Student Loans: Reeling in the College Bound

Erich Dash:

Mr. Meyers’s student-lending niche has exploded into something of the norm as the cost of a college education has skyrocketed. And the company he helped to found 16 years ago, First Marblehead, is now one of the biggest in a $20 billion industry that occupies one of the most lucrative segments of consumer lending.

But such growth — as well as the fact that debt levels for newly minted graduates have more than doubled over the last decade — has drawn the scrutiny of Congress and regulators. Andrew M. Cuomo, the New York State attorney general, has helped expose financial ties between some lenders and colleges — including kickbacks to financial aid officers — that put their own interests ahead of those of students. (First Marblehead was not one of the companies implicated.)

The student loan industry could be in for more jolts. Policy makers and regulators say that there are dangerous parallels between the private student loan and subprime mortgage markets. In both, there have been phenomenal profits, aggressive marketing and, until the recent credit market turmoil, a healthy appetite from Wall Street investors.

And, as was seen in the subprime market, many student loans that were made in the last couple of years are resetting at much higher rates.

Posted by Jim Zellmer at September 4, 2007 12:00 AM
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