"High-Priced Student Loans Sow Seeds of Trouble for U.S. Economic Growth"

[AZBlue]

What about those who are presently struggling with student loans? Why don't candidates/politicians ever address that issue? As I commented in a thread related to Hillary's $5K bond for future babies, why do they ignore those currently living and struggling?? Do they think we don't vote? Because my economic situation makes me more politically active, not less.



AP
High-Priced Student Loans Spell Trouble
Sunday September 30, 2:14 pm ET
By Marcy Gordon, AP Business Writer
Explosion in High-Priced Student Loans Sow Seeds of Trouble for U.S. Economic Growth

Many in the next generation of workers will be so debt-burdened they will have to delay home purchases, limit vacations, even eat out less to pay loans off on time.

True...but many in the current and last generations are struggling too.

Sallie Mae, formally known as SLM Corp., has been on the winning side of the loan bonanza. Its portfolio of 10 million customers includes $25 billion in private and $128 billion in government-backed education loans. However, private-equity investors who had offered $25 billion to buy the company backed out last week, citing credit market weakness and a new law cutting billions of dollars in subsidies to student lenders.

Citigroup Inc., Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Wachovia Corp. and Regions Financial Corp. are also big players in the private student loan business. And there has been an explosion in specialized student loan lenders, such as EduCap, Nelnet Inc., NextStudent Inc., Student Loan Corp., College Loan Corp., CIT Group Inc. and Education Finance Partners Inc.

The question is whether everyone who borrowed will be able to repay. Experts don't track default rates on private student loans, but many predict sharp increases in years to come.

Oooooh....now I see why nothing's being done! Corporations are making billions. Of course...I should have known.

New York Attorney General Andrew Cuomo said many graduates who borrowed owe as much if not more than most homeowners owe on mortgages. Unlike mortgages with clear consumer disclosure requirements -- even from nonbank lenders, private lending is "the Wild West of the student loan industry," he said in a telephone interview.

Critics say what happened in the mortgage market could happen in the student loan market. Cuomo, who conducted a nationwide investigation, said the parallels between the two markets are "provocative."

As one woman who's tried to navigate the red tape and stonewalling by the student loan industry, I can attest that it's a nightmare. The rules change at their whim and no one is there to help the consumer.

A 2005 change to bankruptcy law puts private student loans on par with child support and alimony payments: Lenders can garnish wages if someone doesn't pay.

Cuomo's probe revealed what he calls an "appalling pattern of favoritism" for student lenders that provided kickbacks, revenue-sharing plans and trips to college administrators in exchange for recommended lender status. Other critics allege widespread corrupt arrangements propelled a student loan boom.

http://biz.yahoo.com/ap/070930/student_loans_the_spiral.html?.v=3

[dajoki]

1. Tell me about it...

From a previous thread:
http://www.democraticunderground.com/discuss/duboard.php?az=show_topic&forum=389&topic_id=1352078

Unregulated student loans make fortunes for CEO and screw students

Please, anyone thinking of doing business with this company, LOAN TO LEARN, think again. I have personal knowledge about this and it isn't pretty. My daughter took a student loan from them about three years ago for nursing school. I even spoke with them because it sounded too good to be true, and it was, but they even fooled me.

The advertisement was no payments until one year after graduation. Well it turned out to be no payments on the PRINCIPLE, she started getting bills for interest payments (12%) after one month, and the interest rates change EVERY MONTH, now up to 15%. Money doesn't get applied to principle 'till after graduation, which she has accomplished (BSN in Nursing). She borrowed around $20,000 to help with her house payments while she was in school and will end up paying back near $100,000. It is a TWENTY YEAR STUDENT LOAN!!

The advertising and phone reps are very tricky, because when I spoke with them I heard nothing like that. We are in the process of seeing if there is anything that can be done about this, so far, no luck. But we are going to keep trying. This is a warning about an evil business and equally evil people who take advantage of those who can least afford it. SO PLEASE READ ENTIRE ARTICLE, I wish I had before my daughter got robbed. Thank You.

-------------------------------------------------------------------------

Student Loan Nonprofit a Boon for CEO
Watchdogs Question Spending; Company Touts Benefit to Consumers

By Amit R. Paley and Valerie Strauss
Washington Post Staff Writers
Monday, July 16, 2007; Page A01
http://www.washingtonpost.com/wp-dyn/content/article/20...

<<snip>>

The nonprofit company also has become a financial boon for the accountant, Catherine B. Reynolds, and her family. The McLean-based company bought a Gulfstream jet worth about $30 million that she sometimes uses to fly friends and relatives around the world. It has given more than $9 million to a separate nonprofit company run by her husband and paid her $1 million in annual compensation. And the nonprofit donates millions to her favorite charities, including $400,000 to her daughter's private school.

Loan industry watchdogs question whether the company, EduCap, operates in the best interests of students and should retain its nonprofit status. As a nonprofit, EduCap is exempt from paying federal income tax as long as it claims to be serving a public good. But the company allows some students to borrow up to $50,000 a year, sometimes at 18 percent effective interest rates -- terms that most financial experts urge borrowers to avoid. The Internal Revenue Service has been reviewing the business.

<<snip>>

One Entity, Three Names

The IRS has been reviewing the company's financial arrangements, according to people with direct knowledge of the matter. Under those arrangements, one legal entity, EduCap, operates under three different names: EduCap, the Catherine B. Reynolds Foundation and Loan to Learn, the brand under which EduCap loans money to students.

<<snip>>

Nonprofit Benefits Family

One of the largest beneficiaries of the foundation has been the Academy of Achievement, a separate nonprofit company run by Wayne Reynolds that sometimes directs payments to a for-profit company he runs. EduCap has donated at least $9 million to the academy, which then paid at least $1.7 million to ASC Management Co., a company whose sole shareholder is Wayne Reynolds, tax filings show.

<<snip>>

The operations of EduCap and the Academy of Achievement are intertwined. The companies share the same office space, hold corporate retreats at the same Caribbean resort and lend each other accounting and administrative staff, according to former employees and company records. Wayne Reynolds sits on the EduCap board of directors, and Catherine Reynolds is the vice chairman of the Academy of Achievement's board.

[AZBlue]

2. The student loan industry, including the govt portion of it, is corrupt!

I'm so sorry you've had that experience. I went with govt loans, but it doesn't matter because they are sold every year from one company to another. Everyone I talk to "can't help me" or tells me it's "not their job" and I always get passed along to someone else who won't help me. I've written letters, called, contacted the ombudsman's office, and no one will even give me a straight answer. Except once - and that answer cost me thousands more because it was wrong.

There needs to be oversight, regulations, better disclosure when you sign those forms and more assistance and information once payment begins.

[dajoki]

3. My daughter...

has been making payments for about 3 years now, total she paid is about $3600 and of that amount only $83 came off the principle. Everytime she calls she gets the runaround. Something must be done to stop this predatory lending. Like I said they even fooled me. What chance do the kids have?

[AZBlue]

5. That's insane!

In any other industry, interest rates like that would immediately be illegal. I think the government looks at it as their secret little cash magnet.

[dajoki]

13. And it is...

considered non-profit, so they pay no taxes.

[slipslidingaway]

4. K&R thanks n/t

[YOY]

6. I had to ask my parents to help my 32 year old working professional ass out on mine

They kept on jacking up the rates. We estimated I had paid $13,400 on one loan over 4 years. However due to the IR going up I had only paid off about 3,000 of the premium. It was like goddamn indentured servitude.

My folks took out some 0 interest credit cards to pay them off (arbitration at it's finest.) Of course the moment the loan was paid off the f***wad clownshoes at Citibank thought I'd want one of their f***ing credit cards...they just sent it to me. They're going to get an earfull on their 1-800 number...

I now will pay my parents the same amount per month and will have the damn loan gone in 4 or 5 years. The fact that I had to go through them kills me.

[lumberjack_jeff]

7. At risk of overstating the obvious, student loans are expensive because education is expensive.

If an education is a monetary investment in increased future earnings, then it's incumbent on the student to be able to do the math. "If I were to invest the equivalent of my student loan payments, say $1000/month (of my salary at the hair salon) from age 18 to age 32, I'd have $520,000 in the bank. If I seek a teaching degree, at age 32 I'll finally be debt free and making about $50k/year."

(*an $80,000 education costs $1000 per month for ten years if using PLUS loans. $1000/month invested at 14% return for 14 years - 10 years plus 4 years of college - has a future value of $515,934 before tax.)

If an education is a gift to ones self of personal enrichment, then I might question their financial priorities, (the library is free) but it was their decision.

[fenriswolf]

8. listen

at a time when tution rates get hiked up every three semesters while the board of educators give themselves raises every 2 semesters no wonder its expensive. When banks court financial aid workers like lobbiest court representatives no wonder its expensive. When america is importing profesionals from other countries no wonder people with degrees can no longer find jobs. When one is faced with going 60+ thousand in debt at the end of a four year degree no wonder people dont want to get an education.

[lumberjack_jeff]

9. No, the education industry is doing great.

People still want an education, but so long as the education industry continues to successfully market it as the ultimate status purchase, it'll always be priced on a perceived value basis without regard to its merits as an investment.

For luxury items, the sky is the limit. Successfully divorcing education from the real economic world was an act of marketing brilliance.

A friend's daughter went to school at a (relatively) prestigous west coast private school with a major in english literature (despite having scholarships to several state colleges) on mom and dad's dime, because "she did really well in high school, so she deserved it". I told dad that this was a good investment because the daughter may find herself a contestant on Jeopardy someday.

The daughter is now a stay-at-home mom. I'm not begrudging her that choice (I'm a stay-at-home dad, after all) but I don't have to feel self-conscious for having wasted my parents nest egg either. So long as daughter perceives the expense as a gift, or an investment in her "enrichment" then the charade can continue guilt-free.

[fenriswolf]

11. great for the daughter

what about everyone else that has to work our buts off on two jobs while going to school full time while burying ourselves in debt up to our eyeballs so that we can get a good job because without this "status symbol" we cannot get a decent job.

[AZBlue]

12. That does need to change.

I am currently looking for a new job and am amazed at the percentage that state a college degree is required. I have about 3 years completed thus far (lack of completed degree is 100% a result of finances) plus over 12 years solid experience in my field - and I'm really good at what I do. Yet, I know I'm not even being looked at for many jobs because my degree isn't complete yet. I'm sure some 24 year old graduate in HR is looking over resumes before handing them on to the department in which I'd work and just discarding all those without degrees. WTF?

[lumberjack_jeff]

14. It's because of cowardly HR departments.

It's worse than that. A college degree is required for jobs in big businesses solely because the resume scanning software will reject an applicant with 15 years of experience on the job in lieu of an applicant with a degree and 2 years experience delivering pizza.

The experience is not germane unless you can get your resume in front of a real person. That doesn't happen until your resume gets past the software.

Given the business environment, I can't summon any outrage against those who buy degrees from diploma mills.

[AZBlue]

15. To be honest, I've thought about it.

Haven't done it, doubt I will - but I've been driven to looking them up online. It's SO frustrating. And, the automation of the application process by e-mail and the internet only makes the situation worse.

[lumberjack_jeff]

17. There are accredited colleges which allow credit by examination.

http://bain4weeks.com/introduc.html

Testing assures the school that you have mastery of the subject matter, and that's what it's all about, right?

[AZBlue]

10. True - no one does the math.

And I partly blame the lenders because they use fuzzy math in explaining their programs. Unfortunately, we students - I fell for it too - didn't do the math because we're told that without a college education you'll get no where. I would hope that these days the rhetoric isn't quite as strong and the fallacy of that statement is obvious, but I don't know.

I have said to several friends recently that unless someone needs a degree to pursue their chosen field or wants to go for an advanced degree, they should really figure out if they need to go to college bad enough to pay $600/month on loans when they make $24K a year!

[1932]

16. Home prices were high because banks would give anyone a mortgage.

See how that works?

If anyone couldn't get a loan, there'd be downward pressure on prices.