Regarding H.R.384: Consumer Protections for Student Borrowers

Posted by Student on 2009/02/19 @ 0630 Comments (0) (show tags and categories)

On January 26, 2009 a coalition including The Project on Student Debt sent the following letter to Congressman Barney Frank, Chairman of the Financial Services Committee, and Congressman George Miller, Chairman of the Education and Labor Committee. Student Loan Bubble is reprinting the full text of the letter, formatted as HTML for the Internet, without additional commentary.

Dear Chairman Frank and Chairman Miller:

As representatives of students, consumers, colleges, administrators, and counselors, we want to take this opportunity to thank you for your efforts to include consumer protections and accountability under the Troubled Asset Relief Program (TARP) through H.R.384, the TARP Reform and Accountability Act of 2009.

We are writing about an urgent matter related to the planned roll-out of the TARP sub-program, the Term Asset-Backed Securities Loan Facility (TALF), in February. As you know, we are concerned about the planned allocation of TALF funds to private student loan providers. Private student loans are more risky and expensive than federal loans because of high variable interest rates and few consumer protections, and private loan lenders already enjoy special bankruptcy treatment under federal law. For these reasons, financial aid experts agree that private loans should only be a last resort for students. Additionally, we estimate that just eight percent of undergraduates use private student loans, and many of those borrowers have not exhausted their federal loan options.

To ensure that taxpayer dollars in the TALF program serve students and consumers as well as lenders, we ask you to urge the Secretary of Treasury to make the receipt of TALF funds for private student loan financing conditional upon adequate consumer protections and better data collection. Specific conditions that we believe are important for the Secretary implement include:

  1. Loan modification and/or work-out requirements, such as reductions in principal and economic hardship deferrals, for current and future private student loans;
  2. Discharges in cases of borrower death or severe disability, for current and future private student loans;
  3. Limits on interest rates, origination and other fees for future loans;
  4. Mandatory loan certification and inclusion of the FTC holder notice for future loans; and
  5. Detailed data reporting on individual future loans replicating the reporting required for Family Federal Education Loans (FFEL) pursuant to section 1092b(a) of 20 U.S.C..

A bailout for the providers of usurious private student loans will not solve the college affordability crisis caused by the failing economy, and will actually be detrimental to many students and consumers. However, if a form of rescue is provided for private student loans, it would be unconscionable to do so without also providing better consumer protections. Implementing these protections will help ensure that private lenders do not unfairly benefit from the bailout at the expense of past, present, and future students and their families.

We realize that there are many pressing issues requiring your attention during these difficult economic times, but respectfully request that you consider this issue a priority given the fast-approaching commencement of TALF fund disbursement.

Sincerely,

American Association of Collegiate Registrars and Admissions Officers
American Association of Community Colleges
American Association of State Colleges and Universities
American Association of University Women (AAUW)
Americans for Fairness in Lending
Campus Progress
Consumers Union
Dēmos: A Network for Ideas & Action
The Greenlining Institute
National Association for the Advancement of Colored People (NAACP)
National Association of Student Financial Aid Administrators
National Center for Public Policy and Higher Education
National Consumer Law Center (on behalf of our low-income clients)
National Consumers League
The Project on Student Debt (an initiative of the Institute for College Access & Success)
National Association for College Admission Counseling
The Sargent Shriver National Center on Poverty Law
U.S. Public Interest Research Groups
United States Students Association

How will the student loan bubble affect colleges?

Posted by Student on 2009/02/10 @ 0630 Comments (0) (show tags and categories)

An inevitable consequence of the changing landscape in student loans is that colleges and universities have a mixed outlook, because those loans provide a critical source of income. According to Desmond, there is already evidence that educational institutions have altered their policies, and may be preparing even more sweeping measures for the future. Are we about to witness the same downsizing, mergers, and acquisitions that have affected recent bubble industries?

Excerpt from: http://www.forbes.com/2008/10/22/college-debt-loan…

College tuition has increased by more than three times the rate of inflation for the last 20 years, despite U.S. wages flat-lining since 2000. The average tuition at a private four-year institution grew 6.6% year-over-year in 2007 to $23,712, according to the College Board. This is pricey in itself, but when you add in all the luxe living expenses, the total bill touches $50,000 a year at the high end.

To the chagrin of financial advisers, students are increasingly turning to higher interest private loans to meet the burgeoning college bill. Private loans made up 24% of total education loans in 2006-07, up from 6% a decade ago. In 2008, students secured $20 billion in private loans–amounting to roughly a fifth of total undergraduate borrowings for the year. Taxpayers pony up, too, chipping in an average $4,000 per student through government loans and grants to private institutions, which usually come up with $3,720 in aid (often in the form of discounted tuitions) as well.

It’s a scenario familiar to anyone who watched the housing bubble blow. “We are at a trend line that cannot be sustained,” says Matt Snowling, an analyst at Friedman, Billings and Ramsey, who covers the student loan industry. “Tuition must go down, or there will be limited demand at high-priced private schools.”