As stressful as student loan debt can be, a new survey by Young Invincibles (YI) reveals that it may be much worse for those with private student loans. Although YI is a relatively new organization – formed in 2009 – it has grown into a strong voice for the interests of 18-34 year olds. Their most recent policy research has resulted in an interesting report – Borrower in Distress: A Survey on the Impact of Private Student Loan Debt. Here are four ways this report reveals that private student loans are ruining lives:
#1 Private Student Loan Borrowers Owe More While student loan debt on average is $27,000, those who have private debt in the mix owe far more. Borrowers in the survey had median private debt of $25,000-$35,000 but most borrowers also had federal loans, driving their total debt much higher. Every $5,000 more of debt results in $60 more per month and tons more interest at the end. For many people, this amount of debt is simply unmanageable. Nearly 30% of those surveyed had debts in excess of $50,000! See chart below – 93% of private borrowers are struggling to make the payments!
#2 Private Student Loan Borrowers Have Fewer Options While federal loans have a variety of options to make monthly payments more manageable such as extended payment, graduated payment and income-sensitive payment plans, private borrowers aren’t required to be flexible. One of the 10,000 borrowers surveyed by YI said their lenders, “are totally unwilling or unable to negotiate a lower rate or lower payment.” If lenders won’t offer any options to help troubled borrowers get caught up, how do they expect to sustain their debt portfolio? By force in the form of garnishments?
#3 Private Student Loan Borrowers Take on Debt to Pay Debt Nearly one-third of private student loan borrowers are using credit cards to try and help keep up with student loan payments. With credit card interest rates averaging 15% and much higher for those with less than stellar credit, students could be adding debt at double the interest rate of their loans by using their credit cards to help pay educational debt. This speaks to the aggressive collections process of private student loans that borrowers are willing to incur double the interest rates to service these payments.
#4 Private Student Loan Borrowers Are Putting Their Lives on Hold Nearly half of private student loan debtors surveyed are putting off investing in a home and buying cars. While this is bad enough for individual borrowers, it’s also not great for the rest of us. Money paid to service private student loans is money kept out of the business cycle. This costs all of us and spreads the misery of private student loans beyond the borrowers and touches everyone. Student loan debt has contributed to the troubled housing market and is spreading its tentacles into far too many other sectors of our economy.
What Can Be Done? It’s no wonder that our nation’s lawmakers haven’t offered any solutions to private student loan debtors when they are utterly neglecting the swath of borrowers they could most easily benefit – federal debtors. By failing to act by July 1st, legislators allowed subsidized federal student loan interest rates to double from 3.4% up to 6.8%. This could have easily been avoided, yet gridlocked partisan politicking shut down any possible relief.
We have to ask, at what point will our Senators and Representatives realize this is a crisis and act? There are two ways that legislators could significantly impact private student loan debt for the better. First, they could revamp bankruptcy codes to allow private student loans to be extinguished alongside other private debts. Second, they could mirror the recent California ruling that blocks private student loan lenders from accessing wage garnishment as a means to collect.
By blocking off avenues of collection, this will force private lenders to be more reasonable with debtors. Because there’s no incentive for them to offer flexible repayment options, these lenders can continue to bully borrowers any way they like! It’s up to groups like Young Invincibles and private citizens to lobby Congress exhaustively until our lawmakers act. It’s not about allowing people to skate on their debts – it’s about creating mechanisms for them to service their debt within their existing budgets!
No matter what type of student loans you have – public or private – Tuition.io’s free student loan management tool will let you view all of your debt in one simple dashboard. You can view your payments, your prospective payoff dates and even contact your lenders. Learn more about Tuition.io and be sure to check out our blog for repayment strategies, legislative updates and tips for borrowers!