Student loans are among the most lucrative sectors of the financial industry Of

Student loans are among the most lucrative sectors of

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Student loans are among the most lucrative sectors of the financial industry. Of course, the rates and returns are much higher for the private sector. While banks now issue only 20 percent of all student loans, the rate of issuance is greater than for federal loans, and so private lending is expected to surpass the government sector in ten to fifteen years. Unlike almost any other kind of debt, student loans cannot be discharged through bankruptcy, and, over time, collection agencies have been granted extraordinary powers to extract payments, including the right to garnish wages, tax returns, and social security. It is no wonder that student loans are among the most lucrative sectors of the financial industry. Nor is it any surprise to find a thriving market in securitized loans (almost a quarter—$234.2 billion—of the aggregate $1 trillion debt) known as SLABS (Student Loan Asset-Backed Securities). Given the predatory nature of stu- dent lending, many commentators have com- pared SLABS to the subprime mortgage securitization racket that inflated the housing bubble and triggered the financial crash. Since SLABS are often bundled with other kinds of loans and traded on secondary debt markets, investors are not only speculating on the risk sta- tus of student loans but also profiting from resale of the loans though collateralized derivatives. In the meantime, creditors stand to profit most from defaults, when additional fees and penal- ties kick in, and so, like the subprime lenders, they often seek out high-risk borrowers. This is not the only way in which debt-based profit is mined from the business of higher edu- cation. As low-income families get priced out of public colleges, they are pushed into the for- profit system, the mercurial rise of which has been fueled by the ready availability of federal loans. Even for families with multigenerational experience of college, the staggering array of higher education choices can be confusing. But first-generation students, with limited access to information about their choices, are easy prey for the “admissions counselors” of the for-profit colleges that act as a conduit for the lending industry. A total of 95 percent of students gradu- ate with debt in the for-profit sector (vs. 58 per- cent of students at all institutions), where graduate rates, already perilously low, are fall- ing. The result is a familiar demographic pro- file. While the single largest student debts are racked up by students from middle-income families seeking a private university degree (mainstream media outlets feast on the stories of these “profligate” individuals), the overall impact of debt is magnified among low-income families. African-Americans graduate with the highest average debt of all racialized groups, and Deep South states where community col- leges do not participate in the federal loan sys- tem are the most disadvantaged of all.
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  • Fall '19
  • Thomas G Smith
  • Education, Sociology

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