Thinking and Linking by Joanne Jacobs
Under pressure from an online petition, Sallie Mae will stop charging a forbearance fee – $50 every three months per loan — to unemployed borrowers. Instead, what the private lender calls a “good faith deposit” will be applied to the balance of the loan.
Fix student loans by giving colleges “skin the game,” writes Alex Pollack in The American.
(Colleges) are the effective originators, the promoters, and the chief financial beneficiaries of student loans. It is their rising costs which result in ever more debt and more risk of default for student borrowers and for taxpayers.
The federal student loan program should make colleges share the risk of bad loans, Pollack writes. Colleges would have an incentive to avoid charging more than students will be able to repay.
Ohio is cutting funds for remedial classes at state universities.
North Carolina community colleges are backing out of participation in federal student loans, fearing a high default rate will risk future students’ access to Pell Grants.
Colleges and universities give $5.3 billion a year in financial aid to students from affluent families.
To avoid default, consider technical college, say investors in bonds backed by bundled student loans.
Thirty-one percent of college students take at least one online class.
Also on Community College Spotlight: Should the U.S. adopt Australia’s sensible student loan plan or just charge universities for their graduates’ defaults.
Young people need a college degree to get a decent job, which means they need to borrow. And, if they can’t get that decent job, they’re stuck with crushing, credit-ruining, undischargeable debt, writes Kevin Carey of Education Sector. Linking all loans to borrowers’ income will help, but the Obama administration also needs to look for ways to provide affordable alternatives to high-priced colleges.
Community colleges will be able to experiment with limiting students’ access to unsubsidized federal loans in the hopes of preventing overborrowing and defaults.
Two years after leaving college, 8.8 percent of borrowers have defaulted on their student loans, up from 7 percent. That includes 15 percent of for-profit college students.
Also on Community College Spotlight: President Obama wants to spend $5 billion to upgrade and repair buildings at community and tribal colleges. But college leaders aren’t holding their breath.
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.
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