Submitted By: Mike Spindell, Guest Blogger
One month before I was scheduled to begin my freshman year in College my mother died. My father had gone bankrupt in his automobile franchise the year before and was working as a car salesman. Money was tight, but I had won a full tuition scholarship under the New York State Regents Scholarship program. While tuition was not a problem, there would be other costs associated with College, such as books and various student fees. My father found out about New York State’s student loan program and signed me up for a low amount of money, with the understanding that he would repay it. Due to his business failure my father had no way to get credit in his own name. Ironically, one month before my sophomore year my father died. I was 18 years old and the only work I had ever done was as a “car jockey” at the dealership where my father worked. There was little money in my father’s estate and I soon had to start school. I upped my student loan to the maximum allowed so that I would have living expenses until I could get a job to support myself through my remaining college years. Within two months, still reeling from the effect of being orphaned, I had gotten a job as a Night Watchman in a municipal hospital and arranged my course schedule around it. I lived in a furnished room, with a bathroom in a common hall, but my life slowly began to normalize. Later I got a job as a Clerk/Delivery boy in a liquor store, working 35 hours a week after school and making $32.50 plus tips, using my own car. I managed to scrimp by with the aid of taking out the maximum available student loans each year. The loans under the program them were from a bank, guaranteed by New York State. After I graduated I got a job for $6,000 a year and tried to pull my financial head above water. Six months after graduation though, I was notified by the bank that my student loan was to start being repaid, at a fixed rate that to me was a hardship financially. I went to the bank to ask to restructure the deal so I would pay less each month and they refused. It turned out that the New York State Student Loan plan was set in such a way that if the borrower defaulted the State would pay the bank the full amount immediately and then go after the borrower. It was therefore in the bank’s interest to have the student default, since they would get their return much more quickly.
Flash to many years down the road and my two daughters going to college. I was forced to take out student loans for their education, but I made each of them the promise that I, not they, would pay it back. This was of course the result of my own experience and I considered it my duty. I paid off my oldest daughter’s debt and am now paying off my youngest daughter’s debt. On my fixed income this is difficult. Both of them are working with good jobs, however, I don’t want my children to go through what I went through and would prefer they are not burdened by the costs of their education. Incidentally, they both worked part time when they went through college, although in both instances I didn’t want them to have to do so and that is only a minor part of why I am so proud of them. Which leads me to what is going on today with the Federal Student Loan Program, which brings in a surplus of $184 billion for the Federal Government. Call me what you will, but I don’t think that government should be a profit making enterprise and I certainly believe that it is in all of our interests to educate our children. At least one Senator feels the same way.In this week’s edition of Rob Kall’s OpEdNews at http://www.opednews.com/ Senator Elizabeth Warren wrote an article titled: The Whole System Stinks. http://www.opednews.com/articles/The-Whole-System-Stinks-by-Elizabeth-Warren-130723-245.html Senator Warren, one of my few favorite Senators, takes apart the student loan program and exposes its faults. OpEdNews is one of my go to places when I want to get perspective on “unfiltered news”
“I’ve spent years fighting back against credit card companies that put out zero-interest teaser rate cards, planning to jack up the price later and make all their profits in the fine print.
I also fought back against teaser rate mortgages that promised low payments in the first few years, but then shot up to rates that pushed millions of families into foreclosure.
So it’s shocking to me that the United States Senate would offer its own teaser rate for our student loan system — a system that is scheduled to make more than $184 billion in profits over the next ten years. That’s not the business the United States government should be in.
We had a majority in the Senate to keep student interest rates low, but because of Republican filibusters, the interest rate on federally subsidized student loans jumped from 3.4% to 6.8% on July 1st. Instead of restoring that 3.4% rate, a new so-called “compromise” plan on the table raises the interest rate on those loans this year to 3.86% for undergraduate students, and 5.41% for graduate students in 2013.
And then it gets worse. The plan is set up to collect higher interest rates in future years. After just 24 months, the rate jumps above 6.8% for graduate students. Within a few years, rates for all loans will be higher than if Congress does nothing — and some could climb as high as 10.5%. Even worse, with the federal government already making billions in profits off these programs, the “compromise” plan is set up to actually increase those profits by hundreds of millions of dollars more.
I can’t support a proposal that squeezes even more profits out of our kids, while millionaires and billionaires still don’t pay their fair share. This is a bad deal.”
So the original interest rates being paid by students was 3.4% and it jumped to 6.8% on June 1st. Even the compromise being proposed would be 5,41% in 2013, with further jumps in the years beyond. For comparison let’s look at the “Prime Rate” which is currently: 3.25%. The Prime Rate is used to finance short term business loans. http://www.federalreserve.gov/releases/h15/current/h15.pdf. I’m linking a chart on the current interest rates charged by the Fed. Peruse it and you will see that the discount rates charged (albeit for the fact they are short term) at well below 1%. Also the current average mortgage rate around the country is 3.13%. Compare those rates to the 3.4% currently being charged students and that has current been doubled. http://www.federalreserve.gov/monetarypolicy/discountrate.htm
I pretend no financial expertise but luckily Senator Warren is an expert on banking and finances. She continues:
“Senator Jack Reed has offered an amendment that is a true compromise: let rates move with the market, but set a cap on student loan interest rates at their current rates. I am proud to cosponsor that amendment. It’s the only way to ensure that students don’t end up paying more than they would if Congress does nothing.
In the end, this is a simple math problem. If Republicans insist that we continue to make the same $184 billion in profit off of the student loan program, that just means that students in future years will have to pay higher rates to make up the difference. I don’t believe in pitting our kids against each other. In fact, I think this whole system stinks.
We should not go along with any plan that demands that our students continue to produce huge profits for our government. Making billions and billions in profits off the backs of students is obscene.
Senator Jack Reed’s amendment is the only plan on the table right now that guarantees student loan interest rates won’t skyrocket above their current levels. We need to pass this amendment for our kids and grandkids.
I appreciate the hard work that my colleagues have done to try to defeat the Republican filibuster so that we can keep student loan rates low.
But our students are drowning under a trillion dollars in student loan debt. We need to start now with one basic principle: cut government profits on student loans. I can’t support a deal that actually increases those profits”
The average cost for public college tuition per year across the country is $6,585 per year. For a private college it is $25,143. http://www.chacha.com/question/what-is-the-average-cost-of-college-tuition-for-a-student-today When I went to school at a private college in the early 60’s it was about $1,200 per year. The going rate today is more than 20 times what I would have paid if not on full scholarship. That education costs have skyrocketed faster than the rate of inflation and why that is true is yet another issue, for another time. However, the issue of our children getting the best education possible is an important one to be dealt with here. I know that some will say that it isn’t the government’s business to ensure that all receive the best education that they can and I would answer that I think they’re wrong. From a smart capitalistic perspective the financial health of a society depends on the financial health of its people. The future of a society in this modern world likewise depends on the education of our children. I’m willing to accept in this instance that the conservative notion that such programs should be revenue neutral as workable and fair. However, that the student loan program should work as a “profit center” for our government, while bankers are able to borrow at highly subsidized rates, not only is monumentally unfair, but ultimately destructive.
Society should not be a “winner takes all” proposition, ultimately because a “winner takes all” system is fundamentally unstable. We humans psychologically require some stability in our lives or we run amok. A market economy is workable in many areas, but an unfettered free market economy logically devolves into tyranny. There is no market economy solution to the need for government assistance to help with financing higher education that doesn’t end with the mass of graduates being crushed by massive debt and fundamentally enslaved to it. If you disagree, or have a better idea I’d like to hear it and I’d be open to it. However, I began this piece from a personal perspective of what getting an education and educating my children has cost me and I am one of those lucky test takers that winds up in the first percentile, thus my full scholarship. There are too many others, better students and greater scholars than myself, who deserve the opportunities I’ve had and if they get them probably will make far greater contributions to the long term good of this society.
Submitted By: Mike Spindell, Guest Blogger