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.