Student debt is a $140 billion-a-year-industry. And it got that way because the federal government relinquished control of and then much of its power oversee the student loan program.
For Albert Lord, a 70-year-old former accountant who became one of the highest-paid executives in Washington, student loans have been a road to riches.
He was the CEO who built Sallie Mae into a financial colossus through fees, interest and commissions on billions of dollars of federally guaranteed student loans. For delivering handsome profits to investors, Lord received pay and stock worth hundreds of millions of dollars. …
Decades ago, the federal government relinquished direct control of the student loan program, opening its bank to corporations concerned with profits, not diplomas. Private equity companies and Wall Street banks seized on the flow of federal loan dollars by peddling loans that students sometimes could not afford and then collecting fees from the government to hound those students when they defaulted.
Once in place, the privatized student loan industry has succeeded largely in preserving its status in Washington. Student loans are virtually the only consumer debt that cannot be discharged in bankruptcy except in the rarest of cases – one of the industry’s greatest lobbying triumphs.
At the same time, societal changes conspired to drive up the basic need for these loans: Middle-class incomes stagnated, college costs soared and states retreated from their historical investment in public universities.
Today, more than 40 million Americans owe a combined $1.3 trillion in college loans. The debt is “altering lives, relationships and even retirement,” the Center reports.
One of the winners in the profit spree behind this debt: the federal government. By the Department of Education’s own calculations, the government earns in some years an astounding 20 percent on each loan.
“The United States government turns young people who are trying to get an education into profit centers to bring in more revenue for the federal government,” Sen. Elizabeth Warren, D-Mass., said on the Senate floor in February. “This is obscene. The federal government should be helping students get an education – not making a profit off their backs.”
The student debt crisis is a microcosm of America – a tale of the haves and have-nots. Students who attend the richest schools often have less debt than students who graduate from state colleges. Students from low- or moderate-income families who attend for-profit schools usually take on the heaviest debt load of all.
The imbalance between those with debt and those without will exacerbate income inequality for decades to come.
The Obama administration has taken [cosmetic] steps toward reform. It has eliminated the financial middlemen who long collected a fee to issue federal loans. The government now loans directly to students, though private companies continue to administer the loans. New regulations limit student debtors’ federal loan payments to 10 percent of their income.
—Posted by Alexander Reed Kelly