History can be many things. It can be both informative and purposely deceptive. And from time to time, historical events need to be revisited if we seek the truth. We also find critical historical analysis essential when we think about US higher education and student loan debt from a People's perspective.
In a previous article we said Best and Best's classic The Student Loan Mess needed to be updated and reexamined. Although the book was an exceptional chronicle of the student loan industry from 1958 to 2013, it missed at least one key event, the 2008-2010 bailout of Sallie Mae and a number of banks who made questionable private loans guaranteed by the US government. This lesson is especially important if the US government decides to get out of the student loan business or reduce government oversight of student loans.
From 1965 to 2010, the federal government was a backstop for private student loans, Guaranteed Student Loans, also known as the FFEL loans. Annual volume of private loans skyrocketed, from $5B in 2001 to over $20B in 2008, when 14 percent of all undergraduates had one. A secondary market for private student loan debt (student loan asset-backed securities) also began to flourish. An industry group, America's Student Loan Providers (ASLP), provided political cover for private lenders.
In 2007, President George W. Bush signed the College Cost Reduction and Access Act of 2007 (HR 2669) which cut subsidies to lenders and increasing grants to students. But this did little to contain the growing mountain of student loan debt. A mountain of unrecoverable debt that was crushing millions of consumers as the US was facing an enormous economic crisis, the Great Recession.
In rereading The Student Loan Mess, we also discovered that these private entities had not only made questionable loans, some private lenders had also bribed university officials to become preferred lenders. How commonplace this student loan grift was has not been adequately explored.
In 2008, the Bush government began a bailout of these private lenders, the Ensuring Continued Access to Student Loans Act (ECASLA), which amounted to $110B. This event occurred largely without notice. And because a larger Great Recession was happening, the ECASLA never received much media attention.
As part of Health Care and Education Reconciliation Act of 2010, President Obama's takeover of the Guaranteed Student Loan program in 2010, did get attention. Ending the Guaranteed Student Loan program was supposed to save the US government $66B over an 11-year period. This rosy projection never materialized. The FFEL loans acquired by the U.S. Department of Education (ED) during the transition to the Direct Loan program are now part of the Direct Loan portfolio. The U.S. Department of Education (ED) acquired an additional $20.4 billion in face amount of FFEL loans from lenders during the transition from the FFEL program to the Direct Loan program.
The FFEL loans that were not acquired by the U.S. Department of Education (ED) during the transition to the Direct Loan program remained with the original private lenders. These loans continue to be serviced by the private lenders that issued them.
For-profit colleges, the engine for much of this bad debt, did get scrutiny, and from 2010 to 2023, their presence was reduced. But overpriced education and edugrift continued in many forms. And after a short respite from 2020 to 2024, the mountain of bad student loan debt continues to grow.
Related links:
A Report on the Loan Purchase Programs Created by ECASLA
Student Loan Debt Clock
America's Student Loan Providers | C-SPAN.org
Student Loan History (New America)
Showing posts with label banks. Show all posts
Showing posts with label banks. Show all posts
Monday, January 13, 2025
Tuesday, February 20, 2024
Capital One-Discover Merger: Another Blow to the Educated Underclass
Capital One and Discover Financial Services have publicly announced plans to merge. The deal worth a reported $35B would give this new entity greater power, competing (or colluding) on a higher level with JP Morgan Chase, Visa, and Mastercard.
For working people who know anything about finance and debt, and have debt themselves, this should be frightening. Together, both banks hold about 400 million credit cards.
Capital One and Discover are both banks and high-interest credit card lenders. That means they are issued cheap money from the US Federal Reserve and lend it to naive and desperate consumers.
Discover student loans are used by college students who have used up their Pell Grants and federal loans and are working (and borrowing) to graduate or extend their education. The interest rates can exceed 12 percent.
Capital One does not have student loans, but college students use credit cards from both of these companies to make their way through school, paying the price later.
While there may be regulatory challenges for the Capital One-Discover deal, it's not likely that the merger, or any other financial consolidation, will be prevented--no matter how onerous it is to consumers.
Related links:
"Let's all pretend we couldn't see it coming" (The US Working-Class Depression)
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