Korean Job Discussion Forums

[Alyallen]

High-priced student loans spell trouble
By MARCY GORDON, AP Business Writer
Sun Sep 30, 2:13 PM ET

The near doubling in the cost of a college degree the past decade has produced an explosion in high-priced student loans that could haunt the U.S. economy for years.

While scholarship, grant money and government-backed student loans � whose interest rates are capped � have taken up some of the slack, many families and individual students have turned to private loans, which carry fees and interest rates that are often variable and up to 20 percent.

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.

Kristin Cole, 30, who graduated from Michigan State University's law school and lives in Grand Rapids, Mich., owes $150,000 in private and government-backed student loans. Her monthly payment of $660, which consumes a quarter of her take-home pay, is scheduled to jump to $800 in a year or so, confronting her with stark financial choices.

"I could never buy a house. I can't travel; I can't do anything," she said. "I feel like a prisoner."

A legal aid worker, Cole said she may need to get a job at a law firm, "doing something that I'm not real dedicated to, just for the sake of being able to live."

Parents are still the primary source of funds for many students, but the dynamics were radically altered in recent years as tuition costs soared and sources of readily available and more costly private financing made higher education seemingly available to anyone willing to sign a loan application.

Students with no credit history and no relatives to co-sign loans (or co-signing parents with tarnished credit) were willing to bet that high-priced loans were a trade-off for a shot at the American dream. But high-paying jobs are proving elusive for many graduates.

"This is literally a new form of indenture ... something that every American parent should be scared of," said Barmak Nassirian, associate executive director of the American Association of Collegiate Registrars and Admissions Officers.

More than $17 billion in private student loans were issued last year, up from $4 billion a year in 2001. Outstanding student borrowing jumped from $38 billion in 1995 to $85 billion last year, according to experts and lawmakers.

Rocketing tuition fees made borrowing that much more appealing. Consumer prices on average rose less than 29 percent over the past 10 years while tuition, fees, and room and board at four-year public colleges and universities soared 79 percent to $12,796 a year and 65 percent to $30,367 a year at private institutions, according to the College Board.

Scholarship and grant money have increased, yet for almost 15 years, the maximum available per person in government-guaranteed student loans, which by law can't charge rates above 6.8 percent, has remained at $23,000 total for four years. That's less than half the average four-year tuition, room and board of $51,000 at public colleges and $121,000 at private institutions.

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.

Dr. Paul-Henry Zottola, a 35-year-old periodontist in Rocky Hill, Conn., faces paying $1,600 a month on his student loan on top of a $2,300 mortgage payment and $1,500 on the loan he took out to start his practice.

His credit record remains solid but he owes more than $300,000 in student loans as he and his wife, Heather, an elementary school administrator, raise two young children.

"It would be very easy to feel crushed by it," Zottola said in an interview. "All my income for the next 10 years is spoken for."

Meanwhile, complaints about marketing of private loans � like ads promising to approve loans worth $50,000 in just minutes � are on the rise. The complaints have made their way to lawmakers, who see a need to regulate the highly profitable and diverse group of companies and the loans they make to college students.

In August, the Senate Banking Committee approved a bill that would mandate clearer disclosure of rates and terms on private student loans. The bill also would require a 30-day comparison shopping period after loan approval, during which time the offer terms could not be altered.

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."

Demand for bundled student loans sold to institutional investors worldwide fueled lending to students. The market for private student loan-backed securities leapt 76 percent last year, to $16.6 billion, from $9.4 billion in 2005, according to Moody's Investors Service.

The student loan-backed securities market has yet to suffer noticeable effects of a global credit squeeze that was triggered this summer by a mortgage meltdown of borrowers with risky credit.

"Once the economy starts to slow, you're going to see a large increase of these people in bankruptcy court," said Robert Manning, a professor at Rochester Institute of Technology who has written about college students and credit cards.

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.

Lenders deny such charges, arguing that industry growth resulted from surging education costs and that higher interest rates are justified for unsecured loans to borrowers with blemished or insufficient credit records.

"Lenders take 100 percent of the repayment risk on flexible private-education loans made to people with limited credit histories, on which they will not get repaid for several years," Barry Goulding, a Sallie Mae official, told Congress last spring.

New regulations could dry up access to education financing, he and other industry executives argue. Some experts are skeptical, predicting waves of student loan delinquencies and defaults on what is outstanding.

"Should private student loans suffer the same sort of failure as (subprime) mortgages, as students graduate or drop out and find themselves unable to pay, we will do serious damage not only to the lives of many students but also to the economic and social fabric of our country that depends on college graduates for its strength," said Luke Swarthout at the U.S. Public Interest Research Group.

From the article


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[Juregen]

education should be free for everyone.

'nuff said.

[Fresh Prince]

A friend of mine decided to go back to school in the U.S.. None of public schools had the major that he was interested in, but luckily he was accepted into a private school that did have it. He spoke to the financial aid officer about getting aid for school, and the first thing they did was tell him about a private loan.

They never told him about the low interest government loans that he could qualify for, instead they pushed a high interest private loan on him and even emailed him the forms to sign. It turns out that the school itself was the owner of the private loan that they were trying to get him to sign because they would make a huge profit from it. They never did explain the how the loan system works or that their loan had a much higher interest rate than all the other possibilities out there.

Some might say that it is the students' responsibility to do their homework and read through the loan terms on their own, which it is. The problem is, these are people that don't have a university education yet, and don't really understand how to read loan documents, and shop around for better loans. They are young and overly trusting of people in positions of authority, like financial aid officers.

[sojourner1]

Yes, being saddled with big student load debt can be worse than not having said degrees. There are so many people without a college degree and who just have a GED who earn a white collar income such as registered nurses, truck drivers, managers, plumbers, electricians, and various technicians. I am researching into if I can get a certification of some sort that will enable me entry into gainful long term employment that allows me to pay off the student loans, buy a home, and a retirement account.

The fact is, due to the government guaranteeing all these loans, too many college graduates are being produced for the current job market demands. There has to be physical job growth in the US market through companies producing something rather than outsourcing it which is where we are lacking. We are producing bright, capable, and skilled graduates, but not the jobs for them to fill so these loans might prove very bad. The good news is they are a small piece of the pie when you compare it to the federal government debt.

If you file bankruptcy, your student loan debts remain as it is well known that it's pretty much impossible to erase it without paying it off. If you have your loans with the US Dept. of Education, then they are a big more lenient in allowing deferments and forbearances during low income times which could be all the time for many graduates. I see that if you're not earning reportable income, your payments are $0 so I am not paying since I will need that $10,000 saved up teaching in Korea to repatriate back home. With no credit and co-signers, I will have to purchase a car and things outright with cash so I am waiting until I am established to start paying it off since I am not making teaching in Korea a long term career though many teachers are staying several years to pay down debt in giving them a fresh new shot at living in their home countries. It would take 5 long years in my case for which I am not willing to live in Korea that long.

[Bibbitybop]

[jinju]

I have no debt...my farher paid for my education

[Alyallen]

[blaseblasphemener]

[Ilsanman]

I don't have a farher.

I owed only $15,000 in student loans and credit cards. I paid it off in 3 years, but I have no savings at all.

That was 2 years ago. Now I am married and own a house. But I bet if I had borrowed $50,000 or more, I wouldn't be in this situation now.

[Canucksaram]

If any institution wants to loan you money at an unfair scale...take the deal.

Then F'em.

Work abroad and keep that cash. Default on the loans for those who practice usury. Soon lenders will realize that exorbitant rates are bad for business and rates will come into line. Of course, at the same time (while the market corrects itself) governments will run out of skilled folk. That's when free university education comes into play.

When will North America catch up with its European forebears? Provide uni education for free unless a student fails, in which case the student should be liable to pay back the costs. Employ profs who care about teaching, rather than doing their own research or slacking off (the biggest slackers I ever met were uni profs).

Take their money (while you can) and run. It can only accelerate a corrective change for things.

[wannago]

Juregen said:
education should be free for everyone.

'nuff said.

No, not "'nuff said." Not even close.

Jeeezus Meneeeezus.....is the the socialist thread here? Who says ANYONE should be ENTITLED to a free anything? Someone has to pay for a "free" education. Who do you propose pays? Anyone but you, I know. Frankly, I have absolutely no desire to be like our Euro-trash "forebearers".

Earn your own damn way. I worked my way through university and also had a big debt coming out. Pay back your loans like a responsible adult and quit trying to think of ways to screw the system.

Good god socialists are pathetic.

[aarontendo]

Screw that use all the money that's been wasted in Iraq on college education for our citizens, pretty sure that'll lighten the load

[bucheon bum]

[aarontendo]

I'm not convinced at all that there is a correlation between the quality of education provided in Europe and the fact that it is paid for or highly subsidized by the government.

[Alyallen]