Maureen Lane

Student Loans a Staggering Success… for those issuing the loans

This week the Supreme Court heard a case on the government's right to recover student loans from social security income. The Court has ruled that the government can recoup student loans from social security. An item of note as Linda Greenhouse reports in the NYT was that government papers filed in the case showed student debt as $33 billion in default. The figure seems staggering.

The bigger story here, however, may be the fact that the student loan secondary market is a multi-billion dollar part of the financial sector; and rather than just going after individuals on fixed incomes, policy makers might want to take a look at corporate responsibility in this market.

Congress created the Student Loan Marketing Association, known as Sallie Mae, in 1972 as a government-sponsored enterprise (GSE). The company was founded to create a secondary market for student loans. After 25 years, Sallie Mae transferred from a government to private enterprise. The student loan business is lucrative and low risk since the U.S. Department of Education still covers 98% of any default. In 2004, Sallie Mae, now trading on the stock exchange as SLM Corp., had a net profit of $1.9 billion. This figure is also, staggering.

A growing concern at CUNY is the rising cost of higher education and the shrinking government dollars spent to make college accessible. Students are being enticed by banks to take loans for college through on campus aggressive marketing tactics. Students from Welfare Rights Initiative and others advocate for raising TAP (Tuition Assistance Program) and Pell grants-- not hiking tuition. These two changes would make a big difference to poor, low- and middle income students and substantially reduce the need for them to take loans to get a college degree.

The affordability of public colleges and universities while insulating working families in New York from the loss of financial aid at the federal level and state is key to preserving and expanding access to higher education - a major contributor to economic health of New York. Upon graduating, eighty percent of State and City University alumni continue to live and work in New York, contributing more than $15 billion in revenue to the state every year. Now that is the kind of staggering figure that can positively affect us all.

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Posted at 3:32 PM, Dec 09, 2005 in Education
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