My friend Gustav and I laid out the hottest new place to get a payday-style loan, sometimes in just minutes: Reddit. In The Atlantic, we explain how an ad-hoc community of online lenders Paypal money to strangers based on their forum posts, and most of them get repaid.
When asked if they’d be able to cover a $400 emergency expense, Neal Gabler’s recent Atlantic cover story noted, nearly half of all respondents to a 2014 Federal Reserve study said that they wouldn’t have enough cash on hand.
So how would they scrape the money together? Most told the Fed they would try for a bank loan, use a credit card, or make a potentially embarrassing request to family and friends. Two percent of respondents said they would take out a payday loan.
To avoid this suite of unattractive choices, some borrowers are asking strangers for money on Reddit instead. Since 2011, a section of the site, r/borrow (and its predecessor, r/loans), has matched users looking for quick credit with lenders willing to put up cash. Most loans on r/borrow charge very high interest rates—usually between 10 and 25 percent, to be paid back over weeks or months. Per data collected by one r/borrow user, the subreddit facilitated 3,473 loans totaling over $780,000 in 2015. According to a moderator of the subreddit, r/borrow users, like Redditors at large, skew young, white, and male. Loans tend to range from $100 to a few thousand dollars, and cover the gamut of emergency financial needs, including car repairs, debt consolidation, medical bills, or unexpected travel costs.
Relatively speaking, these aren’t huge numbers—the consumer-credit market handles trillions of dollars each year—but they do highlight the ways in which traditional lending options can fail to give some people what they need. “It’s not surprising that borrowers are looking for alternative ways of getting access to credit,” says Paul Leonard, the former director of the California office of the Center for Responsible Lending.
When Americans need money, they often turn first to banks for a loan, but their options there are only as good as their credit. If their credit score—a figure that can be calculated incorrectly and yet is often taken as the sole indicator of a prospective borrower’s reliability—is low, they often turn to loans with much higher interest rates. Take Justin O’Dell, a cable technician living in Dexter, Michigan. He says his mother took out several credit cards in his name while he was in college and racked up about $40,000 in debt. “My choices were to press charges for credit fraud or eat the debt,” he said. “I ate the debt.” No longer able to get student loans, O’Dell was forced to drop out of college.
When O’Dell later needed some cash to pay his cellphone bill after his wife lost her job, he briefly considered a payday loan—an extremely high-interest alternative that is known to catch consumers in cycles of debt and is mostly unregulated in 32 states. (Payday loans are not equal-opportunity debt traps, either: “There is some evidence that lenders have concentrated themselves in communities of color,” said Joe Valenti, the director of consumer finance for the Center for American Progress.) But after deciding against that option, and against the embarrassment of asking his father, O’Dell ultimately opted for the comfortable distance of a Reddit loan. “You don’t have to walk back to dad with your tail between your legs and ask for help,” he said. Now, he turns to Reddit when surprise expenses arise.
The full story here.
Medical bills account for 62 percent of all personal bankruptcies. Strike Debt is trying to change that.
Have you recently lived in or visited Kentucky or Indiana? Did you go to an emergency room while you were there? Do you still have unpaid debt from the medical care you received? If so, keep an eye your mailbox. You might be in for a pleasant surprise.
The Rolling Jubilee, a project of Occupy-affiliated Strike Debt, announced last week that they have bought about $1 million in medical debt incurred in the Louisville area. Instead of trying to collect, they are letting everyone off the hook.
About 1,000 folks will be receiving a letter explaining that “we abolished their debt and there are no strings attached,” according to Ann Larson, an organizer with Strike Debt. The debt averaged around $900 per person and most of it was about two or three years old. ($900 may understate the burden lifted, though, because now the relieved debtors won’t have to worry about growing interest or damage to their credit score.)
Strike Debt spent almost $21,000 on the effort, paying pennies on the dollar because they used the same secondary market purchase process as collection agencies. The money came from donors, including 20 bucks from the author of this post.
But the Rolling Jubilee is about way more than kindness to strangers. For Strike Debt organizers, the purchases are a vehicle for their broader vision: a society free from onerous debt.
“Nobody should [have to] go into debt because they get sick,” Larson said.
“There’s a myth that we’re in debt because we overspent on luxury items, and that’s just false,” she said. “One in seven Americans is being pursued by a debt collector, and in many cases those people are in debt for basic needs.”
Health care is a perfect example. According to a study in the American Journal of Medicine, medical bills cause 62 percent of all personal bankruptcies.
Young Americans have higher rates of medical debt because they are more likely to work low-wage jobs and less likely to have insurance, according to Larson.
Here’s some more good news: the Louisville buy is just the tip of the iceberg. Strike Debt has $560,000 in cash on hand, and they will continue to negotiate and bid on similar debt packages.
“There will be new announcements regularly for the next few months,” Larson said. If they can keep buying at the same rate, Strike Debt will be able to take over $25 million in debt off Americans’ shoulders.
Published at Campus Progress. Photo: Flickr / Chealion.
The student loan crisis is a myth.
So say Nicole Allan and Derek Thompson, who argue in this month’s issue of The Atlantic that the economic returns of college far outweigh the burden of student loan debt.
“Horror stories of students drowning in $100,000+ in debt might discourage young people from enrolling in college, but they are as rare as they are terrifying,” Allan and Thompson wrote in the article. “The economic value of college, meanwhile, is indisputable.”
Allan and Thompson looked for crisis in the wrong places. Six-figure calamities are indeed rare, but millions of Americans are caught between stubbornly weak labor markets and increasingly costly higher education.
1. The employment prospects for young grads are pretty gloomy. According to an Associated Press analysis, 53 percent of recent college graduates are either unemployed or not putting their degree to use.
2. Because of the weak job market, borrowers are struggling more and more to keep up with payments. According to TransUnion, federal student loan delinquencies shot up 27 percent between 2007 and 2012. (Private loan delinquencies dropped 2 percent.)
3.Ddon’t expect the problem to go away once the economy picks up. As Campus Progress recently reported, the growth in Americans with degrees is far outpacing the growth in jobs that require them, meaning jobs that offer a secure path to debt repayment will become ever more competitive.
4. But repayment is already causig hardship: 13 percent of students whose loans came due in 2009 to default on their debt by 2012. Another 26 percent are delinquent, on the cusp of default.
5. It’s not just a debt crisis—it’s an affordability crisis.
CNN Money found that the cost of attending a public university has more than doubled since 1988, even as Americans’ median income stagnated. If our incomes had kept pace with the cost of higher education, the average American would now make $77,000 yearly.
Finally, the cost of college prevents many low-income Americans from even seeking a higher education. Forty-eight percent of adults aged 18 to 34 without degrees told the Wall Street Journal that they can’t afford to go to college.
Among high schoolers who score highly on the SAT and ACT, 80 percent of kids from wealthy families go on to get college degrees, compared with just 44 percent of those from low-income families. Student loan debt not only makes life miserable for many graduates, it prevents some Americans from even setting foot on a college campus. That’s what we call a crisis.
Posted at Campus Progress.