Tag Archives: student lending opinion

Student Loans and Voices in the Wilderness

After thirty years in campus lending I have accidentally become either an authority or a dinosaur on the subject of student loans. I have worked for a univerisity, a student loan billing servicer and collection agencies. My stated goal from day one has been to help students understand what they are taking on with loans. My work with agencies has been to work with their client schools to help them understand how to keep students out of trouble. Believe me, reputable collection agencies only want the people that belong there–not the dummies who forgot to file paperwork on time.

The government is an awful loan manager.  Just ask any poor slob who is trying to get their loan discharged for permanent disability. Applications seem to disappear behind the federal doors and languish for months and months and months with no action.

Why is this student loan thing suddenly a crisis? Number one, big banks and private lenders no longer make loans that are tied to students and the government. They were forcibly kicked out of that pie and the federal government now makes all the major student loans that remain affordable. This does not include private loans a school makes from their own funds which would equal about three cherries out of the entire loan pie.

What are Americans spending and repaying these days?
•693 Billion in Credit Card Debt
•730 Billion in Car loans
•870 Billion in Student Loan Debt
A few more stats:
•40.1 %under 30 owe student loan debt
•25% age 30-39 have owe student loan debt
•Average student’s debt is $23,300
10% of all student loan debt is in default

You can’t get rid of a student loan in bankruptcy in most cases. 62% of all bankruptcies filed are due to medical bills, so why aren’t we howling at insurance companies? Chapter 13 bankruptcies are on the rise as people try to save their homes. 1 of every 250 homes in the USA was lost in 2010 due to foreclosure.

The problem is like a hydra.

Where did this problem come from?  Its a hydra with a bunch of heads.

Head one: The economy. Students graduate and can’t find jobs and when they can they are not the high paying jobs grads could walk into five years ago, putting them into deeper debt faster.

Head two: the cost of education is going up. Yes, school presidents make obscene amounts of money they don’t deserve but the rest of the folks in colleges and universities are not getting rich. The staff are chronically overworked and underpaid across the country. Faculty, not so much, but they are not getting rich either.  The infrastructure of schools is changing, technology is expensive and to remain competitive schools must invest in staying on the forefront to EDUCATE. This means the cost of attendance is going up too. Sadly, education in this country is not free or even low cost. Its a choice we have made as taxpayers and is in the same bucket as medical care. As a nation, we don’t want to provide it to our people so we don’t.

Students use loans for more than education--like paying for a wedding.

Head three: This is the one that infuriates me. The way we hand out money and handle students is completely insane and it does not work. Students fill out the FAFSA and based on arcane formulas they are offered a financial aid package. In many cases the students need every single dime they get, but in even more cases, the students take more money than they need to pay the costs of their semester/year of school.  Personally, I have seen students pay for cars and weddings as just two examples–with student loans. No counseling, just some paperwork.

The sad corollary: Some students at the age of 18, 19, 20 are entering schools they cannot afford to attend because they assume they will get enough money to go there in the form of loans. Nope. They take on a staggering debt load and have to drop out anyway when they cannot pay their school’s costs.  Just because you got admitted does not mean you can go there.

Head four: the big one and its tied to head three. At the age of 18, 19, 20 traditionally, students are entering college. Yes, many are coming back now in their 30s to get new job skills and how they add to the problem remains to be seen.  Here’s the thing, it is verboten for schools to speak to parents regarding a student’s debts without the student’s specific permission. Because of the way the law is written, students who have never balanced a budget, taken out a loan or had to plan for the future in a concrete way are now saddled with figuring all this out, historically with no help. Schools must give the students the money they accept and they cannot always determine where it goes. We hope in most cases they are saving to pay tuition, but the overage is given to students as a “refund”. This is money for books and to meet the costs of living to some extent while they are in school.

At my university the line of students coming in to pick up refunds was out the door and the down the hall–in the days before direct deposits. Refunds from $50 to $5000 depending on the aid they received. Many, many of these students are living in a dream world, “After I graduate I will get a great job, no problem”.  Most of them don’t even know how much they can expect to make a month in their chosen fields. Do you know how much a social worker makes? A teacher? Not everyone is headed into high paying fields and they don’t understand it when their reality checks bounce.

One major answer to this problem, IMHO, is FINANCIAL LITERACY! Every single student who takes out a loan should be required to take a course in FL and to UNDERSTAND that the future is now and these are freaking LOANS. You can put them off but they are piling up. Do you know how many grads don’t even know how many loans they have or who the loan holder is? Its simply amazing when you start dealing with these grads now living in the real world who suddenly have to figure out how to pay for apartments, utilities and transportation to and from jobs–and on top of that student loans. Defaulting on a student loan will completely destroy your credit faster than  anything else. No home buying for you if you have a track record of late pays–and that blot won’t be expunged for seven years until after the default is cured.

If we as a nation intend to hand out enough money to buy a Lexus or put a down payment on a house over the course of four years (or more) with no credit check, no job  and just a signature are we not being failures as lenders? We are taxpayers, this is OUR money. Why are we such crappy stewards? Why are we howling like banshees about the poor students repaying their loans when we should have helped them from the day we offered them these funds.

That’s my  big question. Why are we not helping them understand financial responsibility before they get in trouble? Some students cannot afford to attend school the way we have set up the system. Again, it favors the rich with endless resources. There is no shame in attending a community college for the first two years or working through school. A lot of us who desperately wanted our educations did just that. I worked a forty hour week, had three small kids and still went to school. I have no idea how I did it and I couldn’t do it again. But that brings up another question…where are the jobs that our students need to get them through school? What happens after they understand they will have to save and work to avoid sinking before they get a chance to swim?