« Environment - "Decades After a NY Plant Closes, Waste Remains" | Main | Ind. Courts - "Judge dismisses defendant's 'uppercase' case as 'frivolous'" »

Monday, July 30, 2007

Law - More on the student loan program

The ILB has had a number of entries about student loans - here is a list. Sunday's NY Times special education supplement included several interesting stories.

Joe Nocera, a Times business columnist, has this article titled "The Profit and the Pauper." He writes abut changes in the student loan program since he was a student:

My bank probably didn’t make a dime on me. It never raised my interest rate as punishment, nor did I ever have to pay any late fees. My chronic tardiness didn’t even affect my credit rating. And had I defaulted, I would not have had my wages garnished, or been stuck with the debt if I had filed for bankruptcy. All of which can happen today.

“Student loans have become big business,” says Barmak Nassirian, the executive director of the American Association of Collegiate Registrars and Admissions Officers — and high interest rates and hefty late fees are part of what makes it so profitable. Many a student comes out of college only to discover that his loan has become a noose around his neck.

For some months now, the news about student loans has largely been about scandal — how lenders have curried favor with financial aid officers to get on their “preferred lender” lists, for instance. Bills in both the House and the Senate aim to reform the system. But there is a larger, perhaps sadder story here: How did this critically important social program become so unmoored from its original intent, which was to help poor and middle-class students pay for college? To put it another way, why did student loans become more about shareholders than about students?

Later in the lengthy article, a discussion of Sallie Mae:
“Sallie revolutionized the industry,” says Representative Miller, and he doesn’t mean that as a compliment. It imposed fees and penalties that added costs when students were already having trouble repaying loans — while increasing Sallie’s profits. It bought its own collection agency. It lobbied to make it nearly impossible for borrowers to escape their student debt. (It was aided along the way by occasional reports of the wealthy reneging on their student debt, thus saddling the taxpayer with the bill.) * * *

But in our obsession with the market, we had forgotten that this stock’s performance resulted in no small part from Sallie Mae — like many of its competitors — making money on the backs of struggling college graduates. It was a little like the credit card business: the “best” customers aren’t the ones who pay off their monthly charges on time; they’re the ones who can’t. For the student loan industry, the best customers are the students who take on more debt than they can handle to get through school. What’s been lost is the idea that student loans are a service with benefits that transcend the financial.

A second article, by Laura Pappano, is titled "Lessons From the Loan Scandal." It provdes "takeaway advice about where to borrow, how to borrow and how to avoid borrowing."

Posted by Marcia Oddi on July 30, 2007 11:38 AM
Posted to General Law Related