Today, the Obama administration offered us some very bad news and some very good news about the America’s student debt burden.
First, the bad news. Thanks in part to grossly loose lending standards during the last decade, the Consumer Financial Protection Bureau (CFPB) says the country is now sitting atop a $150 billion mound of private student loans, which lack the flexible repayment options of federal loans and tend to be more expensive to pay off. The government also found that at least $8.1 billion worth of private student debt issued between 1999 and 2011 had entered default. Loosely speaking, we had a subprime student loan boom.
Now the good news: Since the financial crisis, lenders such as Wells Fargo and Sallie Mae have become more responsible. They’ve tightened up their underwriting practices substantially and are now handing out fewer loans (as shown in the graph below) and picking more qualified borrowers.