It’s that time of year when kids graduate from college. Parents swell with pride and sigh with relief. The most expensive parts of child rearing are behind. Bedrooms once filled with little league participation trophies get converted into man caves and vacations, long delayed, now get launched. All is well in Pleasantville.
With the exception of a small percentage of America, this image of course is a fantasy. In the real world sons and daughters stick around the house while searching for their first real jobs and trying to figure out how to budget for their first apartment and the burden of paying off their student debt.
There is a lot written about the Student Loan crisis in America these days, but precious little actually being done. Here are some of the ugly facts behind this crippling problem.
In 2010, student loan debt exceeded credit card debt for the first time ever. By 2011, student debt exceeded auto loans. Various estimates place student loans in excess of $1.2 trillion.
By our calculation, the average student loan is over three times (per capita) that of credit card debt. This is bad for the health of America.
There are over 37 million students in hock up to their ears according to government numbers. As of 2015 over half were in deferral, delinquency or default.
Here is a key point. For every borrower who defaults, at least two more become delinquent. In other words, the trend is going in the wrong direction.
Since Student Loan default can result in all types of legal action including wage garnishment for anyone who signed or cosigned for their child or for a relative of the child, this is far more serious than a delinquent credit card account. It can drain the assets and wealth of the nation.
Agreement Everywhere, , , Action Nowhere
Virtually everyone agrees there is a massive problem. Imagine, what would be the affect on credit markets and the whole US economy from a $600+ billion default? That would be more than a little ugly.
For all the talk, almost nothing is being done. Government aid to education isn’t going up. Tuition is increasing faster than inflation. A college education is less and less affordable every year.
Watch Out: The Piranha Fish Will Eat You
The one area where a need for change exists, but is being largely ignored is in the Student Loan servicing field. What we are referring to are those telemarketers that promise to renegotiate or even slash loan principal or monthly payments.
This is one industry where increased government regulation would be a good thing.
We are talking about fraudulent debt relief companies that charge subscription fees of $200-$350 per month using high-pressure tactics employing dozens of unqualified telemarketers.
Various sources place the number of student loan debt relief Piranha’s between 125-140. We are not suggesting these are all crooks. Some are but either way; most are not able to deliver on the results they promise.
Of the total number of these operators, less than 7% have been closed down. There are at least two agencies responsible: The Consumer Financial Protection Bureau CFPB and the Federal Trade Commission. The CFPB is the group set up after the 2008 financial crisis to protect everyday consumers. So far neither agency has accomplished anything.
The nature of these Piranha fish, with their online and call center selling techniques, makes it hard to prosecute the worst offenders. Often call centers are equipped with non-traceable numbers. If one is closed, the same people can pop up elsewhere with a new website.
Monies thrown into these fraudulent schemes means even less going into actual debt repayment. When default takes place it does great harm to a students ability to establish credit and to have the funds for that first apartment.
It can be every bit as crippling to relatives who cosigned for student loans. There are horror stories of asset garnishments from grandparents living on fixed income who have lost parts of their social security income. If Donald Trump wants to make America great again, it’s time to appoint some attach dogs at the CFPB.