Predatory Student Loan Travesty

Financial Justice Ideas and Issues

student-debtNew Orleans Ok, one hand is clapping.  There was some progress on student loans under the Obama Administration.  The huge billion dollar scam that was subsidizing banks was kyboshed and federal loans were taken away from the private sector.  Furthermore, President Obama won some limits on payments and implemented some forgiveness programs, especially for public service.  Clap!  Clap! Clap!

But, let’s not pretend there’s a solution by any means, as costs continue to rise and debt for many continues to compound.  I was reminded of all of this as I watched an excellent trailer for a coming documentary called “Default:  The Student Loan Documentary.”  The highlight (lowlight?) was watching one young person after another state obvious:  they took out loans with the dewy eyes of youth buying the American myth that riches were on the other end of the education door, and are now drowning in debt and compound interest charges while navigating well paid jobs, professional jobs ($35000/year) that provide living wages but can’t pay loan shark interest and loans.

It has ceased to be a surprise to me that inevitably if we both to look at any powerless constituency like the young, the old, the poor, or immigrants, it is a certainty that we will find financial predation sucking the citizen wealth out of any groups that can be easily exploited by their acute need or their ignorance.  One of the functions of government is to protect and defend citizens against such practices, but in our current ideology too many blind eyes are turned and banks and others prey without restrain or regard.

Rob Lieber in the New York Times talked about two new student loans being offered by U. S. Bank and Wells Fargo, and his column was almost as sad to read as watching “Default” had been.   Like sub-prime housing loans and refund anticipation loans, I cannot deny that there isn’t a need and market for private student loans.  Part of the reason is that the excellent (3.4% interest) federal loans just don’t carry enough of the weight involved in paying for modern higher education.  All of which opens the door for these absurdly dangerous and risky loans to teenagers desperate to go to college.  Fixed interest rates are a good thing but U. S. Bank offers one for 15 years at 7.8% or with an upfront fee, 8.46%, which right now is knocking on the door of usury, frankly.  Wells Fargo fixed rate product moves from 7.29% to almost double that at 14.21 percent if you are a working stiff trying to go to community college or trade school, which enrages me!  Add to both of these products the likely certainty that a teenager will have to have a co-signer, usually from their family, and it is easy to see how the whole family could go down on the false promises made at the altar of better incomes through higher education.

This is only a fix in the way that the term is used with hard drugs rather than higher education.  Lieber is right to point out that too few students and their families follow the implicit instructions of the federal program and most advisers to first use up the $31,000 that will come at a cheaper vig from the feds and if you need more, realizing that you may be over your head, and need to look at a different school with more affordable debt. Too many young people today have had to learn the hard way. Many of them are on an Individual Voluntary Arrangement for their outstanding debt. The review IVA Pros & Cons paints a realistic picture as to what one can expect while in such an arrangement. Clearly, we can do better for our youth.

The snowball currently has more chance in hell than we have of getting Congress to expand the federal program to a higher, more realistic level.  Everywhere we read of layoffs and cutbacks at even the relatively more affordable public institutions across the country who are being driven to layoffs and price hikes.

The student loan situation is a travesty.  What kind of a society refuses to protect its young?