Wed Nov 28, 2012, 08:21 PM
n2doc (33,183 posts)
The Needless Tragedy of Student Loan Defaults
For the first time on record, the delinquency rate on student loans has jumped above the rate for credit cards, car loans, or any other kind of consumer loan. The tragedy? Many of those loans will default, with stunningly harsh consequences, even though there are many good options for debt relief—deferment, forebearance, or reductions in monthly payments.
“There is actually no rational reason for a borrower to be delinquent or default on their loans,” says Mark Kantrowitz, president of MK Consulting in Cranberry Township, Pa., and operator of the FinAid.org website.
Borrowers who are unemployed, in the military, or back in school can ask for up to three years or full or partial deferment on repayment of a federal loan. For those who have a job but don’t earn enough to cover the monthly payment, there are six options: graduated repayment, extended repayment, income-based repayment, income-contingent repayment, income-sensitive repayment, and pay-as-you-earn repayment. In other words, the federal government will do just about anything to keep borrowers from giving up and walking away completely.
If that’s the carrot, here’s the stick: Defaulting is “like a trip through hell with no light at the end of tunnel,” says Kantrowitz. The federal government can garnish up to 15 percent of a borrower’s wages, Social Security disability, and Social Security retirement income without a court order. Unlike other debt, student loans can’t be discharged in bankruptcy. Collection charges of up to 20 percent can be skimmed off the top of payments—enough to turn a 10-year loan into a 19-year loan. To say nothing of the lasting damage to a borrower’s credit score, which will make it hard or impossible to get a credit card, auto loan, or mortgage.
6 replies, 1186 views
Always highlight: 10 newest replies | Replies posted after I mark a forum
Replies to this discussion thread
The Needless Tragedy of Student Loan Defaults (Original post)
|Lydia Leftcoast||Nov 2012||#4|
Response to n2doc (Original post)
Wed Nov 28, 2012, 08:27 PM
LiberalEsto (20,488 posts)
1. If the loan is deferred, interest mounts up
and the balance owed can increase quite a bit.
Our younger daughter's private student loan was deferred while she was in college. Even though I made partial payments and paid off accumulated interest once a year when I could afford to, her loan balance is now larger than it was originally.
I despise the rotten banksters who created these loans, and then lobbied Congress for a law that makes it impossible to get out from under them.
Response to n2doc (Original post)
Thu Nov 29, 2012, 12:03 PM
malexand (59 posts)
3. Pell Grants, not loans...
We should be awarding eligible students Pell Grants to meet their demonstrated financial need, NOT loans. There is no better investment for our nation than educating our young people.
We have burdened an entire generation with educational debt over the past twenty years. Virtually all needy students are forced to borrow to finance their direct and non-direct educational expenses or not attend college at all. The American Dream ethos is a myth and fantasy for our needy young people. They have little hope of buying a home because of their educational loan debt. It is tragic.
We could easily finance larger Pell Grants by reducing our out-of-control defense spending, including two unnecessary wars that have made things worse. We spend very little on federal student aid programs. The middle east is a mess, we're broke, and everyone hates us. Education is the answer in the U.S. and the world. Simply put, you get more with honey then vinegar.
Federal student aid regulations ensure that eligible students receive the funds by using a need-based (means tested) formula called Federal Methodology, verifying income with the IRS, requiring satisfactory academic progress by students, and there are few cases of fraud and abuse. The original 1965 rules and regulations for federal student aid (called the Higher Education Act or HEA) have been regularly updated and refined over the past 47 years and are model government programs.
The problem with student aid programs is not that they do not work or are a waste of federal funds... it's the grant-loan imbalance which is shameful.