Makeover needed: Student loans
Filed under: Borrowing, Kids and Money, Bankruptcy, College on a Dime, School
Two-thirds of students have to borrow to attend colleges, according to FinAid. They leave campus on graduation day 2004 with an average $19,237 in debt, but some owe far more. About one-quarter borrow at least about $25,000, and one in 10 borrow more than $35,000. Fannie Mae and Freddie Mac were recently taken down for (among other things) taking advantage of the all the market had to offer for returns while meanwhile cashing in on a government backup for its loans. But their cousin Sallie Mae and lots of other private student loan lenders are still playing that game.
While some rates, even on existing student loans, have come down, many have not. My husband consolidated his law school loan shortly after graduating. He's stuck paying 9% for the rest of the loan.
Don't miss the rest of our series on Makeovers Needed!
More and more students are turning to private loans to bridge the gap between their federal loans and what colleges are charging. They're paying ridiculously high rates-- up to 20%--like what you would expect to pay on a credit card. But the difference is that if they default on a credit card, the bank is on the hook. So if they are a high risk customer, they should have to pay a high rate. But student borrowers are almost no risk customers. In the federally backed loans, the government guarantees the loans. Private student loan companies got a provision slipped into the latest bankruptcy bill that private student loans are discharged in bankruptcy.One again we've turned capitalism on its head: companies take no risk, but get paid. The government takes the risk, but doesn't get paid. Students graduate with way too much debt. We now expect them to start saving for retirement in their 20s. In fact with Social Security in jeopardy and pension plans disappearing, they better start when they're young. But there's just no way they'll be able to with these enormous loan payments.
Reader Comments (Page 1 of 1)
10-23-2008 @ 8:54AM
Wyn said...
Why is it that a college student, who is under 23, who has lived on their own for over a year, paid their bills, worked full time, but is single without children, must still claim their parents income when filling out the FAFSA forms? Why is the student penalized because of the parents income when the parents no longer support the student?
I think it's incredibly unfair that a student who is self-supportive does not qualify for more financial aid unless you start reproducing or getting married.
Anyone understand this? That needs to be revamped!!!
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10-23-2008 @ 12:43PM
Ginny said...
I totally agree with you, Wyn. My daughter has been on her own for 4 years--she struggles, but she gets by--and FAFSA wants our income to figure out how much money she DOESN'T get. We don't support her. She supports herself, but the government won't help her. I just don't understand it. The FAFSA system is totally bass-ackwards!!
10-23-2008 @ 9:24AM
Dan in Michigan said...
The student loans are a disaster. The baby boomers act like it is a dream to dig out of dumpsters to feed your family while going to school. The loans do not cover all of the tuition OR the books and fees. I have had to quit school because my children need to eat decent food.
Hey baby boomers. When you get done being special remeber this. I charge to change diapers! You will pay. I hope you enjoyed your life. I wish I had had a good job and an education. We never did.
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10-23-2008 @ 9:41AM
Ray said...
While I hear a constant drumbeat about how we need to make college more affordable, they always seem to blindly focus on the loan aspect and ignore the REAL problem.........THESE SCHOOLS ARE OVER CHARGING US!!!!!!!.....NO, NOT OVER CHARGING, THEY ARE ROBBING US BLIND!!!...The Ivy league schools, for example, have assets totaling TENS OF BILLIONS of dollars. Speaking of being "partiotic", and "spreading the wealth" when do these guys start paying some taxes on the billions they receive in endowments, that simply sit in their bank accounts and accumulate interest, while the rest of us, struggle to pay our taxes???? Of, course being liberal institutions, (mostly), you never hear about taxing these rich!!!
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10-23-2008 @ 10:55AM
JR said...
Ray, I think your points are right on.. also this article is mixing apples and oranges.. teh high interest rate loans they refer to (20% range if even that is true, most are in mid teens at most now) are not guaranteed... eventhe "private companies" that offer Federal loans are capped at the rates dictated by te DOE (mostly 6.8% or 6% or 8.5% fixed for life) -- the alternative loans that many students rely on to bridge the funding need which do carry higher rates based on credit profile are NOT guaranteed and while the debate rages on about discharge via BK, the lenders in fact are on the hook for those defaults hence they are "priced" the same way as you would expect an unsecured loan to an 18-22 yr old with no credit profile to be priced really. Agia I agree with Ray, the underlying issue is the Cost of Ed not as much the rates on loans.
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10-23-2008 @ 12:28PM
TG said...
as a college student i endure the pain of having to take out a student loans when the college i attend want their money the first day of class..... i fill out my FAFSA form and get unsubsidized loans from the government, and scholarships and that is still not enough, so i turn to taking out a loan from the private lender that is afilliated with the school. as a full time student i dont think i should have to take out a $30,000 loan when all the money that i have paid is still not enough. knowing that when i graduate and after 6 months the banks will be calling me to etiher pay the money or consolidate. its a really scary thing when you want to get a good education and have to pay more than what you bargin for. you hear your parents say go to college after high school because with a degree that is where the money is....... true, but at the same time you really cant make any money when the government takes out taxes, pay bills, pay for gas, and pay on loans...... when will you have time to enjoy the fruits of your labor.... when your retired with no social security and you have to depend on the benefits of your job and your 401K????? the economy in a college students life is shot to death.....
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10-23-2008 @ 1:51PM
Rhonda Antell said...
FAFSA is not fair. Students entering college are adults. They have the legal ability to enter into contracts. They can certainly get credit cards. I am amazed at how easy it is for a college student with no income to get credit cards - but the government won't help them get adequate and affordable financing so that they can invest in themselves. We bail out executives and financial organizations that make huge mistakes, but we can't help our youth get educations? That makes sense to someone in charge, I assume. Or is it just about money? As long as we can keep the parents of college students on the hook, we do. Not fair. Trust our students. They are a better risk for our future than the financial gurus who have gotten us into this economic mess.
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10-23-2008 @ 3:24PM
TC said...
I am 24 and I have been independent of my parents since I was 21. I don't understand why I have to claim myself as a dependent.
We've all heard of the midlife crisis well what about the quarter life crisis? Graduate college, start careers, pay our $20,000 student loans, put a ridiculous amount in our retirement just so we can afford our medicine when we get older, and try to figure out who we are.
I owe about $14,000 in student loans and I still haven't finished yet. Financial aid is a pain in the butt. You have to fill out a bunch of forms. I wasted five years at a local university where they did not guide me to what courses I needed to take for my major and class times were extremely inconvenient. I had to apply for fin aid months in advance. I got so sick of it I just quit for awhile.
Already stressed and broke enough credit card companies love hitting students with high rate credit cards.
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10-26-2008 @ 12:07PM
Rocky said...
Student loans are to high and the interest is to high leaving a debt by the companies giving them out at no risk to the company is true. This is due to greed which happens when capitalism starts to turn toward socialism enacted by the greed of companies and their CEO's and Pres. etc and the government which seems to agree with this plan of this country.
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