Trapped in Credit Card Debt

New America's Higher Ed Watch blog has a great post by Ben Miller on how colleges and credit cards are teaming up to ensnare students into loads of credit card debt. (The post also includes an interesting fact I didn't know, which is that over 70 percent of students keep their first credit card for years -- now that's brand loyalty that companies would kill for -- and student credit cards often include much higher interest rates and more penalties).

Bob Reich also has a great post from yesterday on how credit card companies are similar to the mortgage industry in that they're dangerously underregulated -- they can raise interest rates at will and hide important information like how they calculate an outstanding balance. It also seems that the lobby in favor of keeping credit card companies that way is way more powerful than any force to enact legislation, and it's not just Republicans that are in the pockets of credit card companies. As Reich says "only 11 of 36 Democrats on the House Financial Services Committee have backed" legislation that would impose tougher regulations on credit card companies.

Cross posted.

Major Debt

Business Week has a back-to-school article that's a bit sobering. It reminds us how credit card companies sell their lending products to college students -- sometimes at rates as high as 16 percent:

Students also live in a culture of debt. Many of them are borrowing tens of thousands of dollars to go to school, tapping low-interest loans to pay tuition. "The primary way we help students pay for college is by telling them to take on more and more student loan debt," says Tamara Draut, director of the Economic Opportunity Program at Demos. The message is clear, she says: "Debt is O.K., and you are going to have lots of it." In that context, [Central Washington University student Seth] Woodworth and other students think little of charging another $50 for dinner or groceries.

I know I've linked to Elizabeth Warren's article in Democracy before, but it's worth linking to again. She explains how consumers have essentially abdicated all their negotiating power to big companies, who can refuse their products if customers don't agree to their ridiculous terms.

Cross-posted at campusprogress.org/blog.

Giving Students Guidance

Lindsey Luebchow* points out that one college, profiled in Inside Higher Ed recently, proved that one-on-one counciling can help reduce student debt, and it's actually possible to pull it off:

As the Barnard [College] example shows, proactive counseling can go a long way in preventing students from making bad decisions that will haunt them well after they leave college. But are similiar efforts feasible at larger universities with enrollments that exceed Barnard's 2,400 students?

The answer is "yes"—at least at Colorado State University, which enrolls more than 20,000 undergraduates and about 4,000 additional graduate students. For more than a decade, financial aid administrators at the university, which participates in the federal Direct Loan program, have been concerned about students unnecessarily taking out non-federally guaranteed, private loans. And they have been doing something about it.

*I accidentally originally credited this post to Sara Mead.

Cross-posted at campusprogress.org/blog.

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 campusprogress.org/blog.

Quick Hit: Study Abroad Inquiry

The NYTimes reports today that the latest story on study abroad programs is going to be the new focus on cash incentives to universities by loan companies. They're already looking into a number of programs that offered perks in exchange for promotion of their study abroad programs. The problems with these incentives is that students weren't getting accurate information on study abroad. There could have been great programs where students could have learned a lot, but because these profit-seeking institutions were dominating the game, these students' educations suffered. Hopefully the attorney general will learn information to stop such a system where students pay the price.

Cross-posted on Campus Progress.