Raleigh-Durham Fight Imperialism Stand Together (FIST)

Revolutionary socialist youth in the US South

Loans for junior colleges becoming extinct

Posted by raleighfist on June 16, 2008

FIST, Denver chapter

Some of the largest banks in the country are now ceasing to extend student loans to those attending junior colleges, community colleges and technical schools. More than 40 percent of students enrolled in college attend community colleges, as they are considerably less expensive than four-year colleges or universities.

The standards for borrowing, even for four-year schools, will become stricter and will rely on the borrowers’ histories and their parents’ histories of credit.

The annual report released by the College Board for 2007-2008 showed that tuition costs jumped 6.6 percent from the previous year. The jump is twice the rate of overall inflation. Factor in room and board, and the total costs of a public four-year university are up 5.9 percent, with an average total of $13,589 per year.

The total cost of a private four-year school is more than $32,000, with tuition accounting for more than $23,000 of the total.

The Pell Grants, which do not have to be repaid, have failed to keep up with inflation. According to the College Board, the average recipient of a Pell Grant received $2,494 in the 2006-2007 school year.

Students wanting to obtain a higher education should not have to rely on student loans. The price tag continues to climb beyond the reach of the average student; so loans are ultimately a trap, putting students in debt to the tune of $20,000 on the average.

Some students rack up debt as high as $100,000, especially if they require advanced degrees for their profession of choice.

However, the recent development of lending institutions denying loans to many two-year schools will affect people of color and the poor, as these schools are usually the most reasonable and sensible option.

The reasoning behind the denials, according to the banks, is the high default rate among students who attend two-year schools, and for the banks this constitutes a high risk.

But the problem is much deeper than that. The decision has much more to do with the overall credit crisis, especially considering that most student loans are federally guaranteed. Going into default means constant harassment of the borrower, including wage garnishment, federal lawsuits and tax refund seizure.

A March 20th article, “Financial crisis hits students,” in Workers World newspaper illustrated how the financial crisis was partly brought on by the subprime mortgage loan problem. Julie Fry wrote: “Here’s what is happening: many state and local governments secure money for public or quasi-public programs through a venue that most people have never heard of called the market for auction-rate securities. Before the financial crisis, auction-rate securities offered the government borrowers a very low interest rate and it offered lenders (banks and other corporations) ready access to their cash investment through regularly scheduled auctions for the bonds, where they could sell their investment and get their cash back on sometimes a weekly basis. They were earning a higher return than they would with their money in a bank.

“All the investments were insured by companies called bond insurers, which specialize in guaranteeing this kind of debt. Here is where things started to unravel. These bond insurers also insure other types of debt—like subprime mortgages. Now that these insurance companies are going to have to secure those loans, the banks don’t think they can guarantee student loan debt as well.”

Though there are many institutions that still lend to two-year colleges, there is an overall crisis of the student loan industry. The Department of Education has had to assume $40 billion of debt from student loans, and large lenders have reported huge losses; for example, Sallie Mae reported a loss of $104 million for the first quarter of 2008.

If the losses affected only the lenders, the CEOs and the super rich, then it would be cause to celebrate, but it is the poor, workers and people of color who will feel the brunt of the pain of one crisis after another.

More and more jobs are being lost—300,000 already this year. Wages are being cut in half or at least lag far behind inflation. The price of gas continues to rise, now at an average of $4 per gallon. The price of food climbs further. Hundreds of thousands of people around the country face being kicked out of their homes, both those who are owners and those who are renters. The U.S. has one of the highest rates of illiteracy amongst the industrialized countries.

All of these crises are occurring when the option of higher education is being denied and getting further out of reach.


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