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FRIDAY BUZZ: Government Report Details Private Student Loan Debt Risk

July 20, 2012

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The Education Department and the federal Consumer Financial Protection Bureau (CFPB) released a report finding that private student loans, which make up $150 billion of the more than $1 trillion in outstanding student loan debt, are much riskier than federal student loans for both the student and the co-signer.

The report, mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, gives an overview of the private student loan market and makes recommendations for reform.

According to the report, 14 percent of all undergraduates use private student lending. More than 850,000 private loans are in default, cumulatively exceeding $8 billion. Private lenders also marketed more directly to students: Between 2005-2007, the percentage of private loans made without school involvement or need certification rose from 40 percent to upwards of 70 percent.

The report recommends requiring school certification of private loans to prevent unnecessary borrowing and risk, revisiting the harsh treatment of private loans in bankruptcy, and giving students a way to see the full picture of their student loan debt.

The CFPB also launched a new online tool designed specifically for student loan borrowers who are in distress. The Student Loan Debt Collection Assistant aims to help such borrowers better understand their options, communicate with servicers and debt collectors, and find ways out of default.

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