College Steered Students to Backbreaking Loans (15% from Sallie Mae)

[JPZenger]

http://www.mcall.com/news/local/all-a1_5loansmay22,0,4438054.story?coll=all-newslocal-hed

Summary: This article from the May 22, 2005 Allentown Morning Call is part of an investigative series about Lehigh Valley College. It is owned by for-profit Career Education Corp, which owns 82 colleges. The article describes how the College steered their students to college loans with 15.4% interest rates.

The paper found that the students often were not told what the loan rate was until weeks after they signed the papers. The debt has been crushing for many students - particulary because they were encouraged to take out $30,000 to $40,000 of debt for an associates degree. With interest, they often will have to pay THREE TIMES as much money as they owned. The article points out how the college directed the students to Stillwater National Bank of Oklahoma. Those loans were then quickly turned over to Sallie Mae, which was privatized to become the for-profit SLM Corp.

Excerpt: "Sallie Mae and other lenders showered campaign contributions upon political candidates who supported a bill that would rewrite bankruptcy regulation. The new rules ... make it nearly impossible for students to shed private student loands through bankruptcy."

[DavidFL]

1. I see Sallie Mae is still going at it.

These high cost private loans administered by Sallie Mae have been an ongoing problem for about 3 years now and it's not limited to Lehigh Valley. There are many fly-by-night technical and vocational schools across the country that only stayed open long enough seemingly to get students roped into these predatory loans and disappeared just as quickly. Even though these students never received a degree, and some never attended a single class, because these schools closed so fast, many had to spend thousands of dollars in attorney's fees and court costs to have their promissory notes cancelled because they were being hounded by collections people. Those were the people who looked up the law and learned they don't have to pay back student loans when the school goes under, so there are certainly many more who are unaware of the law and still paying back these loans. That this has the Federal government's imprimatur on it, as Sallie is a GSE, is scary.

This, however, is not the first time students have been targeted by this kind of scam. Just like everything old being new again with this administration, about 13 years ago, many of the large state student loan guarantee agencies, like PHEAA, and private banks, like Citigroup, almost brought down the entire guaranteed student loan program because they were perpetrating the same, exact scam using federally-insured student loans. Of course, the low level people involved were the ones that went to prison, but nothing happened to the higher ups in the state agencies. Instead, they got to lobby Congress to make federally-insured student loans non-dischargeable in bankruptcy, which was made law in 1998, despite the fact that a commission of bankruptcy judges and lawyers, economists, etc. said that, if anything, student loans should be dischargeable.

[JPZenger]

2. Same Scams, Different Names

Thanks for your comments. In this case, the chain of 82 for-profit colleges is run by a guy who used to run another chain of for-profit colleges - before they were shut down by the Federal government 10 years ago for student loan scams.

The article says that Sallie Mae controls 1/3 of the high interest rate college student loans.

These are mainly technical colleges - for graphics arts, computers, etc. Many of the students who were caught in the 15% interest rate scam were 18 years old. They were told to sign promissary notes weeks before they received information on the interest rates. Even after they received a written statement with the interest rate, the statement did not tell them the total amount of their payments - which is supposed to happen under the Federal loan disclosure acts.

[DavidFL]

5. Sorry I wasn't clear...

I'm not sure if it was the same corporation, but I have read of students getting stuck with similar loans serviced by SLM at technical and vocational schools in other states, I remember Virginia and North Carolina, as early as 2002 and wanted to note this wasn't a phenomenon isolated to Pennsylvania. However, I'm glad this reporter did this piece because I, and others I know, have spoken with TV news producers and reporters on the topic of predatory loans and preditory financial companies, and I've noticed there's a bit of reluctance to do pieces like this because the subject can get rather complex and is not something that can be concentrated into a few paragraphs, or a quick 1 or 2 minute segment on the evening news to adequately explain the problem.

[triguy46]

3. A brush with fame!!!

Wow, I didn't know my mortgage holder, Stillwater National Bank was such an innovative and resourceful financial institution.

Actually, based in a college town, with a university that is a leader in direct student lending, (the kind that the repubs want to kill), I'm not surprised that they would become so resourceful as to get in the usury business.

[JPZenger]

4. Sallie Mae CEO Made $42 Million Last Year

Sallie Mae is now a for profit corp. specializing in high interest rate student loans. They recently tried to get Pennsylvania to sell them the State's public agency for student loans, PHEAA. Sallie Mae was trying to eliminate low interest rate competition from a public agency. Fortunately, for now, their offer has not been accepted.