This month we speak to Tim Ranzetta, founder and president of Student Lending Analytics (SLA), about student loan reform and student debt. In the news and on the Senate chamber's floor, the topic of student loan reform and mounting student loan debt has been front and center. The future of higher education and careers in higher education depends greatly on how institutions and Congress handle student loans in the coming years.
After reading, we invite you to continue the discussion in our LinkedIn group or follow HigherEd Careers on Twitter.
Andrew Hibel, HigherEdJobs: There is a lot of concern by higher education professionals and graduating students regarding the increase in student indebtedness. Through your work at Student Lending Analytics (SLA), what can you tell us about this student debt crisis?
Tim Ranzetta, Student Lending Analytics: Here are a few facts to consider: two-thirds of students today graduate with an average of roughly $24,000 worth of student debt. Student loan default rates are about 7 percent, based on Department of Education calculations. Those facts don't appear to represent a crisis, since that $24,000 in loans translates into a little over $200/month payment for 10 years (for a federal Stafford loan).
However, beneath these averages lurk what is a crisis for many. There are $50 billion of federal loans in default where students have not made payments for almost a year. This grew about 16 percent last year. An SLA analysis found that over one-third of borrowers were showing some signs of distress in either being late with their payments or requesting that payments be postponed through a process called forbearance or deferment. Recall also that student loans are generally not dischargeable in bankruptcy and they continue to accrue interest and penalties that often lead to loan balances that are multiples of what the student originally borrowed. A student who has defaulted on their federal student loan has a black mark on their credit that persists and will make it difficult for them to rent an apartment, get a credit card, or even find a job since many employers are reviewing credit reports prior to hiring.
Income-based repayment (IBR), which ties a borrower's monthly student loan payment to their incomes, is a step in the right direction in helping borrowers more effectively manage their federal student debt levels (IBR does not apply to private student loans). On the good news front, young workers with college degrees have unemployment rates about one-half of those that don't have degrees. The bad news is that the job market has been particularly difficult for recent grads since 2008 and lender data shows that 80 percent of defaults typically occur within the first year of repayment so their inability to find a job puts them on that track, unless they take the necessary steps to sign up for IBR (income based repayment) or seek a forbearance or deferment.
Hibel: What does SLA consider as its most crucial mission at this time?
Ranzetta: Our principal mission is to help students and families make better decisions about financing their college education. How do we do this? SLA provides independent analysis of the private student loan market to help students and their families make better borrowing decisions. Private student loans are those "gap" loans that help students pay for school after they have maximized other financial aid and federal loan sources first. SLA provides ratings on each lender, based on in-depth research that includes student surveys, mystery loan shopping, and review of all publicly available information that lenders release (such as SEC filings or conference call transcripts). This site is available at www.studentlendinganalytics.com. Importantly, SLA does not receive any compensation from any financial service firm, which provides us with the independence to "call 'em as we see 'em."
SLA analyzes how student loans are marketed, to highlight potential pitfalls, such as lenders who advertise "rates as low as 3.5 percent." Only a very small percentage of borrowers achieve these low rates, so it can be more productive to focus on the lender's maximum rates. SLA's research also highlights the importance of shopping around for a student loan. When I shopped for loans earlier this year (as a cosigner for a nephew who attends an east coast university), I received rate quotes varying from 6 percent to 12.25 percent. This experience clearly demonstrates how a wise consumer can save thousands of dollars by shopping around.
Finally, my experience over the last three years in analyzing the student loan markets has demonstrated to me the importance of improving financial literacy. SLA has gradually moved in the direction of providing more research in this area. I publish a blog that often covers topics such as credit cards, student loans, and the importance of credit scores, and I also do an annual survey on college financial literacy programs. There is no shortage of financial literacy programs out there (some popular websites have hundreds of links and every financial institution seems to offer a program) -- what is missing is a service that highlights those programs that are most effective at improving the link between financial education and financial decision-making. I look forward to playing a role in separating the wheat from the chaff when it comes to these financial literacy programs.
Read more here...http://bit.ly/d8aUyp
Monday, October 25, 2010
Subscribe to:
Comments (Atom)
