Wednesday, August 22, 2007

More Expensive Private Loans More Popular

Via the Chronicle. It appears that in the latest development on student loans that students are more likely to sign on with devastatingly higher loan rates with private firms rather than fill out the (roughly) 20-page long federal aid form which offers lower rates. This is unsurprising to me. I remember filling out that form. It was painful, to say the least, and when private firms are offering forms where more or less all you have to provide is your social security number and your parents' address.

What this boils down to is what Elizabeth Warren pointed out in the last issue of Democracy. When it comes to financial products, the corporations are the ones with all the control. There's no one advocating for consumers when it comes to loans except the individual consumer -- and he or she has very little bargaining power. How come we have an agency to protect us from bad things we put in our mouths but nothing to protect our bank accounts?

The student loan industry is one industry that capitalizes on the inexperience of their customers. Very few 18-year-olds understand how to manage money, let alone know how to shop for loans. One could argue that this is the role of parents, but I know more than one person who wasn't on such good terms with the parental units and basically funded their own educations though loans, borrowing against their future incomes.

If the federal student aid application were integrated more with the application and registration process at colleges, giving it the advantage many private companies negotiated on their own, then students would get the information on how much they can get in federal aid in addition to all their class registration information.

I know that it's only recently that I even took an interest in managing my own money, and I can't be alone. Managing money for me, a journalism major, seemed so scary and boring to me that I shut down every time I had to read a "terms of agreement." I was lucky because my mom was a business owner for years, so I valued her advice about financial matters. Recently, my credit cards both raised their fees on me. Luckily it's not much of an issue because I never carry a balance from month-to-month. But what could I do? If I refuse to abide by the new terms, they cancel my account and with it I would lose all rewards I'd earned thus far. That doesn't sound like much negotiating power.

Cross-posted at

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