Sunday, March 2, 2014

Private student loans, so important, so often unmentioned

Cornell professor of government Suzanne Mettler has a great New York Times article on the horror of for-profit colleges. I urge everyone to read it. These predators do tremendous harm to our young and our country, and of course they should at least be severely regulated. In fact, the problem may be so profound, the asymmetric and poor information so bad, and they may be so hard and expensive to regulate, that it may be best to require all colleges to be (true) non-profits or government. But want I want to focus on in this post is another problem that's also very important, and rarely noted, the private student loans heavily used by these companies.

This is the big flaw in Mettler's otherwise excellent article. She writes, "Nearly all of their students take out loans to attend, and the amounts are staggering.", but never notes the crucial point that these student loans are much more likely to be private than with government colleges. This is just enormously important. And sadly almost everyone misses this, a tragic flaw of our system, and of a very dominant paradigm of writing that overly stresses smoothness, brevity, and simplicity over accuracy, non-misleading, and not leaving out very or crucially important detail and specificity.

Because of the 2005 BAPCPA bankruptcy law private student loans are never escapable in bankruptcy, with extremely rare exception -- something like you now have full body paralysis. And these loans are usually for large amounts, often at very high interest rates. I've heard as high as 19%, where due to the awesome power of compound interest at a high rate, debt grows 5.7 fold every decade! 

These unsuspecting young people are at serious risk of being made into lifetime indentured servants with no escape ever (other than trying as best they can to avoid wage garnishment and seizing of any substantial assets they will ever achieve in life by things like moving to one of the states that restricts this the most). This is their reward for doing the right thing, trying to improve their education and skills to become more productive citizens. Yet the Republican response is good! More prey for the plutocrats to feed off!

Federal government student loans, by contrast, are a completely different story. They also cannot be escaped in bankruptcy, but they have powerful income based repayment and loan forgiveness protections that make them completely safe, in fact one of the safest major loans in history. For example, the vast majority of federal student loans today qualify for a program called Pay-as-you-Earn. Under this program the most your payments can ever be is 10% of your family's discretionary income (which is usually much less than total income). And it's very progressive, so it's usually much less than 10%, and can easily be zero. Yet after 20 years of payments (including when the payment drops to zero), no matter how much you still might owe, the balance is 100% forgiven. And there are programs even much better than that if the student takes a job that's defined as "public service". For more, see this article I did with the help of student loan expert, advocate, and attorney Heather Jarvis.

So it's huge that with for-profit schools the loans are much more private, and this – and the reasons why it's important – should always be noted, but rarely are.

14 comments:

Tom Jackson said...

I like your post about Private Student Loans. Private student loan consolidation is better than federal student loan consolidation. Why? While federal student loan consolidation does not lower your interest rate, private student loan consolidation can lower your interest rate and help you pay off your student loans faster. Private student loan consolidation enables you to receive a new student loan from a private lender, the proceeds of which are used to repay you're existing private and federal student loans.

Anonymous said...


Thank you for sharing such great information. It has help me in finding out more detail about education loan for women

Unknown said...


Thank you for sharing such great information.
It has help me in finding out more detail about Best Education Loan

Anonymous said...


Thank you for sharing such great information. It has help me in finding out more detail about Student Loan In India

vishal1 said...
This comment has been removed by the author.
vishal1 said...

Education Loans has really helped students to fulfill their educational goals in life. Also for more such Blog visit - Study In India

Nancy oberoi said...

Thank you for sharing such great information.
It has help me in finding out more detail aboutBest Education Loan

mangesh said...

Education Loans has really helped students to fulfill their educational goals in life. Also for more such Blog visit - Study Loans In India

mangesh said...

It was really pleasure to read such a beautiful piece of Article. It just should have elaborated more to get the proper insights but if you are looking for more information just continue to - Study Loans In India

vishal1 said...

Education Loans has really helped students to fulfill their educational goals in life. Also for more such Blog visit - Study Loans

Rita Biswas said...

Great Information!
One can make the process of application easy with the helpful guidance of education loan advisors while applying for an overseas education loan

Sneha Shah said...

Education loan makes achieving your dreams easier! - Best Education Loan. This will help you remove the barrier and achieve you career goals sooner.

Subhajit Roy said...
This comment has been removed by the author.
Jhon Staphen said...

For instance, do they get financial aid? Those living off campus should keep in mind that financial aid checks are usually disbursed once a semester, so it will take some thoughtful planning and discipline to figure out how to use financial aid funds to pay rent (and any necessary utilities) on-time every month.

Student accommodation in Leicester