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No matter how much money you’re making, it might feel like you can’t get ahead. There are a couple of reasons behind this, but the largest reason that plagues our entire generation? Student loans. Of course, if you’re in a public sector job that qualifies for loan forgiveness, you may not be too worried.
Sure, you won’t be making nearly as much money as your private sector counterparts, but you’ll be the one who’s laughing when your loans are forgiven after year 10 and you’re living the high life at approximately 75% of market rate for your current position. For the rest of us who weren’t lucky enough to hold down a government job for a straight decade, paying off our student loans can feel like you’re literally drowning. Unless you stumble into a six-figure career, it can be hard to keep a positive outlook on your finances when you basically mortgaged a house to own a piece of paper that’s propped up in your sad little cubicle.
Unsurprisingly, Americans are having a hard time paying down a collective $108 billion in student loans (hello, next mortgage crisis), so defaulting on these loans is fairly common. Normally this would be a bad thing – you can go into collections, your interest rates can go up, and your credit score takes a huge hit. This time though, that might actually be a good thing. For those who have defaulted on their private student loans, namely through the National Collegiate Student Loan Trust, and been taken to court by creditors, there’s a chance that their collective $5 billion in debt is going to be forgiven – all because of an administrative error. That’s right – the paperwork confirming who actually owns the loans has gone missing, and without this proof, many people are becoming debt free.
According to the New York Times, many of these collections lawsuits are being dismissed due to the lack of paperwork, so this is really, truly happening. In one lawsuit, a random sampling of 400 loans from National Collegiate showed that this paperwork was missing in each and every loan, meaning that if taken to court over missed payments, there’s a good chance your loans would be uncollectible.
Now, I don’t necessarily want to tell you to stop paying your student loans, but if your loans are through National Collegiate, you may want to start doing some research. If you’ve already defaulted and have been contacted by a creditor, lawyer up. For those of us who owe the federal government or Sallie Mae, we’re currently out of luck and still held accountable for all the debt that went into a Women’s Studies major. However, if anyone out there from Nelnet is reading this and wants to start deleting some computer files to help out the rest of us, I know of an entire generation that would thank you. In the meantime, I guess I’ll keep paying my loans, but you’d better believe that I’ve started praying for a merciful soul to start filling their recycle bin as soon as possible..
[via New York Times]
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Steph W.
Steph W. is a new Master's degree graduate with an intern's salary and six-figure taste. She realizes her expectations far exceed reality, so she spends her days pinning away Loubs she pretends are in her physical closet instead of her virtual one. Her hobbies include attempting to trapping her boyfriend into marriage before he finds out how insane she is and pretending that Black Box wine tastes as good as the kind she could afford when she was gainfully employed. Send her tips for getting out of student debt at recruitchairtsm@gmail.com
@therecruitchair
“However, if anyone out there from Nelnet is reading this and wants to start deleting some computer files to help out the rest of us, I know of an entire generation that would thank you.”
Giving up on your debt repayment quest already, Steph? I’m sure that this is joking and written in jest, but something like this is spitting in the face of all of us who actually paid back our debts. I know you haven’t had a personal finance class, but believe it or not, debt isn’t free money. That $100K+ that you got was paid for by someone else. So that person (or in this case, the taxpayers) losing the ability to get that money back is a financial disaster.
All these bullshit debt forgiveness loopholes I see (both from you, from journalists and even from our government) are a load of horseshit. You knowingly borrowed that money, now pay it back!
In a society where large banks, corporations, and entire industries are bailed out on the taxpayer’s dime while the government collects 6%+ interest on loans it gives to 18 year old kids who aren’t completely ill equipped to perceive the detriment it will cause to their future lives thanks to a degrading public school system, I feel like your anger is misplaced.
Bailouts are difficult and tricky situations and I don’t support them a lot of the time.
But with that said, car manufacturers add a lot more utility to society than a bunch of liberal arts graduates.
No offense man, but that’s a bullshit talking point type answer that have no basis in what’s actually happening with graduates.
And any economist will tell you, if the economy had $1.5 trillion dollars being used to buy those cars and houses and whatever other product you want to think of instead of being paid to the government in the form of student loans, it would do far more than bailing out few car manufacturers did.
So is your point is that we should stop loaning out money to college kids and use that money in a more efficient manner? Because that I can agree with. But if you are too stupid to realize that you have to pay money back that you borrowed, then that is definitely your fault.
If you want to solve the problem overnight, then just have these debts able to be discharged during bankruptcy. You would see banks lending money much more responsibly as a result.
If only your relationship reasoning with Girl were as smart as your financial reasoning.
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I don’t think you understand how borrowing money works so I’ll end the conversation here.
Yes, the corporate lawyer doesn’t know how borrowing money works. You’re probably right, Bill. My entire point was, anger at students needing to be bailed out is misplaced. No where did I say “we should forgive all the loans.” I just implied that if you were going to bail out car manufacturers in one world and student loan borrowers in another, the economy would improve in the student loan world faster, which was in response to your comment.
If you want to get into the finer points of how to remedy the situation, for starters maybe stop allowing the government to gauge 6% off of it’s population, when .1% is probably just fine to staff the department necessary to collect payments. Maybe reign in the amount their willing to loan, which, surprise, will not allow universities to forever raise tuition as people can’t afford it, prices will have to come back down as demand tightens.
“Banks” aren’t predominately loaning student loans, Todd. The federal government is. The loans are all backed by the federal government. So your solution is nonsensical.
0.1% won’t even cover inflation; they’d need at least 2-3% back to begin with in order to avoid losing money as a result. Plus I’m sure there’s some sort of opportunity cost built into these percentages as well. If the government is going to forego billions each year (more if you consider how much they could make if they invested those billions themselves), they need to make that up as well.
I’m not privy to federal student loan budgeting guidelines, but I would bet the 5-6% is that least they could loan money for without actually permanently losing anything.
Well, that only address part of the problem. However, the government is making roughly $2bil a year off interest. The reason for interest rates are to fight against defaults, which shouldn’t be propped up by other loan borrowers, in my opinion, when you’re dealing with education loans from the government. This goes back to making loans and the amount of loans less readily available, thereby lowing tuition rates. Think of the loans as the government’s investment in it’s population to compete on the world stage, and any notion of profits or losses changes dramatically. I’m aware that government loans are the solution and the problem. I’m advocating improving the system, not getting rid of it.
If governments got out of backing loans, then the lending would fall to banks, right? You don’t think banks would lend money more responsibly than the government?
Considering that a good number of those manufacturers are probably led by people with liberal arts degrees, the whole “liberal arts are useless and the real cause of student loan debt” strawman needs to die already.
I don’t know…I have never heard of a CEO with a Sociology degree
Christopher Connor of Sherwin Williams.
http://fortune.com/2014/06/02/ceo-college-majors/
Like, you didn’t even try. That was the first result for “CEOS who have a sociology degree.” C’mon.
Sherwin Williams? That explains the ridiculous names they give to paint colors
Working in it
On*
Let’s be honest it’s not starting so well
I wouldn’t classify this as a loophole. I’d say this is just incompetence by the lender. The collections process is a crucial part of the lending business, and to get caught slipping on data and records management? That’s inexcusable. The NYT article makes it seem as if this particular lender is very trigger happy with litigation, so I really don’t feel sorry for them here.
I’m actually more than OK with a public teacher having their debt forgiven after 10 years. If we’re not going to pay them enough to actually pay the loans off on their own, then what the fuck are we doing?
I think most people are okay with debt forgiveness programs that are in exchange for work (teachers, gov’t employees, etc). It’s the “just write off my debt because” crowd that pisses people off.
Based off of the angry comments from the last PSLF loans article, I’m sadly going to have to disagree with you.
More troubling than the rates of default are the reasons for them. The cost of education is exponentially higher than it used to be, along with overall cost of living. Salaries have not risen at a rate commensurate with those educational and living expenses. So until the cost of school comes down, we will continue having these issues.
Supply & demand. As soon as every parent in America was trying to send their child to college, the equilibrium point skyrocketed. College is great and I recommend it, but it is not a guarantee or one size fits all.
Calm down…
Imagine being fiscally responsible and just paying it off yourself, though that seems unrealistic for some.
Listen, all of us on here with student loans are paying them off, but bitching about such things is exactly what PGP was all about when it started.
I read that as “praying them off” and I think I like that better
I should thank my parent’s and grandparent’s daily for teaching me fiscal responsibility. Also, for allowing all my 4-H and livestock money to go straight to a college fund without paying expenses so I could pay off my college ‘without help’.
“hello, next mortgage crisis”…probably not true, explained by a reddit user much smarter than me:
i’ve been in finance for 20 years, through a handful of burst bubbles and crashes, and — while i have a healthy respect for bubbles — i challenge a lot of what appears to be the conventional wisdom in the housing bubble aftermath that the student loan bubble ends in the same way, or even (all due respect to Mark Cuban) ends at all. i’ve yet to be convinced of the avenue for a true crash.
what made the housing bubble so devastating in 2007 and 2008 was that the loans being expanded to support house price growth were being created in an off-balance sheet system of special purpose vehicles that would issue commercial paper (CP) and other debt instruments to fund large baskets of loans. because of the way those instruments were tranched and then insured (‘wrapped’) much of them were issued as AAA securities, enabling a massive restricted capital pool (insurance, pension, banks, etc) to buy them.
key #1 in this is who was doing the wrapping — at that time, private institutions called monolines that carried sterling reputations but very little capital reserve. key #2 was that the loan performance could be drastically affected by feedback from the price of the asset — it was not widely recognized or modeled that deteriorating loan performance could spark capital flight and a national coordinated decline in housing prices that would further deteriorate loan performance. (even though that had happened many times before….) such a large feedback loop could destroy the monolines quickly and precipitate a disaster.
student loans are not entirely like that. key #1 is that, while plenty of capital is flowing into making student loans, the loans themselves are overwhelmingly wrapped by the United States federal government — the investors are going to be made whole regardless, as the thing comes pre-bailed out even in the event of a wreck. that dramatically reduces the possibility of a wreck because capital has very little reason to fly away.
key #2 also doesn’t hold — the price of the asset is the long-term value of a college education, and that is not going to decline even if the loans stop coming. even with tuition where it is, college still represents a sterling investment to the student — the families are going to keep coming for new loans. and the loans themselves cannot be discharged even in bankruptcy (unlike with housing, where you can in most states mail the keys to the lender and walk). that eliminates the feedback loop that wrecked housing.
on the one hand, there’s no doubt that many kids are being saddled with lots of debt in return for spurious degrees of questionable value. but that in and of itself is a more sustainable model than one might wish to believe — mostly a matter of adjusting interest rates. for a true crash to materialize, there has to be a mechanism capable of that kind of volatility. one of the reasons student loans have become such a center of loan growth is that the financial system recognizes the absence of that mechanism.
that’s not to say it can go on without limit. things like the Sweet Briar capitulation are evidence that students are getting more cost conscious. but tuition and fees at Sweet Briar for undergraduates were also in excess of $50,000/year for a liberal arts education that is socially desirable but otherwise difficult to monetize. that’s far from foretelling the end of higher education.
Ummm I’m just gonna believe this until someone smarter sounding comments
The tl;dr of that is because there’s no legal way to discharge student loans, the level of risk for collectors (aka, the US government in most cases at this point) is nowhere near what mortgages were in 2007.
The flip side of “no legal way to discharge student loans” is that the interest rates are semi-reasonable. You know why car loans are 0-3% and mortgages 3-4%? There is an underlying asset that can be seized to pay off some/all of the debt. This is called “secured” debt, where the debt is “secured” by a seizable asset. Know why credit cards are at 18% or more? There is no underlying asset, so if you don’t pay there’s little or no way for creditors to get their money. This is an unsecured debt. Student loans are a hybrid; they’re unsecured because you can’t seize a diploma or degree, but they’re secured because they are nondischargable in bankruptcy. If we made student loans dischargable, you would see the interest rates spike to something more like credit card interest rates or higher over night.
I “Meh”d your comment so that I could “Nice Work” it twice.
Agreed, it makes no sense to make student loans dischargeable.
Everyone would just go to the best/most expensive school, graduate, file bankruptcy and take the hit to their credit for 10 years. You’d be better off taking the Bernie route and making school free.
While it might not create a bubble or crash in the traditional sense, it will have detrimental effects on a lot of things, from luxury goods industries to homeowner rates and retirement ages.
I’m definitely not going to read this whole thing.
The hard truth that most people think is classism, elitist, etc. is that most people don’t need to go to college, and shouldn’t go. The number of people going is too high, the demand for white-collar jobs too low, thereby depressing wages for the average graduate.
This is why there is now a push to emphasize trade schools. Lots of good jobs out there in trades that people aren’t taking advantage of. Low cost tuition, good, reasonably well-paying jobs. My dad always said, if college isn’t for you, be a plumber and you’ll make way more money.
Every time I make a student loan payment, the Project Mayhem plot from Fight Club becomes more and more appealing.
I think individuals need to be smarter in what loans you are taking out and how much you are predicted to earn in your field. Yes you are 18 and not that financially savvy but you also shouldn’t take out money if you don’t fully understand what you’re getting into. You are responsible for your finances at 18. Anyways I think these loans should be more selectively given out the government should know it will most likely not see returns on an investment for an art student who goes to a private school for $60,000 a year but will most likely be working as a teacher or something else.
High School juniors an seniors should be required to take a “Personal Finance and Other Adult Responsibilities” class in order to graduate.
There’s a lot to unpack here…
The first is that you’re effectively asking the government to pick winners and losers. What is the “return on investment” for an educational loan, precisely? How should that be calculated for a government? For a business it’s easy to look at it as strictly financial, but there are more things that a government needs to look at. Also, you’re currently ignoring the fact that your “student who goes to a private school for 60k a year” could be an engineer or get a fabled degree in underwater basketweaving: the current law has both of them paying it off, or at least both having the same opportunity to enroll in programs that change how the debt is paid.
The second is we just need do away with the idea that the real culprit is some strawman liberal arts student that is the biggest culprit for the student loan crisis. Even a basic look at the stats shows that the rate of liberal arts degrees acquired has dropped over the past 20 years while student loans have dramatically increased. There is no correlation there.
The 3 most likely cohorts for high student loans (for a bachelor’s degree or less, at least) are:
1) someone who has been conned by a for-profit university into giving them them tens of thousands of dollars of federal aid in exchange for a useless degree.
2) someone who attended college but did not finish, meaning that they have all of the debt but none of the salary bump.
3) ordinary students who are simply enrolling and completing college at a time when the cost of it has dramatically outpaced wage growth.
I don’t necessarily think that there’s a clean-cut solution to this (universal tertiary education? Promotion of trade schools and community college? Burning down every for-profit university and salting the land so one will never grow there again?), but we need to actually admit what the problem is rather than throwing around false stereotypes.
I couldn’t agree more.
Fuck Nelnet… and my $25K at 8.25% out of $140K total debt. I feel your pain.
“No matter how much money you’re making, it might feel like you can’t get ahead. There are a couple of reasons behind this but the largest reason is…” try no growth in real wages and/or people living outside of their means.
With all the comments about the inability to discharge student loan debt in bankruptcy, what if you refinance into a private loan? You lose the federal protections for better rates, but would the refinanced loan be subject to bankruptcy?
On a side note any recommendations for refinancing out there? I’d like to shave a few percent off the next 7 years..