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 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.
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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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