Is College Only for the Rich?

This afternoon at lunch Campus Progress is hosting a great panel discussion in Washington DC where they will discuss the state of our system of higher education and the burdening costs that young people are shouldered with when they graduate.

According to the release

"On the heels of student protests in California against 32% tuition hikes, college affordability is making headlines again, and the timing could not be more critical as landmark college affordability reform legislation awaits action in the Senate. This Wednesday, Campus Progress, the United States Student Association and USPIRG will host a panel discussion examining the implications of the controversy in California, and looking ahead at efforts to make college more affordable and accessible on the institutional, state, and federal levels. The panel will feature: Congressman Tim Bishop, Bruce Cain from the UC System, Victor Sanchez from the UC Student Assoc, Angus Johnston of studentactivism.net, Pedro de la Torre III from Campus Progress, and moderated by Erica Williams from CP."

Tuesday, Demos and the United States Student Association released findings about students and private loans

"Yet with tuition skyrocketing and entry-level jobs flat-lining, students are borrowing more and more against their futures to pay for school. A startling 67 percent of the U.S. bachelor’s degree graduates last year had student debt, averaging about $23,200 per indebted student. While most of that debt is in safe, lower-interest federal loans, a significant amount is in private loans that can carry interest rates of over 18 percent.

"In fact, due to aggressive marketing, nearly 3 million American students took out private loans last year, up from less than 1 million just four years before. Since federal loans are lower interest and have more borrower protections, taking out unnecessary private loans for college is like putting tuition on a high-interest credit card that students can’t pay off for years. And like credit cards, private loans carry costly penalties and fees and are marketed heavily to students regardless of need, resulting in unnecessary and damaging levels of expensive debt. Unfortunately, unlike with credit cards, there has been no “Credit Card Holder’s Bill of Rights” for student loans to reign in the worst abuses in the private loan market."

The briefing paper recommends the Consumer Federal Protection Agency actually regulate private loan companies and ensure protections for youth who have to navigate paperwork etc.. They also call for a close to the loophole in the House CFPA bill that could allow some colleges (the ones that are more focused on profit) to "make private loans to students without abiding by the CFPA’s consumer protections."

I reported a few weeks ago about the extent to which students who attend these schools often graduate with the most harmful of loans and graduate without the necessary skills to take part in their career path of choice.

The briefing paper references some main abuses in the private loan market and the connection they have to the "for profit" school industry.

• "Unnecessary Loans: Any student with access to the full information should only buy a more expensive private loan after reaching the maximum federal loan amount first. However, full information is increasingly the exception, and not the rule. Last year, almost 2 out of every 3 private loan borrowers did not reach the Stafford limit before taking out a costlier private loan; 26 percent took out no Stafford loans at all.
• Outrageous Rates: Unlike federal loans, most private loans have no upper limit on their interest rates. As a result, private student lenders charge annual percentage rates (APR) as high as 18 percent—nearly three times the average federal loan APR and twice as high as the federal cap on student loans.
• Rate Floors, Not Ceilings: During the recession, the federal government has lowered interest rates to make money cheaper for lenders—but the savings have not flowed through to millions of private loan borrowers. That’s because instead of ceilings, many private loans have rate “floors” guaranteeing that the borrower’s interest rate stays high. The resulting spread that lenders are pocketing is as high as 12.5 percent.
• High Fees: There are no legal limits on the fees private lenders can charge students. Eighty-five percent of lenders charge origination fees just to make the loan, averaging 4.5 percent of the loan amount—but with some as high as 9.9 percent.
• In-School Interest: With federally-subsidized loans, the government pays the interest while the student is in school and not making payments. Private lenders start running the clock from the moment of origination. The difference is significance; a college freshmen who takes out a private loan for $1,500 at the start of the year will owe $2,945 on that loan alone the day he or she graduates.
• Aggressive Marketing at For-Profit Schools: While only 9 percent of undergraduates attend for-profit schools, these students make up 27 percent of private loan borrowers."

The most interesting turn of events is that the progressive community isn't the only one that has noticed this. The Family Research Council (The Christian organization promoting the traditional family unit and the Judeo-Christian value system upon which it is built) has announced that they are having a lecture with Tony Perkins where he will discuss the "Crushing Burden Of Student Loans On Family Formation For Generation X+." Apparently because young people (both Gen X and Gen Y) are so overburdened with student loans and financial responsibilities they are having a rough time starting families to make more little Family Research Council people, the Family Research Council has decided to discuss the importance of taking action now.

Its nice that solving the student loan crisis is an issue that every part of the political spectrum can get behind.