Tuesday, May 15th, 2012 at
Lately, we’ve frequently posted about student loan debt collection, the financial incentives that the U.S. Department of Education provides to third-party debt collection agencies, and the impact that those incentives have those with student loan debt. Because of Department of Education’s compensation structure, student loan borrowers are often squeezed into making a minimum payment that is beyond their means, rather than given the opportunity to enter into a repayment program where the payments are aligned with their ability to pay.
The New York Times recently ran a story written by Andrew Martin and Andrew Lehren that delves into the real lives of real people who are struggling with student loan debt. Some interesting statistics emerged from their research. For example, the percentage of borrowers who earn a bachelor’s degree has soared from 45 percent in 1993 to 94 percent. In 2011, the average debt was $23,000. Total public student loans top out at $902 billion, with another $140 billion in private loans. A disproportionate number of borrowers are those who attend for-profit colleges…Although only 11 percent of students attend for-profits, these students constitute 25 percent of federal loans.
Add into the mix the increasing cost of college and the plummeting funding provided by states for public higher education, the reporters argue, and the result is akin to the housing bubble. Graduates are increasingly “underwater,” owing more in monthly student loan payments than they can reasonably hope to repay. The article says, “Nearly one in 10 borrowers who started repayment in 2009 defaulted within two years.”
The reporters use Ohio as an example of one issue that is mirrored in other states: as state spending on higher education lessens, prison spending is on the rise. In Ohio over the past 30 years, support for public colleges and universities was reduced form 17 percent of the budget to 11 percent, while spending for prisons has doubled from 4 percent to 8 percent.
For those who are facing the prospect of comparing costs and financial aid packages, the process is confusing at best and misleading at worst. Colleges and universities often present “financial aid packages” that include an assumption that the prospective student will take on tens of thousands of dollars of student loans. While it may appear as though the student is getting a free or low-cost education, he or she could take on enormous debt. This is particularly true if it takes the student more than four years to graduate – a phenomenon that’s on the upswing as universities are slashing staff and class sections, meaning that students are unable to register for classes required for their majors.
The Consumer Financial Protection Bureau, created by the Dodd-Frank Act, is working toward developing a standardized form that institutions can use to inform prospective students of the costs and loan burden associated with their financial aid packages. The CFPB is soliciting input for such a form, and you can voice your opinion here: http://www.consumerfinance.gov/students/knowbeforeyouowe/ The CFPB also has a beta version of a cost comparison worksheet (http://www.consumerfinance.gov/payingforcollege/costcomparison/), where you can enter the names of schools and universities and obtain a side-by-side comparison of the “sticker price” of a school, the average amount of grants and scholarships, and the estimated student loan amount and debt after school.