Gs4 Security: Student Loan

Tuesday 18 December 2012

Student Loan

The default total has risen over the last decade because of industry practices that are similar to those that led to the subprime housing collapse. A large portion of the student loan boom that took place from 2005 to 2008 was financed by Asset-Backed Securities (ABS), and because more money could be made off such loans, lenders became more aggressive in their lending practices. Increased profits gave lenders “an incentive to increase loan volumes” with “less incentive to assure the creditworthiness of those loans.” Lenders relaxed their lending requirements, lowering the minimum credit score required to secure a loan.The lenders also created new ways to reach students by bypassing school financial aid offices and going straight to customers through direct marketing, which “couldsimultaneously increase the number of borrowers and the amount each one borrowed,” the report found.