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From Inside Higher Ed:

In a sweeping study of the private student lending market released today, a new federal consumer protection agency compares private loans to subprime mortgages and urges Congress to consider letting borrowers discharge such loans in bankruptcy.
The study, months in the making, touched a nerve as the Consumer Financial Protection Bureau began gathering information about private loans and concern grew about student debt. Almost 2,000 people — borrowers and their family members, as well as representatives of banks, research groups and higher education organizations — wrote in to describe their experiences with student loans and to urge the bureau to act.

The result was a report examining the varied private student loan market, which makes up less than 15 percent of all outstanding student debt but is often criticized because its loans offer fewer protections than their federal counterparts. The consumer protection bureau found that loans made just before the financial crisis were among the riskiest, made to students with low credit scores and often without co-signers or involvement from their colleges’ financial aid offices. A majority of those students had not exhausted their federal borrowing options beforehand.

“Our findings reveal that students were yet another group of consumers that were hurt by the boom and bust of the financial crisis,” Richard Cordray, the bureau’s director, said in a conference call with reporters Thursday afternoon. “Too many student loan borrowers were given loans they could not afford and sometimes for more money than they needed. They are now overwhelmed by debt and regret the decisions they made.”

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Between 2005 and 2008, private student lending boomed, increasing from about $7 billion to over $20 billion in 2008. At its peak, private lenders made loans to students with low credit scores and no co-signers, often allowing borrowers to take out loans that far exceeded the cost of attendance at their colleges.

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