Student Loan Process Government Inquiry

Student Loan Process

Student Loan Debt Bubble, 1980-2011 (Photo credit: Occupy* Posters) Consumer Financial Protection Bureau (CFPB) Seeks Input on Student Loan Process

Student Loan Process and your FICO Score

Student loan debt factors into your FICO score in the same way as any other debt.  It makes no difference if the loan is government or private to FICO.  Deferred status receives no special treatment either positive or negative by the FICO scoring algorithm. Past positive performance is lost to the scoring algorithm only during the period of deferment.  Once the loan is out of deferment it again calibrates. Scoring wise payment history always trumps the amount of the loan. Multiple inquiries within a 1 month period of time are categorized under special inquiry treatment logic. They are treated as 1 inquiry in similar fashion to mortgages and auto loans.  With average student loan indebtedness rising from $17,233.00 in 2005 to $26,530.00 in 2012 the student loan process has created a burden will be with many people for a long time.

Consumer Financial Protection Bureau Looks at Student Loan Process

It has just been announced that the Consumer Financial Protection Agency is actively seeking suggestions on a new policy plan to help borrowers of private student loans find more affordable repayment plans.  The very active new agency is looking for comments and ideas from the general public.  Comments may be submitted to the agency through April 8th of this year.  The CFPB has limited power to develop and enforce a new framework for private market student loan oversight but its recommendations carry a lot of weight in Congress.  Federal student loans remain the best option available in the student loan process for borrowers.  Some students have turned to private student loans which they struggle to repay.

Student Loan Process has Resulted in over $1 Trillion in Debt

Out of the over $1 Trillion dollars in student loan debt the student loan process has left outstanding in the economy over $150 Billion is the result of private loans. An October 2012 report concluded that there was $8 Billion in outstanding student loan balances.  The New York Federal Reserve says student debt has nearly tripled in the last 8 years.  There has been a 70% increase in the number of borrowers and the average balance per person.  Private lenders don’t have the flexibility to renegotiate through income based or extended repayment plans that government backed entities have.  Borrowers who are past due has grown from under 10 percent in 2004 to 17 percent in 2012.

Richard Cordray, director of the CFPB says this of the student loan process:

“Too many student loan borrowers are struggling with unwieldy debt that prevents them from climbing the economic ladder.  We will be analyzing plans for policymakers to consider that might help avoid a repeat of the mortgage meltdown for today’s student loan borrowers.”

Massive Student Debt Impacts the Greater Economy

This new look at student debt policy is not just motivated by pity for the poor students who feel so hopelessly in debt.  Of course any help it does give students is a political plus for everyone involved.  Lawmakers never lose sight of the fact that the young vote with their economic interests in mind just as the old do.

The overriding concern is the fact that the massive student debt load is a drag on the entire economy.  Its impact extends far beyond the impact it has on each individual. Student debt is voluntary after all.  There will always be those who say that it is only right for students to honor the deals they made for loans with open eyes.  That may be so but it doesn’t change the fact that individuals mired in debt can’t get credit or buy cars or houses.  Neither can they eat out very much or keep the service economy humming in ways that help the economy as a rising tide lifts all boats.

New mortgages by those in the 25-30 year old range have shrunk to only 4 percent of total mortgages.  Student loans are nearly impossible to discharge in bankruptcy.

The Tax Bill of 1998 extended the period of time in which student loans are exempt from Bankruptcy to basically life without the possibility of parole.  A new bill called The Fairness for Struggling Students Act of 2013 (S.3219) has been introduced by Sen. Dick Durbin that would change bankruptcy laws for private student loans.  Between 1976 and 1998 they went from a 5 year wait to a 7 year wait before the ban that placed them in the same bracket with child support, drunk driving damages and others in that limited category of non dischargability.

Tuition Rising, Wages Dropping

The student loan process is fueled by rising tuition rates and falling wages in a never ending cycle.  One of the things that grates the most on a large segment of the population is that universities seem to take advantage of the situation.  Not content with all the tax free benefits they reap as an entitlement they just keep cranking up tuition and other costs annually.  They know that prospective students hungry for an education will find a way.  The student loan process of repayment seems a long way off to new students.  Nothing will ever change the outlook of many young people that the future will somehow take care of itself.  Every generation must learn the hard truths in their own way.

The student loan process cuts across class from hairdressing and tractor trailer driving through professional and Ivy League schools

In a kind of reverse snobbery those who make it without student loans through high paying trades they have learned or family businesses understandably don’t care too much about the plight of those who owe them.  It’s not amnesty those who owe these loans are looking for.  The indebted students in many cases need better terms due to conditions beyond their control.  The budget “sequester” will cut off federal financial aid for 280,000 students annually.

The February, 2013 released Equifax Consumer National Trends Report states that charged-off and severely delinquent student loans jumped 36 percent to $3 billion.  The number of student loans was up 13 percent, total debt from student loans up 14 percent.  This appears to be caused by the unemployed and underemployed going backk to school coupled with rising tuition.

 Take the time to send in your comment or suggestion to the CFPB or don’t complain about the result!
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After practicing law for 37 years Edward F. St. Onge, Sr. now devotes all his time to helping consumers achieve a high credit score with amazing speed. Learn the counter-intuitive secrets to credit scoring through his down to earth instructions backed by extensive knowledge of the laws and trends. All of the latest tricks and techniques that they don't want you to know now at your disposal. At last a level playing field for the consumer!

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