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As we discussed a the Consumer Task Force meeting, below are recent articles on the Student loan debt crisis:
March 2, 2012
Student Debt: The Next Financial Crisis?
College seniors graduating with student loans in 2010 owed an average of $25,250--a 5% increase from the prior year.
The mortgage debt crisis has barely been resolved but there’s already talk of the next big financial crisis in the U.S.: student debt.
Student borrowing topped the $100 billion threshold for the first time in 2010, and total outstanding loans exceeded $1 trillion for the first time in 2011. In fact, student loan debt exceeds credit card debt in the U.S. which stands at about $798 billion. It’s a fascinating figure considering the unemployment rate is still flirting with 9% in the U.S. thus hurting the earning power for recent graduates.
Making the student debt issue an even greater concern is that it doesn’t just affect young borrowers–it’s affecting their parents too. According to a report out yesterday from the National Association of Consumer Bankruptcy Attorneys borrowers are taking out huge sums of money through federal and private loan programs and in many cases their parents, who are nearing retirement, are also on the hook for repayments.
“Evidence is mounting that student loans could be the next trouble spot for lenders,” Dr. Andrew Jennings, chief analytics officer at FICO and head of FICO Labs says in the report.
Parent borrowing is up 75% since the 2005-2006 academic year with an average of $34,000 in student loans and that figure rises to about $50,000 over a standard 10-year repayment period, the NACBA report says. Plus, an estimated 17 percent of parents whose children graduated in 2010 took out loans, up from 5.6 % in 1992-1993.
College seniors who graduated with student loans in 2010 owed an average of $25,250 a 5% increase from the prior year, according tothe Project on Student Debt at the Institute for College Access & Success (TICAS).
The problem: a college education, while valuable, doesn’t guarantee a high-paying job that will help pay off that student debt easily. In fact, it can hurt the economy the report explains: Even in the best of economic times when jobs are plentiful, young people with considerable debt burdens end up delaying life-cycle events such as buying a car, purchasing a home, getting married and having children.
The report surbeyed 860 bankruptcy lawyers and 81% said that potential clients with student debt have increased significantly or somewhat in the last three to four years. And 25% of them said student loan client cases have jumped by 50% in the same period.
“Bankruptcy attorneys from across the country who report that what they are seeing at the ground level feels too much like what they saw before the foreclosure crisis crashed onto the national scene: more and consumers seeking their help with unmanageable student loan debt, and with no relief available,” the report says.
Making matters worse for deeply troubled student borrowers? Unlike say, credit card debt, student debt is not forgivable in bankruptcy. That’s been the case since the mid 1970s when Congress prohibited it. In fact, 95% of bankruptcy lawyers said that few student loan borrowers have any chance of obtaining a discharge as result of undue hardship.
The bankruptcy lawyers group is urging that that be changed so that student debt can be discharged. From NACBA:
NACBA calls on Congress to act immediately to eliminate the nondischargeability of private student loans. There simply is no reason to allow private student loans to be treated differently from other types of unsecured credit. In fact, exempting these loans from discharge is likely to cause even more harm for borrowers since there are no interest rate limit or limits on fees charged for private student loans. Furthermore, there are limited repayment options for those borrowers facing financial hardship.
There is currently legislation to address student debt issues including a House bill dubbed “Private Student Loan Bankruptcy Fairness Act” and a Senate bill “Fairness for Struggling Students Act.”
Says William E. Brewer, Jr., president, National Association of Consumer Bankruptcy Attorneys, “Take it from those of us on the frontline of economic distress in America: This could very well be the next debt bomb for the U.S. economy.”
From: The New York Times
March 5, 2012
Fed Study of Student Debt Outlines a Growing Burden
By ANDREW MARTIN and RON LIEBER
A report released Monday by the Federal Reserve Bank of New York renews concerns about the growing debt load of college students and graduates.
The report suggests that as many as 27 percent of the 37 million borrowers have past-due balances of 30 days or more.
“In sum, student loan debt is not just a concern for the young,” the report said. “Parents and the federal government shoulder a substantial part of the postsecondary education bill.”
The report, which was created by an analysis of Equifax credit reports, said the total balance of student loans was $870 billion. Of the 241 million with Equifax credit reports (there are 311 million people in the United States), 15 percent had student debt.
Forty percent of the people under 30 had outstanding student loans, and the average outstanding debt is $23,300. About 10 percent of borrowers owe more than $54,000 and 3 percent owe more than $100,000.
Noting that existing figures on student loans are spotty and largely anecdotal, the Fed said its analysis was an attempt to provide more accurate accounting of delinquency data.
The Federal Reserve came up with the delinquency figure by excluding from their calculation borrowers who were still students or those who were granted permission to postpone payments because of financial hardship, graduate school or some other approved reason. Those borrowers represent about 47 percent of all borrowers. Fed economists suggest that they should not be considered when measuring the delinquency rate because they aren’t making payments.
If they were included in the total, the percentage of borrowers who were 30 days late in making payments is 14 percent.
Lauren Asher, president of the Institute for College Access and Success, said the Fed study reinforced the need for borrowers to understand the distinction between federal loans and private loans and to know the available repayment options.
She noted that borrowers of federal loans were eligible for income-based repayment in which caps are placed on monthly payments to make them more affordable. In addition, she noted that borrowers of private student loans, which tend to have higher interest rates and fewer protections than federal loans, could now call the Consumer Financial Protection Bureau to register complaints.
The Fed’s numbers are similar to those published in a report a year ago by the Institute for Higher Education Policy. That study, based on a sampling of borrowers, found that 26 percent of borrowers who entered repayment in 2005 became delinquent but did not default. Fifteen percent of borrowers not only became delinquent but defaulted on their loans.