March 01, 2014

The Student Debt Crisis: Seniors Included!

Warren Belmar

Now that it is approaching crisis dimensions, it is time to revisit a topic addressed some years ago that is finally starting to receive serious attention from the media and from our elected officials. It is the escalating repayment obligations and default rates by borrowers of all ages on the $1.2 trillion in outstanding student debt, of which $1 trillion is in federal student loans, and the impact thereof on those individuals, their families, the economy, and taxpayer responsibility for repayment of the $17.5 trillion national debt.

According to news releases from the Federal Reserve Bank of New York, http://www.newyorkfed.org/student loandebt, and the Consumer Finance Protection Bureau, http://www.consumerfinance.gov, there are almost 40 million student loan borrowers with outstanding loans today. Of these borrowers, approximately five percent are age 60 and above, 12 percent are ages 50–59, 17 percent are ages 40–49, 33 percent are ages 30–39, and 33 percent are under 30. While 44 percent of these borrowers are either still in school or in a deferment or forbearance program, the remaining 56 percent fall into the loan repayment category. However, approximately 30 percent of those now in the loan repayment category, 6.7 million borrowers, are 90-plus days delinquent or in default. Of that number, more than 900,000 individuals are 50 years of age and over, carrying their own student debt and/or that of their children. See http://www.federalreserve.gov/econresdata/older-adults-survey/July-2013-Use-of-Financial-Products-and-Services-by-Older-Adults.htm.

In recent months, the New York Times, Forbes, the Wall Street Journal, and USA Today have all reported on the fact that, while fewer consumer loans became seriously delinquent last year, student loan debt was the exception to that trend. They then went on to report that increasing tuition and living costs, coupled with diminished prospects in the job market, are creating a serious malaise among many students and recent graduates alike, as they discover the full impact of their student loan debt, acquired without having to show an ability to repay, on their access to the credit markets essential to the purchase of a car or home. See http://www.usatoday.com/story/money/personalfinance/2014/03/03/ozy-student-debt/5976111/.

Over the past year, some steps have been taken to address the escalating problem. For example, Congress acted to lower interest rates on new student loans, and the administration has stepped up efforts to educate federal student loan borrowers about the programs available for deferment, forbearance, cancellation, and consolidation of federal student loans. See http://www.direct.ed.gov/postpone.html. And, in his 2015 budget proposal, President Obama has proposed expanding the Department of Education’s so-called “Pay as You Earn Repayment Plan” program, an income-based repayment option that caps federal student loan borrowers’ monthly repayment bills as a percentage of their income and ultimately forgives some of the debt.

Undoubtedly there will be various other proposals offered to address the situation, and there are indications that some may be crafted in a bipartisan fashion. The danger of inaction is that the bubble will burst first, while outstanding student loan debt exceeds household debt for cars and for credit cards and is only surpassed by $8 trillion in home mortgage debt. See http://www.newyorkfed.org/news/research/2014/rp140218.htm. As senior lawyers, we should raise our voices against dysfunctional partisan gridlock that would deprive current and future generations of students access to the educational opportunities that we were fortunate enough to enjoy and that they so rightly deserve.

Warren Belmar

Warren Belmar serves as managing director of Capitol Counsel Group a firm whose primary mission is to help clients navigate the complex world of today’s regulartory enviornment.