Borrowed Time for Student Loans?

From BusinessWeek:

Ever since the Democrats took control of Congress last fall, investors have worried that the government might start trimming the largesse it gives educational lenders such as Sallie Mae. On Jan. 17, the House of Representatives passed legislation that would trim rates on need-based subsidized federal student loans by 50% over five years. The Senate has yet to move on the measure, but President Bush weighed in Feb. 5 with a proposed 2008 budget that aims to bolster grant funds, partly with a huge cut for federal loan subsidies. Stunned Wall Street players quickly unloaded shares of lenders such as Sallie Mae.

BusinessWeek suggests the cuts might be so deep that private lenders would stop issuing student loans altogether. An analyst at Morningstar says:

“We don’t believe the government would be doing taxpayers or students any favors by killing off the industry, so we expect that there will eventually be some compromise.” The cuts, if approved, would likely effect students who take out loans after July 1, 2007.—MEGHANN MARCO

Borrowed Time for Student Loans? [BusinessWeek] [Photo: Sarah Brown]


Edit Your Comment

  1. Falconfire says:

    God I love our system of capitalism. Cant screw someone out of money one way anymore, drop them altogether even if your still making money, but not as much as you once where.

  2. pdxguy says:

    Is that Meghann’s hand?

  3. WindowSeat says:

    Is it really too much to ask that the government pay the tuitions for anyone who can pass an entrance exam and be accepted by a University? I know it’s socialism,(gasp!) but considering the foolish things our tax money goes to already this seems the lesser of many evils.

  4. bluegus32 says:

    Oh my God! Nothing like cutting back on education in order to screw all future generations.

    I hate government.

  5. BMR says:

    the whole system is a scam – no truth in lending to a poor college kid who is being told to either sign the loan or go back home.

  6. LTS! says:

    It’s initiatives like these that have students going out of the country for education. Compare the costs to receive 4 years of education at Oxford as compared to Harvard. Of course the vast majority are not in that category, but the differences hold true for the most part.

  7. bluegus32 says:

    Windowseat: I disagree. Higher education should not be given for free. It should be only for those who really, really want it.

    Example: when I graduated law school, I had $150,000 in student loan debt. My wife at the time (now ex-wife) came from money and graduated from law school with $0 in debt.

    Guess who appreciates their education more. Guess who’s the better lawyer.

    Something like a higher education should be earned, not given for free.

    Or maybe this is just sour grapes on my part. Who knows. I’m not a psychologist.

  8. grouse says:

    Compare the costs to receive 4 years of education at Oxford as compared to Harvard.

    Speaking as an American student in Cambridge, I should point out that most undergraduate degrees here take three years. Additionally, they are still quite expensive—overseas tuition for a science undergraduate can be up to USD 30,700. Tuition and fees at Harvard are USD 33,709. Not much in the way of savings, and the falling dollar means it might get worse.

  9. Trandrewo says:

    Maybe next the Gov can create an education tax – one where they tax students for seeking an education and use it to buy themselves private jets and finance their campaigns where they promise to make things better for students… isnt that how Gov works these days?

  10. robertgp421 says:

    I think we need to take a close look at what is being cut. There was a US News article a few years back slapping the Bush administration around. Basically, the article said that the government made a small amount of money on DirectLoans and loaning money through organizations like Sallie Mae cost much more to both the government and the borrower.

    If Sallie Mae is getting it’s clock cleaned here and the Direct Loan program is going to be supported – great.

  11. bluegus,

    As I’m sure you know, the outrageously high cost of legal education is actually becoming an enormous problem for the profession, as fewer and fewer students can afford to go into public service, law serving the middle class, etc.

    Personally I would appreciate my legal education a whole lot more if I didn’t have a $60,000 nightmare hanging over my head at night (another $60,000 for my husband — we both had extensive scholarships, that’s why it’s so low) keeping me from sleeping. If I could practice what I wanted to without worrying about having to make a “second mortgage payment” every month, I’d be a much happier lawyer.

    Saying higher education should only be for those who “want it” enough to go a hundred thousand dollars into hock for it will turn out an awful lot of Sidley Austen type lawyers, but it’s not going to do very much for the American legal system.

    Probably your ex-wife’s problem was that she “came from money” without a Protestant work ethic. We had the “from money” crowd at my law school, and the ones who were raised that you WORK for your money were great law students (and good lawyers); the ones who were just killing time and getting a respectable degree were probably a lot like your ex-wife, and mostly don’t bother to practice.

  12. PS — Sallie Mae is the tool of the devil. Citibank Student Loans at least doesn’t try to trick me constantly.

  13. Papa K says:

    @bluegus32 – so you kept the house, too? (I kid, I kid)

    As someone who is still in school locally, this is why I take the cheaper route – community college for two years (cheaper classes that transfer, NO loan, I’m paying all out of pocket) and following up at a university (two more years) and we’ll see from there if I go for a Master’s or a Law degree.

  14. bluegus32 says:

    Eyebrows McGee:

    All good points. However, I suspect you and I are going to hold different opinions on this one given our respective locales. I don’t know what the legal environment is like in Illinois but here in California we have too many lawyers. At last count, we had nearly 200,000 active lawyers. I certainly don’t need anybody to make it easier to become a lawyer in California and saturate the field even further.

    However, your point regarding my ex-wife is well taken and is very astute of you. I still contend, however, that my appreciation for my education is far greater than hers or than anybody who had their education paid for them. I was forced to earn my own education. The pride in that cannot be matched. My success is all my doing.

    Also, keep in mind that my ex-wife became a lawyer because (1) she didn’t have to pay for it and (2) she didn’t know what else to do. She never actually wanted to become an attorney. But since it wasn’t her money, she figured “why not?” She is not the brand of attorney that I care to associate with professionally. And it is not limited to just her (lest I simply sound like a bitter ex-husband.) The best lawyers I know paid their own way through school. There’s something about making such a huge sacrifice that makes you appreciate what you’ve become and what you’ve achieved.

    My last point — I don’t want my tax dollars going to educate someone with a high income potential. In the case of doctors and lawyers, we should be required to pay for our own education because these professions have a very high income potential. We can, as a rule, afford to pay our own way. That money should be used for better things.

    All that having been said, I certainly don’t think that our government should be making it any harder to get an education. The student loan subsidy program enabled me to get the loans I needed to get through school. Without them, I might not be an attorney today. Cutting that program in any fashion is a bad, bad idea.

  15. NeoteriX says:

    My last point — I don’t want my tax dollars going to educate someone with a high income potential. In the case of doctors and lawyers, we should be required to pay for our own education because these professions have a very high income potential. We can, as a rule, afford to pay our own way. That money should be used for better things.

    While I agree that when law graduate makes anywhere from $135-$160,000 right out of law school working for an NLJ 250 firm in New York City, they have the ability to pay for their own education.

    However, not all lawyers are made equal. While I have some friends that will end up making the big bucks in NYC, Boston, and Delaware, I also have friends that will be working at the AG’s office, working as assistant DAs, working as city corp. council, and working for nonprofits, like Greater Boston Legal Services. These people arguably serve a greater role in the legal framework.

    Many of my friends wouldn’t look at firms so closely if it weren’t for the 150k+ debt hanging over their heads.

  16. synergy says:

    Sallie Mae was way too shady for me. I consolidated my loans out of there as soon as I could. I’ve had no problems where I have them now.