Opinion

The Great Debate

To keep grads solvent, take the middleman out of student loans

Occupy Wall Street demonstrators participating in a street-theater production wear signs around their neck representing their student debt during a protest against the rising national student debt in Union Square, in New York

The mounting student debt crisis could cause serious economic damage to the United States. Rising college costs and declining financial aid at both state and federal levels have significantly contributed to the problem. A good deal of responsibility, however, belongs to the financial institutions that service federal student loans, according to a new report.

Millions of students use loans underwritten by the Treasury Department and granted by the Department of Education to help make college a reality. Once the loan is approved, however, borrowers usually deal with third-party servicers — and that’s where the trouble often begins.

In 2010, the Education Department expanded its Direct Loan Program and contracted many for-profit financial institutions to service and administer the loans. Complaints to the department’s Office of Federal Student Aid jumped significantly.

The Consumer Financial Protection Bureau has documented a wide range of complaints, including payments not showing up in payment histories; processing errors that maximize late fees and penalties; misinformation on how payments are applied to multiple loans; misplaced paperwork that results in missed deadlines, and poor customer service that denies borrowers vital information about flexible repayment options.

Borrowers also complain that servicers often make debt management more complicated instead of helping them manage their debt. Servicers, however, are at fault for far more, according to the new report by Eric Fink, associate professor of law at Elon University, and Roland Zullo, an assistant research scientist at the University of Michigan.

Why not a war on child poverty?

President Barack Obama’s recent speeches at the LBJ Presidential Library and National Action Network marking the 50th anniversary of the War on Poverty and the Civil Rights Act had a serious omission. While acknowledging “our work is unfinished,” Obama failed to mention this nation’s worst social trend: the stunning increase of children and youth living in poverty.

Since 1969, the proportion of children and youth in poverty rose by 56 percent, even as the economic fortunes of the elderly improved under programs like Medicare and Social Security. Today, 32 million American children and youth are confronting poverty — including 7 million suffering utter destitution, another 9 million living in serious poverty and 16 million more in low-income households struggling just above poverty lines.

Even as Obama has launched My Brother’s Keeper, an initiative to help poorer young men, his administration continues to largely ignore this larger issue. In fact, Obama said, addressing youth poverty “doesn’t take all that much.” No federal money has been budgeted for the initiative.

The postsecondary education investment

Any examination of postsecondary education begins with the students. What careers do they seek? What kind of education and skills will enable them to pursue their dreams? How do we design and deliver education in a way that meets them where they are in their personal lives and careers? While students determine their own futures, institutions have a responsibility to deliver education in the most effective, efficient way possible — especially considering the federal government’s investment in making college available to all Americans. Today that investment is over $175 billion, including student loans, grants and tax benefits.

Our country continues to slog through a multi-year jobless economic recovery, while employers increasingly demand mid-level skills in their employees. As a result, we have entered a period where postsecondary education is imperative for global competitiveness and economic growth, but it needs to be an education that prepares students for success in the workplace.

Despite the sluggish jobs recovery, employment projections for the future give us hope. By 2020, there will be 55 million new job openings in the United States. Twenty-three million of these openings will be for jobs that don’t even exist today, while 32 million will replace retiring baby boomers. Sixty-five percent of all jobs will require some level of postsecondary education and training.

Weeds amidst the ivy

On the first day of the Association of Private Sector Colleges and Universities annual convention, a storm worked its way towards the convention center. More than a thousand people milled inside Rosen Shingle Creek, one of the golf resort/convention centers that are endemic to central Florida. The attendees had come for the annual congress of for-profit colleges, hosted by the sector’s trade association and central lobbyist. Its theme: “Opportunity for all.”

That night, a self-described “futurist and demographer” took the stage to deliver the keynote address. Kenneth Gronbach is a big man with a bigger voice, going after laughs more than longitudinal studies. Gronbach calls himself a “generational marketing expert,” and has written a book called The Age Curve. Subtitle: “How to Profit from the Coming Demographic Storm.”

Gronbach’s presentation began with a joke: “How many people are really excited to listen to a demographer for an hour?” A little manic, Gronbach paced the stage, taking audible sniffs as he caught his breath and delivered the next slide. “We’re going to concentrate not on money and stuff, but on people,” he said. But for Gronbach people are opportunity, and opportunity is money.

The real student loan crisis

A month has passed since Congress allowed interest rates on federal student loans to double for some borrowers, increasing the cost of their college educations by as much as $4,500. While the debate continues to focus on the interest rate for future borrowers, it is ignoring the larger problem with student debt: the more than $1 trillion that had already been borrowed before the interest rate debate. This existing debt will continue to drag down borrowers’ financial security, which in turn drags down the entire economy. By how much? Demos, the public policy group where I work, has just released a study that estimates the economic impact of the existing student debt burden, and finds that it may cost the country more than $4 trillion in lost economic activity.

This economic drag happens because student loan payments take a significant bite out of many borrowers’ incomes, causing them to delay or forego important purchases or investments. A recent study by the American Institute of CPAs found that 75 percent of student debtors had made personal or financial sacrifices because of their student loan payments. Forty-one percent have postponed contributions to retirement plans, 40 percent have delayed car purchases, and 29 percent have put off buying a house. The effects of delaying making these crucial investments early in borrowers’ lives, in turn, are magnified because of the amount that the lost home equity and investment returns would have compounded over their entire working lifetimes.

Our study tries to estimate just how much delaying saving for retirement or purchasing a home will cost borrowers over their lifetimes. We use data from the Federal Reserve’s 2010 Survey of Consumer Finances (SCF) to determine the average salary, retirement savings, and liquid savings of an average, young, dual-headed, college-educated household both with and without education debt. We then project their salary and assets over a lifetime using generally-accepted values for salary growth, savings rates, investment returns, etc. We reduce the savings of the indebted household by their monthly student loan payment while they are repaying their loan, and observe the difference in net worth between the debt-free and indebted households as they approach retirement.

Student loans: Exploiting America’s young

President Barack Obama talks about the rising costs of student loans while at the University of Iowa in Iowa City, April 25, 2012. REUTERS/Larry Downing

Obamacare was paid for on the backs of students.

You may remember that Obamacare staggered over the legislative finish line in 2010 with $19 billion in profits from changes to the student loan program. The changes included nationalizing federal student lending and setting loan interest rates high enough to generate profits to cover the healthcare costs.

Monday, President Barack Obama and the Democratic-led Senate again put their political and legislative priorities ahead of students and allowed their loan interest rates to double.

Can Obama fire up younger voters?

 

As national attention focuses on the devastation inflicted on Atlantic states by megastorm Sandy, polls show the same basic electoral reality that has prevailed throughout the presidential campaign: Without a strong turnout among young voters, President Barack Obama loses on Nov. 6.

So, Obama may need more than fiery “go vote!” entreaties to students to overcome his presidency’s disorganized, mixed record on youth issues.

New polls taken nationally and in key swing states (Ohio, Virginia, North Carolina, Colorado, Iowa, Florida, Nevada and Wisconsin) show how crucial young voters are to the president’s reelection. Obama leads Republican challenger Mitt Romney among 18- to 29-year-olds by landslide margins, more than offsetting the mildly pro-Romney sentiments of their elders.

from Reuters Money:

What the CFPB should be doing with private education lenders

The following is a guest contribution from Mark Kantrowitz, founder and publisher of finaid.org and fastweb.com. The opinions expressed are his own.

The Consumer Financial Protection Bureau, which starts operating on Thursday, has oversight and enforcement authority over private education loans and most private education lenders.

The Private Education Loan Ombudsman within the CFPB will respond to complaints about private education loans by students and their families and will help mediate borrower disputes with education lenders on an informal basis. Here are my recommendations to improve the private loan process.

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