- 4 min read
- Risk professionals forecast more student loan defaults in 2012
- Foreclosures to hold steady.
- Your options for resolving a delinquent student loan or avoiding foreclosure.
Student Loan Defaults to Rise, Mortgage Foreclosures to Stay Steady in 2012
A recent survey of nearly 400 risk professionals conducted by the Professional Risk Managers’ International Association, Fair Isaac, and the Columbia Business School found unease about student loan and mortgage delinquencies in the US. Here are the key findings and predictions for 2012:
- 67.4% said the level of student loan delinquencies will rise
- 47% said the level of mortgage delinquencies will increase
- 54.3% said the average credit card balance will increase
- 64% expect small businesses to request more credit, but only 35% of respondents expect banks to extend more credit to small businesses
- 25.1% said the amount of consumer credit extended by lenders will increase
Regarding mortgages, those surveyed were slightly more pessimistic than last quarter. Today, 13% say they expect delinquencies to drop, which is a lower number than the results from a quarter before.
As for student loans, the 67% of respondents who believe student loans will rise is a jump of 19 points from results of the same question three months before. About 8% of respondents expect a drop in student loan delinquencies.
Dealing With a Delinquent Mortgage
Bills.com offers several resources for distressed homeowners. The first question a distressed homeowner should ask is, "Do I want to keep the home or sell it?"
Keep the Home
If you cannot afford your home loan payments, contact your mortgage servicer and ask if it offers a forbearance option. If your home’s market value is less than the balance of the loan, then consider a mortgage modification. In either case, you have several options to keep your home:
- GSE Loan
- Private Loan
Sell the Home
If you need to sell the home, then compare the market value of the home and the balance(s) of your home loan(s). If the balance of the loan is greater than the value of the property, you are in a negative equity situation, which is called "upside-down" or "under water" in the real estate and mortgage business. If you are upside-down, call your mortgage servicer and ask about its Deed In Lieu Of Foreclosure or Short Sale. Another option is to allow a strategic default. However, doing so may result in you needing to resolve the deficiency balance.
Bills.com generally recommends a deed in lieu of foreclosure or short sale over a strategic default or foreclosure, except in limited circumstances. It is difficult to give a general rule of thumb because situations vary greatly between different lenders and states, but in most cases a a foreclosure alternative makes sense because it:
- Reduces the chance of a lender pursuing a deficiency balance judgment, where the lender has the legal right to do it
- Leaves a homeowner with more leverage in negotiating a potential longer-term modification or other restructuring with their lender, and potentially staying in his or her home
- Leaves the homeowner with a greater chance of minimizing credit harm, if the deficiency balance is forgiven
See the Bills.com foreclosure page to learn more about this process.
Dealing With Delinquent Student Loans
Bills.com offers resources for students with delinquent federal and private student loans.
Federal Student Loans
First, review the list below.
- Federal Family Education Loans (FFEL)
- Direct Loans (William D. Ford Direct Loan Program)
- Federal Perkins Loans
- Federal Grants
- Federal Supplemental Educational Opportunity Grants (FSEOG)
- Academic Competitiveness
- National SMART
If your loan or loans are one of the above, then see Federal Student Loan Default to learn about deferment, forbearance, or consolidation, plus the six different repayment programs the Dept. of Education offers federal student loan borrowers.
If you are unsure if your loan is private or federal, go to the Dept. of Education National Student Loan Data System Web page and enter the information you have about your loan.
Private Student Loans
If your loan is private, read the Bills.com article Private Student Loan Default to learn your options.
If you need a student loan, whether it is private or federal, start with the Bills.com Student Loans Information and Savings page.
Debt is used to buy a home, pay for bills, buy a car, or pay for a college education. According to the NY Federal Reserve total household debt as of Q2 2022 was $16.15 trillion. Auto loan debt was $1.50 trillion and credit card was $0.89 trillion.
According to data gathered by Urban.org from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1.739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 10% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.
Each state has its rate of delinquency and share of debts in collections. For example, in Virginia credit card delinquency rate was 3%, and the median credit card debt was $423.
Avoiding collections isn’t always possible. A sudden loss of employment, death in the family, or sickness can lead to financial hardship. Fortunately, there are many ways to deal with debt including an aggressive payment plan, debt consolidation loan, or a negotiated settlement.