Jul 3, 2013|
Garland talks with Senior Vice President and Publisher of Advisors.com Mark Kantrowitz about student loan interests rates and a generation of debt.
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Automatically Generated Transcript (may not be 100% accurate)
Well worth thinking about student loans again. They doubled that -- the interest rates doubled Monday. After congress failed to act. There is some thought that congress to come back in session after the report and changed that. Morgan trying to get details on this -- I'm reading and covering this report. That our student loan that is now larger than the credit -- -- -- in this country. And of course to get veteran permission on all of these rooms called experts we have -- might or more can prove it's. Senior vice president publisher of the advisors. Dot com mark welcome to show. This if if if I understand correctly. The doubling of the interest rates. Doesn't. Affect the news. That took out loans before Monday doesn't. It does not it does not affect old loans. It only affects new subsidized Stafford loans it does not affect the un subsidized -- -- the parent possible. That was my next words from what to Stafford loan. It's Stafford loan is -- federal education -- borrowed by the student to pay for their own education. You can borrow. As a dependent student either subsidize sore arms subsidized Stafford loans. The differences that the subsidized loans are based on financial needs as determined by the collagen subject to annual limits. Government pays the interest on subsidized phones while the students in school. -- -- subsidized homes the government does not pay the interest so if you don't pay the interest sensitive cruise -- added to -- themselves. Why is the interest being -- Well on the interest for it was a regionally six point 8% in 2006 of seven and 2007 -- -- just test the I'm subsidize certain loan has been at six point 8% all long. As part of their election year 642006. Said the pledge as Democrats pledged to slash interest rates on student loans in half. They implemented this through the college cost reduction in actual fact of 2007. Which to the phased in interest rates reduction on just the subsidized Stafford loans. So it went from six point 8%. To six point Cyril then to five point six and four point five. Then 3.4 percent and it was set to expire in the middle election year. When. Both the leading candidates President Obama governor Romney. Supported extending their -- congress passed a one year extension. For an additional years won't 3.4 percent at -- cost of six billion dollars to the federal government. No we comes to the president where that rate is as soon expired. And -- new loans are back to the six point 8% interest rates. If I could use to be six point eight what's the reasoning as to not making this retroactive. To keep -- report corporate and I'm -- did well to rude to all slowed towards these doubled interest rates. To undergraduates graduate students and parents. Well the reason for. Not making a change on things and continuing as the costing their cost. For each year of 3.4 percent interest rate loans it cost six million dollars. And that money might be better spent -- aren't something that has an impact. On. The involvement -- graduation students such as cramps. Which would reduce that -- And it may sound dramatic to be doubling the interest rates but that doesn't double the monthly payment. And it's for the typical ball or we're talking eighteen dollars more -- month on their subsidized care for the world. One and the real problem is simply cost for the it's the amount of debt each year students are graduating. With more than a thousand dollars in additional debt. That's the real problem and this is kind of they verify that your. And I'm reading -- more than seven million students or projected. Take out these Stafford loans. For the the coming school year. But also read if it's correct -- a lot of students don't take loans out in June July August September as a group. That's correct at all that but it gives time for congress to. Go back to 3.4 percent something else yet they're going to. Right so about a third student teaching your ball from the subsidize their football program. But most of them foreign currency in the fall not during the summer months for the summer -- mainly talking about summer. All classes than a handful colleges that have students turning around. But and congress could retroactively changed very. But only on loans that have not yet been dispersed. If so once alone it's dispersed that rate is locked in if you go out today and you get the subsidized -- for loan. It's going to be at six point 8% even if congress subsequently. Makes a retroactive change that's why last year when they did the one year extension. Because they couldn't get the legislation passed in time for toward first. They pass a temporary bill that allows the Department of Education to delay disbursement until July 6 when they passed the legislation. Retaining their 3.4 percent rate for an additional year they didn't pass some more piece of legislation this year. Mark comers do ten more minutes -- time we're gonna take a quick break come right back. Got questions got comments we'll -- expert 2601. -- governing. -- bring anywhere in the country 866 it'd dollar and zero it's evident. Worth thinking about the doubling of student loans from 3.4 percent to six point 8%. What do you think. -- -- good about student. Loans student -- college loans. The number of don't live like 1993. -- average was little over 151000 dollars average in 2011. Almost 28000. Dollars. Now as of Monday the interest rates have doubled from three point eight to six point 8%. This it is not counting the loans -- were given for Monday to undergraduates graduate students and their parents. We bought more contrite words with the senior vice president and publisher of advisors the outcome an expert on call from the central lead in loan it's a mark -- our student loans. Is is that a bigger debt than our credit card -- in this country at this point. You know total student loan debt outstanding exceeding credit card debt outstanding in 2010. Auto loans outstanding in 2011. And reached as one trillion dollar market in. On 2012. Would would that kind of huge debt. Why isn't congress fixes the interest rates rather than just the market. Or at least federal education loans. Subsidized interest rates and students. Are generally don't have good credit histories. Or they have not existing credit histories so. They need need to. Federal government to provide the loans the or private student loans but they generally house. Loans that cost more over the long term. And they require you to have excellent credit and a co signer. Which not that many students out. Win one I've read about this and virtually any publication. They leave the always lives that if something didn't -- on about the huge debt. Young people who grow up homeownership. There are not gonna have money for retirement accounts. If they try restored buildings that are going to be and they -- get small business loans. Even securing car alone it's do you think it's that serious. All in obviously when have you have a higher monthly home payment. That's money that you can't stand on the other priorities like buying a house or saving for a down payment on the house. But one has sent the question of whether they would have been able to afford a house says they haven't gone to college and and conference the higher salary that goes with the college education. Generally speaking most students graduate with a reasonable amount of debt. That they can afford to repay the averaged at -- graduation for bachelor's degree was about 2720000. Dollars last year. The average starting salary was 45000 dollars soldier -- is less than your annual income you can pay back in ten years or last. But those are averages some students borrow more and earned less. And that's where the problem occurs. That's probably less than about 10% of students are struggling to repay their student loans because they graduate with too much -- One. Read some of -- experts. Writings last night. They say you have that are more students just should consider working during college. Within a pulled up the unemployment rate in thirteen point 3%. -- may find jobs if they wanted to work. All that the idea that you can work your way through college it just isn't the case he's -- they can get federal work study jobs on college campuses which. Provide them with a few thousand dollars such help them -- the college bills. But most students say in about two thirds of students who graduated last year with the fact mr. -- Graduate with student loan debt of those who applied for financial aid it was seven -- So in debt is an unavoidable reality of a college education the trick is not to eliminated but to reduce. You always hear that where there have been of the going to be more creative collective grand quote we have scholarships. Northern upgrades are there enough scholarships to lower than this huge loan based. Well in the grants have not been keeping pace with increases in college costs. And the health care and education reconciliation act of 2010. That the maximum pell -- level through the year 20/20. Are in five of those ten years the grand does not increase the other -- it increases only at the Consumer Price Index. And that's we all know -- Costco walked faster than the Consumer Price Index. So it's. It's not keeping pace. That shift more of the burden from the government to the family the primary cause of public college tuition inflation. Is declines since states supports state appropriations. So movie answers. That a pound last five recommendations. Almost all kids started the community college level. -- have a small or loan base you agree. All Community Colleges a great place to go if you wanna get a certificate or and associates' degree. But if your goal is to obtain a bachelor's degree in your doing this solely to save money. That may be -- that causes you to never reach your destination. Of students to start all. I think to your school intending to obtain a bachelor's degree only about 15 obtain that bachelor's degree within six years. Of those who start off that date for your institution its two thirds. So we've got a huge piece of these student debt crisis. That the lives -- people that have not finished college right. And students to drop out of college or four times more likely. To default on the student loans and student to graduate. And we -- all of which can declare bankruptcy -- item in. What do what exactly is that he's appalled me a hold of them I can't period but consumer reports there. Well if you default on the federal education -- the government has very strong powers to compel prepayment. They can garnish up to 15%. Of your wages. Call with -- the court order they can interceptor federal and state income tax refunds. They can prevent renewal for professional life since they can and collection charges of up to 25%. Don't the pain into the Kosovo on. And if you think that you retire in the fall and so security they can garnish -- 15%. Of that the government gets its money one way or the other. And is is there any chance of a huge amount of these people who have been coming. Non producers homeless. No -- to be had for -- -- for the government does stood. All I don't think that's the case in the federal educational at least how -- a safety net and income based repayment. If you can't federal education loans and you're struggling to repay them talk to the lender who culture won't. Ask about income based repayment. You if they don't offer it you can always move the loans into the direct loan program at loan consolidation dot ED dot gov. -- and there are you would choose the income based repayment plan or. Four people graduated more recently the pitcher and repayment plan. This basis -- monthly payment on a percentage of your discretionary income as opposed to the amount you'll sort of -- on affordable monthly payment. Has there ever been a studied delineated in which categories. Which jobs. Give him a very good chance of paying back their loans. I've always been curious. Those that major in music. Major and art major even teaching. Do they really have a legitimate and hope. Making enough money to you about it. But -- mention the 45000. Dollars I don't think that's what teachers make human persona. So I -- with teachers there's something called public service loan forgiveness that works with the income based repayment. So income based repayment make sure you have an affordable monthly payments the public service -- forgiveness. Well after ten years of full time employment in the public service job like being a public schoolteacher. We'll forgive the remaining balance and that's tax free forgiveness. So it it can make. Someone who wants to pursue any. His career in teaching make it can make it affordable and remove the dead as a disincentive. But there is data on the average so starting towering. Individuals. Based on their career and there are undergraduate degrees. And it makes a lot of sense same people getting a Bachelor of Science degree in nurse saying. Or engineering or science or mathematics. Ten -- earned more than people who get decrease in the humanities. And that's because centers. Practical utility associated with that that's post suggesting and intellectually satisfying. Feel the study. But if you go to. Does anybody advise these kids who look you go to dealt this phone you've become an musician. Chances are you're gonna be able to pay about security -- -- -- and sometimes. Then they are told that often they are not but often they are chasing a dream. And they figure they'll figure out how to deal with the dead after they graduate won't buy it then you've already accumulated the death. And there's very little that you can do that time to focus on reducing that debt is before you incur it. One final question. What do you think's gonna happen larger debt crow then our credit cards and seems to be growing what do you think the of the in game businesses. Well I mean people are going to find it more and more difficult to pay for college and college affordability is going down hell. And this will primarily affects on in the colleges that. Our small tuition dependent. Don't have margin down millions. That aren't well known nationally. They will. Struggle. Two. And -- enough students -- score to start seeing. A few colleges a year or fail financially. They'll either have to merge or close. Mark truly appreciate your calling India a day before fourth of July and thank you so much for the time we have great -- it to. Mark Kent Robertson vice president and publisher of advisors dot com is an expert on college financial aid and loans.