Burden of Debt, A Student’s Woe

By: Julia Sieben / http://www.lady-patriots.com/burden-of-debt-a-students-woes/

The Student Loan Bill, Student Load Debt, and the Student Tuition Crisis are more than a one fold problem.  While the word war continues on Capitol Hill, it seems both sides of the isle are refusing to see the real problem our country faces with Student Debt.

Current arguments are revolving about the issue that was another can kicked down the road till after the 2012 Presidential Election.  Why? Because it would have looked unfavorably upon the incumbent as he stood in front of the masses of student and tried to explain why their student loans were about to double when we were in the middle of an unemployment/economic crisis.  Our unemployment levels were sitting at numbers that resembled the 1930’s depression, fuel and cost of living expenses were growing at leaps and bounds while workers’ income levels were stagnant if not falling.

Student Loan Interest Rates

The US House of Representatives passed a bill in May, more than a month before the deadline that would revamp how interest on student loans is calculated.to avoid student loans doubling on July 1, from the rate of 3.4 percent to 6.8 percent.  The bill the House presented pegged interest rates for government backed student loans to the 10-year Treasury note plus another 2.5%. The House bill was similar to the approach in President Barack Obama’s budget, which also tied the interest rates for student loans to the longer-term Treasury note.  Immediately Senate Majority Leader Reid shot down the bill.

At a press conference Speaker Boehner blasted Democrats across the dome for failing to act on the interest rate increase before it took effect on July 1st.

“The House has done its job and the fact is students are going to pay the price when they see the interest rates on their loans double. It’s time for the Senate to act,” Boehner told reporters. “When you have a bipartisan group in the Senate, who had a solution that was not far off from our solution and yet was shot down by the Senate Majority Leader, you begin to wonder whether they are looking for a solution.”

A bipartisan group of senators introduced a compromise bill at the end of June that was close to the House passed bill, but Senate Democratic leaders have not embraced it because it doesn’t include a cap for interest rates in the event that economic conditions change and interest rates spike.

The rates increased for students taking on new loans while Congress was out of town, and the Senate is expected to act on a yet-to-be-seen retroactive solution to make sure that students are not going to be hit with the 6.8 percent rate.

Student Loan Debt

Efforts to collect bad loans are faltering, according to credit analysts and government audits. It is the latest twist in a college debt crisis that is hanging over recent graduates and dragging on the broader economy.

In the first three month of 2013, $3.5 billion in government and private student loans went into default.  A reflection of the economy and the increased unemployment rate of college graduates; this is the highest increase in history.  According to the U.S. Department of Education, 6.8 million federal student loan borrowers are now in default, representing $85 billion in debt.

One such individual struggling with student loan debt, Jason Paskowitz said, “I take personal responsibility for the situation beginning, but personal responsibility does not mean you spend the rest of your life financially compromised.”

Jason Paskowitz, a financial analyst from Tenafly, NJ. Is 46 years old, but still owes more than $39,000. On loans he took out to finance his college education at Binghamton University in New York in the 1980’s.  Jason only borrowed $20,000, but after an illness during his first year at law school he was forced to drop out of school.  Jason went into default, with interest and fees pilling up.  Jason’s records show he has paid approximately $26,000. But still owes nearly twice the amount of the original principal, twenty five years after graduation.

Jason was hounded for years by collection agents, calling him every name in the book.  In 2008, Jason was hit with an “administrative garnishment” seizing nine percent of his debt through attachment of his salary and assets.  The collection agencies never gave Jason any of his legal options under the law.  “Their primary motivation is just to get as much as they can as quickly as they can,” he said.

Incentives aren’t necessarily aligned with protecting borrowers’ interests,  Converting a defaulted loan to a “rehabilitation loan”  rolls outstanding loan balances and fees into a new loan that removes the borrower from default and pays the collection firm eleven to fifteen percent of the outstanding loan balance. Collection agencies are reluctant to inform the debtor who has fallen in arrears due to illness or injury of their qualification of a possible disability discharge, because it wipes out the loan entirely and pays the collection firm a few hundred dollars in administrative fees.  “The Higher Education Act is a very complicated statute and debt collectors aren’t necessarily in the best position to explain options to borrowers.”

Spokesman Chris Greene says the Department of Education is keeping tabs on the collection firms and looking out for borrowers’ interests with a “one-stop” portal for complaints about the firms at https://www.myeddebt.com.
“Our entire approach to default collections is structured to encourage full repayment while ensuring borrowers understand both the consequences of their failure to repay and the options available to help them get out of default.”

For the 2011-12 school year, students and their families borrowed $76 billion to pay for college, according to the Pew Research Center.  Americans owe a total of nearly $1 trillion in student debt.

From 2004 to 2012, the number of people getting student loans and their average debt has both increased by 70 percent. Student debt is the only kind of household debt that continued to rise through the Great Recession and has now the second largest balance after mortgage debt. Currently, nearly 40 million people owe an average of $26,000 after graduation.


 College Tuition Increases Far Beyond Increases in Federal Grants and Incomes

The United States has one of the most expensive higher education systems in the world. In 2012-13, the average cost of annual tuition in the United States ranged from $3,131 for public two-year institutions to $29,056 for private four-year institutions. The most expensive university, in terms of tuition and fees alone, is currently Columbia University in New York, at $47,246, according to the US News and World Report.

One proposed cause of increased tuition is the reduction of state and federal appropriations to colleges thus making them shift the cost over to students in the form of higher tuition. This is said to be an effective privatization of higher education.  State support for public colleges and universities has fallen by about 26 percent per full-time student since the early 1990s.  This has mostly applied to public universities which in 2011 for the first time have taken in more in tuition than in state funding and had the greatest increases in tuition.

“Students are deeper in debt today than ever before, the trend of heavy debt burdens threatens to limit access to higher education, particularly for low-income and first-generation students, who tend to carry the heaviest debt burden. Federal student aid policy has steadily put resources into student loan programs rather than need-based grants, a trend that straps future generations with high debt burdens. Even students who receive federal grant aid are finding it more difficult to pay for college.”

Another cause of increased tuition is the raising of the ‘loan limits’ of student loans, in which the increased availability of students to take out deeper loans sends a message to colleges and universities that students can ‘afford more,’ and then, in response, institutions of higher education raise tuition to match, leaving the student back where he began, but deeper in debt.

Therefore, if the students are able to afford a much higher amount than the free market would otherwise support for students without the ability to take out a loan, then the tuition is ‘bid up’ to the new, higher, level that the student can now afford with loan subsidies. The fact that even in years when loan limits have not risen, tuition has still continued to climb.  Keeping tuition increases at the rate of inflation would require the state kick in $128 million more tax dollars between now and 2015.  Public college tuition has jumped 33 percent nationwide since 2000.

The net price after scholarships, grants and federal tax benefits are deducted that in-state students at public colleges will pay this year rose 4.6% to an average of $16,510.  That’s more than twice the rate of inflation, which rose just 2% over the last 12 months.

The practice in which a college awards financial aid from its own funds to low-income students means that ‘paying’ students have to ‘make up’ for the difference:  While the total amount spent on institutional aid for freshmen rose, the average amount that institutions spent per student actually dropped.   Colleges and universities had to lower the amount they gave to each student to help cover a larger number of students enrolled.

The most significant contributor to tuition increases at public and private colleges is the cost of instruction. It accounts for a quarter of the tuition increase at public colleges and a third of the increase at private colleges.  Complying with the increasing number of regulations with reporting requirements also add to college costs,

In addition, both public and private universities have been raising dorm and cafeteria prices at a rate of about 2% more than inflation each year for the last decade. A year’s room and board at a typical public university has risen 65% over the last 10 years to an average of $9,200. Meanwhile, private college living costs have climbed 54% to an average of $10,460.

Back to the Issue of Student Loan Interest Rates:

House Republicans have characterized their own bill, the Smarter Solutions for Students Act, as one that is “consistent” with an idea President Obama first proposed in his budget request, tying the 10-year Treasury note, along with a 2.5 percent “add on,” to the student loan rates. The rates would also fluctuate with the market throughout the life of the loan, an element most Democrats principally oppose.

This year, a market interest rate would set the rate at 4.4 percent. That rate is generated through a formula that includes the current forecast of the 10-year Treasury Note at 1.9 percent, plus the “add on” of 2.5 percent.

PLUS loans, which are for graduate students and parents of undergrads, would have an “add on” of 4.5 percent.

While legislators continue the debate on the recently doubled Student Loan Rates, the matter of THE OUT OF CONTROL costs for a higher education still goes unanswered.  STUDENTS NEED A SOLUTION OF A NON-VARIABLE RATE OF INTEREST COMBINED WITH A FEDERAL MANDATED CAP ON TUITION INCREASES OF ANY COLLEGE RECEIVING FEDERAL FUNDING.  Without jobs upon graduation for these students the other issues are clearly a moot point!

White House Press Secretary Jay Carney told reporters that the White House is willing to work with Congress, but said “there’s a solution available here that keeps with the president’s principles.”

The Problem is that anytime we are dependent on the “President’s Principals”, I worry due to the lack of them he has exhibited in the past.