Student Loans: Latest Publications

The Subprime Student Loan Racket

Erin Drankoski — Mon, 26 Oct 2009 07:13:00 -0400

At the age of forty-three, Martine Leveque decided it was time to start over. For several years, she had worked in the movie business, writing subtitles in Italian and French for English-language films, but her employer moved overseas. She then tried her hand at sales, but each time the economy dipped sales tumbled, along with her income, and as a single mother with a teenage son, she wanted a job that offered more security. She decided to pursue a career in nursing, a high-demand field where she could also do some good.

Student Loan Purchase Programs Under the Ensuring Continued Access to Student Loans Act of 2008

Education Policy — Thu, 15 Jan 2009 17:05:00 -0500

An updated version of this paper can be found here.

In May of 2008, Congress passed the Ensuring Continued Access to Student Loans Act (ECASLA) in response to concern that credit market conditions could disrupt federal student loan availability. The law gives the U.S. Department of Education temporary authority to purchase federally backed student loans made by private lenders, effectively providing a secondary market for the loans. Congress opted to leave the new purchase authority largely undefined in statute, giving the Department considerable discretion to design and administer it. To date, the Department has created four separate loan purchase arrangements under ECASLA: a put option; a short-term purchase program; a financing arrangement; and an asset-backed commercial paper support program. This issue brief provides a detailed description of these arrangements and will be updated as new information becomes available.

Advice for Duncan: The Thinker

Cecille Isidro — Mon, 12 Jan 2009 14:52:00 -0500

I recommend early focus on education finance matters. The administration needs to meet and improve upon campaign promises requiring substantial resources. There are pressing student loan issues and pent-up demands for No Child Left Behind (NCLB) funding. Because the stimulus and budget are being developed now, you have a window of opportunity to address all three areas.

David Paterson Can Help Ground Skyrocketing College Tuitions

Cecille Isidro — Sun, 21 Dec 2008 21:17:00 -0500

A not-so-funny thing happened on the way to the housing bubble. We created a college tuition bubble as well. As with housing, a toxic combination of easy credit and unsophisticated and unrealistically optimistic consumers has driven college prices sky-high.

Those prices aren't coming down anytime soon - and as the credit crisis continues, that means there's a risk that students who max out on federal loans and need extra private aid won't be able to borrow enough to afford expensive colleges.

Tuition Hikes, Not Loan Access, Should Frighten Students

Cecille Isidro — Wed, 22 Oct 2008 08:30:00 -0400

For months, the Wall Street credit crisis has made many families nervous that the widespread availability of student loans will dry up. But no matter how many banks fail, there is no danger that families will be deprived access to federal student loans. None.

More than 100 banks have stopped issuing student loans, but about 2,000 continue to originate federal student loans. The government maintains two "fail-safe" systems. To date, not a single student has been unable to get a federal Stafford Loan. Every family, regardless of income and credit history, is able to borrow at least $57,500.

The real danger during bad economic times is that tuition often skyrockets. Here's why: A bad economy depresses state tax revenue. To meet state balanced-budget requirements, states cut funding for higher education. To make up those cuts, public colleges hike tuition. Competing private colleges see the increases and feel empowered to increase their tuitions markedly as well.

Don't Stop Spending

We can stop this trend by adopting more flexible and sensible state fiscal policies: namely, a willingness to accept deficit spending for education. No one likes red ink, but it is precisely during bad economic times that aggregate education funding should not be cut. In fact, making education recession-proof nationwide without raising taxes is a way out of an economic crisis.

State budget officials know that low-cost federal student loans are widely available. That is why states cut higher education funding when tax revenue is short. They expect families will pay or borrow more for college after cuts occur.

They're right, but consider the impact. During the last recession that led to state budget cuts, in-state tuition and fees went up 39% in one year at the University of Arizona. From 2000 to 2003, they went up 44% at University of North Carolina-Chapel Hill. The average undergraduate leaves school with more than $19,000 in federal student loan debt, twice as much as a decade ago.

The Right Way

In response, organizations such as the Cato Institute, a libertarian think tank, argue that we should deter states and colleges from raising tuition by cutting student loan subsidies. But that would make college less affordable for the middle class and less accessible for the poor.

There's a better answer: The 49 states that have balanced-budget laws should revise them to allow deficit spending on education during recessions. We learned from the Great Depression that the way out is with a massive infusion of government-supplied liquidity. Consumer and government demand drives supply, which in turn drives jobs.

Look at what we've done on the federal level. We passed a $170 billion stimulus plan. We've committed more than $400 billion to ad hoc Wall Street rescues. We passed a $700 billion bank bailout plan. But the states are about to move in the opposite direction and cut spending. That's bad policy right now.

Too much deficit spending is a danger, but so is not borrowing a neighbor's hose when your house is on fire. We need sensible revisions to state budget laws that set flexible caps on deficit percentages, impose objective triggers and require public debt repayment during good times to prevent runaway spending. But adhering to a balanced-budget principle in an economic crisis is what Herbert Hoover did initially. We need the opposite.

Attention governors: Show leadership, revise your budget laws and make education recession-proof.