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Mailbag: Private Loan Borrowers Speak Out

Ed Policy — Thu, 25 Sep 2008 18:00:00 -0400

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 occuring 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 AirForce. 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.

Mailbag: Private Loan Borrowers in Distress

Ed Policy — Thu, 05 Jun 2008 15:45:00 -0400

At Higher Ed Watch, we hear regularly from financially-distressed borrowers with private student loans who believe they have been victimized by lenders' predatory practices. Much of that feedback comes in the way comments we continue to receive on blog posts that ran more than a year ago.

At a time when the federal government is providing a major bailout of the student loan industry, we think it is important to highlight the experiences of borrowers who are struggling with unmanageable levels of high-cost, private student loan debt. Surely borrowers such as these could use a helping hand too.

Many of our readers have shared stories with us about the seemingly inescapable burden these loans have had on their lives. Here are a few examples:

"I have borrowed about $50,000 in private loans. My estimated monthly payment for both loans is right around $800 and I earn around $1200 monthly. You guys do the math. I know I have a responsibility, but all I wanted was an education, not a $375,000 debt that i'm gonna carry all the way to my grave...At 18, I had no idea what I was doing to myself!!" (I have borrowed, May 7, 2008)

"My husband and I have over $200,000 in private student loans and over $150,000 in federal student loans. I am currently not working and my husband is a teacher. When our loans enter repayment, the monthly payment will be about $3,000! My husband doesn't even make that much per month and my degree (HISTORY-Lib. Arts) will not land me a high-paying job...We are currently driving one car that is 13 years old and we have two children in elementary school. HELP!" (Massive Debt, April 10, 2008)

"I'm a single mother that is not receiving child support. I have $39,000 of private loans and $17,000 in federal loans. I'm in default with my private student loans based on them not working out a payment plan with me. I have to pay $717 a month on my private loans -- mind you this does not include my federal loans. After taxes, I make about $1,700. This makes me hate the fact I even went to school and received an education." (Private Student Loans, May 8, 2008)

"I took out my loans two or more years ago. Part of that time I was working on my master's degree, but then put it on hold when I had my son in March of 2007. Since then I have been harassed, threatened, and basically called a liar and scam artist by Sallie Mae, when I was unable to start payment of the private loans. They want over $1000 a month and have now bullied me into putting my loans in forbearance twice, which they were kind enough to waive the $100 forbearance fee, but tacked on nearly $5000 each time for the forbearance itself. I am drowning in all this debt, I am disabled and my disability got worse after I gave birth and has been on a downward spiral ever since. I live on $600 a month from disability, so obviously I can not pay over $1000 a month to Sallie." (Disabled and Desperate, May 7, 2008)

Some of our readers say they fell victim to aggressive direct-to-consumer loan companies that never made them aware of their lower-cost federal loan options. Many of them acknowledge that they made bad decisions, but also believe that the loan companies took advantage of them:

"I am a victim of these financial institutions that are targeting college students with good credit. I was able to get $52,000 worth of loans over the internet never speaking to anyone. The terms were very unclear. I had no one to explain to me the devastating impact this would have on my life. By the time that these loans went into repayment status, I owed about $73,000. WOW!!! That is $20,000 worth of interest that they have racked up! My payment which I thought would be around $350 per month is over $700. There was no one to guide me and to explain what a libor rate is. I thought that my interest rate would be 4% and calculated like a regular federal student loan. I was so wrong and now my family is suffering because of this poor stupid choice that I made...I was only 22 years old and had no idea what a life changing event this would be." (Private Student Loans, April 12, 2008)

Others blame the colleges they attended for encouraging them to take on heavy loads of private loan debt with their favored lenders:

"I used Sallie Mae because the school I went to spoke of them like a god company. I borrowed $66,000 from them unfortunately, and now the payback amount is $266,000. (And they get away with it, April 23, 2008)

"I came to America to chase a dream and become a better person in this competitive world. I enrolled in the California School of Culinary Arts and being naive they recommended Sallie Mae to me. I wish I knew better. I was excited since I had no co- signer or good credit and I had the opportunity to get money for school. I jumped onto the train. I was told my payments would be about $200 dollars. Well, I am now looking at $500 dollar bills from Sallie Mae. I earn $2000 dollars a month. I can't even afford to send my people back in Africa some form of help because I basically have nothing left after I pay my bills. " (Sallie Mae worse than Enron, May 9, 2008)

And most cannot understand why the federal government treats private student loans differently than other forms of consumer debt by making it so difficult for financially-distressed borrowers to be able to discharge these loans in bankruptcy.

"Students should be able to discharge their student loans in bankruptcy as they can other non secured debt. Everyone knows there is risk involved with student loans and everyone should play by the rules that any other entity is forced to when it comes to loans. Sallie Mae is a company. A non government entity that is in the business of making money. The sooner people start realizing what is happening to the people of this country, the sooner things may turn around." (Will It Ever End?, December 11, 2007)

We appreciate all of the comments we have received on private loans and other items. Please keep them coming.

Mailbag: Private Loans

Ed Policy — Thu, 13 Dec 2007 00:00:00 -0500

In recent years, undergraduates have become increasingly reliant on expensive private student loans, which unlike federal loans, have uncapped interest rates that vary month to month based on market conditions. They also offer less flexible repayment options…

Note: This post pre-dates Higher Ed Watch's shift to a new publishing system. For the complete original post, including any comments, please click here.

Mailbag: Loan to Learn

Ed Policy — Thu, 06 Dec 2007 00:00:00 -0500

From the start of Higher Ed Watch in September 2006, we have focused a healthy amount of attention on the non-profit company EduCap, which until recently marketed private student loans under the brand name Loan to Learn. The company, which is owned by the Washington, DC socialite Catherine B. Reynolds, shut down…

Note: This post pre-dates Higher Ed Watch's shift to a new publishing system. For the complete original post, including any comments, please click here.

Mailbag: University of Phoenix

Ed Policy — Thu, 08 Nov 2007 00:00:00 -0500

Readers comment on items weeks or even months after a post first appears, and we fear that some may miss valuable and interesting feedback. So from time to time, we at Higher Ed Watch are going to highlight moving, thoughtful, and sometimes incendiary comments that we have received on…

Note: This post pre-dates Higher Ed Watch's shift to a new publishing system. For the complete original post, including any comments, please click here.