Welcome to insideARM.com's Big Issue: Student Loans

Today is commencement day for The Student Loan Issue, the most recent addition to insideARM.com’s Big Issues content series. The Student Loan Issue has been made possible by a sponsorship from F.H. Cann & Associates (FHC), allowing insideARM.com to bring original content about the educational lending and recovery market to our readers over the next few weeks.

FHC is deeply invested in the student loan market and has demonstrated a long-standing commitment to serve its clients in resolving delinquent loan accounts by treating student borrowers with respect and patience. It is an operational philosophy that FHC employs across all of the asset classes it works, and it speaks to the company’s reputation as a progress-oriented thought leader.

insideARM.com would like to thank F.H. Cann for its generous sponsorship of a big issue that, as I’ll demonstrate presently, has a major impact on the entire credit and collection arena — even for those without direct involvement in this market.

Why are student loans a big issue for the ARM industry? Here’s why:

• In June 2010, for the first time in U.S. history, total outstanding student loan debt exceeded total outstanding credit card debt. The total amount of student loan debt now exceeds $1 trillion; students borrowed almost $120 billion in 2011.

• Educational loan debt is, for all intents and purposes, “debt for life.” Repayment obligations can only be discharged under bankruptcy in the rarest of instances, and given the five- (sometimes six-) figure liabilities on millions of college grads’ personal balance sheets, paying off student loans typically takes decades.

• External factors have a significant impact on the price student borrowers ultimately pay for college education. Tuition costs continue to rise across the country. Private student loans, while filling in the gaps that can’t be met by federal programs for some students, may nevertheless come at higher interest rates or more rigid forbearance or deferment rules.

• Speaking of interest rates, Congress is set to reconvene this week and will be working on a plan to halt a rate increase on subsidized federal student loans. If legislators cannot agree on a short-term measure, interest rates on these loans will double from 3.4% to 6.8% in July.

• A college education, even in a depressed labor market, has been entrenched in the minds of most Americans as a necessity, not a choice. In 2010, the median annual income for those in their mid 20s – mid 30s was just under $41,000. That figure is 40% higher than the average for all workers in the age group.

• Student loan servicers have especially taken a beating in the mainstream press. Influential business publication Bloomsberg, for instance, took a swipe at student loan collectors, accomplishing its smear campaign with little nuance and a lot of anecdotal emotional stories.

• When you combine the factors above, one last figure stands out as the primary reason why student loans are a big issue for everyone in the ARM industry—regardless of market specialization. Student loan payments eat up a whole lot of household wallet share. Consider this example from the Minneapolis Star Tribune: “Twenty years ago, a year’s tuition at the University of Minnesota consumed 8 percent of the state household median income. Last year, that figure was 19.” Assuming borrowers are actually repaying their student loans on time, a $300, $500, $950 monthly college loan payment means just that amount of money that can’t be diverted to car payments, credit card bills, or mortgages. If students can’t or aren’t paying their college loans, they’re likely under water on other financial obligations as well. So if you work paper for a telecommunications provider or for a credit card issuer and think “student loans have nothing to do with me,” — think again. The biggest bill, and the one that can’t be made to disappear, by necessity eats into a consumer’s ability to pay smaller bills. Those smaller bills—relative to outstanding college loan balances—are probably the bills you’re trying to collect.

Which brings us back to why student loans are a big issue for the (entire) ARM industry. Omnipresent and undischargable, student loan debt may be the canary in the coal mine for a lot of other asset classes in collections. And that makes it a very big issue for everyone involved.
I am pleased to welcome you to The Student Loan Issue sponsored by F.H. Cann. For the next few weeks we’ll be publishing articles on the student loan market. You can identify these articles by the stamp shown at right. Whenever you see this stamp, click on it to navigate to The Student Loan Issue main page for a host of resources on the topic.

Michael Klozotsky is the Chief Content Officer at insideARM.com. He attended the University of Evansville and the University of Illinois at Urbana-Champaign. And yes, he’s still paying for both.