Student Loan Outcomes Are Straining For College Students
For many years, students have been left reeling from crippling debt after graduating with a 4.0 grade point average and having spent several years in college. In the current economy, things are looking up for graduates, but not all is rosy. Many students are still living from paycheck to paycheck and barely scraping by. This might seem like an impossible task, but it is becoming more common for college seniors to find themselves in the same situation years after graduation.
Two main factors are responsible for this trend. First, the recent economic landscape has benefited large-balance borrowers the most. Second, and on a larger scale, Congress passed something called the Payday Loan Legislation. The legislation itself has helped millions of small-balance borrowers who were previously unable to repay their student debt when their tuition expenses started exceeding their income.
While the recession hurt everybody, large-balance borrowers were particularly hurt because of the nature of their student loan debt. Rather than making monthly payments to lenders, large-balance borrowers leave school and take out loans instead. For this reason, the amount of money they borrow from lenders is usually higher than normal. Even though they have to pay this amount back, it usually involves lower interest rates.
This makes paying back the loan much more difficult for them, making repayment increasingly time consuming and expensive. Furthermore, many large-balance borrowers are not even able to keep up with the minimum payment requirements. This means that they have so much debt (and not enough income) that even the slightest increase in income is not enough to cover the minimum payment obligations. Once a student has reached his or her early twenties, this debt becomes a major problem. Most large-balance graduates will find themselves in what is called a “failing debt cycle,” where they are unable to pay back even the smallest monthly installments, and the amount of debt continues to grow.
Fortunately, there is a silver lining in sight for students who are struggling with student loan outcomes. One solution is strengthening institutional accountability systems. Schools, governments, and independent agencies should work together to improve student debt outcomes by improving collection practices, eliminating unfair lending practices, encouraging responsible repayment, and increasing funding. The improved policies that are put into place will make repayment easier, reduce default rates, and reduce costs associated with collecting overdue debts.
Financial institutions face many unique issues that have affected their ability to effectively collections borrowers. First, many institutions are not actually required to process federal loan applications. These institutions depend on the discretion of collection agencies to pursue customers and have no legal obligations to do so. Some of these institutions may even encourage irresponsible behavior, which makes pursuing delinquent debts even more difficult.
In addition, most financial institutions rely on private, third-party entities to collect the unpaid balances of federal loans. In some cases, these private entities may even pursue a debtor in court, putting them at risk of losing their homes and repossessing personal property. While these outside entities may be effective collection tools, they do not have the same accountability as federal government agencies. It is important for institutions to ensure that they do everything in their power to honor due debts.
A strengthening of the accountability system would go a long way towards making college more affordable, making repayment simpler, and making the college experience more enjoyable. However, these changes cannot occur quickly enough for students and families who are suffering from crippling debt. For students, the best solution to the crippling debt is to get a consolidation plan in place as soon as possible. This plan will make repayment easier, eliminate late fees and penalties, reduce overall debt, and put the power in your hands to negotiate with lenders.