Archive for the ‘Student Loans’ Category

Every year the American taxpayers provide close to $9 billion in subsidies to banks in the student loan business, and guaranteed losses when former students were unable to pay.  Sounds like a great deal for the banks, not so much for taxpayers and students.

That’s why the Obama administration is looking to cut out the middleman and as a result cut out the legs of the financial institutions who have both provided access to college funding for millions of students but also have been accused of serious abuses in search of the golden fleece.

So with the proposed government takeover of the student loan business looming, 800 pound gorilla Sallie Mae needed to find a new profit gravy train and fast. And it has chosen, not surprisingly, retail banking.

Leveraging its excellent name recognition, Sallie’s first foray into the online banking business is a savings account with a 1.35 percent annual interest rate to go along with online certificates of deposit paying higher rates. According to their website, their High-Yield Savings Account boasts an Annual Percentage Yield (APY) that is five times the national average and charges no monthly fees. It’s even FDIC-insured to boot.

To sweeten the deal, Sallie has teamed up with the college savings site UPromise to boost the returns with a 10% match bonus on Upromise earnings if a customer links these two accounts within 90 days of opening a Sallie Mae High-Yield Savings Account with either set up of an Automatic Savings Plan with a monthly deposit of $25 or more, or an initial funding of $5,000 or more.

Salle Mae has had a banking charter for about five years, and they’re finally putting it to good (at least for them) use.

This may be the most extreme example of student loan debt that I’ve ever seen. According to a story in the Wall Street Journal, one doctor in Ohio is looking down the barrel of a student loan debt of over half a million dollars.

Michelle Bisutti, 41, graduated from medical school in 2003 with about $250,000 in a combination of Federal and private student loans and it all went downhill from there. A six figure principal balance mixed with a heavy dose of rising interest rates and dash of other obligations like credit card bills created a bubbling cauldron of financial hot water for Dr. Bisutti.

To put this in all perspective (and to make you feel better about the $39 credit card late payment fees) picture this: Dr. Bisutti has been hit with a $53,870 collection fee on her private loan and an additional $31,942 in collection fees on her Federal loans. Ouch.

It’s difficult for many people with debt problems of their own to sympathize with high income individuals like doctors and lawyers who get in over their heads, but the root causes are the same whether you make $20,000 or $200,000 a year. Bisutti said that she “didn’t look at the fine print” and made mistakes in missing payments and deferring her loans.

She told the Journal that the stress of her debt keeps her up at night and her bad credit has prevented her from buying a home or a new car. She even says she and her boyfriend of three years have put off marriage and having children because of the debt.

Like so many student loan borrowers, she undoubtedly expected that her education would provide an income great enough to support her debt and a decent living. Like so many borrowers, she’s been proven very wrong. Especially in this down economy, student loan debt has skyrocketed.

In September of last year the House passed a bill that would mandate a switch to direct government lending, which would hopefully lower the cost of borrowing for students. If passed, it would steer an estimated $80 billion in savings over the next decade to grants for needy students and other education initiatives. But the bill has stalled in the Senate as the Democratic majority seeks to circumvent a virtually certain Republican filibuster.

But as long as loans are available, and college degrees are seen as tickets to a brighter future, students will continue to take the gamble and many will lose.

If you have a student loan that  is in default, check out the resources and advice from the Department of Education at http://www2.ed.gov/offices/OSFAP/DCS/index.html.

College grads have it rough this year. Not only are they facing the worst job market in a generation, but they are graduating with record levels of debt.

Unemployment among college graduates is currently the highest this decade and even slightly higher than the national average of about ten percent. According to the National Association of Colleges and Employers, less than 20 percent of the class of 2009 graduated from college with a job offer in hand. Worse yet, studies show that graduating in a recession will depress earnings throughout a person’s career, even after the economy recovers. Bad timing, class of 2009.

And our newly minted grads can’t simply hang out in their parents’ basement and wait for things to get better; they have too much debt. 2008 grads carried over $23,000 in student loan debt across the stage with them when they got their degrees.

Luckily, new rules allowing for income-based repayment of student loan debt can help many young adults struggling to pay their monthly vig after their grace period is expired.

For those who leaned on credit cards to finance books, daily essentials and (god forbid) tuition, the outlook could not be worse. They are seeing rising rates and minimums at a time when every penny is precious.

Need help, Dustin? Here’s a short video from CNN.com with more information on student loan deferment and job hunting for recent grads.