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Field Work

Loan Delinquencies, Need for Help Grows

As student loan delinquencies by graduates have increased, so have their personal financial risks: 15.1 percent of loans originated in late 2010 are now delinquent, up from 12.4 percent of late-2005 loans, according to a January report by FICO, creator of the credit score. More students are also delaying their loan payments.

“This situation is simply unsustainable,” warned Andrew Jennings, head of FICO Labs.  “When wage growth is slow and jobs are not as plentiful as they once were, it is impossible for individuals to continue taking out ever-larger student loans without greatly increasing the risk of default.”

American Student Assistance (ASA) is a non-profit that helps college graduates with the complex task of managing their loans.  Debt prevention is the best course of action, and an increasingly urgent one for students.  For those who are already in debt, click here for how to call an ASA counselor. The following is a May 2011 article about ASA that ran in Squared Away.

Forty percent of college graduates today have difficulty repaying their student loans, but few realize how many options they have to get relief by renegotiating them.

Some borrowers may even be able to qualify for postponing payments or canceling some of their debts.

Borrowing on college campuses has reached crisis proportions, according to ASA. Total student loans outstanding have surpassed the $900 billion mark. Rising tuitions and stagnating household incomes due to the recession have only increased American families’ reliance on debt to fund college.

Today, 41 percent of former students with loan payments are struggling to meet them, according to a March study by the Institute for Higher Education Policy in Washington, DC. The report for the first time looked at both late payments (delinquencies) and defaults, expanding beyond the federal government’s traditional use of defaults to gauge students’ ability to repay.

Like defaults, late payments can have long-term implications, damaging credit reports and impeding car or home purchases by new entrants to the workforce.

Natali Marmolejos, a repayment counselor, said many students are already delinquent when they call ASA, even though they could’ve avoided it by modifying their repayment plan.

“A lot of them are not really aware,” she said. “I had somebody crying last night.”

The first thing students and parents should know is that there are far more options to renegotiate federal loans, which make up about three-fourths of all student debt. Private lenders provide very few options.

In either case, ASA spokeswoman Alle Lanza-Cosgrove said the student loan industry doesn’t do a good job advertising repayment options.

“Nobody is incented to take the time to talk to the borrower and say, ‘Here are your seven or eight options.’ They’re confusing – I work in the field, and I’m still confused,” she said.

ASA provides a full rundown of the renegotiating plans here.

2 Responses to Loan Delinquencies, Need for Help Grows

  1. Pauline Li says:

    Well-written post! I’ve heard a lot about student loans and I can totally say that it is a BIG dilemma for students and the institutions as well. I think the institutions should control more of their expenses and the students should be managing student loans properly. Hoping to solve your problems soon. I’m pretty sure there is always a solution to every problem. Thank you for this post.

    • Peter Keilich says:

      Well stated – there is a responsibility to both for sure. As the number of students decreases over the years to come, the increased competition for the students may cause universities to look more closely at how they use their endowments and the fees they charge students.

      As an outcome of both high student loan debt and the inability to secure a well-paying job to quickly pay down the debt, more students are turning towards community colleges for two years. In Connecticut, kids are going to community colleges for two years and then transferring to a state university. The number of applicants in the community college (and state schools) has never been higher. And the lesser private schools are beginning to feel the impact.