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Thread: Moving from Subprime Mortgage Defaults to Subprime Student Loan Defaults

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    Default Moving from Subprime Mortgage Defaults to Subprime Student Loan Defaults

    from


    (snip)"The number of student loans held by subprime borrowers is growing, and more of those loans are souring, the latest signs that a weak job market and rising debt loads are squeezing recent graduates.

    In all, 33% of all subprime student loans in repayment were 90 days or more past due in March 2012, up from 24% in 2007, according to a Wednesday report by TransUnion LLC.

    Meanwhile, the Chicago-based credit bureau found that 33% of the almost $900 billion in outstanding student loans was held by subprime, or the riskiest, borrowers as of March 2012, up from 31% in 2007.

    "If you become subprime, it's more likely that you will not pay your debt," said TransUnion Vice President Ezra Becker, who oversaw the study.





    The high debt loads could weigh on consumer spending and the economy, said Cristian de Ritis, a senior director with Moody'sMCO +0.05% Analytics, a unit of Moody's Corp. If the defaults continue to increase, "the taxpayer is going to be on the hook for losses," he added.

    The federal government has taken a more active role in student lending and now makes about 93% of all loans.

    Another study, released by Fitch Ratings, a unit of Fimalac SA FIM.FR 0.00% and Hearst Corp., Wednesday, warned that the gap between college costs and what students can borrow under the federal student-loan program will continue to widen.

    TransUnion performed its study at the request of credit unions, which make private student loans.

    In the five years through last March, the portion of all student loans that were 90 days or more delinquent rose to 11.4% from 8.8%, while the average student- loan balance per borrower increased 30% to $23,829, TransUnion found."(snip)


    For better or for worse, the recent rule changes regarding gov't backed student loans virtually guarantees that the student loan delinquency situation will get much worse before it gets better.

    - Regardless of how large your monthly student loan payment is 'supposed' to be, all that you are now actually required to pay is 10% of your 'discretionary' income, i.e. 10% of however much money you have leftover out of your paycheck after paying for 'necessities' like food, rent, utilities etc. For many college grads who wind up working at 'menial' jobs, or have no job, the required payment may now actually be zero. And even for college grads who land a $40k per year job after graduation, the required payment may only be a couple of hundred bucks.

    - Despite the outstanding balances of many student loans now continuing to grow larger every month ... because the required monthly payment won't even cover the interest charges ... in the final analysis it no longer matters. No matter how large the outstanding student loan balance grows to be 20 years from now, it will be totally forgiven by the gov't. And if the person winds up landing a job with a gov't agency, the outstanding balance will be forgiven after 10 years.

    see for details

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    Default Re: Moving from Subprime Mortgage Defaults to Subprime Student Loan Defaults

    Another " We Told You So ".

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    Senior Member JudyO's Avatar
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    Default Re: Moving from Subprime Mortgage Defaults to Subprime Student Loan Defaults

    This coupled with the mushrooming national debt is enough to make anyone loose sleep at night, especially those with kids of college age or younger. It really just seems like there is no end in sight, just one big powder keg getting ready to explode one of these days. Now it seems like it's happening in slow motion. No wonder why the number of people going offshore is going up.

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    Default Re: Moving from Subprime Mortgage Defaults to Subprime Student Loan Defaults

    Prospective students should know a bit about the different kinds of loans. One class of student loans is Perkins loans, which universities lend to students on a by-need basis. They are not ever the bulk of a loan package, typically a small amount to cover a gap. However, Perkins loan defaults are increasing, just as other loan defaults, and some universities are hauling students to court to recoup the losses. Article source: .

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    Default Re: Moving from Subprime Mortgage Defaults to Subprime Student Loan Defaults

    a couple of additional issues ... with the first being the first release of official default rates on student loans 3 years out ...


    (snip)"For the first time ever, the U.S. Department of Education has come out with an official three-year federal student loan default rate.

    Until now, the agency has only looked at two-year default rates at universities, and with a wider net cast, it's clear that students only struggle to pay back loans more with time.

    Two years after leaving school, students default on their federal loans at a rate of 9.1 percent, up from 8.8 percent at last count. That figure jumps to 13.4 percent at the three-year mark, the report shows.

    Though they've seen a slight decrease in two-year default rates, for-profit institutions fared the worst by far on the three-year track, with more than one in five students defaulting after three years. Public and private schools clocked in with 11 percent and 7.5 percent default rates, respectively, according to the report.

    What's more, nearly 250 schools were found with a 30 percent three-year default rate, 37 of which had a rate higher than 40 percent."(snip)


    the second issue, raised by your reference to Perkins loans, is that the frightening rise in student loan default rates is now leading to agressive collection efforts where 'private' funding was involved i.e. Perkins loans, bank educational loans etc. However, the proportion of student loans under the Stafford program i.e. guaranteed against future default by future tax money of US taxpayers, is high and rising. As gov't guaranteed student loan defaults rates continue to rise, at some point Stafford loan originators are going to come knocking on Washington's door to actually get paid the hundreds of billions of dollars that US taxpayers have guaranteed but student loan holders have not paid.

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    Default Re: Moving from Subprime Mortgage Defaults to Subprime Student Loan Defaults

    Being late on/not paying back a student loans is probably the worst thing you can do. Because even when you start paying it back, those old late marks will sit on your credit report for a good 10+ years since its going to take awhile to pay the entire loan back. And even then, the payment history is likely still going to sit on the report with at least 1 bureau.

    I have 2 paid off ones on 2 of my bureaus and it still shows all the payment history, though luckily I always paid it on time.

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