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NY Fed: Black Student Loan Borrowers Are Defaulting at Nearly Twice the Rate of Whites

ABI Bankruptcy Brief

November 14, 2019

ABI Bankruptcy Brief

NY Fed: Black Student Loan Borrowers Are Defaulting at Nearly Twice the Rate of Whites

Research released yesterday by the Federal Reserve Bank of New York showed that student loan borrowers from mostly black neighborhoods are almost twice as likely to default on their debt as borrowers from neighborhoods that are mostly white, Reuters reported. Borrowers from black neighborhoods also tend to carry larger debt loads, the data showed. Fed researchers found that people in black-majority neighborhoods were slightly more likely to borrow for college, with 23 percent of residents carrying student loans, compared to 17 percent of people in Hispanic-majority neighborhoods and 14 percent in white-majority zip codes. Higher borrowing rates in black neighborhoods could be explained by differences in income, with people from lower-income households being more likely to need loans to pay for school, the researchers wrote. Still, the differences in borrowing rates were not large enough to fully explain the disparities in default rates and student loan balances. Some 17.7 percent of borrowers in majority-black neighborhoods defaulted on their student loans, a proportion roughly twice as high as the 9 percent of borrowers from mostly white neighborhoods who defaulted on loans.

Click here to read the full study.

Georgetown Study Measures Return on Investment of College Education

Researchers at the Georgetown University Center on Education and the Workforce aimed to answer the question of the value of a college education using newly released federal data to try to calculate return on investment for thousands of colleges across the country, the Washington Post reported. The results — searchable and sortable online — were released today, with rankings of 4,500 schools. Among the top 10 colleges with the best long-term net economic gain are Harvard University, the Massachusetts Institute of Technology and Stanford University. Forty years after enrollment, bachelor’s degrees from private colleges have the highest returns on investment. But the top three on the top 10 list — eclipsing MIT and Stanford — are schools specializing in pharmacy and health sciences. The only two public schools to make that top 10 list are maritime academies.

Click here to read more about the research.

Is there too much emphasis on reducing student loan debt, including through bankruptcy, and not enough about the real causes of skyrocketing college costs? Don't miss Inez Feltscher Stepman of the Independent Women's Forum tackling these issues at her ABI Talk at the Winter Leadership Conference.

Don't miss your chance to earn 10+ hours of CLE, hear 70 thought leaders speaking on engaging panels and many opportunities to network. Register here.

Cash-Strapped Small Businesses Turn to GoFundMe

Most people think of GoFundMe as a way to raise money for medical debt, funeral costs or natural disaster relief, but the crowdfunding website is increasingly being used by struggling small businesses, said Chief Executive Rob Solomon, the Wall Street Journal reported. Thousands of small businesses, ranging from comic-book shops to drive-in movie theaters, have opened campaigns across 19 countries. “These independent businesses become pillars in a community, and when they can’t stay open, the communities really rally,” Solomon said. Unlike on other crowdfunding websites, GoFundMe organizers are able to cash out all of the money they raise, minus a 2.9 percent credit-card processing fee, regardless of whether they reach their goals. Jessica Walker, president and chief executive of the Manhattan Chamber of Commerce, said small and mid-level independent businesses are being squeezed by rising rents, minimum-wage increases and mandatory sick leave. Crowdfunding can help fill the gap. “If a business is struggling, it’s much harder to get a bank loan,” Walker said.(Subscription required.)

Rewrite of Lower-Income Lending Rules to Advance in December

A top bank regulator is poised to propose changes to bank lending requirements that could potentially transform the way lenders make billions of dollars in loans, investments and donations to customers in lower-income areas, the Wall Street Journal reported. The proposal from the Office of the Comptroller of the Currency to regulations of the Community Reinvestment Act, which requires banks to serve borrowers of all income levels who reside near their branches, could also make it easier for banks to meet certain lending requirements, particularly in poorer neighborhoods. The agency is planning to release its overhaul sometime in December. Banks would be encouraged to make loans to lower-income borrowers based on the geographic concentrations of their deposits, in addition to the locations of their physical branches, Comptroller of the Currency Joseph Otting said. Under discussion since the earliest days of the Trump administration, a formal proposal has been repeatedly pushed back as the OCC sought to coordinate with two other banking agencies on the changes. It isn’t yet clear if one of the other agencies — the Federal Deposit Insurance Corp. — will jointly propose the changes with the OCC, though Otting said that he is “very optimistic” it will. The third regulator, the Federal Reserve, isn’t expected to be a part of the OCC’s overhaul after the two regulators disagreed on how to refashion the rules, Otting said. (Subscription required.)

Severe $15.8 Trillion Pension Crisis Looms Worldwide, G-30 Says

The U.S., China and other leading economies are confronting a massive funding gap of $15.8 trillion in 2050 to ensure lifetime financial support for their aging populations, Bloomberg News reported. That’s according to a report spearheaded by former U.K. Financial Services Authority Chairman Adair Turner for the prestigious Group of 30, comprised of current and former policymakers. “If public policies and individual behaviors do not change, many countries’ pension systems will face a severe crisis, threatening either unaffordable public expenditure pressures or inadequate incomes for retirees,” Turner said. The projected $15.8 trillion shortfall is adjusted for inflation, so the actual nominal dollar amount in 2050 will be materially larger, equivalent to 23 percent of global gross domestic product that year, according to the report. The G-30, which includes Bank of England Governor Mark Carney and former U.S. Treasury Secretaries Timothy Geithner and Lawrence Summers, mainly blamed antiquated pension and retirement systems for the financing gap, which it pegged at $1.2 trillion in 2018.

Aging-in-Place Technology Trend Poses Challenge to Builders of Living Facilities for Elderly

The rise of technologies that help the elderly stay in their homes threatens to upend one of commercial real estate’s biggest bets: Aging baby boomers will leave their residences in droves for senior housing, the Wall Street Journal reported. Developers and senior-housing companies have spent billions of dollars over the past five years to build facilities that provide housing, food, medical care and assistance for the elderly. While these properties have been filling up with people born during the Depression or World War II era, real estate investors are eagerly eyeing the massive baby-boomer generation: 72 million people born between 1946 and 1964, or about one in five Americans. Their needs would require hundreds of thousands of new units, if previous demand patterns persist. But this wager on elderly care is falling short of expectations, and there are concerns that it could become one of the biggest real estate miscalculations in recent memory, some analysts suggest. That is in part because venture capital and other companies are expected to invest about $1 billion this year in these and other “aging-in-place” technologies that are starting to enable seniors to enjoy similar living standards and access to care in their own homes. (Subscription required.)

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New on ABI’s Bankruptcy Blog Exchange: A Challenge in Representing Family Businesses

One of the greatest challenges in representing family businesses is ensuring accuracy in preparing and filing schedules. This challenge is daunting for lots of reasons: Schedules are often prepared under time pressures and with limited resources, the extent and depth of information required is significant, supporting records and memories are often unclear, and remedies for less-than-accurate information can be severe, according to a recent blog post.

To read more on this blog and all others on the ABI Blog Exchange, please click here.

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