Robbing Joe College to
Pay Sallie Mae
Op-Ed Contributor ANYA KAMENETZ | The New York Times | December 12, 2005
THE higher education financing system in this country, like the health care system,
is broken. In both cases, costs spiral out of control while millions of people,
especially the poor, are not served. And in both cases, a few corporations are
making hefty profits.
From the 1950's to the 1970's, college attendance grew along with federal student
grant aid. Then, as tuition mushroomed and loans replaced grants, educational
attainment stagnated. Today, those lucky enough to graduate from college end up
with an average of $17,600 in loans, a burden that shapes decisions like buying
a house or having children. But most young people are not so lucky - half of those
who start college do not graduate at all, in part because of the financial burden
of staying in school. As a result, Americans aged 25 to 34 are less educated than
45- to 54-year-olds - and more to the point, less educated on average than the
citizens of several other industrialized nations.
The federal student aid system fails students, but it does a great job of delivering
profits to private lenders, which issued $65 billion in loans last year. When
it created the loan program, Congress assumed that banks would not lend to young
people without extensive guarantees and incentives. So they guaranteed a certain
rate of return on student loans, made up their losses on defaulters, created a
secondary market for student loans by chartering the Student Loan Marketing Corporation
(Sallie Mae) and allowed state lending authorities to issue tax-exempt bonds to
raise loan capital. Student lending has grown into a highly profitable and low-default
market, yet these special privileges persist.
Sallie Mae, the private company that makes, buys and sells the most student loans,
boasted the second-highest return on revenue in the 2005 Fortune 500. Sallie Mae
also happens to be the largest contributor, by far, to members of the House Education
Committee. The Chronicle of Higher Education found that the committee chairman
alone, John Boehner of Ohio, received $172,000 from student lenders and loan consolidators
in 2003 and 2004.
It's thus no surprise that lawmakers are apt to protect lenders and not students.
On Oct. 26, Mr. Boehner's committee approved more than $14 billion in cuts over
the next six years, which would be the largest reduction in the history of the
federal student aid program. Mr. Boehner defended the cuts by saying they mostly
came from corporate subsidies to Sallie Mae, Bank One, Citibank and the rest.
But that gets to the heart of what is wrong with this program - and the way to
fix it. The best way to reverse the shocking trends in debt and educational attainment
would be to switch from loans back to grants. Given ballooning deficits, though,
that's a nonstarter. Instead, why not cut off subsidies to banks and give that
money to needy students?
One way to do that is to expand a program begun in 1992 in which the government
makes loans directly. A recent Government Accountability Office report showed
that direct loans cost the government one-fifth as much as subsidized loans over
the past 10 years. Mr. Boehner, however, kept the report under wraps for 30 days,
and it was released just hours before the House committee vote. Representative
George Miller, Democrat of California, estimates that the aid program could save
$60 billion over the next decade by switching entirely to direct loans - enough
for almost a 50 percent increase in Pell Grant money.
A group of students has also proposed a National Tuition Endowment, which would
preserve an estimated $30 billion for need-based grants by cutting loan subsidies
and finally closing an infamous loophole that has lenders collecting 9.5 percent
interest from the government on certain loans.
Yet Mr. Boehner is heading in a different direction. He told an audience of commercial
student lenders earlier this month that "I've got enough rabbits up my sleeve"
to make them happier with the bill.
With the higher education budget scheduled for passage next year, this is a great
occasion for a public debate on the values that conservatives claim, like individual
self-determination, free markets and international competitiveness. Do we want
to keep robbing from our future?
Anya Kamenetz is a columnist for the Village Voice and author of the forthcoming
"Generation Debt: Why Now Is A Terrible Time to Be Young." |
Copyright 2005 | The New York Times Company
Letters to the Editor | New York Times | March 24, 2007 | Debt and the College
Graduate (6 Letters)
To the Editor:
Re “Stepping on the Dream” (column, March 22):
Bob Herbert highlights one dimension of a titanic problem on the horizon. The
bow is, as he describes, the debt burden carried by increasing numbers of young
college graduates. The stern, which is more likely to bring the ship down, is
the looming default crisis that seems inevitable.
Costs of education are rising at a far faster rate than the incomes earned by
those who carry the debt. The whole system is predicated on future income streams
that are drying up as fast as candor in Washington.
I predict a financial collapse of unprecedented magnitude in the decades ahead.
It will make the current mortgage lending debacle look trivial in comparison.
Steven J. Nelson
Head, Calhoun School
New York, March 23, 2007
•
To the Editor:
It is amazing, as Bob Herbert points out, that in a time when we’ve constructed
a society that is critically dependent upon the pursuit of higher education by
the widest possible range of citizens, we’ve managed to turn access to that
education into just another debt-driven fixture of our consumerist culture.
Given that a college education is important not only to the individual as a private
person but also to the individual as citizen, one wonders why the pursuit of such
higher learning is not seen as something of an obligation rather than one more
trinket and one more hurdle in the ever-earlier-starting rat race.
David Dumitru
St. Louis, March 22, 2007
•
To the Editor:
To be sure, the cost of a college education is escalating, but that “sweet
period” of days gone by when recent college graduates could relax, travel
or “sample intriguing employment opportunities” is largely a myth.
Today’s generation, used to instant gratification, may be ill equipped to
face the sacrifices they must make to secure a college education.
Designer clothes, expensive cars and travel will have to be put on hold for a
while. And yes, the new graduate might just have to get used to the “persistent
anxiety” and settle for a first job that pays the bills — just as earlier
generations had to do.
Diane Marett
Lake Ronkonkoma, N.Y., March 22, 2007
•
To the Editor:
My legal career transition is another example of how student debt steers lawyers
away from public interest work.
I worked as a public defender for the State of Florida right after law school
and enjoyed the good feeling that came with helping the poor rural population
in central Florida. But with more than $100,000 of debt, much of it at 9 percent
interest, I just couldn’t afford to get by on my $41,000-a-year salary.
Transitioning to work for the federal government and working in intellectual property,
I help commerce flow but rarely help people themselves. And now, because I make
more than $50,000 a year, I can no longer deduct my interest payments for my law
school debt.
One of the first steps Congress could take to help recent graduates would be either
to eliminate or raise that phase-out for student interest deductions.
James W. Stein
Washington, March 22, 2007
•
To the Editor:
Why should a future investment banker and a future elementary school teacher pay
the same amount for college? They shouldn’t.
To finance higher education, we should institute a lifelong flat-rate tithe on
all earnings. The future banker would end up paying more in the long run, but
that’s how it should be.
Nobody would have to go into debt to go to college. And our young people could
choose careers based on their real interests, not on their interest rates.
Jonathan Zimmerman
New York, March 22, 2007
The writer is a professor of education and history at N.Y.U.
•
To the Editor:
Bob Herbert raises a serious issue regarding a higher-education culture that is
turning students into indentured servants for years.
Even as college administrators are emulating managers in the corporate world,
including giving themselves lucrative compensation packages, students are left
alone to shoulder the incoherent needs of society — getting an education
to improve the social lot and financing the lifestyles of those who care little
about the national well-being.
It is not uncommon for students to emerge from college with $100,000 of debt and
find themselves applying for jobs at corporations that are subsidized by taxpayer
money through federal contracts. In such cases, students are doubly penalized
and society loses twice. Wouldn’t it be far better to subsidize students
first?
Anouar Majid
Portland, Me., March 22, 2007
The writer is chairman of the English department, University of New England.
MONEY TALK
Student Loan Collectors Have the Latitude to Play Hardball
Liz Pulliam Weston | Money Talk | Los Angeles Times | May 22, 2005
Question: We have a huge problem that we've
been trying to solve without success. We co-signed a $40,000 student loan for
our eldest child and then had a serious run of bad luck. My husband was critically
injured and out of work for a long period, we lost money in the stock market,
and our son has had trouble finding a good job after graduation. A lawyer told
us bankruptcy would help our situation, but it didn't — the lender sued us
and now we owe an additional $30,000 because of interest and fees. We hired a
second lawyer, but he only made things worse. We make less than $50,000, don't
own a house and have old cars that aren't worth very much. Our only asset is a
retirement account worth $30,000. We have begged the collection agency for a repayment
plan that we can afford, but our pleas have been ignored. We have two more kids
to help with college and feel as if we are living in a nightmare. Do you have
any hope for us?
Answer: You've discovered the modern reality of student
loans: Once you've got them, you're stuck with them. A federal law change in 1998
made most student loans virtually impossible to erase in Bankruptcy Court. (The
2005 bankruptcy reform act tightened the law even further to include loans for
education made by for-profit lenders.) Unlike most other secured debt, there's
also no statute of limitations on student loans. That means a lender can sue you
decades after the loans were made. The statute of limitations on other debt is
typically a few years.
All this means student loan collectors can really play hardball with debtors.
You can't run, you can't hide, and the collection agencies monitor your credit
reports so they can jump in if your financial situation seems to be improving.
You may be understandably soured on attorneys. But if your requests for an affordable
repayment plan are being ignored, your best bet might be to hire another lawyer
— one experienced with student loan debt — to deal with the collection
agency. The National Assn. of Consumer Advocates at (202) 452-1989 or http://www.naca.net
can provide referrals.
You probably need to give up on the idea of helping your other kids with college.
Your priorities need to be paying off this debt and saving for your own retirement.
You also need to get your oldest son to contribute his part — he's the one
who benefited from all this debt, after all.
------------------------------------
Copyright 2005 Los Angeles Times
College Loans: The Lost Concept of Repayment
from Letters to the Editor (Jan.18,
2005) The Wall Street Journal
"I read with great interest the Jan.6 page-one article 'College Try:
U.S. Gets Tough on Failure to Repay Student Loans,' wherein three stories
were told of individuals who had defaulted on college student loans guaranteed
by the federal government. In each case there was a version of the song, 'If
I had only known.' Known what? That I wouldn't make much money as a cello
player? That if I didn't complete my degree I wouldn't make much money? One
defaulter said that he wouldn't have gone to such an expensive school.
I may sound unsympathetic to their circumstances, but I assure you that I am
not. But I am distressed by the failure of our schools and families to educate
potential and current college students about the economics of the choices they
make. In fact, we don't provide the vital consumer finance education to our
youth that is critical to their economic success as adults. Where and when are
they taught the true costs of borrowing and the true costs and benefits of education?
Where and when are they taught how to assess the cost of education relative
to the career and income potential?...
Marie A. Bennett, High Education Consultant Rockville, Md.