The Subprime Crisis of Student Debt

Today, however, Ms. Munna, a 26-year-old graduate of New York University, has nearly $100,000 in student loan debt from her four years in college, and affording the full monthly payments would be a struggle. For much of the time since her 2005 graduation, she’s been enrolled in night school, which allows her to defer loan payments.

This is not a long-term solution, because the interest on the loans continues to pile up. So in an eerie echo of the mortgage crisis, tens of thousands of people like Ms. Munna are facing a reckoning. They and their families made borrowing decisions based more on emotion than reason, much as subprime borrowers assumed the value of their houses would always go up.

Meanwhile, universities like N.Y.U. enrolled students without asking many questions about whether they could afford a $50,000 annual bill. Then the colleges introduced the students to lenders who underwrote big loans without any idea of what the students might earn someday — just like the mortgage lenders who didn’t ask borrowers to verify their incomes.

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The Project on Student Debt, a research and advocacy organization in Oakland, Calif., used federal data to estimate that 206,000 people graduated from college (including many from for-profit universities) with more than $40,000 in student loan debt in that same period. That’s a ninefold increase over the number of people in 1996, using 2008 dollars.

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But what was Citi thinking, handing over $40,000 to an undergraduate who had already amassed debt well into the five figures? This was, in effect, a “no doc” or at least a “low doc” subprime mortgage loan.

http://www.nytimes.com/2010/05/29/your-money/student-loans/29money.html?hp

Even if it causes lending to tighten up. That would be a good thing too.

I believe it was good old Reagan that stopped it.

:kick:

That is what is strongly inferred here.

Or at least those who can demonstrate an ability to pay the money back.

Let's be serious here, taking out a $150,000 in loans to get a degree in philosophy from a middling regional state school may not be the best risk to take.

but if that student is realistic enough to know that middle management is the goal and not writing treatises for the delight and edification of other philosophy grads, then that loan has a good chance of being repaid.

Or would have, if the banks hadn't fouled everything up by letting the crooks set up shop as soon as regulation was lifted.