Story: Blame the Lender

“Private Loans Deepen a Crisis in Student Debt,” cried the Times headline that began by presenting the situation of Lucia DiPoi, “the first in her immigrant family to attend college.”

The Times complained that DiPoi “gave up her dream” of working in an overseas refugee camp as a result of too much debt, and now has private loans with high interest rates. But the blame was thrown squarely at the lender: Sallie Mae in this instance.

Nowhere did the Times question DiPoi’s decision to attend Tufts University, a private school where the tuition, fees, room and board come to $44,500 per year. That’s nearly three and a half times the average cost of a public college or university, according to the College Board.

Other reports also presented students or graduates struggling to pay off huge amounts of debt without mentioning personal responsibility – even saying one student had “little choice” but to go deeper in debt.

“Take Jen McGowan, a 30-year-old Los Angeles filmmaker. She had little choice, she says, but to pack on private loans after maxing out on federal aid. McGowan owes about $275,000, having borrowed to pay for much of her undergraduate years at New York University and graduate school at the University of Southern California,” wrote USA Today on May 29.

Journalists often used generalized statements, tarring all lenders and colleges in the process.

On May 20, the Times said Cuomo discovered “that colleges had been receiving payments from lenders that were seeking business from students, and that financial aid administrators had accepted trips from the lenders.”

Another story in the May 16 USA Today said Congress is “alarmed that lenders have been increasingly profiting as students fall deeper in debt.”

The reporting on Cuomo’s investigation made wrongdoing on the part of a few lenders and college administrators seem commonplace – by leaving out crucial details.

There are 6,000 colleges and universities and roughly 2,000 to 3,000 lenders in the U.S., according to Kevin Bruns of industry group America’s Student Loan Providers (ASLP).

“The incidents we’re talking about are a small fraction of schools and lenders. But this is being painted with such a broad brush,” said Bruns. “That’s bad for the industry and for the students who have to make decisions about whether to go to college or not.”

Student Loan 'C

Student loans make a college education possible for many people, but some of the companies offering loans to students are under attack by the media.

“For weeks, an investigation of the student loan business has been scrutinizing whether close ties between lenders and colleges have enriched them at the expense of debt-laden students,” explained the May 29 USA Today.

That investigation has been an anti-industry “crusade” waged by New York Attorney General Andrew Cuomo, and the media have been fighting alongside him.

The Washington Post called Cuomo’s findings a “crisis enveloping the loan industry” on June 2. NBC’s Brian Williams said “a growing scandal has rocked the multibillion-dollar student loan industry” in a May 10 “Nightly News” report.

In the past couple months, print and broadcast media have accused the student loan industry of bribery, kickbacks, payoffs, and of cozy relationships with financial aid administrators “at the expense of students.” Evidence of wrongdoing has been limited to only two lenders and a handful of college administrators who have resigned, fired or been put on leave.

No criminal charges have been filed. Still, the media act like all lenders and colleges have done irreparable harm to all their students.

At first, Cuomo’s investigation was limited to the Federal Family Education Loan Program (FFELP), the federal student loan program that works with private lenders to guarantee loans and cap interest rates for students.

But after getting a number of lenders to agree to a new code of conduct – and getting a state and federal law passed – he expanded the search to look for wrongdoing in the “unregulated” private loan sector.

Most media coverage characterized the few examples of unethical behavior as evidence of widespread wrongdoing on the part of lenders. Several also left out the identification of liberals like Cuomo and “consumer advocates” U.S. Public Interest Research Group (PIRG).

The media also didn’t prove any students were harmed; ignored the responsibility of borrowers to make informed decisions; and left out benefits private lenders bring to the program.

Andrew Cuomo: Spitzer Wannabe

It’s also well-known that Cuomo is a liberal. The Democratic attorney general was the 2002 Liberal Party candidate for governor of New York.

But curiously, The New York Times, a paper that knows Cuomo well (his father is former Democratic New York governor Mario Cuomo) left out his party and the liberal designation in a June 10 story about his expanding investigation.

“But they [new regulations] do nothing to address a problem that many education officials say may have greater consequences – more students relying on private loans, which are so unregulated that Attorney General Andrew M. Cuomo of New York recently called them the Wild West of lending,” wrote Diana Jean Schemo in the Times.

The way she put it made it sound like he’s some sort of detached expert, when he’s actually the one making accusations against lenders and college officials and threatening to sue universities.

Schemo, like many other reporters, did not include any critic of regulation or explanation of the benefits private lenders bring to the student loan program.

“There is a lack of recognition of value that private sector companies bring to the federal student loan system: technology, efficency, innovation, all of these things have dramatically improved the student loan program,” Bruns said.

The Times even gave Cuomo an adoring profile on May 18. The 1,948-word article credited Cuomo with revamping his image, calling him disciplined and cautious.

Reporter Michael Cooper wrote that Cuomo “is winning national accolades for exposing what he calls kickbacks in the student loan industry.”

Just like the Times left out the political leanings of Cuomo, the Times, The Washington Post and USA Today all wrote articles about the “scandal” and included the criticism of “consumer advocates” U.S. PIRG, but left out their agenda.

U.S. PIRG promotes heavy government regulation on many issues including global warming, pollution, “open spaces,” food safety, toy safety and health care.

On its site, the organization claims to have “stopped Congress from opening the Artic National Wildlife Refuge to drilling,” fought against logging and mining, and sued a salmon farm company for its pollution

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Once you have your home equity loan it is very easy to get carried away and think you are now rolling in money but it is important that you use the money for the reason you have given otherwise you will end up in difficulties and as we said before you could lose your home if you struggle with the repayments.
So the bottom line is don’t borrow more than you can afford and by taking out a second mortgage you could enjoy more freedom and do more with your money but it isn’t worth sinking lower than you need to

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Plunge Continues

An additional factor at play in the housing crisis is the collapse of the market. Subprime loans are those loans that are extended to buyers with troubled credit histories. The high default rate among subprime customers has caused some lenders to get out of the subprime business altogether. It's also had repercussions elsewhere in the loan industry, with lenders tightening their standards for borrowers in an effort to reduce foreclosure rates.
Meanwhile, some analysts believe that the housing crisis has heightened the threat of recession in the coming year. Observers do not expect the housing crunch to ease until the middle of 2008—if then. Yet, the Federal Reserve's decision to cut an important interest rate by half a point could help to boost the economy. The decision marked the first time the Fed has reduced interest rates in 4 years.
At this point, it's unclear whether the Fed will move again to cut interest rates before the end of the year. Two additional meetings of the Federal Reserve are scheduled before the close of 2007.
In July, home prices recorded their most significant decline in 16 years, exacerbating worries about the health of the U.S. housing market. Home prices have been dropping steadily each month since the year began. However, the July decline was the biggest single drop since 1991.
A statement by MarcroMarkets Chief Economist Robert Shiller noted, "The further deceleration in prices is still apparent across the majority of regions."
Yet, interestingly enough, there are cities where prices are on the rise. These include the markets of Atlanta, Charlotte, Dallas, Portland, and Seattle. However, the growth in prices is slowing. S&P also reports that home prices in Atlanta and Dallas could move in a downward direction soon.

Late Payments

Some encouraging financial news has emerged from the American Bankers Association. The group reports that late payments on credit cards decreased 4.39% in the 2nd quarter of the year. It's the lowest rate recorded since the close of 2005. It also marks a decrease from the 1st quarter rate, which declined 4.41%.
Yet, at the same time, it appears that people are having trouble managing their home equity loan payments. Delinquencies on such lines of credit rose in the 2nd quarter to the highest rate in more than 5 years.
Still, the bankers' association states that, overall, consumers managed fairly well in the spring, despite the troubles caused by the collapse of the subprime loan sector. That's because the unemployment rate remained low and wages grew, lessening the blow of the housing crisis.
However, employment did take a downturn in August, when the total number of jobs fell for the 1st time in 4 years' time. If the job picture continues to darken, consumers could have difficulty paying their credit card bills on time.
Meanwhile, delinquencies on auto and boat loans and home improvement loans dropped 2.27% in the 2nd quarter—an encouraging sign, according to economists. Experts are predicting that the Federal Reserve's decision to cut a benchmark interest rate should aid both prospective homebuyers who are hoping to secure a loan and current homeowners faced with the financial struggle posed by adjustable-rate mortgages. Consumers with credit card debt and those with home equity lines of credit should also receive some relief, thanks to the interest rate reduction.
Home foreclosures have soared over the past year, increasing the risk of recession. Experts say that they do not foresee an improvement in the real estate market until some time next year. That could be too late for homeowners who are already facing the possibility of foreclosure