Student loans landing up in the pockets of unfortunate non-payers
This has been the case with thousands of borrowers having less or no idea about their chances to repay the borrowed amount. The past decade has seen the default numbers increasing with risky lending. As per reports, private lenders had hardly considered their chances of getting the loaned amount back from borrowers.
All that went in their minds was to resell the non-received amount to investors because the original lenders were in no mood to part with such large amounts for nothing. They feared losing on money and had urged upon investors to buy them.
It has being further noted that such situations were vitally associated with subprime lending. Sub prime lending is meant for students in their colleges and today a large number of the latter are actually found paying heavily for it.
However, the education secretary of the Consumer Financial Protection Bureau, Arne Duncan has reportedly shared views on the same saying that the Government should work closely to define laws entitling private student loan borrowers the same protection as those enjoyed by Federal borrowers.
Student loans primarily fall under the following categories:
- Loans granted by banks under Federal Government undertaking
- Loans granted by private financial institutions
Reports reveal that lending surged up from $5 billion in the year, 2001 to 20 billion in the year 2008. After the financial meltdown had struck the world, lending standards were made stringent and the market was found to come down to a meager $6 billion in the year 2011. However, reports reveal that even today, consumers owe $150 billion education debt to private lenders. Additionally, if the private lending is added with the Federal debts then, the sum comes to a massive $1 trillion.
As per the findings of a study observed on private and Federal lending, it has now come to the limelight that private borrowing showed riskier traits. Over multiple times, it has been found out that fluctuating interest rates of student debt had taken toll on the monthly payments, causing the latter to rise at an unexpected rate.
However Federal lending showed a positive picture for students because a miss out on the payments would mean reducing interest rates or postponing installments to make it more convenient for the education enthusiast.
The interest rates for Federal debt is mostly fixed in nature resulting in convenient payments; whereas, private lending cost heavy on their pockets. Today, a large number of students have been found to shift their interest towards Federal debts.
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