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Student Loans and Debt – CBS 60 Minutes Missed the Point – Lenders Like Sallie Mae Drive Up the Cost of College - What can be Done in Default

May 7th 2006

Student Loans and Debt – CBS 60 Minutes Missed the Point – Lenders Like Sallie Mae Drive Up the Cost of College - What can be Done in Default

SallieMae Website

Student loans are one of the toughest loans to default on.  In fact, there is no default, only penalties and compound interest to those who don’t. or can’t pay.  The CBS News program 60 Minutes ran a story on the program where they pointed out the dilemma many graduates and non-graduates face when they are unable to pay back the loans.

Regular lenders like credit card companies and banks can not go after the same way Sallie Mae can.  Sallie Mae (or their collection agencies) can garnish social security if someone defaults on a student loan.  Some states allow lenders to garnish wages, but Sallie Mae can do this in all states.  Also, Sallie Mae has been able to facilitate the passing of laws that make it nearly impossible to file bankruptcy to extinguish the student loan debt.  No other lenders receive such protection, according to the 60 Minutes broadcast.

Most people would agree that when the government loans money or guarantees loans, they should get their money back.  The problem is that most people also agree that the student loan program is a good thing.  But is it really?


Advocates of the program say that without these loans, the students would not be able to attend college.  Maybe, but maybe not.  Colleges are in the business of enrolling students.  If a college has the ability to enroll 100,000 students, they will want to enroll 100,000 students. 

I believe that Sallie Mae and other government sponsored programs have had the effect of driving up the cost of a college education.  These artificial programs make it possible for colleges to charge more for their tuition.  What’s worse is that it appears the colleges are allowed to accept kickbacks for accepting students that sign-up for a loan.  Comment on this article at our Forum


Similar problems have occurred with federally guaranteed home loans.  These loans have the effect of driving up the cost of homes.  Let’s say you own a home and want to sell it.  Your goal is to get as much as you can for it.  If your price is a little high, don’t fret you can lower it.  But if a buyer is able to qualify for a loan to buy your home, because of federal guarantees that he would otherwise not get, you will get the higher price.  If there were no federal guarantees, you would have to lower the price until it sold.  The same thing can be said for the slots for college enrollment.  The colleges would have to accept less for their services. 

So should the government be in the business of ruining these students’s credit?  What purpose does the student loan program serve, other than to drive up the cost of an education, and to make defaulting students indentured servants?   The federal government should get out of the student loan business altogether. 

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Tom Madison
Freelance Writer

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