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Soaring number of student loans leads to fears of market collapse
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Related Topics: WASHINGTON
WASHINGTON (Map, News) - The number of Maryland college students taking out private loans has ballooned more than 600 percent between fiscal year 2000 and 2005, creating fears among financial experts that student loans could collapse in the same way as the subprime mortgage market.
Since 2000, college loans in the state from private sources have swelled from $5 million to $32.5 million, according to a financial-aid report to be discussed by Maryland’s board of regents today.
The report, prepared by the university system’s institutional research department, calls the trend toward private loans “alarming.” It makes a sharp distinction between students borrowing money privately and acquiring federal loans that are fixed at an interest rate of 6.8 percent. The private loans can carry interest of more than twice that.
Tamara Draut, director of the Economic Opportunity Program at public policy research group Demos, said consumers should be forewarned that private loans lack the controls on pricing and costs that government loans have.
Experts are drawing parallels between the student loan and subprime mortgage markets.
“With private student loans you have widely and aggressively marketed loan products geared toward people who are desperate for any way to help them pay for school,” Draut told The Examiner.
“It’s the same way you have widely aggressive marketing of subprime loans to consumers looking to refinance their homes..there is very little regulation, which is a recipe for disaster.”
John Buettner, a regents spokesman, said the finding is not unique to the Maryland system.
“Pell Grants took a hit so students are getting less and less aid from the federal government and instead turning to private loans,” he said.
Nationally, the amount of money borrowed from private lenders has grown by almost 30 percent since 2000.
Overall, loans are becoming a more popular way for Maryland students to pay for college. The Regents report found that 60 percent of financial aid used by
graduates was in the form of loans.
dlevitz@dcexaminer.com
Comments from Examiner Readers
2:58 PM MST on Wed., Jul. 23, 2008 re: "Direct Loan Program is an A-plus for students"
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7:12 AM MST on Wed., Jul. 23, 2008
re: "Students drown in debt from private lenders"
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7:03 AM MST on Wed., Jul. 23, 2008
re: "Direct Loan Program is an A-plus for students"
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1:42 PM MST on Thu., Aug. 23, 2007
re: "Soaring number of student loans leads to fears of market collapse"
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7:20 AM MST on Thu., Aug. 23, 2007
re: "Soaring number of student loans leads to fears of market collapse"
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3:38 AM MST on Thu., Aug. 23, 2007
re: "Soaring number of student loans leads to fears of market collapse"
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11:09 AM MST on Tue., Jun. 5, 2007
re: "Hopkins, U.Md. praise proposed regulations of student loans"
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7:09 AM MST on Tue., Jun. 5, 2007
re: "Hopkins, U.Md. praise proposed regulations of student loans"
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Examiner Reader said:
FFELP's lifetime default rates are lower than the Direct Loan program's.
6 agree | 3 disagree
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Examiner Reader said:
Give me a break! Maybe the government can lend the money to students in a more streamline fashion than FFELP lenders, but when it come time to collect the money back, my vote is for the FFEL program. Does anyone know the FDLP default rate?
10 agree | 4 disagree
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Examiner Reader said:
If we cut the benefits in Maryland to illegal aliens we could fund free college tuition to all
3 agree | 3 disagree
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GAB said:
What do illegal immigrants have to do with this story? Not everything must be seen through the mirror of immigration. Rather, it is possible that too many students are getting loans they won't be able to pay off quickly, and it doesn't matter where they come from.
219 agree | 241 disagree
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Examiner Reader said:
"MD college aid fund has been nearly all awarded to children of illegal immigrants based on income tax records. Your kids have to take big loans with high interest to be paid for years after graduation . To change that , send O Malley home." There are two problems with this argument: 1. It's false - there are no "tax records" that say children of immigrants (illegal or otherwise) are hosing the system; and 2. O'Malley's policy has nothing to do with it, especially. Loan policies have not particularly changed under the current administration, so discharging the current administration will have little or no effect. I strongly suggest using facts when arguing in the future.
206 agree | 232 disagree
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Examiner Reader said:
MD college aid fund has been nearly all awarded to children of illegal immigrants based on income tax records. Your kids have to take big loans with high interest to be paid for years after graduation . To change that , send O Malley home.
236 agree | 198 disagree
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Jimmie said:
She may have been paid as a consultant by the lenders, but her concurrent employment as Director of Financial Aid placed her in a conflict of interest. As Director of Financial Aid she was supposed to be acting in the best interest of the students in counseling them on what financial aid package was best for them. Her allegiance to the lenders for which she was serving as a consultant clouded her objectivity and did a disservice to the students she was supposed to serve.
259 agree | 269 disagree
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Examiner Reader said:
I object to the wording regarding the former Dir of FA at Hopkins. The information we have is that she acted as a consultant for several lenders and was paid a consultant's fee. This article implies the funds were a gift - not so. Have we come to a time and place where every consultant must be wary of payment for services? This situation has totally missed the most important issue - our students are accumulating massive debt and we don't have the tools or training to impart financial guidance for their future. Graduates are being confronted with monthly payments of $1000 a month for 30 years. I find this terribly frightening, not only for the individuals but for the future economic stability of the United States. mmt
281 agree | 275 disagree
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