The Treasury Department is looking at the rise of American student-loan debt and seeing worrying similarities to the U.S. housing-market bubble.
Deputy Secretary Sarah Bloom Raskin today voiced concern that education-loan borrowers could turn to repayment scams resembling mortgage-payment schemes from 2009 and 2010. Her remarks come a day after a Treasury committee report drew parallels between student-loan default risks and the mortgage market before housing collapsed starting in 2006.
“Millions of student-loan borrowers are in default on their student loans; many more could face default in the near future,” Raskin said today in Tampa, Florida, during her third public speech on student debt since becoming the Treasury’s No. 2 official in March. “I worry about the emergence of a student loan ‘debt relief’ industry.”
High default rates and delinquencies have been a focus for Raskin, in part because they may damage Americans’ creditworthiness and curtail their ability to invest in homes and businesses. They also create uncertainty for the Treasury, which finances about $100 billion of new student loans each year.
“To the extent the government doesn’t get repaid, that boosts Treasury borrowing needs,” Nancy Vanden Houten, a senior government policy analyst at Stone & McCarthy Research in Skillman, New Jersey, said in an e-mail. That is “ultimately a cost to taxpayers.”
About $100 billion of federal student loans are in default, 9 percent of outstanding balances, according to a Treasury Borrowing Advisory Committee update on student lending trends released yesterday.
The balance of student loans outstanding in the U.S. -- also including private loans without government guarantees -- swelled to $1.3 trillion as of the second quarter 2014, based on data released by the Federal Reserve on Oct. 7.