Student Lenders Own Your Soul

So naturally, I’ve been completely preoccupied with student loans between mine, those of friends, family, etc. loans are everywhere. E-V-E-R-W-H-E-R-E! Personally, I’m following the lead of governments: austerity now.

Seriously though, there was an editorial in the New York Times on Friday entitled “Student Debt and the Economy.” The argument is that student loan debt is bad for everyone because the youngins are tied up in debt (loans and credit cards, damaged by delinquency), and as a result the youngins are unable to buy homes, save for retirement, and start a business.You know, we can't contribute to society in the traditional ways. I'm not one for a lot of tradition, and I couldn't careless if I never owned a home, but this retirement thing has my attention. No one should ever have to work themselves to death. We can discuss how the unemployed young people are organizing in a new way or being more entrepreneurial, and refusing to compromise their beliefs for money, but that would be for another time.

The Federal Reserve Bank of New York released a study that found 43% of 25 year olds have student debt in 2012, which is up from the 27% in 2004. Naturally, unemployment rates being so high and the decline in household incomes during the recession (and I’d argue before) has exacerbated the problem. The same study states that student debt has tripled between 2004 and 2012, which brings the total up to $1 trillion with 17% of borrowers 90 days delinquent (from the 10% in 2004). That’s bananas.

Additionally, there has been an increase in household debt across the board, which includes mortgage debt and credit card debt. Of course education debt is directly rooted in the state cuts to education which began in the 1970s. Everyone knows about the rising costs of higher education both private and public schools are rising costs. The Federal Reserve study estimated that 18% of borrowers have student loan debt of $25,000 to $50,000 and about 4% have balances higher than $100,000.

So options?

• If you’re contemplating suicide, don’t do it. Your fed loans would be forgiven, but everything else gets passed on to your survivors. I'm being tongue and cheek here, but the point remains.
• Do not combine your student loans with those of your partners. If you are getting married or considering it, do not combine them for reals. If something were to happen to you, then your partner would be responsible for the fed loans and private (no getting out of the private).

As for federal loans, you have some options:

1. Income Based Repayment: everyone I know is on this. You reduce your monthly payments based on income.
2. There is another program called Pay As You Earn, which is for people who were borrowing during the recession. Here borrowers can adhere to the payment arrangement plans can have their loans forgiven after 20 years or 10 years if you hold public service  jobs. (Yep, this would be me).

Private loans, you have no options:

1. You can consolidate, and this can be ok. I did this with my undergrad loans, and it worked out well. I ended up with a slightly higher interest rate, but a smaller payment each month, and it gave me time to pull my shit together. My interest rates were based on the 2006 era. They are low.
2. Some borrowers let you defer or lower your payments for a set amount of time, but I haven’t seen much of this since the economic crisis.
3. You have no power to lower your interest rate or lower your payments outside of consolidation. You also have no consumer protections.
4. Or you default. I don’t recommend this because it can be held against you when you apply for jobs. This is the new felony box: credit checks for employment. Neither of these should be acceptable for employers to use to weed out candidates.

You know how you’re only supposed to spend no more than 30% of your monthly income in housing? Well, you’re not, and outside of DC and NYC this is acceptable. Some federal analysis of student payments in 2009 has found that 10% of borrowers with private loans are spending more than 25% of their incomes in monthly payments. Bananas!

So, we’re all kind of screwed, at least for a while. The Federal Consumer Financial Protection Bureau announced it was soliciting ideas from policymakers and others for a comprehensive plan to give private loan borrowers some relief. A plan like this would involve a public-private partnership that frees up capital for refinancing.