Some newly minted college graduates struggle to find work. Others accept jobs for which they feel overqualified. Student debt, meanwhile, has topped $1 trillion.
It’s enough to create a waveofquestions about whether a college education is still worth it.
A new set of income statistics answers those questions quite clearly: Yes, college is worth it, and it’s not even close. For all the struggles that many young college graduates face, a four-year degree has probably never been more valuable.
The pay gap between college graduates and everyone else reached a record high last year, according to the new data, which is based on an analysis of Labor Department statistics by the Economic Policy Institute in Washington. Americans with four-year college degrees made 98 percent more an hour on average in 2013 than people without a degree. That’s up from 89 percent five years earlier, 85 percent a decade earlier and 64 percent in the early 1980s. Συνέχεια →
The report highlights the fact that loan-payment delinquency rates continue to improve (i.e. decline). On average, a little over 7% of all outstanding consumer debt obligations are in some stage of delinquency (30 or more days past due), and roughly 70% of those are seriously so (90 or more days past due).
The executive summary also notes that student loan balances that are 90 or more days past due represent 11.5% of the total outstanding. Sure, it’s a troubling metric. But when the FRBNY juxtaposes that amount with the 9.5% of comparably delinquent (and equally uncollateralized) credit card debt, it doesn’t seem so out of whack—until you dig a little deeper.
Unlike credit card balances, not all outstanding student loans are due at any given moment in time. In fact, of the approximately $1.2 trillion of education debt that’s currently on the books, only about half that amount is actually amortizing (the other half pertains to loans for students who are still in school).
So the 11.5% is really closer to 23% because the total amount of delinquent loans should be divided by $600 billion instead of $1.2 trillion. What’s more, these are just the loans that are 90-plus days past due. What of the debts that are 30 or 60 days late? Curiously, that data is nowhere to be found, except for a strong clue in the back of the report.
A Closer Look at the Numbers
One of the graphs in the report is entitled “New Delinquency Balances by Loan Type.” It depicts contract balances that became 30 or more days past due during the preceding quarter. For the period ending Dec. 31, $29.36 billion worth of student loans migrated into the past-due column, which, when divided by the approximately $600 billion of loans that are currently being repaid, amounts to an additional 5% of delinquency.
There is also another category that doesn’t get nearly enough attention: the loans that have been granted temporary relief in the form of payment deferments and other forbearance arrangements. These contracts are troubled, and accommodations of this type mask the extent to which the debts may be only temporarily relocated to “current” status from “past due.”
All considered, it would not be surprising to learn that one-third or more of all education debts that are in repayment mode are troubled, particularly when—per the FRBNY’s spreadsheet—more than $100 billion of student loan balances migrated into delinquency in each of the past few years.
How We Got Here
Anyone with reasonable experience in this field should rightly ask— “Why are so many loans deteriorating and why aren’t the servicers preventing that from happening?”
I can think of four possible answers.
At least one-third of all the loans that were made should not have been approved in the first place.
The servicers’ goals are at cross-purposes with those of the borrowers and their benefactors (the government, in the case of FFEL loans, and co-signers in the case of private student loans).
The servicers are grossly incompetent.
Some combination of the above.
My money’s on number 4, for a couple reasons.
The first has to do with the Federal Student Aid department’s recently released First Quarter Customer Service Performance Results. The FSA evaluated 11 nonprofit and four for-profit loan servicers for overall customer satisfaction, and the efficacy of their default prevention efforts. No servicer attained the recommended customer satisfaction score of higher than 80 (out of a possible 100), and only one scored the national average of 76. Interestingly, there were no industry benchmarks against which these particular servicers’ default prevention efforts could be measured. The data is instead compared within that 15-member pool, which undermines the metric’s usefulness.
The second reason for my bet has to do with the extent to which the servicers are beholden to others. Several for- and not-for-profit loan servicing companies have successfully securitized portions of the government-backed and private student loans they currently administer. So when seriously troubled loans require restructuring (extensions of repayment terms) or modification (reduction in principal balance, abatement of interest rate), it would be fair to speculate that the servicers are reticent to take actions that run contrary to their investors’ interests.
This situation is likely to deteriorate even further as new firms stream into the so-called servicing-rights marketplace, which is all the more reason for a national standard to govern the administration of these debts.
Student-loan borrowers are suffering through substandard customer service, half-baked solutions that are crammed down their throats and one-sided contracts that limit their recourse. Their plight is real, the problem is growing and the need for action is urgent.
A good starting point would be to capture and properly analyze all the pertinent data so that everyone can see how bad this state of affairs really is.
Students protest against tuition fees increases in 2010. Photograph: Matthew Lloyd/Getty Images
The proportion of graduates failing to pay back student loans is increasing at such a rate that the Treasury is approaching the point at which it will get zero financial reward from the government’s policy of tripling tuition fees to £9,000 a year.
New official forecasts suggest the write-off costs have reached 45% of the £10bn in student loans made each year, all but nullifying any savings to the public purse made following the introduction of the new fee system. Συνέχεια →
David M. Perry’s article on consumer lingo in academe (Faculty Members Are Not Cashiers,”The Chronicle, March 17) is completely correct, but his argument about what is wrong with this lingo misses a key point: it’s not just that people who use this language devalue or misvalue education, but also that they completely misunderstand what a customer is. They to get both sides of the metaphor wrong. When students, faculty, or administrators use the student-as-consumer metaphor, they typically make two fatal mistakes in how they picture a customer. Συνέχεια →
An university where one does not require a certificate, or do an entrance exam or get whopping marks to join. An institute where one is not judged or evaluated by the marks one scores but by honest feedback. Is that possible? Well, it is possible says Manish Jain. He is a leader in Alternative Education and co-founder of Swaraj University, based at Udaipur, Rajastan. He was in Kochi to attend the GIFTIVAL 2014.
Excerpts from an interview:
What are the objectives of Swaraj University? Συνέχεια →
1.) Bigger than Most Countries Currently, more than 40 million Americans hold student debt. The population with student loans is actually greater than the entire population of Canada, Poland, North Korea, Australia and more than 200 other countries. It’s also about four times greater than the population of Sweden.
2.) Giant Corporations can File for Bankruptcy, but Bankruptcy is Not an Option for Student Borrowers
Let freedom ring! Last Friday, Freedom Industries, the chemical company responsible for the chemical leak which contaminated drinking water in West Virginia, filed for Chapter 11 bankruptcy protection. The company faces 25 lawsuits, but by filing for bankruptcy protection, Freedom Industries is able to halt most litigation. Unfortunately, if Americans with student loan debt find themselves owing money on their student loans, it is nearly impossible to file for bankruptcy. In fact, debts from gambling and other consumer debts can be erased, but not education debt. These debts can continue to grow when a borrower is unable to pay, and can even follow a borrower to the grave. Removing bankruptcy protection from student loans has only benefited the lenders. In a leaked memo, Sallie Mae officials have listed preserving the inability to discharge education debt in bankruptcy as their second-most important goal. Συνέχεια →
«How A Private Company Stacked The Deck Against Student Loan Debtors»
After two decades of work, the company tasked with collecting payments on government-financed student loans from borrowers who declare bankruptcy has helped create a system that treats student debt far more harshly than other borrowing. The company’s zeal for the task has led it to hound cancer survivors and other unfortunate, hard-working souls, and has reshaped the relationship between student loans and bankruptcy law in ways that exacerbate the country’s trillion-dollar student loan problem.
Congress created the Educational Credit Management Corporation (ECMC) indirectly in the early 1990s when it sought to tackle the high rate of default on student debt by giving the Department of Education (DOE) “a set of unprecedented collection tools” such as garnishing wages and tax rebates, the New York Times explains. ECMC, founded in 1994, is the largest of the private companies that the DOE uses to exercise those collection tools during bankruptcy proceedings. Συνέχεια →