“The U.S. Department of Education makes loans without regard to the borrower’s future ability to repay the debt. Federal Perkins and Stafford loans, for example, do not consider the student’s credit history. Aggregate loan limits are not based on the student’s likely income after graduation…

…Colleges are not permitted to categorically reduce loan limits based on the borrower’s degree level, academic major or enrollment status. For example, students who are enrolled on a half-time basis can borrow the same amount as full-time students. The U.S. Department of Education has issued guidance that restricts the colleges’ statutory authority to reduce loan amounts, thereby preventing colleges from taking steps to ensure that students graduate with an affordable amount of debt…”, Mark Kantrowitz, “Uncle Sam, Predatory Lender?”, The Wall Street Journal, July 25, 2015

Opinion

Notable & Quotable: Uncle Sam, Predatory Lender?

Mark Kantrowitz, senior vice president and publisher of Edvisors.com, on the state of federal student loans.

Mark Kantrowitz, senior vice president and publisher of Edvisors.com, writing for the site on July 14:

Photo: Getty Images

Is the federal government a predatory lender?

A predatory lender makes loans with unfair or abusive terms and conditions, where the lender coerces, induces or deceives the borrower into accepting the loan. A predatory lender may also take advantage of a borrower’s lack of understanding and lack of sophistication with regard to complicated financial transactions.

The U.S. Department of Education makes loans without regard to the borrower’s future ability to repay the debt. Federal Perkins and Stafford loans, for example, do not consider the student’s credit history. Aggregate loan limits are not based on the student’s likely income after graduation. . . .

Colleges are not permitted to categorically reduce loan limits based on the borrower’s degree level, academic major or enrollment status. For example, students who are enrolled on a half-time basis can borrow the same amount as full-time students. The U.S. Department of Education has issued guidance that restricts the colleges’ statutory authority to reduce loan amounts, thereby preventing colleges from taking steps to ensure that students graduate with an affordable amount of debt. . . .

Policymakers often argue that easy access to federal loans provides low-income students with access to a postsecondary education. But loans are not really financial aid, as they don’t cut college costs. Loans must be repaid, usually with interest. Loans are not a solution if they bury borrowers in more debt than they can afford to repay.

Something is deeply wrong with the current federal student aid system when Federal Pell Grant recipients are about twice as likely to graduate with debt as non-recipients, and with thousands of dollars of additional debt. Federal student aid policy should be based on a principle of meeting the demonstrated financial need of low-income students solely with grants, not loans.

Posted on July 27, 2015, in Postings. Bookmark the permalink. Leave a comment.

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