National Consumers League

Student Loan System in Need of Reform


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By Sally Greenberg, NCL Executive Director One thing that gets me really hot under the collar is that we’ve allowed so many banks, for-profit colleges, and other companies to make money from loaning students—at very high rates of interest—the tuition to attend college or graduate school. This should be an entirely government-run or nonprofit business in which no one is enriched in the process. There’s a place for making profits—ideally honest profits—in the United States. But student loans shouldn’t be one of them. Today there are millions of students facing mountainous debts—some close to $100,000—after completing their undergrad and graduate educations. These debts govern what jobs students can take, and prevents too many community minded young people from entering public or government service because those jobs just don’t pay enough to pay off the crippling student loans. In other cases, students have been ripped off by schools that are phantom institutions, many for-profit entities that are more interested in the money they can make from student loans than in educating students. Arne Duncan, President Obama’s Secretary of Education, writes about this issue in the Wall Street Journal recently. Duncan points out that the current system works to indemnify bank loans to students. If students don’t pay back their debts, the United States government covers the banks’ loss. Meantime banks charge the students high interest rates without taking on any risk. But things have changed. The National Consumers League is part of a coalition of groups backing the inclusion of all private student loans under the jurisdiction of a new agency, the Consumer Financial Protection Agency. This will allow these private loans to be reviewed for how well they protect student interests. Sadly, at a number of for-profit colleges, attended disproportionately by African American and Latino students, 42 percent of students took out private loans at high interest rates. Corinthian Colleges has told investors that it plans to make $130 million in loans to its students even though it expects 56-58 percent of these borrowers to default. Other for-profit colleges offer high interest open-end credit to their students. You get the picture. On the federal government end, Education Secretary Duncan has announced that all student loans will come through the existing federal Direct Loan program. The federal government will save $87 billion annually by not backstopping bank lending to students. As Duncan points out, “We cannot in good conscience let $87 billion in subsidies go to banks when our students desperately need financial help to realize the dream of getting a college education.” We agree with Secretary Duncan: after many years, finally federal policy is focusing the attention on students, not on helping banks or companies make profits on the backs of students.