Student Loans A Lot Like The Subprime Mortgage Debacle, Watchdog Says Mike Calhoun rang the alarm bell early on about the subprime mortgage debacle — before reckless lending drove the economy into recession. These days, he's sounding the alarm about student loans.
NPR logo

Student Loans A Lot Like The Subprime Mortgage Debacle, Watchdog Says

  • Download
  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript
Student Loans A Lot Like The Subprime Mortgage Debacle, Watchdog Says

Student Loans A Lot Like The Subprime Mortgage Debacle, Watchdog Says

  • Download
  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript


Back before the housing market crashed more than a decade ago, a lending watchdog named Mike Calhoun sounded the alarm early on about reckless subprime loans.

MIKE CALHOUN: We projected over 2 million subprime mortgage foreclosures, and the response was we were ridiculed by the industry.

CORNISH: As we know now, Calhoun was right. The wave of foreclosures was even bigger than he predicted, and it drove the economy into the Great Recession. These days, Calhoun is warning about student loans, and he sees a lot of parallels. NPR's Chris Arnold reports.

CHRIS ARNOLD, BYLINE: Mike Calhoun is a man on a mission. He's flying around the country, warning state lawmakers and prosecutors, sharing his worries at conferences and with members of Congress. He's saying, just like with the housing crisis, student loans are given out without considering whether the borrower will be able to pay the money back.

CALHOUN: Once again, it's the mismatch between the debt and the borrower's income, their ability to repay.

ARNOLD: Calhoun's the president of the nonprofit Center for Responsible Lending, and he says the amount of money that people owe on student loans is growing very fast.

CALHOUN: Absolutely explosive growth in the amount of student debt. In about a dozen years, it's gone from $300 billion to now $1.6 trillion.

ARNOLD: This time around, it's the government making the vast majority of the loans. That's effectively turned the Education Department into the largest consumer lending bank in the country. And, Calhoun says, more and more people can't pay.

CALHOUN: Already in the student loan world, we are seeing default levels that approach what there was in the subprime mortgage world.

ARNOLD: Wearing a no-nonsense blue blazer with his gray mustache and spectacles, Calhoun could pass for a banker himself. But for decades, he has actually been keeping watch over the banks. In his office in Washington, Calhoun pulls up a slide at his computer monitor and shows me another parallel. In the subprime mortgage mess, minority groups were hit the hardest. And now...

CALHOUN: As we sit here and talk today, over a fifth of black college graduates are in default on their student loans because of the amount of debt they took on and the fact that they typically still earn less in the job market.

ARNOLD: Still, some people say talk of a student loan crisis is overblown. Mike McPherson is an economist and former college president who studies higher ed financing.

MIKE MCPHERSON: I think of a crisis as being a situation which is getting rapidly worse.

ARNOLD: And he says, actually, that's not what's happening with student loans. He says the total amount borrowed in new loans each year has been declining since the peak in 2010. And he says most people with a college or advanced degree, of course, are much better off financially, even if they have student loans. Also...

MCPHERSON: A lot of people borrow a small amount of money, so a third of all the people owe less than $10,000.

ARNOLD: Calhoun acknowledges that this time around, this is a different kind of lending debacle. It's not going to implode the banking system. But he says there are so many people now with student loans, and many owe a lot more money and are running into serious problems.

CALHOUN: The student loan crisis will affect tens of millions of families.

ARNOLD: Calhoun says their credit scores are getting messed up or they're missing out on homeownership because they can't qualify for a mortgage. And this albatross of debt hanging around the necks of so many Americans is now a central issue in the presidential election. So where is all this headed?

CALHOUN: Hopefully, it ends in a couple ways - that for some borrowers, you will need to write down some part of what they owe. They simply don't have the capacity to repay that based upon their earning capacity.

ARNOLD: And Calhoun says the government needs to fix existing programs that could help millions of people. One in particular has promised to forgive large amounts of student loan debt for public service workers, like police and teachers, but it's been badly mismanaged. Also, many people don't get enrolled in repayment plans that could make their loans affordable. Calhoun says until such problems get fixed, it may not wreck the economy, but it will be a drag on it.

Chris Arnold, NPR News.

Copyright © 2019 NPR. All rights reserved. Visit our website terms of use and permissions pages at for further information.

NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.