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Student loans similar to subprime crisis, says new report

The report outlines how the student loan market expanded from $5 billion in 2001 to more than $20 billion in 2008, finally contracting slightly during the financial crisis.

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Director of the Consumer Financial Protection Bureau Richard Cordray testifies during a hearing before the House Financial Services Committee March 29, 2012. (Alex Wong/Getty Images)

Student loans parallel the boom and bust of the subprime crisis, says a new report by the Consumer Financial Protection Bureau (CFPB).

The report outlines how the student loan market expanded from $5 billion in 2001 to more than $20 billion in 2008, finally contracting slightly during the financial crisis.

The report shows that also like subprime mortgages, loans were given out aggresively with little underwriting, and high-risk terms that were not well understood.

“Our findings reveal that students were yet another group of consumers that were hurt by the boom and bust of the financial crisis,” said Richard Cordray, director of of the Consumer Financial Protection Bureau (CFPB), according to the Christian Science Monitor.

According to Businessweek, lenders lowered minimum credit scores to sell more loans, while marketing them directly to students without scrutiny from financial aid offices which could have advised students.

More from GlobalPost: Americans owe more for student loans than cars, credit cards

The report found that many of those loans were given with little option of altering repayment plans or forebearance.

Shockingly, reported the Associated Press, 850,000 private student loans are in default - a number that represents $8.1 billion.

"Too many student loan borrowers are struggling to pay off private student loans that they did not understand and cannot afford," said Cordray, reported Newser.

On top of that, declaring bankruptcy is next to impossible for students.

The CFPB said that bankruptcy options, as well as better regulation of the loan market should be a key priority of Congress.

Yet, the crisis itself may be changing things faster than regulation could.

With less money in the system, banks are making lending more stringent, forcing nearly 90 percent of students to have a co-signer, versus 67 percent in 2008, said the Associated Press.

http://www.globalpost.com/dispatch/news/business/120720/student-loans-similar-subprime-crisis-says-new-report