Graduating Into Debt

Is The Private Student Loan Industry Headed For A Mortgage Market-Like Meltdown?

(CBS)  For accountant Alex Guzzetta, not a day goes by when he doesn't think about these numbers: $90,000 in student loan debt, $20,000 owed to the federal government and $70,000 to a private lender.

“A third of every hour I work is basically just going towards just maintaining the interest on my student loans. I'm not getting anywhere, they're not getting any lower. I'm just buying time,” he tells CBS News correspondent Kelly Wallace.

Guzzetta maxed out in borrowing a fixed low interest federal loan and had to take out a private loan. He says he didn't realize he'd wind up paying 10 percent in interest and a minimum of $535 a month for 30 years.

“They said ‘In six months, this is what your payment's going to be,’ and when I saw that I nearly had a heart attack,” he said.

Just Google student loans and you'll see private lenders promising money hassle-free to cover costly tuition bills.

It's the same story on networks popular with the college crowd.

“We end up with students being drawn into a lot these loans they can ill afford and saddling them with huge debts,” Sen. Chris Dodd, D-Conn.

Dodd, chairman of the Senate Banking Committee, says he sees troublesome parallels with the subprime mortgage market: low introductory rates which ultimately go up, limited disclosure of monthly obligations and aggressive marketing directly to consumers.

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Wallace Blogs: Student Debt

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To make sure the private student loan industry doesn't melt down like the mortgage market, Dodd has proposed a bill requiring lenders to provide more details to students about what they'll actually have to pay.

“If banks compete, students win. And I'm going to make them compete for that business here and watch them very carefully and make sure there's a good cop on the beat,” says Dodd.

John Dean, special counsel to the Consumer Bankers Association, says most private lenders are acting responsibly, encouraging students to do their homework.

“If you go with a mainstream lender, if you go in with your eyes wide open, you ask the questions, you consult with a financial aid administrator, you are going to avoid these pitfalls. There is not, this is not a jungle,” he said.

To help inform students, last year, financial aid administrators at Barnard College started calling every private loan applicant, making sure they had exhausted their less expensive options first.

The result? Before the calls, 98 students were taking out private loans; afterward, just 39 were.

“Nine times out of 10, when I asked the parents and the students, ‘What's the rate you got on the private loan?’ they did not know, and that really bothers me,” says Alison Rabil of Barnard College.

“It feels like I'm just doling out money for nothing,” says Guzzetta.

Saddled with so much debt, his hopes for a better car and an engagement ring for his girlfriend will just have to wait.

[tcsor3]

How hard did you have to look to find an accounting major who did not know how he was borrowing, interest rate, terms. etc.? I would "sure" want this guy doing my taxes, finances, etc.!

[ccmcbride]

For the REAL effect of these loans, who did it and what they did, visit
htt://www.studentloanjustice.org.

Personally, I have seen my original 45,000.00 student loan balloon to 110,000 in 2004, when I filed bankruptcy to it''s current balance of 160,000. Most borrowers are not aware that student loans are EXEMPT from bankruptcy if you fall on incredibly hard times, and can result in your social security being garnished.

[collinge-2009]

Sorry, but this piece is fluff. Nowhere is it mentioned the astonishing lack of consumer protections that Mr. Dean and his buddies at Sallie Mae convinced their buddies in Congress (Boehner, McKeon, Enzi. Protedctions that we take for granted for other types of loans, such as Bankrupty protections, refinancing rights, Statutes of Limitations, Truth In lending requirements, adherence to state usury laws, and fair debt collection practices.

With all due respect the producers of this piece should have looked at the 60 Minutes piece on Sallie Mae. They at least got most of the story right.

As ccmcbride mentions above, come to www.studentloanjustice.org to see what the real, wicked world of student loans is all about.

[collinge-2009]

What I meant to say below is that nowhere in this piece is it mentioned the astonishing range of standard consumer protections that Mr. Dean and his buddies at Sallie Mae convinced their buddies in Congress (Boehner, McKeon, Enzi) to REMOVE from student loans.

This is the real story. This is why you can''t turn on MTV for 5 minutes without seeing an add for student loans.

This is why Sallie Mae''s "fee income" has increased by 107% between 2001-2005.

This is why Premiere Credit of North America- a student loan collection company, has installed a 4000 gallon SHARK TANK in their lobby. Check out their website for 10 seconds if you don''t believe me...www.premierecredit.com

This is why decent citizens are being forced off the grid, are fleeing the country, and even taking their own lives because of their student loans.

This is the real story. C''mon CBS.

[flaya-2009]

I had emailed months ago about this topic since it has happened to me. Like most stories mentioned, you tend to say what the problem is and how to fix it. You never have an answer for those of us who have fallen into this trap.

We need the answers now.

[flaya-2009]

I had emailed months ago about this topic since it has happened to me. Like most stories mentioned, you tend to say what the problem is and how to fix it. You never have an answer for those of us who have fallen into this trap.

We need the answers now.

[flaya-2009]

I had emailed months ago about this topic since it has happened to me. Like most stories mentioned, you tend to say what the problem is and how to fix it. You never have an answer for those of us who have fallen into this trap.

We need the answers now.

[mugsy1958]

I want to pay back the money I borrowed. Can someone tell me how to do that. It is only about $38000. That is roughly what the taxpayers coughed up to the guys who lent me the money when I was unable to pay. Now that I can pay off the $38000 those guys want me to pay an extra $62000 in penalties and interest before I am allowed to pay back the taxpayers. I''m truly sorry taxpayers. You will likely have to wait....until hell freezes over. I simply don''t make that kind of money and likely never will. Oh well. I don''t like those guys. They just don''t play fair.

[collinge-2009]

I hope you all will come to studentloanjustice.org

we seem to be the only group in the country dedicated to fighting the student loan mafia, and returning standard consumer protections to student loans. Those caught in thie trap, like Mugsy, know exactly what Im talking about.

Come to the site. I think you''ll be pleased. It may give you some hope.

[feelfree1]

I wonder how much free tuition, room, and board we could have funded with $500 billion+?

Imagine the mindpower that this alternative might have offered us...

Imagine how much talent we could have applied...

That would have been a real investment in our future. Oh well. At least we have the humiliating war of aggression against Iraq and elsewhere, to fall back on.

[Bubulus]

I never even heard of a "student loan" until relatively recently. When I was in college and graduate school we had scholarships and fellowships, not loans. Indeed, I was paid a $10,000/year stipend and all tuition and fees just to maintain passing grades in grad school. This whole student loan crisis goes along with layoffs and other sleazy business practices that are wrecking the American economy.

[lastdance2]

Off Topic :
Bush Touts Gains In Student Test Scores
Cites Improved Results As Evidence
That No Child Left Behind Act Is Working

After years of - Lowering Test Scores - and Hitting Rock Bottom
Describing Rock-Bottom as - The National Average Standard
Students are Finally Able - To Produce a somewhat Average Score.

The intellect and the Intelligence of a Student - Is nothing more than
same Intellect and the Intelligence of : The Teacher or Instructor

In 1990 - Gov Tommy Thompson R Wisconsin - Submitted False
and Fraudulent reports to Congress claiming Hugh success in his
Welfare - School - Work Program

From that false and fraudulent report - Gov. Thompson became
The new Health and Social Services Director

What he did - was - to take welfare recipients and send them to school
They were in school one (1) day.
Then quit - Straight down to - The Social Security Administration Office
Claiming they were too dumb and stupid to attend school - Too dumb and stupid to work
Qualifying them for Complete and Total Disability Payments
Wisconsin became a magnet - for Drug Dealers and Social Security fraud

The schools didn''''t complain - They had already been paid for the year - Whether the student
was in school or not.

Ordered by the - Reagan-Bush Administration.
Implemented by - Gov Tommy Thompson (R) Wisconsin
(2007 Presidential Candidate)

This is in part of how - The Social Security Administration and The Education System was
purposely and Intentionally destroyed.

[luvny-2009]

Oh man don''t get me started on these AH''s. My son took loans from Sallie Mae and of course I had to co-sign. They told BOTH of us that he could consolidated once he was done. Well when he graduated and tried to get them consolidated with a lower payment they said SORRY they are strudent loans but not the student loans that can be consolidated. I was so pi$$ed because they told me also it could be done. Now I have to make sure they get paid or it''s my credit and he''s been working his a$$ off trying to keep up.

[rushlimpdrug]

. . . This is why Premiere Credit of North America- a student loan collection company, has installed a 4000 gallon SHARK TANK in their lobby. Check out their website for 10 seconds if you don''''t believe me...www.premierecredit.com

This is why decent citizens are being forced off the grid, are fleeing the country, and even taking their own lives because of their student loans.

This is the real story. C''''mon CBS.
Posted by collinge

Holy krap, this is to funny! (and sad)

As if lawmakers have no idea this rape of students is going on.
I agree that CBS like others are irresponsible in their journalism when they do not report the REAL stories and skirt around issues.
The public is not fooled. Rather, many decide to give up and tune out. At some point many Americans realize real reporting is as rare as an honest politician.

[bthrasher102]

Student loan companies have always made this much money. By allowing the loan rate to float, the government stopped subsidizing the rate. The company you are talking about would have received the same amount of money under the old system as the new one, the money is coming from the student only now. Also, to the person who wrote about the 500 + billion, that wouldn''t fund one year of education for everyone who currently goes to college. As to the story, where did this guy go to school? I racked up $35,000 for 5 years of school (4 undergrad, 1 grad). He racked up $90,000. I''m sorry, but I not going to feel sorry for anyone who went to a school they couldn''t afford.

[mypatch]

CREDIT is going to ruin this country. It has already started with the mortgage co''s. The money mongars have us just where they want us. Under their thumb. When will we smarten up? If you can''t afford it then don''t spend it.

[paseo7]

The CBS commentator asks in the sub-title, "Is The Private Student Loan Industry Headed For A Mortgage Market-Like Meltdown?" My response to that is No, it is not. And that is because the consumer protections were deliberately removed by the student loan industry who wrote their own policy and regulations for Congress to enact since the 90''s. The only way that the student loan industry will fold is after the majority of their consumers have been sucked dry by their loan shark tactics and the truth stares blatantly in the face of those who previously turned away. There are bills pending that will help somewhat for future students but not for past ones. Those tactics and policy are such a maze of confusion and contradictions that writing a congressman for help will resolve only the tip of the iceberg. A multitude of problems remain hidden in the deep to sink a generation of graduates who did not have outside finances or high earnings to pay off and get out. Sometimes the tactics of the school loan industry make sure of that, in some states licenses are pulled, some illegal tactics when transcripts are held, interest, fees, and penalties abound. Senators and attorney generals have run like the wind from this problem with only recently noticing through all the other distractions that something is off with this industry.

[pearbo]

I don''t feel sorry for this idiot. He chose to borrow money. How much more is he earning now that he is an accountant. I bet it is a lot more than his student loan payment. Tell him to hop off the cross; we need the wood.

[carjordan200]

The report could have been more explicit. These a loan shark lending insitutions. Their accounting methods are, at best, SLOPPY. There is apparently no true auditing by the DOE. There is fraud from everyone involved, including the schools. They tell you what you can expect to earn with a degree, but it''s not true. The loan sharks consolidate loans without borrowers permission. THERE IS NO CONSUMER PROTECTION for borrowers. You have to remember that LIFE HAPPENS, like cancer, death, hurricanes, and earthquakes. It can happen to ANYone. My "little" loan has now TRIPLED, and carries credit card interest rates. That''s NOT what I signed up for.

[readerword]

This guy is an accountant??? Please tell me what company so I know where NOT to go.

[teddyr56]

I am sure I am not the only parent who cosigned for these student loans, I cosigned for 1 loan, then signed the paper when my son says, oh Mom, they are going to finace at a lower interest rate. I trusted my only son.
When after working only four years after college and with a wife and three kids, he becomes disabled, and can''t pay the loans and I get the horrible dreaded phone call that all cosignors fear.
"Hey, you owe us 33,000.00 dollars, the (two) loans you cosigned are presently 3000.00 past due, we will accept a phone check.
Now people, I am 56 years old, looking forward to retireing from a 30 year job in a power plant, which is not a real pleasant place to work in the first place, but now they will drag my dead body out of that *** place and I will never know retirement, because I will be paying over 100,000.00 dollars back to these people by the time I''m done. I pay 300.00 and maybe 50 or 60 go on the principle.
Where does someone like me turn for help?

[readerword]

We all make choices in our lives. I chose to not take out a student loan. It meant no cell phone, a crappy car (that I would always park on a hill so I could get a rolling jump start for the dead battery), roommates in college, and most of all working full time until I had enough money for a semester.

Everyone wants to go to heaven, but no one wants to die.

[dadmanly]

No sympathy here. Any fool who pays $180,000 for college has made a bunch of choices he or she didn''t need to:
1) not working part time or full time during college (cramps the party and after party lifestyle)
2) attending a pricey private college instead of a public one
3) considered fulltime employment with possible breaks in schooling or night school
4) taken the easy way instead of the harder ways, and is now paying the price (literally).

[mem18]

Since these are private loans not bankruptcy exempt government Student Loans many former Student will declare bankruptcy out them, forcing another government bailout.

[dkhbike]

Wow! A third of every hour just to pay back loans. I myself should be so fortunate, since about a HALF of every hour I work goes for federal, state, local, excise, property, sales, etc., etc., TAXES.

[manifester1]

I read your comments and I find myself surprised at the attitudes from much of the public. I am a medical student carrying the traditional medical school loan debt. I do not live an extravagant lifestyle. I pay my rent, buy peanut butter and jelly like many other students. The cost of education has increased steadily over the years while the federal loan amounts have not. To meet the cost of education, just tuition mind you, many students are forced to take out private loans or leave school. The fact that private loan companies, like SallieMae, have lobbied Washington, to provide them with legal tactics that would make the mafia jealous, is disgraceful. These loans cannot be included in Bankruptcy, as one person commented. They are protected even greater than the federal govt. loans. In the event you become disabled an unable to pay, Sallie Mae may garnish your social security benefits as well as any disability benefits you may receive. They can also suspend a physican''s license to practice medicine in the event the physician cannot pay the loans. If the government provided more protection to students trying to attain higher eduction in this country, we wouldn''t be required to go to the equivalent of a loan shark to fulfill our dreams.