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Friday, March 23, 2012

American Student Loan Debt: $1 Trillion and Counting


Day 3 of the protest Occupy Wall Street in Manhattan's Zuccotti Park. (Photo credit: Wikipedia)

Whatever happened to the American dream of going to college, landing a great job and living happily ever after? College is supposed to be about getting off to a great start, but it’s a financial noose that threatens to kill our young and everybody else too. The U.S. has the dubious distinction of now having more than $1 trillion in outstanding student loan debt.

 The crisis has the full attention of the Consumer Financial Protection Bureau which in a recent blog , presented its sobering findings. “Unlike other consumer credit products, student debt keeps growing at a steady clip. Students borrowed $117 billion in just federal student loans last year. And students continue to borrow private student loans, which lack the income-based repayment and deferment options of federal student loans. If current trends continue, there will be consequences not just for young people, but for all of us,” wrote CFPB’s student loan ombudsman Rohit Chophra.

Worse still, he writes, according to data from the Department of Education, federal student loan debt isn’t growing just with new originations — with so many borrowers unable to keep up with interest payments, debt is growing even for many who have left school. Too much debt means too much risk for a generation of young people, many of whom are struggling in today’s economy.

What’s the impact? Excessive student debt slows a recovery still trying to find its sea legs. Study after study has shown that young people are delaying the traditional rite of passage of launching out on their own and starting families. With so much debt, on average about $26,000 for undergrads, and many unemployed or underemployed, they are running back home, instead of looking for their first apartment or home.

 A decidedly grim picture could get worse. In July, if Congress doesn’t get its act together and takes some of the momentum of a crisis with explosive potential, a 2007 law that kept federally subsidized Stafford loan interest rates low will expire this summer, meaning the rates will double from 3.4 to 6.8 percent. This is more bad news on top of the real possibility that proposals to financial aid may become reality – the Pell Grants could move from mandatory to discretionary spending, meaning who knows what will happen, but likely none too good. There is also a bill to repeal the expanded Income-Based Repayment program, that lessens the sting of college students by letting them pay back what they own in proportion to their salaries.

The CFPB is working with the Department of Education, and launched a Know Before You Owe project , to solicit input on a “financial aid shopping sheet”. The sheet is designed to help students understand the debt implications of their college choice. CFPB is supervising private student loan providers to ensure they comply with Federal consumer financial protection laws and CFPB is providing tools for borrowers to help them navigate their student loan repayment options. A newly established student loan complaint system will help ensure that private student lenders and servicers are responsive to potential mistakes and problems that borrowers encounter. This summer, the CFPB will release the full results of its private student loan market.

Where is the outrage over the continue increase in tuition at a time when some colleges are raising salaries for their presidents?

 Just this week a plan was approved to give pay raises to two university presidents in California. This comes at a time when the California State University system is grappling with a $750 million budget shortfall and is considering limiting enrollment for the spring semester.

There’s something so wrong with this picture. Students will pay the price, families will pay the price, society will feel the ramifications for some time to come.

By Sheryl Nance-Nash, Forbes Contributor Newscribe : get free news in real time 

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