The Student Loan Crisis – From Cradle to Grave

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Our eyes widened last week when we saw this headline on the website “Student Loans on Rise – for Kindergarten.”

Annamaria Andriotis wrote, “It used to be that families first signed up for education loans when their child enrolled in college, but a growing number of parents are seeking tuition assistance as soon as kindergarten.”

“Though data is scarce, private school experts and the small number of lenders who provide loans for kindergarten through 12th grade say pre-college loans are becoming more popular. Your Tuition Solution, one of the largest lenders in this space, says demand for the upcoming year is already up: This month, the total dollar amount of loans families requested rose 10% compared to a year ago; at that pace, the company expects its total funding to rise to $20 million for 2012-13. Separately, First Marblehead, which exited the market in 2008, reentered last year as demand for loans began to rise.”

Reaction was quick and incredulous. At, Sheryl Nance-Nash asked, “With college student loan debt having passed the $1 trillion mark recently, and already starting to cripple the country, what in the world are these parents thinking?”

“… Why am I so ticked? It’s more frustration than anything. Parents have the best intentions but things can get twisted in a way that backfires and hurts the family finances and more. The stress of deep debt can wreck a family in a hot minute, and combine that with the tremendous pressure kids feel to perform given all the money that’s being shelled out, and it can get ugly.”

And at The Atlantic Wire blog, Jen Doll noted:

“The people who benefit from this the most are not, necessarily, the kids, but the banks or schools getting as much as a 20 percent interest rate on a loan that might go as high as $40,000 — something you might look at as preying on parents who think it’s their duty to send their child to a particular (and particularly pricey) school. “

Parents not only are taking out “pre-college education loans.” Some of them, according to Bloomberg BusinessWeek, are treating student loans intended for college tuition like home equity lines of credit and using the money to pay other bills. And at the other end of the age spectrum, The Washington Post reports, “The burden of paying for college is wreaking havoc on the finances of an unexpected demographic: senior citizens.” The Federal Reserve Bank of New York reports that Americans 60 and older still owe about $35 billion in student loans, 10 percent of which are delinquent:

“Some of these older Americans are still grappling with their first wave of student loans, while others took on new debt when they returned to school later in life in hopes of becoming more competitive in the labor force. Many have co-signed for loans with their children or grandchildren to help them afford ballooning tuition.

“… Unlike other debts, student loans cannot be shed in bankruptcy. As a result, some older Americans have found that a college degree led not to a prosperous career but instead to a lifetime under the shadow of debt.

“’A student loan can be a debt that’s kind of like a ball and chain that you can drag to the grave,’ said William E. Brewer, president of the National Association of Consumer Bankruptcy Attorneys. ‘You can unhook it when they lay you in the coffin.’”

Students attend graduation ceremonies at the University of Alabama in Tuscaloosa, Alabama. (Photo by Butch Dill/AP)

Students attend graduation ceremonies at the University of Alabama in Tuscaloosa, Alabama. (Photo by Butch Dill/AP)

Illinois Sen. Dick Durbin has introduced legislation that “would allow private student loan debt to be discharged in bankruptcy, though borrowers would still have to pay off any federal loans,” The Post reports. “Sallie Mae, one of the nation’s largest private student lenders, as well as consumer groups support all types of student loans being forgiven during bankruptcy. Last year, President Obama addressed the issue by easing the repayment requirements for federal student loans. The new rules allow borrowers to pay 10 percent of their income for 20 years before the loan is forgiven.”

But despite the president’s relaxing of the repayment rules, John Hechinger of Bloomberg News reported on March 26 that the Department of Education subcontracted some outside muscle — private debt collection agencies “to put the squeeze on borrowers” who are $67 billion in default on their student loans. Hechinger wrote that the collectors made about a billion dollars in commissions in 2011 but were accused of violating the new rules “by insisting on stiff payments, even when borrowers’ incomes [made] them eligible for leniency.”

Within days of Hechinger’s original article — and cries of outrage from Congress — the Education Department announced that it would now “mandate that the companies use a standard form to gather debtors’ income and expenses. If borrowers protest, they would be offered an income-based formula, which can result in payments as low as $50 a month for an unmarried person with $20,000 in income and $20,000 in loans.”

According to the New York Fed’s Liberty Street Economics blog, student loan debt now exceeds the total amount Americans owe for car loans ($730 billion) and the nation’s entire credit card balance ($693 billion).

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