The $1.4 trillion federal student debt market faces a huge issue — transparency

February 28, 2019

Source: Link

By Sheila C. Bair (Original source Yahoo Finance)

“When it comes to federal student lending, the bad news just keeps coming. Federal student debt now exceeds $1.4 trillion and fully half of that is not being repaid. More than one million student borrowers default each year.

Nearly 40% are expected to default by 2023. (For context, during the financial crisis and its aftermath, mortgage delinquencies and defaults peaked at 11.5%.) Much research and study have been devoted as to why so many student borrowers aren’t paying their loans. Part of the answer may be that they never fully understood they were borrowing because of misleading marketing.

Imagine that a bank offered to help you buy a car. Let’s say that the bank sent you a letter offering a variety of different types of “aid” without clearly specifying that some of the “aid” was in the form of a loan that you would have to repay. Let’s say that the bank also didn’t disclose to you the total amount you would have to borrow to get the car or the interest rate and other key terms of the loan before you committed to its offer. Would you take the deal?”

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