Angriest I've been reading news: Private Loans Deepen a Crisis in Student Debt

1932

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Sun Jun-10-07 08:49 AM
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Angriest I've been reading news: Private Loans Deepen a Crisis in Student Debt

Edited on Sun Jun-10-07 08:53 AM by 1932

Unlike federal loans, whose interest rates are capped by law — now at 6.8 percent — these loans carry variable rates that can reach 20 percent, like credit cards. ...while federal loans come with safeguards against students’ overextending themselves, private loans have no such limits. Students are piling up debts as high as $100,000....While federal loans also allow borrowers myriad chances to reduce or defer payments for hardship, private loans typically do not. And many private loan agreements make it impossible for students to reduce the principal by paying extra each month unless they are paying off the entire loan.

{None of this was inadvertant. This was part of a plan to make profits for the financial industry and the government helped them do it.}
...

“It’s a huge problem,” said Barmak Nassirian, associate executive director of the American Association of Collegiate Registrars and Admissions Officers. “When a student signs the paper for these loans, they are basically signing an indenture,” Mr. Nassirian said. “We’re indebting these kids for life.”

{Lessons learned from the way the IMF and Wall Street and the rest of the financial sector has treated developing countries over the last 40 years, I'm sure.}
...

For the last 15 years, the limits on the most common federal loans have stagnated at $17,125 for four years. They will increase slightly starting next month. In addition, loan companies have also come to realize that such loans can be hugely profitable.

{I wonder who lobbied the government to keep that number low, allowing for a gap that could only be filled by private loans?}
...

Janea Morgan, 25, a 2006 graduate of California College San Diego, said that college officials had her fill out the federal financial aid form but never tapped federal loans. Instead, she said, they steered her to a private loan with KeyBank, at an interest rate that could rise four times a year, with no cap. Now, she is carrying $46,000 in private loans at 9.22 percent interest, which she fears may rise beyond her ability to pay. Ms. Morgan said that when she asked college officials why they bypassed federal loans, “They said it would take too long.” Barbara Thomas, vice president and chief operating officer at California College San Diego, said that she could not discuss Ms. Morgan’s situation because of privacy laws, but that generally students sometimes took too long to fill out the federal financial aid application properly. “It’s a time thing that kids have to work with,” Ms. Thomas said.

{That is an absurd explanation. I wonder how much money lenders paid to get her college to steer applicants away from federal loans.}
...

Sometimes marketing is at work. Last September, the United States Student Association complained to the Federal Trade Commission that a major private lending program, Loan to Learn, made “false and deceptive claims” in a brochure called “Demystifying Financial Aid.” According to the complaint, the brochure stated inaccurately that “most government loans are need-based,” suggested that federal loans could not be used for education-related costs like computers and books, and that there were “strict deadlines” on applying for federal loans. In fact, students can get federal loans to pay for educational expenses, even retroactively.

{So what is the consequence for lying and stealing thousands of dollars from these students?}

http://www.nytimes.com/2007/06/10/us/10loans.html?_r=1&oref=slogin&ref=education&pagewanted=print