The Private Student Loan Scandal: More Worthless Advice From the New York Times (which cares so much about the little guy)

You think the federal student loan program is a mess? You should take a look at the private student loan program.  In contrast to federal student loans, which have fixed interest rates, private loans (the loans students take out from private banks and other financial institutions) often have variable interest rates.  The federal loan program--for all its many faults--at least allows students to obtain economic hardship deferments and offers an income-based repayment program (IBRP).  Private student-loan lenders are not obligated to show an overstressed debtor any mercy--and often they do not. Many students are not even aware of the difference between federal student loans and private loans and are shocked to learn that the terms and conditions of their private loans are more onerous than the federal program.

The New York Times--that tireless champion of the little guy--made this tepid suggestion for reforming the private student-loan program on today's editorial page (October 25, 2012).

The federal government needs to open up refinancing and debt relief opportunities for [private student-loan borrowers], as it did for some mortgage holders. The [Consumer Financial Protection Bureau] should also set national standards for loan servicers to require clear disclosure of conditions . . . and prompt resolution of customer requests for information. And borrowers who might be eligible for federal student loans should be advised to examine that option before plunging headlong into private debt.

Yep. A little more federal regulation will straighten out the private student loan scandal.  That's like saying Mussolini would have been a little nicer if he had only gotten the right medication.

If we want to stop the abuses in the private student-loan industry, we only need to do one thing: allow insolvent private student-loan debtors to discharge their loans in bankruptcy like any other non-secured debt.  They could do that until 2005, when the banking industry persuaded Congress to pass legislation to make it almost impossible to discharge a private student loan in bankruptcy.

If the banks knew their student-loan borrowers could file bankruptcy and discharge their loans, they would have an incentive to work with overstressed borrowers.  In fact, they might get out of the student-loan business altogether.

The Times' latest suggestion for reforming the massive student-loan debacle is typically tepid, not coming close to the heart of the problem. But what do you expect from a newspaper that makes its money selling advertising space to such luxury firms as Versace, Saks Fifth Avenue, and Armani? Do you think the Times really cares about some poor smuck who got in over his head by taking out a private student loan from Wells Fargo?

References

Editorial (2012, October 25). Student Debt Debacles. New York Times, p. A24.
   

Thanks, NY Times, for Another Tepid Editorial About the Student Loan Crisis

In The Big Lebowski, Bunny Lebowski tells the Dude that her boyfriend is a nihilist. "He doesn't care about anything," she explains.

The Dude, Donny and Walter:

"That must be exhausting," the Dude replies sympathetically.

This scene reminds me of the New York Times editorial writers. Every day, they go to work and pen editorials opining on all the world's problems: global warming, the crisis in the Middle East, the European Debt crisis, obsesity--it must be exhausting!

Of course, not all of the Times' editorial advice is useful.  Earlier this week, a Times editorial, entitled "College's True Cost," commended the Obama administration's efforts to get colleges to communicate more clearly with students about the cost of attending college. As the Times reported approvingly, "[t]he Obama administration is developing a standardized form" that all colleges can use to report on how much a year of college costs and estimating the monthly payments students will owe when paying off their student loans.

"Unfortunately," the Times concluded, "colleges are unlikely to embrace this forthright approach unless the federal government makes it mandatory." Right. More government regulations will solve all our problems.

Obviously, givng students more information about their student-loan obligations is a good thing. But giving students clearer information about their student-loan debt burden is not going to solve the student-loan crisis any more than telling people how many calories are in a Big Mac will solve the nation's obesity crisis. People are still going to buy those Big Macs and students are still going to take out college loans because most of them can't afford to attend college without borrowing a lot of money.

Solving the student-loan debt crisis is going to take more than the creation of a standardized form for colleges to give students when they dole out student-loan money. As I've said before, these things must be done:

• The Department of Education must stop hiding the true student-loan default rate and give the public more accurate reports on how many people have stopped paying on their student loans.
• Insolvent student-loan debtors must be given reasonable access to the bankruptcy courts.
• The Federal government must stop financing the for-profit schools and colleges, which have extraordinarily high student-loan default rates.
• Colleges must operate more efficiently and rein in their costs.

Unless these things are done, other reform tactics are just a cosmetic approach to a very serious national problem.

References

Editorial (2012, June 7). College's true cost. New York Times, p. A24.