Unravel Student Debt

The need for borrower education, lender responsibility, and school transparency is at the heart of the student lending debate.


Student debt may not be a national crisis on par with the subprime mortgage meltdown, but it’s hardly an insolated issue. Much has been made of the soon to be $1 trillion in outstanding student debt and how it may impact the average American.

“[Student loans] will likely affect what job I take and where I live,” writes Christopher Guizlo for The Washington Post.  “I want to establish my adult life [...] buy a house, get married, start a family. But I don’t know if that’s going to happen as soon as I wanted.” Guizlo’s concerns are echoed by Wall Street protestors, members in the teller lines, even by people in the next cubicle. But it doesn’t have to be that way moving forward.

A Clearer Image of Borrowing
Student loans may be a top source of consumer debt, but the way that debt is generated, managed and viewed by current and potential borrowers makes a big difference in how a loan ends up affecting someone’s life.

The average student debt is around $22,000,” says Ted Malone, executive director of the division of financial aid at Purdue University in the October 2011 Callahan Report.

That sounds like a lot, but $22,000 is in line with what people borrow to buy a car and no one is too troubled about that,” he says. “A car is a depreciating asset whereas an education is an asset for life and a proven salary booster.”

According to the Bureau of Labor Statistics, Bachelor degree holders not only earn around $412 dollars more a week than a high school graduate when employed. They also have an unemployment rate that is 4.9% lower.

Typically, any graduating student has a six-month grace period before they are required to start making payments, and a degree can help secure that vital step of gainful employment in a tough job market.

Responsibility from Lenders
Unlike a car loan or an underwater mortgage, student debts are not erased if the borrower files for bankruptcy, increasing the importance of securing the right loan option from the get-go.

MoveOn.org and Occupy Wall Street are calling for loan forgiveness, but this move fails to address issues in the future. Today’s struggling borrowers need access to workouts, continuing education, and if possible, debt consolidation that can keep more money in their pockets. Addressing these issues will bolster spending and consumer confidence and fuel the fire of job creation.

Tomorrow’s borrowers will need access to information and options their predecessors didn’t have. They need to be reminded that all loans are not created equal. While a bad choice can complicate their life, the right loan at the right time can be a stepping stone to the future they always envisioned. But to do that, students need allies on both sides of the fence.

While transparency in the school system itself can help, it’s only half of the equation. This is where credit unions have the opportunity to go above the call of a typical lender and adopt a role of guiding partner and trusted lender for members entering the higher education process.

“I believe students pay less for loans from credit unions than they do for loans from other types of private lenders,” Malone says. “In addition, credit unions offer increased options to the market.”

While student loans remain a smaller portion of credit unions’ overall lending activity, the delinquency rate for private loans issued by credit unions stood at just 1.13% in 3Q11, according to Callahan & Associates’ FirstLook data, a testament to credit unions’ responsible underwriting.

Borrowers may need additional help today to understand the different options that are available to them, but when do they settle on the right loan, they’ll know. And they’ll remember for the rest of their lives.

 “If parents are in a credit union they often try to stick with a credit union for loans for their children’s education,” Malone says. “Students are moving into an adult world and when they see their parents making important financial decisions that involve credit unions, students pick up on it.”