Student Loan Debt: The dormant financial crisis now awakens
A revolt is growing as more people refuse to pay back student loans.
Remember those 15 people who refused to repay their federal student loans? Their debt strike has picked up 85 more disgruntled borrowers willing to jeopardize their financial future to pressure the government into forgiving their student loans.
And the government is starting to listen. The Consumer Financial Protection Bureau has invited the group to Washington on Tuesday to discuss their demand for debt cancellation. Although the CFPB doesn't have the power to grant that request, the agency's overture shows that the strike is being taken seriously./p>
It's been a month since 15 former students of the failing for-profit giant Corinthian Colleges said they would not pay a dime of their student loans because the school broke the law.
Corinthian, which runs Everest Institute, Wyotech and Heald College, has become the poster child for the worst practices in the for-profit education sector, including high loan defaults and dubious programs. Clouded by allegations of deceptive marketing and lying to the government about its graduation rates, Corinthian lost its access to federal funds last year, forcing the company to sell or close its schools.
In the aftermath, current and former students of the for-profit schools have called on the Education Department to wipe away debt they say Corinthian pressured them into taking. After months of pleading with the department to forgive the federal loans, the students teamed with an offshoot of the Occupy Wall Street movement known as the Debt Collective. Together, they came up with the idea for the strike.
It's a dicey move because students who default can lose their paychecks, tax refunds or even a portion of their Social Security. Not paying back debt can also ruin someone's credit, making it difficult to buy a house or car, or to get a job.
Even the rich and famous still have student loan debt.
Whiplash star Miles Teller made headlines this week when he told New York Magazine's entertainment site, Vulture, that he still hasn't paid off his student loans, despite starring in blockbuster films like Fantastic Four.
And when Texas Senator Ted Cruz introduced himself to voters as a presidential candidate Monday, he included a nod to the $100,000 in student loans that he said he recently paid off. He follows in the footsteps of President Barack Obama, who told an audience of college students during his 2012 reelection campaign that he and Michelle Obama had only finished paying off their student loans eight years before.
This new generation of public figures is more likely to be personally touched by student debt than their predecessors so it's likely to come up more often, Williams said.
There was a shame attached to debt that made people more hesitant to talk about it, Williams said. Now the shame has gone away because people have realized almost everybody has debt.
Surprises behind the student debt crisis
In a new report titled, Why Student Loans Are Different, the New America Foundation looked at the problem on a more intimate level by talking with individual borrowers who gathered in focus groups across the country.
Much of what the conversations uncovered was surprising. Here are five findings:
- Delay in payment: It's easy to delay payment. Many borrowers said they heard through their loan servicers that they could simply delay paying their federal student loans for months or even years, and so they did. Some said they learned about the ability to temporarily suspend payments from unexpected sources such as mortgage brokers and the IRS. It can take just a phone call to suspend a loan.
- Less Compensation: The minimal hurdles for delaying payments, the report said, seem to enable borrowers to push student loans down on their list of bills to pay.
- Interest increases debt load: Extending debt payments adds to the load. While it's relatively easy to suspend payments, what the borrowers often didn't realize is that the interest on their loans continued to accrue, which made the eventual debt load even worse.
- Low payment is not a benefit: Choosing to repay the student loans well beyond the standard 10-year period also added to their debt obligations. Most borrowers said the ability to stretch out the payments for decades with lower monthly payments did not seem like a benefit.
- Incorrect reporting: Borrowers in these situations expressed feelings of hopelessness. These feeling were particularly pronounced for the borrowers who said their loan balances grew even though they were making monthly payments, the report said.