Editorial



Writing in the current issue of Mother Jones magazine, Pulitizer Prize-winning tax reporter David Cay Johnston listed 14 ways the nation's stupifyingly complex, inefficient and unfair tax code should be reformed. Several are among those President Obama discussed during his campaign, and some could be implemented quickly. One of the most important changes Johnston suggested bore the blunt headline "Stop Indenturing Students."

Right now, in millions of households, students and their families are struggling to figure out where and whether they can afford to go to college. High student loan interest rates are a big part of those discussions. In a bad economy can a student who graduates - or worse, one who drops out for financial reasons before graduating - get a job that pays enough to live and make student loan payments? Can the student get a job at all?

The enormous cost of a college education is compounded by the high interest rates and often rapacious practices of Sallie Mae, the nation's biggest student loan company.

The debts students amass and the burden of paying them off at high rates for many years can hamstring career choices. It's one reason many people pass up modestly paying jobs in the public sector or non-profit world.

Sallie Mae began as a public-private partnership created to make education loans more easily available and affordable for low income students. It became a totally private company whose stock is traded on Wall Street in 2004. Most households with children in college or with family members with outstanding student loans do business with Sallie Mae. They know all about trying to pay off high-interest loans in an era of declining wages and lost jobs.

According to Johnston, Sallie Mae earns a return of 48 percent, three times that earned by commercial banks. It does that by charging students rates that averaged 11 to 13 percent in December, according to The Washington Post. Sallie Mae originates the vast majority of federally-guaranteed student loans. Some are low-interest, federally-guaranteed. Others are high-interest private loans issued by the company. The latter can be deadly.

Private loan rates can ratchet mercilessly upward and their cost is compounded, credit card company fashion, by high and often unexplained charges and late fees on the $178 billion in education loans it has made to 10 million students and their parents. The company has been known to raise interest rates to 18 percent if a borrower makes a single late payment, and to charge a late fee every month, even if all subsequent payments are on time, for the entire duration of the loan.

Congress, and the Obama administration, which has promised to raise Pell Grant amounts, increase the tax deduction for tuition payments and create a program that pays $4,000 per year toward the cost of a public education in exchange for 100 hours of community service, should also clamp down on Sallie Mae and other lenders. Interest rates on education loans should be capped, as should late fees and other charges. Disclosure of all loan terms must be complete and understandable, and all borrowers should have the ability to consolidate their loan at any time and with any lender to get a lower rate, something Sallie Mae severely restricts or prohibits.

The federal government should also invest in the country's future by undercutting commercial lenders by expanding its own Direct Loan Program, which offers students much lower rates. The nation can no longer afford to allow lenders to earn unconscionable profits on student loans and charge rates that change career paths, strap students and parents and make college an impossible dream for some.