Talk About Chutzpah

George Yacik - Contributor - Fed & Interest Rates

If you’ve ever wondered why so many of today’s American college students seem to live in a self-delusional world where they take little personal responsibility for anything that goes wrong in their lives, you don’t have to look any further than the professors who teach them.

In a recent op-ed column in the New York Times, Susan M. Dynarski, a professor of education, public policy and economics at the University of Michigan, takes the Trump Administration to task for its failure to take the proper steps, in Ms. Dynarski’s eyes, to fix the student debt problem, as if Donald Trump himself caused the crisis.

Nowhere in her lengthy critique does she ever address head-on the real culprits in the student debt crisis: the government agency that made these loans in the first place, and the colleges and universities that have exploited these loans in order to drive up the price of higher education, forcing millions of students and their parents into debt if they want to attend college.

First, she says, “the Education Department has weakened accountability for the companies that administer student loans,” specifically calling out Navient, formerly a part of Sallie Mae. Now privatized, Navient is the largest servicer of government student loans. As such, Dynarski says, “companies like Navient are the face of the student loan system, and often the source of enormous frustration for borrowers.” Continue reading "Talk About Chutzpah"

Want A Federal Student Loan? Just Shake My Hand

George Yacik - Contributor - Fed & Interest Rates

Fans of the 1970s classic sitcom “The Odd Couple” might remember the episode in which Oscar Madison introduces his roommate Felix Unger to his sleazy insurance agent from Lloyd’s of Lubbock, whose come-on is that he offers you a policy just by shaking your hand. It appears that Lloyd is back in business, only now he’s working for the federal government. Or at least his underwriting guidelines have been adopted by the U.S. Department of Education.

The Wall Street Journal published a long story on Monday about the federal Parent Plus loan program, which it says “asks almost nothing about its borrowers’ incomes, existing debts, savings, credit scores or ability to repay. Then it extends loans that are nearly impossible to extinguish in bankruptcy if borrowers fall on hard times.”

And lots of them have. As of September 2015, 11% of Parent Plus borrowers hadn’t made a payment on their loans in at least a year, which “exceeds the default rate on U.S. mortgages at the peak of the housing crisis.” And the problem is only going to get worse. The number of families with Parent Plus loans has jumped more than 60% since 2005, the Journal reports, to 3.5 million at the end of last year. They owe a combined $77.5 billion, or an average $22,000. Continue reading "Want A Federal Student Loan? Just Shake My Hand"

Here's Another Fine Mess Obama Will Dump On Trump

George Yacik - Contributor - Fed & Interest Rates

When the financial and general press get around to giving the departing Obama Administration – now just days away from happening – all the credit for the booming economy to be inherited by Donald Trump, let’s hope they don’t neglect to mention some of the messes Obama has left for the next president to clean up. Besides opening up the jails and Guantanamo, Obama will be leaving Trump with a bunch of other fiascos he created that will take years to fix and billions of taxpayer dollars to remedy.
And no, I’m not talking about Obamacare or the federal debt.

I’m referring to the burgeoning student loan crisis that has yet to reach the implosion point but that will likely happen sooner rather than later. And since it hasn’t yet reached the flash point at which time it must be addressed, that means the bubble will continue to grow until it eventually splatters onto other seemingly unrelated areas, spreading the mess farther and wider beyond anyone’s current expectations.

I call your attention to the Consumer Financial Protection Bureau’s most recent report on student loans. Continue reading "Here's Another Fine Mess Obama Will Dump On Trump"

The Next Financial Crisis(es)

George Yacik - Contributor - Fed & Interest Rates

The next U.S. consumer loan crisis might not be the student lending business after all, although that might happen, too.

No, the next loan crisis might just be another residential mortgage crisis.

Of course, the student loan business isn’t getting any better. The New York Fed said recently that 11.3% of student loans were delinquent in the last three months of 2014, up from 11.1% from the previous quarter. (By way of comparison, the delinquency rate on credit card loans was 7.3%, down from 7.5%.) Continue reading "The Next Financial Crisis(es)"