Student Loan Debt Breaches $1 Trillion

When the totals for both private and federal student loans are combined, the nation’s outstanding debt rises above the $1 trillion mark, according to a post by the Consumer Financial Protection Bureau (CFPB).

“It appears that outstanding student loan debt hit the trillion dollar mark several months ago,” said Rohit Chopra, the student loan ombudsman for the CFPB.

Additionally, the total student loan debt continues to rise at a steady rate, with students borrowing over $117 billion last year in just federally-backed financing alone.

The Nation’s Recovery May be Affected

The CFPB warns that our nation’s economic recovery is at stake unless the ever increasing ceiling of student debt is taken care of. The problem with this type of debt is that it’s different from any of its contemporaries. Student loan debt is growing rapidly, and not just by new originations. Instead, this financing, which isn’t backed by any collateral, is multiplying at unbelievable rates due to the fact that graduates are having such a tough time finding adequate employment.

Without a steady or sufficient paycheck, graduates with an expensive degree are unable to keep up with their monthly payments, which permits interest to grow unhindered. The result is an explosive epidemic of debt which is spreading through our nation’s younger generations like a financial cancer.

According to Chopra, “Too much debt means too much risk for a generation of young people.”

When the nation’s young are indebted and afraid of risk, it’s not just current students and recent graduates who suffer—instead the entire nation is affected.

Other sectors of the market, particularly the housing industry, will feel these violent vibrations.

“Excessive student debt can slow the recovery of the housing market,” explained Chopra. “Student loan borrowers are sending big payments every month to their loan servicers, rather than becoming first-time homebuyers.”

During a time when the real estate world needs all hands on deck and as many willing and able buyers as it can find, the student loan epidemic is the last thing our nation needs—but hopefully it’s not too much to handle.

The CFPB is Attempting to Help

The CFPB, which was established as a result of the Dodd-Frank Act, is designed to tackle the nation’s lending industries and provide protection to the everyday consumer. With its newly appointed director, Richard Cordray, the CFPB is actively working to tackle the student loan debt problem.

Recently, this government-sponsored consumer protection advocate worked with the Department of Education and launched the Know Before You Owe project. This project consists of a financial aid shopping sheet that is designed to inform students and their families exactly how much a college pursuit will cost.

The bureau is also overseeing private student loan companies to make sure they comply with federal consumer financial protection laws.

Finally, the CFPB has launched a submit a complaint program in order to hear actual stories of borrower-lender relationships and ensure both private and federal lenders are adequately monitored and operating with their borrowers’ best interests in mind.


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California Colleges May See Higher Student Loans

While protests rage on and students plead with lawmakers to ease their student loan burdens, the last thing the younger generations want to hear is that college costs may again be on the rise.

The California State University Board of Trustees received horrible news regarding the impact that state funding cuts would have on their institutions. If a November ballot fails to be passed, the Cal State system could lose up $200 million in funding for the 2012-13 academic year, reported the LA Times.

If such a slash occurs, thousands of faculty and staff positions would be in jeopardy, some academic and athletic programs would have to be eliminated and student loans may rise.

F. King Alexander, the president of Cal State Long Beach (CSULB) believes his campus will lose $26 million if the November legislation falls through. Such an enormous funding slash would result in CSLB being forced to eliminate 400 jobs and 1,800 classes.

“We already are spending so little on our students,” explained Alexander. “We can no longer spend less on them and give them a quality education unless we reduce enrollment.”

The enrollment to CSULB is expected to impact 23,000 applicants that Alexander believes will be wait-listed in fall of 2013.

With such alarming numbers facing closed doors at colleges, high school counselors are having difficulty advising their students on what to do after graduation. Sylvia Womack, a college and career center supervisor for Polytechnic High School in Long Beach, told the LA Times that the enrollment uncertainty will drive students to private or out-of-state schools.

“This will them think, ‘Why should I wait for Cal State Long Beach when Whittier College will take me in right now?’ ” explained Womack.

In addition to those being turned away, the burden of such costs could fall on attending students as well. When the state cuts funding to its higher education institutions, the individual campuses will need to extract that money from other sources. One such possibility is raising prices for students. Raised fees would directly affect the cost of student loans.

Dan Nannini, the director of the transfer center at Santa Monica College, expressed his concerns of rising student loan costs. “The kid who is not of means or can’t enough to pay, they have to wait around until someone opens up their door.”

Many already feel higher education opportunities cater to the upper class, and place an unfair burden on those in the middle and lower brackets. Some believe the rising costs of student loans will expand that gap while others feel a price hike may deteriorate the California state university system to such a degree that future generations will simply avoid it.

21-year-old CSULB women’s studies major named Sara Castledine seems to be losing hope. “I graduate in May and if this is how it is now, how is it going to be in five years when my siblings and others are graduating and going to college? Is there going to be a school worth going to?”

Her questions raise a good point. Will there be high school graduates willing to borrow expensive student loans for what appears to be an inevitable subpar educational system, or will they simply leave California for other states’ institutions?


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The Student Loan Crisis is all Hype

While the nation’s student loan debt has pushed passed the $1 trillion mark, passing total credit card debt, and even slowly gaining on the outstanding mortgage debt, some sources say there’s no reason to panic.

Despite the fact that more than 50 percent of graduating students leave college with outstanding debt, a CNNMoney article claims experts aren’t scared this debt is creating another financial bubble.

“I don’t think it’s a bubble,” Mark Kantrowitz, a publisher for Finaid.org, told CNNMoney. “Most students who graduate college are able to repay their loans.”

But Are They?

Rallying students have been wearing Guy Fawkes masks, holding aggressive picket signs, and shouting angrily at the injustice they feel they’ve been subjected to. What is that injustice? In their eyes, the predatory practices of federal and private student loan lenders.

It seems like every week there are news reports of students carrying six-digit debt figures that have been derived from college financing.

And, according to Finaid.com, the individual debt figures are on the rise, averaging at $27,200 per student in the 2010-11 school year—up a full 54 percent from a decade earlier.

With outstanding debt on individual’s student loans totaling near that of a mortgage down payment, we have to ask ourselves whether student really can repay their loans, as Kantrowitz suggests.

Debt Burden No Other Generation Has Had

Debt has typically come from mortgages, auto financing, and credit card debt. But student loans are a relatively new debt burden that no other generation has had to deal with. Now, our young work force is leaving their educational studies with huge amounts of debt already strapped to their shoulders.

“Having a lot of student debt can make a person’s life very difficult,” said Laren Asher, president of the Project on Student Debt, to CNNMoney.

Owing close to $30,000 by the time a young adult is 22 or 23 years old is distressing at best, and completely destructive at worst. It delays the purchase of property, the beginning of families, and the institution of marriage.

If the job market is slow, as it is today, students carrying debt are forced to weather an increasing balance as their interest rates climb while their student loans are in forbearance.

Despite these factors, however, Kantrowitz isn’t concerned. He believes that while we will likely see student loan defaults continue to rise for another year, they will drop off as unemployment rates decrease.


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Student Loan Borrowers Have More Job Opportunities

The year of 2012 is bringing it with it reports of more jobs and larger paychecks, which is great news for graduates carrying student loans.

This optimistic news is exactly what student loan borrowers who have been losing hope need to hear. As one student interviewed by CNNMoney said, “I worked really hard, and, you know, paid so much for an education, just the idea of going out into the work force and not being able to secure something is very scary to me.”

But this year’s reports are showing that more of our indebted youth may find careers in their fields of study.

According to the National Association of Colleges and Employers (NACE), graduates from the class of 2012 have more job opportunities available to them. NACE took a sampling from 160 employers and found they expect to hire 10.2 percent more graduates this year than they did last.

That sampling has already reported 15,767 job openings for graduates this year, which is up 10 percent from last year at this time, and more than three times the amount posted at this time in 2010.

These increases couldn’t have come at a better time for student loan borrowers, as employers are reporting a steep increase in job applications, with nearly 33 applications for every listing as opposed to last year’s 22 applications.

Fields with the largest demand are engineering and business, with a respective 69 percent and 63 percent of employers reporting that they’re hiring graduates.

Additionally, NACE says student loan borrowers from the class of 2012 are being offered average starting salaries of $42,569, which is up by 4.5 percent from last year.

Both the engineering and business fields are offering average salaries above $40,000, but engineering pays the most of any field with a starting average of $58,581. Education-related careers increased by 4.5 percent this year, but are still comparatively low with a median of $37,423.


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Police Pepper Spray 30 Santa Monica College Students

Police pepper-sprayed as many as 30 students at Santa Monica College after demonstrators who gathered in protest over high-priced courses tried to push their way into a trustees meeting.

Students at the community college were angry because most of them were barred from sitting in on the meeting due to the size limitation of the venue. After their request to have the meeting moved to a larger facility was denied, they began to enter the small venue by force.

“Let us in, let us in,” shouted protesters in a video posted online, according to The Associated Press. “No cuts, no fees, education should be free.”

That’s when two officers who were reportedly backed up against a wall reached for their pepper spray canisters.

“People were gasping and choking,” explained environmental advocate David Steinman to the AP.

One demonstrator named Marioly Gomez was standing in the hallway outside of the meeting before she claims she was attacked by police. “I got pepper-sprayed without warning,” she told the AP.

Another student revealed that the demonstrators may have been trying to incite the police to use force. “We won, we won,” he shouted on a cell phone video given to the AP. “They pepper-sprayed us.”

But Santa Monica College spokesman Bruce Smith defended the police officers’ actions, saying, “It was the judgment of police that the crowd was getting out of hand and it was a safety issue.” He added that he believed this incident was the first time pepper spray had been used by police on the campus

Reuters reported that three people were hospitalized as a result of the clash between demonstrators and officers.

The plan that the demonstrators gathered to protest involves the creation of a non-profit entity that would be permitted to offer courses costing $200 per unit. When most courses consist of three units, that amounts to nearly $600 a class—roughly four times the amount of existing courses.

These increases are occurring at a time when many experts believe the increasing student loan debt may be forming the next financial bubble.

The college argues that the non-profit entity would provide alternatives for student loan borrowers who are unable to get into popular courses that fill up quickly.

Corey Velderrain, a 21-year-old Santa Monica College student, said he would pay for more expensive courses if they get approved. “It is so hard to get classes so if they open more up, they have to pay for it somehow,” he told the Los Angeles Times.

Such sentiments reveal that student loan debt may not be a concern for some.

Other students, however, feel the large gap in price would only help to create a tiered population consisting of the rich or those willing to borrow student loans, and the poor or those who declined student loans.

Community colleges across California have lost $809 million in state funding over the last three years, reported the AP. Due to this lack of funding, colleges have been forced to turn away around 200,000 students from admission. Others have increased fees, forcing some college-goers to take out more expensive student loans.


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Online Bank Will “Crush” Student Loan Debt

A rising online bank claims it will crush student loan debt through its new reward program.

The online bank is called SmarterBank, which was created by the financial aid firm SimpleTuition.

SmarterBank is offering free checking accounts, free debit cards, ATM access at 40,000 locations, and online bill pay services. But the really interesting offer from the online bank is a program called SmarterBucks, which lets users accrue rewards through normal spending. The rewards can then be put towards existing student loan debt.

“Total student loan debt currently stands at $1 trillion and growing,” said Kevin Walker, co-founder and CEO of SimpleTuition, in a statement. “Add to that a poor job market and it paints a challenging picture for graduates and our society as a whole. We built Smarterbank as a revolutionary way for students and graduates to start chipping away at their student debt.”

Those enrolled in the SmarterBucks program will find themselves earning rewards dependent upon how much they spend. They will earn:

  • 0.5 percent back for purchases up to $100
  • 1 percent back for single purchases over $100
  • 5 percent back for certain offers

Over the course of normal spending, wherein groceries, gas, and entertainment are purchased every week, students and graduates can start to see their SmartBucks accounts grow in size. That money can then be diverted to student loan payments.

Additionally, family and friends can also contribute to an individual’s SmarterBucks account.

The bank claims that paying a mere $10 extra a month on a 10-year, $8,500 student loan at 6.8 percent interest can save a borrower up to $1,500 in interest and cut the term down by 16 months.

If a borrower makes extra payments of $50 a month, they can reduce their term by 51 months, and save up to $5,000 in interest.

The SmarterBucks program allows borrowers who typically don’t have any extra money to put towards their student loan to earn extra money meant for exactly that. 


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New Warnings of a “Student Loan Debt Bomb”

Recent reports revealed the student loan delinquency rate doubled between 2005 and 2009, spurring some experts to issue new warnings of an impending “student loan debt bomb.”

One of those experts is the National Association of Consumer Banking Attorneys (NACBA), according to the Des Moines Register. NACBA argues that growing debt, rising defaults, and struggling economy have all contributed to this sharp uptick in defaults. They warn that borrowers’ inability to repay their college financing may affect the entire economy as a whole.

“We’re having all these folks that have lost jobs. They’re filing these bankruptcies, and time and time again, we’re getting people with $60,000 in student loans,” said Mike Jankings, a Des Moines bankruptcy attorney, reported the Des Moines Register.

But others aren’t so sure the student debt problem is as serious as an economic bubble.

David Swenson, an economics professor at Iowa State University, believes there are key differences between the student loan bubble and the mortgage bubble which should reduce our worries.

The key difference, according to Swenson, is the fact that student loans cannot usually be discharged through bankruptcy. When people must pay this borrowing back, the burden isn’t placed on the nations’ taxpayers. The individual may suffer as a result of this inability to discharge the debt, but the strain on the national economy is reduced.

Experts also say that despite the fact that student loan debt now exceeds $1 trillion, it’s still far less than the total mortgage debt.

Predators or Prey: Who’s at Fault?

There’s yet another passionate divide when trying to determine causation for this growing student debt problem. Some claim the colleges and our financial system are at fault for this economic illness metastasizing in our nation’s youth. Others claim it’s our college-goers themselves who are making imprudent decisions.

The Occupy Movement is perhaps one of the most vocal bodies against the powers that be. They have made their stance very clear and have turned to grand demonstrations that have succeeded at catching the media’s attention for months on end now.

“There’s a lot of talk about student debt, but no one takes any action, and that’s what Occupy Wall Street is about,” said Andrew Ross, a professor at New York University, according to MSNBC. “I feel very bad that my salary has actually been financed (by these debts). … To me it is just heartbreaking to see my students carry so much debt. It’s just immoral.”

Others, however, feel quite the opposite.

David Hakes, an economist at the University of Northern Iowa, told the Des Moines Register that too many students pursued what are essentially worthless degrees that carry no economic value.

“The fact is,” Hakes began, “If you have to explain your major in a job interview, that is not a good sign.”

Between the predatory nature of capitalistic businesses looking to turn profits off student loan borrowers, and students themselves who have been persuaded into believing they can “be anything they want to be,” even if they want to be a millionaire of an underwater basket weaver, the student loan crisis has emerged.

Time will tell if this crisis is indeed an actual bubble.


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JPMorgan Chase to Stop Student Loans for Non-Customers

JPMorgan Chase, the largest bank in the U.S., announced that it will stop originating private student loans for non-customers beginning on July 1, 2012, according to Bloomberg.

Customers must have a relationship with JPMorgan in the form of a deposit, loan or credit card if they hope to secure a private student loan from the bank. While no new non-customers will be given student loans, those with existing financing from the bank will continue to be serviced.

“The private student loan market has continued to decline and government programs have expanded to help more students and families,” said Steve O’Halloran, a spokesman for JPMorgan, told Bloomberg in an email, hinting that the industry is losing its profitability.

The company’s student financing portfolio shrank 15 percent from 2009, all the while doubling their bad debts. Uncollectable loans rose 72 percent, and JPMorgan’s profits declined significantly.

In 2009, the bank made $4.2 billion on student loans. In 2011, they’re profits dropped to $300 million.

The rising default rate on college loans has raised concern in more than just the banks losing money. Some experts fear this trend is leading to yet another economic bubble, which, if burst, could hinder our already weak recovery.

The Consumer Financial Protection Bureau (CFPB) reported student loans are now the largest source of unsecured consumer debt in the nation, surpassing $1 trillion.

That number is growing not only by new originations, but by students who are unable to make timely payments on their borrowing. As graduates enter one of the weakest job markets in the United States’ history, our nation’s youth is unable to make adequate enough pay to satisfy their high monthly bills. Consequently, their student loans are growing at exponential rates due to the interest accruing.

In the words of Rohit Chopra, the CFPB’s student loan ombudsman, “It seems that this market is too big to fail.”


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Political Parties in Agreement on Student Loans

The political party leaders appear to unanimously agree on the issue of student loans, as both of the party front runners have announced their support for extending the interest rate legislation that is scheduled to expire on July 1, 2012.

With the number of students borrowing student loans closing in on 60 percent, both democrats and republicans have announced that they believe the interest rate reduction should be extended.

The interest rate reduction legislation, which was originally passed in 2007, is artificially holding the interest rate for government-backed college financing down at 3.4 percent. However, come July 1 of this year, that legislation is set to expire, and the interest rate will spring up to 6.8 percent—something both students and politicians say is unmanageable right now.

“I support extending the temporary relief on interest rates for students [due to] extraordinarily poor conditions in the job market,” said Mitt Romney this week, according to the Examiner.

President Obama has been very vocal about his support for the interest rate extension, as this year’s State of the Union address contained a whole segment in which the president pleaded with Congress and lawmakers to unite and extend the legislation.

“At a time when Americans owe more in tuition debt than credit card debt, this Congress needs to stop the interest rates on student loans from doubling in July. Extend the tuition tax credit we started that saves millions of middle-class families thousands of dollars,” the president demanded in his State of the Union speech.

But Ron Paul, who has a huge college-aged following, surprisingly supports a move that’s directly opposite of what the majority of his constituency wants. Paul has vowed to try to end federal student loans all together if he were elected president.

“Just think of all this willingness to want to help every student get a college education,” began Paul, as he started to explain his thinking behind a proposal to end federal student loans, close five government departments—including the Department of Education—and ultimately eliminate all of the government entities that are, in his opinion, causing the high cost of a college education. “I went to school when we had none of those. I could work my way through college and medical school because it wasn’t so expensive.”

Paul believes his plan would cut $1 trillion from the federal budget.


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House Will Vote on Student Loan Interest Rates Friday

There’s a harsh debate occurring on Capitol Hill right now, and one that will undoubtedly heat up even further tomorrow when the House votes on a bill that will keep student loan interest rates from doubling.

Federal student loans have had their interest rates artificially capped at 3.4 percent by legislation passed in 2007. But the legislation is set to expire on July 1, 2012, which has students, graduates, and parents paying close attention to what our lawmakers will do. If the legislation expires, the federal student loan interest rates will double, landing at their original 6.8 percent that they would be at without a cap.

In order to stop federal student loan interest rates from doubling, Congress will need to come up with $5.9 billion in order to pay for the artificially lowered rates.

Friday’s bill, proposed by House Republicans, is designed to acquire that money by slashing money from President Barack Obama’s health care program.

The area of the health care program being targeted by the Republican’s bill is the prevention and public health fund, which is a $17 billion section of the health care system that finances immunizations, screenings, research, and wellness education.

Naturally, House Democrats were quick to vocalize their opposition.

Rep. Chris Van Hollen of Maryland, the top Democrat on the House Budget Committee, pointed out that it was the Republicans who originally pushed the current federal budget through the House, knowing full and well that the budget would allow the student loan rates to double.

“The GOP has suddenly changed their tune now that it has become politically unpopular,” Van Hollen said, according to Businessweek.

President Obama has been making campaign appearances at college campuses, where the issue of student loan interest rates has inevitably surfaced.

“Some [Republicans] suggest that students like you have to pay more so we can help bring down the deficit,” said Obama this week at the University of Iowa. “Now, think about that. These are the same folks who ran up the deficits for the last decade. They voted to keep giving billions of dollars in taxpayer subsidies to big oil companies who are raking in record profits. They voted to let millionaires and billionaires keep paying lower tax rates than middle-class workers.”

Republican House Speaker John Boehner answered the President’s recent remarks by saying the President has been, “trying to invent a fight where there wasn’t and never has been one,” according to Businessweek.

“We can and will fix the problem without a bunch of campaign-style theatrics,” Boehner added.

House Democrats hope to push their own bill through Congress that would keep student loan interest rates from doubling by raising Social Security and Medicare taxes on upper-income owners of some private corporations, which includes the private practices of lawyers and doctors, according to Businessweek.


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