Comments on Disconcerting Data on Student Debt

• Not a problem?
• Posted by Alan Collinge , Founder at Studentlonajustice.org on July 9, 2009 at 5:15am EDT

• I contend that in the absence of standard consumer protections, student loan debt is a major problem, for borrowers and non borrowers alike. First, the lack of bankruptcy protections, statutes of limitations, refinancing rights, and other standard consumer protections, combined with draconian collection powers and overwhelming fees on defaulted loans ensure that the Federal government doesn't really mind if student's default, despite the handwringing, and concerned rhetoric. Tha'ts been pretty well established.

  Because ED is at least breaking even on defaulted loans makes it less-than-concerned about what the colleges are charging., how long the students remain in school, how much they borrow, what the quality of the education is, in short....Everything that they SHOULD be concerned about. As a result, the colleges are not worried about jacking tuition at every opportunity, Congress doesn't have a problem increasing the loan limits (after all, who is there to protest? The students?), the lenders, collection companies, servicers, guarantors...well, we know how they feel about it. This affects everyone who attends college, regardless of whether they borrow or not.

  The result? As a nation, we owe about $700 billion in student loans. This is, as I understand it, about 25% of all consumer debt, excluding real estate, and nearly as much as credit card debt. In fact, if current trends continue, it will likely surpass credit card debt shortly.

  Also, It is no stretch to say that about 1 out of 3 undergrad borrowers will ultimately default on their loans. This is based on the 2003 IG study that estimated default rates of roughly 25%, 36%, and 45% for first and second year students at 4-year, community, and for-profit colleges (frankly, I think this may be conservative given the current state of the economy, but I'm open to any reasoned criticisms here).

  Finally, while every other type of credit is tightening, prices are falling, loan limits are decreasing, and people are borrowing less, exactly the opposite is true for student loans!

  So to summarize, we have a loan portfolio approaching $1 trillion, a loan instrument whose default rate is many multiples of the rate for subprime home mortgages, but with none of the consumer protections, and functional elements that are so badly out of tune with the interests of the borrowers, they are actually accelerating the trends in this economy. I would say there is a problem. I would say that any socratically honest academic would be deeply troubled by this.

  Just because student loan debt is neglected by the press in proportion to its size, scope, and affect on the citizens doesn't mean the problem isn't there. Just because you don't see many borrowers whose lives have been trashed out in the streets shouting about it, doesn't mean they don't exist.

  Standard consumer protections must be restored to student loans.

   

   

   

  Just because there is a cultural tendency to not discuss student loan debt (particularly those caught in the default trap) doesn't make it any less significant.

• Sense of hype?
• Posted by Author, No Sucker Left Behind on July 9, 2009 at 8:00am EDT

• That the College Board thinks the student loan crisis is just a "sense of hype" is an absolute joke. The College Board makes more money when people go to college, so of course they are going to take this position. Meanwhile, they have been publishing misleading and biased research reports about student loans for years, in an effort to increase college attendance. Why do reporters continue to quote them as a trusted authority?

• Student Loan debt is a hidden time bomb for this country.
• Posted by Mac Wildstar on July 9, 2009 at 9:00am EDT

• For the last several years, I have read comment after comment in the media about how student loan debt is not a problem, and about how it is considered to be "good debt". I disagree.

  At a time when young adults are just getting started in life, that is they are attempting to "leave the nest" so to say, we are saddling them with record breaking debt, which was not the original intention of the Higher Education Assistance Act. My research has shown me that prior to 1980, most people could afford to go to college, if the met admisssion standards. Even the poorest of students could get financial aid, and between working part time during the school year, and full time during summer, combined with conservative spending habits, a student could walk out of college with a well earned degree and virtualy little or no debt. But that changed.

  Some time around the mid 1970s, a small group from Corporate America started inticing congress to change the laws concerning Higher Education Assistance. Instead of helping these young people get a good start in life while ensuring American corporations would have the highly trained personel that the would need, and a chance to start building lives, homes and families, we ended up with a system that exploits the students leaving many starting their adult lives deep in debt, and others in perpetual financial ruin.

  The focus seems to have been on getting students into college and getting them fiananced, and little about the cost verses the payback of their education, nor the long term effects of having the huge amount of debt at the beginning of their young adult lives. Indeed, some recent studies are showing that students who do not go to college or post high school training, are better off fiancially in the short and near long term run, as they do not have the finanical burdens of those who attend college on student loans. One recent poll asked students that if they could do it all over again, would they go to college, and if they believed the cost was worth it. Nearly 32 percent said the cost was not worth it, and 45 percent said that if they could do it all again, they would NOT go to college.

  Student loans are the only financial institution that congress has stripped away all consumer protections on. If a student gets a credit card, or a car loan, or any other kind of bank loan, they have the option of Renegotiating the loan, or filing bankruptcy. Not so with student loans, and that simple fact makes them extreamly difficult to deal with if a student encounters one of those unforseen circumstances that can happen to one, throughout ones life time.

  Only now do I start to see the media start to focus on the cost and effect of obtaining student loans, yet still loans are being pushed as if they were the latetest fad drug. The fact is we as a nation are doing our students a disservice by loading them up with HUGE DEBTS, at a time in their lives when they are just getting started and should be looking at buying their first car, their first homes and starting families.

  Restoring Consumer protections is a step in the right direction. Mr. Obama's plan to change Higher Education system, does not address the issue that corporate america is exploiting these students. Sallie Mae corporation, the leader in bring about the changes to the Higher Education System in the mid 1970s and during the 1980's when thru its own efforts of lobbying congres, consumer protections were removed from student loans, thus giving the lenders unprecidented and never before in history, a zero risk market. At the same time congress gave collections companies for student loans unheard of collections powers, and a power only previously held by the Internal Revenue service - the power to take a portion of a students paycheck without a court order. Even State Child welfare offices must get a court order to impose child support, but NOT the IRS, nor now, Student loans. I see a major problem with this unprecidented grant of authority, but I will reserve comments on that for a later time.

  The fact is, is that our students who are now graduating with huge amounts of debt are putting the adult lives on hold for 10-20 years, and in some cases forever because they find themselves in default and are unable for what ever the reason, to eventually gain control over their quickly growing student loans. This is not good, as these are the next generations, who create commuinity, who continue the way of life in our country. By making them put their lives on hold while paying off a lifetime of debt before they can start to live the american dream, we are in the long run, doing more damgage to our selves as a nation.

  And the only ones who benifit from that situation are the fact CEO's and corporations who make tons extra of money on defaulted student loans. Money that is never earned. Money that is in simple words, punative damages imposed on a galatic scale upon the student. Which is why so many default'ers simply give up trying.

  We must take a look at Higher Education and the current way we fund it. The long term effects and the reality of removing consumer protections must also be looked at if we want to ensure Higher Education will be here for our grand children and the gernerations that come after that.

• P. Steele's "Sense of Hype?"
• Posted by W. Eddie , Exec. Dir. Res. Life & Student Devel. on July 9, 2009 at 9:15am EDT

• Ms. Steele's suggestion that the report creates a "Sense of Hype" on the subject of student debt is obviously self serving and grossly irresponsible. One can't escape the fact that tuition at most colleges and univeristies has increased exponentially, forcing students to seek a variety of methods to pay for their education. Predetory lending was not confined to Wall Street, many students have fallen victim to the unscrupulous practices of lenders on college campuses. Add to this fact the recognition that financial aid over the years has been redirected away from those who need it the most, and you have the current crisis. It's unclear as to who Ms. Steele is refering to when she suggests that "less then half of all students borrow," I don't know of any upper, middle or low income student that doesn't borrow money to pay for their college education. Rather than attempting to minimize the seriousness of the situation, we would all be better served if Ms. Steele made suggestions on how to lower tuition and provide students the resources that would allow them to pursue a college education without having to declair bankrupcy upon graduation.

• Posted by Jim on July 9, 2009 at 9:45am EDT

• Student loan debt is an issue that can't be argued but the reasons for this debt can be.

  Schools use a cost of education to figure out the amount of financial aid from all resources a student may receive. This figure includes direct charges (tuition, fees, room and board) and indirect items such as travel, books, etc.

  My school is a small public university with state controlled tuition and fees, PELL grants take care of 78% of tuition and fees if a student is maximum Pell eligible, not to mention the generous state grant.

  In 08-09 my school issued 9,500 refund checks to students for over $15,000,000. To get a refund check a student's account has to be paid in full. Also, we only have a 5,000 student headcount of which 80% recieve financial aid.

  So, high cost of education is driving students into debt? I don't think so, it is wanting to fund a life style, it is not about scarifice, it is about satisfying a need that a student has now.

  Students are consumers, and as consumers we all should understand two things: "buyer beware" and "there is no such thing as a free lunch" somebody has to pay.

  We see students everyday who borrow more money then what they need, our school has a very modest COA, and we hold it down each year but students still borrow the maximum. It does not matter. Also, they do get caught up in the alternative loan hype, but again these are 'adults' who want to make adult decisions, then they want to 'blame' someone when something happens.

  There are issues here, education isn't free, there is a cost, that cost is being controlled, but the
  students expectations are not.

  Society has to change, not just the colleges and univeristies. Students have to be held accountable for their decision making.

  We try to educate the students. For an example I attended a conference this year and heard a university talk about their 'successful' financial management education program that they are running for their students. This program is to help students manage their personal finances including debt. They do 30 sessions a year and are very happy at the attendance. They reach around 1125 students each year on their campus. Their campus has an enrollment of over 15,000 students. So happy that they reach 7.5% of their population? What about the other 92.5? What happens to them? Again, students make choices and they have to live with these choices just like the rest of us.

  Government can only do so much bailing out. After all it is real money. Someone has to pay.
  Government does not create money taxpayers do.

• A new lifestyle
• Posted by alan Collinge , Founder at Studentloanjustice.org on July 9, 2009 at 11:45am EDT

• Citing refunds of $15 million sounds impressive, and effectively conjures the image of students throwing money around getting manicures, pedicures, buying bigscreen tv's, and in general "funding their lifestyles". However, by your own figures, these refund checks are, on average, about $1,600 each, or $3,700 per borrowing student, per year.

  Not quite as impressive in those terms, especially considering costs not paid out of the loans by the university. Internet access alone (hardly a luxury in the opinion of most), could easily come to $600 per year. Car insurance another 1000, travel costs home for summers/'Christmas...food not provided by the university, etc, and very quickly we find that these "lifestyles" aren't quite as cushy as some would have us believe.

  It is funny that these sorts of comments (which we always see from financial aid administrators) point the finger of blame at the students, and betray a contempt for the very people that they are paid to look out for. Then at the end of the day, there is absolutely no acknowledgement of the astonishing lack of consumer protections associated with these loans (W.Eddie: there are no bankruptcy protections for student loans), the predatory system that wants them to default, or the damage that is done to a huge segment of these people after they are long gone, and the lion's share of their loans have been consumed by the university (providing the FAA's paycheck of course).

• Let's not throw out the baby with the bath water
• Posted by Don Heller , Professor at Penn State on July 9, 2009 at 11:45am EDT

• There is a middle ground between the "all student loans are bad" and "student loans are not a problem" positions being expressed here. Many of the recent articles in the press focus on the outliers, those who borrowed large sums and are having trouble paying them back (see for example today's Philly Inquirer - http://www.philly.com/inquirer/business/20090709_New_student_loan_program_offers_relief.html. And yes, these situations need to be dealt with. However, for the vast majority of borrowers, the data still show that the sums they borrowed are reasonable given their ability to repay them. This will certainly change with the recession, of course, as borrowers' incomes stagnate or actually decline. And we have forbearance rules (at least for federal loans) to deal with these circumstances. The Education Sector report doesn't have any data on debt burden, for example, only on the increases in the proportion of students borrowing and amounts borrowed. The important measures are not whether or how much students borrow, but whether they can reasonably pay the sums back without compromising too many life choices given their incomes

  L:ooking at the situation for the longer term, we want to be careful about scare tactics that portray all student loan borrowing as bad. The College Board official probably went a little too far in discounting the extent of the problem, but there is some value in trying to reassure people that borrowing can be okay. We need a lot more effective education, such as about the difference between federal (esp. subsidized) and private loans, for example, as well as about the new loan forgiveness programs, etc. But let's be careful not to go overboard when dealing with the problem of excessive debt burden by portraying a message that will scare off people who could and should be borrowing from doing so.

• Beyond the Surface
• Posted by Trace Urdan , Research Analyst at Signal Hill Capital Group on July 9, 2009 at 12:00pm EDT

• Debt, as we've all learned over the past 18 months, can be a nasty business, but there is much subtlety to this discussion that gets left out of this type of knee-jerk analysis. What ultimately matters of course is the return on investment involved. If someone is graduating with high levels of debt but is able to start in an $80K+ job -- or already has a job -- the situation is vastly different than a situation in which a 22 year-old classic grad is working as a Starbucks barrista. So yes, while seeing young people burdened is a shame, there is a great deal of hype in the discussion.

  The second point is that the advocates for stamping out student debt seem to ignore the societal cost of public post-secondary institutions. There is a reason private schools exist after all. They perform in a way that public institutions do not. And then there is the small detail of bankrupt states unable to continue to subsidize all the various public institutions. This is an ROI question as well. There is a clear public benefit to higher education that supports societal investment. But there is also a personal benefit to higher education and no reason to think the individual should not bear some of the investment burden themselves.

  When we are in a circumstance of having to cut back on the very basic elements of our social safety net, letting students bear more of the cost of the education from which they directly benefit seems clearly the lesser of several possible evils. Less debt would be nice. But a crisis? I think it cheapens the word.

• Posted by Dan Nannini , Transfer Coordinator at Santa Monica College on July 9, 2009 at 12:30pm EDT

• Perhaps if we make institutions use their endowments to fund student loans (and not just for their own students), in exchange for some tax breaks, the government can offer more direct aid to those in need with the freed up money.
  
  Maybe the way to address rising costs is to have "education insurance", and then universities would have to prove that their product necessitated full reimbursement.

• Federally Guaranteed Student Loans Are Bad
• Posted by Alan Collinge , Founder at Studentloanjustice.org on July 9, 2009 at 12:30pm EDT

• Any loan where bankruptcy is nearly impossible, where there are no statutes of limitations, refinancing rights, and behind which sits a network of state sanctioned entities with unprecedented collection powers that depends upon defaults for its existence, is likely a bad loan. That ultimately, about 1 in 3 borrowers wind up in default proves without a doubt that tjese are bad loans.

  College debt isn't necessarily a "bad" thing depending upon the amount of debt, terms of the loan, value of the degree, and time spent obtaining it. But federally guaranteed student loans, in the absence of standard consumer protections, are bad, and the various repayment programs are not a substitute for fundamental consumer protections.

• Lifestyle Assumptions
• Posted by Bob , FAO on July 9, 2009 at 1:00pm EDT

• "Internet access alone (hardly a luxury in the opinion of most), could easily come to $600 per year. Car insurance another 1000, travel costs home for summers/'Christmas...food not provided by the university, etc, ..."

  Alan's now making assumptions as well!

  Why would someone with internet access in literally every on campus building need to pay $600 per month??? for internet access. Car insurance, you assume every student has a car... Meal plans are available even for off campus students at many colleges.

  I support the return of consumer protections to student loans just as you do, but in the end Alan, Jim knows of what he speaks better than you do. Since you have never administered an aid office you might want to consider that the FAO often has in intricate detail knowledge of the student and families finances and knows when someone truly needs the refund check and someone does not. Even students who do not demonstrate need at all under the feds definition, and for whom the tuition bill was paid out of daddys pocket is entitled to a refund of Unsub loan.

  All I hear Jim arguing for is some restraint when borrowing is unnecessary.

  And here is where the feds argument is truly ironic. They say that the FAO may not refuse to certify a loan in that case BECAUSE THE STUDENT KNOWS BEST.

  If they know best then there should never be any victims logically, but it is easier to blame the FAO.

• Disconcerting data on Student Debt
• Posted by Kay M , Libr at LP on July 9, 2009 at 1:45pm EDT

• Students may borrow less than 35000.
  however, if school takes longer than 2 years, $10,000 can double in less than a decade. Interest rates vary throughout the life of the loan unless the student consolidates his/her loans aftr graduation. One commenter mentioned consumer rights - this is something that does not exist in the student loan industry. A lender can tell you your loan was transferred or that you owe morethan you calculated. There is absolutely no rights for the disputing borrower and NO BURDEN OF PROOF for the lender. Either you pay what the lender demands or they garnish your wages - iwthout a court hearing. This is unprecedented in any other industry - even parents get a court hearing for disputing child support calculations. No - only death will get you out of your lender-specified student loan balances. Everything else has a limitation but student loans. Students have a very logical reason for steering clear of student loans. Most refuse to believe that it's that bad - but such disbelief is so naive!

• Student Loan Debacle.
• Posted by WI Will , Just plain permanently broke on July 9, 2009 at 1:45pm EDT

• My concern with this is that using a loan system to fund educational opportunities destroys lives. True, most people are fortunate to have family resources to back them up in an emergency, or they get out and get good jobs right away. But there are the hundreds of thousands of us that run into problems along the way. Granted some are self made, most are not.

  Student loans, with the kind of unbelievable non-dischargeable penalties and interest in the event of a default that exist, take those who suffer calamity and tragedy and penalize them and place them in a virtual debt prison. I do think that most people simply do not believe that the entities involved would not take into account the students situation and loss, so you tend to not believe the stories of woo. Unfortunately it remains true dispite the fact that it just does not seem like good people would allow this kind of thing to happen.

  Consumer protections, like bankruptcy, force the lenders to be circumspect in how they fund the loans. Further, if bankruptcy is available to students, then really the ones making the loans, would be more inclined to give the loans to students who attend colleges and universities with EFFECTIVE career assistance programs for ALL students (not just the suma cum lauds). I suspect that if you are going to depend on student loans (as a university might), this would force colleges and universities to provide this type of career placement service in order to help insure that the students going to their college will be eligible for student loans for their institution in the first place.
  You (meaning those with a voice in policy in education and consumer protection laws) have created a system where the money is freely obtained by the provider of the services, and all of the risk of buying the product (the diploma) is transferred to the buyer. When someone gets a business loan, the borrower and the lender share a risk, if the business goes under, the loan goes unpaid. The lender to an extent has incentive to find a way to help the borrower to succeed. If you buy a bad car, you have options and if you cannot return it and get your money back, you might still be able to discharge the loan in bankruptcy.

  Here, if the student does not get the opportunity hoped for in getting the education, he is still stuck with the bill, the ever mounting and increasing bill, with no recourse. He cannot return the product and he cannot discharge the loan. And since it is non-dischargible, no one will negotiate a reasonable solution. He needs to be permantly disabled AND at the edge of poverty, or dead to resolve his problem.

  Don’t talk to me about IBR’s that might have merit if I were 26 just out of law school. I am not, I am rather 53 and carrying $300,000 in total student loans, (originally less than $80000 when I graduated in 1993). How is a 25 year plan going to help me?

• Student in Debt...(was)
• Posted by Anonymous , Student at N/A on July 9, 2009 at 4:00pm EDT

• I am one of those students that borrowed loans to pay for my education. When I filled out the FAFSA in 2001 I was under the impression that I couldn’t get any money. So I turned to the bank and borrowed private education loans totaling $84,000 (once completely paid off) of that $61,000 was my principal and $24,000 was interest. My interest rate at one point in time was 10.2%. They did not lower the interest rate until I owed $1000. This put a lot of strain on my marriage. If I had been better educated and understood what I was getting into I do not believe I would have borrowed so much money. This was the cost of my undergraduate degree.

• TO borrow or not to borrow, to lend or not to lend.
• Posted by D. Davis , DESTITUTE at UNITED STATES OF DEBT on July 9, 2009 at 5:15pm EDT

• I find suspect anyone who suggest that the current environments that student lending operates in to be a positive environment grossly ignorant. Student loans have created great opportunity. Most debtors of student loans may receive good loans. Most maybe able to pay them back. The fact that a majority of loans are paid back doesn't diminish any of the problems of the peoples who are suffering from the difficulties of paying back these loans.
  
  As I have said in other post similar to this, if the government wishes to put its people in bondage though student debt, then they should be the ones issuing and servicing these debts. To allow for-profit entities to 'manage' this debt, from issuing to servicing the debt, is a tremendous disservice to the people of our great country.
  
  Student debt is the modern American slave trade. Private entities are profiteering off the ignorance and dreams of the American student. Student debt is a form of taxation.
  
  I suppose the altruistic desire to provide ALL people with a college education is admirable, but at what cost? Should education create life debt - and in turn life bondage?
  
  Is this truly a federal issue or a state issue? Why does the federal government have their hand in this at all? This is not a mandate of the federal system of government as laid out out by the U.S. constitution.
  
  Provide debt relief to all student borrowers alike, provide tax credits proportional to the interest paid (wait this is already done) for the ones who have paid off their debt. Stimulate the economy by removing the shackles of debt from millions of hard working Americans.
  
  For-profit institutions are taking advantage of the lack of oversight provided by the U.S. Congress. States manage the issuance of debt to students through schools whom are accredited by for-profit entities. No body has a responsibility to do anything right, but the student debt-slave.
  
  Forgive and forget the current student debt, remove the bondage from Americans. Watch these great people rise like a great phoenix and soar to the great heights their potential allows for.
  
  Stop student debt-bondage and free America.
  Thank you for you time.
  

• Private Student Loans
• Posted by Anonymous on July 9, 2009 at 5:15pm EDT

• The unregulated, private student loans are definitely a huge issue, and I'm glad to see that this report points to the increases in borrowing in that arena in recent years. Many students, including myself, had no idea that these private student loan amounts would double and triple while we were in school due to usurious, variable interest rates, and then we would be forced to pay back far more than we borrowed without any of the consumer protections that federal loans have. In addition, the lack of bankruptcy rights on this kind of private debt is very difficult to understand. I find it quite interesting that when debates were going around about "bailing out" private student loan providers toward the end of last year, a Sallie Mae spokesman was quoted in the Washington Post as saying in regards to their private student loan products' interest rates: "The comparison to federal student loan rates is unfair and artificial. The comparison should be to borrowing on a credit card or other unsecured loans." So if the comparison to credit cards and unsecured loans is good when a company is trying to defend its eligibility for bailout funds, why would the comparison of private student loans to credit cards or other unsecured loans not be appropriate in regards to bankruptcy rights?

• Questioning Assumptions
• Posted by Old School Prof in Florida on July 9, 2009 at 5:15pm EDT

• "The price of attending a public university doubled, after inflation, over the last two decades, and family income and student financial aid haven’t kept pace.1 As a result, students have no choice but to borrow..."

  They had another choice: They and their parents could have saved for it, and they could have done without a car or a cell phone while at college. However, my generation - the parents of those students - has not been known for using savings for anything while putting a premium on giving our kids an easier life than we had.

  According to their Chart 1, borrowing at public 4-year colleges went from about 30% to about 50% in the last 15 years. Significant, but I think the article conflates the 50% to 90% increase in loans used at for-profit PRIVATE colleges (with as much as 42% from private lenders) with the change in tuition for PUBLIC colleges (where only 15% of the students need private loans). The discussion would be more convincing if public and private colleges, including their rate of tuition growth, were discussed separately. Is it really the case that the average "unmet need" at public universities is $10,000 per year? And how much did tuition increase relative to inflation between 1955 and 1975? Is the rate of increase a new problem, or is the problem a result of the level of tuition crossing some important threshold as a percent of median income?

  Finally, I'd be interested in the author's view of the system in Florida, where state aid is targeted at high-performing high school students without regard to need. Students who did well in high school tend to have a good graduation rate. Does Florida get a better "return" (in terms of graduates per dollar in aid) than other states by doing this?

• Bob and Trace's comments
• Posted by Alan Collinge , Founder at StudentLoanJustice.Org on July 10, 2009 at 5:15am EDT

• 1. Bob, as long as you support the return of consumer protections to student loans, I am more than happy to step back from from Bob's assertions. I think we all agree that a little underwriting of some form is a good thing. If the Department of Education had "skin in the game" on these loans (currently it actually breaks even or better on defaulted loans) then it would be compelled to be much more careful in the loans it made...this is just one of the benefits that would occur through the reinstatement of standard consumer protections.

   

  2. Trace's comments are frankly offensive from my standpoint. He says that in these hard economic times, it only makes sense to shift more of the cost onto the students. I think everyone here knows that this is precisely what has been done to students for the past 30-40 years, and is the reason why the student loan debt crisis exists (people are fleeing the country. It exists.). It is this irresponsible, greedy, and ultimately wreckless attitude that must end.

  If university leaders were honorable, they would volunteer to give up significant portions of their compensation FIRST (and that of the highest paid administrators at the university), before hitting students even harder with tuition increases, and laying off the rank and file (Like Harvard did).

• Default rates are low
• Posted by Craigie on July 10, 2009 at 8:00am EDT

• While long-term default rates are much higher than the two-year rates most commonly publicized, the reality is that, even over the long term, less than 15 percent of borrowers default. Of course you can find niches of postsecondary ed where the rates are much higher and other niches where the rates are much lower. The rates of 30+ percent, however, are for borrowers who consolidate after already having a default under their belt. That is a super-tiny niche of the overall federal student loan program -- and will probably be phased out, particularly if guaranty agencies are eliminated. It is also an example of "double-counting."The main consumer protections missing from federal student loans are those of reg z, but the impact has faded as loan fees have phased out over the past several years. Back in the early 1990s when guaranteed student loans could have a total loan fee of 10 percent, the absence of an APR requirement was a huge missing consumer protection. The interest rate on the disclosure from the lender and from the guarantor said, for example, 8 percent but that was only the nominal interest rate. The actual interest rate on the money you borrowed was much higher. The funds minus the loan fees (origination and guaranty) went toward covering your education but you had to repay a much higher principal amount -- the education funds including the upfront loan fees. The other consumer protection gap is disclosure of lenders' capitalization practices. The higher ed act and regs provide a vague guideline, but lender practices vary tremendously with those guidelines and by loan type. The fact that lenders do not publish or publicize something very basic such as this is one of the reasons that vast swaths of the public believe they have something to hide. This could be easily remedied. Lenders would have to admit finally that capitalization practices are much more consumer-friendly (less frequent) at ivy medical school than at Barbie's beauty school. It would briefly be a tough moment to stomach, but people would get over it. This is also a lack of parity between the loan programs, where direct lending per its regs hardly ever capitalizes except when the unsub loans enter repayment but most lenders are capitalizing quarterly, particularly on consolidation loans which are largely unregulated despite being the majority of the dollars owed out there.Right now, however, giving federal student loans the same consumer protections as credit cards, automobile loans and personal loans would actually remove a ton of better consumer protections. Do credit cards and auto loans have taxpayer-funded deferments, forbearances, loan discharges and a variety of loan forgiveness options? Of course not! Giving up all the entitlements that federal student loan borrowers current have, in exchange for a small improvement in bankruptcy protection, would seem to be a very foolish decision.

• Student debt
• Posted by LA Jerry , NSCS on July 10, 2009 at 10:15am EDT

• Craigie, your comments are a welcome breath of fresh air in the otherwise chorus of ‘we need protection’ and ‘not my fault’. You point out the fact that it is hard to take seriously those who make the blatantly false claim of ‘there are no consumer protections’ for student loan borrowers. The creditability of anything said afterwards on the subject is then suspect.

   

  To some degree, the student loan ‘problem’ (not ‘crisis’) is one of over spending by consumers. But that is common throughout American society. My next-door-neighbor hairdresser probably has no business driving a Lexus, then complaining about her bills. By the same token, some folks should not be ‘purchasing’ a high-end, private education (when the state university is available for much less) and then complaining about the money they had to borrower for college. Well?

   

  Maybe it was just the way I was raised, but borrowing $40k, $50k, or more for college just makes NO SENSE. There are so many state and federal grants out there that can pay most, if not all, tuition and fees at public schools. But again, some people want that Lexus.

   

  One last note….according to the National Center for Education Statistics (NCES), 38% of undergrads obtained student loans in the 2007-08 academic year. This, W. Eddie, is what Ms. Steele is likely referring to in “less than half of all students borrower”. She seems to be correct. So, assuming 25% of borrowers will default, the percentage of college STUDENTS who default on a student loan is in the 9-10% range? And since half of Americans don’t go to college, student loan defaults are a problem for maybe 5% of the population? The question is then, how does that compare to other consumer debt?

• Posted by Ron on July 10, 2009 at 1:45pm EDT

• How do you callous people who continue to justify the modern system of student debt slavery in this country respond to the fact that our rational northern neighbors in Canada allow students to discharge their student loans in bankruptcy after a reasonable waiting period following graduation? How do you justify a system that perpetually traps young people in life long debt from which there is no recourse? It is no wonder young people are ACTUALLY FLEEING THE COUNTRY because they realize they cannot live anything approaching a middle class lifestyle in the good ole' US of A. How do you respond to this? Reverse immigration from the USA, whoever thought that was possible? Does this not indicate a crisis to you? What planet do you live on?

• state merit scholarship programs
• Posted by Don Heller , Professor of Education at Penn State on July 10, 2009 at 2:00pm EDT

• Old School Prof: You raise very good points about the Bright Futures Scholarship Program in Florida. I co-edited two reports on state merit scholarships and college access, including looking at Bright Futures. You can find them at:
  http://www.civilrightsproject.ucla.edu/research/meritaid/merit_aid02.php
  http://www.civilrightsproject.ucla.edu/research/meritaid/merit_aid04.php
  Not surprisingly, the research shows that most state merit programs do very little to promote college access, but instead largely subsidize students who would have gone to college anyway.

• Not buying it.
• Posted by WI Will , Premanently insolvent at One of the best on July 10, 2009 at 2:00pm EDT

• Craigee nice try, but I for one see through the paper tiger you offer as “better” consumer protection. All of the items you point to do not provide the consumer, the student loan recipient any bargaining power at all. When you have a big loan for your business, and calamity hits, you go to chapter 11, just like GM and Terri and others and seek protection. You then negotiate with your creditors for a better debt load. The forgiveness’s you point out are great for a very limited number of professions. The forbearances you talk about are good for limited periods and still result in escalating the student loan burden even higher. Indeed the price for the forbearances is astronomical for most that need them. For example, due to economic conditions as well as personal family losses to death and disability, I lost everything in 1999, I had no meaningful employment for two years, and despite efforts at avoiding default, it still occurred. Then after filing bankruptcy and having the inflated student loans survive untouched, I was forced by the circumstances to consolidate the Stafford loans. Yet since I had no real job still and was completely underemployed, I could not pay the resulting interest, much less enter a repayment program except the income contingent. Then when income came in even the income contingent payment was astronomical and while I make payments, I am in the fifth year of a hardship deferment.

  You know I do wish I had seen the wisdom, and do hope the student financial aid counselors are different then they were back when I went to school. But you see, when I got accepted into a top tier private school, everyone, but everyone, said go, go, go, don’t worry about the money. EVERYONE. My mistake for taking such wrongheaded advice, I guess. I had not realized back then that we had become a nation that discourages risk taking in the economy. And fine, I accept reasonable consequences for my mistake, but to leave me virtually insolvent for the rest of my life is an unreasonable, un-American, unjust system that needs to be fixed. A return to traditional consumer protections, such as bankruptcy, that worked for a couple of hundred years is not so much to ask I think.

  LA Jerry, by your calculation only about 15,000,000 Americans are being damaged, lives destroyed, ect - so I guess that is a fair enough price to pay? I do not know about others, but I am sick and tired of being in the middle class, getting dumped all the tax burden, assuming all the economic risk, while fat and happy executives rarely suffer any real personal pain for their own ineptitude and incompetence.

• "...people are fleeing the country. It exists..."
• Posted by The Larch on July 10, 2009 at 5:00pm EDT

• "People" are also mass murderers, but a random anecdote (or two) is not an indicator of the success of over 90% of our college graduates in repaying their financial OBLIGATION (promise), nor does it constitute a crisis.

• Lack of Oversight Breeds Corruption
• Posted by Dustin Logan on July 10, 2009 at 8:15pm EDT

• Back in the mid 80's, at age 30, I made the mistake of wanting to improve my life. I was poor and unemployed, so, I returned to school, to study engineering. Nothing fancy; I just went to a low-cost state college. But, the only way that I could do it, was through financial aid, and I was told that I had to take out student loans, before I could get one cent in grants (no scholarships were available for OLDER students!). After that, I certainly wasn't living high on the hog, as some have suggested. Even adding income from working 20-30 hours a week, I was lucky if I could afford the rent for my small room and one meal a day (in addition to tuition, books, lab fees, etc). I had no family to help me.

  Long story short, not long after leaving college, I ended up on permanent disability. Ever since, I have been on a fixed income from Social Security, which is far below the poverty line. I didn't ask for that. But then, according to my loan agreement, my unexpected hardship gave me the right to have my loans discharged. So, back in the early 90's, I filed the necessary paperwork to have my loans dismissed, and that paperwork was signed by the same doctor that was in charge of my Social Security case. It was all perfectly by the book, and the bank accepted it.

  But then, many years AFTER my loans had been supposedly dismissed, I suddenly got a call from one of those quasi-governmental guarentor agencies. They were now claiming that I still owed them money, and that they had NO record of my disability claim! Apparently, they had simply lost it. Or, were they trying to double charge. Who knows, as even the CIA is more transparent. At first, I tried to tell them that they had made an error. But, they reufsed to listen, and as it turned out, they didn't have to. So, as proof of my claim, I sent them copies of my disabilty paperwork. But, they refused to accept "copies". Tell me, under American law, what corporation is allowed to do that? Ever since that day, I have been constantly and mercilessly harassed, with collection calls sometimes coming as often as 3 times a day! I HAVE NOTHING! I survive on only $700 a month. What do they expect to get?

  More, where are the consumer protections? Isn't this America? Basically, these student-loan people can claim whatever lie that they please, and I have no say in the matter. Even not counting my disability, my original loan agreement stated that I had the right to bankruptcy, after a waiting period of 10 years. It has been nearly 25! Who gave them the right to change that? I certainly didn't. Wouldn't any new loan agreement require my signature? Again, isn't this America. Or, did I wake up in some third-world dictatorship?

• Success Stories Don't Change the Need For Bankruptcy Protections
• Posted by Ron on July 11, 2009 at 12:15am EDT

• The Larch,

  Your comments are cold and callous. The fact that one single American young person would leave the country because of their student loan debt is reason enough to restore bankruptcy protections. Its real sad that some American students have to go to other countries to get the protections they deserve and have a chance at a real life. Whether it is 10 percent, 1 percent or .01 percent of students who leave the country, or consider leaving the country, the point is the same. The USA should be ashamed of itself in the absolutely draconian way it treats student loan debtors. It makes no sense that a student in the USA can be condemned to life long debt servitude, while north of the border he/she can gain a fresh start after a reasonable waiting period. Granted few students actually leave country, for one reason because it is very hard to do so when you are poor and have no money in the bank. But the fact that some do leave the country and many more think about it, should be symbol enough of the dramatic crisis that is breaking out in this country. There is now an entire section of SLJ devoted to expatriot student loan debtors.

  Look all of you who continue to defend this system: You are are defending a dying system. It is unsustainable. Young people are taking out more and more debt as college tuition keeps skyrocketing. In these terrible economic times, people are literally using student loans to hide from the terrible labor market. You know that can't go on. The bubble will burst and it is going to take you down with it, just like the real estate bubble burst taking down an entire layer of real estate agents, mortgage brokers and associated layers. I guess that is why you are fighting so hard. See you at the bottom. Trust me you won't like it here.

• Heads out of the sand, please!
• Posted by Chippy on July 11, 2009 at 10:30am EDT

• It's absolutely insane that anyone continues to claim that student loans are not a problem. We must be living on different planets! What I see (and I'm not alone here) is an unsustainable system in which tuition continues to outpace the rate of inflation, in which students are graduating with a (very conservative estimate) of at least $20,000 for a BA (yes, for a BA, degree that in today's job market is worth as much as a high school diploma was worth a decade or so ago!); in which default rates on those loans are NOT insignificant; and in which consumer protections are absent.

  What I usually hear from the defenders of the status quo is complaints of having to breath the same air as the "irresponsible kids" who are walking around with ipods (newsflash, many versions of the ipod are not expensive; and some schools used to hand them out to certain students "free of charge" as a learning tool and a portable storage space); driving shinny new cars (I'd LOVE to see you people PROVE that those students used student loan checks to pay for those cars; I have no clue how a $3,000 or $5,000 check can get anyone a brand new $20,000+ car); partying all night instead of working to pay bills (did you people ever consider that students are capable of going to a party on ocassion, AND still study and work? And why should a student be miserable just to please you people?); going to Florida on spring break (you all need to stop watching MTV and movies such as American Pie; like most products of the media, they hardly portray the real life of the student on spring break or any other holiday; many of us worked during spring break, or caught up on the reading we were not able to do while working 30+ hrs per week the rest of the semester!)

  In any case, such objections are not relevant to the discussion, so I don't know how you all continue to bring that up. Issues to debate: continued and unsustainable increase of tuition, from which so-called state schools ARE NOT exempt; increasing costs of books, housing, food; student loans as basically the only or main option available to many students; the necessity of having a BA to just have a chance of obtaining an entry-level job in today's job market; the potential effects that the brewing student loan crisis will have on the economy as a whole; and (most importantly), the lack of consumer protections for student loan debt.

• The reality is crushing
• Posted by Tomas on July 12, 2009 at 5:45am EDT

• It is not an issue of some abstract 'hype' - the fact is that many, many of us were not given the choices of grants, federal loans, or good student aid; but, at 18, were saddled with astronomical student loans which we could not understand the depth of at the time, or how, when we experienced problems, they would come down like the jaws of a shark. There is real human suffering - and not only of young grads, but seniors on social security who are called 10 times a day and have their meagre incomes, even disability, taken by the student loan industry. You cannot put numbers on that, in this, still the richest country in the world (and more than enough to pay for education if a progressive, mandatory tax rate was instituted,) and there is no excuse for not restoring standard consumer protections to make a more healthy system--and--benefit those in turmoil for what has become bad education debt.

• Re: Not a problem?
• Posted by Craigie on July 12, 2009 at 10:00am EDT

• While it is true that the "cohort" numbers are artificially low (due to changing the definition of default from 120 days to 360 days during the 1980s and 1990s while keeping the "official" default measurement period at only two years), the real default rates are about 15%.

  But the real myster is where does OIG ever say 30%? http://www.ed.gov/about/offices/list/oig/auditreports/a03c0017.pdf . This is a myth. They never come close to saying that. In addition, they are looking at a different era -- the mid-1990s, when default rates were much higher than today. The "high" rates in there were not calculated by OIG. They are lifetime default guestimates by OMB made two years before the loans are even originated. So, a projection is a little bit off. Happens all the time. And not just in student loans. Three years ago what did the government estimate that the unemployment rate, prime rate and mortgage foreclosure rate would be in 2009? How accurate were those estimates?

• Re: Not buying it
• Posted by Craigie on July 12, 2009 at 10:30am EDT

• Yes, there are loads of consumer protections that FFEL and DL borrowers have that other borrowers (car loans, mortgages, personal loans, "private" education loans, etc.) do not have. Forgot to mention the wide choice of repayment plans. Try asking the holder of your car loan to switch to "graduated," "extended," or "income contingent" repayment plan. After you sign on the dotted line, you are locked in.

  There also seem to be a lot of people who are saying, "why can't I simply pay off what I borrowed and walk away?" Why not? Because that's a grant, not a loan. When you get a loan, you promise to pay interest. Lenders are in fact not changing the contract willy nilly after people sign for the loan. Yes, the terms change after default (acceleration), but that too is laid out in the original promissory note.

  If you get a $200,000, fixed-rate 7.5% mortgage (with no points) for 30 years, you will repay more than $300,000 in interest in addition to your $200,000 principal. No one complains about this. One reason is that a payment in 2035 costs hardly anything to the borrower. If the monthly mortgage payment is $1400, that is a lot today, but what will $1400 represent in 2035? The cost of a candy bar?

  Not sure where people, even if they defaulted, are saying that their balances tripled, quadrupled, quintupled, etc.

• Consumer Protections and Student Loans
• Posted by Tammy Rabideau , International Imports / Exports Compliance on July 12, 2009 at 5:45pm EDT

• I think the point is being missed by so many people regarding what is happening with student loans. If consumer protection rights were taken away from people for things such as their credit cards, mortgages, medical bills, etc, their would be mass outrage, but for some reason there is not the same outrage in what has happened to the student loan situation. Why is it that some of the individuals posting comments on here are ignorant to see this? Is it because it has not affected you personally? If that is the case, that does not make the problem any less significant, or the fact that our rights have been taken away from us, any more less a travesty. We are not looking for a free lunch. We are locked into a situation that by no means whatsoever can we get out of. There is no dealing with the Dept. of Education. You will have better luck making a payment arrangement with the IRS, and that is a fact. It is not that we are unwilling to pay back the monies we have borrowed, it is, in fact, that the Dept of Education insists on an exact amount that they have set as a feasible and acceptable payment and if you can not pay that amount, it is taken as a "refusal to pay". I borrowed $67K for my undergraduate degree at a private school. Like many people, I did not have the understanding of what it meant to take out that kind of money. I was a first generation college student and did not have information passed down to me on how this money would be paid back, or what kind of payments it would result in, etc.. I thought that getting an college education was by ticket out of a life of poverty, and that whatever monies that where to be borrowed would be paid by the excellent paying job my college education would have provided me. Nobody tells you otherwise. And nobody tells you that the 67K you borrowed will end up at $110K in a short matter of years because of the mass interest and collection fees that will continue to be added on daily. The minimum amount accepted by the Dept of education on this type of loan is $808.00 per month. No lesser amount is accepted as a suitable amount to get you out of default status. The interest continues to accure, the loan continues to get bigger. It does not matter if your salary is $35K annually, if you are a single parent with no child support, or an elderly woman on disability. The Dept. of Education doesn't care what your situation might be. Even at $500.00 a month, we would only be paying down interest and collection fees and never even get to pay the actual loan itself. Death would see us first. I think those who are making general sweeping statements about the irresponsibility of students to not pay up and owe up, have no idea what we are really dealing with. There is a massive problem with the student loan system from beginning to end. I am at the end of it and thus focusing on that aspect and the undeniable need for consumer protections to be restored to us. This is crushing debt that no matter what your best effort is to honestly deal with it and pay on it, you are left at a dead end every time. There is no other type of debt that I know of that exists as the student loan debt currently does. Being trapped is an understatement.

• craigie is confused
• Posted by Alan Collinge , Founder at SLJ on July 12, 2009 at 8:00pm EDT

• Cragie talks about the "loads of consumer protections" built into student loans...like what? repayment plans? Wow. I'm impressed. Not.

  The most basic, fundamental consumer protections are absent, namely, standard banruptcy protections, stqtuttes of limitations, refinancing rights, to name a few.

  Cragie obviously makes his living from this reprehensible lack of protections, and is now questioning the validity of the IG's estimates. I have noticed thaat typically, the IG is quite conservative and accurate, rather than tending towards the dramatic. For example, the IG warned ED plainly in numerous reports that the office of Financial Partners was vulnerable to conflicts of interest. Soon thereafter, it was found that Matteo Fontana was holding stock in one of the companies we was charged with overseeing.

  I tend to trust the IG estimates more than I trust some anonymous blogger trying to tell me otherwise.

  Finally, Craigie doesn't know what a grant. Grants don't need to be paid back, Craigie.

  Is there ANYONE on this board willing to debate the other side of this argument using their real name?

• Many consumer protections
• Posted by Craigie on July 13, 2009 at 12:15am EDT

• Include:
  -Deferments.
  -Forbearances.
  -Long periods where interest does not accrue.
  -Long periods where payment is not even required (school and grace periods)
  -Flexible repayment plans (for those who are responsive enough to nine months of late notices to stay out of default).
  -Pay as you earn (which doesn't exist in consumer lending).
  -Loan forgiveness programs.
  -Loan discharges, such as disability.

  Giving up all of these benefits for marginally better bankruptcy provisions would seen to be self-defeating.

  The point is that the tiny part of the OIG report that mentions possible default rates above 12% is not from OIG at all and is not actual historical defaults. They aren't "OIG estimates." They are OMB projections of future defaults before the loans were even issued. And those projections didn't pan out.

  Every education lender should have to disclose its servicer(s)' practices, such as capitalization practices, which vary widely within FFEL. In addition, education lenders should be required to disclose an APR.

  But what industry has ever included "refinancing" as a right? And what would be the point from the borrower's standpoint? Let's say you have a consolidation loan but are told that you cannot consolidate a second time. The law changes to permit this. You then take your 6.13% loan and consolidate, so you now get an interest rate of 6.25% How is that beneficial, except you will get smaller monthly payments by re-stretching the repayment term (and thus owing even more in interest)? Then you get someone complaining about the added interest. It is apparently hard to please everyone.

  And who would cover the costs of all these refinancings? Maybe with a two percent origination fee it might be feasible, but it sounds like someone who "refinances" every couple of years is possibly someone who does not really plan to repay. Haven't we learned that lesson with mortgage flipping? And now there are people with 825 FICOs who can't qualify to refinance their mortgages, because standards have changed. Again we get back to willingness to pay points (origination fees), which homeowners are willing to pay but education loan borrowers may not be willing to pay in order to refinance.

  Two wrongs do not make a right. Just because Federal Office of Student Financial Assistance has done an abysmal job at enforcement of lenders, guarantors and colleges doesn't mean that everyone should get a write-off of the loans. Just because the enforcers often worked just a month earlier for those they are regulating doesn't mean write off all the loans.

• Real names can be embarassing - you should know
• Posted by The Larch on July 13, 2009 at 11:00am EDT

• Ron – One person is not reason enough, nor 100. The U.S. cannot possibly protect these or any of the millions of others who make bad financial decisions each and every day. Taxpayers have already helped them out by making the federal student loans, and thus education, available in the first place.
  All: Yes, there is something wrong, and no, I do not defend it. Inflation and rising tuition & fees costs are not entirely to blame, nor are the students. It is a combination of the two. And for those of you who continue to use dramatic phrases such as “draconian”, “saddled with”, or “locked in”: who put the saddle on? Who locked the lock? Your minute perspective does not paint the picture for millions of students who succeed in graduating debt free or who fulfill their financial obligation and repay their student loans.

• Who did put the saddle on...
• Posted by WI Will , Larch on July 13, 2009 at 12:15pm EDT

• See here is the thing, in my little Microcosm and for the other hundreds of thousands like me; there WERE bankruptcy protections when I signed each and every NOTE!!!!

  Who put my saddle on? Who locked me in? That would be the banking lobby and the conservative republican congress. I made the decisions to go to school, yes, and I truly regret it to this day, nothing, but nothing good has occurred financially or career wise because of my pursuit of a higher education.

  The fact that there are one or two of us left able to stand up and tell our story and decry the injustice of the current system, does not mean that we are the only ones out here suffering, lives destroyed, families crushed. The humiliation, the agony, the pain are all real, and for many many more than have access to the internet, or know how to find HigherEd to blog on. There are many more that have been just beaten down to a point of learned helplessness. Can you recall learned helplessness from Pschye 101? Put a dog in a cell and continually shock him enough and eventually he gives up trying to fight the coming shock.

• Would the Larch Abolish Bankruptcy Altogether?
• Posted by RON on July 13, 2009 at 1:45pm EDT

• The Larch, if it was up to you would you do away with bankruptcy protections altogether? It sure sounds like it. Look, we just want the same protections everyone else has, nothing more. Its really strange that people with gambling debts can file bankruptcy and get a fresh start, while those who thought they were bettering themselves by going to school get hammered for life with intractable debt. Take away bankruptcy and see what happens to the economy, society and our nation's culture. Trust me you won't like it. You lose all credibility when you attack the idea of bankruptcy itself. If you admit the need for bankruptcy, you then have no rational reason to deny it to student debtors. That's the bottom line.

  Look, you people are going to lose this fight. Bankruptcy protections will be returned to student loans eventually--either in Congress or through the courts--the question is how much damage will be done in the interim: damage to the borrowers, the nation's economy, civil society and political culture.

  You decide.

• some protections...
• Posted by Tomas on July 13, 2009 at 6:30pm EDT

• Include:
  -Deferments/Forbearances--extremely limited, with total maximum amounts sometimes being only six months, with private loans not necessarily even being deffered while the student is still in school--does not take into account if the student is hospitalized long-term, or a victim of a natural disaster, or, even, the current financial crisis.
  -Long periods where interest does not accrue--this depends on the loan, and furthermore, if interest, penalties, and fees double or triple the owed amount during the life of the loan, this isn't that important, and most certainly, it isn't a mandate for a maximum interest rate, which is sorely needed.
  -Long periods where payment is not even required--not long at all sometimes (See above)
  -Flexible repayment plans--actually, it often takes much, much less than nine months to default--more like 1-3, and often times the collection agencies/lenders do not care to negotiate with borrowers, are not sufficiently flexible to keep the loan out of default, because they profit more from defaulted loans.
  -Pay as you earn--actually, the only way that really happens for most people is when wages are garnished, and that doesn't put off the harassment or ultimately pay off the loan.
  -Loan forgiveness programs--not really, the only I've read about involves 10 years of working at a public sector job and making payments (not a realistic outcome for many people) at which point the loan amount leftover is turned into a gigantic tax payment--not very forgiving.
  -Loan discharges, such as disability--only if you are in a wheelchair; plenty of people have their DSSI garnished to pay their student loans, even the elderly and disabled.

  The standard consumer protections many of us want do not only include bankruptcy, but many others that are in fact improvements on the above--designed to truly help the borrower--and--make for a more healthy system of student lending and financial aid administration at colleges. They will benefit the vast majority--except those who profit off the misery of disadvantaged students.

• Consumer protections
• Posted by Craigie on July 14, 2009 at 5:15am EDT

• Tomas is confusing private loans with the government guaranteed loans (FFEL) offered by private lenders. Government guaranteed loans offer all those protections. Private loans do not; you may get three months of deferment on a private loan, for example; it depends on the lender. To default on a government guaranteed loan you literally have to somehow ignore a whole year of late notices. Of course there is little flexibility after you default -- according to any type of loan contract the full amount is due upon the creditor's request at any time after you default. The key is to stay out of default. When you are talking about people already in default, can you name any protections that mortgages, auto loans, credit cards, signature loans, pay day loans, etc., have -- besides bankruptcy, which itself was limited significantly by the 2005 "reform" act that was pushed by the financial services industries?

• Return Standard Consumer Protections to Loans
• Posted by Awash in Student Debt on July 14, 2009 at 9:45am EDT

• Standard Consumer Protections need to be returned to Student Loans. In 1992 I had $22,000 in loans due, after paying off a $4000 loan (for which I ended up paying approximately $7000). At the time, I thought I did everything right--and everything I was advised to do by my bank. I deferred my loans when I could not immediately get a job and then was advised to consolidate. Very quickly the loans snowballed, penalties and fees were rolled into the principle. I now owe more than $100,000 with no end in sight. All those many consumer protections that "Craigie" boasts about (above), do not apply to someone in default. The amount I could afford to pay each month does not even cover the accrued interest (8%). I have legal representation; at every turn we have been stonewalled--collection agencies contracted by the Dept. of Education would rather see your debt continue to rise than to negotiate a payment (so they can add more fees and the loan will be worth more when they re-sell it to the next debt collector). At one point a snotty collections worker said over the phone, "Just send a check for $80,000 and you won't have any more problems." Ah, if only it were so simple.
  This is my only debt; it is not the result of living a lavish lifestyle (as some have implied in their comments). In hindsight, I tried to do the right thing; I still have every intention of paying back what I borrowed. Ironically, if I took advantage of all the junk mail offers for free credit cards and used their cash advances to pay off these loans years ago, I would be much better off today---at least credit card debt can be negotiated and/or resolved in bankruptcy.

• Larch again...
• Posted by WI Will on July 14, 2009 at 1:15pm EDT

• Larch states: "The U.S. cannot possibly protect these or any of the millions of others who make bad financial decisions each and every day."

  Here is the thing Larch, bankruptcy protection does exist for a vastly larger group of citizens than students. It is also there for the guarantee agencies. The US does every day of the year protect millions upon millions from their poor financial judgments. It even protects the guarantee agencies from their poor choices. So, yes the US can, and does protect a lot of people in the name of enhancing risk taking and economic growth.

  The policy is to encourage business; who wants to do business in a country where you do not have bankruptcy protection to protect your business and operations should you make a bad decision or the environment grow unfavorable to your business. You want some level of protection for your business activities don't you? You want to encourage business activity don't you?

  Does it not make some semblance of sense that individuals, planning an education to build a career, one that should in the end contribute to the health of the economy overall, want the same protections. I understand that it might be wise to place some road blocks against cavalier bankruptcy filings with student loans, but ripping away bankruptcy protections was an absurd thing to do.

  See the problem now, before it becomes millions and millions of students and lives crushed. The problem grows every year; I suspect it will turn out to be an exponential type of growth once it sets in.

• Wells Fargo taking the lead on directing student on finance
• Posted by Emily C1 on July 15, 2009 at 3:00pm EDT

• This article is one of the best and most thorough I've rest thus far on the subject of student finance and loans. All good points to touch on.

  I haven't been out of college for too long, so the process of paying off loans is something I hear more than often about from my friends than many other things. I have referenced many of them to Wells Fargos' Backstage website in hopes that they might have younger siblings, friends or relatives who are about to jump into the new realm of "studenthood," including for many, getting loans, and for all, learning about managing finances in a new setting.

  In any case, Wells Fargo is a solid example of what financial institutions SHOULD be providing... GOOD information, and a welcoming, easy to use website. The link to it is: http://backstage.wellsfargo.com/

• Once we had consumer protections
• Posted by macwildstar on July 17, 2009 at 1:00am EDT

• Alan Collinge talks about restoring consumer protections to student loans. Heck, he even wrote a book about it. But his book starts AFTER 1994. Prior to that, many students did have consumer protections, which were taken away from them by the very people Alan is currently kissing up to, to restore them!

  The fact is, nothing has changed with student loans, other than 2 things: Consumer protections were removed, and with the creation of the Internet, tons of information available to anyone, which means they should be intellegent enough to avoid student loans. That is correct. I said AVOID THEM. Who in the right mind would enter into a contract that has no basic, or for that matter, ANY consumer protections on it?

  As another commentator said in a previous comment, if they had taken advantage of all the free credit cards, and used them to pay off his loans, he could renegotiate the bills, and pay a lower rate, or a smaller amount.

  Alan refuses to even discuss legal options for those of us with student loans that were made prior to 1990. During the time period from 1989 to 1995, congress made major changes to the student loan industry after holding numerous hearings. These hearings told the congress that the US dept of Education failed to provide proper oversight, and that congress failed to keep an eye on the Dept of Education; the same thing we are seeing now.

  Some of the schools who testified in 1994, for example, told congress that "it was a good time to be crooked", and another said, "i truly do not care about the students, I am after the money (student loan). Congress even admitted that these students were sold worthless educations, and left with bills they could not pay. Yet they offered them no relief, and instead, took away their statute of limitations, and started a wage garnishment program that violates the 4th, 5th and 7th amendments to the US Constitution. In other words, congress victimized the very people they said were already victims. See senate report 102-58.

  Today we see the same things happining now, that happened in the 1980's. Schools being sued for selling worthless educations, schools being caugh doing things they should not be, and schools being caught "student loan farming" as one senator called it.

  Alan says he talked to 4 major lawfirms about a class action suit, and not one would be willing to do so.

  Should that surprise anyone when our own country is now telling the world with its actions that we no longer uphold our own laws?

  We have judges that practice law from the bench, we have judges that do not uphold the rule of law, and we have judges that will not enforce the law. Nor do we have law enforcement officals that will do their duty either. 30 percent of our laws go unenforced.

  How then, can a student stand a chance in court to challenge the validity of their alleged debt? When congress removed consumer protections from the students with loans from pre-1990, they also changed the contracts. Due to lack of proper law enforcement, congress basicaly sentanced those kids to debtors prison without walls.

  Todays kids who are defaulting at astronomical rates, are finding out just what the older kids are going thru, and they see their lives being ruined by the inescapable debt. Thats why many are leaving the country, to avoid having to pay 8-15 times what their original loans were.

  And the INcome based repayment plan? The media is reporting that only some people will have their balances forgiven totaly after they finish paying on them for 25 years. And that there is a bill in congress to make that apply for everyone. This means the avarage student will end up owing the IRS instead of the dept of education, at the end of their 25 year pay off, so in effect, there is no forgiveness. But I bet these kids are NOT being told that now, those that are entering into the program. And many of them think they are being forced into it.

  Well, I think there has to be a legal solution to this mess. Somewhere there must be a lawfirm that is willing to take on this beast, if not for current students, then for the ones with loans prior to 1990, who had consumer protections, then had them taken away by congress. Such as suit if won, could help the current students in their fight as well.

• When Universities don't value the degrees earned
• Posted by Faye , Institutional Research Coordinator at Institute of Higher Education on July 20, 2009 at 11:30am EDT

• My student loan debit has grown beyond what I could have even imagine when I borrow the funds to go to college. But with the IDEA driven into young American in the 70's, 80's, and 90's, I knew that to get a good paying job I had to have a college education. So, like many of young people that came from family with just enough income to keep their children from qualifying for the free and reduce grants and no extra income to help their children go to college, I took out student loans to pay for my education.

  No One told me/us about the same job same pay rule that will (has) devastate your ability to pay back your student loans. Today, with twenty years of experience, three college degrees (two that I struggle hard to paid for without student loan), and massive student loan debt, I earn the some are lesser amount of pay as individuals that work with me that have high school diploma or GED and less work related experience. So, you can imagine how the American dream has change for many who have to make the decision to pay a house note over paying their student loan payment. Not because you don’t want to pay your student loan back but, your student loan payment is the same amount as the house note. And by no mean is this home a $300,000.00 house, or this car a $45,000.00 vehicle or a $20.00 lunch each day of the week. AVERAGE price! They are basic just what I can afford to make my family comfortable, because I know that when I retire I will still be paying my student loan back. Now, tell me what I tell my children about going to college to may live better for them when they get 46 years old with two kids just graduating from college and three more children in grades 11, 10 and 7. Everyday, I know that my decision to get a college degree was wrong for me. The degrees have not produce the promise that America told many of us during those three decades of my pre adult live and the student loan debt has destroyed any chance I might have had to retire comfortable and debt free.

  Yes, I hope the there is a decrease in student loan debt for children getting a college education today. I know that I would two or three extra jobs to keep my children from getting any student loan for their college education.

  When Institutes of Higher Education have employment practices like same job same pay, that should tell everyone that this system of borrow money to pay for a college degree regardless of the situation is a fraud and something needs to be done to overhaul the entire higher education system before any more generations of young people fall into this cycle of borrow fund now to better their future lives before knowing the downsize of paying the funds back later in live.

• Back Up a Little Bit Here
• Posted by Rocket , client services at Coast Professional, Inc. on July 21, 2009 at 2:00pm EDT

• I read the comments about student debt with great interest. Having been in higher ed. and working with students for over 30 years seeing all the costs of running schools go up and up and endowments go down and down, running schools in many cases is placed squarely on the backs of students--and these are the non-profits I'm talking about, From here it would seem that only college presidents and football coaches appear to be getting rich.

  That being said, a lot of students are truly fiscally unprepared for the realities of college. Why?

  If we want to change the drowning in debt part we had better start to invest in our kids' fiscal literacy at an early age--like 6th grade. So many students and their families are unprepared for the costs they will face to get an education, especially those in the middle of the middle class who don't make enough to qualify for aid and are stuck borrowing. Why doesn't the government do things like figure out a way to reward students with grant money for good grades while they are in junior high and high school? Do something that might actually help them to take some responsibility for their future before it arrives like a Mack truck and leaves them flattened in the road of life trying to figure out what happened and how they'll pay for it. Howling about borrowing isn't helping change the reality of what it costs to run a school, maybe thinking outside the box in new ways is needed now to help students get the educations they need, want and deserve.