More depressing news about student loans!

Why is  all the information I have is always depressing? The New York Times had a piece by Richard Perez-Pena Tuesday morning on student loans coming due immediately if a co-signer dies. I think the logic here is everything and everyone is terrible.

The article discussed the impacts of the death of a co-signer (parent) on the student loan borrower. Borrowers, even those with good payment records, can be forced into default after a demand of full repayment of their loans following the death of their co-signer. Obviously, this is occurring in the private market because we can’t have nice things.

Everyone applying for a private school loan needs a cosigner because the borrower is often young, with little income, and very little credit. Borrowing from the feds usually doesn’t require a cosigner because BIG GOVERNMENT. The Consumer Financial Protections Bureau released a report on Tuesday that pointed to a provision in private loan contracts: “If the co-signer dies or files for bankruptcy, the loan holder can demand complete repayment, even if the borrower’s record is spotless. If the loan is not repaid it is declared to be in default doing damage to the borrower’s credit record that can take years to repair.”

Sounds totally, fair, guys. Also, this is completely legal. At this point, we don’t seem to know how common this practice is, but it appears to be a growing trend based on anecdotal evidence. The loan companies appear to be going through public records of deaths and bankruptcies and then generating letters of repayment and default notices.

The article notes this isn’t exactly in the best interests of the lenders, but we don’t know if someone is winning here…probably. Americans owe about $150 billion in student loans to private lenders. Both private and federal loans are transferred to loan servicing companies. The largest private lender (both of private and federal loans) is Sallie Mae. Sallie Mae wasn’t responding to emails about this earlier in the week.

Some borrowers are able to have their loans released from the co-signer requirement after a few years of demonstrated earnings and credit history. They can also transfer the loans to a new co-signer. However, most borrowers aren’t aware of these options, and the lenders aren’t trying to help them figure this out.

The article concludes by discussing the parallels between the student loan industry and the mortgage industry. There is a bit of, the banks started to take risks on risking borrowers. However, another interpretation of this is the cost of higher education became ridiculously high, and the only way to get an education was to take out risky loans due to social economic inequity. Lenders were predatory leading to the mortgage crisis, and they are being predatory now.

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.