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Analysis: The Forgotten Faces of Student Loan Default

ABI Bankruptcy Brief

October 18, 2018

 
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NEWS AND ANALYSIS

Analysis: The Forgotten Faces of Student Loan Default

The U.S. Department of Education recently released new data on student loan default rates and is touting a success story: The national default rate is 10.8 percent, down from 11.3 percent last year. But this decline doesn’t mean that students are no longer struggling to repay their loans or suffering the consequences of default, according to an analysis by the Center for American Progress. The analysis found that African-American borrowers, students who are parents, and low-income students have higher-than-average default rates, in some cases topping 50 percent. Research has also repeatedly demonstrated that students who do not complete college are more likely to default than those who have. These groups are relatively large and can therefore be studied in depth using the Education Department’s sample survey data, which follows students from when they entered college in 2003 through 2015. However, there are other groups of students with similarly high default rates who often go unstudied because they comprise a relatively small portion of the overall population. Included in the analysis is an examination of veterans, first-generation college students, students without a high school diploma, students with disabilities, and underrepresented minorities.
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Commentary: Is Student Debt a Good Investment in a Worker's Future?*

As many 20- and 30-somethings feel that the $1.5 trillion in national student debt has crippled their progress toward financial stability, a paper released on Tuesday aims to put some economic rationale behind those sentiments, according to a MarketWatch.com commentary. The paper by the Roosevelt Institute, a progressive think tank, shines a different lens on the numbers experts have historically used to argue that student debt is a decent investment in a worker’s future. The authors focused on “the college wage premium.” That refers to the increase in earnings a worker receives for a college degree over just a high school diploma. They note that while college graduates make more than 50 percent more than their counterparts who didn’t earn a degree, much of that disparity is driven by a drop in the value of a high school diploma. Put another way: Between 2000 and 2017, the share of employees with college degrees has increased by about 6 percent, but that hasn’t translated into an earnings increase among those workers, according to the paper. At the same time, median student debt increased from $10,000 to more than $20,000. The authors argue that “credentialization” is one of the driving forces behind this. That refers to how the availability of federal student loans allows employers to demand more credentials from workers without having to pay for them. Instead, individuals — and, in some cases, taxpayers — foot the bill. Higher education institutions are also able to increase their revenue by offering more of these types of degrees.

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*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.


Report: Mortgage Fraud Is Increasing Again

Mortgage fraud was so rampant during the height of the housing bubble in the mid-2000s that real estate industry insiders started to refer to some mortgages as “liar’s loans.” While stricter regulations after the bubble burst and fines on mortgage lenders who knowingly approved fraudulent loans curbed the practice, CoreLogic, a real estate data firm, recently reported an uptick in mortgage fraud, the Washington Post reported. About one in every 109 mortgage applications was found to contain false or misleading information during the second quarter of 2018, an increase of 12.4 percent compared with the second quarter of 2017, according to CoreLogic. The states with the highest number of incidents of mortgage fraud during the quarter were New York, New Jersey and Florida. The metro areas with the biggest increase in mortgage fraud year-over-year were Oklahoma City, El Paso, Albuquerque, Spokane, Wash., and Springfield, Mass.

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S&P/Experian Consumer Credit Default Indices Show Lowest Composite Default Rate of Year in September

S&P Dow Jones Indices and Experian released data on Tuesday showing that the composite default rate was five basis points lower than last month, at 0.82 percent, according to a press release. The bank card default rate dropped 38 basis points to 3.14 percent. The auto loan default rate decreased eight basis points to 0.89 percent. The first mortgage default rate was down two basis points, to 0.63 percent. All five major metropolitan statistical areas recorded decreases in composite default rates in September 2018.

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Notice to All ABI Members

UNITE HERE Local 11 is a labor union based in southern California. They represent more than 20,000 workers in the hotel and restaurant industry. The union has been attempting to organize employees at the Terranea Resort, site of ABI’s 2019 Winter Leadership Conference (WLC). The union has repeatedly contacted ABI leadership, including members of the board and committee leaders, to urge ABI to cancel or move the WLC. ABI has no plans to move or cancel the event, which would result in substantial legal exposure. If you are contacted by phone or email by representatives of the union, ABI encourages you to ignore rather than engage or respond. ABI regrets this development and will continue to closely follow events at the property. This has no effect on the ABI’s 2018 WLC, set for Scottsdale, Ariz., this December.

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BLOG EXCHANGE

CFPB’s “Abusive” Rulemaking?

Acting Consumer Financial Protection Bureau (CFPB) Director Mick Mulvaney announced this week that the CFPB would be undertaking a rulemaking to define "abusive," the third part of the UDAAP triad. The CFPB's key organic power is to prohibit unfair, deceptive and abusive acts and practices. “Unfair” and “abusive” have statutory definitions, whereas “deceptive” does not, but “abusive” is a new addition to the traditional UDAAP duo of “unfair” and “deceptive.” Mulvaney suggests that a definitional rulemaking is necessary so that regulated entities will know what the law is. However, it’s actually very clear what “abusive” means, at least as applied by the CFPB to date, according to a recent blog post.

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