Loans for junior colleges becoming extinct
By
Larry Hales
Published Jun 12, 2008 9:09 PM
Some of the largest banks in the country are now ceasing to extend student
loans to those attending junior colleges, community colleges and technical
schools. More than 40 percent of students enrolled in college attend community
colleges, as they are considerably less expensive than four-year colleges or
universities.
The standards for borrowing, even for four-year schools, will become stricter
and will rely on the borrowers’ histories and their parents’
histories of credit.
The annual report released by the College Board for 2007-2008 showed that
tuition costs jumped 6.6 percent from the previous year. The jump is twice the
rate of overall inflation. Factor in room and board, and the total costs of a
public four-year university are up 5.9 percent, with an average total of
$13,589 per year.
The total cost of a private four-year school is more than $32,000, with tuition
accounting for more than $23,000 of the total.
The Pell Grants, which do not have to be repaid, have failed to keep up with
inflation. According to the College Board, the average recipient of a Pell
Grant received $2,494 in the 2006-2007 school year.
Students wanting to obtain a higher education should not have to rely on
student loans. The price tag continues to climb beyond the reach of the average
student; so loans are ultimately a trap, putting students in debt to the tune
of $20,000 on the average.
Some students rack up debt as high as $100,000, especially if they require
advanced degrees for their profession of choice.
However, the recent development of lending institutions denying loans to many
two-year schools will affect people of color and the poor, as these schools are
usually the most reasonable and sensible option.
The reasoning behind the denials, according to the banks, is the high default
rate among students who attend two-year schools, and for the banks this
constitutes a high risk.
But the problem is much deeper than that. The decision has much more to do with
the overall credit crisis, especially considering that most student loans are
federally guaranteed. Going into default means constant harassment of the
borrower, including wage garnishment, federal lawsuits and tax refund
seizure.
A March 20th article, “Financial crisis hits students,” in Workers
World newspaper illustrated how the financial crisis was partly brought on by
the subprime mortgage loan problem. Julie Fry wrote: “Here’s what
is happening: many state and local governments secure money for public or
quasi-public programs through a venue that most people have never heard of
called the market for auction-rate securities. Before the financial crisis,
auction-rate securities offered the government borrowers a very low interest
rate and it offered lenders (banks and other corporations) ready access to
their cash investment through regularly scheduled auctions for the bonds, where
they could sell their investment and get their cash back on sometimes a weekly
basis. They were earning a higher return than they would with their money in a
bank.
“All the investments were insured by companies called bond insurers,
which specialize in guaranteeing this kind of debt. Here is where things
started to unravel. These bond insurers also insure other types of
debt—like subprime mortgages. Now that these insurance companies are
going to have to secure those loans, the banks don’t think they can
guarantee student loan debt as well.”
Though there are many institutions that still lend to two-year colleges, there
is an overall crisis of the student loan industry. The Department of Education
has had to assume $40 billion of debt from student loans, and large lenders
have reported huge losses; for example, Sallie Mae reported a loss of $104
million for the first quarter of 2008.
If the losses affected only the lenders, the CEOs and the super rich, then it
would be cause to celebrate, but it is the poor, workers and people of color
who will feel the brunt of the pain of one crisis after another.
More and more jobs are being lost—300,000 already this year. Wages are
being cut in half or at least lag far behind inflation. The price of gas
continues to rise, now at an average of $4 per gallon. The price of food climbs
further. Hundreds of thousands of people around the country face being kicked
out of their homes, both those who are owners and those who are renters. The
U.S. has one of the highest rates of illiteracy amongst the industrialized
countries.
All of these crises are occurring when the option of higher education is being
denied and getting further out of reach.
Articles copyright 1995-2012 Workers World.
Verbatim copying and distribution of this entire article is permitted in any medium without royalty provided this notice is preserved.
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