Andrew Merki
Contributing Writer
High cost, unregulated private student loans are just one example of why we need a strong Consumer Financial Protection Agency (CFPA). Indiana’s Sen. Evan Bayh sits on the Senate Banking Committee and is a key vote in creating a robust new watchdog that would keep an eye on the loan market for students, and set strong rules for fairer private student loan marketing and terms.
As someone who will graduate with about $70,000 in private loan debt from Indiana University-Bloomington (IU), I urge Bayh to create the CFPA.
We’ve been told since we were young that a college degree is the key to our future. Now that I’ve been in college for a few years, I also understand how society benefits from our education. We are challenged to form a vision for impacting the world, and we get the training and tools necessary to do it.
I entered college intent on getting a business degree to make the big bucks. But now, I’ve set my sights on a career in public service when I graduate. My education at IU helped mold my political and social views in important ways and helped reform my priorities. I am deeply grateful for it.
However at some point, the benefits of a college degree are undercut by the deep financial risk students take on to get it. The Indiana Public Interest Research Group, a consumer advocacy organization at IU, just released a report finding that 62 percent of Indiana’s college graduates carry student loan debt, averaging approximately $23,264 per student.
Most is in the form of safer federal loans. But a significant amount is in private student loans, which are unregulated and much riskier. Indiana students graduated with an average of $3,556 in private student loans in 2008.
This is where the picture becomes even bleaker. Interest rates on private student loans can be as high as 18 percent, and fees can be pegged at 10 percent of the loan principal. Marketing is also aggressive, considering that two out of three borrowers with private student loans forgo taking out the maximum in federal loans for which they qualify.
The combination of shrinking state investment in higher education, stagnant federal grants and less parental assistance has left students picking up more of our educational tab. Against this backdrop, we are prime targets for private student lenders, standing by with the easy financing we need to attain our dreams.
The 33,000 students in Indiana who attend for-profit colleges are really taken for a ride. Graduates from for-profit colleges carry an average of $32,650 in debt. Many of these colleges make their own private loans to the students, promising students a high paying job at graduation to handle the repayment. In reality, those loans are a rip-off.
Corinthian Colleges Inc., a corporation that manages a collection of for-profit institutions, actually plans for more than 50 percent of its private student loan borrowers to plunge into default.
Being the third child to enter college, I am fortunate to have a father seasoned in the loan process. However even with a financially savvy father, I haven’t gone through the past three years without some bumps in the road. My private loans were originally taken out through Sallie Mae. This year, my father and I discovered that the terms had changed significantly since my freshman year. As a result, we stopped borrowing from Sallie Mae and took out this year’s loan through my hometown bank.
Taking out these private loans was initially an easy decision I made together with my dad when I planned on a business degree. But now, I can’t help but feel a little trapped when I consider the reality of a lower paying social service career combined with high private loan repayment.
The bottom line is that the level of debt I have taken on for my degree is my choice, regardless of the consequences. But at the very least, students and families should be assured that the private loan products that are out there in the marketplace are fair and transparent. And students should be protected from the predatory lending practices of their own institutions.
I think that a strong CFPA would not only bring some badly needed security to the uncertain world of private student lending, but, speaking first hand, it will help keep student dreams of a better world within reach. But in order for the CFPA to first be created, strong student support for the proposal is necessary.
Andrew Merki is a junior at Indiana University-Bloomington, and the chair of the Indiana Public Interest Research Group. Visit www.inpirg.org for more information.
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