Student loan | <b>Student loan</b> debt presents paradox | TribLIVE |
| <b>Student loan</b> debt presents paradox | TribLIVE Posted: 18 Oct 2014 06:30 PM PDT It was a monster they could manage, this six-figure debt. Two years ago, the Salvias, both lawyers in the Harrisburg area, bought a two-story home with a fenced backyard for their purebred boxer, Mani. They're putting finishing touches on a nursery for their first child, a girl, due this winter. And they're paying off law school: about $300,000 in combined student loans. “It's just one of those things that come off the top,†said Ralph Salvia, 35. “We're fortunate to make enough money.†Salvia and his wife, Trisha, represent a sliver of student-loan borrowers who have found a way to refinance. Unlike many struggling student borrowers nationwide, they don't need anyone's debt-management help â€" and that's precisely why they're eligible for it. The Salvias refinanced their student loans this year through Citizens Bank, slashing their interest rates from about 6.75 percent to 2.35 percent, putting their student loan rate lower than their mortgage rate of 3.25 percent. Their monthly payments dropped by $700. The savings, the couple says, will go toward day care. “I've told all my friends to do this,†Ralph Salvia said. “Multiple times.†On paper, refinancing student debt â€" like refinancing a mortgage â€" is a logical way to save cash. The idea: You often apply for education loans as a penniless teenager and, ideally, graduate four (or seven or 12) years later with a steady job and a healthier credit score. “It makes sense that you should then qualify for lower interest rates,†said Brendan Coughlin, president of education finance business at Citizens Bank, which last year rolled out its student loan refinancing service. “People who take advantage of this opportunity could save thousands.†Refinancing, proponents say, is especially attractive as the nation's total student loan debt burden hits $1.2 trillion. More student loans than credit card accounts are now delinquent. The Class of 2014 was called the most indebted ever. The Class of 2015 is likely to inherit that title. The grim reality of refinancing, however, is that most borrowers â€" the average bachelor's degree graduate with debt owes $29,000 â€" aren't eligible for the deal. Education refinancing requires steady income and a high credit score. Citizens Bank takes on the federal and private student loans of borrowers with a minimum FICO score of 660. Salvia's is 810. (He won't disclose his income.) SoFi's average client makes $150,000, chief executive Mike Cagney said, and has an average FICO score of 770. The company has never had a client default. Today, a handful of private companies offer student loan refinancing with these strict eligibility requirements. Citizens Bank and SoFi are among the largest, with thousands of customers nationwide. They say refinancing can be an economic boost, a shortcut to buying a home or starting a business. But student loan refinancing is not for cash-strapped graduates sinking in a quicksand of debt. The cost-cutting tool isn't designed to relieve the overburdened. It's used to get ahead. “A quirk of lending: The people who have the most difficult financial situations often get the highest interest rates,†said Mark Kantrowitz, publisher of Edvisors.com. “That makes it even more difficult for them to repay loans.†Companies won't risk buying a default, Kantrowitz said. The most vulnerable borrowers, those who must seek other debt-management avenues, can improve credit by making every payment on time. Consumer protections built into government loans make the process easier. Access to federal income-based repayment and emergency forbearance can be lost when debt is privately refinanced. Banks have no incentive to provide these safety nets. Regardless of whether you refinance, though, it's almost impossible to wipe out student loan debt in a bankruptcy. Sen. Elizabeth Warren, D-Mass., introduced a bill this year to address the country's student debt problem. (Sen. Sherrod Brown, an Ohio Democrat, attempted a similar move last year.) Warren's bill, which was backed by Democrats and would have allowed all borrowers to refinance loans, died during the summer in the Senate and was blocked again last month by Republicans. The measure would have enabled people with older loans to adopt much lower interest rates. Warren proposed taxing millionaires to fund the program, an approach Republicans opposed. She has pledged to keep pushing. “Homeowners are refinancing,†she said at a recent news conference. “Small businesses are refinancing. We just want young people who got an education to have their shot.†The current interest rate on undergraduate federal Stafford loans â€" the most widely borrowed â€" will be 4.66 percent this school year, an increase from last year's 3.96 percent. Graduate students' Stafford rates increased to 6.21 percent, from 5.41 percent. Interest rates on older federal student loans can hit 9 percent, or even higher. Students who borrow from the government often also finance their education through private loans with often higher rates. Some experts say the contrasting outcomes of rich borrower, poor borrower drive inequality in the United States. Holly Ittel, 23, wonders how she'll pay off more than $70,000 in student loan debt. Last week, she had $5 in her bank account. An artist from Ohio who babysits for wealthy New York City families, Ittel tries not to think about her 9 percent interest rate. She won't bother trying to refinance her student loans â€" a lost cause. Still, Ittel doesn't regret studying ceramics at Ohio University, though the program cost far more than the community college in her hometown. “I followed my passion there,†she said. “But I didn't fully realize what I was getting into. I wasn't fully aware of the debt until after graduation.†Her monthly income is about $1,200. Her rent in the Bronx is $1,200, split with her boyfriend. Her parents, a farmer and a nurse, cover her private loan payments. Her federal loans are in forbearance until next year. Ittel searches each day for a higher-paying job, one in the art field. Her dream is to work at a museum. For now, she says, the best way to manage debt is to defer it. She'll apply to graduate schools this winter. TribLive commenting policyYou are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service. We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information. While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers. 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| Mark Cuban On <b>Student Loans</b> - Business Insider Posted: 13 Oct 2014 08:36 AM PDT
Speaking in an interview on CNBC, Cuban said that the increase in student loan debt is holding back the economy, as the purchasing power of college graduates becomes increasingly held back by high debt burdens. Cuban said that the "easy money" the government funnels to college students is "no different" than the policies that encouraged people to buy houses in the mid-2000s. Cuban's solution is to put a limit on the amount of money that any individual can borrow in a single year that is guaranteed by the government. Cuban said the government's backing of student loans has allowed universities to increase their tuition and increase administrative excesses. "When you have more administrators making $200,000 a year than professors, you have something wrong," Cuban said. Cuban added that the worst thing a wealthy person can do is donate a building to a university, because this encourages the excess that have become so rampant and problematic in the higher education system. The main downside to Cuban's position, he said, is that right now, he's not taking the initiative to make something happen. These comments on CNBC follow similar comments from Cuban made recently at Inc.'s GrowCo conference. You can watch the video of those comments here. Cuban also talked to CNBC about the stock market, which he says isn't representative of the economy anymore. "We're not really sure what drives the stock market anymore," Cuban said. "There used to be correlations we could understand. But the problem is that nobody really understands what drives our market, and so when things happen, they happen fast." In morning trade on Friday, stocks were lower across the board. |
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