Here are just a few notes from the National Consumer Law Center, Student Loan Law, 2013, 4th edition.Chapter 11 page 217
Private loans are also known as non traditional, private labels or alternative loans.
The private student loan industry grew throughout the 1990s and early 2000s. Much of the lending targeted low-income borrowers with subprime loans. Too many of these risky, high-cost loans were destined to fail and have been failing at astronomical rates, especially since the credit crisis began.
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In 2007-2008, private loan volume, including private sector and state-sponsored Loans, totaled $19 billion dollars up from $3 billion 10 years earlier.
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These loans are described as loans to borrowers that are expected to have a high default rate due to numerous factors, among them lower-tier credit rating or low program completion and graduation rates usually at “non-traditional schools.”
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Even when the borrower is expected to graduate, non-traditional loans (AKA private student loans) tend to go to Borrowers with low expected incomes relative to the cost of attendance. [meaning, the students targeted if their income is below the cost of school for one year.]
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In October 2008, Sallie Mae reported a loss of $159 million in the most recent quarter fueled by the acceleration of delinquent private loans.
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In early 2009, 39 lenders stopped making private student loans and simultaneously at this time proprietary schools began offering their own loan products.
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According to Sallie Mae, at the end of 2009, 18.6% of the company’s PSL had been charged off, compared to traditional loans at 3.2%. [ Charge off is when the debt cannot be collected, and is written off. Then sold to a third-party collector.]
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Sallie Mae executives noted in 2010 that, of the $6 billion in private student loans they had made, they projected 40% would default. [ They knew they would create a shadow market for debt collections. Debt collectors, lawsuits and forced collection through court ordered judgments leading to wage garnishment.]
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Many of the most expensive private student loans were made to Proprietary School students. which creates a whole other issue around raising school-related claims against lenders.
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2010 Fitch Ratings [used by investors and wall-street] predict that the private loan Market will remain most relevant for international graduate students with no access to Federal loans and undergraduate Borrowers whose parents cannot access Plus Loans.
SO! basically since the late 90’s. If you are not rich and want a college education, you are punished with student debt. And as the cost of higher education continues to rise… more and more students and families are forced into private student loans as a last resort, and sometimes even unknowingly.
Private Student Loan Debt is far too common and should be a massive red flag that the current system of Higher Education in America is beyond failure, it has become predatory. Something is VERY BROKEN. Now, in 2020, we know that private student debt has founds its way into all levels of education. Undergrad to Grad students have to consider these toxic loan program.
Enough already! We need to fight back. Too many families have already been affected and this type of debt can crush the future of an entire household.
