Loans and students

The comment about private loans is a fact. I think it points out clearly that private lending is part of this process. It is big business. Our students get many solicitations for loans (probably more then for credit cards) in the disguise of financial aid. What could be better then to give students money for their education? Some of these products do not even require a school to do anyting except distribute the refund. Students like it as they are getting “financial aid” and lenders like it because they are generating a loan. Here is a true story: two years ago an adult student was sitting in our loan coordinators office crying. She had graduated with a BS and a Masters degree and just started a job in her chosen field. So why the tears? She was crying because why did the school let her borrow so much money? She was $100,000 in debt on loans...and she wanted to know why we did that to her, it was the schools fault that she could not repay the loans. Why the story? This represents to me student choice...students choose what they want to do.

For me, the draft by the commission misses several key points. One is student choice. Students need to be held accountable for this. They are adults and will make choices. They choose when to eat, sleep, go to class, party, take a test, pay a bill, etc. At a university/college failure is an option, unlike most high schools where the parental/political pressure is to graduate everyone. Students fail at colleges for a variety of reasons, most fail to complete due to academics, they are unable to complete successfully the course material. Everyday we have students ‘appeal’ there academic problems, most say they will do better and study harder, etc....some have legitimate reasons most do not. They have just made bad choices and will continue to do so. Financially students also make choices. They choose to spend money on other things besides education. We see it every day. They want a life style that is supposed to go with college life, that is more important to some of them then their studies. Our university refunds over $10 million dollars to our students each semester. This money is to be used for the educational expenses. But once that refund is given out we have no control over where or how that money is spent. Last spring we had two refunds of over $10,000 for two of our students, they had secured private loans which needed no input from our financial aid office, but the money came to the university and created a refund which we had to deliver to the student. Is this “financial aid” or is this student choice and does this have anything to do with the cost of education? I wish I could say this was an isolated occurance, but I can’t...my guess is that this scenario happens all to often across our country. Another mention was that access to colleges is financial. The high cost will keep students away. Again, this is about student choice. Yes, if you want to go to your “dream school” it will probably cost you. But, if you want to go to college why not try a community college. Students from low socioeconomic backgrounds could qualify for $4050 in a PELL grant and $2625 in a subsidized Stafford Loan, this is $6675 for a year. My guess is that most community colleges do not cost that much. If the student does well he/she will not have trouble transfering to another institution to complete their degree and will probably receive more financial aid to do so.

Again, this is about choice, not all of us get to go where we want to. This issue has been around for a long time. 35 years ago I wanted to go to the flagship university of my home state. My parents said we could not afford it. So I went to a smaller state university. I graduated in 4 years with honors and did not owe any student loans. Today I have a doctorate. So did I make a bad choice or did I make an economic choice that I could live with? I still follow the flag ship university, I enjoy reading about it,etc. I feel that I used the educational system of our country to a full conclusion. But, if I said I couldnt go to college because of cost, I would not be honest with myself.

The last thing is about attrition, several times in the draft it is mentioned that our attrition rate is to high. But the draft says that even with rising enrollments the rate of attrition has remained flat or unchanged for the last 25 years. What this means to me is that there is a “national rate of attrition.” From an economic viewpoint, to change this rate it will take more and more resources. How much more is anyones guess. But if it takes more resoucres, then something else will have to go without.....there is no free lunch. This idea of a national rate of attrition, can be compared with the national rate of unemployment. We know that we can have zero unemployment, but if we do it will costs us (inflation) all more, as a nation we are ‘willing’ to live with some unemployment for lower cost (interest).

I wish the commission would mention something about student choice in their report. It is the “key” to everything that is in the draft version.

Jim, at 9:55 am EDT on August 9, 2006

Good for the Chairman!

Funny how differently some people take things. I was both surprised and pleased that the latest draft of the commission’s report mentioned that all student aid need not come from taxpayers, and that the private market could handle a lot of it. In contrast, groups like the State PIRGs were outraged. Apparently, if student loans are provided through free agreements between lenders and borrowers instead of being forced out of taxpayers’ wallets, it’s just not fair.

But here’s the really funny thing: A couple of weeks ago the New America Foundation held a forum on student debt and other economic concerns of younger folks, and at least one panelist complained repeatedly that new interest rates on federal loans are unfair because, as demonstrated by My Rich Uncle, they are clearly not at market levels.

So which is it? Do student advocates want the market to dictate terms, or the government? Apparently, the answer is either one, depending on who is offering the best deal. Unfortunately, it’s also apparent that students think that most of the time the best deal will — or at least should — be forced out of taxpayers’ pockets.

Neal McCluskey, Education Policy Analyst at Cato Institute, at 9:56 am EDT on August 9, 2006

To Kristen

Kristen wrote: “Jim- I can’t believe you are serious. If you think for one second that sending someone to a community college for $2,000 instead of spending $100,000 to attend Yale or NYU will be comparable is insane. Statistically you are better off attending a better school, you will most likely get a better job and make more money. In 90% of the cases.”

Kristen- I can feel your pain. I, too, attended Boston University (twice!) and have amassed a multitude of debts. And since I’m in education, I don’t have a chance at actually making enough to pay those off until I’m the ripe old age of 75.

But I think your comment points to a bigger issue about American higher education: That the public somehow sees a correlation between a $50,000/year tuition and the quality of student learning.

Prestige is based on reputation rather than actual quality. And like lemmings to a cliff, the American public blindly accepts the notion that just because a college or university charges an exorbitant amount in tuition and fees must mean that it’s good.

I can tell you right now that I learned close to nothing from my undergraduate program at BU. Sure, I did well academically — made the Dean’s List even — but ask me today if I’m willing to invest that much amount of money for a piece of paper when I can get something comparable or even better at a lower-priced, public institution, and I won’t even hesitate to suggest the latter.

The American public’s obsession with labels ("I have a degree from Harvard. And you have a degree from Brown? Oh, I pity you...") is disappointing and discouraging. And employers are just as culpable as the rest of us in perpetuating the dangerous stereotype that America’s public two-year and four-year institutions are somehow less than their private counterparts. Lest we forget, the majority of America’s postsecondary students attend public institutions.

What matters is student learning, not the institution’s name brand. If the public is still obsessed about whether someone has something from Old Navy versus Banana Republic, well, then, we have a bigger problem on our hands.

AC, at 1:35 pm EDT on August 9, 2006

Banks and the Commission Proposal

The Masked Poster is badly mistaken in suggesting that lobbyists (that’s how you spell it) for banks were somehow behind the misguided proposal to eliminate federal student loans for middle-income students. Quite the contrary, banks like the the FFEL program because the subsidies paid on behalf of borrowers help keep debt burdens manageable and the federal guarantee makes it possible to lend to people who are otherwise poor credit risks.

In their HEA reauthorization proposals, banks supported the propsoals of most of the higher educaiton community to reaise borrowing limits and cut borower paid fees. Banks today support efforts to limit debt burden, help borrowers facing unmanageable debt burdens through more flexible repayment options and greater loan forgiveness, and to simplify the entire aid application process.

The existing Federal student loan programs offer borrowers advantages simply not otherwise possible on a student loan. Without these advantages there would be a lot fewer college students and dramtically fewer student loans.

Non-federal student loans have a role to play in education finance for the right students in the right circumstances. For most students—especially low-income or high-students—these loans are not economically viable.

Hopefully the Masked Poster is not teaching economics or spelling at Secret University.

John, at 6:00 pm EDT on August 9, 2006

Private loan

Barbara, I thank you so much for your comment. My family has a somewhat similar situation. Our first child is a sophomore this year and has a College loan, unsubsidized Staffords, and we have a PLUS loan. We told our son that we could not afford more loans because my husband was laid off from his job last year and can’t afford more payments, at least until he gets a regular job. He is free-lancing now and income is uncertain. He can’t get life insurance, that we can afford, because he’s had a heart attack. I carry the health insurance on a meager salary so not much take-home. Anyway, we had planned on getting a private loan. His school upped his aide because of our situation but we still owe $11,000 for this year. Now I’m afraid of a private loan and don’t know where to turn. Does anyone have advice?

Janet, at 12:15 pm EDT on August 10, 2006

High College Costs

It seems that everyone is ignoring the bigger and more important issue here: why does higher education cost so much to begin with?

The answer to this isn’t that it isn’t subsidized enough — that doesn’t change the cost, it just shifts how it is paid (via taxes as opposed to tuition).

Why does it cost so much to go to solid universities, and what are the universities themselves doing to reduce those costs? It would be nice to hear something besides “someone else should pay for it” or some platitude about quality following money.

Kevin, Undergraduate, at 9:45 pm EDT on August 10, 2006

“Student Choice”

In response to the comments on student making bad choices regarding student loans, I have several points to make. First, since I work in the court system, I am very aware of people making bad choices. However, short of murder, severe bodily harm to others or repeat felony offeses very few offenders recieve a life sentence. Student loans, on the other hand, are often a 20 years to life sentence. I say this because the way the interest and penalties are set up, a young person (or older returning student) can easily pay four to five times the original principal over the life of the loan even when they pay without default. AND, God forbid something happen to cause them not to earn what had been hoped and/or expected these loans can become an overwhelming albatross that cannot be escaped or forgiven. The lenders are immune from bankruptcy or any other relief for the student who falls on bad times. As is always the way of banks, the more finacial trouble befalls you the more interest and penalties they pile on. Furthermore, even going into the Peace Corps or other service work gives a pitance to off-set some of these loans. Teachers are promised forgiveness of their loans if they work in the inner cities or rural poor areas, but that is only with certain types of loans. So, many of our teachers are kept even more underpaid because they have to pay back student loans anyway.

Secondly, it is all well and self righteous to condemn people for making bad student loan choices. However, when these loans are litterally pushed on student as the great solution to getting higher education and the repercussions are not clearly explained, it is easily understood how so many could make these poor choices. For instance, my son was litterally pursued by banks when he turned down their offer of loans. The e-mailed him and called him and sent him letters asking why he had decided against this great offer. Had I not been an advocate against student loans and sat down with him to explain exactly how much these loans would REALLY cost him, he might have caved in and taken the loans just because of the pressure put on him. It is a known fact that most people do not read the fine print on contracts they sign. Especially, young people and others who trust others to be honest. There is no full disclosure about how the student loans will accrue interest. It is written in tiny print within the body of the contract that can easily be overlooked. Plus, most people who have not experienced such a loan, have no idea what interest that is compounded daily or capitalized even means. The people in Financial Aid do not have a pre-loan meeting with students to explain the full impact on these loans. There are people out these with $20,000 loans who wind up paying $100,000 after deferments and forbearances. No one tells these kids that. A thief knows we have laws against stealing and unless they live in a vacuum they know they can go to jail. A murderer knows there a consequences to their actions and most know exactly how severe their state goes. A student believes they are making a regular loan and that if they borrow $40,000 they will pay it back with some interest, but not to the tune of 400% to 500% over the life of the loan.

Thirdly, I am not surprise that all the private lenders want a piece of this action. Especially if they can get it written in that they are also immune from bankruptcy. One the other hand, if they can’t get that little dividend, they would be placing themselves at serious risk. My guess is that they are working on having that little perk added by our govenment so they can get a piece of this huge pie at the loss to families and graduates. In my oppinion, banker should all be in prison for fraud. Can you immagine sending a High School graduate credit cards with >$2000 credit? They don’t even have a job. Or giving a student $40,000 a year loans to become a teacher, counselor, or any other public servant? Who is going to pay that tab with the salaries they make? But our government has given them cart blanche to do whatever they want to debtors. It is my further oppinion that student loans are another way of creating financial slavery. They are misrepresented and pushed onto the most financially vulnerable people with devastating consequences. As a result, the more the truth is coming out for high school graduates to see these consequences, the fewer poor kids are taking the higher education option. Why go to college to earn a higher salary if a quarter of it is going to go to pay off student loan interest, which incidently the IRS caps at 2,500 deduction per year.

Bad Choices? One can only make a real choice when one is fully informed. Otherwise, its more of a gamble. Which brings me to Point #4. Higher education is falsely represented as well. Right now a student graduating with BA in general business is luch to get a job, much less a high paying one, unless of course you family has influence. Teachers, counsellors, social workers, and other public service jobs will never see what a third rate athlete earns in one year. We have made it almost not worth it for the average low income kid to bother with higher education and the institutions of higher learning are suffering because of it. daiyelle

daiyelle, JPO at Maricopa County Courts, at 3:00 pm EDT on August 18, 2006