Mailbag: Private Loan Borrowers Speak Out

Yesterday, we expressed our strong opposition to a Bush administration proposal that would potentially bailout lenders who have engaged in predatory private student loan practices. Our view is that student loan companies should have to bear responsibility for the consequences of pushing high-cost private loan debt on high risk borrowers. After all, for years, they gladly raked in profits from these loans.

At Higher Ed Watch, we hear regularly from financially distressed private student loan borrowers who believe they have been victimized by lenders (see here and here). Of late, we have received many comments from borrowers who are struggling to repay private loans they received from the student loan giant Sallie Mae to attend for-profit trade schools of questionable quality. Given the debate occurring on Capitol Hill, we thought we'd share some of those comments with you.

Many of the commenters say they were duped into taking out private loans by schools that misled them about the quality of the academic programs they offered and about their job prospects for the future. One such comment came from a borrower who racked up $65,000 in private loan debt attending Scottsdale Culinary Institute (SCI), which is owned by Career Education Corporation, one of the largest chains of trade schools in the country:

The SCI recruiters do a number on you telling you what a great job you will get right out of school and how they even help you find that chef job of your dreams. Then once it's too late to drop out and receive any type of refund, you find out that it's all a lie and it is true, the chefs literally laughed at us thinking we'd be more than a line cook for $8-10 an hour after graduation. I left a corporate job paying $12 an hour to go to this school. What's the point of quitting a perfectly good job and going to a school that cost $30,000 only to get a job paying nearly a quarter LESS than I was earning????

A former student who attended the California School of Culinary Arts, which is also owned by Career Ed, sent in a comment complaining that her school, working hand in hand with Sallie Mae, pushed her into taking more private loan debt than she needed:

I too was blindsided by Sallie Mae. On top of the dishonesty of California School of Culinary Arts' recruiters (such as lying about future wages, lying about exclusiveness of the school, lying about the terms of the loan, lying about financial aid I was supposed to get), the school "accidentally" didn't even follow through with my Cal Grant, making me borrow over $8,000 more than I needed to. I hope they all go out of business and stop doing this to students.

Meanwhile, another commenter who attended Full Sail University in Orlando, FL complained that he had received little value from the education for which he had become so indebted:

I've never received a job in my degree after graduating from FullSail, Orlando Florida. I have over $40,000 in student loans from Full Sail, which after 4 years I owe more now than I borrowed. I feel the school and Sallie Mae scammed me. I need help paying off my student loan or some form of forgiveness. I am now serving in the US Air Force. Is there help for me?

Many of these borrowers expressed frustration over the seemingly inescapable burden these loans have had on their lives. Here are a couple of examples:

I got a loan for school at Katharine Gibbs in NJ from Sallie Mae. When I signed for the loan, I was told that I would not know what the interest rate would be until I had to start paying the loan back. Needless to say, it was a high rate of 17.5%. I have been paying that loan since 2000 and I have yet to see the principle of that loan go down. All these years, it seems that the money that I have paid has gone to the "interest" on my loan. At this rate, I will still be paying the loan until I die. (Paying Until I Die, July 10, 2008)

Has anybody figured out how to re-finance Sallie Mae student loans? They keep raising my son's interest rate on his loans which I have co-signed and now the payments are so high neither one of us can afford it. Everytime I try and call they say Forebearance to us which we have done twice now we are really in trouble. My son took $50,000 to live his dream as a pilot and now with the increase he cannot go forward and will have to work in a different field to pay the loans!! HELP! (Sallie Mae, August 2, 2008)

Many of these borrowers say they are doing their best to repay the loans but have found the loan companies inflexible and unwilling to help them find ways to make repayment easier. Typical is a comment we received from another former student from Scottsdale Culinary Institute:

After I graduated, I was told too bad, Sallie Mae has your loan and you can't refinance or consolidate for any reason ever because Sallie Mae would refuse to release the loan no matter what I did. So here I am 5 years later and my balance is now $60,000 and their collectors are telling me they will take me to court and garnish my wages because I can't force any of my friends to cosign a loan for me...They said they wanted to settle but in the end refused.

One comment we received from a lawyer representing subprime private student loan borrowers was particularly prescient, given the discussions going on now in Congress:

This is a topic near and dear to my heart, as I've begun representing culinary students in Oregon who have incurred profound debts to obtain certifications that qualify them for low paying kitchen jobs...it's clear that students are getting very little training for high dollar programs. I can't help but think that many of the trade-school-for-profit programs are simply numbers games fueled by lax regulation and Wall Street numbers. I wonder how long before the student loan predatory lending problems get the kind of attention given to predatory mortgage lending. Of course, if it does, I imagine that Career Ed Corp., Sallie Mae and other players will get bailed out, and-- like the mortgage crisis -- consumers will get crumbs.

As always, we appreciate the comments we have received on this topic and others. Please keep them coming. Hopefully, policymakers will pay heed of them before acting on this hazardous student loan bailout proposal.

UPDATE: Today, the New America Foundation has joined a coalition of student and consumer advocacy groups in opposing the inclusion of private student loans in the economic bailout package. Here's a copy of the letter the coalition sent today to the leaders of the Senate Banking Committee and the House Financial Services Committee.