Subprime Students: How Wall Street Profits from the College Loan Mess

[marmar]

from the American Prospect:


Subprime Students: How Wall Street Profits from the College Loan Mess

Tamara Draut
November 16, 2012

The entire student loan pipeline—now the largest source of “aid”—is fueled, serviced, and collected by Wall Street.


Five years after Wall Street crashed the economy by irresponsibly securitizing and peddling mortgage debt, the financial industry is coming under growing scrutiny for its shady involvement in student loan debt.

For a host of reasons, including a major decline in public dollars for higher education, going to college today means borrowing—and all that borrowing has resulted in a growing and heavy hand for Wall Street in the lending, packaging, buying, servicing, and collection of student loans. Now, with $1 trillion of student loans currently outstanding, it’s becoming increasingly clear that many of the same problems found in the subprime mortgage market—rapacious and predatory lending practices, sloppy and inefficient customer service and aggressive debt collection practices—are also cropping up in the student loan industrial complex.

This similarity is especially striking in the market for private student loans—which currently make up $150 billion of the $1 trillion of existing student loans.

As detailed in a July 2012 report by the Consumer Financial Protection Bureau and Department of Education, private student loans mushroomed over the last decade, fueled by the very same forces that drove subprime mortgages through the roof: Wall Street’s seemingly endless appetite for new ways to make profit. In this case, investor demand for student loan asset backed securities (SLABS) resulted in private student lenders—primarily Sallie Mae, Citi, Wells Fargo, and the other big banks—to relax lending standards and aggressively begin marketing these loans directly to students. ................(more)

The complete piece is at: http://prospect.org/article/subprime-students-how-wall-street-profits-college-loan-mess

[lalalu]

1. It wasn't just wall street and the banks.

Universities, colleges, and trade schools were part of the collusion. They inflated costs and deliberately steered students to loans in stead of financial aid. They had cozy relationships with banks and received kickbacks. They even admitted it and faced zero penalties and charges. They just promised not to do it again.

http://www.pbs.org/newshour/bb/education/jan-june07/loans_04-10.html

http://education.newamerica.net/special_report_student_loan_scandal