The best collegiate news and feature stories from around the Web. Contact us at college[at]huffingtonpost.com.
The private student loan industry smells a lot like the subprime mortgage industry: Dead ends, runarounds and few live customer service representatives to speak with. The same tactics that mortgage borrowers have faced are now happening for student loan borrowers, according to a new report from the Consumer Financial Protection Bureau.
“Student loan borrower stories of detours and dead ends with their servicers bear an uncanny resemblance to problematic practices uncovered in the mortgage servicing business,” CFPB student loan ombudsman Rohit Chopra said in a statement.
Nearly two-thirds of the 2,857 complaints filed in the database had to do with repayment issues, including complaints about fees, billing, deferment, forbearance and fraud. Thirty percent of the complaints were about problems facing borrowers unable to pay. Few were related to getting a loan.
"In all, nearly one in every six borrowers with a loan balance is in default. The amount of defaulted loans — $76 billion — is greater than the yearly tuition bill for all students at public two- and four-year colleges and universities, according to a survey of state education officials."
Student Loan Disclosure Bills Seek To Prevent Heavy Debt Burdens
When Steve MacIntyre connected with a recruiter at the Art Institutes about enrolling in online classes to work toward a bachelor’s degree, he told them he had no money to pay for school and would probably need assistance with any paperwork thrown his way. He says the for-profit art college chain told him no problem and it could help.
"I allowed them to represent me for filling out financial paperwork, so they were able to take out loans and grants in my name," MacIntyre told The Huffington Post. It was a choice that the 40-year-old now calls "foolish."
With only a high school diploma, MacIntyre had struggled to find work for a few years. In the 2004-05 term, he began taking Art Institutes classes. By the time he completed an associate’s degree in graphic design, he owed $60,000 in private and government loans. He tried to finish the work for a bachelor’s degree, but wasn’t able to obtain all the needed loans and had to drop out a few classes shy. He’s now spent most of a decade unemployed or underemployed.
He receives frequent calls from Sallie Mae, asking for more than $800 a month in payments, MacIntyre said. But he can’t pay. “I’m sure I’m going into default soon,” he said on Thursday.
MacIntrye is angry. He said he feels like he was “thrown to the wolves.” Had he known the financial hole he would fall into, he would have searched for a cheaper means to obtain more training. He’s continuing to look for full-time work and “trying to stay positive, but it’s difficult,” he said.
Now, some lawmakers and officials in Washington are arguing for more disclosure about student loans to prevent individuals like McIntyre from getting in over their heads, an idea that consumer and student advocates have been pushing for the past several years.
Mitt Romney says in a campaign stop he’s not going to help college students out through Pell grants or increasing low cost federal student loans. Meanwhile, President Obama launched a website highlighting his student loan reform efforts.
What Can We Learn From Students With More Than $100,000 In Student Loan Debt?
The average student graduates college with around $22,000 to $27,000 in debt. A vast majority of the students with six-figure debt pursue various professional degrees; According to Kantrowitz, 36.2 percent of law school graduates and 49.0 percent of medical school graduates graduated with six-figure debt.
Nearly three-quarters of undergraduates graduating with six-figure student loan debt come out of non-profit colleges, 24 percent came from public colleges and another 3 percent came from for-profits.
Unsurprisingly, students from high-income families are less likely to come out with these extreme student debt levels. Yet, low-income students are also less likely to graduate with six-figure debt levels than students from middle-income households. This is likely to have a connection to poor students being eligible for more need-based aid; including scholarships, subsidized student loans and Pell grants. A similar case plays out for veterans; presumably because they have generous benefits from the government to help pay for college, very few come out with six-figure debt.
Students who borrow from private student loan programs are more likely to graduate with six-figure student loan debt, Kantrowitz found. Private loans only make up about 15 percent of the student loan market, but these private lenders reported to be providing 592 percent more in 2007-08 than they did a decade earlier. Private loans were also flagged in a recent Consumer Financial Protection Bureau study as mimicking trends of the subprime housing crisis which helped bring about the Great Recession.