WASHINGTON (Reuters) — The $85-billion U.S. college student loan business reeled Thursday from a proposal in President Barack Obama’s 2010 federal budget that would axe the giant federally guaranteed student loan program.

In a major shift that severely undercut shares in top student lender Sallie Mae, Obama’s budget outline called for moving most student lending into the direct-loan program run by the U.S. Education Department.

The proposal is subject to review by Congress and possible changes. If adopted, the White House said it would save taxpayers more than $4 billion a year and end “entitlements for financial institutions that lend to students.”

The president’s plan sets up a clash between congressional Democrats, who praised it, and private-sector student lenders, once a powerful Washington, D.C., lobbying force brought low in recent years by scandal and the financial crisis.

Some lenders have pulled back from student loans, where profits have thinned due to cuts in federal lender subsidies, while a deep credit crunch has resulted in massive taxpayer bailouts for major banks. The government began intervening in the student loan market last year to ensure availability of financing for college students.

If you enjoyed this post, make sure you subscribe to my RSS feed!

Michael Robinson Chavez / Los Angeles Times

HEAVY DEBT: Natalie Hickey, who graduated from Brooks Institute in Santa Barbara, picked up $140,000 in student loans, some of it at rates as high as 18%. Monthly payments of $1,700 are more than her rent and car payment combined.

If you enjoyed this post, make sure you subscribe to my RSS feed!

http://www.straight.com/avoiding-student-loan-hell  

 
“Single mom Joanne Howey thought she knew what she was getting into when she started her education in 1995: a $26,000 debt. It wasn’t attractive, but it was manageable. Thanks to a decade of ever-changing student-assistance programs, a shifting job market, and her decision to cap her degree with teaching credentials, that debt has grown to $72,000.

Together, Ottawa and Victoria want $900 a month from her. She works as a substitute teacher. Rather than improving her family’s finances as she hoped it would, Howey told the Georgia Straight that postsecondary education has doomed her to poverty until she retires.

“This is another form of poor-bashing,” said Howey, who received just $4,000 in loan remissions, the program that replaced up-front grants in 2001. “The rhetoric is that we need an educated populace, but the government does nothing to support that.”

Big student loans are not news, but those who get loans for the first time this fall are pioneers for the new student-debt reality in B.C. Statistics Canada’s last survey of graduates was in 2000, at a time when the average government-owed debt was $12,600 for college and $19,500 for university. Since then, tuitions have doubled or more in B.C. Despite student-led campaigns, neither federal not provincial political will has shifted the course.”

If you enjoyed this post, make sure you subscribe to my RSS feed!

In Downturn, Families Strain to Pay Tuition – NYTimes.com 1.

“Diana and Ronnie Jacobs, of Salem, Ind., thought their family had a workable plan for college for her twin sons, using a combination of savings, income, scholarship aid and a relatively modest amount of borrowing. Then her husband lost his job at Colgate-Palmolive  .

“It just seems like it’s really hard, because it is,” Ms. Jacobs, an information technology specialist, said of her financial situation. “I have two kids in college and I want to say ‘come home,’ but at the same time I want to provide them with a good education.””

If you enjoyed this post, make sure you subscribe to my RSS feed!

“The current interest rate on Stafford loans is 6%, declining to 3.4% over four years, but then re-setting to 6.8% in 2012. Student loans are typically repaid over 10 years following graduation. Assuming Middle borrows her $23,748 one year at a time, and setting interest at 6%, she will borrow $5,937 in 2009 and pay back a total of $7,909.20 over 10 years, for each year. Her borrowing of $23,748 over four years means that she will repay $31,636.80 over 10 years; her college education did not cost $23,748; it cost $31,636.80.
What if she goes to Michigan State anyway, and borrows $22,000 per year? Each $22,000 loan, at 6% interest over 10 years, would incur interest of $7,310 per loan; each $22,000 loan requires her to pay back $29,310, so her education, originally priced at $88,000, instead costs $117,240.

Her monthly payments, on graduation, would begin at about $260 per month if she attended the UW-Oshkosh; if she attends Michigan State, then six months after graduating she can expect to begin repaying her student loans at a rate of $977 per month.

Now here’s where the problem is: Middle wants to be a veterinarian. The American Veterinarian Medical Association says that most vets in 2006 (the latest year available) earned between $56,450 and $94,800 1– which is very good, all things considered. But that’s for all vets. Another source says starting salary for vets is less than $40,000 per year, on average  . And Middle won’t be saddled just with undergraduate debt; she’s got vet school to go to, as well; but even if she didn’t, she would graduate owing at least $31,000 and up to $119,000, and could expect to earn — before taxes — $40,000 to start out.”

If you enjoyed this post, make sure you subscribe to my RSS feed!

“Try to imagine just how much the cost of a college education has increased over the past 25 years. Take your time. Think in terms of how various kinds of things have increased in cost over this period, such as common foods and movie tickets, for example. Odds are that no matter how awful you think inflation has been you will never correctly guess how much a college education has increased in cost.
Are you ready for the ugly truth? The National Center for Public Policy and Higher Education has found that college tuition and fees have increased an amazing and appalling 439 percent over the past 25 years. And forecasts are that those costs will continue to increase rapidly.

One reaction to this fact might be that, as bad as it sounds, perhaps the incomes of American families have increased enough to offset this huge increase in the cost of a college education. Not so. Over this same period, median family income increased by just 147 percent. In other words, college education costs increased nearly three times faster than family income increased.

This explains why borrowing by students and families to cover college education costs has skyrocketed in recent years. And now comes the current economic meltdown. Paying off debts already incurred will be very, very difficult for incredible numbers of Americans. But even worse, in many respects, is that younger people looking forward to a college education may not be able to borrow enough for a college education and, therefore, face a very bleak future. Without affordable college education the path for economic success in America will fade away.

Even attendance at public universities and community colleges will become extremely difficult during what is predicted to be a long and brutal economic recession. All this bad news is the worst for families in the lowest income brackets. This means that economic inequality that is already a problem will only get worse, as poorer American families become increasingly unable to send their children to college. The old idea that college students can work to help pay for their college education also starts to unravel, because in these recessionary times it will be very difficult for students to get those jobs.

Clearly, there is only one possible but unlikely solution. The government could provide more direct financial assistance, not just loans, to help families afford college education. But in these dire fiscal times will the federal government bail out ordinary Americans they way it has been bailing out banks and all kinds of companies? Time will tell.

Source   / Associated Content

Thanks to Joel Hirschhorn / The Rag Blog 3“

If you enjoyed this post, make sure you subscribe to my RSS feed!