Another Hint of Student Loan Troubles?

One blogger points out a potential problem of lenders' dependence on technology.

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There's growing evidence that some student lenders were as overly enthusiastic as some mortgage lenders in the recent past. A revealing blog post by an employee of a company that makes private educational loans documents how lenders' dependence on Internet applications and computerized processing might have made it too easy for students to borrow too much.

Christopher Penn of the Student Loan Network says he dissuaded a potential commission-paying client from taking out $50,000 in student loans because Penn realized what he believes predictive software programs couldn't—that the student was probably paying too much for courses that were unlikely to increase his earning power enough to cover the $500-a-month loan payments.

Similar concerns about the industry were voiced last month by federal fraud investigators in Seattle. They charged that a ring of women who allegedly borrowed nearly three-quarters of a million dollars in fraudulent student loans took advantage of student lenders who were overeager and overly reliant on technology.

The credit crunch has forced many lenders to pull back and refuse loans to students they believe to be bad risks. It will take years to see if lenders have modified their software and lending rules too much, enough, or too little.


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