The nation’s biggest subprime student lender–your federal government!—has just called out private “subprime” lenders.
This morning the Consumer Financial Protection Bureau and U.S. Department of Education released a report examining private student loans. It concludes that private lenders were out of control, just like all of Wall Street, before the “Great Recession” hit, a fact largely evidenced by high default rates. It was, the report argues, a part of the overall subprime lending debacle and it hurt innocent students.
“Subprime-style lending went to college and now students are paying the price,” said U.S. Education Secretary Arne Duncan in a release accompanying the report.
What’s the report’s solution to the problem? Push people into federal loans to the maximum extent possible. After all, those loans have low, taxpayer-backed interest rates; generous repayment terms, including speedy forgiveness for anyone going into “public service”; and essentially no requirement that borrowers offer evidence of creditworthiness.
Wait—essentially no evidence of creditworthiness? Isn’t that subprime lending in its very purest form? Indeed it is, which is perhaps why the report offers no comparison of default rates on private and federal loans.
Basically, the report is pushing for even greater subprime lending, only with taxpayers on the hook rather than voluntary investors.