Consolidate Student Loan Legislation and Adopt Comprehensive Reform

Over the course of the last decade, considerable more students taking on debt to pay for college. This doesn't come as a surprise to many as tuition at some schools can set families back more than $50,000 every year the student attends the university. 

Also this isn't a surprise because so many people have loans.

In order to combat this rising tide of debt, a slew of legislators have thrown in their two cents and are now backing legislation designed to save the future of many young adults that are certain to be hindered, if not completely destroyed, by debt and default. 

And fire and brimstone.
While it is great that the nation is finally looking to tackle the student loan debt and default problem; however, current legislation is as piecemeal as student finances and needs to be drastically redesigned and expanded to make any real difference.

Student Loan Reform: More Important than Any Election

Student loans have eclipsed both credit card debt and auto loans as the biggest burden on American consumers as 70% of former students are graduating with debt. In the 2010-2011 school year, 10.3 million families borrowed from federal programs alone.  

To put that into perspective, New York City has 3 million families living in it.

There is almost $1 trillion owed on millions of different loans. This is much harder to make tangible as $1 trillion is an incomprehensible amount of money.

Use of private lenders has become more widespread as well. More than $150 million of this debt is owed on private loans. Which is great...

For nobody.
Students are also leaving school with more debt; the average is $25,250 a head. The top 10% owe upwards of $50,000 and the top two percent owe more than $100,000. This growth in debt has run parallel to a dramatic increase in student loan default. Currently more than $76 billion worth of loans have fallen into default at that number is likely to grow at unemployment sites stubbornly at 9%.

Current Legislation:  Really Needs a Good Grade on the Final

Good thing the system is being reformed, right?

Though a little late to the game, advocates of reform have been making progress on staunching the growth of this problem. President Obama signed a student loan extension as part of the Transportation Bill back in June of 2012 that prevented an interest rate hike on subsidized Stafford loans, something 9.3 million students signed up for in the 2010-2011 school year. However, the freeze is only for the 2012-2013 academic year. Unfortunately, this Bill also excludes graduate students.

At best, it was a very short term appeasement.
Granted, keeping the interest rates at 3.4% instead of allowing rates to rise to 6.8% is going to save a lot of people many thousands of dollars, but the problem is far more complex than interest rates on Stafford loans.

However, that doesn’t mean legislations needs to be. Comprehensive reform is possible, and it can be done in one bill.

The 3 Qualities of a Comprehensive Bill

1.  Comprehensive Interest Rate Regulation

Stafford loans are available to every student with demonstrable financial need; however, half all who are eligible for these loans do not exhaust this option before signing up with a private lender. The Bill signed back in June has no bearing on the $150 million dollars in student loans that most students are taking out.

Hint: someone actually looking to reform the system would reform the entire system and this means increasing control and oversight of private lenders or giving all students loans.

2.  Full and Comprehensive Disclosure of Fees and Future Monthly Payments

This seems like a fairly straightforward concept, and something that would already be done, but the disclosure requirements on student loans are frustratingly relaxed and information can be very hard to come by.

There are currently two Bills being tossed around the Senate:
       

Understanding the True Cost of College (Franken – D Minn)
This bill would require disclosure from lender about the more favorable terms of Federal Loans, interest rates, unexpected payments (like capitalized interest) and expected monthly payments
        

Know Before You Owe (Dick Durbin D-Iowa):

This bill requires schools to counsel students before they take out a private loan and inform them if they have untapped Federal resources

Meaningful legislation would need to combine the concepts of these things because really helping students requires this all of this information anyway.

3.  Clear, Defined Forgiveness Policies

Student loan forgiveness is a mythical beast and something and most students, no matter how “undue” their “hardship” is and despite certitude that they will not overcome it, will never be forgiven of their debts.  Only about 1,000 students attempt this annually as this nebulous language has reigned supreme since regulations were changed in 1976 and today is incredibly stringent and only 37% of students are released from the terms of their loans.

Actually helpful reform would clearly define the terms on which the contract could be terminated.

Letting an 18 year old borrow many thousands of dollars is, objectively, a terrible idea. But because of skyrocketing tuition and students' need to attend private institutions, it is an inevitable reality for millions who were gifted enough to get into college but not lucky enough to have the means to pay for it.

Writing a better bill is the least you can do for them.   

A Break From Student Loans with Wishbeard, Austra and Vice Device

I was going to write about the way student loans affect labor mobility, but instead I have saved in for next week in favor of writing about the show I went to last night.

Neumos: Friday September 15, 2012

WISHBEARD

Photo thanks to Wishbeard (they don't know)

The first thing I noticed about this show was the fact that everyone in the room was a gay person. Starting with the women on stage.

Wishbeard. Wish - Beard. ha. 

I came to find out they were reminiscent of Explosion in the Sky, a band I had never heard before but my companion kept referring to.  Myself, I prefer Wishbeard. I like their melodies and I like their vocals as it reminds me of everything I think Seattle girl rock should be. 

Additionally, the music on their site isn't accompanied by a barrage of really depressing Youtube comments quite like Explosions in the Sky. 

VICE DEVICE

Photo Courtesy of Vice Device & Aaron Montaigne

While I wish I could say I got to experience the entire Vice Device set, I did not.  I had to put my bag in the car. But from what I saw, their ambient songs and midsong crescendos impressed me enough to put them on at work and, maybe, see the Portland trio again. 

I'm not going to be able to do them justice, so just check them out. 

and, finally....

AUSTRA

Courtesy of Kirk Stauffer & Back Beat Seattle 

This band does everything right. Everything. 

Initially what one of my best friends sold to me as a trip to the Crocodile to see a femmy-gothy opera troop didn't seem like it would turn into an obsession, but it has.  So when they came back to Neumos, I immediately bought tickets. 

When they come back to Seattle, I will immediately buy tickets. 

The hook is a simple beat, reminiscent of a pulse, that flows through the melody; this band doesn't overcomplicate anything besides what they intend to highlight. I almost feel like it's simplicity is what makes it so beautiful. 

(I am not a singer) According to my limited knowledge, the lead singer, Kate Stelmanis, is hugely talented. Backed by Sari and Romy Lightman, twin opera singers, and Maya Postepski on drums, it is a pretty feminine affair. Although there are Brian Wosniak and Dorian Wolf add a masculine touch.

Kind of. The variety is really nice. 

Austra puts on a great show. Something else I was surprised by because upon first listening to them, I had a very nebulous idea of how to move to the music. But upon watching them take the stage and seeing the band, boys included, pair life and motion with the music, at times moving in unison, it made perfect sense. That is obviously how you would do it. 

They're just really outstanding. I wish the show had never ended. 

A Schedule for Student Loan Default

Graduation Day

- 24:00 hours:

Upon graduation, student loans in fall into a six month grace period during which students do not need to make payments nor do loans accrue interest. And 24% of people who are older than 25 who are college graduates, this period is a time to celebrate as it is something achieved by a relatively small portion of the populace. 

Only 8.9% get a masters degree.

3% a professional or doctorate degree.

Top notch.

- 6 months:

There is something called capitalized interest on student loans. Most interest of this nature is reserved as fees for loans that have become delinquent. However, it can also be applied to loans that have been in a period of deferment, like the one you took out for school, that you didn’t have to make payments on while you were in school. 

That is another misunderstanding many people have about student loans. Though they do not accrue interest at the same rate they will during repayment, the loans were not free while students are taking classes.

The capitalized interest rate on loans is a portion of what you would have paid if interest had been collecting during that 4-year period and it will add a few thousand dollars to the price of the loan, depending on your repayment plan. Students who chose to make payments on the loan while in school will ultimately end up paying less for the interest and the loan. However, most students choose not to pay loans while in school as payments would have been about $50-100.

- 3 Months:

After 90 days, student loans can begin to go in a couple of directions.

Option 1: Payments are made on time
Payments are made on time.

Option 2: Payments are not made on time
After 90 consecutive days of failing to make monthly loan payments, loans will be considered delinquent and all major credit agencies will be contacted. The hit suffered by students' credit scores will have some very negative consequences in their future and, in a lot of ways, their immediate surroundings.

Unfortunately, the percentage of loans becoming delinquent and falling into default is on the rise. In a recent sample of 3.6 million students, 8.8% of a defaulted after just two years after exiting school.  This is up from 7% in 2008 and works out to the tune of 320,000 students.

- 9 Months:

After 270 days, there are still, really, only two options.

Option 1: Payments are made on time
Paids are made on time.


Option 2:  Payments are not made
This is the point at which student loan default actually begins. At this point, things start to get pretty complicated and there are some pretty severe results that come as a result. For example:

• leases, mortgages and auto loans will not be an option
• credit cards and cell phone plans will not be an option
• protecting wages from being garnished, should the IRS pinpoint a place of employment, will not be an option
• the IRS can seize funds from your accounts and getting it back will not be an option

In order to track down this information the names of those who default on their loans are turned over to federal agencies and those agencies will hire private law firms in order to track and find these people. Those law firms that will have feeds to be paid as will late fees and interest that accrued while those in default were on the run

If Default Goes Forever

For American students, student loan debt is very hard to absolve short of full payment as discharging them during bankruptcy is very rare and only comes as a result of “undue hardship”, an ambiguous term for a hardship that is proved by concrete evidence and stands out among all other hardships. However, for most people student loan discharge hasn’t been and won’t be possible since the mid-1970s when laws regarding the practice were changed.

So a lot of students faced with payments that can be as $1,000 a month which is nearly 50% of the average American's monthly salary of $31,410. 

These high payments have turned a lot of students in boomerang kids.

But isn't being a boomerang kid a good thing? I mean, it sounds like it could be fun.

Wrong. It describes the 53% of kids aged 18-24 have delayed adulthood and live with their parents because they can’t quite get their careers going. The economy is poor. And it doesn’t get much better once kids have turned 25, 41% of 21-29 year olds are still at home.

Becoming a boomerang is a very real possibility for graduates today and a reality many don’t want to face; however, it is one best faced ahead of time because loan counseling and aid programs may be able to help. 

For more information about loan counseling, check out these great resources:

• 
  

          SALT Student Loan Counseling : a financial empowerment program for students
Department of Education Student Loan Forgiveness - a government page about forgiveness

Student Loan Debt: Everybody’s New Best Friend

SALLIE MAE:  

Principal: $9,000

Interest Rate:  11%

Capitalized Interest Accrued: $2,854

Interest Accrued Since 12/11: $92

Monthly Payment:  $137.87

Hey Guys! Check Out this Revolution We Started

en route to Wells Fargo

Though still less than outstanding home mortgages, student loans debt has eclipsed both auto loans and credit card debt and is hovering somewhere in the neighborhood of $1 trillion dollars.

From a student's perspective, money was available and everybody thought it was a great idea to take a lot of it. And, in an effort to keep them moving out of the house, their parents were willing to cosign.

Widespread borrowing to pay for college wasn’t always a nearly ubiquitous experience. At one time, student loans were reserved for students who insisted on going to elite graduate programs or those who enrolled in for-profit programs. Today when mortar boards are tossed 66% of students have taken on debt in order to pay for college. This is compared with 45% in the ‘92-93 school year. The amount of debt is also higher; on average students have $23,300 outstanding and 10% carry more than $50,000. The top 3% of graduates are sitting on more than $100,000, as reported by the Federal Reserve Bank of New York.

But hey, we, as a generation, probably deserve it.

We skipped class. We partied too much. We spent the time we were in class Facebooking about our partying. Then we ended up studying Political Science but have no intention of slaving away in a campaign and, in all honesty, never gave a single thought to the job prospects and potential tax bracket we would enter upon exiting the Ivory Tower.

In fact, unless someone was studying medicine or engineering, it was rare for students to talk much about their potential job prospects after graduation. People would talk about what they were going to do, but it was always a nebulous someday when they were going to do this.

Huge oversight.

But 18 year olds can flighty and aren't usually expected to make too many firm decisions about their future, right?

And, in our defense, a good school on a breathtaking campus in a big city is a slam dunk of a product and had motived salespeople. The kind trying to keep their jobs.They told us to “study what we love” and the opportunities will come flooding in because we had studied. In addition to these pitches, the level of competition to enter certain majors once students have been enrolled in the university is at an all time high. Good majors, like engineering and computer science, are designed to vet out most applicants.

Why?

No reason. 

Even with far more students attending a university, our country also seems to have a talent deficit.

A real life example of this is Kelsey Griffith, a comrade in arms from Ohio who racked up $120k in debt studying marketing during her four year stint at Ohio Northern “was won over by faculty and admissions staff members who urge students to pursue their dreams rather than obsess on the sticker price.”

The Aftermath of a Very Distracted Celebration

But that sticker price was important, especially in an economy that is rife short term scam positions, contract work and menial labor instead of companies clamoring from fresh talent. Ms. Griffith, for example, works at a pair of restaurants. And marketing should be one of the “good” ones.

This makes what should be a momentous occasion, graduation, was actually the culmination of six months of getting drunk and lamenting the future. College graduates today are terrified of the future and many are completely immobile and weighed down in debt. In a mechanizing economy that is being streamlined by machines and stratified by powerful corporate jobs, many have no job, no prospects, lots of debt that and angry cosigners.

And now our support system is under pressure as well, most parents students took on debt as a cosigner and now have to plan for the worst:  that someday they might have to shoulder $900 in monthly payments. Many parents, like Kelsey’s mom Marlene, are now taking out life insurance policy on their graduates.

“if anything ever happened [to Kelsey], God forbid that is my debt also”

- Marlene Griffith

To be fair, paying off that debt is going to take forever.

The Interest and the Aftermath:  Welcome to the World of Eating Cabbage

This mounting debt means far more than graduates will fail to buy a home of their own and will return to live in their parents house instead. In addition to returning home to work in the local Red Robin, for  many it is the beginning of a lifetime of ruinous finances and dodging debt collectors. Currently, payments are made on only 38% of outstanding loans, for one reason or another.

In summation: student loan default is going to catch on faster than scabies in a house full of hippies house. It is going to have more staying power than Facebook.

It is going to happen pretty quickly. Currently 1 in 10 students who started paying back their loans in 2009 are watching their loans fall into default just 3 years later. Those who are making payments are doing so in a resigned and fearful manner in a stagnant economy. The scars left by long job hunts and being labeled a boomerang kid ensure that graduates will be afraid to ask for a raise and unlikely to ever leave their coveted position.

Things are bleak.

The only silver lining: No one is asking you for grandchildren.