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Private student loan debt tops $150 billion


A new report from the Consumer Financial Protection Bureau (CFPB) revealed that Americans now owe more than $150 billion in private student loan debt, CNNMoney reported. 

Although private loans represent a small part of the total outstanding student loan debt in the country, which now exceeds $1 trillion, they have caused big financial problems for borrowers, according to the CFPB and the Department of Education.

Private student loans were aggressively marketed to students before the financial crisis and typically came with fewer protections such as flexible repayment options or deferment and forgiveness options, as well as higher interest rates than federal loans, the report found. According to the report, defaulted private loans currently total more than $8.1 billion and represent 850,000 individual loans.

“Too many student loan borrowers were given loans they could not afford and sometimes for more money than they needed,” CFPB Director Richard Cordray said on a call with reporters. “They are now overwhelmed by debt and regret the decisions they made.”

Before the financial crisis, private lenders “engaged in aggressive marketing and risky underwriting,” and often borrowers didn’t have good enough credit to qualify for the loans, Cordray said.

“After the financial markets crashed, some common-sense practices returned,” Cordray told reporters. “Without investors willing to buy risky loans, lenders were forced to care more about a borrower’s ability to repay.”

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An investigative report aired last night on Rock Center With Brian Williams featured Sen. Tom Harkin, chair of the Senate Health, Education, Labor and Pesions Committee, who spoke out against private lenders’ practices, and former Iowa Attorney General Bonnie Campbell, now a spokeswoman for Education Management Corp., the second-largest group of private colleges in the country, who defended her company’s practices.  

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