<p>Cross posting this on the financial aid board.</p>
<p>"WASHINGTON (AP) -- Rampant abuses by lenders have followed a boom in higher-priced college loans not guaranteed by the government, and lax federal oversight has made the situation worse, New York's attorney general said Wednesday.</p>
<p>Andrew Cuomo told Congress his office has begun investigating lenders for possible discriminatory practices involving the criteria used for pricing student loans. Such criteria may include where a student lives and what type of college he attends, Cuomo suggested.</p>
<p>Already, his office has taken on student lenders and college financial aid officials over conflicts of interest. That includes kickbacks to college officials for steering students toward particular lenders.</p>
<p>Private student loans do not have their interest rates capped, unlike government-backed college loans generally.</p>
<p>The $17 billion market for private loans is "the fastest-growing segment of the student loan industry and (has) become the most fertile ground for unscrupulous practices," Cuomo said at a hearing of the Senate Banking, Housing and Urban Affairs Committee.....</p>
<p>At the same time, he said, "The Department of Education was asleep at the switch, but so were the banking regulators -- who must now wake up and act...."</p>
<p>The committee chairman, Sen. Christopher Dodd, said he would consider writing legislation that would extend to student loans the sort of fair-lending laws that cover home mortgages."</p>
<p><a href="http://www.cnn.com/2007/EDUCATION/06/07/student.loans.congress.ap/index.html%5B/url%5D">http://www.cnn.com/2007/EDUCATION/06/07/student.loans.congress.ap/index.html</a></p>
<p>This is from a parallel article in the NY Times:
<a href="http://www.nytimes.com/2007/06/10/us/10loans.html?hp%5B/url%5D">http://www.nytimes.com/2007/06/10/us/10loans.html?hp</a></p>
<p>WASHINGTON As the first in her immigrant family to attend college, Lucia DiPoi said she had few clues about financing her college education. So when financial aid and low-interest government loans did not stretch far enough, Ms. DiPoi applied for $49,000 in private loans, too. How bad could it be? she recalls thinking.</p>
<p>Janea Morgan, a 2006 graduate, said her college steered her toward private loans over federal ones. She owes $46,000 at 9 percent interest.</p>
<p>When Ms. DiPoi graduated from Tufts University in Boston, she found out. With interest, her private loans had reached $65,000 and she owed an additional $19,000 in federal loans. Her monthly tab is $900, with interest rates topping 13 percent on the private loans........</p>
<p>Dozens of students interviewed said that when they signed for their loans they were unclear on what interest rate they were getting and that financial aid counselors discussing repayment failed to include interest that students were compounding while in college. The lenders say they are providing a valuable service, helping students who might otherwise not be able to afford college. Tom Joyce, a spokesman for Sallie Mae, the nations largest student lender, said the companys average interest rate on private student loans was just over 10 percent and that the typical borrower was a young person with little or no credit history and no collateral.</p>
<p>What would the credit card interest rate be for that borrower 24, 25 percent? Mr. Joyce asked. Our goal is to make it possible for students to graduate.</p>
<p>I think their goal is to make as much money as they can.</p>
<p>Problem with this second article is that the loan disclosure statements received after accepting the loan clearly state what the interest rates are, as does the paperwork the student is required to complete prior to loan certification. The problem isn't a lack of disclosure by the lenders. Instead, the real problem is that most students caught in these situations haven't READ the paperwork.</p>
<p>As a Financial Aid Counselor, I have many adult students call and ask...What is the interest rate on my Unsubsidized Stafford Loan...and do I have to make payments while I am still in school? Typical questions? No...not if they had bothered to read the paperwork they were given when they first applied at our school. We give all our students, as part of their college application packet, a "Applying for Financial Aid" pamphlet which our office has created. It discloses how Stafford Loans work, including the interest rates, types available, repayment information, deferment instructions, etc.</p>
<p>Also, students should already understand that interest on private and unsubsidized Stafford Loans capitalize onto the principle balance of the loan (unless they choose to make interest payments while still in school)...that is, if they read the Master Promissory Note they signed.</p>
<p>Parents....do your children a BIG favor before you send them out the door to college....Teach them to READ everything their financial aid office or lender sends to them. The important documents coming from both sources contain life-altering information. Teach them to not sign anything until they read and understand what they are signing. Teach them to borrow only what they truly need to achieve their dreams. Just because you can borrow more than needed....don't! Teach them to live on a preset budget-they really don't need to go to the movies every weekend with their classmates!</p>
<p>Parents need to remember: while Federal Regulations may stipulate that these are dependent students....they are still ADULTS. And as such, they need to learn to become financially responsible. We cannot hold their hands for their entire lives. Instead, we need to provide them with the tools so they can start making their own financially smart decisions.</p>
<p>Well, I think that many students READ the fine print, but had no real idea what it meant. They needed the money to complete their education, and I think they were held a bit hostage to the terms. An 18-19 yo does not "get" that the interest accrues during their four years and that the principal in 4 years, taking into account the added interest, can be way higher than they anticipated. And many of these students DO NOT HAVE parents with college educations. It is one thing to be able to read the fine print. It is another to understand it or to have a parent understand it. I think that some of these lenders were indeed predatory.</p>
<p>And many of these kids were living very frugally, and not using money to eat out and go to the movies every week.</p>
<p>It is interesting that these same young people borrowing 60-80 k or more would be turned down for a similar loan amount on a mortgage, even it was secured, such as a mortgage on a condo. The fact that the student loan application process is so "painless" and they are "approved" automatically contributes to the risk of students way over extending themselves.</p>
<p>The fact that so many young people find themselves with crushing student loan debt means we could do much better helping them understand the long term implications of all this debt. Recently I helped my mother apply for a reverse mortgage. She had to review educational materials and then complete a mandatory two hour, individual (by phone) counseling/education session coordinated by an uninterested third party (AARP).</p>
<p>what's missing from the NYTimes article is a reflection that Ms. DiPoi's family had a high efc. The fact that she borrowed to attend college is not Tuft's issue -- she could have gone to a less expensive school, or, since she had good enough grades to get into Tufts, she could have gone to a lower tier school with a big merit scholarship. (More journalistic whining, IMO.)</p>
<p>CaliforniaCollege SD is a buy-a-degree school...</p>