Ralph Nader on Student Loans

I’ve talked a little bit about Obama and McCain’s views on funding higher education (see here and here), but I’ve neglected the third party candidates.  As it turns out, Ralph Nader has some excellent views on the crisis in education funding and what should be done about it – too bad I didn’t discover this before I voted!  From Georgetown’s student newspaper, The Hoya:

Public universities should be tuition-free, as they have been for decades in Western Europe, including some countries like Finland. … If they can do it, we can do it. It should be like high school. If you want to go to Harvard or Brown, you pay whatever — although they’re going toward tuition-free because of their endowment interests, you know, they’re moving in that direction, but it should be that way. It takes about $55 billion a year, and we spend $80 billion in up-front and back-up costs keeping soldiers in Western Europe and East Asia, 60 years after World War II — doing what? Who are they defending? Japan? South Korea, Germany, England, France — against who? Inner Mongolia? Moldova? So if you bring them back, and then a lot of the soldiers can get an education, too.

So that’s it. Now, absent that, you’ve got to expand your student loans. They should be completely done by the Department of Education. There should be no Sallie Mae, no commercial student loan companies that gouge you, rip you off and do it, you know, do it after you’ve signed on …And by the way, you know, these student loans companies wine and dine …, a lot of your loan officials — student loan officials, like Duke and Columbia. They had to resign. They take them to junkets, wine and dine, so that they can get an exclusive — actually put their people on campus

CNBC on Avoiding Student Loan Scams

On CNBC’s On the Money today, host Carmen Wong Ulrich talks about New York Attorney General Andrew Cuomo’s recent settlement with Goal Financial over Goal’s deceptive advertising practices.  She gives a few tips on avoiding student loan scams:

1. Exhaust all public loan options. Public loans are preferred because they have fixed interest rates and flexible payment options. FinAid.org offers examples of different types of public loans offered.

2. If you do apply for a private loan, stick with big banks. You will rest easier knowing your loan is coming from an established institution with a good reputation. Bankrate allows you to compare your different options and pick loans with the lowest rates and best payment plans.

3. If it sounds too good to be true, it usually is. Like with anything, always read the fine print (and if a free iPod is involved, be extra studious). It’s also best to approach your financial aid office for recommendations before heading out on your own.

Not all private loans are inherently bad and misleading, Carmen stressed. But now more than ever, it pays to be vigilant.

Good tips all, but I still have a major problem with the fact that 18 year old kids are expected to be fine-print-reading financial whizzes, and if they do wind up taking out particularly onerous loans because of deceptive practices, they still can’t get out of them. 

 

Next President Likely to Face College Funding Challenges

By the end of the night (hopefully), we’ll know whether our next president is going to be Barack Obama or John McCain.  No matter who wins, the next President is going to face several challenges in making sure that college is affordable for everyone.  The Higher Ed Watch blog lists the federal budget deficit, the continuing credit crunch, a budget shortfall in the Pell Grant program, and expiring student aid programs and benefits as major obstacles to each candidate’s plans for making college more affordable.  One important program set to expire is the interest rate reduction for subsidized federal student loans. 

The interest rate reduction that Congress approved for subsidized federal student loans is due to expire at the end of the 2011-12 academic year. In other words, under current law, loans issued that year will have a fixed interest rate of 3.4 percent for the life of the loan, but loans issued the following year will carry a fixed rate of 6.8 percent. The new president will have to decide whether he supports extending the 3.4 percent interest rate. Doing so could cost as much as $3 billion a year. Of course, allowing student loan interest rates to double could be politically risky, no matter the costs or public policy implications. [At Higher Ed Watch, we believe that policymakers should consider expanding the existing student loan interest rate reduction instead. That proposal would be less costly and better targeted on recent college graduates with burdensome levels of debt.]

Leaving the Country to Avoid Loans – Update

Earlier I posted on a story about people fleeing the country to avoid their student loan payments.  There weren’t many specifics, but I then came across this article on CNN.com. (Thanks to this blog).  So wow – people are really doing this. 

While most Americans are burdened with debt of some kind, student loan repayment can be a particularly scary prospect for young people struggling to start a career. Payments are often higher than expected, and the loans can’t easily be discharged. Added pressure from debt collectors causes some grads to flee their loans by fleeing the country.

“These are people new to borrowing and they didn’t understand what they were getting into,” says Mark Kantrowitz of Finaid.org, an online student loan information Web site. “It’s a very sorry situation that it comes to students feeling they have no option than to leave the country,” he says. “It’s a sign the system is broken.”

Apparently, it’s harder to find people with international addresses and it costs more for the collection agencies so they don’t feel as much incentive to go after these students.  Two words: Bon Voyage.

Are You Eligible for the Public Service Loan Forgiveness Program? Who Knows?!?

The Higher Ed Watch blog has a short discussion/analysis of the newly released Department of Education Final Regulations, which address the new Public Service Loan Forgiveness Program.  I’m still learning about this program myself, but from what I gather, the program does not make it clear up front who will be eligible for the loan forgiveness.  Borrowers could be working in low-paying jobs for up to TEN YEARS only to find out that they don’t qualify:

In its final rules, the Department did not commit to providing periodic confirmation notices to borrowers about their eligibility. Instead, the agency said that the onus will be on borrowers “to document” their eligibility over time. Department officials said that they do not want to provide borrowers “with a contractual right to the benefit,” as Congress may decide to eliminate the program in the future. Higher Ed Watch hopes that Congress will revisit this issue next year to insure that the program lives up to its promise.

Cost of College Rising More Quickly Than Wages

The Project on Student Debt has issued a press release noting that the cost of tuition, fees, room and board are rising higher than wages. This means, of course, that student debt levels are rising as well:

From 2006-07 to 2007-08, in-state students at public universities saw the biggest increase in tuition and fees at 6.4 percent, with room and board up 5.2 percent….Students at all types of colleges still faced higher prices than they did the year before, and student debt levels are rising as families try to keep up.

Obama Talks About Student Loans on MTV

Today, MTV will air a program, taped on Saturday, in which they sat down with Senator Obama and asked him questions sent to them by viewers (they offered McCain the same opportunity, but he declined).  Obama talked about a wide variety of issues from gay marriage to civil liberties, but two of the questions directly addressed college affordability and student loan repayment:

Sway: The first question is from joi0924, and she’s from San Antonio: “The young people today cannot afford to go to college because of the cost of tuition. What are your plans as our next president when it comes to making it easier for young people to attend college?”

Can’t Pay Your Debt? – Just Leave the Country!

The Daily Vidette, Illinois State University’s college newspaper, reports today that some students are fleeing the country to avoid mounting student loan debt.  It’s an interesting story, but unfortunately, they do not provide any examples – Who are these students?  Where are they going?  Are they fugitives from justice or just, say, joining the Peace Corps to get deferments?

If any of my readers know anyone who has actually fled the country to avoid student loan debt, please comment below.

Student Loan Company Reaches Settlement Agreement for Deceptive Tactics

The New York Times reported yesterday that Goal Financial has reached a settlement with the New York attorney general, who has been investigating reports of deceptive lending tactics. 

“Goal Financial had used mailings that looked as though they came from the federal government and had offered iPods, spa gift cards and other items to lure borrowers.

Under the terms of the agreement, Goal will adopt a marketing code of conduct developed by the office of the attorney general, Andrew M. Cuomo, and will pay $350,000 to a fund maintained by his office for educating students about the financial aid process.

Eight other lenders have already agreed to abide by the code of conduct, which sets out rules for companies to follow in their direct-to-consumer marketing efforts. Seven of those companies have contributed more than $1.4 million to the attorney general’s fund.”

The Times also reports that in 2006, Goal was one of the top 10 largest providers of student debt consolidation loans.  One interesting thing about this whole mess – no report of what, if any remedies, the students who took out these loans are going to get.

Lawsuit Against Sallie Mae Alleges Fraud

The Chronicle of Higher Education recently reported that a former Sallie Mae employee has filed a federal False Claims Act against the company alleging that Sallie Mae “had been using the practice of granting forbearances to systematically balloon student-loan debts.”  From the article:

In the system of government-guaranteed student loans, the tactic was part of a strategy to grow student debts as large as possible, increasing Sallie Mae’s profits, before taxpayers and debtors were stuck with the final bill, said the former Sallie Mae employee, Michael Zahara. 

For the legal geeks out there, I’ve attached a copy of the complaint.  Zahara v. SLM Corporation