Tuesday, October 23, 2012

Why Privatization Won't Solve the Student Loan Problem

Mitchell D. Weiss, an adjunct professor of finance at the University of Hartford, recently posted an interesting article concerning America's growing student loan crisis. I encourage you to read the entire article while can be found here. Posted below is an excerpt from the article detailing some of Professor Weiss's concerns.
Also consider the National Consumer Law Center’s May 2012 report, which determined, “…The Department (of Education) has created financial incentives for its contractors that encourage high collections at the expense of borrower rights.” The government paid out more than $1 billion to its nearly two-dozen loan-servicing subcontractors in 2011, some of whom were responsible for originating many of these loans in the first place and, according to the Consumer Financial Protection Bureau’s 2012 Annual Report, culpable for the frustrating “runarounds” and “dead-ends” student loan borrowers are experiencing today.
Furthermore, 2005 changes to the bankruptcy law granted private lenders protections equal to those enjoyed by the federal government. Perhaps this explains why private education loan balances nearly tripled in value between 2005 and 2011, according to another CFPB report.
The conclusions are obvious: the government has done a poor job managing its loan servicing policies and practices, the private sector (including lenders and contractors) has reaped outsized rewards, and a generation of poorly prepared borrowers is stuck with a trillion dollars-worth of debts they may never be able to repay in full.


  1. This happen to be the flaw with the securitization that lead to the toxic mortgage rates. Privitizing the student loans altogether will only lead to more red tape.

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  2. I agree of what you’ve said to your conclusion Nick. Government and private sectors must make some solutions in lowering some mortgage rates ma companies so that the borrower can pay their debt having its low interest rate.