The Piggy Bank: Haunting Debt
Do you know what the two largest consumer debt amounts are comprised of? If you have been paying attention to these Piggy Bank blog posts over the last couple weeks you can likely guess one of them. Americans owe more than $1.3 trillion in outstanding student loans, according to Consumer Reports. They go onto tell us that, it’s “the second largest consumer debt, surpassed only by mortgages”. While a college education can cost as much as a mortgage they vary in ability to manage.
Consumer Reports tells us why student debt is harder to manage than mortgage debt. The first reason given is how the interest is set. While the interest rates for mortgages are “continuously set and reset based on movements in the secondary markets, where bundles of loans are sold,” the federal student loan rates are set by Congress each Spring and are “typically higher than those of a 30-year fixed-rate mortgage”. With the continual fluctuation in mortgage interest rates, homeowners can take advantage of lower rates through refinancing opportunities offered through several banks and credit unions. However, when refinancing your student debt, you are limited to only a few private providers who offer these services and often “when refinancing federal loans, you forfeit key consumer protections.”
The mortgage industry has become very regulated to ensure fair and responsible lending but that is not the case with student debt which can cause the loan to grow bigger over time. You see, for mortgages there are rules which restrict lenders from setting the payment amount too low, causing interest to add up. But as for student loans, many opt for income based repayment plans where unpaid interest is added to the principal loan amount causing debtors to pay interest on interest. Given that student debt is not regulated in the same way that the mortgages are there isn’t much recourse against bad loan servicing. For example, if the company servicing your mortgage breaks the law by applying the payment improperly, you could take legal action if the situation isn’t corrected, however, there aren’t consistent industry standards for student loan servicers, leaving your hands tied.
Finally, if you found yourself in a situation where you couldn’t find a way out of your financial hardships you may consider bankruptcy. While your mortgage could be discharged in bankruptcy, student loans are not as easy. In fact, the high bar is set to where the debtor would have to prove undue hardship to a bankruptcy judge while overcoming the challenges set by the lender.
This is why education debt has become such a cause for concern. As young people, our children are expected to make a decision which could lead them to taking on debt that would haunt them for life. Mortgage bankers, like those found at Stockton Mortgage, exist to help guide people into financing that make sense for their circumstances. These people do not exist for education financing which is why as parents it is important to become as informed as possible to help guide our young ones!
When it does come to home financing though, we would love to assist you and your family in finding the loan that makes the most sense for you! Give us a call today to find out more 1-888-914-2276