Key Word: College Insurance (CI)
The new analyses on the Federal student loans data and trends led the Association to come out with a new maintained hypothesis. If this inference on student loans is failed to be rejected, i.e., it becomes the new reality, then the consequences could be devastating for the student borrowers.
After analyzing the DOE’s student loans data (2013{Q1-Q4} to 2018{Q1-Q2}), AAEA found out that, on average, the amount of student loans has grown by US $21 billion per quarter or $5.3 billion per month. Let us analyze this number deeper. Most US higher ed institutions operate under a semester system. There are some that operate in a quarterly basis such as the University of Chicago. Most Ivy league or State’s owned institutions will operate in tri semesters: fall, spring and summer. That said, the most probable culprits or contributing factors which push the amount of loans to go up in a daily basis are (1). The interest charges or (2). Borrowers’ failure to pay in-time—where the past interest charges are added to the original principal amount. The implication of such a fact is scary for the borrowers and their family, but could be a welcome news for lenders. On the other hand, the borrowers’ debts keep ballooning as time passes, and, perhaps, will never be able to pay-off the loans. Ever. Read the real-life story toward the end of this article here. Quoted below is one of the stories:
“Navient is a bear to content with. I paid on my $40k loan for 21 years, and from 2004 (when my loan came to be with Navient) until recently, EVERY SINGLE PAYMENT WAS INTEREST ONLY! I tried so hard to chip away at the principle by paying a few hundred extra a month when I could, and I just couldn’t do it. I called them about 3 years ago and was told I’d need to increase my monthly payment to $2500 to make that happen. That’s absurd! I was told unless I did that the loan will likely never be paid off as I would have continued to only pay interest. It was so frustrating. In April of this year I received a surprise inheritance from a relative and I was told it was for a down payment on a house, but I decided to pay off my loan instead. I’d rather rent for a few more years and be debt free…and damn doesn’t it feel wonderful!”
The Association is not trying to give new ideas how lenders can make more money—but hold your breath, they now may have pretty justified reasons for the student loans takers to take “CI” to cover the risk that borrowers will default their loans. CI stands for College Insurance that may cover many possible risks facing by the borrowers. Different type of risks lead to different amount of CI premiums. Both Fed and private lenders will be happy to increase additional revenue from CI. Loan takers really need to think and consider all possible options before signing the loan agreements. Regret may not be a good vocabulary in such a case.