Tag Archives for " Loan "
September 16, 2011 – Continuing its forage into the private student loan industry, Discover Financial Services announced early this month that it plans to purchase $2.5 billion in private student loans from Citigroup.
This move, announced on Sept. 1 and set to go through by the end of the month, comes after Discover purchased Citigroup’s 80 percent share of its private loan business, The Student Loan Corp, in January of this year and a large volume of accounts from the company’s portfolio – an acquisition totaling $4.2 billion.
In addition, Sallie Mae purchased $27 billion of SLC’s federal student loans and assets and Citibank also purchased $8.7 billion. SLC is a top-three originator of private student loans in the U.S. and has more than 50 years of experience in the industry.
In this sale, Citigroup retained $8.7 billion in unguaranteed assets, although it says it plans to continue to shrink those assets over time. For Citigroup, the newest portfolio sale is part that initiative, which involves shrinking its “bad bank” assets, or City Holdings unit, of which the SLC was a part.
Most of the new portfolio is comprised of school-certified loans for students at a four year college and about 80 percent of the loans have already entered repayment. Student loans are often less risky for lenders because students are more likely to pay them back. Discover reported that it only wrote off 0.51 percent of loans on an annualized basis in the second quarter of this year.
In its last fiscal year, Discover reported that it made almost $5 billion in private student loans. It says it expects to become the nation’s third largest originator of private student loans this year.
Wells Fargo announced Thursday that they will be offering lower interest rates on student loans. But their rates are still nearly half a percent higher than federal student loans.
As reported by The Associated Press, Wells Fargo’s basic undergraduate student loan rates dropped from 7.75 percent to 7.24 percent. That decrease is significant, but doesn’t even come close to 6.8 percent federal loan boast.
The new, lower rate is also only available to those with pristine credit scores. For those students (or parents) who have bad credit, the bank’s loans can carry rates of nearly 14 percent.
Aside from rate differences, though, private student loans continue to pale in comparison to federal loans since they lack the benefits the government-backed forms of financing come with. One of those benefits federal loans continue to entice borrowers with private loans miss out on is the forgiveness of all student debt after 25 years—or just 10 years if a student becomes a public service worker.
But Wells Fargo is clearly making efforts to alleviate their pained borrowers. They also announced a reduction of 0.25 percent to 0.51 percent on existing fixed rates for financing used for community college, used by a borrower with a career, held by parents, and for consolidation loans.
Additionally, if borrowers are eligible for a San Francisco bank note, they may be able to receive an additional rate reduction. Wells Fargo loan holders can receive up to a 0.50 percent reduction on new loans through the San Francisco notes, according to The Associated Press.
With the emergence of two recent (but separate) Occupy Student Debt movements, this may be an attempt to begin winning back public affection.
Washington D.C. council member Harry Thomas settled a lawsuit brought against him by the Justice Department for outstanding student loans of $16,000.
Acquired in 1983 and 1984, Thomas (D-Ward 5) had suit filed against him in 2005 for nearly $16,000 in student loan principal and interest along with another $4,000 for attorneys’ fees.
The fact that Thomas and the Justice Department entered into an agreement was announced this morning, but the details of that agreement have yet to be revealed. The only hint at what that agreement entailed came from Frederick D. Cooke Jr., Thomas’s attorney, who said he was “pleased with the agreement we reached with the government,” as reported by the Washington Post.
The agreement won’t be filed on the public court docket until next Monday.
Thomas has recently been involved in other legal trouble, as earlier this month federal agents raided his home in northern Washington. Thomas has allegedly used his position in power to divert more than $300,000 of public funds for youth sports to groups he personally supported.
The D.C. Attorney General, Irvin B. Nathan, accused Thomas of using that diverted money to fund an Audi SUV and personal trips to Las Vegas, Nevada, and Pebble Beach, California.
Thomas settled that dispute with the city by agreeing to repay all of the money, less interest and penalties, claiming he did nothing wrong but is only settling the suit since it is “in the best interest of the city,” as reported by the Washington Post.
Thomas’s attorney for the city funds suit, Karl A. Racine, confirmed that Thomas would continue to cooperate with authorities. He said in a short statement that “at the conclusion of this matter, we sincerely believe that there will be no finding of any criminal violations.”
For lawyers in Washington D.C., a program called the Loan Repayment Assistance Program (LRAP) has always served as an aid to help pay off student loan debt. But for the first time since its creation, LRAP is unable to pay off eligible lawyer’s monthly loan debt.
LRAP provides aid in the form of payment towards monthly student loan bills for lawyers who work to alleviate poverty in underprivileged areas. When LRAP began in 2007, the average amount of student loan debt their eligible applicant’s had was $92,000. Today, the average amount is $119,000.
“Law school has gotten more expensive and we’re seeing it,” said Katia Garret, executive director of the D.C. Bar Foundation, to the LA Times. “While that debt load has increased, the average salary of our applicants in each of those years was the same.”
LRAP acquires money by appealing for donations from law firms and corporate legal departments. That money is then turned around to help alleviate the ever-rising cost of law school to those lawyers who wish to serve the public and earn a wage that would make it hard to pay off their student loans.
The annual wages to qualify for LRAP cannot exceed $65,000, and the average rests $49,000.
That annual income is a surprising pay cut from what these lawyers could potentially make if they went with a private law firm. According to Garret, “You can get six figures as first-year associate at some big law firms,” reported the LA Times.
A few years ago, Lauren Onkeles-Klein, an attorney at the Children’s Law Center, received help from LRAP. “A lot of nonprofits can’t afford to pay competitive salaries,” Onkeles-Klein told the LA Times. “LRAP was a gamechanger for me to be able to stay here for so long, be able to do the work I love, and not have to look elsewhere to do work I don’t want to be doing because that work pays more.”
Arne Duncan, the U.S. Secretary of Education, gave a speech at the Fayetteville State University Winter Commencement about the importance of obtaining a college education in today’s economy and job market.
Using Michelle Obama as an example, he explained how she had people telling her “not to reach too high” due of the odds stacked against her: poor test scores, her gender, and because she was from the south side of Chicago.
But Duncan explained that despite the comments from those trying to persuade her otherwise, the First Lady refused to let their negativity impact her pursuit for obtaining an education and reaching for her dreams.
He then tackled the subject of student loan costs and the public’s negative outlook on financing a college education.
“Remember that, in the long run, a college degree is still the best investment you can make in your future,” Duncan said. “On average, students with bachelor degrees are projected to earn about one million dollars more over their lifetime than student with only a high school diploma.”
He offered encouraging news about helping students manage their student loan debt by explaining the Obama administration’s Pay as You Earn plan. “Our Pay as You Earn proposal would give 1.6 million students the ability to cap their loan payments at 10 percent of their discretionary income beginning later next year,” he told the student listeners.
Then as if sensing the fears many have about the future of America and its working force, he explained the goals and thought process of the Department of Education by saying, “We want people to be able to follow their heart and passion—and not just chase a big paycheck because they have to pay back loans. America can’t afford to lose that talent. Please think about public service, think about teaching, and think about the impact you can have in molding the lives of the next generation.”
To further push students into the public service sector, Duncan told the listeners about the 10 year student loan forgiveness program available to those employed as a teacher.
His speech ended with a word directly opposite from those the First Lady received when she was young: one of encouragement, as he expressed his and the college staff’s sense of pride seeing each of the students before him.
Unless Congress acts very soon, the interest rates assigned to federal student loans are scheduled to double this summer.
Due to a 2007 law that enacted interest rate reductions for undergraduate subsidized Stafford loans, government-backed student financing is currently offered at an interest rate of 3.4 percent. But that law is scheduled to expire this year, which will result in the interest rate doubling, propelling them to a level that hasn’t been seen since 2007: a discouraging 6.8 percent.
In Tuesday’s presidential State of the Union address, President Obama tried to encourage lawmakers to consider and act on this issue. But, as of now, Congress has yet to acknowledge it, and may be apprehensive to extend the rate reduction since passing such a law again would cost the country $5.6 billion a year, according Mark Kantrowitz of FinAid.Org in a CNN Money article.
In fact, in the recent past Congress has already eliminated federally subsidized student loans for graduate students, and cut $8 billion out of the Pell Grant program that helped low-income students fund their education.
“[Since] Congress just passed legislation cutting student financial aid funding, it’s unlikely they’ll pass legislation increasing student aid funding,” said Kantrowitz, according to CNN Money.
Setting aside Congress’s recent voting record pertaining to the student loan industry, another factor that may be pushing their votes away is the fact that President’s Obama’s additional proposals included with this rate-reducing law would total to at least $10 billion a year.
But in the wake of student loan protests, letting the rate hike occur could prove to be detrimental to the country’s morale.
“In this tough economy, people are concerned about the cost of college and the burden of debt to follow,” Lauren Asher, president of the Project on Student Debt, told CNN Money.
Two-thirds of students graduated in 2010 with an average student loan debt of $25,000. If the rate hike occurs, students can expect to pay an additional $5,000 over a 10 year period, said Ascher.
As the nation’s student loan debt quickly approaches $1 trillion, it’s no wonder why the low interest rates on home mortgages aren’t providing the expected boost in home sales that experts initially predicted.
Roshell Schenck, a Ph.D graduate with a degree in pharmacy currently earns an annual salary of six-digits, but can’t qualify for a home loan to provide shelter for her daughter and herself, reported Bloomberg. Despite the fact that she makes $125,000 a year, she has more than $110,000 in student loan debt, which is putting a real strain on her income and potential borrowing opportunities.
“I’d love to buy and can afford to buy,” Schenck told Bloomberg.
Willing and able borrowers seem to be a rarity these days, but it seems that even if borrowers have the desire and the funds to purchase a house, banks want little to do with borrowers if they have outstanding student loans.
Since loans used for education are being viewed with greater scrutiny than other types of outstanding financing, Schenck is unable to get approved. “It’s almost impossible for me to get a loan,” she explained. “My debt is crushing my chances of purchasing a home.”
The Trillion Dollar Mark
Because the demographic that makes up most of the “first-time” homebuyers tends to be of the younger generation, they often carry student loan payments. Graduates or not, this higher education financing has found commonplace amongst the nation’s new adults, but as banks are seeing defaults rise, they’re very wary about issuing mortgages to those indebted with these loans.
“Students coming out of college are burdened with more debt than traditionally they have been, and they are also coming into an economy that is underperforming previous recoveries,” said Rick Palacios, a senior analyst at John Burns Real Estate Consulting LLC in Irvine, CA, to Bloomberg. “These things pile on each other and tell us it’s not going to help the housing recovery right now.”
Particularly as the $1 trillion mark comes closer and closer, and experts are predicting a student loan bubble being formed.
“Just as the housing bubble created a mortgage debt overhang that absorbs the income of consumers and rtenders them unable to engage in consumer spending that sustains the economy, so too are student loans beginning to have the same effect, which will be a drag on the economy for the foreseeable future,” said John Rao, vice president of the National Association of Consumer Bankruptcy Attorneys, in a Bloomberg article.
Driving Away the Fix
But cautious or not, driving away first-time homebuyers from the mortgage market is crippling the housing world.
“Potential first-time homebuyers have been disproportionately affected by the very tight conditions in mortgage markets,” said Ben Bernanke at a homebuilders conference last week, according to Bloomberg. “First-time homebuyers are typically an important source of incremental housing demand, so their smaller presence in the market affects house prices and construction quite broadly.”
Despite the fact that current student loan borrowers are being turned away from the mortgage market, some remain optimistic.
“The dream feels like it’s farther out of reach than I ever thought it would be,” said Shenck. “[But still,] I haven’t given up hope of one day owning my own home.”
The student loan default rate may be much higher than studies have shown, said the Federal Reserve Bank of New York on Monday.
The Fed originally reported the student loan default rate right around 14.4 percent. That number was derived from the 5.4 million defaulters from the 37 million current students and graduates who are currently carrying college loans.
But researchers are saying that percentage is misleading.
Traditionally the default rate has been determined by considering the status of all student loan carriers. But that method lumps those who are not required to make any payments in with those who are “current” on their payments.
Current students and those who within a six-month grace period upon graduating have their federal student loans deferred, and are exempt from making any payments. The New York Fed found that when those not currently required to make payments on their student loans are omitted from the “non-delinquent” bracket and removed from the calculations all together, the default rate jumps to 27 percent.
That means more than one out of every four students cannot afford their student loan payments.
If federally-guaranteed student loans are taken out of the equation all together, the default rate hovers around a relatively modest 5.1 percent, but that’s double what it was just five years ago.
Moody’s Investors Service believes that rate will remain high so long as there is high unemployment.
According to Equifax, the average student borrower owes $23,300. But the NY Fed revealed that 167,000 people carry a student loan debt of more than $200,000.
“Given that student loans are an indispensible tool for educational advancement, this form of debt will remain a critical policy focus for generations to come,” said the NY Fed in their report.
Indeed, as this form of borrowing swells at an unprecedented rate, we very well may see the upcoming presidential elections filled with talk about this growing bubble.
The Consumer Protection Bureau (CFPB) opened their website up to receive borrowers’ complaints on student loans.
The CFPB recognizes that there are problems with the student loan industry. While federal student loans offer many opportunities to alleviate high monthly payments, financing front private institutions usually do not offer options similar in nature.
The CFPB hopes the public’s personal stories and honest complaints will shed light on what needs to be corrected, particularly when it comes to private student loans, which often escape government oversight and regulation.
Any complaint filed with the CFPB will be forwarded to the submitter’s lenders and the CFPB has claimed they will work hand-in-hand with those lenders to get a response. While the new protection bureau wants consumers to know that they cannot make debt disappear, they hope this complain process will, at the very least, bring attention to students’ struggles.
Given the popularity of student loan complaint websites already in existence, the government agency should have no shortage of content to work with. Already the CFPB’s page is filled with comments from angry student loan borrowers who are struggling to find help.
To file a complaint with the CFPB, submit a complaint on their website, or call their toll-free number at 1-855-411-CFPB.
While students wait for action and response, they can visit some of the CFPB’s online tools meant for students to use in order to manage their debt. The Student Debt Repayment Assistant has been created specifically with the intention of easing borrower’s payment problems. They have also launched a Know Before You Owe: student loans page, which contains a library of information that both prospective and current students should find helpful.
Unless Congress acts soon, students will see the interest rate on federally subsidized Stafford loans increase from 3.4 percent to 6.8 percent. This doubling of student loan interest rates will be the result of legislation setting an interest rate cap expiring come July of this year.
If the interest rate of student loans doubles, those paying for their college career with federal financing will see a massive uptick in their monthly bills. Worry over this surge in price has prompted more than 130,000 letters to be mailed to Congress, pleading the government to stop the interest rate legislation from expiring.
“I will be put back into buying a house and saving up for my expenses later on in life, and life as we know, is very unexpected. Adding that variable [doubled interest rates] definitely limits my ability to be successful,” said Tyler Dowden, an 18-year-old freshman at Northern Arizona University, in a press conference.
According to the Michigan-based news source M-Live, Jennifer Mishory, a director for a non-profit aimed at representing people between the ages of 18 and 34, says the possibility of a rate hike is a huge problem. She claims that many students are already struggling to pay back their student loans, and this rate hike will only hinder their efforts further.
But despite student’s cries, house representatives are not facing an easy decision.
Rep. John Kline, R-Minn., chairman of the House Education and the Workforce Committee, told The Associated Press the interest rate increase is the “result of a ticking time bomb set by Democrats five years ago.” Referencing legislation passed in 2007 that artificially lowered rates for federal student loans to 3.4 percent, he warns that somebody is going to have to pay the bill.
“We must either allow interest rates to rise on student loans, or stick taxpayers with another multi-billion dollar bill,” explained Jennifer Allen, a spokeswoman for Kline, in an email to The AP.
The cost for keeping rates so low is right around $6 billion every year.
Whoever receives the brunt of this interest rate bill is not going to be happy. If the rate reduction continues, the general public, many of whom are suffering from a slumped economy, would be forced to shoulder yet another financial blow. If it subsides, the nation’s students will suffer through more expensive student loan bills.