A Hazardous Student Loan Bailout Plan

While I agree with the sentiments expressed towards bailing out private lenders, it is important to note that these lenders did not bear the risk of lending to high-risk borrowers. These loans were sold to investors who had no way of knowing the creditworthiness of the borrowers and just assumed the lenders knew what they were doing. They bore the risk, not the lenders. Now, the lenders are on the hook, because no one wants to buy these loans.

Even if the government bails them out, the private student loan industry will never be as profitable again. Whether taxpayers like it or not, the federal government (mostly through the ParentPlus loans) is going to be the main lender. And when these middle-aged parents who already have mortgages, car payments and family obligations get their thousands of dollars of loan bills, how are they going to pay them?

Mr. Burd, this isn't just about career-school students not being able to get private loans.

Many low-income and middle-income families rely on private loans to fill the gap between grants, scholarships, federal loans (which are capped) and savings AND skyrocketing college costs. They're going to what you consider legitimate institutions.

Many of these good people are being denied loans. This may continue unless something is done to stablize the credit markets.

You're putting your distain for Sallie Mae and career schools ahead of the interests of families.

to the other comments . . .

There is a misconception that the non-FFEL loans are not guaranteed by anyone and that the lenders bear the full risk. This is not the case. Aside from the investors mentioned in the earlier comment, there are private guaranty agencies that insure private loans. In some cases they are organizations which also guaranty FFEL loans. In other cases, they specialize in guaranteeing private loans. SLM Inc. made a business decision many years ago to use two subsidiaries to guaranty its private loans. No one ordered them to do so; they did so as a business decision. Thus, some could argue that SLM is "self-insured," although I would argue otherwise.

The investors mentioned in the earlier comment would never have gotten involved if there were not a network of private guarantors. Fitch, S&P, Moodys, and so on, always check on who the servicer is and who the guarantor is -- and investors rely on this info before they commit in the first place.

The gap between cost of attendance and ability to pay will continue. Thus there are only two possible outcomes: 1. The rapid rate of growth in private lending will resume after the credit markets recover. If not -- 2. For-profit colleges (and many other colleges) will need to figure out a way to reduce their cost of attendance so that a combination of family resources and federal student aid will enable students to pay for school. Before the "easy credit" environment of the 2000s, private loans were around, for decades, with an excellent repayment record, but they were limited to graduate/professional students and undergraduates with co-signers. Far from the current environment being a "crisis," it may simply constitute a return to the status quo after a temporary "bubble" period.

The anecdotal evidence over the last couple of decades reveals baby boomer parents reluctant to spend huge amounts of their own wages and resources to educate their children. It may seem outdated today, but the HEA still presumes that parents bear the primary responsibility for funding postsecondary education in the USA. Until this changes, i.e., via the College Board's recent proposal to assess ability to pay retrospectively, the only other option may be for parents to downsize their lives and contribute more -- if not cash then by reviving the moribund PLUS program by borrowing there.

Only the New America Foundation could begin a one-sided, error-filled posting that begins with acknowledging that “virtually no details of the plan are yet available” while simultaneously asserting the a plan with no details is “designed to come to the rescue of struggling student loan providers.”

What evidence does Mr. Burd have to assert the plan is “designed to” rescue student loan providers?

This blog has become the DAILY KOS of higher education, but the key difference is that the DAILY KOS doesn’t claim to be non-partisan and isn’t awarded tax-exempt status.

On the assertion that this is a rescue plan for student lenders, like so many other issues, the New America Foundation is to the left of Rep. Barney Frank, Sen. Chris Dodd and Democratic leaders in both the House and Senate.

Both the House and Senate have modified versions of the Treasury Department’s proposal and all versions give the Secretary of Treasury the authority to purchase other troubled assets determined necessary to promote financial market stability after consultation with the Board of Governors of the Federal Reserve.

Mr. Dannenberg may be proud of his partisan creation, but many in the higher ed community, including those on Capitol Hill, wonder if the New America Foundation’s leadership will take action to change the extreme partisan nature of this blog before too much damage is done.

The only comment I have about this question of student loan bailouts is this: I have been a graduate of a University for about 3 or 4 years now, and still have not landed a "career job" in my related field. My field is Criminal Justice, and I live in Michigan. With all the cutting of funds and jobs police departments are doing in Michigan, I have been stuck with a difficult decision. These police departments require you to spend an additional $ 5,000 to attend an academy, with no guaranteed job opening when you get out. I already have been paying about 150.00 dollars a month and still owe 25,000 dollars for student loans and have been working at a mediocre job to try and pay the bills. Why spend more money to invest myself into a job here in Michigan is very rare to come by? You see my dilemma?

 The bottom line is this: we the student graduates are the future. If the government can afford to bail out all these CEO's risky business decisions, why shouldn't they help out the ones who are really struggling. The Students. At least offer some kind of better interest rate or payment plan incentive to adults with student loans.

I'm an undergrad who chose to cut my college costs by going to an instate, public university, testing out of as many classes as possible, and living with my parents. Yet, with two jobs and a fair amount of financial aid, I still need student loans to cover books and the cost of commuting to and from school. The amount that AIG spent on a conference in Phoenix ($343,000) would not only keep me afloat for the rest of my undergrad, it would cover the entire cost of professional school two times over. Or even that $23,000 they would help me finish my undergrad unemployed. Accumulating debt over lavish retreats and executive bonuses is completely different from accumulating it to pay tuition, buy $900 worth of books and cases of ramen noodles and mac & cheese for the semester.

We are the future. You're future. Help us out.

I borrowed $15,000 for college 12 years ago, then hit hard times, was injured and was on disability for more than half of that time, finally healed enough to go back to work, but by the time i could everything I had learned in college was obsolete in the industry I studied for (technology). So then I ended up working menial jobs for $10 an hour or less, kept putting the loans on deferrment and forbearance becasue I could not make ends meet,

Now I owe $45,000. Yes, I borrowed $15,000 and now I owe $30,000 in interest on top of that for a degree I can't use now. So what's the point in even trying? I couldn't pay that ever, I can't earn enough money to pay that and also have a life with food and shelter. So which do I choose? Food and shelter or student loans?

There just seems to be something really wrong with the amount of interest that is owed on top of the $15,000. Paying twice what the loan was on top of the loan itself for a total of $45,000 doesn't seem fair. Maybe if they charged $1000 a year, that would be fair, but to compound the interest and turn interest into principal that then turns into more they can charge interest, that's wrong. I am paying interest on the interest. So if you look at my loan, what should have been a low interest student loan is now a very high interest loan. In another couple years I'd owe close to $80,000, it will double. So what then?

I heard of a girl who's father, a retired farmer without much money, borrowed $100,000 to send his girl to law school. Now he owes $400,000, more than what his house if worth. How are people supposed to pay this stuff back? When they compound a loan and charge interest on the interest, it's impossible for people to catch up.

No wonder people just say screw it and default on their student loans. Then they get their wages garnished for 25% of their paychecks, so why bother working then? They quit and fall off the radar and have to work under the table or live cheaply somehow and can never really ever have anything in their lives. I know many who have been so burdened with their student loans that they just give up trying to have a life, turn to drink, work for peanuts under the table, or whatever. Some just choose to go live at some ashram somewhere and do work exchange because it's just too hard to make it with the loan payments and the cost of living in the real world and they can't work without garnishments once the loan defaults, so why even try anymore? The whole thing is completely unreasonable.

I would pay back my loan if they only charged the $1000 a year on the loan that I borrowed, that would be fair. I'd owe about $25,000 right now on the $15,000 I borrowed. Fair enough for the amount of time I've had it. But $45,000 is just highway robbery based on me paying interest on the interest, literally.

The bailout is helping the rich. The corporate CEO who lives like a king, while we truly almost starve. Under the NEW bailout is there anything in writing that protects us if we default. I am not endorsing defaulting. But reality for some real borrowers are being homeless and hungry or paying a student loan. Is this the America we want to live in?

Hello.

Like many College Graduates, I too am having a horrible financial burden. I have my BS in Criminal Justice. I will have my MS in Criminal Justice Administration in a few months; and I am also working on my MA in Professional Counseling. I have accumulated approximately $60,000 in federal loans. These loans seem feasible over a 10 or 30 year repayment schedule; however, I also have private student loans. I have taken out approximately $75,000 in private loans; but here is the kicker, with deferment fees and LIB-OR interest rates, I now owe approximately $135,000. I have accumulated roughly $60,000 in interest over a 4-year deferment rate. God for bid, how much interest and fees I will have occurred over a 10, 15, or 30-year repayment schedule. While, doctors and high priced layers may be able to pay down these loans, what about the rest of us???

1) I received my loans through Bank of America's Education Maximizer program.

2) The bank charged a 11% fee for each loan, in addition to the interest rate of 4.7-10%. I have 13 loans (based on semesters)

3) Each loan was then sold by the bank to AES (American Education Services). AES also incorporates a fee percentage, which is added every year the loan is deferred. Hence, the additional $70,000 and growing!

4)Co-Signers: Let's face it, most students do not have enough good credit built up to receive funds on their own, so we end up asking a family member to co-sign. With me, I asked my the mistake of asking my grandmother for assistance.

5)Now, my grandmother who is 82 years old, is concerned with all of the accumulating interest fees. Even though, I am still in school, and in deferment, she receives letters in the mail and phone calls from AES.

AES representatives tell my grandmother and I, that while my loans are still in deferment while I am in school, that I am highly encouraged to make payments now. These letters and phone calls usually occur at the beginning of each school semester/quarter. Both of us, try to explain to each representatives that I cannot afford to make payments. Next the representative, who will not take "no" for an answer, requests that I make interest payments. Once again, we explain that this is not a good time, financially. At this point, the representative continues by saying that any failures to repay on these loans will result in legal matters.
...What the hell! I am not even in repayment yet!

Meanwhile, my grandmother and family is concerned about her estate. Even though, the loans were unsecured, according to AES; if and when, I default on my loans, they will not only come after me but my grandmother's estate. OK, you know what, these are unnecessary ital threats.

Also, I realize that I mentioned that these phone calls and letters usually occur around the beginning of each semester/quarter; but, my guess is that with the economy the way it is, that they want to be paid now!

6) According to AES, when I had called them directly, several times; I was informed that if I were to default on a loan. They would first come after me. If I cannot pay the loans, then they will go after my grandmother's estate (if, she is still alive). But if she has passed away, and the estate is paid out to my family, then they will only sue me directly.

However, when they call us, with these headache-kind-demand for early payment, they inform us that should I default on the loans after the estate has been paid out, that they will go after my family. And, they will ignore the repayment terms. Basically, once I have defaulted more than 4 to 6 payments, that will demand a full payment of all loans up front. What the hell!

7) Like I stated above, as of March 09, I will have earned my BS/MS in Criminal Justice, which is so specialized! Meaning, that I cannot find a job in sales, marketing, hospitality, etc.... because, while I may have higher education than others in their industry, I have little or no knowledge of that field; and therefore, I might as well have a HS degree, earning minimum wage. With the way that the economy is, and a scarcity of professional jobs, I am left practically penniless. Meanwhile, I am having to stay in school so that i do not need to begin repaying my loans with the ridiculousness amount of fees; but then again, all that I am doing is adding to the emotional and financial pain until I find the perfect paying job! Of course by then, I will need to win about 1 Million dollars in the lottery, only to break even.

8) Between all of the selling/sold fees, multiple interest fees, and no future of a bankruptcy for students with these loans; I SUGGEST THAT THE GOVERNMENT BAILOUT GO TO THE STUDENTS AND NOT THE BANKS/LOAN COMPANIES!!

9) With me, I have some health reasons which prevents me from becoming a police officer; even though, this was my chosen path in life, having earned multiple degrees in the field. But now what? I am practically starting over here with a new career path in counseling.
Even with another Masters Degree, I still will need to complete 2000 hours of supervised training. So, this new goal and my counseling license is probably about 2-3 years away. Now, imagine the financial burden with my loans! I just cannot win.

10) Lastly, I once again plea to the government here: Instead of bailing out the banks/loan companies; please for the love of god, send funds my way - or - forgive our loan balances!

Thank You.

Josh B.
Lindenwood University, Graduate Student

When is the government going to realize that by bailing out the companies and not helping out the students, you are actually discouraging people from continuing their education? People are starting to realize that it is not in their best interest to spend time in college and end up in an absurd amount of debt that you won't be able to pay off anyway because (even with your higher degree) you still have a low-paying job. In the end, all you have is a low paying job and more debt than you can possibly manage.

In economics, a bailout is an act of loaning or giving capital to a failing business in order to save it from bankruptcy, insolvency, or total liquidation and ruin. Many people love pork and pork products like bacon, ham, ribs, but not when it means government spending the nation’s cash in earmarks and easy loans that don’t benefit the majority of Americans. Well, groups like ACORN have been pressuring President Obama for spending on their interests (again, theirs, not the majority of Americans) which would be considered anything but kosher. Some of these groups pegged to receive funds have had controversial histories and policy interests that aren’t exactly mainstream – or good for a lot of people. It seems highly odd during a time in which many are struggling to bring home the bacon that government spending should include so much pork.

I was about 2 seconds from balling my eyes out before I found this site. To see that I am not alone in this mess of things helped me to calm down a great deal.

I just graduated from college in Graphic Design and desperate for ANY job I worked for free for 6 months at an internship. I figured, hey... it will look good on my resume and maybe he will start paying me eventually. Well he didn't, and now I work at a craft shop that cannot afford to pay me potato chips. Seems like every one wants cheap labor these days. I can't even get overtime and god forbid I take lunch without clocking out. Yeah, well you can keep your dumb $5! Geez.

So I have over 60,000 in loans working on what can't even be considered "starving artist" money cause I don't make enough to qualify. And every single site I visit for private loan consolidation says that "due to the economic state, we no longer offer consolidation." Or say, "variable interest rates starting at 8%." UGH!

So I am supposed to make $500 dollar (interest only) payments a month when I still have car insurance, phone, food, gas to pay for. It doesn't even add up. At this rate I will never be able to move out of my parents house.

Now, I might not be all that great coming up with the plans... but if someone has a suggestion I am right there with them. Perhaps we all send pleading letters to Obama at once. Just flood him with our stories and suggestions to the point where he can't ignore us anymore...

After reading these statements, though I still feel completely helpess, I realize I am not so alone. I made the mistake of taking out $50,000 in undergrad loans, with the impression that I'd be eventually making enough money to pay them off. I HONESTLY with all my heart and soul believed the people who were supposed to be my "mentors" telling me constantly that I'd be making tens of thousand of dollars more with my college degree. Now I am stuck being employed in a series of menial jobs with a useless BA in languages and no way to pay off my $500+ monthly debt, which is actually about half my income. We need to unite, we need to educate ourselves on our rights, though they are limited at this point, and stand up against this predatory system of cruelty. At 24, I'm afraid I don't have a life ahead of me. I have applied for the "extended repayment" and "income sensitive" options, which are not that sensitive to my income at all, and I still end up paying nearly half my monthly salary. How am I supposed to live, let alone enjoy my life? Will I ever be able to achieve my dreams? Marry? Have children? At this point, my only option is to go into default after my three years of granted deferments. Hopefully, by then, the government will have realized the needless pain and suffering caused by the student loan scam. Good luck to all, for no human being should EVER have to experience this kind of hardship.

Many of you are in the same boat that I am in. I owe over $80,000 in student loans. When you add interest, principal, and other charges, it numbers out to way over 100,000. I have trouble too finding jobs that suit my needs and profession. I am overqualified and work under others less educated than myself. However, there is some relief. You need to read about a new act. It is the College Cost Reduction and Access Act of 2007. It bases monthly loan payments on your income and if you make at the poverty level and under, you don't qualify to make payments. Also, if you make payments on student loans for 10 years or 120 payments, your loans are forgiven or dropped, if you work in the public sector. Just thought I would share that with you. It is good to know that I am not alone with this burden.