Here are the best articles from around the web this week talking about student loans…
For the week ending Friday March, 2014
Student Loan News:
1. The long-term impact of student-loan debt:
Only in post-recession America could the indebted masses become a constituency — and a potential market. Call them Generation Overleveraged.
A whopping 40 million Americans owe an even more whopping $1.2 trillion in student-loan debt. The amount surpasses every other type of household debt except mortgage debt.
While the federal government has enacted laws that will ease future graduates' debt burdens, plenty of 20- and 30-somethings are still in the lurch. And at last these red-ink-stained wretches are garnering some attention from policymakers, politicians and bankers. Eyeing voters, politicians on the left and right have highlighted the issue, while banks are beginning to broaden their reach to refinancing student loans. It's not clear whether true relief or reform is on the way, but there's no denying that momentum has built along with the debt. Go here: http://www.usatoday.com/story/money/personalfinance/2014/03/03/ozy-student-debt/5976111/
2. How To Fix the Student Loan Bubble—and Banking, Too:
The US banking structure is screwed up in many ways, but policy-wise, nothing is more destructive than FDIC insurance for banks that do investment banking and trading as well as commercial lending. The fact that we haven’t split up plain vanilla lending from riskier, more leveraged operations have all sorts of perverse effects, the best known being the too big to fail problem.
But as I’ve been looking into the $1 trillion student loan bubble, I’ve found another perverse effect of our misaligned banking system. One of the reasons that the student loan bubble is so big and loans are so onerous is that any bank that is insured by the FDIC can’t actually price risk in the market effectively. There are base student loan rates, all of which are set by the government. Rules about how depository institutions backed by taxpayer dollars can make loans create a situation in which it is very difficult for such institutions to come in and give, say, a Stanford MBA graduate that has incredibly high earning potential a better rate than an English major at a lesser institution. (Sorry, Edith Wharton fans.) Published here: http://time.com/13538/how-to-fix-the-student-loan-bubble-and-banking-too/
3. It’s time to keep student loan lenders honest:
The Student Borrowers Bill of Rights Act of 2013 was recently introduced to the U.S. House of Representatives. One of the most noteworthy stipulations in this bill is the allowance for student loans to be forgiven once a person declares bankruptcy.
As tuition bills increase, so does the demand for student loans — but sadly these loans lack necessary consumer protections. The aforementioned bill would help install much needed protections for student borrowers.
The tremendous need for borrowing has placed too much leverage in the hands of lenders at the expense of student borrowers. Original post: http://www.dailytarheel.com/article/2014/03/its-time-to-keep-student-loan-lenders-honest
Student Loan Blog Posts:
1. Obama's Race Cops Now Targeting Student Loans:
Affirmative action in college admissions isn't enough for the president's race-mongers. Now they're demanding affirmative action in college financing. And to get it, they're framing lenders for discrimination.
On Friday, Obama's consumer credit cops for the first time will start cracking down on student loan underwriters and servicers.
The move follows complaints from civil rights activists that they discriminate against minorities who typically pay higher interest rates and are “shackled” with more college debt than whites. Oper link: http://news.investors.com/ibd-editorials/022714-691589-cfpb-begins-crackdown-on-racist-student-loan-servicers.htm
2. MN Senate considers bill allowing state to refinance student loans:
The state Office of Higher Education would be able to refinance student and parent loans under recently proposed legislation.
The bill’s author, Sen. Greg Clausen of Apple Valley, says he has heard complaints that interest rates on many private loans are too high, and repayment plans too inflexible.
“We talked to students who are carrying loans anywhere from nine to 12 percent,” he said. “And if we can lower that down into the three-, four percent, that’s a considerable savings.”
Clausen said as many as 18 states have started loan-refinance programs in the past few years, but do so in limited numbers. End here: http://blogs.mprnews.org/oncampus/2014/02/mn-senate-considers-proposal-to-allow-higher-ed-office-to-refinance-student-loans/
3. Borrowers Taking Out Student Loans for Personal Expenses:
Bad credit? Can’t find a job? Rent and bills to pay? Why not take out a student loan? Don’t worry, you don’t even have to take any classes.
According to the WSJ, more and more people are taking out student loans to cover costs well above and beyond tuition and ordinary living expenses. Nearly a quarter of all borrowers have taken out more in loans than they paid in tuition. The problem is particularly acute in online programs, where many of these borrowers are taking very few credit hours—and in some cases none at all.
These new debtors are taking advantage of several rather large loopholes in the federal student loan system. Federal lenders rarely perform credit checks, making it relatively easy for people with poor credit to receive loans by enrolling in a school regardless of their intention to get a degree. And online schools with low admissions standards and high allowances for living expenses are particularly good candidates for abuse. View post: http://www.the-american-interest.com/blog/2014/03/03/borrowers-taking-out-student-loans-for-personal-expenses/