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Student Loan Debt Slaves In Perpetuity – A True Story Of “Bankruptcy Hell”
The numeric implications as well as the magnitude of the student loan bubble have been discussed extensively before. Yet just like most people’s eyes gloss over when they hear billions, trillions or quadrillions, so seeing the exponential chart of Federal Student debt merely brings up memories of a math lesson from high school, or at best, makes one think of statistics. And as we all know statistics are faceless, nameless and can never apply to anyone else. It is the individual case studies that have the most impact. Which is why we would like to introduce you to Devin and Sarah Stang – student loan debt slaves in perpetuity.
First, for those who are still unfamiliar with the brush strokes, here is the big picture, courtesy of AP:
The Federal Reserve Bank of New York estimates 37 million Americans have student loan debt, totaling $870 billion. The average balance is around $23,000 (though that partly reflects a relatively small number of very large balances; the median is $12,800). Only 39 percent are paying down balances. An estimated 5.4 million borrowers have at least one student loan account past due.
Roughly 85 percent of outstanding student loan debt is owed to the federal government. The remaining 15 percent that’s counted as private student debt is owed to various non-federal lenders, ranging from banks to loan companies like Sallie Mae Corp. to non-profits and state-affiliated agencies (under the Durbin bill, loans from any government-funded entity still wouldn’t be dischargeable, only those from truly private lenders).
Generally, it’s these private loans that bring borrowers to the door of bankruptcy lawyers like Barrett. Private student loans often lack the protections of federal ones, and have rates that typically start higher and can shoot up. A recent survey of bankruptcy attorneys found 81 percent reporting more clients with student debt in recent years, and roughly half reporting a significant increase.
And, also by way of background to those unfamiliar, student debt has a very peculiar feature:
Virtually any other kind of debt — including medical bills, mortgage, credit cards and car loans, even gambling losses— can be discharged in bankruptcy, allowing the “honest but unlucky” a chance to restore their footing through an arduous restructuring overseen by a court.
But under a 2005 law passed by Congress to protect lenders, private student loans fall under the same nearly-impossible-to-clear category as child support payments and criminal fines.
“It’s a huge part of why the younger generations are here now,” said the Stangs’ bankruptcy lawyer, Matthew Barrett, whose busy office in Amherst, west of Cleveland, belies stories about the improving economy. He estimates half his clients have problems with student debt.
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Student Loan Debt Hits $1 Trillion, Deemed ‘Too Big To Fail’ By One Federal Agency
The student loan debt market is now “too big to fail”, says Rohit Chopra, the student loan ombudsman for the newly created Consumer Finance Protection Bureau.
Speaking on Wednesday to a conference hosted by the Consumer Bankers Association in Austin, Texas, Chopra highlighted the sobering news that total student loan debt in the United States now exceeds an eye-popping $1 trillion, a record high. In prepared remarks published on the CFPB’s blog, Chopra writes:
Students borrowed $117 billion in just federal student loans last year. And students continue to borrow private student loans, which lack the income-based repayment and deferment options of federal student loans. If current trends continue, there will be consequences not just for young people, but for all of us.
If that wasn’t disturbing enough, now comes news that the interest rate on new subsidized student loans from the federal government, called Stafford loans, are set to double to 6.8 percent on July 1 if Congress does not prevent the federal program keeping those interest rates low from expiring.
If interest rates on new subsidized student loans double, the average student loan borrower on the standard 10-year plan will need to pay $2,800 more… Continue reading
Reevaluating The Costs And Benefits Of (Debt Bubble-Funded) Higher Education
While the college debt bubble has been extensively discussed on Zero Hedge and elsewhere, the reality is that without college student loans, as cheap as they may be, the vast majority of students would not be able to afford going to college, untenable (and non-dischargeable) post-graduation leverage be damned. Please ignore for a second the reflexivity of this symbiotic relationship – that college is so expensive only because college debt is so easily obtainable (and as noted here, between car loans and student debt, is the primary source of consumer debt in the past year). There is a reason why NINJA loans led to the biggest housing bubble of all time; also we wonder – in 5 years when this bubble also pops, how many congressional hearings will there be on the topic of just who allowed all these student to drown in debt that most of them would never be able to repay?
Student Loan Default Rate Nearly Doubles
“Unlike mortgages, student loans are very difficult to walk away from,” researcher notes
Increasing numbers of college and university students are taking on record amounts of debt and then defaulting on their student loans, according to a report released this week by the Federal Reserve Bank of San Francisco.
Nationally, 8.8 percent of students who were to begin repaying their loans in 2009 defaulted in 2010, the Fed found, a near doubling of the 4.6 percent default rate in 2005.
The 2010 default rate for California was 7.8 percent, slightly below the national average, because a larger portion of California students attend public rather than private schools, which are more expensive. Also, fewer students in the state are taking on debt to attend for-profit vocational schools.
The default rates could create even more economic upheaval than the housing market bust three years ago, according to Laura Choi, a senior research associate at the Federal Reserve Bank of San Francisco, who wrote the report.
“These stories are strikingly similar to those of over-leveraged homebuyers during the subprime crisis, but unlike mortgages, student loans are very difficult to walk away from,” Choi wrote. ”There is no physical asset to foreclose upon and it… Continue reading
College, Inc.
Even in lean times, the $400 billion business of higher education is booming. Nowhere is this more true than in one of the fastest-growing — and most controversial — sectors of the industry: for-profit colleges and universities that cater to non-traditional students, often confer degrees over the Internet, and, along the way, successfully capture billions of federal financial aid dollars.
In College, Inc., correspondent Martin Smith investigates the promise and explosive growth of the for-profit higher education industry. Through interviews with school executives, government officials, admissions counselors, former students and industry observers, this film explores the tension between the industry –which says it’s helping an underserved student population obtain a quality education and marketable job skills — and critics who charge the for-profits with churning out worthless degrees that leave students with a mountain of debt.
At the center of it all stands a vulnerable population of potential students, often working adults eager for a university degree to move up the career ladder. FRONTLINE talks to a former staffer at a California-based for-profit university who says she was under pressure to sign up growing numbers of new students. “I didn’t realize just how many students we were expected… Continue reading
Student Loan Debt Shows High Cost Of Federal Aid
When President Obama announced changes to rules on repaying college student loans, he said his goal was to ease the financial burden of getting a degree.
“We’ve made it a priority to make college more affordable, reduce your student loan debt,” he told students in Denver, unveiling his plans to make it easier for college graduates to get out from under their debt obligations.
But if the history of college financial aid (and other government attempts to protect consumers from costs) is any guide, Obama’s plan will likely backfire.
Over the past three decades, financial aid has rocketed up 438% after inflation, says the College Board. That’s largely due to huge hikes in more than a dozen federal grant and loan programs.
“By providing aid and subsidized loans, the government is trying to protect students, but the effect is perverse,” said Jane Shaw, president of the John W. Pope Center for Higher Education Policy in Raleigh, N.C. “They increase demand and enable colleges to hike tuitions virtually without restraint.”
An increase in the average student loan of $1 was associated with net tuition that’s 93 cents higher at public schools and 55 cents higher at private schools, according to Andrew… Continue reading
