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Part Three Of Student Loan Series Examines The Future Of Debt Repayment

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More than a third of recent college students who have student loans are delinquent, and experts warn many don’t want to – or simply can’t — pay.  WAMC’s Capital Region Bureau Chief Dave Lucas has the next story in our series on student loans and the costs of higher education.

Diane Corbett is director of Financial Aid at the University at Albany. She says when the 2008 recession tightened the credit market, students gravitated toward federal loans over private ones. Corbett says the college rose to the challenge in many ways, including SUNY Chancellor Nancy Zimpher's "smart track" initiative, which ensures rapid progression toward obtaining a degree in the shortest possible timeframe.  "Student loans are a pathway to education for many, many students. They're an investment in the future and they play an important role in financing college education. But we want students and families to be informed consumers when they're making choices."

Still, 37 million Americans share about $1 trillion in student loans, according to Federal Reserve data released in 2013.  The Government Accountability Office says that about $94 billion — more than 11 percent of the federal student loan volume in repayment — is in default. It's the biggest consumer debt besides mortgages, eclipsing both auto loans and credit cards.

Steven Dwire, Assistant Vice President for Financial Aid at The College of St. Rose in Albany, says the recession helped make students more aware of the loans they were borrowing and the amount college was costing.    "We're sitting down a lot more and having more informed conversations with students and families about the amount they're borrowing, what they are borrowing and they're really focusing in on what that interest rate is: is it fixed, is it variable, how long do I have to pay it off, are there any programs after I graduate that would help me defer those such as teacher loan forgiveness, public service forgiveness, that's what we're talking to students about, and really they're trying to gauge if I take that this amount this year, what is it gonna be over my four years. What will that debt be, and really talking to them about what majors they're selecting and what their outcomes are: where potentially might they receive jobs. What would that income look like."

New York college students who graduated in 2013 averaged $26,381 in debt, according to an Institute for College Access and Success' report released in November.  (For information on state by state debt rates or for specific colleges, go to www.projectonstudentdebt.org.)

Will the vast amount of outstanding student debt ever be collected? The short answer could be "no."  Brian Friel is a government spending analyst at Bloomberg Intelligence.  He says the number of people unable to pay back their loans is growing.     "The government is in the process of re-bidding the debt collection contracts. Because of complaints by borrowers, of the methods that debt collectors have been using to collect, the education department is changing the terms and conditions of those contracts, to attempt to make it less of an adversarial relationship, of a — debt collectors seeking lots of money, large payments from borrowers, and instead trying to incentivize the debt collectors to develop more of a relationship with borrowers where they try and figure out some way to get them back into a situation where they can be making at least some repayments, whether it be reduced payments because of their income levels, or deferred repayments because of their employment situation or because they've taken time off from work."

Friel says as the new contracts go into effect in early 2015, borrowers will see debt collectors change the way they interact because incentives to collect have changed.

Daniel Platt of Occupy Albany says an Occupy offshoot, The Rolling Jubilee, buys outstanding student debt for pennies on the dollar, but instead of collecting it, they abolish it.    "There is a kind of debt market, where, if people are not able to pay back their debt, and they're in default, the debt goes onto a market and sold pennies-on-the-dollar, to be bought by debt collectors, who then hammer the debtors will letters and phone calls. The Rolling Jubillee raises a good amount of money, say, $10,000. But with that, they can buy a million dollars of debt. Then, they simply forgive it. Last year it was medical debt, this year it was student debt."   The group's Strike Debt program abolished $14M in medical debt: 2,693 debtors in 45 states will no longer be harassed by creditors. 

The federal government has turned up the pressure on the loan-servicing industry, zeroing in on companies handling student-loan payments. The Treasury Department doesn't believe the industry is doing enough to help troubled borrowers.

Steven Dwire says President Obama's "Pay As You Earn" plan, which went into effect in December of 2012, limits borrowers' monthly debt payments to 10 percent of their discretionary income.   "A lot of the repayments, you're able to spread them out over a longer period of time, 15, 20 years. And also they've come out with a lot of income-based repayments, so your payments are more tied to what you're earning. So you may have, when you come out, if you have a certain percentage you need to pay every month, but based on your income they can lower that amount, and potentially, if you qualify for teacher-loan forgiveness, if you work for a non-profit, if you pay for a certain number or years, usually 10 years, if there's a balance after that's said and done those loans are forgiven."

The forgiven amount may be taxed.  Dwyer says his office also encourages students to graduate within the traditional four-year cycle. Students who change majors or even schools or tack on an extra year of study can add to their debt load without giving it much thought.

What happens if there is another financial crisis? Friel says even if there is no return to recession, borrowers will be locked into repayment mode for longer and longer periods, a move directly linked to the change in the debt collection program; student loans will be more of a condition of life rather than something people can expect to be done with in the first few years of their working lives.    "There is a really fascinating government accountability office report that came out in September. The amount that senior citizens owe in outstanding federal student loans had increased from $2.8 billion in 2005 to more than $18 billion last year. I think we can expect that to continue to grow that people are in repayment on their student loans for most of their lives, even if there were no recession."

In the past year, the government has withheld Social Security benefits from 140,000 delinquent student loan borrowers, according to the Department of the Treasury. That's triple the number a decade ago. An estimated 2 million Americans age 60 and older still carry student debt — making their Social Security benefits vulnerable to garnishment.

But according to one recent poll, 24 percent of millennials said they expect their loans will ultimately be forgiven.

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