM

WASHINGTON (AP) -- A government study says risky lending caused student loan debt to balloon in the past decade, leaving many Americans struggling to pay off loans that they can't afford.

A study being released Friday says private lenders made loans without considering whether the borrower could repay. It says lenders bundled and resold loans so that they would not lose money when students defaulted. Similar practices inflated the subprime mortgage bubble, which was at the heart of the 2008 financial crisis.

The study says private student lending spiked from $5 billion in 2001 to more than $20 billion in 2008. It shrank quickly as lending standards tightened after the crisis hit. The study is being released jointly by the Consumer Financial Protection Bureau and the Department of Education.

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