Banks love student loans

Examiner
William Heuisler

Last year the Department of Education released statistics on default rates of student loans. Arizona scored last, with a cumulative score of 10.9 percent. And, according to Jeannie Carlisle’s article on September 15, 2010 in Examiner.com, Tucson College was highest in 2008 student loan defaults at 34.6 percent. (Carlisle, 2010)

Why should taxpayers care about student loan defaults?

Student loans, or “money from the government” is really money from taxpayers, backed by taxpayers, insured by taxpayers with losses reimbursed by taxpayers. Banks get the commissions, interest, penalties and fees on all that taxpayer money. And student loans are real big money in the twenty first century. From 2005 to 2008, college tuition increased four times faster than the Consumer Price Index. (Lewin, 2008)

US Student debt - less than $200 billion in 2000 - surpassed US credit-card debt to top $1 trillion in 2011. And per-student-debt now averages $23,000 - up 8 % from last year. (Lowry, 2011)
For more background see Examiner article, 7/5/11,  “Is college tuition a crime?”

Federally insured student loans are different than most debt. Students making loans for the last twenty years have had many ways to temporarily avoid payment. According to Dave Swindle, former “collector” of student loans, payment deferrals are relatively easy.

A lost job means 2 to 3 years “unemployment deferment”. A job not paying well can mean 3 years’ worth of “economic hardship deferment”. If there are other more important bills to be paid, some lenders offer as much as 5 years of “forbearance time”. If the loan is still a problem, the government offers a Title IV administrative forbearance - with the same qualifications as the “economic hardship deferment”. Many student loans go years without payments being made and, of course, the loan’s interest grows and grows, as does the bank’s eventual profit. (Swindle, 2011).

Does the bank lose money if a student actually defaults on their loan? No. After about a year of no payments and no deferrals - the Federal Government reimburses the bank and the loan is sold to a collection agency. (Swindle, 2011)

This inverted money tree – in Tucson and Arizona and nationwide – in the name of education for all, is one reason the cost of Government has skyrocketed.

Carlisle, J. (2010). Examiner.com. Tucson has the highest student loan default in the US. http://www.examiner.com/colleges-in-tucson/tucson-has-highest-student-loan-default-the-u-s#ixzz1Tbxmor00

Lewin, T. (2008). New York Times. Downturn expected to drive tuition up. http://www.nytimes.com/2008/10/30/education/30college.html

Lowry, R. (2011). Real Clear Politics. Tuition skyrockets…while learning plummets. http://www.realclearpolitics.com/articles/2011/05/20/tuition_skyrockets_--_while_learning_plummets_109937.html

Swindle, D. (2011). PJ Tatler. Yes, the higher education bubble will pop this decade and here’s one reason why. http://pajamasmedia.com/tatler/2011/07/21/yes-the-higher-education-bubble-will-pop-this-decade-and-heres-one-reason-why/

Help Us Transmit This Story

    Add to Your Blogger Account
    Put it On Facebook
    Tweet this post
    Print it from your printer
     Email and a collection of other outlets
     Try even more services