The Student Loan Heads to Court

Private Student Loan News

EDUsquared has emphatically discussed the topic of student loan debt within our program. Heck, we did a 10 minute in-depth interview with a really unique case here: Interview

Private Student Loan

 

(PEST seemed appropriate to us.)

A new article from the Associated Press discusses how dire the private student loan situation is getting. The article describes the growing trend of lenders taking students and debtors to court over their private student loans. To make matters worse, it does not appear to be getting any better.

Side note: To level set with parents and students out there, apply for federal student loans prior to applying for private loans. Why? Primarily because of superior loan terms.

Here’s the scary part, though – we aren’t in the recession anymore. It’s one thing when lenders complain about not getting paid when salaries are at an all-time low and jobs are hard to come by, but by BLS accounts we currently have a 5% unemployment rate. Private student loans are small relative to the national student loan market (91 billion vs 1.2 trillion or about 7%). What is disturbing is that the private sector is getting its feathers ruffled and having these issues now when the economy is firing on all cylinders. It gets even gloomier when you consider that, often times, the private sector gets to cherry pick the loans it chooses to provide in the first place.

Let’s dig a little deeper on that last statement.

Lesson in Student Loans

In today’s world when a student applies for their FAFSA, they receive the loan options from the federal government, evaluate scholarships offered from different schools, look at their personal finances and may or may not be left with a gap. The terms offered to the student from the federal government are unbiased and go unaltered (other than amounts) after they evaluate your assets on an annual basis. The private sector does not work like that. They will probably ask for a co-signor, they may ask for additional information, and they aren’t obligated to provide you with anything based on your assets alone. The nature of how you become their customer would lead you to believe the risk vs reward analysis was competent. Yet, here we are. Banks are still not getting paid even AFTER they get to pick when and where they provide a loan. To me, this is a major signal that the marketplace is burdened with too much debt and friction when it comes to matching the necessary skill sets with job availability. Put simply, we aren’t getting the right degrees and are overpaying for what we are receiving.

 

July 17, 2017

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