Last year, talk was that student loan debt could overshadow even credit card debt in this country and now, there’s proof that it could already be happening as new numbers show the average student loan debt is now more than $27,000. In 2005, it was nearly 60% less with an average of just $17,233. Lawmakers, college students and their families are worried – and they should be.
90 Days Overdue
Currently, 28% of all student loans are more than 90 days past due, according to FICO. As part of its effort of better understanding the true numbers, it conducted research on more than 10 million credit files. Its goal was to pull the trends in student loans. What it found was that student loans are now more than credit cards and automobile loans combined. It’s well past the $1 trillion mark and is significantly higher than the total credit card debt in this country, which is right $800 billion. Worse, these numbers could be on the rise.
In late 2012, the CFPB released its own report with recommendations. As a result, a new house bill was proposed that would put into place other options for college students. The bill, HR 4170, was proposed and includes the possibility of more student loan forgiveness, better refinancing options, interest rate caps and other relief for those with student loan debt. Unfortunately, it’s not moved at all since its introduction as lawmakers have been focused on other crises, including the fiscal cliff.
There’s another option being considered, too, this one is an income based repayment option. By using the borrower’s income, the payment amounts are re-calculated as the borrower goes about the business of building his life. When a loan is taken out to finance college, many of those borrowers don’t have mortgages and families. By re-evaluating the loan terms at different intervals, it could be that the balances could be better adjusted to account for those life changes.
Growing Costs of College
College students will often take on huge amounts of debt to cover the growing costs of attending college. They do this with the mindset that once they graduate, there will be jobs waiting for them. Not only has the job market not recovered from the recession, but the number of high paying positions have dwindled due to changing needs, expectations and realities for a modern society. There they are – saddled with thousands of dollars in student loans and often, even credit card debt, with no way to cover the payments. It often sets us a domino effect that has their credit histories taking hits before they ever were able to create a history.
What’s peculiar is the reaction of some in the government. In a press briefing at the White House in April, Education Secretary Arne Duncan said,
Obviously if you have no debt that’s maybe the best situation, but this is not bad debt to have. In fact, it’s very good debt to have.
Clearly, that’s not always the case, especially considering recent research that suggests graduates are leaving college with degrees that aren’t conducive for successful careers.
As part of its report, FICO says the student loan situation is “unsustainable” and that borrowers are in for some “real trouble if their wages don’t line up with their debt loads”. Dr. Andrew Jennings, the chief analytics officer for FICO said,
As more people default on their student loans, their credit ratings will drop, making it harder for them to access new credit and help grow the economy.
He also says that those who are current with their payments face the reality that they’re burdened with heavy debt loads and as a result they too won’t be adding significantly to the economy until they’re able to get out from under that debt.
The Parent Factor
The young adults aren’t alone, either. According to a 2012 report from the National Association of Consumer Bankruptcy Attorneys, parents who borrow to put their kids through college is up by a whopping 75% since the 2005-2006 academic year. The average balance in student loans they carry is $34,000 with the number settling on around $50,000 over a traditional 10 year repayment period.
Again, it’s not clear when or even if the CFPB recommendations will become law. The consumer watchdog group even went so far as to recommend student loan debt be allowed as dischargeable in American bankruptcy proceedings. Currently, neither federal or private student loans are not allowed in a bankruptcy filing. The mindset is that because the government offers other solutions such as refinancing and some forgiveness programs, there’s no reason why these loans should be part of the allowable filing options. But, according to CFPB, the time has come for this rule to be eliminated and that at a minimum, private student loans should be eligible. Needless to say, that wasn’t a popular sentiment, but as many are realizing, it may be a necessary reality. The CFPB, though, remains committed to finding real solutions for this growing problem.
For those looking for assistance or solutions now, they are encouraged to visit the Consumer Financial Protection Bureau website or their lender’s website. There is help out there, it’s just a matter of finding it and then securing it. The reality is that there won’t be any kind of permanent solutions, especially if anyone is waiting for the government to act. It’s not likely to happen with the group of lawmakers currently in office. Fortunately, the CFPB does have some leeway on what it is legally allowed to do. What exactly it can or can’t do hasn’t been discerned but if history holds true, this is the one agency that’s bound to make those differences that will greatly improve the lives of those already burdened with overwhelming debt.
What are your thoughts on the still rising student loan debt in this country? Are you still paying for your own education? Are you covering your kids’ costs? Or have you managed to pay off your student loans? Let us know!
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