Options Are Overrated

In response to the Obama administration’s attempt to reform student loans by cutting out the middleman, the lenders have been rallying the troops.

Comments: 125

  1. Actually, the government should be doing ALL the lending, and the private borrowers should move on to greener pastures, if such are available.

    However, since our Congress is paid for by special interests such as private lenders, I expect that we'll see no substantive change in the current profit frenzy.

  2. Under the current rules, competition and choice are disallowed in the consolidation of student loans. For loans made before a particular year (1994?) a borrower could have one consolidation at the rate of 8%. Then the consolidation loan was fixed and no competing offers were allowed. There is not any program offering competition for the consolidation loand and no way to transfer balances. There may some people who moved consolidated student loan balances into lower interest home equity lines of credit and this may have driven some people into foreclosure.

  3. Gail it seems to me that student loans should be available at no interest at all to people who graduate from college. Banks should not be making student loans for profit. If the government can save a bundle by dropping the middleman, then why is there any debate about it? We’ve seen what the banks can do with bonuses. Cut them loose.

    More than student loans, however, is the question of why it costs so much money to get an education in this country. It would be very interesting to see where the money actually goes.

    I firmly believe that if a student is qualified, and I don’t mean a high SAT score, but in the opinion of teachers, neighbors, community leaders and professionals, it would not at all be unreasonable for a college education to be free. The United States is falling behind the world because we have substandard public schools with an amazing number of unqualified teachers. Someone once said if the worst 10% of high school teachers were sacked, education would improve greatly.

    On top of all of that we have the mess of No Child Left Behind, another Bush disaster that will grow up to bite us.

    If we can afford to dump lorry loads of money into a military that is not efficient, and in some cases bloated beyond recognition with redundant programs and unreasonable costs, then certainly we can subsidize education. Not to mention we could close a few hundred foreign bases and use the money at home.

    As for those crowded drugstore shelves I don’t know what to say. I was shopping the other day and a bewildered stranger turned to me and said, “There’s just too much of everything.”

  4. With all due respect to Gail Collins and Edie Irons, the view of one individual of what 8 million borrowers want regarding student loan choice is interesting, but it is not definitive.

    A 2006 national poll of registered voters found that 2/3 of them preferred choice in federal student loans.

    Moreover, it's a huge leap in logic to go from stating that student loan borrowers have too many choices to asserting that students should have no choice at all. That's absurd.

    Under the Administration's proposal, the United States with its 8 million student and parent borrowers and 6,000 schools of all shapes and sizes would have one choice, one option, one lender.

    That's called a monopoly.

    Finally, the White House does not think eliminating federal guaranteed student loans will save $94 billion. The Office of Management and Budget's estimate does not even come close to that.

  5. I recall this same argument being made by health insurance agencies back in 1992: "Americans want CHOICE!" said the insurance agencies...

    I also recall Barbara Ehrenreich, promoting Single Payer Health Care, in a panel discussion, remarking, "Americans don't want to spend hours pouring over their various 'choices' for health care; when they are ill, they just want a simple way to get access to a physician." Single payer is the way to go! Same applies to higher education. OBVIOUSLY...

  6. Good point and this applies to much more then student loans. Anywhere there is a middleman between the government and the public it should be questioned and determined if that middleman is really adding any value. The glaring example is healthcare; the for-profit insurance companies add no value and siphon a great deal of money out of the healthcare system. That’s why we need a single payer system. Are you listening Mr. President?

  7. Ah, the morbid might of marketing makes makes many a mindful mortal mystified and mortified by its magic. We are a nation that did not hesitate to buy half-liter plastic bottles filled with water. This is the America of the pet rock and the pink flamingo. Surely you do not think we will flinch at paying private lenders to make loans that we first secure and then repurchase if such a privilege is advertised as a freedom?

    Who said you could not fool all of the people all of the time? Surely a foreigner.

  8. Between the banks and the health insurance industry, Congress is pretty well bought sold and delivered. We have the most expensive and dysfunctional medical care system in the world (courtesy of the criminally self-interested health insurance companies) and a student loan program to match. All those two industries have to do to perpetuate their misrule is to make sure they have enough Congressmen in their pockets and they can fend off change for decades, if not centuries. Ah the wonderful world of private enterprise: the apotheosis of greed and waste.

  9. Gail:

    I always enjoy your writing. I mean that literally: always.

    Michael Grant (Reynolds)

  10. You should know: udder balm is the best palliative for dry hands. Ask any bartender.

  11. What I find disgusting is that they charge 6.8% interest on a loan that is 1) guaranteed by the federal government AND 2) is promptly repurchased by the government.

    Not only are these a "can't lose proposition" - they can't even be discharged through bankruptcy! They are a better deal than a mortgage. While the mortgage may be secured, there's always the chance that the collateral may become worth less than the loan balance.

    By the way, the 'choice' isn't really there. Students borrow from the lender selected by the school.

  12. While I do generally agree with your comment, please don't be rude about "udder cream"!
    On this side of the Pacific a product called Derisal is sold by vets as an udder cream for cows, but as many of us have discovered, it is also a wonderful treatment for psoriasis. It may not cure this common ailment but it relieves it greatly & removes most of the redness associated with it. Maybe your udder cream is the same product?

  13. It's a plot to finish us off - all these unlimited choices. How can we possibly remain informed on critical issues when we are trying to decide on the "magic" shampoo (out of 150 brands) or THE wrinkle cream that will make us look 10 years younger? Or even the proper food for our cats and dogs. I'm sorry but I cannot possibly take time away from these "life" or "death" issues to seriously comtemplate whether it is a good idea for Michelle and Obama to fly to New York for "date night" or whether he is safe with the religious fanatics in the Mid-East right now or whether he is safer over there than he is at home with our "tolerance" for all peoples including abortion doctors murdered in church and others gunned down in church (Knoxville, TN) because they are perceived as liberals. I personally prefer our "advanced" way of life. I'll just go shopping for the perfect lipstick - I won't even see the end coming.

  14. Gail Collins is spot on. There is absolutely no reason to trust anyone who may raise your interest rates, on anything. Though usury, the point at which Jesus is offended by interest rates, is clearly defined in the Bible, the water carriers is Congress remain beholden to their campaign donors. Alas, "credit card reform" legislation that recently became law is a half measure at best, and failed to imposed a cap on how high interest rates may ascend. Your credit card issuers could raise your rates to, like, 70% if they wanted. But they know 30% only appalls you, it doesn't quite make you bloodthirsty. Pay off your outstanding debts, cut your credit cards in half and buy the refrigerator or plasma TV you want when you actually have $900.

  15. In France, which Republicans like to ridicule, college graduates will owe NOTHING when they graduate from college and even earn a stipend while attending. The same generally true in most of Europe.

    America is no longer a country that is friendly to the middle class. Upward mobility and the American Dream is going to the same place as the Pontiac.

    Our capitalist vultures would sell mortgages in heaven if they could, and charge for air if they could get away with it.

    Why doesn't Obama have the same mindset when it comes to health care? Why is he pulling the single payer option off the table, when everyone knows it is more cost effective as Medicare has proven? He doesn't even have to abolish private insurance, just offer the public option, and let the public decide. It can be one option among many. Isn't that in the spirit of competition?

    The same could be applied to college loans. Let the government be one player among many and let the students and their families choose what is the best deal for them. Is this not in the spirit of competition too?

    I have another idea. What if like Europeans, we viewed education as a right, just as health care should be. Every student who can qualify should be given the opportunity to go to college. How come European and Scandinavian countries can afford to do this and we can't? Are these countries Soviet style regimes or full of empty government ration stores like Cuba?

    A college education is the only way to ensure upward mobility for the middle and working class. I guess we can afford to subsidize greedy bankers, but not our young when it comes to their higher education. We then wonder why we lag behind every other major industrialized country when it comes to education, particularly in science. Maybe people would study science if they could afford to go to college, or if the government thought it wise to invest in them. My God, I must be possessed by the demonic spirit of Stalin and Lenin. Where else would I get such ideas?

    Our way of life is to guarantee that except for the most affluent of students, our young people will begin life with a mountain of debt, and most likely stay that way. You think we're trying to teach them something by setting up that kind of situation? I do. Feel overwhelmed, insecure, dis-empowered, and in a perpetual state of scarcity and forced to live off credit. Be happy you have a roof over your head, a job and if you complain you're not a true American!!!!

    The reason there are so many products flooding the shelves of supermarkets is to keep us in a state of need, over-stimulation, being enticed this way and that, wanting to try this and that, until our wallets are empty and we go home with stuff we don't really need, vaguely satisfied, until the next day when we start the process all over again.

    We are no better than rats in a maze, or junkies in a perpetual state of want, and like junkies we will do almost anything for our fix, like accept the fact companies should make a profit off our need to stay healthy and educate our kids. I think there was a song a few years back, that had lyrics to the effect "the American Dream blew apart at the seams." It has!

  16. The student loan business as it has worked in the last fifteen years is a world of deceit and exploitation. My wife, a very smart research scientist, went to medical school in the 90s and took out tuition loans plus some living expenses to the tune of $120,000. shortly after graduating, she consolidated her loans at 7.8% interest. When loan rates dropped and she appled for refinancing, she learned that because a 1995 law strongly promoted by Sallie Mae and the banks, she was forbidden to refinance. This one step alone cost us tens of thousands of dollars. Not much choice there. And not much competition for the consumer.

    As a result she has had virtually no take home income for eight years, but we have now paid off these loans. We have paid over $160,000 in post-tax dollars the last 9 years.

    I worry that the collusion of colleges and universities with the banks and their exorbitant rules for student loans will have created the next massive loan crisis for the country. How much student debt is out there, and how onerous will it be in our financially challenged times?

  17. Let me get this straight: Gail Collins thinks consumers are too dumb to evaluate different financial products. So a benevolent Government should just create a one-size-fits-all offering, which would conveniently be the only one available.

    Extending this logic, that same Nanny Government would probably be best able to decide which model of car we should be allowed to drive. (Hybrid subcompact, in beige with beige cloth interior). The Government could simply outlaw all other models, to ensure that consumers don't get distracted by those unnecessary offerings and features.

    This is central planning at its best.

  18. In quasi Constitutional pseudo democracy opinions either don't count, or are all we've got to maintain the illusion of participation..

    Opinions are the new "opiate of the masses"...so to speak...

    Well that's at least what I think I think...

  19. One way to prevent misconduct among lenders is to revoke automatically all the loan guarantees for loans made by the lender found paying kickbacks or otherwise engaging in hanky panky.

  20. Quite so, Ms. Collins. Can some one also explain why the same is not true for health care? What is the wonderful product that the insurance companies are providing us with? Not choice (they tell you which doctors you can see), not quality, not cost controls (our insurance is going up 10% again this year, though the consumer price index is is 0). They have not generated consumer satisfaction, but they have our lawmakers by the throats. The only way to get student loan reform, health reform, you-name-it reform is to get CAMPAIGN FINANCE REFORM.

  21. You are asking Capitalism to relinquish its right to bamboozle, which is an American birthright, and at the core of a century and more of our greatness as a nation. Shame on you! The bamboozled and the bamboozlers are so interdependent, the consequences would be catastrophic. They are often identical, except for context, and in any event, are members, usually, of the same family. I would be loath to see my bamboozler cousins reduced to beggary, merely to protect the innocent, not to mention for intangibles like honor, decency, fairness, national self-respect. What can you be thinking?

  22. It's true. When I took out student loans, there was no choice whatsoever and no explanations. I was just handed the paperwork that was already filled out by the school administrators and told, "sign here". When I asked what I was going to end up paying, they said, "Don't worry about that now, the interest rate all depends upon what is current 6 months or so after you graduate, which is years from now. There's no way to know what it will be at that time". I remember thinking that it wasn't really fair to sign up for something with no specific price tag, but when I hesitated, I was told "Do you want to start school now or not?" After all the hassles of getting admitted, the loan papers are the last thing involved, and it's one of those times when you feel you are already invested and it seems you have to go through with it even though you don't have all the information you wish you had.

    I am now paying off $100,000 in student loans at a relatively low rate of about $500 per month. Fortunately, I earn enough to pay it but I believe the system stinks and should be reformed to eliminate the middlemen bureaucracies.

  23. Back in my college days, I met a woman from Turkey who always was perplexed at a political system that for all practical purposes gave people in the voting booth two choices while letting them choose hundreds of types of toothpaste.

    Is it too much to also ask to do away with the "middleman" of private health insurance in favor of a (gasp) single-payer system? As is the case with the opponents of student loan reform, those lobbying against single-payer aren't afraid it will fail if passed--they're afraid it will work.

  24. The substantive competition is illusory. The lenders, e.g., Citigroup, are interested in market share, not the well being or, in the case of loans not likely to be repeated, the satisfaction, justified or not, of the customer. Only an idiot, or a beneficiary of the lender's largess -- such as a candidate for public office -- stands to benefit from the so-called competition. A lottery would be fairer and cheaper for all involved. $94 thousand millions over ten years? Not a bad saving for scrapping competition.

  25. Collins has an excellent point. The issue, however, is not 'choice' - as silly it is to see ten or hundreds of virtually identical products on the shelfs of our stores - but the blind and completely idiotic belief in 'capitalism'.

    I appreciate her (perhaps bit simplified) summary of our student loan program. OK, government officials are mostly obnoxious but the beauty of the 'middlefols' website does not contribute anything of substance - it just adds to the cost of the loan born, everntually, by the borrowers.

    No wonder that the middlefolks (is there such English word - most of them are possible 'middlemen' but one has to be politically correct) are screaming. Much louder screems will be heard if/when Obama tries to eliminate their much more numerous and pernicious brethren from the health insurance industry.

    We are now experiencing a very unique period in this country when Good Old Capitalism with Completely Free Markets (a concept next to the Word of God for our Republicans) is suffering certain crisis. It has proven itself as not the best of all possible worlds, just the opposite.

    Obama and people who got some intelligence should use this opportunity to establish strong federal/state burreaucracy that will, at least, do the same job as our 'middlefolks', possibly slightly better.

    Government agencies, of course, have their own problems as 70 years of Godless Communism have shown us.

    Well, we still have, unlike the Godless Ones, freedom of the press and reasonably independent Congress and the law enforcement system.

    The discussion should be, really, whether the middlefolks are worse than the bureaucrats. I am ready to give the bureaucrats a chance with the proviso that the press and the district attorneys will follow the whole thing with all their resources.

    Never mind 'choice'. The issue is the fantasy of 'consistent capitalism'. That has to be debunked.

  26. Options are mis-understood... It is an age old practice to try to cut out the middleman but for some reason they persist in everything from stock brokerage to cloth purchasing by Walmart to job hunting and real estate. Perhaps the middleman adds value by having bank branches in thousands of convenient locations, by having shorter lines and friendlier service representatives, by providing advice and other services as part of the package. Perhaps the middleman is more efficient than a government effort because it can sell student loans at the same locations where it takes deposits, make other loans and provide other services, and can use the same infrastructure to process the transactions.

    Perhaps the government needs to reduce its guarantees, subsidies and other handouts in the student loan area, but there are good reasons to doubt that it will save the full amount of money advertised...

  27. I have experience of a government student loan scheme; when it came time to choose colleges I had the option to stay in the UK and go to college as a 'UK resident'. And I am so, so glad that I chose to do that and didn't go and get sucked into student loans in the US.

    The UK does have a much lower fee structure - about like state colleges. They have some grants for low income students. They have assessed parental contributions.But most students will pay for most of their college by using a government loan.

    The interest rate on the loan is subsidized - it's kept at 1% above the current inflation rate. So right now, students here are repaying less than 2% interest. Interest isn't charged until you leave college. And because the government organises it, they can take the repayments by garnishing your salary, like a payroll tax. Oh, and did I say that if you take a low-income job (below £15,000, or about $26,000), they don't take any repayments out? Same goes for being unemployed.

    The net result is that while you may have a pretty big student loan, repaying it is never a nightmare. You only repay when you're earning an above-average salary. The repayments are automatic unless you're self-employed, and if you are, they get calculated when you pay your end-of-year taxes. The interest rates aren't punitive. If I leave the country, they'll work out a repayment plan with me.

    I had freedom of choice - and I chose the government loan system.

  28. Nice column, Ms. Collins.

    Does anyone notice how there has been a subtle but deliberate shift in American capitalism? Where once American capitalism concerned itself with pushing the frontiers of technology, today, increasingly, the greater rewards go to the marketers and financial middlemen who collectively have tended to replace the inventors and entrepreneurs of the past.

    Collins' examples of body moisturizers and the confusing (and non-productive) array of financial intermediaries in the student loan origination process are two apt examples of an economy that has lost its bearings. Indeed, I don't think it is too far a reach to say that the Great Recession has, in many ways, been facilitated by this exact shift toward providing ever greater rewards to those engage in fundamentally non-productive enterprises.

    Full disclosure: My skin is dry, chafed and untreated.

  29. In Australia, all student loans are granted through the Federal Government, with no interest, except for increases in inflation. Paying university/college fees upfront makes you eligible to a discount of 20%. There is simply no rational purpose for "private" student loan operators.

  30. The republicans love of outsourcing of simple programs that come back as complex expensive programs are myriad.
    In Iraq, simple things as delivery of bottled water or gasoline became expensie quagmires when handed off to private contractors who handed off to sub contractors, who handed off to ; well you get the idea.
    People who hate government should not be given the opportunity to govern.
    But back to student loans, the recession will further burden the students in paying back the loans, which will make the cost to government garantees to accelerate. And since these students can't claim bankruptcy as businesses can, the debt continues to grow. At this point in time it is probably not a good idea for middle income parents to be cosigning Sally Mae loans, which of course would result in fewer middle income students achieving college educations. And the beat goes on.
    Education does need reformed!

  31. Couldn't agree more. There is definitely a "diminishing returns" effect when it comes to consumer choice. Perhaps that's one reason why GM recently collapsed.

  32. Oh you are so right Gail.

    I remember coming as an immigrant and wondering why one needed that much choice. Of course now I know it just promotes consumerism and creates false needs, And ultimately false values that do not serve the common good nor the individual.

    And just because there is choice does not mean we get to choose the best. We choose the one marketed best.

    After all we have other things we do in our lives and only have that much time and information to discuss a zillion calling plans created by people who are paid to work 9-5 to think about nothing but.

    Or look, not necessarily at the best books, but at the books publishers have paid extra for to be displayed in the bookstore windows.

  33. Yup, the whole idea of privatizing inherent government functions is a big scam. All it does is add costly middlemen. Insurance and pharmaceutical companies are the middlemen in the healthcare industry. Most companies get more productive by getting rid of the middlemen. Right now we have a jobs program for unnecessary middlemen like that CEO who gets 1 dollar for every 700 dollars we spend on healthcare.

  34. "Hell hath no fury like a middleman scorned. The lenders have been rallying the troops, waving the banner of choice."

    Ms Collins, This is the most accurate sentence I have ever read about intermediaries or brokers. This applies also to the private health services in the USA, who also use the propaganda terms "freedom" and "choice" ad nauseam.

    This situation could be solved if education and health care would not be considered commodities but powerful assets of a modern society. I.e. both should be available for everybody without extra costs. Imagine the tears of the brokers and financial sharks...

  35. Businesses are inherently greedy because it's their job to maximize profits. Yet somehow banks are the greediest. They seem to be corporations who DO have souls, very bad souls, whose aim is to exploit the neediest for the benefit of the very un-needy. Since part of their business model was to purchase Congress, another endeavor in which they've succeeded, nothing will stop them. President Obama may say he wants to cut out the middleman, but I hear he's wavering, & in the end, he won't do it.

    The best way to make college loans more affordable is the old-fashioned way -- to make it palatable for businesses OTHER THAN banks to establish not-for-profit loan programs with no interest during school & low interest thereafter, with a forgiveness clause for people who go into certain fields, like the military or teaching. Middlemen don't have to be bad. Unless they're banks.

    The Constant Weader at www.RealityChex.com

  36. After you left that drug store, I was hoping you'd visit the nearby Media Carnival Sideshow. There you could hear the barkers shouting about the horrors of Monster Government Deficits and Endless Debts you can't believe unless you see them. Turn, and you can hear Brave Lobby Soldiers twist arms and legs of Helpless Congress People for daring to think about displacing the Valiant and Indispensible Middlemen. Once outside again, you'll be amazed to learn about the Terrible Plight of Noble Bankers, Fearless Insurers, and those Courageous Drug Makers as they compete heroically for more of the Humungous Government Subsidy Pie. That pitiful muffled sobbing you hear is from those homeless taxpayers huddled over there in the corner out of sight.

  37. Yonkers, New York
    04 June 2009

    But of course, Gail, lenders are up in arms against the Obama plan for the government to lend directly to students, cutting out the middlemen completely, because they will no longer be able to make those obscene profits on the backs of students.

    The argument that the Obama plan will deny students choice is just plain hogwash.

    Let the Department of Education give loans directly to students from here on, and make those loans on concessonary (or "friendly") terms.

    Mariano Patalinjug

  38. the money grubbing usurers that call themselves bankers have gotten away with their scams so long that they feel they are entitled to their pelf, pretty much as George III believed in the divine right of kings. One Spanish monarch got the pope to agree that paying back the money lenders would make the king guilty of encouraging usury, and got the king off the hook.
    Now that our politicians have made interest rates of 25+% legal and made defaulted loans no longer dischargeable by bankruptcy, papal intervention is no longer necessary.

  39. This is clearly one instance where "choice" resulting from "competition" has only benefited the service provider and not the customer. The Student Loan industry is evil and should be crushed. I had to borrow for law school. And even after years of practice as a lawyer and a degree in quantitative finance, I was completely unable to get enough usable information from my multiple lenders to manage the mess. I was living abroad (in Russia) and spent hours on the phone at my expense trying to fix payments that were intended for one loan and were misposted to the wrong loan. Of course, that resulted in penalties for missing payments which were never reversed. The fees, fines and misleading consumer service was endless -- like I had borrowed from loan sharks on the Southside. I reached the privileged position to just pay off the balance to end the saga. I am certain I paid far more than I should have under the terms of my loans but the "service" is structured so one is powerless to fix it.

  40. Excellent piece! Again the use of humor to make a point is very powerful.

  41. And who can we blame for this confused state of affairs? Republicans.

  42. Gail, great article.

    Its astounding how disingenuous their letter posted on TPM is. Their three main arguments are (1) consumer choice, (2) government debt and (3) competition. First, As you already pointed out, the terms on these loans are identical regardless of vendor, so there really is no choice. Second, the only thing their government debt argument proves is that they believe their customers are idiots. Yes, new debt must be issued every time the government lends money directly to students, but that new debt is balanced by loans they now hold as an asset. Of course, some students will default and the government debt will truly increase, but THAT ALREADY HAPPENS, since the gov guarantees these loans. Third, competition? There will be nothing stopping banks from lending money to students. They'll just have to do so without a huge subsidy. Oh wait ...

  43. Gail, you raise a good point... I have the same problem with toothpaste. There's so many choices, I can't even remember the brand within the brand I purchased two weeks before. Toothpaste takes up nearly half an entire shopping aisle at my local grocery.

    Hey, did you see on Entertainment Tonight that The Beatles will introduce a new video game? Can you imagine?

  44. If the truth were known about the profits of the middlemen, and their influence on our governmental "representatives", we would all be outraged!

  45. Gail:
    I couldn't agree more. Whether it's lotions or college loan options, too many choices complicate and clutter our lives. Imagine if we had to pay a middleperson to help us sort through the vast array of lotions in our corner drugstore. Let's not forget the multiple Medicare prescription drug plans out there. Most senior consumers would prefer only a few good choices rather than sorting through the complexity of plans A through Z. The current college loan program and the Medicare prescription drug program demonstrate the success of corporate special interest lobbying in Washington and the failure of Congress to do what's right and sensible for the American people.

  46. Thank you again gail, if no one oils the wheel will keep squeeking.
    Did we not bail our citigroup last year from falling into oblivion, now it is time for change in the form of low interest rates for our best and brightest. Our nation needs well educated young men and women who are not indebted to the banking industry for the rest of their lives, or a good portion of it. This is the lowest form of usury at the expense of the future of our nation and I applaud Mr. Obama's wisdom and challenge to the very industry that nearly brought our nation to it's knees. I am sure the money our hard working taxpayers loaned these institutions was not at a fixed rate of nineteen percent. Shame on them.

  47. I considered going to college at one time, after being told many times I should because of my abilities, but after seeing the quagmire they call student loans, scholarships and grants I decided to bow out and do something else. It looked like a scam, not unlike our health care system, where you really can't figure out exactly what you are getting and what you are paying until the end, when you can get all kinds of "surprises" you didn't know about.

    I'm not too slow, and it bumfuzzeled me. I'm sure it does that to others, and I'm thinking now that it's designed that way. They want to baffle you with bull by-products so you don't know what you are signing up for. Really smells like a scam that could be made to work for the students instead of the private scammers.

  48. If the government gives $100.00 to someone for college the colleges then raise thier tuition $100.00. They then use the extra $100.00 for something else. This has been repeated over and over and over again. That's why getting a college education is a giant scam that no one talks about fixing, so that everyone has a chance to go.

  49. Thank you for returning so soon to this topic, and thank you for approaching it with clarity, persuasiveness and humor. Should a miracle happen and the student loan mess be cleaned up, your next assignment will be health care. At 6:00 AM reading about the complexities of government-backed student loans may not be the way to begin the day, but in your hands it certainly has me wide awake.

  50. The lenders are worried that this will "socialize" college lending; just like the insurers are warning us against the perils of "socialized medicine"--yes, yes--be very afraid!!!!!

  51. Student loans should be considered the best investment a country could make. Interest rates should be the lowest possible, based on the cost of administering/processing, and not on profit to the lender. Whether this can best be done by the gov't or private companies, I simply do not know.

    As a retired Prof. I DO know that the qualifications for eligibility must be changed. Where I used to work, a student's needs were based upon the debt-level of his/her family. A particular student came to me in a panic because her student loan was in danger of being cut off because her grades were failing. However, when she returned from spring break sporting the very latest in designer clothing head to toe, I became curious and learned that because her family had a huge mortgage on a vacation home, she qualified. At the same time, another student, whose parents were both secondary school teachers and debt free, with younger siblings about to become college-age, that student was not eligible for one cent of financial aid. He worked in the college library to the max allowed, for his spending money. Yes, this is anecdotal, but it is absolutely typical of countless other cases.

    Admissions Offices have their quotas to meet. They work in tandem with Financial Aid offices. The results are plain and simple not fair.

    Guess who graduated? Guess who flunked out and either found another college who needed to increase its enrollment or, more likely, found a boutique to work in? Guess who will be the more productive, valuable member of our citizenry? Let's ponder the current spot the parents of both students find themselves in.

  52. Fortunately, my kids had the decency to graduate from college; the last one about 6 years ago. I negotiate for a living and I must say that there are few things more complicted than negotiating a student loan. Obama is right; cut out the middlemen. Of course, I think the same should hold true for the health insurers.

  53. >> "“students and their families will not enjoy the benefits that competition has made possible for more than 40 years.”"

    LOL -- did they hsve the audacity to say exactly what those "benefits" were? I bet that was pretty priceless reading.

  54. I have believed for decades that options and competition are developed in order to obfuscate the simplest of processes that would be cheaper and far more understandable if left in least common denominator form. We were overrun by business nonsense a long time ago. Btw, I like Aveeno.

  55. What exactly is the point? That we would be better off having only the government administer student loans, all terms identical? Why not extend the prinipal? Do away with freedom of choice and private enterprise and let the government run everything? Then we'd really be in great shape. Let politicians and bureaucrats make the choices for us and do away with personal responsibility. Thanks very much Ms. Collins, but I'd rather have the freedom to chose for myself.

  56. There clealy is a different betwixt New York University and the University of Massachusetts Amherst, for example. The economic return, aka, value of degrees outpace each other at such an enormous rate that even the simple- minded can figure this one out!

    The private university costs reflects the size of the classrooms, quality of instructing and, most importantly, the student-to-instructor ratio. Without further discussion and analysis, New York is wholly superior. I'll venture down the educational aisle and predict that NYU doesn't squeeze 250 students into one course. Or (teaching assistants) TAs are not involved in the instructional model at NYU.

    Either-way, I would trade my student debt and UMass degrees with one NYU degree and student debt in a New York minute!

  57. While I agree with Ms. Collins' distaste for Citibank's letter, I disagree with her sympathy for those poor recipients of student loans. These "victims" can't even claim lack of understanding of the loan terms, like many of the uneducated subprime mortgage loan recipients.

    Not only did anyone not twist their arms to get those student loans, but also no one forced them to get a higher education they could not afford.

    Today, when a lot of the laid off people are college graduates, many of them probably regret this step.

  58. one of our greatest resources is the education of the of our population. without it our nation will become weak and will fall far from the competitive nature of the world . MAKE ALL STUDENT LOANS INTEREST FREE. what better way to advance the learning of our youth and to help secure the future of our nation.

  59. The amazing thing is that we keep believing the lie that taxpayer money is best managed by the for-profit private sector. We pay the initial taxes to make the loan possible, the plan being for the bank to make considerable money off the student. We pay to bail out the financial institution when their greed bankrupts them. We pay the financial institution again when the young graduate defaults on the loan because they lose their job in this rough economy led by the collapse of the financial institution. To perpetuate this system in any way brings to mind Einstein's famous definition of insanity: doing the same thing over and over and expecting different results. Is there a law that says MBAs may not manage money outside of the private sector?I would be happy to pay government employees some sort of monetary incentive to efficiently manage an entirely government-run system that has a primary goal of educating students. Given the amount of money we have pumped into the banks recently, this would seem a bargain.

  60. Of course the banks are balking they're about to lose their gravy train. We are living in a country that has imploded upon itself. It's not working any longer because the government has allowed the corporations and banks to dictate the rules and their rules are never in the best interest of the public or it's consumers....it's all about the shareholders....most of which are themselves.

    If at this point in our countrys development education can't be free then the interest rate charged should not be more than what the government charges the banks....which is .05 percent at this time ...not 19% as noted by the woman depicted in this article. That's a subprime lending rate and should not be allowed.

    Personally I never paid my student loans back.....I couldn't afford to at the time and now the balance is out of control....it's been 20 years. But in those 20 years.....I'm sure the government got their money back...in 2007 I paid 40K in taxes and that was just one year and not only that but I paid to raised the next generation of children who help will run this country....surely thats worth something. It's gonna come to a point where only the rich will go to college because it's become so prohibitive to the middle and lower classes....of course this is a problem....less innovation, less economic growth..less funds to provide national security.

    This country has got to change the way they operate....we can't not have affordable education, healthcare etc. The government has to start doing what they were hired to do which is take care of the people.

  61. Beyond the question of loans, we might ask why colleges, like health care organizations, are allowed to operate as a cartel, keeping prices artificially high and access artificially low --remember, there are now 300 million Americans, but there have been negligible increases in available college spots over the last three decades. Why? So that boomer leaders, oh, surprise, can maximize profit and prestige. The most selfish generation ever to lead the country strikes again -- we got ours, but our kids are going to pay through the nose for theirs--if they get a college education at all, which at the moment, is rationed by income and assets, not merit. Imagine that.

    Like hospitals, these are non-profits only in name and they should be subjected to far greater scrutiny and regulation.

  62. While this practice may be slightly less egregious than the Government mandating that Medicare and Medicaid pay whatever the drug companies care to charge for their drugs, the outcome is the same. Passing along taxpayer money to private industry. And this is called Capitalism.

  63. Let the government run everything in our lives, because it does such a great job in business management, finances and banking. Government bureaucrats are so awesome..they have all the answers and can fix everything. And politicians know everything too. (This is sarcasm..."government run" anything stinks to high heaven.)

  64. I would be pleased if Obama stuck to his ideas and cut out the middleman. Expand government grants (do they still call them Pell Grants?) rather than expand profits for lenders which has been the policy since the Reagan years. I think one price of the bailout of "deregulated" collapsed financial markets should be the government takes over the student loans market and change the rates to encourage future and past education rather than lender's bottom line. When I heard Michelle Obama speak during the Ohio primary one point she made in this college town was that these two lawyers were only able to pay get out the burden of student debt with the profit from his autobiography. Many, many people who took out loans since the 1980s to finance a college education may never be able to pay them off given the high interest charged at the times, the constant reselling of the loans and growing income inequality (also known at Death of the Middle Class) caused by policies of Reagan, Bushes and "neoliberal" (I prefer the term "crypto-conservative") Clinton. President Obama revive the future of the middle class by increasing grants and taking over student loan responsibility!

  65. Gail,

    There is certainly something to be said for setting reasonable limits of choice, for many things we encounter in modern society. There are two ways of approaching the problem, and I am conflicted about aspects of both.

    1. There is the attitude epitomized by the maxim: "While there are certainly authors who have been left off of the Great Masters list, there are none who should be taken off the list." That is to say let the smart people be the judges; we'll get around to you, eventually.

    2. Then there is the attitude of praising the wisdom of the common man. I mean that's what 'Merica is all about gosh darn it. I don't want nobody with some fancy book learning telling me what I can and can't do. Power to the people.

    With the first proposal you tend to get good lists of things that old rich white guys like. This is not all bad, however, left unchecked you get Bush 43 et. al. and the current financial melt down on Wall Street (actually, it's more of a tall Curb Street now).

    With the second choice you get Joe the Plumber-- who wasn't named Joe or a licensed plumber-- and every other red neck with a cowboy hat and hemorrhoids (Q. What do opinions, hemorrhoids, and cowboy hats have in common? A. Every ask whole gets one eventually.) This vast grazing herd of consumers have proven, by past actions, to be easily manipulated by the unscrupulous parts of the rich old white guys, that need to be regulated in the first example.

    I guess that the lesson is that we need, as a free unfettered culture, someone to set what the excepted limits are, and articulate what vision for the future can be had, if everyone works for a cause larger than themselves. To be able to hear this voice, we must first stop lying to ourselves about what the services that society wants cost, and learn the concept of TANSTAAFL: There Ain't No Such Thing As A Free Lunch. bc

  66. Educating our children is an investment in the future and should incur NO costs. But we live in a capitalist system that has been "udderly" unrestrained by greedy people who worship at the altars of profit.
    Until we admit that our greatest investment is in teaching our children, we remain a third world country populated by largely uneducated people. That lending institutions reject letting us and our government SAVE money is not surprising. Greed is unabashed.

  67. Better to keep the middleman and eliminate the government. There is an old joke that after the revolution everyone will be able to eat strawberries. The response "but I don't like strawberries" is met by "after the revolution everyone will like strawberries." Wait until the Obama regime releases the official shortcake recipe.

  68. There will STILL be options. Citigroup and the other lenders are not being told that they can't offer loans. They are only being told that the government won't subsidize their programs anymore, guaranteeing a profit.

    This will, actually, increase the options since the private market will still exist and now there will be a public market competing against them.

  69. The choice creates competition which is exemplified by the lenders bribing financial aids officers to steer families in their direction. The families then wind up paying the cost of those bribes. That is true essential capitalism. It is what America has become and may well have been for the past 2 centuries. If you something done to benefit your bottom line find someone to bribe who can shift the cash flow in your direction.

  70. Great article again, Gail. Hasn't the lending industry learned what they can do to the economy when greed (8% on a govt backed loan???) gets in the way? This last election got the 18 to 30 year old block to vote. Now this group needs to email the people they voted into office. One of the reasons why the amount of federal aid to colleges and students has been reduced is that the 18 to 30 year old voice has been not been telling/demanding what they want from Congress. Speak up and be heard or continue, shall I say, to pay the price of going along for the ride. And let's not forget why students/families need these loans...the whole cost of college...a topic for another day.

  71. Quote from a Voyager (star trek spin-off) show wherein the over-the-top capitalists, the Ferengi, have convinced a primitive tribe that they are gods and instruct a father, pleading for monetary help, to make the children earn it for themselves. After all, he explains, “Exploitation begins at home”.

    Clamp on those shackles early, eh? And all for the "privilege" of participating in this greedy, corrupt society. What a deal.

  72. "Citigroup sent a call to arms to its student borrowers, which is currently posted on Talking Points Memo. It warns darkly that if the Obama Armageddon comes to pass, “students and their families will not enjoy the benefits that competition has made possible for more than 40 years.”

    Would this be the same Citigroup that managed it's funds so well it needed at least $5 billion dollars of taxpayer TARP funds so it would not collapse??

  73. The same logic applies to health care plans.

    Single payer is the best solution.

  74. Gail, using your own analogy, it sounds like you would prefer only one government sponsored "body moisturizer."

    And WE THE PEOPLE should not be allowed to choose which type of moisturizer that is because we have elitist Harvard liberals to choose it for us...

  75. The same goes for health care plans. You can't believe the number of health care plan options in Massachusetts, a model which Obama is using to redesign our national coverage. That degree of competition seems reasonable when it comes to buying shoes or hand cream, but not for education or health care. Our country depends on healthy, educated individuals, who should be able to obtain health insurance and a formal education without wondering whether we are being taken advantage of by unethical corporate executives whose role is to make the company and investors profitable.

  76. Gail, its nice to see someone paying attention to the mess we call student loans. When you are finished with this, maybe you should turn over the rock called 529 plans and see what is lurking under that. My experience with those plans tells me that someone is making a lot of money on "managing" those plans, but the consumer would do better putting their money (post tax) in CDs.

  77. The Lenders are intent on Profit,
    Reluctant as Hades to off it,
    The Tale is quite old,
    It's told and retold,
    Let Uncle Sam do it by Tophet!

  78. Almost everyone says they want choice, but these days, few have the financial education to understand the consequences of their choices. Even though I never used a loan for college and worked my way through school, there was one point where I thought I might need one. At my school, the student loan officer described everything in great detail including payments, interest, amortization schedule, prepayment, and all the criteria that the loan and its interest could be deferred. When my daughters attended college a decade ago, the school they attended spent at least a half an hour with both parents and students if a loan was needed. I do not know about other schools, but of the four I have interacted with treated students loans with the same seriousness as a home loan with full disclosure. Too many are afraid to show their financial ignorance and are intimidated. Consumer, teach thyself.

  79. How long is it going to take before Big Business finally realizes that "capitalism," as it has been practiced at least since the Reagan era, is an atavistic, if not vestigial creature?

  80. The reason the middlemen exist is simple: they are there to make sure the loans are paid back. If the loans were directly from the government, the percentage paid back would be much lower. Everyone would go to Congress with a sob story why he shouldn't have to pay, all sorts of exemptions would spring up, and before you know it only a few unfortunate borrowers, probably MBAs, would have to pay.

  81. The government should be the sole issuers of student loans and, more importantly, payments should be deducted from paychecks as a percentage of income, not as a flat monthly amount.

    Picture this scenario:

    Two students go to the same school and both students graduate with $100,000 in student loans.

    Student A goes into a well paying field and earns $100,000 a year in salary.

    Student B goes into a less well paying field and earns $30,000 a year in salary.

    Under present conditions, both are making the exact same monthly payment to the lender. Not exactly the best of situations for the student who went into, say, teaching and who will struggle for years to make payments.

    By making the loans government controlled and attached to an SSN, the government will be guaranteed to be repaid and the students with the lower paying jobs will have more pocket money out of school [granted, with a longer repayment schedule]. And, if the student with the higher paying job receives bonuses, the loan could actually be paid back faster putting money back into the loan system even faster.

    By deducting the loan payment right from the paycheck, the former student won't have to deal with making payments and will be able to budget life based on take home pay. And, as salary increases, the payments increase shortening the repayment period.

    Also, in the event that a person loses his/her job, the deductions stop and the person doesn't struggle to make a payment he/she cannot afford at the moment.

    To me, it doesn't get much simpler. Which is why such a proposal would be doomed to failure in present day DC.

  82. Anything, loans, banking institutions, et cetera, regulated by congress, is a gnarled mess.
    Of course there is a way to simplify, but not with the self-serving, pompous, idiotic fools sitting in Washington as we speak.

  83. First, why oh why can't we repay our student loans, federal or private, out of our pre-tax earnings (i.e., the same way we pay health insurance premiums, etc.)? Second, why is there a limit (capped by both the amount and income level) as to how much of the interest I can deduct from my taxes each year (unlike mortgage interest, in is entirely deductible). Third, why are my federal loans locked in at a higher rate than my private?

    The President and Congress had best do something radical about the student loan situation, and soon. I'm not asking for a "bailout" or for any significant principal reduction, just that they address points 1 - 3 above. If they don't, we'll be looking at the next big financial crisis, and this time, unlike the mortgage meltdown (in which houses can eventually be sold by the lender for something), all the lenders can hope to recover is a piddling garnishment on wages. What will happen to the securities that were backed by bundles of defaulted student loans?

    Lastly, beyond averting the next crisis in the financial markets, points 1 - 3 above could also help to stimulate the economy. If I were able to keep more of my money, I'd be more inclined to (i) buy a house and (ii) buy other stuff.

    Who in Congress would resist any of points 1 - 3?

  84. The government guarantees the lenders against loss. The government then buys the loans from the lenders. All the lenders have to do is to market the loans (i.e., bribe the college financial services officers) and service the loan (i.e., collect / extort the payments from the students).

    What the lenders end up doing seems a task worthy of Tony Soprano and his crew. Other than a blind faith in the virtues of the so-called private sector (forget about those inconvenient bailouts and TARP payments), is there any reason to keep these vultures in business?

  85. MEM in SF - The issue is not whether the consumer is "too dumb" to work through the complexities of choice in health care, student loans, or broadband providers. I like choice as much as the next person but I have no interest in spending my time becoming an expert in these fields to ensure I don't get ripped off. If the terms of my loan or service is constant, I will base my choice on other criteria: Are the salespeople honest and pleasant, are they attentive to my concerns and needs, is it convenient for me to access their service above others, do they provide other products or services I want/need? When I go to the supermarket, I have a choice of at least three brands of butter at three price points: national brand, local dairy brand, no frills store brand. Some people only look at price and go for no frills; others are dazzled by advertising and go with the national brand. I personally prefer supporting local businesses. The USDA regulates the quality of each provider - the correct role for government. I can make reasonable assumptions about the product without becoming a specialist in dairy products. I've made a choice.

    The government should regulate these government backed loans however they want. As a consumer, I should be able to choose whether to get the loan from the government directly or from the family mortgage and auto loan and credit card provider. The bank doesn't have to provide student loans if they don't like the regulations imposed.

  86. I too am saddled with student loan debt from both college and graduate school. Could I have made wiser choices about borrowing money, absolutely and wish I had. Watching all the bailouts happening around me, I feel very frustrated as I dutifully make my payments every month, when I took out those loans just to get the job to pay for them. My question is who is working on this? Who do I lobby?

  87. Why can't an aspiring college student and family pay his/her tuition/fees with their hard-earned money and then submit evidence of passing grades at the end of the term. Passing grades = reimbursement directly from the government. Failure = no reimbursement. This would work somewhat like the GI Bill once worked. It was simple and the target for success would be achieved in a short time with obvious benefits for the family and the aspiring graduate.

  88. Dear Ms. Collins, I think the Soviets would haved begged you to differ from the title of your column. What about the option to have an orange instead of a banana? Apparently they had to wait 'till the fall of the Belin Wall to have fruits that were not grown in Communist countries...
    As far as student loans are concerned, well cutting the middleman and saving millions sounds like a super sound choice. The hell with options, they are overrated and the Berlin wall has already collapsed anyway.

  89. Both "ktbruns, Washington, DC" and "MEM, San Francisco" obviously are ignorant about student loans...especially from a student/grads perspective that actually has loans.

    First of all, the government is not eliminating choice. Private companies can still make private loans. The is not central planning (what an idiotic assertion to make). The whole point of Obama's plan is to cut out the middlemen for government loans which are simple: currently the max federal loan per year is somewhere around 18k. There is one interest rate for that year. Simple. When you graduate you can consolidate. There is essentially already one interest rate one can consolidate at and that is whatever it is for that year. Simple.

    Second, Gail is actually right, what bloody choice are banks talking about? Students care about one thing and one thing only, interest rates. Government loans have fixed rates. Fixed rates are good (just in case you guys don't understand student loans). The only entity that offers fixed rate loans and affordable rates is...wait for it...The Government.

    Private loans are horrible, horrible, horrible. They are all variable and based either on Libor or the Prime rate plus some other percentage. So far, there is little substantive choice on the percentage which the lowest I have ever seen is about +3% and I know graduates that have up to +6% and beyond...and I sure some people have higher. To put it mildly, someone with 20k in private loans is getting screwed by interest rates that would make the credit card companies look like saints.

    So no, there is currently no choice. No real choice in the private student loan market. Zero. Nada. None.

    If Citibank et al want to give us a choice:

    (1) give students low fixed rate loans options (just like the government does)
    (2) give us reasonable low fixed rate consolidation options for private loans
    (3) make student loans dischargeable in bankruptcy as an option by say having private loans with higher interest rates or fees that have this option
    (4) toll the interest rate acrruing so that it doesn't start until we actually graduate. Sure, the bank may miss out on interest for a few years, but then the student/grad will be paying interest for 30 years after than anyway

    Overall, currently, there is no substantive choice of "products" (I hate when banks use that word) that actually help student loan borrowers.

    There is something terribly wrong with our government, our higher education, our banks when a 50k dollar education ends up costing 250k or more through interest accumulation and a borrower becomes a prisoner of their debt for life.

    but like many people, I am cynical that anything substantive will be done on this issue. I don't think Obama has the political will to force this issue and I know Congress long ago stopped caring about doing what is right for the citizens of this country. In the end, the Banks will win out on this one.

  90. One more example of capitalism American style in which the 'capitalists' -- in this case, private lenders -- literally eat their young in the name of ever greater profits and enriching themselves. When the interest rate on my son's Sallie Mae student loan hit 30 percent, I became his creditor by taking out a second mortgage on my house, which I just refinanced at a less than 5 percent interest rate. His payments to me to pay for that mortgage are right on time every month and he is no longer facing a lifetime of indebtedness to that cannibalistic 'private' lender. Competition? Choice? Hogwash!

  91. This is not an either-or situation. The government can (and should) be in the business of direct loans only--no middleman taking a cut on guaranteed loans. Then, the banks can offer loans to be competitive with the government. As private-sector entities, they can be much more nimble in repayment terms and hidden fees in order to attract students and then gouge them.

  92. Let's set the maximum interest rate at the 30-Day Treasury Bill rate, currently 0.13%. That rate mirrors the level of risk that the middleman banks experience - The loans are government GUARANTEED!!!, just like a T-Bill.

    BTW: what happened to Usury laws?

  93. I am old enought to remember the dayss of Federal Defence Student Loans. They got me through college and graduate school. The terms were generous in so many ways. I am fairly certain that those loans enabled me to work and recieve a good pay check. In taxes I have paid for that salary I have repaid the loans many times over.. I am glad I had the chance to receive them and, in turn, not only pay for those loans but to be a citizen whose taxes are higher. I would be grateful if that tax money could help more young people get to go to college without having a very huge debt to pay upon graduation. I cannot imagine a better way for my taxes to be used than to help young people go to college. It is in my own interests to live in a society of intellegent people rather than one where much of the population is seriously poorly educated and much under educated.

  94. Middlemen here, stockholders there, CFO's, board member, lobbyists and politicans, everywhere, Old MacDonald (Obama?) has a mess- e yi e yi oh!

    SINGLE PAYER UNIVERSAL HEALTH CARE ANYONE? (not if you're a member of Congress except maybe Jerry Nadler! -- certainly not Chuckie, Kirsten or Charlie.)

    FAIR PROGRESSIVE TAXES anyone? all the illusions Madison Avenue can deliver --

    Were there ever solid "American values" or is it all about greed and the notion of immortality....?

  95. On the general issue of whether greater choice is better, I recommend Schwartz, Barry, The Paradox of Choice: Why More is Less (2004).

    Totally unrelated to student loans, I note one area Americans have a choice is whom to marry, unlike the arranged marriages still prevalent elsewhere in the world. Clearly better, right? yet what is our divorce rate, 50%?

  96. Options are overrated, and so is honesty. I mean, how do you expect anyone to make a dishonest dollar in this country if not with the cooperation of the government and it's dishonest politicians sucking up to the dishonest bankers. A multitude of options did not save GM did it?
    I'll have 2 jars of Udder Budder.

  97. I mortgaged by house to pay off the last of my graduate and law school loans. In both cases, I'd either been handed forms by the financial aid office, or pointed by that office toward what was then Chemical Bank and told that there was where I could get the remainder of my tuition money. From law school, I received a "package" that consisted of a school grant, a Pell Grant (federal), and loan information. Nobody talked about payments until after graduation, when fellow students advised me to sell my loan to Fannie Mae. I did this until I had enough equity in my co-op apartment, purchased cheap in the early-1990s recession, to pay off the remainder of the loan.

    Had I not been a lawyer and earning a respectable salary, and therefore able to obtain the mortgage on the cheap co-op and build up the equity, I'd probably still be paying off the student loan. People with liberal arts degrees generally cannot do what I did. Moreover, I got my undergraduate degree from CUNY, at a time when CUNY charged little or no tuition. A 26 or 27 year old who comes out of college and professional school with a hundred thousand dollars or more in loans will be unable to pay those loans unless she indentures herself to business.

    I teach part-time at a local college. When I tell my students that, in England and France, e.g., prospective students are accepted to the nation's top universities based on a competitive exam, and are charged no tuition, my students mouth's drop in disbelief. Our loan system is not our only problem; soaring tuition costs leave many capable students blocked at the university gates.

  98. The problem of student loan debt in general doesnt get nearly enough attention. We have students coming out of bottom-tier law schools with six-figure debt that will drastically affect their adult lives -- students with income prospects that don't remotely justify the debt they've taken on. And loan debt is usually not dischargeable in bankruptcy. There's a lot of blame to go around, including blame for the schools themselves, which are businesses whose interests sometimes don't match their consumers' interests. But I agree that one sensible first step in reforming a broken system is to stop letting private lenders prey on students and taxpayers alike, and go to a system of direct government loans.

  99. Student Loans have become another REAGAN PONZI scheme for out too big to fail banks. Jack up the rates, jack up the fees and if the loan maker can not pay, the government will buy the loan at the inflated rate. Obama is correct, the student loan should be administered start to finish by the Federal Government, and if the student graduates and is willing to give the country a couple three years of Community Service, Military Service, Peace Corps service, the loans should be forgiven. Everyone wins the student gets a free education and some real life experience before setting out on a career, the Government -WE THE PEOPLE- not only get a well educated individual but a person who understands something other than ivy covered wall theory and philosophy. Sounds good to me. Lets do it. Call mail and cajole our hired hands in the Senate and House to pass such legislation before the August recess. And if they don't or won't. Then in Nov. 2010 we fire those who voted against and hire someone in their place who will. Done and done.

  100. Student loans made with taxpayer money should be loaned by the government.

  101. Is the issue really choice, or is it the profit motive? If the government is to be at all involved in areas like the financing of education and health care, what sense does it make to add another, privatized layer that demands profit? How does anyone figure that that kind of "competition" lower costs rather than adds to them?

  102. Middlemen only exist to take a cut. In a straightforward transaction, there is no value added.

    Did we not have government programs 20 or 30 years ago--National Defense, then Direct, Student Loans--that loaned money at extremely low interest rates? From the government to the student--done.

    What value does Citigroup add to this? Anyone?? Seriously...do they help fill out the forms or something? Do you get a T shirt that says "Property of Citigroup for the next 20 years"?

  103. At the end of 2004, my job was in jeopardy and I decided to help my daughter obtain a "student" loan while my financial position was intact to ensure she could get a college education. A month later, after logical, rather than emotional, consideration I decided to return the money. The interest to be paid was astronomical. I decided that additional financial sacrifice on my part was the best way to go. It cost me an additional $1000.00 in non-refundable fees to pay back the money to Bank of America for thirty-days' use. My situation may have been unique but, I can only concur that removing middlemen from the process would result in concrete benefits to the students, their parents and the government. My daughter just graduated from FSU and neither she nor I owe anybody a penny for her education.

  104. If a student wants a free college education, all he or she has to do is serve in the military for a few years. Serve the Nation and the Nation serves you.

  105. I think you are confusing issues here by implying that somehow competition leads to bribes. There is no question that the system needs to be fixed and become more transparent, but that does not mean that competition and choice automatically lead to a dirty system - if anything in a well-designed system the opposite would be true.

    Finally, while clearly she says this in jest, is there any irony that someone on the NYT editorial staff would say that too much choice in moisturizers is too much responsibility? Why is it that choice is so sacred on one issue, but bad when talking about schools, trade, the economy, or a number of other issues?

  106. Ohio is doing backflips to recruit young, college educated people to our state, and to retain the ones who are already here. Educated, energetic 20-somethings are seen as a key part of economic recovery.

    As goes Ohio, so goes the country. Secondary education is not a private good that benefits only the student -- it is essential to the long-term health of our economy. We need to develop creative, innovative ways to finance secondary education. We've tried the private-sector competition approach; it's not working very well. It's time to try something else.

  107. Countries that were formerly behind the iron curtain lived the life that you imply makes more sense. They had one kind of butter, one kind of car, one kind of anything - if it was on the shelf and if they were willing to wait in line for many hours (or years for a car). The quality of the the product or service was invariably below anything found in the West.

    The student loans that are backed by the government and sold through lending institutions are very different from each other in reality. Having three kids in private colleges - all at once - means having to deal with this situation multiple times each year. Some the the lending institutions have excellent service that removes many of the hassles and time involved in obtaining the loans. Some are totally incompetent.

    Please, please don't remove the option of choosing good service to whatever level of service a government bureaucrat feels like giving. Have you ever dealt with the government on a critical issue, only to be dismissed as an irritant? If you had, then you wouldn't be so glib in your dismissal of having a choice in where to obtain student loans.


  108. I make a lot of posts to the Times discussion boards, but with nearly $180k in student debt outstanding, this is one issue I can speak on with authority.

    Citibank will tell you they're doing you a huge favor by giving you a quarter or half-point break on your repayment if you stay on-time, but frankly, the government could give you a whole lot more if they cut out the enormous stipend that Citibank gets just for being the front-end. Due to the government guarantee (and the fact that you can't get out of student loans through bankruptcy), these are no-risk financial instruments for the bank -- they're getting paid like a real lender while actually doing little more than loan servicing. Uncle Sam could hire loan servicing companies for much cheaper.

    This is nowhere close to the old argument about government trying to supplant the market: in this case, the government makes the market almost in its entirety. Without the guarantee, how many student loans would get made each year? Right -- so much for the market.

    Cutting out the middleman, students lose nothing. Even if you did compare all of the terms of the various companies, you'd find them to be pretty much the same. And in the bargain, the government gets to keep billions of dollars in tax money per year -- or spend some of that trying to make college affordable for more people, an investment that's almost certain to pay off nicely.

  109. So why not extend it to political parties? The US has 300 million people,and only 2 major political parties. The Netherlands has 16-17 million people, and over 10 major political parties.
    Or is choice only relevant in the supermarket?

  110. One of the best days of last year was when I consolidated my student loans through Direct Loan. My payments fell by $120 a month. My interest rate went from 8.5% to 4.5%. I can now pay my loan online, which is really important to me. The original lender was nasty and difficult. Even though they supposedly received a payoff from the Dept.of Ed., they send letters implying that I still am in debt to them, and that they will take action should I default on my Direct Loan. What creeps! Sore losers. Good riddance!

  111. Not too many years ago I was able to graduate state university while working part-time to help defray costs.
    Tuition was remarkably affordable by today's standards.
    Still, my da was able to secure a low-interest bank loan to help me defer the cost of tuition.
    A new century, so new rules apply. I get that.
    But, could it be that our tuition driven (addicted?)private colleges and universities are part of the problem here?

  112. On health care Canadians are free to see any primary care physician they choose and there is not one cent of co-pay. A specialist requires a referral from a primary care physician for the initial consultation and again there is no fee. Why are Americans not protesting in the street and demanding change.

  113. We're focusing on the wrong issue. Students without the financial resources to pay tuition costs are exploited by both the lenders and the universities. I was the first person in my working class family to attend college. Of course I was ready to sign on the dotted line if it meant achieving a dream shared by three generations of my family. I graduated with a double major from a 4-year, highly reputable university at the age of 20 & immediately moved into pursuing grad studies. Not bad for a sickly kid from a Bronx housing project. But was I prepared at that fresh, young age to understand the consequences of accepting thousands & thousands of dollars in loans? Of course not. Because I was over 18 years of age, the university and lenders considered me an "adult", capable of signing my adult life away to their usury. Was the quality of education worth that? No. If I'd been mature enough to make more informed decisions, I'd have studied abroad.

    It isn't just the banks that are the "bad guys" in this scenarios. Our universities have colluded with the lenders to drive generations of young adults into long-term debt that precludes many from having a better quality of life, despite their academic achievements. There is no justifiable reason for tuition to be so high that it requires an equivalent of lifelong indenture to what we now know are rogue lenders. Education without astronomical loan debt should be a right for those who wish to pursue it, and most certainly for those who meet high academic standards.

  114. The evidence keeps coming in from every direction. Privatization and deregulation have, in every instance, made it worse for the client/customer/patient, increasing costs without adding value, and giving us an inferior product. There's a reason that student loans were government regulated, that public utilities were "public," and that every first world nation but ours has some sort of national health system. The Republican "small government" mantra has given us only one thing: a completely broken social contract and a country where only great wealth can protect you.

  115. Assembly line student loans have been the norm for at least thirty years and I suspect longer. There was not then, nor is there now apparently, any attempt to discuss the ramifications of these loans.

    The parallels to the mortgage disaster and the housing market should not be lost on anyone. Bankers making often untenable loans on this notion we know is false: that the value of one's labor (like our homes), is ever increasing.

  116. Thanks for the article . . . the level of corruption is mind boggling. I am sure these private lenders that are subsidized by the government are out there asserting that 'government is bad'.

  117. One column elicited an eye-roll, but two? I don't really care about whether the government lends Stafford directly or not. But what I really object to is the specious, disingenuous argument that Collins' perpetuates: that the current system is absurd because the government is supplying the capital and a fee. The current system was a response to a break-down in the capital markets, prior to which private capital was quite effectively making the government program work. This is like saying that the government should take over lending across the economy because it is supplying capital for lending to banks through TARP. Or that the FDIC should run all the banks since it's guaranteeing deposits anyway. The self-righteous smirk of Mr. Shireman and Ms. Collins is every bit as political and misrepresentative as anything perpetuated by the Bush administration and its apologists. Change? Maybe its happening over in Cairo, but on this issue, its the same old tired, partisan politics. And more to the point perhaps, barely a one-day column stretched now to fill a second -- a waste of valuable op-ed space.

  118. Gail
    There is something on the grocery shelves just as confusing as lotions. Why do they stock fruit "cocktails" containing "real fruit juice" right beside 100 per cent fruit juice. Why is not not stocked in the soft drinks sections. The reason is to fool you into buying something you do not want or need. The moral: Business is not ethical. Raw capitalism is not a good deal for anyone except the capitalist. If capitalists are so efficient, let them compete with government entities, especially when taxpayer funding is involved.

  119. The older I get the more I realize how loathsome this country's policies really are. We might as well stop the pretense of elections and the belief that we are electing people to represent and work for the interests of all Americans. Our corrupt system is engineered so that it serves the interests of multi-national corporations only.

    The cost of education is off the charts, and the student loan system makes it more so. Lately, I've even wondered why so many students even elect to go to college anymore. There are fewer and fewer jobs available in this country for the college educated, and those that are available, for the most part, don't pay enough for anyone to pay for an independent lifestyle, let alone pay back student loans at high interest rates.

    If the government backs these loans in case of default, why must there be middlemen? I'm tired of our tax dollars going to support private enterprise who do any foolish thing they want because they know the taxpayers will pick up the pieces. In the meantime, all we ordinary people get from government/big business is a spit in the eye.

  120. Not only should the government be doing the lending, there should be a government issued credit card - that follows pre 1980's credit rules and a much lower credit limit allowed.

    Why haven't the credit card interest rates been lowered?

  121. Our Federal, State, and local governments no longer have the resources to support endless numbers of parasites, whether individuals or businesses.

    As individuals, we should expect less and do more for ourselves.

    The same goes for banks, insurance companies, and all sorts of "contractors". Too many of these businesses deliver low performance at high cost. The "needs" they satisfy are often concocted, whipped up by advertising, lobbying and campaign contributions. We can't afford this anymore. Let them go out and earn their own money.

    What goes for student loans also goes for healthcare, homeland security, and defense. Our governments must seek out the highest quality, most cost-effective ways of delivering essential public services.

  122. @Bill Wood #28 - imo you are totally right.
    20 years ago when I was a university student in Germany myself, (which didn't cost me one cent!) the CEOs of the powerful corporations were technical specialists, i.e. the CEO of a car company was usually an engineer, the CEO of a pharmaceutical was a chemist or a med. doctor, usually with the good old fashioned PhD before their names. They understood about patents, new molecules and long time research.

    Today the CEOs of these companies are mostly economists or business admins. with a purchased MBA. They are obsessed with excel sheets and reports (in corporate format), their minds solely and fully concentrated on the quarterly report, their goal is to serve the shareholder only and their own astronomic bonus and salary ambitions. For those subjects, long time research or scientific investigation translates to a mere cost factor in their quarterly profit and loss accounts.

  123. Why is Citigroup spending money to lobby on behalf of a lending program that fleeces the taxpayers? Didn't the taxpayers just bail this company out of its past poor lending decisions to the tune of about $65 billion (so far)? They sound a little ungrateful for their financial salvation. Don't bite the hand that feeds you, Citigroup.

  124. While I have not followed the Student Financing exploitation problem as closely as you have I do know one thing and that is that students in New York, at least, can attend a State College at a fraction of the cost cited in the comments.

  125. Not only is the Student loan system fixed and uncompetive, the loans are full of catches and tricks just like the rest of the loan industry. Default on a loan for 9 mos? Mkaes no difference. You can't get away from the loan through bankruptcy or other meeans, and your default is guarranteed by the US Gov't. When payments resume, your principal has been increased about 40% (Not a typo-- forty percent!!)
    Meanwhile, in France, college costs approx $800 a year. Behold the evils of socialism.