Interest rates will be lowered reaching 3.4% in 2011 and borrowers won't have to begin repayments until they are making about $15,000." (Education Portal, 2007) Furthermore, the effectiveness of this bill is questioned because after 2011 interest rates will quickly climb on these loans again.
The work entitled; "Student Loan Lenders Creating a New Credit Bubble" states of investors, that they are: "...clamoring to purchase bundled student loans. According to Moody's Economy.com, the market for private student loan-backed securities has seen an increase of 76% in the last year alone. The same thing happened in the sub-prime mortgage market during 2005 and 2006. There has since been a 'meltdown' in the industry. A total of 161 mortgage lenders have imploded since late 2006 (source: Mortgage Lender Implode-O-Meter), and more than 2 million mortgage borrowers are expected to default on their mortgage loans before the end of 2008." (Education Portal, 2007) the Education Portal report states the important fact that currently: "...there is no organization that tracks student loan defaults. If a widespread meltdown did occur, it would likely turn into a full-blown crisis before anyone noticed." (Education Portal, 2007)
In a separate report entitled: "Private College Loans May Spell Trouble for Students" it is stated that the faltering economy, high costs of attending college, and the troubled credit market are creating barriers for college students in attempting a solution to their high debts related to student loan repayment. Private lenders have been sought by students needing to cover the rising costs of attending college and recent reports indicate that default on student loans are likely to rise in the near future.
One real-life example is highlighted in the work of Art Hughes entitled: "Private College Loans May Spell Trouble for Students" in which Hughes reports the case of Tom Hilde, who owes approximately $30,000 in student loans. There is only a six-month grace period allowed in which to start making loan payments upon graduation from college. The salary paid for internship in Tom's field of study are low-paying jobs making the student loan payments an extreme burden. Tom called about his federal students loans and managed a deferral on his federal student loan payments but the private lenders would do nothing to assist Tom.
Hughes adds in his report information from a National Consumer Law Center report that addresses the problem: "...faced by students and recent graduates...steep tuition increases force students to take on more and more debt from private lenders. Then, a tight job market makes it hard for them to pay the loans back. They're just not in the economic shape they hoped they would be in." (Hughes, 2008) Not only is the credit of this individuals affected but as well their ability to build future assets is also affected. Private lenders are under no requirements to report the rate of default on student loans however, Hughes (2008) states that student surveys "indicate a growing negative trend." (Hughes, 2008) Hughes notes,."..many if not all, of what college administrators refer to as 'alternative loans' are offered...
That's the same practice that fueled the foreclosure crisis in the home mortgage industry once the rates starting rising. In addition, private lenders are not bound by regulations requiring flexible repayment options." (Hughes, 2008)
SUMMARY & CONCLUSION
It is clear that private lending practices in institutions that make student loans is very much like those that resulted in the present meltdown in the mortgage subprime lending industry.
The brief and preliminary research conducted in this study indicates that a solution for the looming rise of student loan private lender default rate should be addressed proactively so as to avoid a crisis in the student loan lender industry as has been witnessed in the mortgage industry most recently. Presently there is no organization that monitors or tracks the default rates of student loans and neither does the private industry have requirements of reporting default rates.
RECOMMENDATIONS for RESEARCH
Arising from the foregoing review of literature are recommendations for research and specifically a recommendation that research be conducted for a method that might be used in tracking default rates of student loans with private lenders and that some type of solution in addressing the problem of students with variable rate students loans who are likely to default on those loans due to the agreements of the loan. It is critically necessary that some type of system to track student loan default rates is developed therefore, the result of the foregoing research is a proposal for further research through the means of an extensive review of literature in a qualitative study that seeks to design and develop a method of tracking the rate of student loan default since there is no organization which now tracks these default rates and private lenders are not required to report the rate of student loan defaults. Further proposed for research is examination of possible solutions that might be utilized in addressing this problem by government, school, private lender, students, and other stakeholders of student debt repayment practices currently being utilized in funding college education.
55 Colleges Under Investigation for Unethical Student Loan Practices (2007) Education Portal. 2 Nov. 2007. Online available at http://education-portal.com/articles/55_Colleges_Under_Investigation_for_Unethical_Student_Loan_Practices.html
Facts About Student Loans (2007) Education Portal 14 Sept 2007 Online available at http://education-portal.com/articles/Facts_About_Student_Loans.html
Gordon, Marcy (2008) Student Loans Sow Seeds of Economic Ills. 13 Mar 2008 USA Today. Economy. Online available at http://www.usatoday.com/money/economy/2007-09-30-studentloans_N.htm
Hughes, Art (2008) Private College Loans May Spell Trouble for Students. Minnesota Public Radio. 5 Mar 2008. Online available at http://minnesota.publicradio.org/display/web/2008/03/05/loantroubles/
Student Loan Lenders Creating a New Credit Bubble (2007) Education Portal 4 Oct 2007. Online available at http://education-portal.com/articles/Student_Loan_Lenders_Creating_a_New_Credit_Bubble.html
The Dirty Secrets of the Privatized Student Loan Industry…
Debt Consolidation Specialist: This individual, if qualified and reliable is likely to be found through referral of the school one is attending. One may also contact local government offices for referrals to a good debt consolidation specialist. Information may also be found on the Internet concerning debt consolidation services. Grants: government funding that does not have to be repaid. Scholarships: college funding that does not have to be repaid in the form
Mortgage Fraud If a rash of armed bank robberies swept across America next year, and if in these robberies criminals absconded with $30 billion dollars, one may be certain that a public panic would ensue. The banking system would likely be changed forever. If thousands of armed thugs went rampaging across the nation forcing people out of their homes, into the streets, and then destroying the properties, leaving the occupants homeless
" (Crawford, 2011) These comments are showing how Wellstone understood the risk that this would pose to the financial system. In eight years after making this speech, the federal government would be directly bailing out firms that were too big to fail. This is indicating how the repeal of the Glass Steagall Act allowed financial institutions to engage in excessive amounts of risk taking. It is at this point that they
Mortgage Crisis The Mortgage Meltdown and the U.S. Economy This paper reviews the subprime mortgage crisis and its effect on the U.S. economy. The subprime mortgage crisis first gained the public's attention when a steep rise in home foreclosures occurred in 2006, and then spiraled out of control in 2007. At that time the mortgage meltdown triggered a national financial crisis that went global within the year. As a result, consumer spending dropped,
Sub-Prime Mortgage Lenders Ethical Legal Issues Ethical and legal issues concerning sub-prime mortgage lenders The essay is aimed at exploring the subprime mortgage lending and related ethical and legal issues. Subprime mortgage has become an influential industry in particular due to the increase in trend to take loans for house purchase in an average American. Ethical Issues involved Legal Issues Ethical and legal issues concerning sub-prime mortgage lenders Subprime Mortgage Industry Legal Issues Ethical Issues CONCLUSION AND SOLVING THE PROBLEM Ethical and
The growth of Internet has led to a desire to understand the characteristics of the users, their reasons for using the service and what the users do when connected. A huge and expanding 'Internet watching' industry has progressed to provide such data. Some statistics can be collected directly from the Internet about traffic volumes and the geographical segmentation of its users and these provide a reasonably accurate picture of