Loan Businesses Make Money at Student Expense

To the editors:



Re: “Loaning and Betraying,” editorial, Apr. 25.

It is sad that it takes a scandal to wake up a society, and more so that we in academia know so little of how the current loan scandals came about. The current economic facts of student loans in the United States, quite to the contrary of common opinion, are not a necessity for students, but rather, are a necessity for academic institutions.

Colleges and universities have seen tuition and fees outpace yearly inflation since the inception of the Guaranteed Student Loan program by the Johnson administration in 1965. Yet what President Lyndon B. Johnson intended as a supplement to college funding—loans— has now become the main course.

The primary reason for this, and the primary reason for the exponential increases in tuition and fees, is that federal and state funding of higher education has slowly dwindled over time. For example, twenty years ago federal Pell grants would cover a majority of costs at a four-year public institution. Now, at the maximum level allowed by law, a yearly Pell grant could cover about one third of a year’s costs at the same institution. Likewise state funding has dropped significantly. State funding covered about half of the cost of tuition in 1980; as of 2000 that number had been cut by a third. The lack of government funding for higher education has created an economic vacuum filled through student loan programs.

Programs such as the Federal Perkins Loan, Stafford Loan, Federal Family Education Loan, and Ford Direct Student Loan allow the federal government to “fund” education without providing any real money. As the recent student loan scandal has proven, private lenders have taken advantage of this situation to do what business does—namely, make money.

When the staff of The Crimson wrote that even “the best intended federal regulations may infringe on the ability of colleges to educate their students” what they failed to mention is that as recently as 1997 Congress had amended the Higher Education Act to make student loan debt among the easiest and most lucrative to collect.

Indeed, the power of student loan companies to collect debt is so invasively strong that Harvard Professor Elizabeth Warren equated the industries’ methods to that of organized crime. This legislation came about as a result of congressional lobbying by private loan companies under the auspices of funding higher education, coincidentally at a time when government funding of education was hitting bottom. Federal legislation is currently being used by business to make money at the expense of institutions and students. And as long as there is money to be made, scandals will occur and students will be in debt.



SEAN McCREERY
Cambridge, Mass.
May 1, 2007



The writer is a staff assistant at the College.