You Will Not Believe How Students & Parents Are Screwed Twice By Universities & Colleges

imageAmerica was once a place where college was the conduit to success. The cost of college was affordable. Moreover, if a loan was necessary for college, it used to be affordable and could be paid off without interfering with any budding professional’s financial dream or financial prospects. College provided every student upward mobility. Every parent assisting a kid or co-signing a loan for the kid had the notion that they prepared their kid for success.

That reality is no more. Universities and colleges are gouging students with ever increasing tuition and fees. Lenders inasmuch as they have access to cheap money are lending to students at rates higher than rates pre-financial system collapse. Huffington Post says:

On average, the annual cost of education at public schools has risen 57 percent since 2005 to nearly $18,000, according to College Board figures Sallie Mae cites in its latest quarterly pitch to investors. Students at private schools are paying more than $39,000, or nearly 44 percent more than they did in 2005.

The so-called “cost of attendance gap”, or the difference between what a four-year degree will cost incoming freshmen versus the amount of government loan money available to them, has risen over the past 10 years by 59 percent to nearly $152,000 for the typical student who started at a private school in 2011, Sallie Mae tells investors. For public school students, the gap has increased 90 percent to about $69,000.

Sallie Mae loans, which are relatively more expensive now than they were before the financial crisis, help “bridge the funding gap,” the company says.

What is unethical is that these same Universities are investors in these lending corporations. Investors in any corporation aim to maximize their incomes at all cost. Universities have an incentive to increase their cost in order for their lenders to make larger loans and increasing profits. The Huffington Post says:

University endowments and teachers’ pension funds are among big investors in Sallie Mae, the private lender that has been generating enormous profits thanks to soaring student debt and the climbing cost of education, a Huffington Post review of financial documents has revealed.

It is hard to believe that Colleges and Universities would “screw” students and their parents. The reality is that the answer lies in the numbers. Huffington post reports:

“This is a much more subtle and much less mechanistic dysfunction than we have seen in the past,” he added.

In 2006 — the last year Sallie Mae reported at least $1 billion in profit and enjoyed a return on equity above 20 percent — student borrowers who took out private Sallie Mae loans that were then securitized were borrowing at interest rates that were about 4.4 to 5.0 percentage points above a benchmark borrowing rate for financial corporations known as the three-month commercial paper rate, according to a review of the company’s bond documents.

For private loans that were securitized last year, students were paying interest rates about 6.8 to 7.5 percentage points above the benchmark corporate rate.

In all, over the last three years the margin enjoyed by Sallie Mae and its investors on private loans the company securitized on average has been about 2 percentage points higher than it was in 2006 relative to the overall corporate borrowing rate.

The middle class is always under attack by those who use them as sources of income and as a commodity. When will corporation and government stop taking advantage of the poor and middle class? When will government stop codifying into law policies that allow corporations to destroy the middle class? When will the middle class standup to government and corporations and say NO MORE? The time is now.

LIKE My Facebook PageVisit My Blog: