is approaching $1.2 trillion, according to the CFPB. The total includes about $165 billion in outstanding private student loan debt. That may seem like a small piece of the pie, but private student loans stand out because they can come with variable rates that may be significantly higher than federal loans. Plus, federal student loan borrowers who are struggling with low wages and other setbacks can seek deferrals and flexible repayment programs, while the private loan borrower doesnt have the legal right to such choices. To help struggling private student loan borrowers, Consumers Union, the policy and advocacy arm of Consumer Reports, is asking policymakers and regulators to put two key reforms in place: Flexible repayment. Private lenders should offer income-based repayment plans to borrowers. Borrowers who demonstrate financial hardship, due to high debt balances and modest wages, should be allowed to repay a reasonable percentage of their income in order to stay current. Refinancing options.
Weve got a crisis in terms of college affordability and student debt, Obama said, before an enthusiastic crowd of students at the University of Buffalo. The speech reunited Obama with one of his most supportive constituencies students and the 52-year-old president reminded his audience he only finished paying off his college loans while he was in his 40s. The US Federal Reserve has estimated that there is nearly one trillion dollars in outstanding college debt in the United States. In 2011, the average outstanding amount of student loan debt for each graduate was $23,000 dollars. Obamas return to his role as champion of the middle classes, a focus-group tested message that worked to great effect last year, comes ahead of looming budget battles with Republicans. The president and Republicans on Capitol Hill will wage their latest bitter contest over the shape of next years budget and a requirement to raise the governments borrowing limit.
The report calls for the classification of ” Qualified Student Loans ,” essentially loans that would remain protected from bankruptcy but would offer reasonable repayment terms for students in college programs with positive employment outcomes. Under CAP’s proposal, a Qualified Student Loan would have to have interest rates that do not exceed caps established by Congress, would offer deferment and forbearance provisions, and would allow for income-based repayment. In addition, the institution at which the borrower enrolls would have to meet minimum standards for completion (i.e., graduation rates), job placement and evidence-based future salary projections. Non-qualified student loans in CAP’s model — like those with unaffordable repayment plans for students who enroll in ineligible education programs — could be discharged in Chapter 7 bankruptcy after a specified click here. waiting period. “We know there is an increasing share of our adult population that has student loans, and that’s a trend that will continue for a foreseeable future,” said David Bergeron, co-author of the report and vice president for postsecondary education at CAP. “Some number of those will find themselves in the unfortunate circumstance in having taken out a loan with a excessively high interest rate and face the possibility of wage garnishment.” Another added benefit, CAP’s report suggests, is that the Qualified Student Loan model would push higher education institutions to improve their academic programs and ensure their graduates are getting real jobs in the fields they study.
] Student loan repayment options Under the new law, loan payments may be limited. Borrowers who choose the income-based repayment option will pay no more than 10 percent of their income above a basic allowance (the ceiling had previously been 15 percent). The basic living allowance is adjusted according to family size, and is set at 150 percent of the poverty line currently $16,500 for a single individual and $33,000 for a family of four. Up to about 1 million borrowers are eligible for a reduction in their monthly payments. According to the White House, the adjustment amounts to savings of $110 per month for a single borrower who earns $30,000 a year and owes $20,000 in college loans, based on 2009 figures. Debt that remains after 20 years is forgiven.
The hidden truth about student loans
(And delinquency rates in general are much higher .) Total student debt sits at about $1 trillion, more than either auto loans or credit card debt. The issue so consumes the middle classfrom parents planning to pay for their children’s college all the way down to debt-wracked recent graduates that Barack Obama is setting off on a ” bus tour ” to tout his plans for making college more affordable. One way, of course, would be to bring down the ever-rising price tag of college tuition. That process, which will be driven by good old-fashioned supply and demand and customer outrage and increased appropriations from broke-ass state governments, will not happen overnight. In the meantimefor the millions of people who are already laboring under loads of student debtit would be nice to allow for a sober and responsible route into bankruptcy for student loan debt, just like there is for other kinds of debt.
How Qualified Student Loans Could Protect Borrowers and Taxpayers
However, if interest rates were to spike, the bill makes provisions to cap the rates. Loans for undergraduates will be capped at 8.25% and for graduates at 9.5%. Over 10 years, the interest rates the government collects on student loans is expected to raise $715 million. It will go toward reducing deficits. Student loan interest rates could double The bill won support from Senate Republicans.
Student loan deal passes Senate
While Wallaces medical debts were readily discharged, some $38,000 in student-loan debt remained in limbo. As of September 2012, after six years of legal wrangling, Wallace was waiting for a federal judge to finally determine whether his employment prospects were sufficiently bleak that repaying his student loans would cause an undue hardship, resulting in a discharge of the loans through bankruptcy. He ultimately withdrew his request after reaching an agreement with his lender. Undue-hardship cases such as Wallaces can be extremely hard to prove, and judges determinations on what financial circumstances can be overcome are inconsistent. The National Consumer Law Centers Student Loan Borrower Assistance Project points to an example of a couple who successfully discharged student loans after demonstrating an undue hardship.
Student Loans: The New Calculation
As an aside, its not unlikely that many of the friends of Obamas daughters Sasha and Malia will be the victims of a student loan interest rate that quickly soars to 7 percent or 8 percent at the precise moment the economy finally starts to recover. Despite the awful student loan interest rate compromise that Obama brokered, he deserves credit for his newest initiatives: if successful (and thats a big if, considering the practical challenges of implementing his program) his reforms could helpmillionsof teenage Americans avoid catastrophic, uninformed choices made far, far too young. And while the presidents plans dont go nearly far enough, this may be evidence of the considerable constraints on his political capital, and not some cynical unwillingness to help tens of millions of desperate students, graduates and dropouts. Still, Obama seems intent on selling the notion that colleges are unscrupulously raising costs in a vacuum, without any external incentives that might motivate their behavior. The president is effectively using his enormous mouthpiece to conceal his own role in the debt crisis. As Matt Taibbi recently highlighted in his damning appraisal of the student loan scandal,Obama enacted a new loan bill in 2010 that has only served to exacerbate the problem of rising tuition costs: While its not commonly discussed on the Hill, the government actually stands to make an enormous profit on the presidents new federal student-loan system, an estimated $184 billion over 10 years, a boondoggle paid for by hyperinflated tuition costs and fueled by a government-sponsored predatory-lending program that makes even the most ruthless private credit-card company seem like a Save the Panda charity.