In a CBS news, 60 Minutes report last Sunday we learned about the plight of Alan Collinge who graduated with degrees (plural) in aerospace engineering in 1999. He took out a $45,000 student loan to get through school.Since that time, his loan has exploded to $103,000. The increase is due to interest, penalties and finally default. Now Mr. Collinge cannot get a job as an aerospace engineer because he has a bad credit rating.
When he finally defaulted, his loan was turned over to a guarantor. Collinge knew that sometimes credit card companies will reduce the debt. He hoped the guarantor would do the same.
"And I was refused at every step in the way," Collinge says.
Asked why, Collinge says: "I don't know why. They just refused. They said no. They said you will pay the penalty; you will pay the fees. You will pay the interest on the penalties and fees."
For some borrowers, the system is unforgiving. But it has worked well for lenders like Sallie Mae, which has 10,000 employees in 19 states and manages $123 billion in student loans.
Sallie Mae used to be a quasi-governmental agency but was privatized in 1997. Since then it's stock has risen 2000%. It's presided over by Chairman Al Lord who has been generously compensated for his work while students are being squeezed to the gills to repay loans. According to Free Market News he is now a legitimate contender to buy the Washington Nationals baseball team and plans to build his own private golf course. Al is the one that persuaded the Federal government to sever its ties with Sallie Mae so that Sallie Mae could become a private company. Not that Al has severed his ties with Congressman John Boehner whom he has lobbied successfully for laws that are even more Draconian as far as the students are concerned and lucrative as far as Al Lord and Sallie Mae are concerned. Since 1999 Al has racked up over $200 million in stock options. Fortune magazine has named Sallie Mae America's second most profitable Fortune 400 company.
Al has been using the Sallie Mae corporate jet (yes, they have one) to ferry Congressman Boehner around on golfing vacations. Coincidentally, Boehner has recently passed on legislation before his Committee that would make it difficult and in some cases illegal for parents and students to shop around for and to consolidate student loans.
From Alan Collinge's website Student Loan Justice:
Since 1997, student loans have become the most profitable, uncompetitive, oppressive and predatory type of debt of any in the nation. This has occurred due to legislation that was paid for by the the lobbying machine of Sallie Mae, the largest student loan company in America. Vast personal fortunes are being made by both Sallie Mae executives, and others who paid for this legislation, at the expense of decent citizens who were not able to capitalize on their education. This has effectively crippled MILLIONS of decent citizens who want to repay their original debt, but are prevented from doing so by staggeringly higher amounts being demanded from them by both "non-profit", and for-profit student loan companies. This has truly created a swath of economic destruction across our land.
According to Alan's website, since 1997, Sallie Mae has set aside $3,639,981,913. in stock bonuses for its employees over and above their regular salaries. This is an average of $639,212. per employee. Guess it's a great place to work, eh? I wonder if Al Lord will share his personal golf course with his employees or maybe with Congressman Boehner. Most of Sallie Mae's profits, by the way, are made by extracting penalties on defaulted student loans.
From 60 Minutes:
Since 2002, the company and its employees have doled out more than $2.7 million to congressmen and their political action committees, including more than $200,000 to House Majority Leader John Boehner and his PAC. Over the years, Congress has written laws that give the student loan industry special advantages.
Sallie Mae works both sides of the street. Because it's a "guaranteed student loan program," they are guaranteed payment by the government. This does not prevent them from piling on excessive penalties and interest and doing all they can to collect from the students.
From 60 Minutes:
On top of that, Sallie Mae also owns some of the biggest collection agencies in the country. Once a student borrower goes into default, the government pays Sallie Mae all the principle and compounded interest that have accrued.
The loan then passes into the collection phase. If Sallie Mae is the collector, it gets to keep up to 25 percent of whatever is recovered. In 2005, nearly a fifth of its revenue came from its collection business.
"Sallie Mae makes money if you pay back on time. And Sallie Mae makes money if you don't pay back on time," says Elizabeth Warren, a professor of bankruptcy law at Harvard Law School.
So in essence the students are not guaranteed anything (especially a job that would enable them to pay back their loans), but Sallie Mae has nothing to lose. The colleges and universities are happy since they're getting paid and filling all their seats. In fact they can even raise tuitions and steer student toward Sallie Mae Loans in order to pay them. They also get kickbacks from Sallie Mae. Sallie Mae can garnish wages, even social security checks. Bankruptcy protection is non-existent for a Sallie Mae student loan. Meanwhile, Congress is tightening the noose on student debtors.
From Free Market News:
But under new laws effective this July, the vast majority of students and parents who have consolidated will be legally barred from ever refinancing again, no matter what other lender later offers them a better deal.
Borrowers whose loans are owned by a single lender have always been prohibited from shopping around for the best deal when it came time to consolidate. Congress has been promising to repeal that anti-competitive law, known as the Single Holder Rule, but the proposal was mysteriously dropped from the Budget Deficit Act at the very last minute.
"It's a market in which the protection goes to the lender. And the students get served up like turkeys at the Thanksgiving dinner." Elizabeth Warren |
Now student loans rates are set to climb again July 1, 2006. from the Seattle Times:
If you've got college loans, the magic date is July 1 — when the interest rates are set to rise significantly.
Experts advise students and parents to consolidate their loans before then to lock in the current low rates.
"The era of historically low interest rates on student loans has ended, and families are extremely unlikely to see rates this low ever again," says Mark Kantrowitz, publisher of FinAid.org, a college-financing information Web site.
The variable interest rate on existing federal student loans will be recalculated by the U.S. Department of Education on May 30, and the new rates will go into effect July 1.
Mark Brenner, vice chairman of College Loan, a student loan lender, says the rise will be the "biggest increase in the history of the [student-loan] program."
Rising ratesRates are expected to rise at least 1.5.percentage points "and maybe as much as 2 percentage points," says Pat Scherschel, vice president of loan consolidation for Sallie Mae, the largest college-loan finance company.
In addition, interest rates on new loans issued after July 1 will have substantially higher fixed rates instead of variable rates.
The rates on the cheapest money students can borrow — subsidized Stafford loans — will jump to a 6.8 percent fixed rate July 1 from variable rates that currently are as low as 4.7 percent.
Rates for the Parent Loans for Undergraduate Students, or PLUS loans, will rise to a fixed 8.5 percent from the current 6.1 percent.
Why Even Bother Going To College?
The question must be asked? In 5 Reasons to Skip College Forbes.com argues that, if you invested your $100,000. expense for going to college and then went to work right out of high school you'd be better off. Also many billionaires never graduated college.
For example:Bill Gates, Larry Ellison, Quentin Tarantino, David Geffen, and Thomas Edison, among others, never graduated from college. Peter Jennings and John D. Rockefeller never finished high school.
You can learn whatever you want without going to college from libraries and especially the internet. Your job, especially your high tech job, can be outsourced to India where they have 10 high tech IIT's (India Institute of Technology) churning out hundreds of thousans of engineers and computer scientists every year. These schools far exceed most American colleges and universities in terms of the rigor of their academic regimen. Why become the 21st century equivalent of an indentured servant?
I recommend getting credentialed in something that you can do yourself as an independent, self-employed contractor. A credential that allows you to practice some skill or some profession is far superior to a college degree that only allows you to beg in the marketplace for a job. Young, highly qualified Indians are willing to work 12 hour days for a couple of bucks an hour. Are you? Then don't get a college degree except in certain professions like medicine, law or architecture - professions which allow you to go into business for yourself. Better yet become an electrician or a plumber and don't acquire a student loan debt, go into business for yourself and earn $50 - $100 an hour. Have complete control over your life. Students are being led down the garden path because of a myth that in order to be anybody and have a good life you have to graduate from college. That's nonsense. Larry Ellison, CEO of Oracle, one of the richest people in the world flunked out of two colleges.
America's youth are being led down the primrose path. Many of those with student loans will be debtors the rest of their lives. Most people would have been better off to take the money they spent on college and invested it in real estate and then started their own business. The only advice I have for people for whom it's too late like Alan Collinge is to emigrate. The one thing you have going for you is that it's not a criminal or civil offense to be in debt even for a student loan, but that might change in the future. There are no debtors' prisons. I doubt if they would extradite you from another country because of student loan debt. In Sweden, for example, they have a national job data bank. They will hook you up with a job you're qualified for anywhere in the country. They also have generous social benefits, unlike America. In fact they'll do anything to get you a job just because their benefits are so generous. Makes sense, doesn't it? The best way to become a Swedish citizen or the citizen of any other civilized country is to marry a person who's already a citizen. Now I'm not saying that you should do this insincerely. But if you're single, why not meet foreigners over the internet? It's as easy to fall in love with someone who's a citizen of some other country as it is to fall in love with a citizen of your own country. The internet facilitates all kinds of dating. Why confine yourself just to the USA where you'll be hounded to the grave by Sallie Mae, the harlot??
