Parents and students in the financial education community are urging each other to make the payments needed to get out of a crisis, a move that would put them at risk of having their student loans forgiven.
Financial Education Information Center (FEC) president and CEO Michael S. Schulman told a conference at the American Enterprise Institute on Tuesday that “some families” are being pushed to make catastrophic default payments in order to stay in the market for financial education.
The idea of making catastrophic default is not new.
Schuler said he has spoken to parents who have taken drastic action to avoid default and have had to borrow tens of thousands of dollars to repay their loans.
He noted that in 2014, the average debt of families with children in college and postsecondary programs in the United States was $27,000.
FEC is an umbrella group of education finance and education policy groups that are concerned about the high costs and high debt burden of higher education.FEC estimates that nearly 7.5 million people are now in default on student loans and more than 5.5 billion Americans owe more on their student debt than they have in their entire lifetime.
“The average student loan debt is over $30,000, and it is growing at a rapid pace,” Schulmans said.
“The problem is that this debt is rising faster than the economy.
It is increasing exponentially and we are not able to control that.”
The average monthly payment on a private student loan is $5,400, according to a study released last year by the federal Department of Education.
The average monthly cost of a private loan is more than $10,000 for a child under age 26.
The total amount owed on the federal student loan market is more then $1.2 trillion, according the report.
Schulman noted that the crisis began after the Obama administration, which began loosening its regulations on student loan borrowers in 2014.
That loosening meant that borrowers could borrow as much as they wanted, but at a lower interest rate than before, and many of them could get out in a matter of weeks.
“We are in a debt crisis,” he said.
The Education Department, which has taken some steps to ease regulations on the industry in recent years, said in 2016 that more than 60 million borrowers had been able to get relief from student loans.
The department says more than 3 million borrowers have been discharged from student loan collections and more are in repayment.
Schuler said that as of late June, more than 1.5 percent of the private student loans in the federal system had been discharged.
That’s up from less than 1 percent in December 2015, and lower than 3 percent in May 2016.
In a letter to the Consumer Financial Protection Bureau (CFPB), which regulates the industry, the Federal Reserve Bank of New York warned that a spike in defaults on private student debt could lead to a “serious risk of financial insolvency.”
Schulmans called the federal government’s response “failing.”
“What is needed is a new, federal government program that will let parents and students, not bureaucrats and politicians, determine how they will pay for college and graduate school,” he wrote.
“A program that would allow parents to keep their student loan payments at the minimum they need to be able to keep paying their bills.
And it would let students and their families pay their debts on time.”FEC is a 501(c)(3) nonprofit that helps educate policymakers about the financial crisis.
It receives financial education grants from the federal Education Department and has an affiliate in Florida.