Problems Mount for College Students

One trillion and counting – that’s the total owed in student loans and college students are becoming increasingly overwhelmed as they shoulder these financial burdens. Could one group of student loans be the major culprit? The Consumer Financial Protection Bureau says it does.

CFPB, in its growing responsibilities, says private student loans are to the educational sector what subprime loans are in the mortgage sector – and the problem is growing. The bureau reported last week that private student loan debt totals $150 billion, even though it encompasses but 7% of total student loans.

The Facts

There are a few statistics that support this dynamic. According to CFPB, more than 850,000 loans have defaulted in the past fifteen years and those defaulted loans total more than $8 billion. Unlike those who opted for other financial options, such as grants and debt forgiveness programs, these borrowers have no safety net. In fact, students can’t include their student loan debt in any bankruptcy filings, either.

The National College Finance Center is on the game, now, too. It reminds college students of other safer choices. Students can apply for various grants to shoulder the costs of a college education. These monies don’t have to be repaid and the funds can be used for book fees, tuition and anything else associated with pursuing a degree. Another resource is found in scholarships; like grants, these are funds that don’t have to be repaid.

That said, there are compliance issues associated with most scholarships; they often are limited to a specific group or major. Another popular option is found in work study employment opportunities, which allow college students to work a specific number of hours each week and in return, funds are applied to the student’s educational costs.

At a minimum, college students and their families should at least explore all of the options before signing on the dotted line for a costly private student loan. A bit of time spent researching can make a significant difference in a family and its financial security.

Personal Responsibility

There are some who are questioning whether it’s the rising college costs that are driving more into these less than ideal loan products. Even as CFPB continues to work to redefine the parameters in which these companies make loans, there exists a degree of personal responsibility. Ensuring transparent processes are only as good as those willing to look through the transparency.

In response to this emerging problem, the Consumer Financial Protection Bureau announced last week that it has partnered with the U.S. Department of Education to create and release a new web tool for borrowers who are behind in their student loan payments.

It’s designed to show the details of how the balance is arrived at but more importantly, it provides in-depth information on a number of considerations, such as why placing the debt onto a credit card might not be the best option, how to communicate effectively with their bank, lender or in some instances, the debt collector. This tool will ideally put these young people on the right path and away from delinquent or defaulted loans. It will provide these borrowers opportunities to rebuild their credit, go back to school or buy a home.

Ultimately, the message of these agencies is to carefully consider all of the potential problems these costly student loans might introduce. In an already difficult economy, the last thing young adults and their families need is one more debt collector.

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