Site offers incentives to lower student loan debt

Boston GlobeSite offers incentives to lower student loan debtBoston GlobeKnapp enrolled in the program, SmarterBucks, and by using the site to shop at participating vendors, such as Staples Inc., Walmart Stores Inc., and J. Crew Group, she earns cash back from her purchases that goes directly to her student loan payments.

Feds suing for

KY3Feds suing for-profit college chain over high-cost student loansKY3The Consumer Financial Protection Bureau says it has filed a lawsuit against a large for-profit college chain alleging that it pushed students into high-cost private student loans knowing they would likely end in default.

The Call: Tell us about your student loan debt

MSNBCThe Call: Tell us about your student loan debtMSNBCOn Ronan Farrow Daily, we spend a lot of time jawin' and yakkin'. But we're also about getting things done. And that's where you come in. Every week, we'll kick off a new call to action – introducing you to different facets of an issue and letting you ...

Tips to opt for better educational loan

India TodayTips to opt for better educational loanIndia TodayEducation sector is growing day by day. Students are finding difficulties to face challenges such as increased fee structure and most important educational loan which usually covers the expenses required to complete courses. Many students sometimes ...

Student loans climb: top 10 states with the highest college debt

Christian Science MonitorStudent loans climb: top 10 states with the highest college debtChristian Science MonitorIncreasing numbers of American college seniors are collecting not just their degrees at graduation, but thousands of dollars worth of student loans as well. Seventy-one percent of the class of 2012 graduated with student loan debt, up from 68 percent ...

Debt collectors are gorging themselves on student loans

The Week MagazineDebt collectors are gorging themselves on student loansThe Week MagazineDebt delinquency exploded during the financial crisis, but has since steadily decreased for every type of debt — except that of students. Because the bankruptcy code is badly skewed when it comes to student loans, total debt collection has risen steadily.

Why student loans affect the housing market

Marketplace.orgWhy student loans affect the housing marketMarketplace.orgU.S. student loan debt rose to almost $1.1 trillion in 2013, according to figures out from the New York Federal Reserve. Some housing experts worry the burden of those loans is keeping crucial first time homebuyers out of the housing market. But there ...

Gillibrand bill would allow for easier refinancing of student loans

Legislative GazetteGillibrand bill would allow for easier refinancing of student loansLegislative GazetteIn an attempt to reduce student debt burden, U.S. Sen. Kirsten Gillibrand is renewing her push for the Federal Student Loan Refinancing Act which would allow college graduates with student loans to refinance their current federal loans at a lower rate.

A Cost–Benefit Analysis of Student Loans

A Cost-Benefit Analysis of Student Loansby by Matt Busigin

Rising post-secondary education costs and the additional debt burden they are putting on today's young adults have become popular topics of discussion. James Altucher stoked much of the present fire with his 2010 piece Don't Send Your Kids to College. Jeffrey Gundlach has added to the chorus of education bubble callers, pointing out that real education costs have risen 5.4% annually since 2000 while graduate earnings have fallen - 1.6%.

The questions we are left with are:

What is behind this rise in education cost? Is post-secondary education still economical for the individual and for the country?

Gundlach's analysis tells a story of decreasing affordability, but it does not indicate the actual economical position of post-secondary education, either for the individual or for the country.

What is behind the rise in education costs?

The short answer: Education generates a very large payoff in income. The democratization of education across classes has been achieved through student loans, thereby increasing the demand for, and attainment of, education.

Educational attainment, once a leisure pursuit for the wealthy, has become an investment to increase lifetime earnings. For adults 25-34 years old (Figure 1), there is a gap in income between bachelor's degree holders and high school graduates of $15,000, or 50%. That gap isn't likely to close over the course of a career. Starting salaries as measured by PayScale corroborate this number ($43,543 across all majors), with mid-career earnings (15 years of experience) rising 67% further to $72,753. The data are clear: Education is the path to higher earnings.

This fact isn't lost on education consumers and has driven the preference for increased educational attainment. The pace of education inflation has run slightly more than double the rate of attainment growth (Figure 2).

Figure 2: Scatter plot of attainment rate growth vs tuition inflation. [Sources: 1, 2]

The demand for higher-priced education is enabled by the rapid, and fairly recent, growth in student loans. It could reasonably be presumed that student loans are the great enabler for expansion of educational attainment rates. Bachelor's degree attainment rates for young adults were stagnant over 1980-1995 (Figure 3), moving just +/- 0.89%. The expansion of federal student loans in the mid-1990s led to an immediate spike in attainment, and since then, attainment rates have increased almost by half.

Figure 3: Young adult degree rate and Student loan growth [Sources: 3, 4]

The Federal Reserve Bank of New York had an excellent presentation of student loan data last year (Figure 4).

Figure 4: Student Loan Borrowers by Level of Balance

The mean outstanding balance is just over $23,000, but the median is only $12,800 - roughly half the mean value. Most borrowers have reasonably small student loan balances, with the few big borrowers skewing the average higher.

The pace of tuition inflation is slowing. A fact that gets buried in the traditional narrative is that the pace of education inflation has actually been declining consistently for decades (Figure 5). Education inflation nearly halved in the past decade.

Figure 5: The long decline in the pace of education inflation [Source: 5]

This trend has at least twoplausible explanations. The first is that the supply curve has shifted, albeit not as fast as the demand curve, with the expansion of student loans. Another is that marginal educational attainment likely comes from a marginally weaker economic background, which reduces the expectation for future income (even with the added education), and the financially weaker education consumers likely choose cheaper options as a result.

Is post-secondary education still economical?

Education shares many characteristics with capital goods. Both can be measured by their marginal efficiency (the difference between future value and supply price) and economic utility, which we will define as the marginal efficiency after opportunity cost. (There are many terms used to describe these concepts in the media, such as , but they are not consistent with the common parlance of economics.)

The individual economic utility of education varies wildly. PayScale has done much of the heavy lifting for us by calculating the excess earnings after accounting for costs and graduation rates to be $333,455 over 30 years.

Figure 6: Jobs created since 2008 by education (thousands) [Source: 6]

This analysis does not make assumptions on the comparative availability of jobs. Since 1992, more than 20 million jobs have been created for those with bachelor's degrees or higher levels of education, 10 million jobs have been created for those with some post-secondary education, and there has been a contraction in jobs for those without any post-secondary education. Coincidentally, the real median has remained nearly flat, despite the increase in educational attainment. We are left with two possible explanations for the disparity:

Job seekers became more qualified than necessary and took jobs from the less qualified, thereby creating domestic-based qualification inflation. Increased global competition due to currency valuation, rapidly industrializing economies, and increasing levels of foreign educational attainment has created even higher productivity gains, thereby creating foreign-based qualification inflation.

It is impossible to dismiss the first explanation in its entirety. It is difficult to get a resume past recruiters' recycling bins without a degree. However, it's counteracted by profit maximization, which incents employers to minimize labor expenses while maximizing productivity. Given the large gap in earnings between people with different education levels, employer behavior seems to mostly reject the "domestic-based qualification inflation" argument, since employers find greater utility in paying more for even more productive workers.

Global labor competition over the past several decades may lead to an understatement of the economic utility of education. Had attainment rates not strongly increased, it is likely that real median earnings would have fallen since the educational attainment epoch of the mid-1990s, instead of merely being flat. The increased educational attainment potentially rescued as much real income in the United States as it was responsible for net new income.

Figure 7: Real Median Household Income

It is also important to note that cyclicality has covered up some of the household income benefits (Figure 7). For instance, during past recessions, when actual economic output was below potential output, the income of specialists, who tend to be the most educated and also the most vulnerable to cutbacks, may have been reduced. If true, this could make much of the present dip in median real household income temporary.

Conclusion

The rise in education costs is commensurate with a rise in educational attainment. Attainment increases are driven by demand for higher income. Even after accounting for costs, graduation rates, and opportunity costs, post-secondary education is economical, adding $11,115, or 32%, per year to the median high school wage. The median student loan debt, $12,800, is just shy of a single year's worth of economic utility generated by post-secondary education spending.

Most importantly, don't forget to calculate the benefit of the 50% increase in post-secondary educational attainment when weighing the increased costs. It's disturbing to think where incomes may have been without it.

For the individual, the payoff in future income for completing a degree remains very high. As with any form of investment, the composition of results is highly varied, and there are uneconomical outcomes. On balance, it is as important to households to preserve purchasing power across generations as it is to grow it. Becoming a more productive, better-educated world should be something we nonetheless embrace.

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This was previously published on Inside Investing at the CFA Institute. _______________________ Copyright © 2008-2013 A. Matt Busigin, CFA All Rights Reserved. Contact author for limited redistribution permission.

Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

President Obama Is Right. The Student Loan Crisis Is Scary and Getting Worse

No matter what you think of him, President Obama's remarks about student loans during the State of the Union ring true for millions.

Obama's prepared remarks included 6,778 words and the 41 words about the massive burden posed by student loans to millions of Americans were spot-on:

We're offering millions the opportunity to cap their monthly student loan payments to ten percent of their income, and I want to work with Congress to see how we can help even more Americans who feel trapped by student loan debt.

Reforms have been made when it comes to student loans, but there is absolutely more that needs to and can be done to help students everywhere.

Massive growth Since 2003, the total debt of individual Americans has ballooned from $7.2 trillion to $11.3 trillion, an increase of 56%. And while that is certainly a huge gain, consider that the student loan debt held by Americans has quadrupled, growing from $241 billion to $1.03 trillion.

Over the last 10.5 years, the total debt has risen by an average of 4% per year, but student loan debt has risen by more than 14% per year.

To put it all on a relative basis, student loans went from just being a little more than 3% of total debt in 2003 to more than 9% at the end of September. Excluding debt related to housing, those numbers are even more staggering, going from 12% to 36% of total debt:

The combined total of auto loans, credit cards, and all other loans didn't even budge over the past 10 years, staying at $1.8 trillion in both 2003 and 2013. And while it would be easy to think this debt is a result of more and more students getting college degrees, the reality is while that is true, the staggering increases in the cost of college have also resulted in the average debt faced by students ballooning as well:

In 2004, 65% of students graduated college with student debt, and in 2012, it was 71%. And 600,000 Americans who began repaying student loans in 2010 defaulted on those loans by 2012, representing nearly 15% of borrowers.

All of this is to say there is no denying student debt is increasingly becoming a major problem in the United States.

What can be done In 2010, Congress approved the Pay As You Earn plan, which sets up student loan payments based on a person's adjusted gross income and family size. It reduced the monthly payments on direct student loans from 15% of discretionary income to 10%, and also assured after 20 years of consecutive payments -- 10 years for those in public service -- the remaining loan balance would be forgiven.

While these are certainly noble initiatives, the reality is, more needs to be done. Whether it be through greater accountability with college costs, more education earlier on surrounding the true financial burden posed by student debt, better information regarding the benefits of community colleges, or a litany of other initiatives.

Ultimately, President Obama is right in asserting that it will take a collaborative, bipartisan effort to stave off the potential crisis that awaits the insurmountable levels of student loan debt.

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Warren Blasts Government Profits From Student Loans

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BOSTON (AP) - Massachusetts U.S. Sen. Elizabeth Warren says she is shocked that the federal government earned an estimated $66 billion in profit from student loans originated between 2007 and 2012.

Warren was reacting to a government report that revealed the profit Friday. A previous congressional report estimated that the government will pocket an additional $185 billion in profits on new student loans made over the next 10 years.

Warren said Saturday that the new report shows the government is squeezing profits out of young people and adding to the mountain of debt they will spend the rest of their lives struggling to repay.

Warren and eight other U.S. senators committed to wring government profits out of student loans and address the $1.2 trillion in outstanding student loan debt they say is crushing families and putting a strain on the economy.

Copyright 2014 studentloanscorner.blogspot.com. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Reed blasts government on student loans

One way to track how much debt your city and town is in, is to know what your share of it is. Interactive Map "

By chrisraia Published: Saturday, February 1, 2014, 1:33 pm

PROVIDENCE, R.I. (AP) - Rhode Island U.S. Sen. Jack Reed says he is shocked that the federal government earned an estimated $66 billion in profit from student loans originated between 2007 and 2012.

Reed was reacting to a government report that revealed the profit Friday. A previous congressional report estimated that the government will pocket an additional $185 billion in profits on new student loans made over the next 10 years.

Reed said Saturday that the new report makes clear that congress must do a better job of pricing students loans closer to the actual cost to the government.

Reed and eight other U.S. senators committed to wring government profits out of student loans and address the $1.2 trillion in outstanding student loan debt they say is crushing families and putting a strain on the economy.

State Police dog passes away unexpectedly Several hurt in I-95 head-on crash Former Celtic visits local school

The Student Loan Picture Is Getting Worse. What Does It Mean for This Lender?

It seems like every day a new story comes out about the difficulty people are having repaying student loans. And that's probably for good reason: According to U.S. News & World Report, student loan defaults have risen six years straight.

In the wake of these difficulties, several large lending institutions that used to be major players in student loans have gotten out of the game or reduced their exposure in recent years. JPMorgan Chase ( ) announced in September that it would no longer accept any student loan applications. In 2010, Citigroup ( ) also decided to get out of student loans and sold its portfolio to a financial company charging hard in the opposite direction and into student lending.

Swimming against the tideDiscover Financial Services ( ) , mostly known for credit cards, has spent the last several years building up the student loan portion of its business. Acquiring some of Citigroup's portfolio was just the beginning.

In 2011, Discover made another large purchase, acquiring some of the assets of the Student Loan Corporation in an effort to expand its student loan offerings . With all the uncertainty and risk around student lending, how is Discover performing in this area? Did student loans increase? Are they actually getting paid back? Luckily for us, Discover's fourth quarter earnings report allows us to perform a checkup on this aspect of its business.

Loan Growth CEO David Nelms said on the earnings conference call that increasing student loans was a priority, and Discover succeeded in that goal. The student loan book grew from $7.8 billion to $8.1 billion between the fourth quarter of 2012 and the end of 2013. That slice now accounts for nearly 13% of Discover's entire loan portfolio.

Discover is clearly not deterred by other lenders' reluctance to lend to students and is earning business. However, I don't want to congratulate Discover too much for successfully giving out money. Lending to people who will pay you back and adjusting the interest rate to account for risk are the true tests of a lender.

Repayment While Discover succeeded in lending more money, getting paid back on existing loans was more of a challenge. The rate at which Discover was charging off student loan debt rose from 1% to 1.41% year over year and up from 1.33% from the previous quarter.

These three data points establish a trend that is clearly going in the wrong direction. In addition to charge-offs increasing, the 30-day delinquency rate rose quarter-over-quarter and year-over-year.

Does that mean that it's time to panic? Not necessarily. I checked Wells Fargo's ( ) student loan results from its quarterly report to compare repayment rates. Wells Fargo's fourth quarter charge off rate came in at 1.36%, right in line with Discover's. Wells Fargo actually had a worse 30-day delinquency rate, coming in at 2.27%, which was also up from what they reported in the third quarter. Discover's results line up with Wells Fargo's, suggesting higher delinquencies may be an industry problem and not an issue specific to Discover.

Interest Rates While loans performing worse is never a good thing, Discover investors can take solace in the fact that the average rates they are receiving on student loans is increasing. Discover's average interest rate for student loans rose from 6.48% in the fourth quarter of 2012 to 6.63% at the close of this past quarter.

I compared the interest rate numbers at Discover to the rates for the granddaddy of all student lending companies, the Student Loan Marketing Company, better known as Sallie Mae or SLM Corp. ( ) . Sallie Mae's fourth quarter average rate for student loans was 6.42% compared to 6.35% from the fourth quarter prior. Discover is once again ahead of a competitor with rates 20 basis points higher than Sallie Mae.

Foolish final thoughts The fourth quarter provided a mixed bag for investors checking up on Discover's student loans. Rising rates are encouraging, but rising delinquencies are discouraging.

Overall though, Discover seems to be performing well in comparison to rivals Wells Fargo and Sallie Mae. It may be too early to tell if Discover has spotted a golden opportunity to establish itself in the industry, or if former rivals, like Citigroup and JPMorgan, are acting wisely by shrinking away from student lending. At 12% of Discover's portfolio, student loans won't make or break the company. But, Discover needs to avoid trying to grow simply for growth's sake and focus on quality loans.

For now, I'm staying patient and will be checking up on Discover's progress next quarter.

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The Student Loan Picture Is Getting Worse. What Does It Mean for This Lender?

It seems like every day a new story comes out about the difficulty people are having repaying student loans. And that's probably for good reason: According to U.S. News & World Report, student loan defaults have risen six years straight.

In the wake of these difficulties, several large lending institutions that used to be major players in student loans have gotten out of the game or reduced their exposure in recent years. JPMorgan Chase announced in September that it would no longer accept any student loan applications. In 2010, Citigroup also decided to get out of student loans and sold its portfolio to a financial company charging hard in the opposite direction and into student lending.

Swimming against the tideDiscover Financial Services , mostly known for credit cards, has spent the last several years building up the student loan portion of its business. Acquiring some of Citigroup's portfolio was just the beginning.

In 2011, Discover made another large purchase, acquiring some of the assets of the Student Loan Corporation in an effort to expand its student loan offerings . With all the uncertainty and risk around student lending, how is Discover performing in this area? Did student loans increase? Are they actually getting paid back? Luckily for us, Discover's fourth quarter earnings report allows us to perform a checkup on this aspect of its business.

Loan Growth CEO David Nelms said on the earnings conference call that increasing student loans was a priority, and Discover succeeded in that goal. The student loan book grew from $7.8 billion to $8.1 billion between the fourth quarter of 2012 and the end of 2013. That slice now accounts for nearly 13% of Discover's entire loan portfolio.

Discover is clearly not deterred by other lenders' reluctance to lend to students and is earning business. However, I don't want to congratulate Discover too much for successfully giving out money. Lending to people who will pay you back and adjusting the interest rate to account for risk are the true tests of a lender.

Repayment While Discover succeeded in lending more money, getting paid back on existing loans was more of a challenge. The rate at which Discover was charging off student loan debt rose from 1% to 1.41% year over year and up from 1.33% from the previous quarter.

These three data points establish a trend that is clearly going in the wrong direction. In addition to charge-offs increasing, the 30-day delinquency rate rose quarter-over-quarter and year-over-year.

Does that mean that it's time to panic? Not necessarily. I checked Wells Fargo's student loan results from its quarterly report to compare repayment rates. Wells Fargo's fourth quarter charge off rate came in at 1.36%, right in line with Discover's. Wells Fargo actually had a worse 30-day delinquency rate, coming in at 2.27%, which was also up from what they reported in the third quarter. Discover's results line up with Wells Fargo's, suggesting higher delinquencies may be an industry problem and not an issue specific to Discover.

Interest Rates While loans performing worse is never a good thing, Discover investors can take solace in the fact that the average rates they are receiving on student loans is increasing. Discover's average interest rate for student loans rose from 6.48% in the fourth quarter of 2012 to 6.63% at the close of this past quarter.

I compared the interest rate numbers at Discover to the rates for the granddaddy of all student lending companies, the Student Loan Marketing Company, better known as Sallie Mae or SLM Corp. . Sallie Mae's fourth quarter average rate for student loans was 6.42% compared to 6.35% from the fourth quarter prior. Discover is once again ahead of a competitor with rates 20 basis points higher than Sallie Mae.

Foolish final thoughts The fourth quarter provided a mixed bag for investors checking up on Discover's student loans. Rising rates are encouraging, but rising delinquencies are discouraging.

Overall though, Discover seems to be performing well in comparison to rivals Wells Fargo and Sallie Mae. It may be too early to tell if Discover has spotted a golden opportunity to establish itself in the industry, or if former rivals, like Citigroup and JPMorgan, are acting wisely by shrinking away from student lending. At 12% of Discover's portfolio, student loans won't make or break the company. But, Discover needs to avoid trying to grow simply for growth's sake and focus on quality loans.

For now, I'm staying patient and will be checking up on Discover's progress next quarter.

The next big thing in bankingDo you hate your bank? If you're like most Americans, chances are good that you answered yes to that question. While that's not great news for consumers, it certainly creates opportunity for savvy investors. That's because there's a brand-new company that's revolutionizing banking, and is poised to kill the hated traditional brick-and-mortar banking model. And amazingly, despite its rapid growth, this company is still flying under the radar of Wall Street. For the name and details on this company, click here to access our new special free report.