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The Student Loan Debt Blog: A Blog About Student Loan Debt and Student Loan Consolidation

Student Loan Debt

A Blog About Student Loan Debt & Federal Student Loan Consolidation

Thursday, October 16, 2008

EDITORIAL: Just Because College Is Expensive, It Doesn’t Mean That You Shouldn’t Have To Pay For It.

student loan debtAs I was listening to The Rush Limbaugh Show yesterday, I heard a sound byte of Senator Obama and a young college student who was a little disgruntled about the cost of her education. Obama agreed that what she was experiencing wasn’t fair, and of course, went on to give his typical encouragement blurb about change, hope, or what have you. Limbaugh came back to rant about how Obama doesn’t think that people should have to pay for higher education because he is a socialist. Thoughts of my own mountain of student loan debt soon drowned out the radio, and I found myself sincerely contemplating the issue.

Was Obama right? How much should I have to pay for higher education?

Just to be sure Rush’s argument wasn’t unfairly slanted, I checked Obama’s position on his website, www.barackobama.com. His official stance on higher education costs read as follows:

...Obama and Biden will make college affordable for all Americans by creating a new American Opportunity Tax Credit. This universal and fully refundable credit will ensure that the first $4,000 of a college education is completely free for most Americans, and will cover two-thirds the cost of tuition at the average public college or university and make community college tuition completely free for most students. Recipients of the credit will be required to conduct 100 hours of community service...

Low to middle income families would surely welcome such policies, and for good reason. According to the U.S. Census bureau, the cost of postsecondary education has more than doubled since 1990. Faced with today’s gloomy economic climate and grim future, parents and students are crying for relief. Obama promises to educate high school graduates for 1/3 of the cost of tuition.

But is that his job?

While the tax credit sounds great to those who qualify for it, it should worry Americans who do not, because they will be the ones paying the bill. With Obama appeasing the American middle class by promising to increase the tax burdens only on Americans making more than $250,000 a year, this wealth redistribution system essentially boils down to the “rich” and the government taking care of the “poor”.

Is that really fair?

Others argue that the cost of a student’s college education should only be negotiated by two parties - the college and the student. This could be viewed as a free-market approach to education. While some insist that private institutions not backed by the government only serve the rich, the opposite is true. Harvard University has plans to increase student aid this year in a grand effort to subsidize tuition so that more deserving students can afford to attend. This is a good example of a private institution compromising with students to accommodate the changing economic climate.

Whether you like Obama’s plan or not, the truth is that the U.S. government already offers generous student loan programs that empower millions of Americans to pursue higher education while contributing to the American economy. While we hate to pay back the student loans that seem to multiply exponentially as soon as you sign on the dotted line, we enjoy the professional positions that we are able to pursue as a result of our advanced education. Furthermore, the interest goes to help fund the government that provided the initial loan. This allows students to pay their own way through college without having to offer collateral or pay out-of-pocket. Is that not more than fair?

Just because college is expensive, it doesn’t mean that you shouldn’t have to pay for it.

My parents knew that they would not be able to afford to pay all of our college tuition, so they told us to study hard and apply for as many scholarships as we could. They took out loans to cover some of the difference, and so did we. That’s life. Otherwise, we would have either had to put off going to college until we could acquire the necessary savings and credit or pursue other options. This approach to funding higher education wasn’t pleasant, but it was most certainly fair. It’s fair because the return on the investment has the potential to be exponentially higher than the investment itself. If I owe $100,000 in student loans but I make $150,000 per year, the investment pays off substantially. Unfortunately, since great jobs are not guaranteed, college education is a risky investment. That doesn’t mean, however, that if you come up short that it wasn’t fair because the cost of the education was too high. You might then be able to requisition the government to bail you out because you lost money pursuing gain that did not pan out for you.

Wow; that sounds eerily familiar…

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Thursday, August 28, 2008

StudentLoanJustice.org

Was reading the New York Times on Sunday and came across an article about the StudentLoanJustice.org website. It's a web space you must visit at least once if you or a member of your family has student loans. Site is chock full of content that's both shocking and engaging. This site is not just a place to read up on the injustice that exists in the American student loan industry, it's also the official website of the StudentLoanJustice.org Political Action Committee (PAC).

Here's a clip from the site's "about" page:

"StudentLoanJustice.Org is a grassroots organization started in March, 2005. The purpose of StudentLoanJustice.Org is to give borrowers who's lives have been adversely affected by the predatory, uncompetitive laws that have been passed by Congress since the 1990's a place to tell their stories, to conduct research about higher education legislation, higher education lenders, the effect these have had on the lives of citizens, and to cause a solution to be legislated. Without advertising, revenue, or staff, StudentLoanJustice.Org has grown to thousands of members across the country comprising every state in the Union..."

When I defaulted on my student loans, it was because I didn't want to make the payments. I was trying to get ahead in life. I didn't think the government could or would take every penny I had in my bank account. But that's exactly what happened; I learned a hard lesson.

The U.S. economy is languishing right now, and I'm certain that a consequence of the economic downturn will be lots of Americans defaulting on their student loans in the months ahead. Many will have legitimate reasons for defaulting, like an unexpected illness or unemployment. And here is a very ugly truth I learn at the StudentLoanJustice.Org site: Sallie Mae CEO Albert Lord made more than $230 million in compensation since the late 90's, and a significant portion of that money came from the fees associated with borrowers defaulting on their student loans. Lord got so fat from student loans that he put in a bid to purchase the Washington Nationals baseball team.

Now, if a CEO grows a company's profits during his tenure at the top then, yes, he should get a generous bonus. If a company goes from grossing $3 billion per year to grossing $35 billion, then a bonus of $500 million is OK with me.

But banks that are in the business of making student loans are not like banks that make business loans, originate mortgages or issue credit cards.

If a borrower suddenly finds himself in financial dire straits and can't make payments on his/her student loans, that person can't get the debt discharged via bankruptcy, thanks to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 [1][2][3]. Default on your loans, and the fees will pile up (don't forget about the interest.) Those fees go to student loan specialists like Sallie Mae, and make CEO's like Mr. Lord very rich. To me, it's obscene that a CEO can get rich in this way.

There are some interesting articles and OpEd's here. There's a group in Facebook here. You can share your student loan horror story here.

Many Americans have shared their student loan horror story with StudentLoanJustice.org here. It's truly amazing how many defaulted due to hardship only to find that their student loan debt has doubled, tripled and even quadrupled due to interest and fees. No, it's not amazing, it's disgusting.

In a recent blog entry, I was second guessing my decision to use a significant chunk of my savings to payoff my student loans. After reading unnumbered horror stories at the StudentLoanJustice.org site, all my doubts have disappeared. Yep.

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