Thinking and Linking by Joanne Jacobs
Predicting more defaults, Moody’s has downgraded student loan portfolios.
“Unless students limit their debt burdens, choose fields of study that are in demand, and successfully complete their degrees on time, they will find themselves in worse financial positions and unable to earn the projected income that justified taking out their loans in the first place.”
Tuition will continue to outpace inflation for the next 10 years, the ratings agency predicts.
The higher education bubble will pop soon, predicts the wonderfully named David Swindle, who worked as a student loan debt collector and then a “default prevention” manager from December 2007 through July 2009. Collectors rarely collect money, Swindle writes.
Instead my job primarily entailed tracking down borrowers so they could put their loan back into forbearance or deferment so they would not default. Borrowers for loans dispersed between the early ’90s and the passage of Obamacare have a wealth of perks for those who are unable or uninterested in making payments. Lose your job? No biggie, you’re eligible for 2-3 years worth of unemployment deferment. Have a job that’s not paying you much? Chances are you’ll be eligible to use some of your 3 years’ worth of economic hardship deferment. Have other bills that you’d rather pay instead of your student loan? No problem, Sallie Mae and many other lenders offer sometimes as much as FIVE YEARS worth of forbearance time. Well, what happens if you’ve burned through all the time and still
wantneed time off from having to pay? Sallie Mae offered 3 years of Title IV administrative forbearance that had the same qualifications as the economic hardship deferment. Thus, as a collector I’d regularly come across borrowers who had gone YEARS without ever making a payment and the loan’s capitalized interest had just grown and grown and grown — much to the bank’s delight.
When all the deferment and forbearance deals run out and the borrower still doesn’t pay, it usually takes a year of delinquency to put a loan into default. As loan guarantor, the federal government reimburses the bank for almost everything owed. Then the loan is sold to a collection agency, which will add another 20 percent in fees.
. . . the borrower will often have the opportunity to “rehabilitate” the loan to bring it back into good standing. Usually they do this by making a year or so of auto-debited or at least consecutive payments. Then the loan returns, though much larger. But what also comes back? ALL of their deferment and forbearance options are reset back to zero because it’s basically a new loan. Then the whole cat-and-mouse process of putting off paying the loan, trying to hide from collectors and skiptracers, and letting the interest capitalize more and more can just start again.
The default rates don’t show the number of people who owe more and more on college loans, Swindle writes.
A compromise on student loan rules for career colleges is pleasing nobody. For-profit colleges complain “gainful employment” rules unfairly restrict access to federal loans, while the industry’s critics say the rule has been watered down in response to heavy lobbying. Only 35 percent of borrowers need to repay loans to keep a career college eligible for more aid. That doesn’t seem unreasonable.
Forty percent of student borrowers fall behind on payments or default within the first five years, according to a new study from the Institute for Higher Education Policy.
After several years of rapid spending growth, the Pell Grant program for low-income college students is likely to be changed — but how?
Confronting the cost of college is the National Journal’s topic this week.
“Enroll full time. Get more aid.” That’s the message California community colleges are sending to students. Full-time students, who are more likely to complete a degree, can use extra aid for living expenses.
Also on Community College Spotlight: California won’t provide Cal Grants to students enrolling at colleges and universities with high loan default and dropout rates. The new rule will hit for-profit colleges the hardest but applies to all postsecondary institutions.
President Obama is calling for more college degrees and a year of postsecondary education for everyone, but his Education Department wants to cut off loan eligibility to career colleges that give high-risk students a chance to fulfill the president’s goal. What’s the policy? asks Rick Hess.
On Community College Spotlight: Maybe Mark Zuckerberg did OK without a college degree, but the U.S. needs more college graduates.
Also, for-profit colleges get help in Congress in their battle against proposed Education Department rules that would deny loans to career colleges with high debt and default rates.
2010 was the year of accountability for community colleges, which tried to balance access and success.
Also on Community College Spotlight: Public two-year college students post a 15.6 percent default rate on federal loans over the lifetime of the loan. That’s lower than the 18.6 percent default rate for students of for-profit colleges, but considerably higher than the default rate for four-year, private, nonprofit institutions (5.6 percent) and four-year public colleges (6.3 percent).
On Community College Spotlight: Graduation rates are low and loan defaults are high for four-year for-profit colleges, says an Education Trust report.
Tuition is rising faster than inflation at colleges and universities, reports College Board. Financial aid, such as grants for low-income students and tax credits for middle-income families, is rising too.
Also on Community College Spotlight: High school students need to know what college demands. Many think earning C’s in easy classes will prepare them for community college. They’re surprised to end up in remedial classes.
Also, new federal regulations limit recruiting, advertising and marketing by for-profit higher education companies; the rules also define what counts as a credit hour. But proposed “gainful employment” rules which would cut off loan eligibility to programs with high student-debt levels and low repayment rates are still under discussion.
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