Credit Talk for Ireland

Student loans are now being prioritized in Ireland for they have realized the importance of credit in today’s financial status in the economy. Credit is like the oxygen of the economy in Ireland however not everyone has realized the importance of credit today.

The Bank of Ireland has drafted two new schemes to help improve the credit in the country. The schemes and the increasing number of third-level students who are paying overdue are the crucial elements that could lead in the increase of the bad credit ratings in the future.

According to the CEO of the National Consumer Agency, Ann Fitzgerald, it is very important that students know the effects of their poor credit history in how their financial status in the future. A person’s credit history includes the list of lenders and account numbers you have had. Furthermore, it also contains information about the credit cards you have or those that were closed in a five year span, also it shows the loans you have and those you missed to pay.

A bad credit rating is very painful in your record. It could cause high interest rates, the loss of a job opportunity and worse, it could spell disaster for your future loan endeavors. It is important that you have a good behavioral standing and you should avoid missing payments in loans.

The Irish Credit Bureau is the agency that records the credit ratings in Ireland. It also acts as an aid for financial institutions in the country by giving the necessary information they need about loans. The agency has an up to date record of every person’s credit.

The records that they have are also designed to help prevent their clients from being victims of fraud and falling into indebtedness. The Bank of Ireland was scrutinized just recently by the Union of Students because of the new schemes it had for loans. However, according to the Welfare Officer of the UCCSU they noticed that there are plenty of students who are trying to get loans from banks.

Costly College Loans as Bad Debt

With more than $1 billion loans, the college loan debt has recently exceeded the credit card debt. Since borrowers cannot get rid of college loans, even in bankruptcy, these can be carried to their Social Security. The following is an explanation of how college loans can be a bad debt.

At present, student borrowers tend to be immature in terms of loans so they take on too much debt than they can afford. Fortunately, the Obama administration created a program that encourages colleges to ask the students answer a “shopping sheet”, which shows the actual cost of the debt.

According to Dawn Lockhart, CEO of Family Foundations, this program is a great idea. Family Foundations is a nonprofit organization that offers good consumer services in relation to credit counseling and has a history of excellent community service.

Lockhart added that the proposed checklist of college costs will be much better if it includes options on possible careers that indicate the likely income the student can expect to earn. One of the factors that can help lenders in deciding what loan to give is the income of the profession the student is pursuing.

For the moment, President Barack Obama has suggested using federal funding as motivation to encourage colleges to cut down on their costs. The president will be declaring Race to the Top, a new contest that grants funding to colleges that minimizes their costs.

Based on figures from the Wall Street Journal, student loan rates begin at around 5 percent. Consequently, families rely on other means to pay for college expenses, for instance, installment plans, low interest loans from colleges, home equity loans, and insurance loans.

However, it’s sad to know that college loans are now considered as bad debt to the extent that the nation’s top financial newspaper is trying to find ways to avoid them.

Student Loans: New Subprime Crisis in The Making

For those students having trouble paying for college, government-backed student loans are a much more popular option than private student loans. This is because the interest rates are lower and there are more flexible repayment options. In contrast, private student loans require repayment as soon as the borrower graduates and repayment terms are rigid.

According to a recent report from Consumer Financial Protection Bureau concerning the private student loan market, beginning in the middle of 2000, there had been a growing number of students relying on private loans before they had exhausted all possible federal loans presented to them.

The growth in terms of the private student loan market, which increased from $5 billion in the year 2001 to $20 billion in the year 2008, is almost similar to the growth of subprime mortgage loans during the same time.

Banks discovered that they could package student loans into securities and trade them for a profit to investors. By means of securitization, $100 in student loans could be converted into $105. Because the initial lenders were not hanging on to the loans, they were not in danger if students failed to pay the loan.

Some time ago, a filter operation had been provided by universities, notifying students to the accessibility of private loans when the rest of the alternatives were exhausted.

However, the increase in private student loans is also indicated by an increase in direct-to-consumer lending. Most of the time, these students were not aware that the private loans are less preferred compared with those offered by the government.

The conditions were most extreme at for-profit colleges, a lot of whom had financial connections with private lenders. Based on a report from the CFPB, in the year 2008, a private loan was taken on by 42 percent of undergraduates at for-profit colleges. However, only 14 percent of all undergraduates used a private student loan.

Private Student Loans Compared with Subprime Loans

According to a study conducted by the government, there has been a massive increase in private student loan debt in the last ten years, which resulted to a lot of Americans in trouble of not paying back their loans.

In addition, the study, which was released last Friday, revealed that most private lenders gave loans without thinking whether or not the borrowers would be able to repay, and then resold the loans to investors in order to prevent loss of money.

Those actions are almost related with subprime mortgage lending, which increase the housing bubble and aided in causing the financial crisis in the year 2008.

Arne Duncan, secretary of the Department of Education, conducted the report together with the Consumer Financial Protection Bureau. Duncan said that subprime-style lending went to college and the students at present are paying the price.

Duncan added that the government should do more to guarantee that people who were given the private loans have the same protections with those who received federal government loans.

The study also said that private student loans have a higher risk than federal loans because they are charged with variable interest rates, which can trigger monthly payments to increase all of a sudden. In contrast, federal loans are charged with fixed interest rates.

Moreover, while federal loans can be postponed or reduced if a borrower is not able to repay, private loans do not offer those options.

Most of the times, students are not aware of the difference between federal and private loans which lead them to apply for expensive student loans, even though they were qualified for more affordable and safer government loans.

One feature of a student loan which was emphasized in the study was that it cannot be cancelled by filling for bankruptcy, not like other credit card balances or debt. As a result, a lot of borrowers are either trapped or overdue on loans that lenders are reluctant to alter.

Older People Still Have Student Loan Debts

Student loan debt has become a huge problem not only for fresh college graduates but also for the United States. According to a recent report from Barclays, more or less one out of six people with an age of above 50 years old have a student loan debt.

In addition, the report stated that the outstanding student loans in the United States reached more than $1 trillion already. 15.5 percent were made up of Americans with age 50 years and above, and 4.2 percent comprised of Americans with age 60 years and above.

In terms of delinquencies, 17 percent of overdue student loan balances were made up of Americans with age between 50 and 59, and just about 5 percent comprised of those with age 60 years and above.

Furthermore, Barclays reported that between the years 2007 and 2009, student loan debt in retired households went up by 62 percent. There are a variety of causes for this said increase. Although some people are more likely still paying back their student debts for their college education, there are some older people who took on loans in order to go to school once again.

Another cause why post 50s are suffering from debt might be from co-signing loans for their children and grandchildren. Based on a recent study conducted by Ameriprise Financial, 71 percent of parents with age above 50 years old have assisted their children finance their college education.

Debtors who are in their older years and still have outstanding federal student loans might be surprised when they start withdrawing Social Security, because the government can increase those payments to use it those loans.

For the moment, student loans cannot be discharged in bankruptcy except if too much hardship is declared by the borrower. In the year 2008, only 29 of the 72,000 borrowers in bankruptcy were approved for the exemption.