Readers have heard me rant before about student loans. I think they are the kiss of death for young people. They burden young people with debts before they really appreciate the consequences of the debt and how to manage their money. The weight of student loans will trim consumer spending in the future. Ultimately student loans drive excess demand for college education. What happens when you have excess demand - prices go up. Whatever happened to the "pauper" student?
The article is in italics and the bold is mine. From the Wall Street Journal:
The number of student loans held by subprime borrowers is growing, and more of those loans are souring, the latest signs that a weak job market and rising debt loads are squeezing recent graduates.
In all, 33% of all subprime student loans in repayment were 90 days or more past due in March 2012, up from 24% in 2007, according to a Wednesday report by TransUnion LLC.
Meanwhile, the Chicago-based credit bureau found that 33% of the almost $900 billion in outstanding student loans was held by subprime, or the riskiest, borrowers as of March 2012, up from 31% in 2007.
"If you become subprime, it's more likely that you will not pay your debt," said TransUnion Vice President Ezra Becker, who oversaw the study.
The high debt loads could weigh on consumer spending and the economy, said Cristian de Ritis, a senior director with Moody's Analytics, a unit of Moody's Corp. If the defaults continue to increase, "the taxpayer is going to be on the hook for losses," he added.
The federal government has taken a more active role in student lending and now makes about 93% of all loans.
Another study, released by Fitch Ratings, a unit of Fimalac and Hearst Corp., Wednesday, warned that the gap between college costs and what students can borrow under the federal student-loan program will continue to widen.
TransUnion performed its study at the request of credit unions, which make private student loans.
In the five years through last March, the portion of all student loans that were 90 days or more delinquent rose to 11.4% from 8.8%, while the average student- loan balance per borrower increased 30% to $23,829, TransUnion found.
For some borrowers, the burden is even greater. Kristin Jones, 24 years old, ran out of money to complete her education at Northeastern University in Boston and, with more than $60,000 in student-loan debt, is looking to finish her senior year at a cheaper school.
Ms. Jones, who works for a company that manages corporate-benefits plans, said she fell behind on her student loans after she found she couldn't afford to go back to Northeastern and her loan payments started kicking in.
"I'll be pretty much trapped for life by these loans and the credit default," said Ms. Jones, who is on a repayment plan but still owes Northeastern one semester's tuition.
The TransUnion study didn't measure whether borrowers had poor credit scores at the time they took out their loans or if their credit scores dropped because of their repayment problems. Missed student-loan payments are more likely to have a big impact on the scores of borrowers with short credit histories such as recent college graduates, TransUnion said.
Another study, released Tuesday by credit-score provider Fair Isaac Corp., found that roughly 26 million consumers had two or more open student loans on their credit report in October 2012, up from about 12 million in 2005. A majority of bank risk managers expect student-loan delinquencies to continue to rise, according to Fair Isaac.
To be sure, the rise in student-loan debt is being at least partially offset by reductions in other types of debt, such as credit cards and mortgages, said Richard Fry, a senior economist with the Pew Research Center in Washington. That should make repaying student-loan debt more manageable for some families, he said. . . .
. . . . Repaying debt has become more difficult in part because loan balances have grown and the interest rates on federal loans have increased as a result of a shift from variable-rate to fixed-rate loans. Most federal loans now carry interest rates of 6.8% or 7.9%, versus a rate of 2.875% on federal Stafford loans in May 2005, said Mark Kantrowitz, publisher of the financial-aid website FinAid.org. . . .
. . . . "Maybe they shouldn't be so willing to give money to kids," she said, "We all thought we'd be making $100,000 out the door."
Stafford loans, which account for more than three-fourths of federal student loans, impose no credit standards and are capped at a total of $57,500 for undergraduates. Ruben Medrano, a 52-year-old undergraduate studying business management at Texas A&M University-San Antonio, said taking out about $26,000 in federal student loans was much easier than taking out an auto loan or a mortgage. "The last vehicle we purchased, we spent four to five hours in the dealership," Mr. Medrano said. "The student-loan process took me 30 to 45 minutes and I never had to leave my home."
The number of student loans held by subprime borrowers is growing, and more of those loans are souring, the latest signs that a weak job market and rising debt loads are squeezing recent graduates.
In all, 33% of all subprime student loans in repayment were 90 days or more past due in March 2012, up from 24% in 2007, according to a Wednesday report by TransUnion LLC.
Meanwhile, the Chicago-based credit bureau found that 33% of the almost $900 billion in outstanding student loans was held by subprime, or the riskiest, borrowers as of March 2012, up from 31% in 2007.
"If you become subprime, it's more likely that you will not pay your debt," said TransUnion Vice President Ezra Becker, who oversaw the study.
The high debt loads could weigh on consumer spending and the economy, said Cristian de Ritis, a senior director with Moody's Analytics, a unit of Moody's Corp. If the defaults continue to increase, "the taxpayer is going to be on the hook for losses," he added.
The federal government has taken a more active role in student lending and now makes about 93% of all loans.
Another study, released by Fitch Ratings, a unit of Fimalac and Hearst Corp., Wednesday, warned that the gap between college costs and what students can borrow under the federal student-loan program will continue to widen.
TransUnion performed its study at the request of credit unions, which make private student loans.
In the five years through last March, the portion of all student loans that were 90 days or more delinquent rose to 11.4% from 8.8%, while the average student- loan balance per borrower increased 30% to $23,829, TransUnion found.
For some borrowers, the burden is even greater. Kristin Jones, 24 years old, ran out of money to complete her education at Northeastern University in Boston and, with more than $60,000 in student-loan debt, is looking to finish her senior year at a cheaper school.
Ms. Jones, who works for a company that manages corporate-benefits plans, said she fell behind on her student loans after she found she couldn't afford to go back to Northeastern and her loan payments started kicking in.
"I'll be pretty much trapped for life by these loans and the credit default," said Ms. Jones, who is on a repayment plan but still owes Northeastern one semester's tuition.
The TransUnion study didn't measure whether borrowers had poor credit scores at the time they took out their loans or if their credit scores dropped because of their repayment problems. Missed student-loan payments are more likely to have a big impact on the scores of borrowers with short credit histories such as recent college graduates, TransUnion said.
Another study, released Tuesday by credit-score provider Fair Isaac Corp., found that roughly 26 million consumers had two or more open student loans on their credit report in October 2012, up from about 12 million in 2005. A majority of bank risk managers expect student-loan delinquencies to continue to rise, according to Fair Isaac.
To be sure, the rise in student-loan debt is being at least partially offset by reductions in other types of debt, such as credit cards and mortgages, said Richard Fry, a senior economist with the Pew Research Center in Washington. That should make repaying student-loan debt more manageable for some families, he said. . . .
. . . . Repaying debt has become more difficult in part because loan balances have grown and the interest rates on federal loans have increased as a result of a shift from variable-rate to fixed-rate loans. Most federal loans now carry interest rates of 6.8% or 7.9%, versus a rate of 2.875% on federal Stafford loans in May 2005, said Mark Kantrowitz, publisher of the financial-aid website FinAid.org. . . .
. . . . "Maybe they shouldn't be so willing to give money to kids," she said, "We all thought we'd be making $100,000 out the door."
Stafford loans, which account for more than three-fourths of federal student loans, impose no credit standards and are capped at a total of $57,500 for undergraduates. Ruben Medrano, a 52-year-old undergraduate studying business management at Texas A&M University-San Antonio, said taking out about $26,000 in federal student loans was much easier than taking out an auto loan or a mortgage. "The last vehicle we purchased, we spent four to five hours in the dealership," Mr. Medrano said. "The student-loan process took me 30 to 45 minutes and I never had to leave my home."
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