“Student Loans – The Other Debt Crisis”
posted by Alan White on the CreditSlips site
deals with a number of themes of this blog,
like, Student Loan Defaults.
How Many Student Loans In Default Now?
To me, a tricky question, as many people keep taking classes, even taking on more student loan debt, to keep their loans in forbearance. So they do not show as being in default, though no payments are being made and the student loan debt balance is rising.
The rising delinquency (11% currently) and lifetime default rates are all the more disturbing given that federal student loan rules, in theory, permit all borrowers to repay based on a percentage of their income
The trends are all bad.
As many as 40% of ALL borrowers recently graduating are likely to default over the life of their student loans, according to a recent Brookings Institute analysis.
Student Loan Servicers
Another whipping boy of this blog.
Most student loans are funded by the U.S. Treasury, but administered by private contractors: student loan servicers. Study after study has found that student loan borrowers are systematically assigned to inappropriate payment plans, yet the U.S. Education Department continues renewing contracts with these failing servicers. The weird public-private partnership Congress has created and tinkered with since the 1965 Higher Education Act is broken.
Unmanageable student loan debt will saddle a generation of students with burdens that will slow or halt them on the path to prosperity. Student loan collectors have supercreditor powers, to garnish wages and seize tax refunds without going to court, to charge collection fees up to 40%, to deny graduates access to transcripts and job licenses, and to keep pursuing debts, zombie-like, even after borrowers go through bankruptcy and discharge other debts. Recent graduates cannot get mortgages to buy homes, even if they are not in default, because their student loan payments are taking such a bite out of their monthly incomes. State legislatures have piled on educational requirements for a variety of entry-level jobs (nurse’s aides, child care workers, teachers, etc.) while cutting state funding for public colleges and increasing tuition: unfunded job mandates. Finally, the combination of high debt and the harsh consequences of default are widening the racial wealth and income gaps.
There is consensus on the problems. The divide comes in the solutions category.
What is needed instead is to 1) deal with the for-profit school problem, 2) restore the state-level commitment to funding public colleges, 3) fix the broken federal student loan servicer contracting, 4) rethink the collection and bankruptcy regime for student loans and 5) repeal the student loan tax, i.e. the above-cost interest rates college graduates pay to the Treasury.
Schools are not the problem, the student loan system is, the schools get the money whether you get a job or even graduate.
State level funding? Why should state taxpayers subsidize kids who are going to make more money than they do? The federal government student loan system drove up the cost of college, why should the state taxpayers bail them out? Aside from the balance sheet bankruptcy of states like Illinois and California.
Change bankruptcy laws? Yes.
We have this big heroin epidemic of student loans, let’s lower the price! (interest rates)
Let’s go back to square one. Get the federal government, which solely created this situation, out of the student loan business. Change bankruptcy laws back to make student loan debt dischargeable, and sell the portfolio of outstanding student loans.