Are Private Student Loans the Next Subprime Mortgages?
Private student loans are booming, and a consumer-advocacy group has taken a critical look at those nonfederal loans, which now account for nearly one-quarter of all education loans. The outlook: a feeling of “sad déjà vu” when compared to the subprime-mortgage industry. In a report released today that outlined some of the dangers of private student loans, the National Consumer Law Center reviewed 28 private loans issued from 2001 to 2006. The group found all the loans to have variable rates, with initial annual percentage rates ranging from 5 percent to 19 percent. The average initial APR was 11.5 percent. The survey also found an average origination fee of 4.5 percent (the highest origination fee for a loan in the study was 9.9 percent). Federal direct loans now have an origination fee of 2.5 percent. The survey of the more than two dozen private loans found several other problems, the report says. A number of lenders in the study were unwilling to offer reasonable settlements, and s
