The Economic Payoff of a Student Loan Payoff

For all the talk about Dreamers in the national immigration debate, a recent research paper positing the positive effect of erasing the nation’s $1.3 trillion student debt burden has given the term new meaning.  If someone could wave a magic wand and make student loan debt disappear, we would hear the collective cheers of student borrowers all the way to the moon.  But rather than treat such an act like a fairy tale, a group of economists here on earth went about determining the kind of economic impact a massive cancellation of student debt would have.  …

2018 may be the beginning of the end of an education finance system that has resulted in overburdened students and families struggling to pay back loans that were too high at their inception relative to the reasonable income potential of the degree earned. Change won’t come overnight, but potential solutions should be put in motion this year, mainly aimed at relieving the student loan debt burden.

Below are a few touchstones for change that would signal the beginning of the end of the current student debt cycle.

New Laws

Under the proposed Promoting Real Opportunity,…

Originations and Issuances, by the Numbers

Student loan debt rose to $1.34 trillion in Q2 2017, up from $1.31 trillion at the end of 2016, and now accounts for 10.4% of the $12.8 trillion in total household debt.

In Q2 2017, $3.3 billion in student loan asset-backed securities (SLABS) were issued, down 34% versus year ago. Of the total first half 2017 SLABS issuance of $7.9 billion, student loan refinance (refi) ABS issuances were $2.3 billion, a 30% increase versus year ago. Traditional private SLABS issuances accounted for $0.8 billion, a 54% decrease versus year ago….

Years ago, “show me the note” contagion took hold in the subprime mortgage market. Borrowers launched widespread attacks on foreclosure actions once tales of successful early challenges were reported in the media.  With the recent reports in The New York Times about National Collegiate Student Loan Trusts’ problems enforcing student loans due to incomplete documentation, the same contagion could again take hold in the nation’s courts.

In the aftermath of the 2008 financial crisis, courts were filled with cases in which borrowers made the technical argument that the securitization trustee trying to foreclose never actually received the relevant note and mortgage—and in some cases,…

Student loans carry a reputation for inevitability surpassed only by death and taxes. With good reason, too. In order to discharge a student loan in bankruptcy—the only way to shake it for good—a borrower in bankruptcy must show that being required to repay the loan would cause them “undue hardship.”

Making that showing has proven difficult indeed. In applying the “undue hardship” standard, most courts use the Brunner test, which requires petitioners to prove that they: (i) cannot maintain a minimum standard of living; (ii) won’t be able to do so for much of the repayment period;…

In a recent Asset Securitization Report article, Joseph Cioffi examines how the President’s campaign rhetoric and post-election plans may support a court ruling that a class action lawsuit is a more reliable and superior way to enforce borrower rights relative to a competing action by a weakened CFPB or an inherently weak successor agency. Joseph notes that the administration seems poised to follow through on campaign promises of less regulation and reducing the CFPB’s enforcement power, including actions affecting the Public Service Loan Forgiveness program and for-profit schools’ federal aid eligibility. To read the full article,…