The Student Debt Dilemma: History, Implications & Potential Solutions. Carol S. Lewis, Esq. C.S. Lewis Consulting November 14, 2012

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1 The Student Debt Dilemma: History, Implications & Potential Solutions Carol S. Lewis, Esq. C.S. Lewis Consulting November 14, 2012

2 NECAG Our Mission: To Identify and Address Consumer Financial Protection Issues in New England. 2

3 Biggest Issues in Recent Years Mortgage Foreclosure Credit Card Crisis Student Debt Crippling Effects on Households and the U.S. Economy 3

4 Game Answers Average student loan debt is $26,000 1/5 of households in the country have student debt Students graduating from schools in NH have the highest student loan debt in the country Student loan debt is on the rise because of rising tuition, unemployment, underemployment, cuts in fed and state aid FAFSA: Free Application for Federal Student Aid A student who attends a public community college or four year state university will definitely pay less than she/he would pay at a private school FALSE 4

5 You should also know Default rate on student loans is at a 14 year high Student loan debt has passed credit card debt 4.1 million people are affected by student debt 5

6 Why so much student debt? Tuition and fees are skyrocketing, and (In past decade, up 42% public, 31% private) Grants and scholarships are not keeping up with the costs, so More borrowing is necessary to fill the gap. 6

7 Why so much student debt? Growing number of people attending college State and federal loans are not filling the gap Many are relying on private loans Class of 2012: 22% of student debt for non-profit 4 year colleges is in private loans Default rate continues to escalate Nearly half of all student loans in default are originated from for profit schools 26% default rate- for profit 10% default rate-community colleges 7% default rate for 4 year colleges 7

8 Problem with Private Loans Confusing terms and disclosures High variable rates Challenging repayment experiences Strict repayment requirements (no mercy for unemployed) Cannot refinance Billing errors Servicer issues failing to provide relief, modification >90% require cosigner Sound Familiar? 8

9 Latest Problem: Cosigned Loans Parents already saddled with debt: Cosigners on student loans Students are defaulting and parents are on the hook FRB NY: 2.2 million Americans aged 60+ owed 43 billion in federal & private student loans at end of 1 st quarter Includes loans to parents as well as cosigned loans. ( Up from $15 billion in 2007) 9.5 percent of these loans 90+ days delinquent 9

10 Implications for Students & Families A young workforce with bad credit and low credit scores Students forced to choose profession based on ability to pay back loans (talent loss in certain professions, e.g., teaching) High default rate- further adversely impacting credit score High debt/income ratios Inability to get auto loans Inability to get mortgages (affecting retirees ability to sell homes) Putting off milestones- marriage, kids, houses - impedes economic recovery 10

11 OUR CHALLENGE TODAY 11

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14 Solutions? Reducing cost of college Use of technology to make college more affordable Tuition and fee- cost transparency Keeping debt level to that of salary Encouraging gap year Change the mantra: College is not for everyone and doesn t guarantee success Should high school education quality be measured by % that goes on to college? Education- savings (start with Kindergarten parents)navigating and understanding loans, grants, scholarships Public service options following college loan forgiveness Private loan certification by college 14

15 Solutions? Proposed by Duncan (DOE) & Cordray (CFPB) Change to Bankruptcy Laws (2005 Bankruptcy code prohibits discharge of student loans) Congress requiring school certification of loans Modify definition of private student loans 15

16 Popular Perceptions & Concerns Is college worth it? What is the value of the college investment? Graduate school- Is that really where it s at? Why is college tuition so high? Financing college is a game. FAFSA application is not as easy as you might think. I m not sure that scrimping and saving and living as modestly as possible to be able to pay for two out of three of our children s college educations was the right way to go. College name and reputation is still important for networking and career purposes. We learned from a college investment advisor that after all is said and done, the least expensive school isn t always the cheapest. 16

17 Future parents could still be paying back their own student loans when their children start college. --Mark Kantrowitz, FinAid.Org 17

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