CAREERS NOW 02-14-10

Danger Ahead: Overwhelming Student Loans

DEAR JOYCE: You asked for my view on the knock-down, drag-out fight on which Sallie Mae and other big private lenders are spending millions of dollars to kill the Administration's effort to overhaul the student loan industry in this country.

News stories and editorials report that the administration hopes to eliminate the rich subsidy given to private lending companies to make risk-free loans that are guaranteed by the government, earning these companies huge undeserved profits. Critics say that the subsidy's nothing more than a gravy train the lenders don't want to give up.

The point is made that students could get much better deals by borrowing directly from the government through their colleges, which is how Pell grants are awarded now. Everyone would pay less - students with loan costs, and taxpayers with an estimated $80 billion savings over the next decade.

My opinion? I think it's appalling that the big lenders are trying to hold onto billions of dollars in completely unnecessary subsidies when that money should be used to help make college less of a financial sacrifice for low- and middle-income families. What's even more appalling is that Congress might let Sallie Mae and the other big lenders get away with it. I say more on my blogs (twitter.com/collegeblogs) -- Lynn O'Shaughnessy, author of "The College Solution," and college blogger for CBSMoneyWatch.com.

ANOTHER OPINION. I also asked Dr. Herm Davis, a renowned college financial aid authority (with whom I wrote a book on the topic), for his take on the multimillion- dollar lobbying effort that's being led by Sallie Mae, the country's biggest provider of student loans, to kill an overhaul. Here's what Dr. Davis says:

"I'm a great advocate of the federal direct lending program. It is efficient for the educational consumer to only have to deal with the college financial aid office - one-stop shopping. It is efficient for the institution's financial aid office to not have to deal with multiple lenders and a "preferred lenders" list (which has been shown in many cases to be corrupt). Moreover, under direct lending, the American taxpayer does not have to pay for a third party to get rich.

"Sallie Mae was created in 1972 as a government-sponsored enterprise to get banks to participate in the student loan business. Then they realized how they could make more money if they became a for-profit company and merged a bank into their company to make loans themselves (basically competing with the banks they originally were supposed to serve).

"To make loans, each servicer has to have a guarantee agency to assure that federal regulations are met. So in a further privatizing move, Sallie Mae bought the nonprofit guarantee agency in Indianapolis, United Student Aid Funds.

"Today's lobbying argument by private lenders, stripped of their absurd claims and scare tactics, is basically this: It is all right to overtax the public with a wasteful system as long as the lenders keep their jobs and big salaries."

CRASH READING COURSE. The average student debt is either about $23,000 or $33,000 (depending on whose figures are used). Horror stories abound about people who can't repay toxic student loans - a young lawyer in New York reportedly was denied admittance to the bar because he hadn't repaid his huge education debt. Want a few articles to flesh out your grasp of the student loan fight? Search for these:

- "Lobbying Imperils Overhaul of Student Loans" by Eric Lichtblau.

- "Sensible Student Loan Reform Faces Problems in Congress, and Shows How Congress Is Broken" by Jonathan Alter.

- "4 fixes for the student loan trap" by Liz Pulliam Weston.

- "The Economic Downturn and Student Loans: Some Practical Advice for Borrowers" by Alan Michael Collinge.

- "Sallie Mae Offers a Lesson on Cashing In" by Joe Nocera.

- "A College Test for Washington: Help Young People in Need, or Kowtow to Bank Lobbyists?" by Richard (RJ) Eskow.

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