Category Archives: Publications

Reform Student Loans, But Don’t Let Interest Rates Skyrocket

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An Overview of The Impact of Recent Loan Proposals on Students 

If Congress fails to act, interest rates will double on July 1st from 3.4 percent to 6.8 percent for subsidized Stafford loans for more than 7 million college students – at a time when the federal government is projected to earn $51 billion in profit off of the student loan program in the next year. This would increase the cost of borrowing money for school for some of the country’s neediest students. Last spring, students fought and won a battle to prevent interest rates from doubling, but Congress only fixed the problem for a year. We once again urge Congress to protect students by keeping interest rates affordable.

Many proposals would calculate interest rates based on market conditions. However,without the protection of a cap, shifting to a market-based rate could be disastrous for students. For example, if economy wide interest rates rise to 10 percent, as they have in the past, that could spike loan costs and deter students from going to college at all. If rates are tied to the market, they must have meaningful caps and keep rates low in the longterm. If Congress cannot come together, we urge them to extend the current interest rate. Below, we compare some of the many proposals put forward by Congress to address the issue.

Interest Rate Factsheet-Final-6.6.13_Page_1Interest Rate Factsheet-Final-6.6.13_Page_2

Click here to download the full fact sheet.

Borrower in Distress: A Survey on the Impact of Private Student Loans

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For most, a college degree is a path to economic security. These days, that path is bumpy for many, and leads to years of indebtedness that delay steps into adulthood that were once a given – buying a home, buying a car, starting a family. For some, it gets worse: that path turns into a dead end of debt and distress.  Recently, the Federal Reserve of New York released data demonstrating that student loan debt is constraining this generation from participating in broader economic activities such as purchasing homes and cars.1  During the housing boom, homeownership among student debtors was actually 4 percentage points higher than among non-student debtors. Homeownership rates fell across the board during the recession – 30 year-olds with no student debt saw their homeownership rates decline by 5 percentage points – but 30 year-olds with student debt fell more than 10 percentage points. The homeownership rate for student debtors is now almost 2 percentage points lower than for non-debtors.

Click here to read the full report.

Investing in Young America: What’s in the President’s Budget?

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On April 10, 2013, the White House released the President’s budget for 2014. Below we have detailed the parts of the budget that most affect young adults and our economic future, analyzing funding for youth jobs, higher education, and health care. 

For jobs and the economy, the President’s budget:

  • Fully replaces automatic sequester cuts that have reduced funding for anything from job training to student aid.
  • Includes a $12.5 billion Pathways Back to Work Fund, including support for summer and year-round jobs for low-income youth.
  • Funds approximately 82,000 AmeriCorps members, a decrease of $2 million dollars and 500 fewer jobs than last year.

Takeaway: Overall, the budget includes broader investment to help address the unemployment crisis faced by young Americans.

Click here to read the full fact sheet.

Don’t Double Our Rates

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Congress should be helping to keep college affordable, not making it more expensive for student loan borrowers to pay for college

Background

Unless Congress acts decisively, the interest rate on new Federal Subsidized Stafford student loans will double from 3.4 percent to 6.8 percent on July 1, 2013. A 2007 college affordability plan gradually reduced the interest rate from 6.8 percent to 3.4 percent through 2012, when the rate was scheduled to revert to 6.8 percent. Last year, in the midst of the election cycle, motivated primarily by sluggish economic conditions, President Obama and the Congress led the successful effort to extend the low 3.4 percent rate for one more year.

Students have already suffered from a variety of aid restrictions and limitations that resulted in students contributing $4.6 billion to deficit reduction.

Since the federal government makes 36 cents on every dollar loaned, increasing interest rates simply increases the government’s profits from students.

We need to overhaul the student loan system so it is equitable to all borrowers. Such a comprehensive approach will take  and must provide ample opportunity for participation by borrowers and the general public.

Click here to read the full issue brief.

Comments Regarding an Initiative to Promote Student Loan Affordability

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Monica Jackson
Office of the Executive Secretary
Consumer Financial Protection Bureau
1700 G Street NW
Washington, DC
20552

Dear Sir or Madam:

We are writing on behalf of millions of students struggling with their student loans. Young Invincibles is a non-profit organization dedicated to expanding economic opportunity for young adults. Student Debt Crisis is a non-profit advocacy organization dedicated to reforming funding for higher education in America. Together, we interact with over 1 million student loan debtors through our research, outreach, education, and advocacy work, and are pleased to provide our feedback to the CFPB’s “Request for Information Regarding an Initiative to Promote Student Loan Affordability.”

The Bureau’s Request for Information (“RFI”) included several key questions about the experience of distressed borrowers in trying to secure affordable payment plans. Young Invincibles and Student Debt Crisis converted the key consumer experience questions into a survey, and sent an invitation to take the survey to over 1 million people on our email lists. Of those invited to participate, 9,523 individuals with private loans completed the survey. It was open from March 20th, 2013 to April 3rd, 2013.

This is a self-selected cohort of borrowers, and so our results do not necessarily represent the experiences of larger population of individuals. However, most, if not all, of the participants joined our online membership to participate in our work around student loan issues. This online participation in both our actions and a survey of this nature further indicates a high level of concern, if not distress, about their private loan payments – and the substance of these responses corroborate that indication. In fact, given the nature of responses, we can say with confidence that these responses reflect the concerns of borrowers facing a high degree of debt and daily struggle. Specifically, of the survey respondents,

  • About 15 percent of borrowers said they had been denied a mortgage because of their debt.
  • About 28 percent of respondents had taken on credit card debt to keep up with loan payments; 46 percent cut out services like cable or internet.
  • 35 percent borrowed from friends or family to keep up.
  • About 47 percent said they put off buying a house, and the same percentage said they put off buying a car, to keep up with their payments.

These numbers indicate a high level of financial distress among private loan borrowers. Further, the responses below reveal the unfortunate reality that private lenders are unwilling to work with struggling borrowers who either simply cannot make their monthly payments, or who are looking to lower payments in order to engage in other substantial life transitions such as purchasing a home or car. These trends should serve as a wake-up call to legislators, regulators, industry, and all interested parties about the potentially devastating impact that private loan debt can have on both individual financial opportunity and the health of our economy as a whole.

Click here to read the full comment.