"There are increasingly urgent signs that an unprecedented wave of student loan defaults could be arriving within a matter of months. A cratering economy and expanding pandemic are about to collide with the expiration of critical temporary student loan relief programs, and the end result could be catastrophic.
Here’s what’s going on." …
No. No. No. Borrowers are eligible for income driven repayment plans if they cannot afford their payment. While annual recertification for an IDR plan is based on prior year income, borrowers whose financial situation has changed can submit evidence of current income (or lack there of) for an adjustment payment amount at any point in the year.
A more useful article would have explained this, and the necessary steps, to borrowers.
I agree with @kelsmom. This article doesn’t tell the whole story. We have a kid who will be repaying Loans as soon as that is required. Her loan services has been excellent about communicating with the graduates about their options, ability to change options, forbearance period, etc.
When in doubt, a student should contact their loan servicer. That’s the step they need to take.
I always told my graduates that there is no excuse for going into default. There are options available to assist everyone.
The article says that private loan borrowers are not eligible for income driven plans like federal student loan borrowers are. Those states that directly negotiated with private lenders to help such borrowers now have that negotiated 90 agreement set to expire. And of course you cannot write a check or negotiate forbearance if you are in the hospital with COVID. I think there will be problems.
But, the vast majority of student loans are Federal.
A “vast majority” is not all and I think we are talking about millions upon millions of borrowers. Many students consolidate students loans in the years after graduation to simplify their lives and usually to lower their interest rates. I suspect many of those are consolidated to private lenders. I am not so sure it will be easy to negotiate with loan service providers, particularly as they get more busy fielding requests. But I am glad that many of you are more optimistic than I … certainly I hope the Forbes article is mistaken.
According to this 92% are federal. That’s not all, but it’s a lot…
https://www.fool.com/student-loans/student-loan-debt-statistics/
Then why are people taking them? I thought the point of taking out private loans was for the borrower (and cosigner) to accept additional risk to get more borrowing power, and if the student couldn’t pay then it would become the responsibility of the cosigner. Aren’t people counseled to not borrow more than they can realistically repay?
I think a lot of people overextend to get money for schools they want, which often seem to be schools they can’t really afford. I’m not sure there’s much that can be done for them long-term. Can banks afford to carry the costs of defaulted loans for millions and millions of borrowers?
So we should be worried only about 8% of the 1.5 trillion is outstanding student loans?
That is a relief but it is still a lot of dough. And I am not so sure the federal loans are going to be so easy to manage for the other 92% of student borrowers. I just don’t think we should ignore the Forbes article and put our heads in the sand. This is gonna be a problem. The size of student debt was a huge problem before the COVID recession. The existence of many for profit schools that encourage student borrowing is a huge problem. Many students don’t graduate from these schools and can never pay off the loans. Many that do graduate can’t find the promised jobs to pay off the loans. These facts were present before COVID and will only get worst in the current recession. Most on this website don’t send their kids to those types of schools so it easy to ignore the problems they create. And of course most colleges are not for profit, but kids still have to repay those loans as well.
Here is a link to a 2018 Forbes article covering for profit colleges.
Yes. Which is why I don’t really care if the private student loan industry implodes. There are options for those with federal loans if they can’t manage their payments.
Not all of the 8 percent private will go in default. If people lose their jobs, the very first thing they should do is file unemployment and the second is contact any lenders. It’s in the lender’s best interest to work with a borrower to extend the terms of repayment.
It really doesn’t reassure me that some here don’t see a problem.
If they consolidate federal loans with a bank or private lender they are foolish. The federal student loan servicers will no longer be involved. Students who take out private loans initially are usually graduate and professional students or undergraduates who just had to go to their “dream school”.
There are for profit schools that are predatory, in my opinion, and I’m in no hurry to bail out people who borrow heavily to attend them. There should be a limit to the amounts people can borrow. If state schools cost more than their residents can pay then those systems should be overhauled. But I don’t think taxpayers should be required to fund for profit colleges and dream schools for students who think they’re too good for their local university or community college.
Bingo!
I think most of you are completely missing the point. WE are all going to be picking up the cost of defaults through our taxes. Also, plenty of students are “foolish” so we will be picking up quite a lot of cost. The private loans, I am pretty sure, are backed by the government. The lenders take virtually no risk. Private or government originated loans that go in default are all trouble.
Private loans are NOT backed by the government. That is why students almost always need a cosigner to get them.
Private loans are private. They are not federally backed. Years ago, banks were the lenders and the loans were backed by the federal government. Now all loans are borrowed directly from the federal government. Some of the older loans are still not repaid, but the government is on the hook if those loans default.