Sunday, 23 November 2014

Posted: 17 Nov 2014 11:20 PM PST

Ruth Thompson, co-chair of the commission: 'The issue is whether you can place a reliance on the kind of market mechanism you would use in the consumer market. We weren't convinced you could.' Photograph: Graham Turner for the Guardian

Loans that no one expects to be repaid. No limit to the number of students institutions can recruit. If radical changes over the past two years to financing UK higher education have sometimes appeared risky, that is because they are, according to a report published this week.

The report, compiled by the Higher Education Commission – a cross-party group of MPs and representatives from business and academia – warns that the current system of fees and loans is the worst of all worlds, and is unsustainable for the future: "An experiment is under way, with potential consequences for English HE stretching decades into the future."

It points out that the government is investing heavily but getting no credit for it; students feel they are paying substantially more despite having debts written off, and universities are being seen as rolling in tuition-fee money when their grant has been cut and fee income has failed to rise with inflation.

"We have created a system where everyone feels they are getting a bad deal and this is not sustainable," the report argues.

Its author, Ruth Thompson, a former senior civil servant in charge of higher education, who chaired the commission with Lord Norton, a Conservative peer and professor of government at Hull University, says the level of consensus on this was striking considering what a politically charged area it is.

The issues need to be confronted, she says. "If everybody were to ignore the importance of debating what to do next and everyone said nothing needed doing, that everything is as it should be, that would be concerning."

Publication of the report comes just two weeks after the government rejected calls for an urgent review of England's student finance system from the Commons business, innovation and skills committee, which argued that the UK was reaching a "tipping point" in terms of its financial viability. The government responded that there was "no imminent pressure on the system", citing the support of the Organisation for Economic Cooperation and Development, which has described the UK as the first European country to establish a sustainable approach to higher education funding.

Andreas Schleicher, special adviser on education policy at the OECD, says governments in many European countries end up compromising quality and restricting access because they neither put in enough money to support higher education nor allow universities to charge for tuition. But allowing institutions to charge tuition fees and putting the burden entirely on families, or relying on commercial loans, risks benefitting the wealthiest most.

"The UK (and Australia too) have squared that circle with a combination of income-contingent loans and means-tested grants," he says, arguing that worries about shifting the risk to government are flawed because the added tax income of graduates who end up in employment is many times larger than any conceivable bad debt. "That's why everyone wins and it is the most sustainable approach."

But the Higher Education Commission report says a new model is needed. It urges the government to reconsider and to follow the committee's recommendation for a review.

Thompson says that while the commission supports the idea of both individuals and the state contributing and recognises that the UK's existing higher education funding system is strong enough to withstand some volatility, looking ahead to the next five years caused it concern. "This is a long-term area where if we don't learn and think and deliberate in advance, we can run into trouble," she says.

A particular worry is the amount of debt built into the system, under which tuition fees of up to £9,000 a year are charged, financed through loans that students repay once they begin earning more than £21,000, and written off after 30 years. According to the Institute for Fiscal Studies, students will graduate with an average of £44,035 in student debt, compared with £24,754 if the reforms had not been introduced, and 73% of graduates will not repay their debt in full, compared with 25% under the old system.

The commission "fundamentally questions any system that charges higher education at a rate where the average graduate will not be able to pay it back" and "where, for example, a teacher is unable to secure a mortgage at age 35 because of the high level of monthly loan repayment".

Thompson says she was surprised at the reaction of students to this. "The extent to which students were more passive recipients than actors in what is sometimes presented as a market was of interest to us and of some concern," she says. "When they become graduates they will become people with a substantial debt to repay – or not repay."

The idea of the state underwriting these debts – predicted to be £330bn by 2044 – was another worry, particularly because of problems with debt collection. The commission wants universities to help trace graduates who fail to repay, including those overseas, and it wants pilot schemes to explore improvements in debt collection by 2016.

It is alarmed that the policy dramatically increases the cost of student loan write-offs for future governments without any easy way of estimating what those write-offs will be. And it firmly rejects financing student loans through sale of the student loan book, having heard hardly any evidence in its favour.

The commission identifies problems with alternative sources of funding for universities too. It worries that increasing use of bonds makes it more likely for an institution to default, with potential knock-on effects for the rest of the sector. It says that asking previous graduates to contribute through the tax system or businesses that employed graduates to pay higher national insurance contributions were "both avenues that were not as promising as they appear at first".

Rapid expansion of undergraduates, combined with a decline in numbers of postgraduate and part-time students, further worries the commission. While it supports the idea of more graduates, it suggests that the policy of lifting the cap on numbers announced last year puts the financial sustainability of the sector, as well as its quality, at risk and that it should be monitored, and if necessary reversed.

Also financially risky, according to the report, is the attempt to introduce market forces to a sector that does not operate as a market.

"It isn't a consumer good," says Thompson. "The issue then is whether you can place a reliance on the kind of market mechanism you would use in the consumer market. We weren't convinced you could."

The report argues that far from introducing more diverse learning models, the 2012 reforms, which followed the 2011 higher education white paper, "have resulted in zero price variation, little expansion of new offers for students and minimal innovation in teaching and learning".

But their most damaging legacy, it concludes, "has been to leave a sector, public, and political parties that are nervy around reform, characterised by differing opinion and mistrust". Hence a reluctance to make the kinds of decisions it argues are needed in the runup to next year's general election.

With the higher education policies of the three main parties still unclear, the report discusses possible alternative funding models, including the graduate tax and lower £6,000 fee favoured by many in the Labour party, and the possibility of differential fees or lifting the fee cap.

Yet while the report insists that something needs to be done, and suggests various possible actions, it falls short of advocating one solution over another, arguing that the decision requires political judgments about potential winners and losers.

Is the Student Loan Debt Crisis Beginning to Ease? - NBC News.com

Posted: 13 Nov 2014 06:12 AM PST

For the first time, the average student loan debt has topped $30,000 per graduate in several states. But there are also signs the $1 trillion crisis is easing, according to two reports released Thursday.

The Oakland, California-based Institute for College Access and Success (TICAS) says the average for the class of 2013 topped $30,000 in six states, with others not far behind. The average debt nationwide in 2013 was $28,400, TICAS said, up 3 percent from the year before.

The nonprofit organization's ninth annual report, "Student Debt and the Class of 2013" finds 69 percent of graduates left school with at least some debt.

"It's getting harder and harder to graduate from college without debt," Lauren Asher, president of TICAS, told CNBC.

The report also notes that debt varies widely from state to state. The six states breaching the $30,000 mark for the first time are New Hampshire, Delaware, Pennsylvania, Rhode Island, Minnesota and Connecticut. Maine, Michigan, Iowa and South Carolina are close behind, with average debt topping $29,000.

"It's getting harder and harder to graduate from college without debt."

Not only does New Hampshire lead the nation in average debt at $32,795, but 76 percent of its graduates have some student loan debt, the highest level in the country, the report says.

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At the same time, some states are keeping student debt relatively under control. New Mexico boasts the lowest indebtedness in the country, averaging just $18,656.

The TICAS report, and a separate report from the College Board, say there is some reason for hope among college grads, as the job market starts to improve and tuition increases slow—and in some cases actually reverse.

Schools holding line on tuition

And although college tuition is still increasing more than overall inflation, the College Board's "Trends in College Pricing 2014" says schools are starting to hold the line on tuition.

"These price increases are lower than the average annual increases in the past five years, the past 10 years, and the past 30 years," the report says.

For example, in-state tuition at four-year public schools increased just $254 for the current academic year. The 2.9 percent increase marks the first time since 1974-75 that tuition has risen less than 3 percent, the report found.

According to the report, for-profit colleges, which have come under heavy criticism for their role in the student debt crisis, raised tuition just 1.3 percent on average this year.

Out-of-state tuition at public universities is up 3.3 percent this year, and private four-year institutions have raised prices 3.7 percent, nearly twice the overall rate of inflation.

The College Board says the picture is even brighter when you consider government rants and aid, which is further tamping down tuition increases. In some cases, the report says, tuition is actually going down.

The report says based on "net" pricing—after grants, tax credits, and deductions, tuition has risen 32 percent in the past 10 years, compared with 42 percent the decade before. At four-year private schools, net prices have actually declined 13 percent over the past decade.

Borrowing declining

As a result, the College Board says borrowing by students still in school is declining—down 14 percent since 2011. If the trend holds, the average debt per graduate should begin to drop as soon as this year.

Rising tuition has been a major bone of contention in the ongoing student debt crisis. Critics have blamed everything from overbuilding and added student perks at colleges and universities, to the relative ease of obtaining student loans and grants. Others have pointed to declining government support for education, forcing schools to rely more heavily on tuition.

Asher said the few glimmers of hope in the latest data do not mean the crisis is over. "Lower rates of increase in tuition and debt at graduation are good, but they're still increases," she said.

Asher adds that a major reason for the improvements has little to do with reforms, and more to do with the fact that an improving job market means fewer people are going to college.

TICAS also found that for the class of 2013, unemployment for recent college graduates was 7.8 percent, or less than half the rate for young people without a college degree.

"A college education is still one of the best investments out there," Asher said.

First published November 13 2014, 6:12 AM

Saturday, 15 November 2014

Student loan | Student Loan Debt Skyrockets—and So Do Delinquencies - Hit ...

Student loan | Student Loan Debt Skyrockets—and So Do Delinquencies - Hit ...

Student Loan Debt Skyrockets—and So Do Delinquencies - Hit ...

Posted: 06 Oct 2014 11:41 AM PDT

Antanith / FoterLast week, President Obama boasted, "We've helped more students afford college with grants, tax credits, and loans, and today, more young people are graduating than ever." What he didn't add is that "we've" also piled a growing load of crippling debt on young college students that they're increasingly unable to bear. As Ericka Davis writes for the Federal Reserve Bank of Dallas, "Over the past decade, student debt has skyrocketed and delinquency rates have nearly doubled to levels much higher than for other consumer lending products."

Even as Americans have largely taken a good grip on their debt load and finances in other areas of life, college students take out loans at an accelerating pace to pay for ever-more expensive college educations that they hope will deliver enough income to let them pay off the debt.

That's a big hope. When I was a college freshman in 1983, average tuition, fees, room and board at private, nonprofit colleges added up to $18,143 in 2013 dollars. This year, that number has risen to $40,917. Starting pay for recent college graduates has definitely not kept pace. Lots of recent college grads are underemployed, many in gigs that don't require the degree they have yet to pay for.

Federal Reserve Bank of Dallas

In the Dallas Fed report, Davis writes that student loans are especially risky, as debt goes.:

The unique circumstances of student loan borrowers coupled with the distinctive characteristics of student loans may lead to excessive borrowing, more delinquent payments and lower credit scores. Student loans are often originated when borrowers earn little income. Many borrowers have only a vague idea of their future earnings potential and ability to repay. Borrowers can defer payment of unsubsidized loans while enrolled in college, which results in an even larger debt burden. And many borrowers do not understand the structure and repayment options associated with student loans. Moreover, with the exception of certain programs or an undue hardship petition or death, student loans are rarely forgiven.

Unshockingly, while defaults decline for credit card debt, mortgages and auto loans, they're on the rise for student loans. "At 10.9 percent, the second quarter 2014 delinquency rate on student loans was more than three times that of mortgages and auto loans, and more than 3 percentage points higher than the rate of serious delinquencies on credit cards." Apparently, young grads with overpriced sheepskins and no decent jobs in the offing have trouble meeting the tab.

Federal Reserve Bank of Dallas

Growing student loan defaults have lingering impacts on borrowers' lives. Since 2008, 30 year olds with student loan debt have, on average, seen their credit scores slide relative to 30 year olds free of such debt. That means add-on financial problems across their lives, in addition to the load they carry.

The Fed report says "more research" is needed of the growing debt problem. Hopefully it won't carry the soaring price tag of your average college study session.

J.D. Tuccille is managing editor of Reason.com.

Friday, 14 November 2014

Student loan | 24% Of Millennials "Expect" Student Loan Forgiveness | Zero Hedge

Student loan | 24% Of Millennials "Expect" Student Loan Forgiveness | Zero Hedge

24% Of Millennials "Expect" Student Loan Forgiveness | Zero Hedge

Posted: 13 Nov 2014 06:10 AM PST

It appears the concept of no consequences is now deeply embedded in the American society. As Student loan debtloads surge ever higher - and opportunities grow ever lower - NBC News reports a rather stunning 24% of Millennials said they expect their loans will ultimately be forgiven, according to study released Wednesday by Junior Achievement and PwC US. That helps to explain why delinquency rates are at record highs - aside from the massive debtloads and no high-paying jobs - as students see bankers rigging every market in the world with little to no consequence, one can only imagine the lessons being learned.

Heavily delinquent student loans hit a fresh record high of $124.3 billion, up from $121.5 billion in the prior quarter.

NBC explains...

As NBC News reports,

That could be a lot of accumulated debt, considering the average amount of cumulative student debt for undergraduates in the class of 2012 was $26,885, according to a recent Pew Research report. The average debt for 2013 graduates is expected to be even higher.

"It's a scary statistic," said Jack Kosakowski, president of Junior Achievement, which co-sponsored the Ypulse survey. The survey conducted for Junior Achievement, "Millennials & College Planning," did not address why the students thought their loans would be forgiven, and it was the first year the question was included in the survey.

The report also found that 60 percent of millennials surveyed said financial aid is a deciding factor in their school choice and 21 percent said the cost of college was their family's main financial problem.

* * *

Given the following, it is hardly surprising they hope and expect for forgivness...

The following are 18 sobering facts about the unprecedented student loan debt crisis in the United States…

#1 According to the Wall Street Journal, the class of 2014 is "the most indebted ever"…

As college graduates in the Class of 2014 prepare to shift their tassels and accept their diplomas, they leave school with one discouraging distinction: They're the most indebted class ever.

The average Class of 2014 graduate with student-loan debt has to pay back some $33,000, according to an analysis of government data by Mark Kantrowitz, publisher at Edvisors, a group of web sites about planning and paying for college. Even after adjusting for inflation that's nearly double the amount borrowers had to pay back 20 years ago.

#2 In 1994, less than half of all college graduates left school with student loan debt. Today, it is over 70 percent.

#3 Approximately 15 percent of graduate and professional school students leave school with student loan debt balances in the six figures.

#4 At this point, student loan debt has hit a grand total of 1.2 trillion dollars in the United States. That number has grown by about 84 percent just since 2008.

#5 According to the Pew Research Center, nearly four out of every ten U.S. households that are led by someone under the age of 40 is paying off student loan debt right now.

#6 The median net worth of young households that have student loan debt is 20 percent lower than the median net worth of young households that do not have any student loan debt and that are led by someone with only a high school education.

#7 Among college educated people, the median net worth of young households that do not have student loan debt is seven times higher than the median net worth of young households that do have student loan debt.

#8 In 2008, approximately 29 million Americans were paying off student loan debts. Today, that number has ballooned to 40 million.

#9 Since 2005, student loan debt burdens have absolutely exploded while salaries for young college graduates have actually declined…

The problem developing is that earnings and debt aren't moving in the same direction. From 2005 to 2012, average student loan debt has jumped 35%, adjusting for inflation, while the median salary has actually dropped by 2.2%.

#10 According to CNN, 260,000 Americans with a college or professional degree made at or below the federal minimum wage last year.

#11 Even after accounting for inflation, the cost of college tuition increased by 275 percent between 1970 and 2013.

#12 Debt for law school students has risen dramatically over the past decade or so…

J.D.s certainly don't come cheap. It's almost unheard of to attend law school without taking out significant loans. What's more, the average debt load is mounting: in 2001-2002, JDs borrowed on average $46,500 at public law schools and $70,000 at private law schools; by 2011, those numbers rose to $75,700 and $125,000, respectively.

#13 Last year it was being reported that 34.9 percent of all student loan borrowers under the age of 30 are at least 90 days behind on their student loan payments.

#14 One survey found that 27 percent of those with student loan debt moved back in with their parents after college.

#15 Another survey found that 70 percent of all college graduates wish that they had spent more time preparing for the "real world" while they were still in school.

#16 Student loan debt is causing many young Americans to delay getting married. The following is from a recent NBC News article…

While there is no specific data on student debt-related delays to marriage, a recent study by the Pew Research Center shows that a record number of Americans have never married. The study found the median age at first marriage is now 27 for women and 29 for men. In 1960, the median age was 20 for women and 23 for men.

#17 Many Americans are not even using most of their student loan money to pay for college. Instead, many are using much of that money to pay bills or stock the fridge…

Take Ray Selent, a 30-year-old former retail clerk in Fort Lauderdale, Fla. He was unemployed in 2012 when he enrolled as a part-time student at Broward County's community college. That allowed him to borrow thousands of dollars to pay rent to his mother, cover his cellphone bill and catch the occasional movie.

…

Tommie Matherne, a 32-year-old married father of five in Billings, Mont., has been going to school since 2010, when he realized the $10 an hour he was making as a mall security guard wasn't covering his family's expenses. He uses roughly $2,000 in student loans each year to stock his fridge and catch up on bills. His wife is a stay-at-home mother who also gets loans to take online courses.

"We've been taking whatever we can for student loans every year, taking whatever we have left over and using it to stock up the freezer just so we have a couple extra months where we don't have to worry about food," says Mr. Matherne, who owes $51,600 in federal loans.

Some students end up going deeper into debt. Early last year, when Denna Merritt lost her long-term unemployment benefits, the 49-year-old Indianapolis woman enrolled part-time at the Art Institute of Pittsburgh's online program, aiming for a degree in graphic design. She took out $15,000 in federal loans, $2,800 of which went to catch up on unpaid bills, including utilities, health-insurance premiums and cable.

"Obviously, it's better not to use it that way if you can help it, because you're just going to owe that much more later," says Ms. Merritt, a former bookkeeper.

#18 Only 28 percent of Americans know that the U.S. government can garnish wages and withhold tax refunds if student loan debts are not repaid.

It should come as no surprise that the delinquency rate on student loan debt in this country is far higher than the delinquency rate on mortgages, auto loans and credit card debt.

This is a financial bubble that gets worse with each passing year, and if we continue on our current course it is going to end very, very badly.

* * *

Now where would they get the idea that forgiveness will happen?

"The challenges of managing student loan debt can lead some borrowers to fall behind on their loan payments and in some cases even default on their debt obligation," notes the always astute White House... and so it's time to do something about that... by bailing the bad debtors out with US taxpayers money. As we have been vociferously warning, not only has the student loan debt bubble expanded massively (as the easiest credit substitute for real-world working and unemployment) but delinquencies on the 'easily available' credit is soaring with "consequences such as a damaged credit rating, losing their tax refund, or garnished wages." Consequences, as we have been taught now, are not acceptable for this administration and so President Barack Obama issued an executive action in June aimed at making it easier for young people to avoid trouble repaying student loans.

A Federal Government bailout...?

As Reuters reported,

President Barack Obama will issue an executive action on Monday aimed at making it easier for young people to avoid trouble repaying student loans, a White House official said on Sunday.

The president will sign an order directing the secretary of education to ensure that more students who borrowed federal direct loans be allowed to cap their loan payments at 10% of their monthly incomes, the official said.

Federal law currently allows most students to do this already. The president's order will extend this ability to students who borrowed before October 2007 or those who have not borrowed since October 2011, the official said.

The administration says this action will help up to 5 million more borrowers, although it will not be available until December 2015.

* * *

Welcome to the real world, debt serfs...

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Connecticut Ranks Sixth In The Nation For Student Loan Debt In ...

Posted: 13 Nov 2014 06:57 PM PST

Connecticut ranked sixth in the nation in average student loan debt for 2013 graduates, according to a new report that found national debt levels are rising for students earning bachelor's degrees.

At $30,191, Connecticut's average student debt was nearly $2,000 higher than the national average of $28,400, according to the report released Thursday by the Project on Student Debt at the Institute for College Access & Success. The state was one of six in which average student debt was higher than $30,000.

The report did not include for-profit institutions. Data was collected on a voluntary basis, as colleges are not required to report information about student debt levels, leading some to question how accurately the report reflected the states and schools where students had the highest debt. But observers acknowledged that the findings highlight a significant problem both in Connecticut and across the country as student borrowers are facing mounting debt.

The state with the highest student loan debt last year was New Hampshire, where the average for graduates was $32,795. Student debt was lowest in New Mexico, at $18,656.

"Graduates from New Hampshire colleges are almost twice as likely as Nevada graduates to leave school with student loan debt, and they owe almost twice as much as graduates from New Mexico colleges," said Debbie Cochrane, research director at the student debt project and a co-author of the report. "The importance of state policy and investment cannot be overstated when it comes to student debt levels."

Connecticut has several expensive, private colleges and universities, among them Quinnipiac University and the University of Hartford, which were both identified in the report as two of the top 20 "high-debt" private institutions.

Dominic Yoia, Quinnipiac's financial aid director, said, "Obviously we don't want to be in the top 20." But he pointed to the school's cohort default rate, a measure of the percent of students who are graduating, finding jobs and paying off their debt, which has remained stable for more than a decade. That is a "good indicator of the value of the degree we are offering," he said.

Yoia acknowledged that high tuition costs contribute to rising debt, but said: "The Yales and Harvards have $20 billion or $30 billion endowments — the Quinnipiacs don't."

Exacerbating that problem, he said, was that "in the last decade federal grants and state grants have gone down."

"You have one of two options — you can either charge it back to the students in the form of tuition, or the federal and state governments can step up and continue financing," he said.

A College Board report published Thursday found that in-state tuition costs rose this year at public universities, but did so at a slower rate than in previous years.

"Given the fiscal situation of the state, it's kind of hard to say you're going to be giving more money to the schools so they can reduce the cost of tuition … right now that seems unrealistic," said Rep. Roberta Willis, D-Lakeville, chairwoman of the legislature's higher education committee.

Willis said steps should be taken to ensure that students better understand the risks of taking out a loan. She has asked for a review of certificate programs in Connecticut, which she said take advantage of students' poor financial literacy and result in "young people being sucked in to something that at the end of the day they can't afford." Certificate programs don't offer formal degrees.

Ultimately, Willis said, student loan debt needs to be addressed at the federal level.

U.S. Rep. Joe Courtney, D-2nd District, has been a champion for student loan reform in Congress. He says he hopes to address higher education affordability in the next Congress and outlined some approaches.

A top priority, Courtney said, is to develop an incentive program to encourage colleges to make their degrees more affordable. The schools, he said, can't just assume federal student loan and grant programs "will be available as an open checkbook."

Courtney said states, too, need to be partners, rather than relying on the federal government. In recent years, he said, "states have retreated in terms of their aid. He said governors and state legislators have balanced their budgets at the expense of higher education."

Connecticut is not an exception, Courtney said.

Both Courtney and U.S. Sen. Richard Blumenthal are co-sponsors of legislation that would allow borrowers with existing student loan debt to refinance their loans at a lower interest rate.

"The federal government is profiting from student debt when we should be investing," said Blumenthal, who also has introduced another student loan bill that would allow debtors to work down their loan.

Wednesday, 12 November 2014

Student loan | Will You Be Able to Repay That Student Loan?

Student loan | Will You Be Able to Repay That Student Loan?

Will You Be Able to Repay That Student Loan?
Treasury Dept. Urges Student Loan Servicers To Do A Better Job ...
Spring Graduates Face November Bummer: Paying Back Student ...

Will You Be Able to Repay That Student Loan?

Posted: 21 May 2014 08:00 AM PDT

This month, thousands of college seniors are tossing their mortarboards in the air – and getting ready to start paying off their student loans.

But will they be able to? A recent National Bureau of Economic Research working paper by Lance J. Lochner and Alexander Monge-Naranjo takes a closer look at the problem, going beyond simple default rates and looking at repayment patterns, and the total amount owed, more closely. They researched graduates who were not currently making any payments 10 years after finishing school, either because those borrowers were in default or because they had received a forbearance or deferment on their loans. (Deferments and forbearances are more common in the early post-college years, and considered more serious 10 years out.)

One big determinant: how much money you make after you graduate. The researchers found that a $10,000 increase in your post-school salary is equivalent to 1.2% in increased repayment amounts.

It also matters where you went to school. Graduates from four-year colleges tend to repay more of their debts (see the point above about making more money). Two-year colleges and for-profit colleges turn out the most defaulters (and more drop-outs), even though their debts are lower. (Critics of for-profit schools blame the schools for this; the schools themselves say they are simply serving a more financially precarious population, in essence shifting the blame to their students.) Students attending historically black institutions tended to graduate with less-than-average debt, although the researchers warned that the sample size here was too small to draw specific conclusions.

Finally, it also matters how much you borrowed. For every additional $1,000 borrowed, the likelihood of nonpayment rises by 0.4 percentage points. Put differently, to offset every additional $1,000 you borrow, you need to earn an additional $10,000 in income or your risk of nonpayment will rise.

All of these factors are, to some degree, within borrowers' control – which career path you choose after school, which school you enroll in, and whether you choose a very expensive school or a cheaper option are all up to you, even if which schools accept you, how much financial aid you're offered, and who ultimately hires you are all outside of your direct control But Lochner and Monge-Naranjo also found a range of factors wildly outside of student borrowers' control, some of which mattered more than the above. For instance:

Whether your mother went to college. In a regression analysis that controlled for race, SAT score, and parental income, the researchers found that students whose moms didn't go to college ended up borrowing about $1,500 more, and owed more on those loans 10 years out. However, they note that these borrowers do not have significantly higher default or nonpayment rates than borrowers whose mothers did go to college.

Whether you are a woman or a man. The authors note that women's "significantly lower post-school earnings" translates into higher nonpayment rates. Women owe more on their loans 10 years after graduating. While men and women have "nearly identical" default rates, according to the paper, "women have defaulted on 80% more debt than have men." And yet it's very important to note that once you control for the amount of money men and women make, this gap shrinks and becomes statistically insignificant – confirming that it's the differential in pay, not some other factor, that leaves women owing more.

Whether you are white, black, Hispanic, or Asian. "On average," they write, "black borrowers still owe 51% of their student loans 10 years after college, while white borrowers owe only 16%. Hispanics and Asians owe 22% and 24%, respectively." These are among the most significant findings in the paper, and they're worth quoting in full:

Among the individual and family background characteristics, only race is consistently important for all measures of repayment/nonpayment. Ten years after graduation, black borrowers owe 22% more on their loans, are 6 (9) percent more likely to be in default (nonpayment), have defaulted on 11% more loans, and are in nonpayment on roughly 16% more of their undergraduate debt compared with white borrowers. These striking differences are largely unaffected by controls for choice of college major, institution, or even student debt levels and post-school earnings. By contrast, the repayment and nonpayment patterns of Hispanics are very similar to those of whites. Asians show high default/nonpayment rates (similar to blacks) but their shares of debt still owed or debt in default/nonpayment are not significantly different from those of whites. This suggests that many Asians who enter default/nonpayment do so after repaying much of their student loan debt.

Importantly, the researchers did control for different college majors, different SAT scores, and different post-school earnings for each racial group. They conclude: "While blacks have significantly higher nonpayment rates than whites, the gaps are not explained by differences in post-school earnings – nor are they explained by choice of major, type of institution, or student debt levels."

What does explain them? Lochner and Monge-Naranjo don't have satisfying answers. They speculate that it all comes back to how much money mom and dad have. If your parents can help you out – with both cold, hard cash, and sound financial advice — you're a lot less likely to end up in nonpayment. The researchers found that every $10,000 increase in parental earnings equated to about $250 less in student loans for their children. And an earlier study by Lochner and colleagues of Canadian students with low post-school earnings found that financial support from their parents was instrumental in keeping students out of default. But one thing that's not in the data is how much wealth parents have beyond their earnings, which could have important racial implications – previous studies have shown that even when blacks and whites make the same salary, black families still hold less wealth.

With student loan debt at crisis levels, Lochner and Monge-Naranjo's findings add important nuances. This is information that government leaders and lenders need to pay attention to as the debate over regulation heats up – and that students need before they make possibly the biggest financial decision of their lifetimes.

Treasury Dept. Urges Student Loan Servicers To Do A Better Job ...

Posted: 07 Nov 2014 11:17 AM PST

Treasury Dept. Urges Student Loan Servicers To Do A Better Job, Try Incentives – Consumerist

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Spring Graduates Face November Bummer: Paying Back Student ...

Posted: 09 Nov 2014 03:19 PM PST

SAN FRANCISCO (KPIX) — For new college graduates, November is a month many dread because it's the time spring grads are due to begin paying back their student loans.

At San Francisco State University, junior Jason Steckler says he's not focused yet on that future debt service.

"I'm a person who likes to focus on my school and I'll worry about the money later," he told us.

Jason's not alone.

Student loan debt in the U.S. is over $1 trillion.

Prof. Shengle Lin thinks that enormous figure explains why many millennials have delayed buying a car or house.

"This group carrying student debt is postponing their home ownership. They're going through a lot of economic difficulty — much more than any previous generation," Lin said.

Almost half of those polled in one national survey said student loan debt is a key obstacle in buying a home.

But what can be done?

Prof. Lin suggests that — along with lowering interest rates — the federal government should lengthen the grace period after graduation before loan payments begin. Lin believes this would give graduates time to find a good job in a career they will stay with, instead of taking the first job they can find just to cover their loan payments.

Sunday, 9 November 2014

Student loan | Student loans: Taking away the free ride for colleges » AEI

Student loan | Student loans: Taking away the free ride for colleges » AEI

Student loans: Taking away the free ride for colleges » AEI

Posted: 30 Jun 2014 06:53 AM PDT

Image Credit: Shutterstock

Looking at the rapid growth of student loans and the escalating price of college from a financial perspective, we see a typical interaction of credit expansion and price, quite similar to what happens in a housing bubble or any other bubble. Pushing credit at a sector makes its prices rise. The rising prices, in the cases of both housing and higher education, lead to cries that since the prices are now unaffordable, there has to be more credit. More (and more heavily subsidized) credit the politicians often enough deliver, and the escalation goes on.

This self-reinforcing dynamic is intensified when there are important parties who get cash from the loans for themselves, but have no risk at all when the loans default. In the most recent housing bubble such parties included lenders who promoted and originated but then sold their mortgage loans. In education, the most important risk-free beneficiaries are the colleges themselves, which keep raising their prices, promote the loans, get the cash from the loans, and don't have to worry about what happens when the loans they promoted subsequently default.

Interacting credit-price expansions inevitably come to face growing defaults. In a recent paper*, the Federal Reserve Bank of New York observes that "the measured delinquency rate on student debt is the highest of any consumer debt product." This measured rate of student loans 90 days or more past due is 17%–indeed very high delinquency. But, the New York Fed goes on to say, the real or "effective delinquency rate," which they calculate by comparing 90 day past dues specifically to those student loans where borrowers are being asked to repay, is over 30%!

That 30% is the same as the peak serious delinquency rate of subprime mortgage loans in 2009.

Among the things to be done to improve the student loan-college price spiral is to address the free riders in the student loan sector: namely, the colleges. They should cease to be free riders on other people's credit risk and credit losses. Here I have one firm recommendation and one further possibility to suggest.

First, the colleges should definitely have "skin in the game" in student loan credit risk, just as the need for "skin in the game" was one of the biggest lessons of the mortgage bubble.

Each college should be financially on the hook for at least 20% of the losses its own defaulting students cause. This would certainly improve what is now a complete mismatch in incentives, and thus improve educational, as well as financial, performance.

A second idea (wittily suggested to me by Arthur Herman of the Hudson Institute) is one which should strongly appeal to everyone on the leftward side of this discussion. It is to have a wealth tax on rich colleges to help fund the cost of student loans.

My version of this idea is that the wealth tax should apply only to the top 1% of college endowments (of course not to the 99%). There are about 2,800 four-year degree granting colleges, so the top 1% would be 28 of them. You could easily guess most of the prestigious names on this list. They represent an "inequality" problem of a severe kind: the top 1% of endowments have 51% of the total college endowment wealth. This is obviously unfair! So as suggested by the current darling of the left, Thomas Piketty, a 5%-10% wealth tax on the assets of this unfairly advantaged 1% might seem about right.

However, in my proposal, a college or university would be exempt from this wealth tax if less than three of its faculty members have publicly argued for higher taxes on the wealthy. But if three or more of its faculty members have promoted more taxes on the wealthy, the tax would apply to that member of the college 1%.

I imagine that with this criterion, all 28, except perhaps the University of Chicago, would be paying. A higher degree of poetic justice would be hard to find.

In any case, the essential conclusion is that the colleges have to stop being free riders which jack up their prices and promote debt, while pushing all the credit risk and losses on the taxpayers.

*Federal Reserve Bank of New York, "Measuring Student Debt and Its Performance," Meta Brown et al., April, 2014

Alex J. Pollock is a resident fellow at the American Enterprise Institute in Washington, DC. He was President and CEO of the Federal Home Loan Bank of Chicago, 1991-2004.

Follow AEIdeas on Twitter at @AEIdeas.