Midterm Review: Taking another Look at Student Loans

If you went to college, how did you pay for it? Did you get student loans? Are you still paying them? How will your children and their children pay for higher education?

In May 2006, students dressed in caps and gowns protested outside the offices of House Majority Leader John A. Boehner (Ohio), who they hoped would respond to their pleas for affordable education.

Like healthcare costs, tuition is inflating fast.

Tuition and expenses for an average four-year university have ballooned in the last twenty years, with costs rising as much as 80 percent in that amount of time.

Students at both public and private institutions have been unable to keep up, with poorer students dropping out altogether and better-off students taking out more and more loans.

Congress has been slowly transferring the federal loan program to the private sector, which supporters say is better equipped to manage loans. But some disagree, especially students who say big private lenders like Sallie Mae fail to treat them with respect when it comes time to collect.

Going private

Over the past ten years, Congress has helped private lenders to offer student loans by paying them subsidies and assuming the risk. Therefore, schools and students have been nudged toward privately-managed loans, which many say are more efficiently administered and save money for the taxpayer. But this is a matter of debate.

The Congressional Budget Office and the Office of Management and Budget have found the opposite - that direct government lending is cheaper for taxpayers. But private lenders doubt the way that the government measures program costs.

So without anyone being sure of which is cheaper and better - privately or publicly managed loans - the trend continues, with direct government loans slowly evaporating.

What about the students?

For students, direct loans and private loans feel the same at first. They have the same interest rates, which are set by Congress, as well as equal eligibility requirements and limits. And most students don’t know the difference, since the school decides which kind of loan to offer.

However, when it comes to repayment, students who borrowed from private lenders may suffer if they default on their loans. Banks began lending to students in the interest of profit, while direct government loans were created with a more-educated population in mind as the bottom line.

More and more schools are choosing private lenders because private programs market themselves to institutions, while the federal direct lending program does not. Further, private lenders often offer deals to borrowers and schools in order to get their business, while direct loans are restricted by law from offering larger discounts.

This system creates huge profits to lending agencies like Sallie Mae, which has grown five fold since 2000, and is the largest lender other than the government itself. Sallie Mae holds $100 billion worth of loans in its portfolio, more than its ten largest competitors combined.

Students who were unable to pay back loans from Sallie Mae have complained of huge penalties, unfair treatment, and ruined credit from the lender, while its chairman, Albert L. Lord, has grown richer.

Students share their horror stories on studentloanjustice.org, a website that calls student loans the most profitable and predatory type of lending in the nation. The group highlights Sallie Mae’s monetary contributions to legislators, particularly those lawmakers on education committees who have the power to decide the future of the student loan market.

What do you think?

How and who should administer student loans? What should happen if students default? Should the bottom line be a more educated population or efficient management or higher profits? What do you think should be done to control the swelling costs of higher education?

Your input matters

Your representatives DO care what you think. Especially now -- 2006 is an election year and many representatives will be looking to reconnect with their constituents. Let your congressmen and women know what you think! Give your senators a piece of your mind! To find your reps, click here.

About WomenMatter

WomenMatter is a place to discuss life issues with other women. We don’t want to wedge women apart, but rather bring them together to dialogue. To participate in our blog, click here.

WomenMatter is the place where we can take one issue at a time, match what we do about it every day of our lives to the facts of the bigger system that we all live in and recognize that every idea for making it better has tradeoffs.

WomenMatter is dedicated to empowering women to participate in the political process. To do this we have invested in the most in-depth NONPARTISAN information, because we trust each woman to make up her own mind.

• We track nine issues every week and update this website several times a week.
• We launch after school GirlsMatter Clubs in middle and high schools to grow the next generation of politically aware women through a full curriculum and startup kit on girlsmatter.com.
• We do continuous research to make sure that we are meeting the needs of women across the country of all ages, races, incomes, preferences, and religions.

We offer all our services free of charge without memberships or subscriptions. To help us maintain this work - not just in election years but as a continuing part of women’s lives - please make a tax deductible donation, click here.

Posted on: 6/4/2006