Student Loans: Latest Articles

The Subprime Student Loan Racket

Erin Drankoski — Mon, 26 Oct 2009 07:13:00 -0400

At the age of forty-three, Martine Leveque decided it was time to start over. For several years, she had worked in the movie business, writing subtitles in Italian and French for English-language films, but her employer moved overseas. She then tried her hand at sales, but each time the economy dipped sales tumbled, along with her income, and as a single mother with a teenage son, she wanted a job that offered more security. She decided to pursue a career in nursing, a high-demand field where she could also do some good.

Advice for Duncan: The Thinker

Cecille Isidro — Mon, 12 Jan 2009 14:52:00 -0500

I recommend early focus on education finance matters. The administration needs to meet and improve upon campaign promises requiring substantial resources. There are pressing student loan issues and pent-up demands for No Child Left Behind (NCLB) funding. Because the stimulus and budget are being developed now, you have a window of opportunity to address all three areas.

David Paterson Can Help Ground Skyrocketing College Tuitions

Cecille Isidro — Sun, 21 Dec 2008 21:17:00 -0500

A not-so-funny thing happened on the way to the housing bubble. We created a college tuition bubble as well. As with housing, a toxic combination of easy credit and unsophisticated and unrealistically optimistic consumers has driven college prices sky-high.

Those prices aren't coming down anytime soon - and as the credit crisis continues, that means there's a risk that students who max out on federal loans and need extra private aid won't be able to borrow enough to afford expensive colleges.

Tuition Hikes, Not Loan Access, Should Frighten Students

Cecille Isidro — Wed, 22 Oct 2008 08:30:00 -0400

For months, the Wall Street credit crisis has made many families nervous that the widespread availability of student loans will dry up. But no matter how many banks fail, there is no danger that families will be deprived access to federal student loans. None.

More than 100 banks have stopped issuing student loans, but about 2,000 continue to originate federal student loans. The government maintains two "fail-safe" systems. To date, not a single student has been unable to get a federal Stafford Loan. Every family, regardless of income and credit history, is able to borrow at least $57,500.

The real danger during bad economic times is that tuition often skyrockets. Here's why: A bad economy depresses state tax revenue. To meet state balanced-budget requirements, states cut funding for higher education. To make up those cuts, public colleges hike tuition. Competing private colleges see the increases and feel empowered to increase their tuitions markedly as well.

Don't Stop Spending

We can stop this trend by adopting more flexible and sensible state fiscal policies: namely, a willingness to accept deficit spending for education. No one likes red ink, but it is precisely during bad economic times that aggregate education funding should not be cut. In fact, making education recession-proof nationwide without raising taxes is a way out of an economic crisis.

State budget officials know that low-cost federal student loans are widely available. That is why states cut higher education funding when tax revenue is short. They expect families will pay or borrow more for college after cuts occur.

They're right, but consider the impact. During the last recession that led to state budget cuts, in-state tuition and fees went up 39% in one year at the University of Arizona. From 2000 to 2003, they went up 44% at University of North Carolina-Chapel Hill. The average undergraduate leaves school with more than $19,000 in federal student loan debt, twice as much as a decade ago.

The Right Way

In response, organizations such as the Cato Institute, a libertarian think tank, argue that we should deter states and colleges from raising tuition by cutting student loan subsidies. But that would make college less affordable for the middle class and less accessible for the poor.

There's a better answer: The 49 states that have balanced-budget laws should revise them to allow deficit spending on education during recessions. We learned from the Great Depression that the way out is with a massive infusion of government-supplied liquidity. Consumer and government demand drives supply, which in turn drives jobs.

Look at what we've done on the federal level. We passed a $170 billion stimulus plan. We've committed more than $400 billion to ad hoc Wall Street rescues. We passed a $700 billion bank bailout plan. But the states are about to move in the opposite direction and cut spending. That's bad policy right now.

Too much deficit spending is a danger, but so is not borrowing a neighbor's hose when your house is on fire. We need sensible revisions to state budget laws that set flexible caps on deficit percentages, impose objective triggers and require public debt repayment during good times to prevent runaway spending. But adhering to a balanced-budget principle in an economic crisis is what Herbert Hoover did initially. We need the opposite.

Attention governors: Show leadership, revise your budget laws and make education recession-proof.

Student Loan Scandal

Cecille Isidro — Mon, 25 Jun 2007 14:32:00 -0400

Student loan banks and their allies are trying to spin away the public’s outrage over the discovery that private lenders have been bribing college aid officials to steer student business their way. The banks want to change the subject by criticizing the government’s separate direct loan program instead of looking at where all that bribe money comes from: You.

The government spends billions each year on unnecessary subsidies to banks that make student loans. It’s these excess taxpayer subsidies to private student loan banks that are the root cause of the college loan scandal. They ought to be eliminated.

There are two main federal student loan programs. Under the Federal Family Education Loan program, the government provides a cash subsidy to banks and non-profit lenders who issue college loans to students and families and then guarantees those loans against default. The competing direct loan program cuts out the middleman banks, and the government issues the loans directly to students.

Both programs have their pros and cons in terms of administration and benefits. But every independent study, as well as those undertaken by the Clinton and Bush administrations, has found that the direct loan program is cheaper for taxpayers.

Most colleges, however, participate in the bank program. The banks say it’s because they offer better benefits. The recent revelations suggest it also might be because they offer better graft.

There never has been any evidence of the government offering kickbacks to college aid officials to get them to participate in the direct loan program. Indeed, the direct loan program already is prohibited by law from offering any incentives or extra benefits to colleges or their financial aid officials. All the recent revelations about secret deals and perks have involved private banks.

The New America Foundation’s Higher Ed Watch blog was the first to discover that several financial aid officials had been offered and had acquired cut-rate stock in a student loan company they were recommending to their students. Subsequent investigations uncovered other lenders giving college aid officials personal tuition reimbursement and cash payments.

In some instances, lenders paid the bills for happy hours, spa treatments and consulting trips to resorts in Pebble Beach and the Bahamas for some financial aid officials. One financial aid administrator at a major public university was known for bragging that he always got his tequila and wine for free.

Where was the money for these treats coming from? Your pocket.

Taxpayers have been over-subsidizing private student loan companies for years. Giant student loan banks such as Sallie Mae have been reaping excessive federal subsidies and then improperly using some of those profits to bribe financial aid offices and get even more student loan business.

President Bush has proposed slashing student loan subsidies to private lenders by more than $12 billion over the next five years. Key education committees in both houses of Congress have proposed cutting those subsidies by $18 to $20 billion and shifting the savings toward larger grants and lower interest rates for students.

The banks and their allies say students will lose all the great benefits the banks provide. Don’t be fooled. The borrower benefits they tout often turn out to be a mirage. Most benefits come with so many conditions attached -- such as 36 continuous months of on-time payments -- that few students ever qualify for them. Student aid experts estimate that fewer than 10 percent of student borrowers ever benefit from the rebates advertised by commercial lenders.

Washington should ban every gift, kickback and trick banks have used to bribe college officials. Then it should end all the subsidies and make sure all the aid goes straight to the student borrowers and their families.

Financial aid is for students. Taxpayers have the right to insist that that’s who benefits, not big private banks like Sallie Mae and their shareholders.