Of Student Debt and Stagnant Wages

Student debt is bearing the blame for continued weakness in the housing market.  According to the Washington Post, “regulators and industry experts warn that young adults can no longer save for down payments or qualify for the mortgages they need to buy their first homes.”

But Rohit Chopra, student loan ombudsman for the Consumer Financial Protection Bureau, points out that debt burden alone does not tell the whole tale for first-time homebuyers:

“Real wages when adjusted for inflation have actually been flat for new college graduates for about the past ten years. So young people have more debt but are earning the same or less income.”

Everything you always wanted to know about Sallie Mae…

From the advocates at the National Consumer Law Center comes an eye-opening report on Sallie Mae. My first thought was that the “Sallie Mae Saga” should be required reading for everyone who cares about “the dangers of relying on a for-profit publicly traded company to protect borrowers and taxpayers.”  My second thought was that it should be required reading for everyone.

The prepay prevention plan

Every student loan has a prepay option, but servicers make them almost impossible to use.  Ever wonder why they make it so hard?  Rohit Chopra and his team at the CFPB asked private loan servicers and came to some conclusions:

“Creating obstacles for borrowers to direct payments to a specific loan can increase future servicing revenue.  Incentive misalignment was one cause of significant harm to consumers in the mortgage servicing industry. This may also be a contributing factor to the frustration experienced by many private student loan borrowers who submit complaints to the CFPB about payment allocation issues.”

In other words, the harder it is to prepay, the more money the servicer makes.