Student Debt May Hurt Housing Market

“We are continually improving the collection process for borrowers and we will carefully consider the PAC’s recommendations as part of this programme. “A new and more accurate forecasting system is also being developed.” ‘Pay back twice’ Rachel Wenstone, vice-president of the National Union of Students, said the report showed the government had “got its maths badly wrong”. “Forcing debt on to students as a way of paying for universities is an experiment that has well and truly failed. We now need to see serious thought about moving the system away from this unsustainable funding burden,” she said. “Graduates now stand to pay back twice, through their student loan repayments and as taxpayers confronting the spiralling costs of this ill-considered scheme.” Sally Hunt from the UCU, which represents lecturers, said the government had “rushed through” student loans “without doing the proper maths”. “Amazingly,” she said, “we may well end up with the taxpayer footing a larger bill for students’ education than before students had to pay 9,000 a year fees.

In the last month, two of the largest private student lenders RBS Citizens Financial Group, which operates both Citizens Bank and Charter One Bank, andDiscover Financial Services have announced that they will give borrowers the option to consolidate and refinance their student loans.Unlike federal student loans, private loans typically come at a higher interest rate and have less flexible repayment options. Due to those complications, many private student loan borrowers struggle to make their payments and often end up defaulting on their loans. According to an estimate from the Consumer Financial Protection Bureau, as many as 850,000 private student loans worth a total of more than $8.1 billion are in default. [ READ : Half of Outstanding Student Loan Debt Isn’t Being Repaid ] “Things certainly change from what you think might be the case when you go to school and the type of job you get when you come out,” says Brendan Coughlin, head of education and auto finance for Citizens Financial Group. “We just didn’t feel our product was complete to meet our customers needs without offering them this ability.” Because many private student loan borrowers take out their loans when they have no degree and no job, lenders take into account the risk that a borrower wont graduate or wont get a job when they set their interest rates.

All things equal, a rise in price (tuition) should have lead to a cut in demand (enrollment). Only the easy availability of loans could explain how more and more students were able to cover the rising tuition prices that they could ill afford. Most of these students were given loans they barely understood by a system that taught them the road to a college degree was paved in debt. These statistics suggest that the availability of loans enables colleges to push tuition up. It would be great if those involved would tell us. Imagine a state rep confessing, “Yeah, I knew going in that the feds would cover us when we cut aid to State College.” Or what about a college administrator boasting, “every time we raise tuition we get a bigger pay check from Washington, just like clockwork!” But of course we will never hear such confessions.

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Student Loans Are A Drag On The Economy And Society

About seven in 10 graduates leave school with debt and almost 40 million have sizable loans to pay off, she wrote in a recent report. Total U.S. student-loan debt now sits at $1.1 trillion, making it the largest kind of consumer debt after mortgages, according to figures issued Tuesday by the New York Federal Reserve. Total student debt climbed $114 billion in 2013 and it has doubled in the past eight years. Whats more,The New York Fed found that 11.5% of student loans are 90 days past due or in default. A massive debt burden topping one trillion dollars possess crippling risks for the individual graduate but also, unaddressed, carries large consequences for the economy as well, Piegza said.

It’s estimated the average student loan in America is just under $30,000. There’s more than $1 trillion of outstanding student loan debt. Even with that reality, First Lady Michelle Obama is leading a media blitz encouraging students to apply for financial aid. Economists say student loans are now the 2nd largest debt in the average household behind mortgages. If the debt is massive now, what happens if the government encourages even more people to borrow even more money? Students find themselves between a rock and a hard place.

But add a $100 student loan payment to the mix, and the debt-to-income ratio could climb above the new restriction. This threshold already applies to some types of loans, including “jumbo” mortgages, which exceed $625,500 in the Washington area. But it will not apply to other types of loans for several years. “This change can affect a wide range of people with student debt. Graduate students, law students or even parents who’ve taken on their kids’ student loan debt,” Denfeld said. “I had one parent who was trying to refinance his house, but he’d taken out a student loan to pay for his child’s college education, and his debt-to-income ratio was too high.” Without help from her parents, Melissa Nussbaum probably could not have bought her D.C.

As Pell Grants have failed to keep up with the cost of college, more low-income students are relying on loans to pay for school. According to data from the Department of Education , 44% of all dependent undergraduate students in 2012 from families with less than $30,000 in income had student loan debt levels of more than $12,400. For middle class families (defined here as families with incomes between $30,000 and $106,000), well over half of students had debt at $12,400 or higher. In other words, debt levels are high across the board and rising even as households have been trying to pay down all other forms of debt. The hypothesis that student loan debt affects household spending in the economy appears very plausible.


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