The student loan industry rakes in $85 billion a year, and a significant sum of that is in government subsidy and tax considerations. Proponents argue that student loans increase the number of students who can attend school, but critics worry that excess profits raise tuition and leave graduates with heavy student loan debts.
I’m pretty convinced that the effect of federally backed and regulated student loans over the decades has managed to get more students into college, while at the same time creating an unsustainable cost of tuition that threatens to keep students from attending in high numbers in the future. The resources are available for undergraduates, but there is little assistance for the graduate students and Ph.D. candidates who would be needed to keep up with that ever-growing undergraduate population.
I’ve done some political analysis for the student loan industry so I’ve been following the most recent legislation that will slash lender subsidies and put limits on how schools are allowed to market for loan companies. I don’t think many lenders or universities will be subject to criminal or civil liability, so long as they quickly come to compliance with the new laws. These laws would require colleges to have at least three lenders on any preferred loan list and it will cap interest rates on subsidized loans, but conflicts of interest between schools and banks will still exist. If anything, the law just adds government interests into this cozy, corrupt arrangement.
The real effect of the Student Loan Sunshine Act is the limit on subsidized loans: with student loan interest rates falling to 3.4% in a general economic climate of inflation, there is no incentive for banks to pursue sales without government subsidy. With subsidies slashed in the same bill, no profitability will exist in the subsidized loan business and the government will be forced to take on more direct loans. The banks will focus even more on selling private loans with uncapped interest rates, more lenders will find their way into the schools’ preferred lender lists, and more students will likely be subject to high pressure sales, commercials, and other advertising for expensive loans. Student loan companies will diversify to focus on student credit cards, cash advances, and other loan vehicles that carry traditionally higher interest rates.
Even as I was looking for good resources that expanded on this topic, I had a hard time finding recent links that weren’t blatant advertisements designed to drive sales to private student loans! I see Google has even chosen to install some on this site since I’m writing about it.
Official interest rates are down, but there’s still a “credit crunch” in effect so the rates on loans are holding steady or even rising. Students are riskier than most mortgages, because not everyone will get through school and not everyone will find a job that pays for maxed out loans or a premium education that isn’t aided by scholarships and grants. A lot of students see a huge credit limit and suddenly think they can afford $50,000 a year without taking a job or securing additional financial aid – this is a bad plan because it typically ends up with bankruptcy!
Demand for a college education is constantly rising – and the cost of a college education is going up even faster than that.
July 24th, 2008 at 11:11 am
Great article, thanks. Will link to it from my blog!
Cheers
August 12th, 2008 at 12:42 am
No matter what laws are passed that try and solve problems that arise from large quantities of student loans, people need to take responsibility for their actions. Students who get loans need to act as if they have to pay it back within a short amount of time to force them to work and be frugal so as not to find themselves in as big a hole after graduation.
August 14th, 2008 at 6:21 am
Hey, This “student loan scandals” stories should draw light on the real issues which everyone is ignoring — government intervention is inflating the cost of education in America.
October 9th, 2008 at 11:04 am
STUDENTS BEWARE THIS COULD HAPPEN TO YOU!
My loan guarantee agency whose headquarters are in Madison, WI reported me as having graduated from school while I was still a student attending classes full time. This sent ALL of my loans into repayment, even loans they did not guarantee, while I was still a student. I informed them several times of their mistake, my school informed them of their mistake, as well as my attorney, and they still refused to change it. Unfortunately, due to the graduated status erroneously reported by my lender I was denied for every single student loan that I applied for.
I know that I am not the only student the Great Lakes Higher Education has done this to. Even more appalling is the Department of Education gave this guaranty agency a pass on such deplorable actions that violate the agreement they made to both the Department of Ed. and the Clearinghouse. More importantly it is carelessness like this that has put the economy in the current state that it is in.
Their negligence has ruined my credit, my future, and caused immense financial harm, and distress to both myself and my family. I have documentation that I would be more than happy to share if it means that no other student has to experience what I have experienced.
November 3rd, 2008 at 7:30 am
I agree with the previous poster.
The more the government gets involved in both education and health care the the cost of both will increase. They need to regulate insurance companies but they don’t need to provide health insurance or low interest funding for education.
Sorry to hear about that Licia – that is truly ridiculous.
-Ryan
April 1st, 2010 at 3:57 pm
It is a real shame that this had to happen, but it really plays to our capitalist society. The private student loan industry is now reeling upon the passing of the new student loan reform bill, and it will be interesting how things go forward with this.
May 2nd, 2010 at 10:07 am
lots of tips for students. very usefull blog thanks
September 17th, 2010 at 5:59 pm
Forget about loans. A student today will owe for the rest of his or her life if that is the route they take. There are grants available.
Tuition costs are ridiculous today and I have had to do a lot of things differently since I have 3 daughters in college. On the internet I was able to locate a lot of different grants and scholarships that were designed to pay college tuition costs. The problem I ran into was that I had a difficult time finding them again and I was not all that computer savvy. As someone with little patience I downloaded an ebook called Secrets to getting free college tuition Revealed, which I had stumbled upon during one of my searches. I found it to be very helpful getting me to grants sources that I had not found before. In addition to providing the links to get me directly to the source of the grant or scholarship, it provided me with help and preparation to get through the process quicker and with less stress. If you are interested click the link below for more information
http://www.freecollegetuition......dvice.com/
November 3rd, 2010 at 1:41 pm
Certainly does leave you with a lot of debt. People on my degree left owing around 10k, its a lot to take on board.
December 7th, 2010 at 3:30 am
Student loan consolidation is based on the premise of helping students get and earn a degree. Somehow, the super low interest rates don’t discourage banks totally, instead, it is one way of doing community service, giving back to the society by helping deserving students to fulfill their dreams.
December 15th, 2010 at 4:09 pm
Forget Loans There are Free College Grants to Pay Tuition
College tuition increases will continue as the economy continues to falter. Most people believe that a good college education will be the answer to their prayers and many institutions capitalize on this. Cost do rise as we all know, but the cost of an education seems to rise more quickly than other expenses. Every parent wants to see their child graduate college and certainly does not want to be responsible for their failure to get a degree because of money. The first source of funding usually is to apply for a student loan. But a better course of action would be to first try and get a college grant or scholarship.
That being said, there are other alternatives to finance college tuition in scholarships, grants and awards that should be reviewed to see what you may qualify for. If you want to check out my blog for even more detailed information http://howtopayforcollegetuition.blogspot.com/
December 27th, 2010 at 3:33 pm
Like all credits student loan can be very risky. But sometimes it’s an only way to get a good education = better job = more money.
There are always free college grants as well.
– Gaz
January 17th, 2011 at 2:12 pm
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February 28th, 2011 at 6:19 am
I think the students loans have to consider in a positive way, I mean as an investment, as a way to success, not to bankruptcy.
The students loan is a great opportunity for everybody, for students, whose parents are not rich and for those, who wants to be independent from their parents, to get degree and a good job in a future.
June 9th, 2011 at 6:07 am
Welcome to the real America!
The foxes are running the chicken coup…
Americans have the best democracy money can buy…
A travesty…
Real dog eat dog pioneer spirit letting the financial industry lie and steal from minors…
Look what happens when you turn 18 years old in America these days and apply for a student loan…
No disclosure, exorbitant interest rates…
Americans should fire the whole congress and house and recall that new guy who is working harder than bush for the banking industry….
July 11th, 2011 at 10:18 pm
Hmm, not such a great article. The full story is far from expressed here. One cannot escape student loans via bankruptcy. One of the larger lenders lobbied for a law in congress to keep student loans alive and kicking even after someone claims bankruptcy. This is the ONLY type of loan that does not have this consumer protection.
Also, student loan companies have the capacity to garnish payment from your paycheck, SS check, disability, tax refund. Your license to practice medicine or law can be revoked if you default on your loan. The loan companies also won legislature that removed the ability of students to refinance their loans or consolidate with the company of their choice. You must consolidate with the company where the loan originated. Also…..aaah so much, the student loan companies are in bed with the universities. Some universities get paid money by the loan companies to recommend a certain loan company. These are all incentives to the universities and loan companies to Raise tuition. Last thing, the government and the loan companies make more money from defaulted loans than from good standing loans…if i understood what I read correctly at STUDENTLOANJUSTICE.org. Please go to this site and read some interesting information. They are raising tuition because they are making money off of the higher student loans. It’s tragic that congress let some of these laws pass in the past 10 years. Many of will never be able to buy a house, save for our own children’s education, retire at a normal age…etc. This will eventually hurt far more than those who suffer from high student debt. The whole economy will suffer when this bubble collapes.
December 20th, 2011 at 2:50 am
Salam,
Dear i want scholarships because i like very education but i dont have a money i am a poor student
April 26th, 2012 at 10:06 am
Simple answer …..Government wants to be the dominant force in student loans. They don’t have to follow collection laws if you default. They get money printed from the Fed and make sure their interest rate and late payment fee’s cover their obligation [ if any] to repay the interest to federal reserve on the printed money. Government loans drive cost of school up because universities have guaranteed money from federal government.
Ron Paul discusses this often, it is the same concept as the high medical care cost. When government subsidizes something or provides financial outlet to the private market then the cost goes up. The loosers are the private businesses, students and parents. FYI Bankruptcy doesn’t discharge government loans it only destroys your credit history for car loans, credit cards etc. [ unless your a celebrity]