Needs a Signature
Gail Collins lays out how the current federally guaranteed student loan system works in today's New York Times. Here's an excerpt:
She goes on to call for reform, and I agree. Maybe we can't agree that Health Care shouldn't be for profit (although we should be able to), but can we at least say that lenders shouldn't be able to exploit students? Federal loans should not be for profit, we shouldn't just be giving away money, but this is supposed to be a type of subsidy for education, not a subsidy for banks.
¶We the taxpayers pay the banks to make loans to students.
¶We the taxpayers then guarantee the loans so the banks won’t lose money if the students don’t pay.
¶We the taxpayers then buy back the loans from the banks so they can make more loans to students, for which we will then pay them more rewards.
She goes on to call for reform, and I agree. Maybe we can't agree that Health Care shouldn't be for profit (although we should be able to), but can we at least say that lenders shouldn't be able to exploit students? Federal loans should not be for profit, we shouldn't just be giving away money, but this is supposed to be a type of subsidy for education, not a subsidy for banks.
posted by b r christensen at 5/28/2009 10:44:00 AM
2 Comments:
A good post. You should also mention how congress ruled in 2005 that student loans cannot be removed through bankruptcy--you need a judge to declare them an "undue hardship," so that 1) you must show that the loans prevent you from having a minimal standard of living, 2) that you've made a good faith effort to repay them, and 3) that this situation will never change unless the debt is forgiven. This is all up to a judge and varies depending on the jurisdiction where you file and who you get.
To elaborate a bit on your original point (exploitation), student loans are marketed as a way to finance something which seems like a wise financial investment (a degree), but lenders also encourage you to borrow as much as possible:
http://www.youtube.com/watch?v=_oavcYPd9vw
Borrowing for a new computer and letting that rack up interest for five years before you begin to pay it off!!? That is something that can fuck up someone's life until middle age, and since 2005 even bankruptcy won't protect them.
http://www.youtube.com/watch?v=qN3gMWUpl9Q
Just fill out the easy online form, get 40k the next week, owe 60k when you graduate, and be fucked for the next 15 years!
It is so absurd that this sort of predatory lending is insured with public funds and is afforded a special legal protection--this enables these companies to take huge publicly subsidized credit risks they wouldn't take without the subsidy, which can destroy people's lives, AND the law ensures that borrowers are indentured forever for stupid borrowing decisions they make when they are 18 and don't yet have a bachelor's degree.
It would be nice to see a totally subjective and unenforcible law that required all disclaimers and fine print from from lenders to be in the same spirit and format as their advertisements. If a lender makes a cool TV ad with edgy young people, they also need to devote a bunch of time with flashy guys explaining the risks--if they want to send you a contract printed in 6pt font on thin paper, then all of their advertisements and correspondence must also be tiny and cheaply printed.
Thanks Andy, a much deeper take on the issue.
". . .this enables these companies to take huge publicly subsidized credit risks they wouldn't take without the subsidy, which can destroy people's lives. . . ."
Doesn't it seem like we're helping the wrong people? According to Collins, "The White House estimates that it could save about $94 billion over 10 years if it cut out [the lenders]" simply lending the money themselves. Why not take those savings and use them to make the Pell grant actually worth a damn?
Of course now I'm venturing into a different but related problem about the cost of school. Personally I worked 35-40 hours per week all through my education at a public university that gave me in-state tuition and still took out some loans. What else could I have done? (Besides get better grades in High School and land a scholarship.) The cost is so prohibitive, but people are doing it anyway, and piling up debt to get it done.
I've seen this somewhere before. People who couldn't afford to buy something, and lenders were giving them credit anyway. . . the federal gov't decided to back the loans. What was all that about again? There has to be a better way than this to figure it all out.
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