Cashay logo

Empowering your money

'Super debt': Expert explains why student loans are particularly brutal

Chelsea Lombardo
Production Assistant

This article was originally published on Yahoo Money.

As the cost of college continues to rise, student loan debt has reached an all-time high. The combination is putting a particularly troublesome pressure on borrowers, one expert says.

“Student loan debt is super debt, even worse than a mortgage on your house,” Michael Calhoun, the president of the Center for Responsible Lending, told Yahoo Finance.

Just like the debt collectors who resorted to garnishing wages from people in the aftermath of the Great Recession, the process is repeating today, he added: “We have people having their Social Security garnished by the government for student debt.”

In the third quarter of 2018, $230 million in owed funds were reclaimed through wage garnishment, according to Student Loan Hero.

“Today, student loan debt is the number one reason that disqualifies people from buying a home when they come to us for a mortgage,” Calhoun added. “You have about 44 million people with student loan debt today... In 2003, the total student debt was just over $300 billion. Today, [it’s] over $1.6 trillion.”

A graduate wears a Make America Great Again hat amidst a sea of mortar boards before the start of commencement exercises at Liberty University in Lynchburg, Virginia, U.S., May 11, 2019. (Photo: REUTERS/Jonathan Drake)
A graduate wears a Make America Great Again hat amidst a sea of mortar boards before the start of commencement exercises at Liberty University in Lynchburg, Virginia, U.S., May 11, 2019. (Photo: REUTERS/Jonathan Drake)

‘This has gone backwards’

On top of zealous debt collectors, borrowers are also seeing some important protections afforded to them by the previous administration being eroded, Calhoun noted.

For example, in 2014, the Obama administration announced the gainful employment rule, that prohibited schools from receiving federal funding if their students consistently left with high student debt. Under the regulation, a graduate’s estimated annual loan payment would not exceed 20% of their discretionary income, or 8% of their total earnings.

This year, Secretary of Education Betsy DeVos rolled back on the Obama-era rule, claiming it “unfairly targeted for-profit colleges.”

“That's one of the things in the last four years, this has gone backwards in terms of less bringing a solution here,” Calhoun said. “And there's actually some bipartisan support and recognition that there are things that could be done that would help people just make plain sense.”

He continued: “Because with for-profit schools, not only do they have the highest failure rates by far than any of the others... The vast majority of those students have poor outcomes and just don't get that increase in income. And then you get the debt.”

Student loan debt hit $1.6T in 2019.
Student loan debt hit $1.6T in 2019.

‘This is a fixable and avoidable problem’

The imbalance in the amount of student debt held by different groups is also causing acute pain for some, Calhoun added.

Calhoun noted that borrowers and communities of color are particularly bearing the brunt of this “broken system.” According to data from the New York Fed, African-American borrowers have been hit the hardest by the loans, borrowing more on average and defaulting at higher rates, as compared to white borrowers.

“Once again, very similarly [to the mortgage crisis in 2008/9], the servicing of these loans has been a disaster with misplaced incentives,” Calhoun said. “The really tragic part is much like the subprime crisis, overwhelmingly, this is a fixable and avoidable problem.”

Read more information and tips in our Student Loans section

Read more personal finance information, news, and tips on Cashay

Follow Cashay on Instagram, Twitter, and Facebook