Student Loan Burden Rises $10 bn a Year
'Perfect Storm' of more students and tuition doubling in past decade puts loan holders in heavy debt.
Issue date: 11/11/05 Section: Coyote News
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If not for Hurricane Katrina grinding all business in Washington to a stop, they might have gotten their way - and raised the prices of attending college by $10 billion a year, costing the average student more than $6,000 for more expensive student loans.
But student loan legislation is back on track, with legislators expected to create a new education bill in the next two weeks. In the meantime, lots of people are wondering why student loan borrowers can't have more choice, lower interest rates, better terms, and more competition among lenders. Especially when it also means reducing the federal budget deficit.
This heightened awareness of student loan programs comes every five years or so when Congress reauthorizes the Higher Education Act. Since the last legislation, the student loan market has been hit with what Citizens Against Government Waste calls a "perfect storm" of more students going to college, tuition doubling and the annual volume of student loans tripling to $50 billion - all in less than ten years.
Last year, the Student Loan Marketing Association, the former federal agency that controls the vast majority of the industry with more than $100 billion in student loans, went private and has quietly become one of the most profitable companies in America.
So a lot has changed since the last time Congress looked at student loans.
And a lot more change is on the table. Chief among these changes is what to do with student loans in an era of changing interest rates. Many students and parents want the option to refinance their loans at a lower, fixed rate over a longer period of time with the lender of their choice. Just like any other loan.
Today, some can - and do. But current law says most cannot: If students get their loans from a single lender, they cannot change that lender - even if another lender offers them better rates, terms or service. It's called the Single Holder Rule, and it helps ensure Sallie Mae and the other big lenders keep their customers safe from competition.
It works.
The same law also says most borrowers can only consolidate their loans once. It worked, too, until some students and parents recently discovered a loophole they could use to move their loans to a lender offering better rates.