Student Loan Repayment Troubles? Don’t Delay

According to an estimate from the Consumer Financial Protection Bureau, as many as 850,000 private student loans worth a total of more than $8.1 billion are in default. [ READ : Half of Outstanding Student Loan Debt Isn’t Being Repaid ] “Things certainly change from what you think might be the case when you go to school and the type of job you get when you come out,” says Brendan Coughlin, head of education and auto finance for Citizens Financial Group. “We just didn’t feel our product was complete to meet our customers needs without offering them this ability.” Because many private student loan borrowers take out their loans when they have no degree and no job, lenders take into account the risk that a borrower wont graduate or wont get a job when they set their interest rates. But many private student loan borrowers took out their loans when interest rates were high and the private student loan market was booming in the early 2000s. “What we’ve seen over the period of the last several years is interest rates have declined, and borrowers havent been able to graduate and get a job, but theyre unable to take advantage of todays historically low interest rates, as well as their improved credit profile,” says Rohit Chopra, the CFPB’s student loan ombudsman. “So a number of borrowers have double-digit interest rates and are looking to find a lower rate.” Still, Mark Kantrowitz, senior vice president and publisher of Edvisors Network.

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Student debt may hurt housing recovery by hampering first-time buyers

The report found that student debt remains the second largest source of household debt behind mortgages. The results are sure to add to the alarm about how the student loan burden could hurt housing recovery. A senior official at the Consumer Financial Protection Bureau recently warned that rising student loan debt may prove to be one of the more painful aftershocks of the Great Recession. Overall, consumer debt, including mortgages, auto loans continue and credit cards, increased by $241 billion during the fourth quarter of last year the largest quarter to quarter jump since the third quarter of 2007. Student debt increased to $1.08 trillion, up $53 billion in the last quarter of 2013 compared to the previous quarter. One fear is that the growing student loan debt burden is hobbling the recovery of the housing market, which is a key drive of economic growth.

While there is not enough data to make a conclusive statement based on this single study alone, this conclusion fits with broader evidence that high private debt levels are a drag on economic growth. In the wake of the financial crash, households have been trying to deleverage, or pay down their debt so they can have a healthier financial outlook, reduce the amount of their income that they use to service their debt, and begin investing and consuming again. During the deleveraging process, household spending is constrained, serving as an impediment to a healthy economy. Numerous studies have shown that the debt overhang of households from the mortgage crash in 2007-08 has been an enormous drag on the economic recovery. Additionally, high levels of household debt leave the economy more vulnerable to overall shocks like a financial crisis. This can make downturns more severe and difficult to climb out of.

I owe a federal student loan of $9,800. I was trying to establish a payment plan, but instead of agreeing to a plan, they garnished my pay by nearly $300 without any prior notice. Now I can’t even afford to pay my rent. They will not negotiate. Would filing for bankruptcy stop the garnishment? — Denise Dear Denise, I hate to see you file for bankruptcy over a $9,800 student loan.

They have accounted for nearly a third of home purchases over the past year, well below the historical norm, industry figures show. The trend has alarmed some housing experts, who suspect that student loan debt is partly to blame. That debt has tripled from a decade earlier, to more than $1 trillion, while wages for young college graduates have dropped. The fear is that many young adults can no longer save for a down payment or qualify for a mortgage, impeding the housing market and the overall economy, which relies heavily on the housing sector for growth, regulators and mortgage industry experts said. “This is a huge issue for us,” said David Stevens, chief executive of the Mortgage Bankers Association.

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