Student Loans Sucker Kids into Oppressive Debt

January 5, 2009

student with piggy bankBy Angie Moreschi:

Wanting a college education is supposed to be a good thing, but for many students it’s turned into a nightmare, as more and more kids are strapped with insurmountable debt upon graduation. Student lenders, like Sallie Mae, have found trusting and eager targets in our youth. Many of these companies have used questionable lending practices, where information and disclosures are glossed over with promises of higher paying jobs “someday.”  The very school that a student believes they can trust with their education is often complicit in luring them into loans they cannot afford.  The LA Times recent article “Student loans turn into crushing burden for unwary borrowers” by Kathy Kristof is a revealing report on what is happening to college students today when they borrow money for school.

Excerpt from LA Times article “Student loans turn into crushing burden for unwary borrowers” by Kathy Kristof:

Lenders in disguise

When Shianily Torres took out $38,000 in student loans at Florida’s International Academy of Design and Technology, she thought she was dealing with the college financial aid office. She now thinks it may actually have been a representative of Sallie Mae — in part because that was the only company that offered her a loan. “My father asked if there was somewhere else we could get the loan and they said no. The school didn’t accept money from just any bank,” Torres said.

Torres said she didn’t learn the rate on her loan until after graduation, when she got the bill. The variable rate rose as high as 18.5%, which requires a monthly payment of $650 — more than twice what she makes in her part-time job. She said that she couldn’t make the payments, and that Sallie Mae had not responded to her efforts to renegotiate terms.

An investigation last year by New York Atty. Gen. Andrew Cuomo found an “unholy alliance” between lenders and hundreds of schools across the country. Charging more than a dozen lenders with wrongdoing, Cuomo cited a pattern of bribes to financial aid officers making decisions about which lenders would appear on school-preferred lender lists and “revenue-sharing” kickbacks — in cash or products — to schools that led their students to specific companies. Hundreds of colleges agreed to abide by new ethics rules and not to accept gifts, and half a dozen even refunded money to students.

The U.S. Department of Education tightened its guidelines to discourage quid pro quo arrangements. More than a dozen student lenders, including Sallie Mae, Bank of America, Citibank and JPMorganChase, paid a combined $13.7 million to settle Cuomo’s charges, without admitting or denying the allegations.

Private litigation continues, however. Torres is one of dozens of students who are suing Sallie Mae, alleging deception and discriminatory practices that left low-income and minority students saddled with the highest-cost loans.

Andrew Meyer, the Tampa, Fla., attorney handling the case, said his law firm gained insight into Sallie Mae’s practices from people who formerly worked there as loan officers.

A key strategy was to make students believe the loan officers worked directly for the college, he said. Meyer said Sallie Mae purposely sent disclosure forms a month or more after classes had begun so that students would be less likely to protest onerous terms.

Click here to read the entire LA Times article.