Tag Archives: federal student loans

Parent Plus Student Loans: How to Screw Parents and Kids in a Single Shot

It’s easy to get student loans thanks to the aptly named “Parent Plus” program, a subprime loan trap that ensnares parents plus their college-age children. The program was enacted by Congress in the 1980s, but president Obama promoted it heavily.

The results speak for themselves: Nearly 40% of the loans are subprime. The default rate exceeds the rate for U.S. mortgages at the peak of the housing crisis.

Kids graduate from college with useless degrees, plus parents and kids are stuck with massive bills that cannot be paid back.

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It’s Easy for Parents to Get College Loans—Repaying Them Is Another Story.

Student loans made through parents come from an Education Department program called Parent Plus, which has loans outstanding to more than three million Americans. The problem is the government asks almost nothing about its borrowers’ incomes, existing debts, savings, credit scores or ability to repay. Then it extends loans that are nearly impossible to extinguish in bankruptcy if borrowers fall on hard times.

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As of September 2015, more than 330,000 people, or 11% of borrowers, had gone at least a year without making a payment on a Parent Plus loan, according to the Government Accountability Office. That exceeds the default rate on U.S. mortgages at the peak of the housing crisis. More recent Education Department data show another 180,000 of the loans were at least a month delinquent as of May 2016.

“This credit is being extended on terms that specifically, willfully ignore their ability to repay,” says Toby Merrill of Harvard Law School’s Legal Services Center. “You can’t avoid that we’re targeting high-cost, high-dollar-amount loans to people who we know can’t afford to repay them.”

The number of Americans with federal student loans, including through programs for undergraduates, parents and graduate students, grew by 14 million to 42 million in the decade through last year. Overall student debt, most of it issued by the federal government, more than doubled to $1.3 trillion over that period.

The financing fueled a surge in college enrollment. Between 2005 and 2010, enrollment grew 20%, the biggest increase since the 1970s. The Obama administration supported such lending in an effort to widen access to college education.

Nearly four in 10 student loans—the vast majority of them federal ones—went to borrowers with credit scores below the subprime threshold of 620, indicating they were at the highest risk of defaulting, according to a Wall Street Journal analysis of data from credit-rating firm Equifax Inc. That figure excludes borrowers, such as many 18-year-old freshmen, who lacked scores because of shallow credit histories. By comparison, subprime mortgages peaked at nearly 20% of all mortgage originations in 2006.

Roughly eight million Americans owing $137 billion are at least 360 days delinquent on federal student loans, nearly the number of homeowners who lost their homes because of the housing crisis. More than three million others owing $88 billion have fallen at least a month behind or have been granted temporary reprieves on payments because of financial distress.

Joint Effort

In 2005, president Bush signed the bankruptcy reform act of 2005 making student loans not dischargeable in bankruptcy.

President Obama came along next and encouraged parents who had no idea what they were getting into to sign loans to put their kids through college.

Parents plus their kids are mired in debt that cannot be paid back. Thank you Congress, President Bush, and President Obama.

Surefire Way to Discharge the Loans

There is one way to get rid of these loans. Die.

Stop the Madness

Wherever government meddles, costs rise dramatically.

The solution is to stop the meddling: Stop all the loan programs, stop all the aid programs, stop insisting that everyone needs to go to college, and start accrediting programs and course offerings from places like the Khan Academy.

Not a single student aid program aided any students. Rather, escalating costs went to teachers, administrators, and their pensions as student debt piled sky high.

By Mike “Mish” Shedlock

43% Of Federal Student Loans Are Not Being Repaid

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Do you have outstanding debt from a federal student loan? If so, the chances are significant that you are behind on your payments or have not even tried to make any payments at all. As of the beginning of the year, there were approximately 22 million Americans with student loans — and, according to information from the Department of Education, only 12.5 million of them are current with their loan payments.

Around 3 million student loan holders are in some form of postponement on their debt. Through a deferment or forbearance, they have permission to delay their loan payments due to a hardship such as unemployment or other financial emergency. Approximately $110 billion in student loan balances are in some form of postponement.

Another 3 million more student loan borrowers were delinquent, meaning they were between one month and a year behind on their loans. 3.6 million borrowers are at least a year behind on their payments and are considered to be in default. Government officials are concerned that many of the borrowers in default do not intend ever to attempt to pay back their student loans.

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The combined balance in delinquent and defaulted loans is approximately $122 billion, meaning that around $232 billion of the over $1.2 trillion student loan portfolio is in some form of distress. Other types of loans with traditional banks would not tolerate such a ratio — but what bank would loan money without credit checks, cosigners, or any evidence that the loan will ever be paid back? Essentially, that’s how student loans work. The government also has no collateral; they cannot repossess your education (yet).

There is at least some silver lining, as a 43% non-repayment rate represents an improvement over last year’s rate of 46%. The Wall Street Journal attributes much of the change to programs that allow some borrowers to lower their student loan payments by connecting them to a percentage of the borrower’s income (also known as income-driven repayment). The number of borrowers taking advantage of these programs nearly doubled over the past year to 4.6 million.

Fortune notes that the Department of Education has blogged that those who do not pay back federal student loans will not be arrested, but they will suffer problems in their financial future and will certainly have difficulties establishing good credit. Unfortunately, evidence shows that some borrowers may not care. The attitude may be that the government will eventually write off these loans or that the potential punishments are not worth a repayment effort compared to other priorities.

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Data from student loan servicer, Navient Corp. shows that the average attempts to reach borrowers in delinquency are between 230 and 300, or more than once every other day. Regardless of format — calls, letters, text messages, and e-mails — 90% never respond. Over half never even attempt to make a payment prior to default.

Income-driven repayment is the preferred compromise path that allows repayment without punishing those who legitimately cannot find work and afford repayment. There are four such programs offered through the Federal Student Aid website: REPAYE, PAYE, IBR, and ICR. If you find yourself among the 43%, consider income-driven repayment plans as a way to repay your debt without overburdening your budget.

If you are among those who are simply ignoring your obligation to repay, don’t. Just because you may never be jailed because of default does not mean that there are not consequences — and do not expect the government to bail you out. Even if the rules are changed, they may not be retroactive. Do the responsible thing and set up a program to pay as you can.

source: MoneyTips

7 Million People Haven’t Made A Single StudentLoan.gov Payment In At Least A Year


Perhaps it’s all the talk about across-the-board debt forgiveness or maybe the total amount of outstanding student debt has simply grown so large ($1.3 trillion) that even those with no conception of how much money that actually is realize that it’s simply never going to paid back so there’s no point worrying about, but whatever the case, the general level of concern regarding America’s student debt bubble doesn’t seem to be at all commensurate with the size of the problem. 

And it’s not just the sheer size of the debt pile that’s worrisome. There’s also the knock-on effects, such as delayed household formation and the attendant downward pressure on the home ownership rate, and of course hyperinflation in the rental market. 

Of course one reason no one is panicking – yet – is that the severity of the problem is masked by artificially suppressed delinquency rates. As we’ve documented in excruciating detail, if one excludes loans in deferment and forbearance from the numerator in the delinquency calculation, but includes those loans in the denominator then the delinquency rate will be deceptively low. In any event, as WSJ reports, even if one looks at something very simple like, say, the number of borrowers who haven’t made a payment in a year, the picture is not pretty and it’s getting worse all the time. Here’s more:

Nearly seven million Americans have gone at least a year without making a payment on their federal student loans, a staggering level of default that highlights how student debt continues to burden households despite an improving labor market.

As of July, 6.9 million Americans with student loans hadn’t sent a payment to the government in at least 360 days, quarterly data from the Education Department showed this week. That was up 6%, or 400,000 borrowers, from a year earlier.

The figures translate into about 17% of all borrowers with federal loans being severely delinquent—and that share would be even higher if borrowers currently in school were excluded. Additionally, millions of other borrowers who haven’t hit the 360-day threshold that the government defines as a default are months behind on their payments.

Each new crop of students is experiencing the same problems” with repaying, said Mark Kantrowitz, a higher-education expert and publisher of the information website Edvisors.com. “The entire situation isn’t getting better.”

The development carries big implications for borrowers, taxpayers and the economy. Economists have warned of student-debt defaults damaging borrowers’ credit standing, which would hurt their ability to borrow for things like cars and homes. That in turn would hamper the economy, which relies heavily on consumer purchases for economic activity. Delinquencies also drain government revenues, which are used to make future loans.

So what’s the solution you ask? According to the government, the answer is the income based repayment plans. Here’s The Journal again:

 Education Secretary Arne Duncan said declines [in some categories of delinquencies] resulted from rising participation in income-based repayment plans, which lower borrowers’ monthly bills by tying payments to their incomes. Enrollment in the plans surged 56% over the past year among direct-loan borrowers.

The administration has urgently promoted the plans, mainly through emails to borrowers, over the past two years in an effort to stem defaults. The plans set payments as 10% or 15% of their discretionary income, defined as adjusted gross income minus 150% the federal poverty level.

The plans carry risks, though, for both borrowers and the government. Many borrowers’ payments aren’t enough to cover the interest on their debt, allowing their balances to grow and threatening to trap them under debt for years.

At the same time, the government could be left forgiving huge amounts of debt if borrowers stay in the plans. The government forgives balances after 10, 20 or 25 years of on-time payments, depending on the plan.


But aside from the fact that these plans will cost taxpayers an estimated $39 billion over the next decade – and that’s just counting those expected to enroll in plans going forward and ignoring the $200 billion or so in loans already enrolled in an IBR plan – the most absurd thing about Duncan’s claim is that, as we’ve shown, IBR programs don’t drive down delinquency rates, they just change the meaning of the term “payment”:

See how that works? If you can’t afford to pay, just tell the Department of Education and they’ll enroll you in an IBR plan where your “payments” can be $0 and you won’t be counted as delinquent.

So we suppose we should retract the statement we made above. You are correct Mr. Duncan, these plans are actually very effective at bringing down delinquencies and the method is remarkably straightforward: the government just stopped counting delinquent borrowers as delinquent.

Source: Zero Hedge