Comprehensive Overview of Student Loan issues

These days, getting angry seems to be part and parcel of earning a degree. And I'm not talking about student protests. I'm talking about student loans.

Higher education has always been expensive and applying for financial aid was never easy. The difference now is that student loan debtors, like other consumers, are more vocal when they think they're being treated unfairly. And student loan companies don't like what they're hearing.

The latest controversy revolves around Loan to Learn, whose parent company EduCap Inc., based in Herndon, pioneered the private student loan business.

A quick and dirty primer: Students have several pools of money to tap into to pay for school: their family, grants and scholarships, federal loans and private loans.

Student borrowers are limited as to the amount of federal loans they can take out. And family and grant money are, for most people, a finite resource. That's where private loans come in.



Private loans have become lucrative as the cost of higher education has risen. Loan to Learn, in fact, has seen its share of the market grow to 18 percent of all student loans and to about 10 percent of all student aid awarded -- a total of $13.8 billion in 2004-2005. Alan Collinge of Student Loan Justice says business is likely to get even better for private lenders in the education industry because Congress took bankruptcy off the table for private loans in the most recent bankruptcy legislation.

Last month, the U.S. Student Association filed a complaint against EduCap with the Federal Trade Commission, saying it misleads students and families about their loan options.

The complaint focuses on "Demystifying Financial Aid", a pamphlet Loan to Learn offers on its Web site. The gist of the complaint is that Loan to Learn makes private loans seem like an appealing alternative to federal loans and misleads borrowers about benefits that only federal loans offer.

Contacted yesterday, Loan to Learn spokesman Tom Calcagni said he is working on a response. As soon as we hear from him, we will post his comments here. The company told the New York Times yesterday that the allegations are "false and contrary to EduCap's philosophy and business practices of 20 years."

Loan to Learn is also facing claims they use gifts and paid trips to conferences to get on the good side of financial aid administrators, who put together lists of "preferred lenders" for student borrowers.

Applying for financial aid is so complicated and independent information so hard to come by, that student borrowers and their families have come to rely on the preferred lender lists and lenders know this, said Luke Swarthout of Student Debt Alert and currently a guest blogger for Generation Debt.

The payola allegations resurfaced yesterday in the New York Times, which reported that EduCap is sponsoring a February 2007 "Education Summit" at a Four Seasons in the Caribbean and has offered all-expenses-paid "special invitations" to university officials and their spouses. School administrators at universities that have accepted money from lenders or who have taken home items such as iPods from lenders, said the money and items they received were of too small a value to influence them.

As a private education lender that does not offer federally-guaranteed loans, Loan to Learn is not subject to the illegal inducements rules, said Mark Kantrowitz of finaid.org.

Kantrowitz says, however, he doubts any school is going to choose to promote a particular lender just because they throw a nice party or give away free iPods. "Most of the financial aid administrators I know are very dedicated, focusing on providing their students with the selection of lenders that best fit their needs," he said.

I suspect many student borrowers might be a tad less angry with lenders if executives at the student loan companies weren't making so much money. Sallie Mae Chairman Al Lord, you might recall, was part of a group that was in the running to buy the Nationals. EduCap chairwoman and co-founder Catherine B. Reynolds tried to donate $38 million to the Smithsonian in 2001, then withdrew it after curators balked at some of the requirements. Her foundation ended up giving $100 million to the Kennedy Center.

If you're shopping for a student loan, you might want to go beyond the preferred lender list. Sites such as simpletuition.com, finaid.org and the federal student office are good places to start.

According to Kantrowitz, low cost is one factor, but there are also dozens of other criteria, such as customer service and problem resolution.

Are you better off for having taken on student loan debt? Or is the cost of higher ed and the terms and conditions of student loans creating a new type of indentured servitude?

By Annys Shin | October 25, 2006; 10:15 AM ET | Category: Consumer News
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I took out $55,000 in federal loans and $90,000 in private loans for law school. So. Not. Worth. It.

Consolidating my loans ended up being an enormous problem because my consolidation lender underpaid the original lender, and so I went into default as a result of this mistake. Even though the consolidation company admitted blame, the default goes on my record because I am the one responsible. It took about 5-6 months to clear up. I was also charged a $900 loan origination fee as a result of my debt to credit ratio based on the fact that capital one credit cards do not submit my credit limit so the lender put my limit at 0, thus seriously decreasing my available credit, and increasing my debt to credit ratio.

My private loans are so high compared to the modest income I make. I spend 42% of my net income paying off my private and federal loans each month.

And my law school held a seminar to allow a company to tout it's service of finding the appropriate consolidation lender for each student. Using this non-profit organization (which has since become for-profit), I consolidated with their recommended company. After all the problems I encountered with my conslidation lender, I came to find out that the company my law school had speak at it is based in the same PA town that my consolidation lender is from. Additionally, this company suggested the same consolidation lender to each student, rather than finding a specific consolidation lender for each student's specific needs.

Posted by: law school debtor | October 25, 2006 09:58 AM

I am in the same basic boat as "law school debtor." My husband and I have a combined debt of $140,000 in school loans. I have two masters degrees and he has a doctorate from a prestigious university...but the market collapsed when I was finishing my masters and now there are no jobs. Now we have "day jobs" in other fields.

We pay 1/3 of our income to taxes and 1/3 to student loans every month...leaving us 1/3 of our income to live on. Though we pay around $20,000 a year in student loan payments, the government says we can only claim $2,000 of it on our taxes each year. We will be paying our loans until we are 60 and then we can expect to be taxed on any amount left remaining. We cannot afford to have children because of our student loan debt. We also cannot live near our families because the cost of living in those areas is so high. We cannot get government help because we technically make too much (even if 2/3 of it never gets to our pockets).

We went into debt to get an education so that we could get good jobs and we find that we have mortgaged away the rest of our lives by taking out student loans.

Posted by: collegedebt4life | October 25, 2006 10:27 AM

More than a few university administrators need to re-read their ethics standards. The doctors who accept gifts, free samples, and catered lunches from pharmaceutical salespeople say the same thing, "Oh, those are too small in value to affect my professional judgement."

The lesson in all this: students and famillies need to do their own homework, research the lowest cost of funds, and not rely on the biased views of lenders or school personnel.

Posted by: Ken L | October 25, 2006 10:56 AM

Like the previous two posters above, my husband and I have incurred a susbtantial amount of student loan debt. His (about $15,000) has been consolidated and will be paid off in about 20 years. Mine (still accumulating) will total about $75,000 when I am done with my graduate degree, and I will strive to pay off in the original 10 year period -- because the state of Michigan offers a 0% interest rate after three years of consecutive payments. A huge incentive not to consolidate!

I figure our monthly payment (mine are currently deferred as I am still in school) will be approximately $1000 a month, or about a quarter of our income -- if we still have the decent jobs we have.

Hopefully my studies will allow me to get an even better job, though with Michigan's economy being the way it is - I've really gone back for my MBA simply to be able to continue at the level I am.

Like others, it is likely we will delay/not have children, due to the loan burden we carry.

Welcome to the future -- where those who are educated can't afford to reproduce and pass their knowledge on to the next generation!

Posted by: Michigan | October 25, 2006 10:58 AM

The 'San Francisco Chronicle' has an article on the same topic today called 'Staggered by Debt'.
It prompted me to write about the issue of cooks and culinary schools on my blog 'Serge the Concierge'.
In that field (culinary), I believe that what makes it hard for students to repay their loans is the relatively low pay a cook gets in comparison to the loans she/he incurred.

Have a good day

Serge
Blog:
http://www.sergetheconcierge.com
Biz:
http://www.njconcierges.com

Posted by: Serge Lescouarnec | October 25, 2006 10:58 AM

I worked two jobs (one full time M-F, one part-time weekends) to pay for night school 25 years ago. I only got a 2-year degree after 6 years of night school. I didn't have the energy to work another 6 years to finish a full degree. I attended a private college in DC, and tuition was astronomically high then. It turns my stomach to see what the tuition is now. Not only did I have to pay school expenses, I lived on my own and had to pay all living expenses as well -- rent, food, clothing, books, car expenses so I could get to class. Not a dime from mommy and daddy, and the little bit I borrowed in student loans has been paid back.

However, those of you with law school loans can look forward to a filthy rich future judging from lawyers' salaries. Some make nearly $1 million a year and those piddly student loans will be paid off quicker than you think. If you marry another lawyer your wealth will double. Wow! Just imagine the house in McLean, summers in Europe, vacation house on Marthas Vineyard, au pairs and private school for your kids, Beamers and a Mercedes in the garage, or maybe a Lexus or two.

When I retire in 2 years, I plan to go back to community college, where I can go for free after age 60. I'd like to go into the health-care field and have an entirely new career.

Posted by: Southern Maryland | October 25, 2006 11:07 AM

It's so expensive just to attend school now days. Unfortunately it's almost a necessity if you want to get a decent job. For me I didn't want to get a student loan or anything or the sort. I paid my own tuition and worked the night shift to pay for everything. I know that option isn't the best for everyone but if you want to remain debt free from school, you have very little choices.

Posted by: ironhyde | October 25, 2006 11:18 AM

Southern Maryland fails to realize that most lawyers absolutely do not make that kind of money. Many, especially those going into public service, or working for the district attorney or public defender, earn less than $35,000 per year. For those people their law school loans will in no way be paid off in a couple of years. If you have any other ill-conceived lawyer stereotypes to discuss, I'd be happy to respond.

Posted by: poorlawstudent | October 25, 2006 11:19 AM

I borrowed $50,000 to get my MBA. Was totally worth it - I got my current job based on my MBA experience. Consolidated the Federal loans at 2.5%, have a private loan for about $10k that around 6%. After 24 months it'll go down to 5.5%.

I didn't think figuring out financial aid was that hard - my school's financial aid office had great materials on which private lenders they used, then I went online and did some research to find out who had the best repayment terms.

Will I be paying this off for the next 20 years? Yes. (Unless I win the lottery...) But I knew that going in, and I waited to find a job that paid enough that I could afford to pay them back and still live on what was left over.

Posted by: Howard County | October 25, 2006 11:22 AM

My husband and his hometown friends who went to college all incurred large amounts of debt in order to do so. However, all of them are much better off now then the ones who are stuck in the small PA town working dead end blue collar jobs in factories that are closing.

Posted by: skm | October 25, 2006 11:25 AM

Thanks for the links and information. I went to college some 30+ years ago, and grad school 20+ years ago. My debts are long paid off, but I do have a 9th grader who is just starting to think about college. I truly appreciate the heads-up.

Posted by: cotopaxi | October 25, 2006 11:26 AM

As with credit card debt, the student loan situation argues for better education of consumers as to the effects of interest rates, compound interest, etc. on the borrowing that they do. I'm lucky in that I've educated myself and worked to consolidate my debts in ways that have minimized the interest now due on them, but what a difference it would have made if at some point there had been some practical education in the public schools I attended to teach us how debt and interest works before dumping us out into a marketplace that's fairly unforgiving of mistakes.

Posted by: Moose | October 25, 2006 11:29 AM

Uh...who said that you need to spend $150K for a degree? Just because lenders are willing to shell out that kind of money, maybe you should really consider whether you can repay this type of debt when you graduate. I especially amazed at the number of parents who see no problem taking on this this type of debt load for the undergraduate education of their precious children so that they can attend schools like Duke, NYU, Fordham, Johns Hopkins, Boston College and Miami. Sure, these are prestigious schools and my wife and I both graduated from one of them in the mid-80s. However, when do you say "honey, I love you, but we need to look at schools that are a bit more within our means." Does this mean that you trade NYU for NVCC? No, but Virginia offers awesome schools, public and private (e.g., Lynchburg) at a fraction of the cost. Read Jay Matthews' book Harvard Schmarvard for a list of 100 that are great schools and a good value. Our daughter got into Ithaca, UNH and several Virginia state schools and chose to go in state. Could we have afforded the others? Sure, but would her education have been 2-3 times better? Unlikely! With the amount of information available today it is hard to understand how people can mess this up so badly.

Posted by: Lester Burnham | October 25, 2006 11:36 AM

Uh, Southern Maryland - my dad is an estate attorney in a small town in Pennsylvania and while he's not living paycheck to paycheck I can assure you he does not live in a mansion, does not summer in Europe, has never had an au pair, and has one car, which is none of the brands you list. Poorlawstudent is absolutely right that the stereotype that all lawyers are rich is way off base. How much a lawyer can make often depends on the type of law they practice, and the economy of the area. A public defender in East Liverpool Ohio is probably not going to make as much as a public defender in Beverly Hills.

Posted by: Arlington | October 25, 2006 11:56 AM

What everyone is totally missing is that these easy to get loans are fueling the price inflation at universities. The price of education has gone up many times the rate of inflation since these loans were established. Yet the education bought with this price increase has remained the same. In fact, looking at my university. They have the exact same profesors they had ten years ago, but the price has almost doubled. The difference is that universities are all using this loan money to build golden student centers, ours was just completed at $140 million. Universities waste this money and it ends up costing students for years. The public universities have turned into huge centers of corruption for state governments with kickbacks for construction contracts. All these Masters and Phds, yet no one is looking at the economics of the situation. Perhaps evryone is blinded by their loyalty to the university to hold them up to accountable standards. A national epidemic it seems.

Posted by: morganja | October 25, 2006 12:37 PM

I was being sarcastic -- sorry it didn't come across that way. I work for a large law firm where the partners pull down close to $1 million a year. The only drawback is you have to sell your soul to be a lawyer. Give up your life. They enter 60-80 hours a week on client work. Our office is staffed 24/7. If you call here at 3:00 am on Saturday morning, somebody will answer the phone. Many are married to other lawyers because nobody else can stand them, therefore doubling their wealth. I'm merely a low-life support staff and make more than most Government lawyers. It's not a field I'd want to go into myself. I only work here because I have a mortgage and have to support myself so I guess I'm no better than they are.

Posted by: Southern Maryland | October 25, 2006 12:48 PM

Morganja...you may have a point...I recall seeing an article recently which stated that college tuition has increased 35% over the past five years. These are the types of price increases that existed in healthcare until the early 80s when the government, as the largest insurer, stepped in. While this is a different, unregulated market, I wonder if we will see a consumer backlash against these schools to keep their costs in line? It should be interesting to see what happens in about five years when supply and demand (graduation HS seniors and college freshman slots) become more balanced. Some schools (e.g., the Ivies) won't notice, but other schools should see some pain.

Posted by: Lester Burnham | October 25, 2006 01:03 PM

I think people need to start weighing their options in a more realistic light. I graduated from a prestigious college several years ago, and I'm currently pursuing my Master's degree while working full time. I had a number of choices, two of which were: 1. an expensive, prestigious private university where I'd be a full-time student with a $65,000 loan hovering over my head; or 2. a moderately-priced local university of moderate reputation, where I could enroll as an evening student while working full time. Guess which I chose? The latter. Sure, the prestigious name lured me, but it just didn't merit the $65,000 tag that came with it because I'm not even going into law, medicine, business, engineering, or some other lucrative field that would help me recoup what I spent. I gave up the prestige in exchange for financial freedom- I bought a house while going to school, paid my tuition while working, and will soon graduate with a Master's degree that's all paid for!

Posted by: a grad student | October 25, 2006 02:04 PM

I also join the ranks of those who invested in a post-graduate degree only to realize lackluster salaries and mounting student loan payments. By entering the Federal sector, my post-MBA salary is not a whole lot more than it was before I went back to school, except now the loan payments are mounting. I've refinanced the Federal loans at a low interest rate, but they hardly covered the price of tuition, let alone books and living expenses during those 2 years. Private "MBA Loans" funded the rest, and those are locked in at 7-8%. There's precious little information on the tax implications and refinancability of these private loans.

I'm glad I got my BA at a state school. But MBA programs at state schools are not really less expensive than those in private universities, so there's really no way to win.

Posted by: MBA in D-E-B-T | October 25, 2006 02:15 PM

I've been out of undergrad for almost 14 years, and it sounds like things have changed drastically. I took out the maximum in one kind of federal loan each year of school, and more of another type of federal loan in order to pay for my education. It was inconceivable that I would have to go to a private lender (then again, we were pretty poor, so we qualified for the second type of loan, and I decided to go to a Big 10 state school whose out-of-state tuition was half the tuition at the private school I got into).
I think I am definitely better off for having been able to take out the loans. It was challenging the first few years, but doable.
I am definitely glad that I did not finance a graduate degree with loans. I don't think that on top of undergrad would have been worth it. Instead, I got a job with tuition benefits that covered my masters, then took a position at a university to get free tuition for the PhD. While I'm still working on the last degree, and it's taken me longer, I got some really valuable experience from working and going to school.

Posted by: things have changed | October 25, 2006 02:34 PM

The spiraling cost of higher education has already resulted in a migration to community (aka "junior") colleges at least for the first two years. Provided you can attend a school that provides transferrable credits, you can complete your education at a four-year school and save a LOT of money. The universities won't change their practices until they notice that their freshman classes are shrinking.

Posted by: CT | October 25, 2006 03:17 PM

If you're borrowing to earn/buy a degree in business, law, science, or medicine, you may be OK. But there's a superabundance of unemployed and underemployed bachelors, masters, and doctorates in the humanities out there. An MBA who can figure out how to make a profit using this cheap/free labor source should do very well--at least under the current administration.

Definitely don't believe the college catalogs; analyze labor/employment data in your field, state, and locale. Know that the "new" employment is "underemployment," sub-forty-hour jobs that prevent labor from unionizing or collecting unemployment! Since they can't qualify for unemployment, the underemployed are not counted as such in Federal employment figures.

Of note: there's a "dirty little secret" about WHO will teach those college courses you are about to pay top dollar for! Contingent academics are most of who's teaching in colleges and universities, working for 1/3 the wage of FT academics without benefits or offices, and often employed by several colleges at once-- allowing colleges to fill the seats and to make the lenders happy.

In a "pyramid scheme," degree holders who fail to find work in their field enlarge the pool of contingent labor, further driving the wages down.

Cultural institutions have mastered the art of using unpain/low paid internships to get work done for less, and businesses are eager to catch up.

Get a degree if there's real opportunity behind it, but don't put your life in hock to stand in the bread line!

Posted by: Borrowing? What's the degree worth? | October 25, 2006 03:19 PM

Has the cost of knowledge now exceeded the cost of ignorance?

Probably not. I could be a close thing, however, depending on what other debt the student accumulates. Credit card companies love to hook students, many of whom come out of high school with no real knowledge of the concept of money. Also, the potential income, and work experience, that could be gained by going straight into the job market from high school, is something to consider.

Posted by: Matt M | October 25, 2006 03:35 PM

Because I went to a private college and law school, I had over $100K in debt upon graduation even though I had partial scholarships. I would have done things much differently (like working and going to school part time) if I had fully appreciated the fact that so much debt means that Sallie Mae, in a sense, owns your first-born. And, no, I'm not in the poor house, but my salary is a modest government one, as I do not work for a large firm. But, I'm tempted...

Posted by: Another poor lawyer | October 25, 2006 04:19 PM

Give me a break. Financial aid is not that complicated.

Furthermore, Welcome to the real world! (which means you need to learn how to read the fine print)

You're adults now, so start acting like it.

Yes, I have student loans myself. Yes, I understand the processes involved. Most of the stuff here sounds like a bunch of whining to me.

Seems like everyone these days thinks the world owes thems something. Be glad you were not born to a poor mother in Africa who is HIV positive, or in India in one of the lowests castes, or in the Gaza strip, or in ... (you get the point).

Stop wasting your time whining. Get to work to pay off your debt and contribute something positive to the world.

Posted by: Grow Up! | October 25, 2006 05:04 PM

Is it whining to ask why bankruptcy for private student loans has been outlawed by Congress?

Is it whining to ask why Student Loan Company CEO's are buying baseball teams, and making $100 million donations?

Is it whining to ask why the two chairmen of the Congressional Education Committees are paying their family members hundreds of thousands of dollars from campaign contributions from student loan companies?

I suggest that growup goto

studentloanjustice.org/victims.htm

to see what this legislation has done to people.

Posted by: studentloanjustice.org | October 25, 2006 11:30 PM