Recent Federal Student Loans Look A Lot Like Subprime Mortgages

Federal student loans made in recent years resemble the toxic subprime mortgage loans that helped cause the Great Recession, new data show.

Rather than paying down their balances after leaving school, borrowers with recent federal student loans are experiencing an increase in debt as they fail to make enough payments to offset the accumulating interest on their loans.

The situation parallels subprime mortgages before the financial crisis, when lenders gave borrowers loans they couldn’t afford by allowing them to make payments that didn’t actually reduce their balances.

But while borrowers with toxic subprime loans largely defaulted and lost their homes as their lenders recorded losses, borrowers with federal student loans are likely to have their suffering drawn out for years thanks to a stagnant economy in which wages are barely rising, and existing law and Education Department practices that make it nearly impossible for struggling borrowers to discharge their debt in bankruptcy.

Read on.

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