View on college loans scandal: Shift the dollars to students

Fri, Jul 06, 2007
To the average student or parent, the college-loan fiasco that has unfolded over the past few months is as about as easy to understand as the federal tax code. Far clearer is the severity of the problem.

Students pay interest rates of anywhere from 6.8% to 18% for college loans. The higher end of that range borders on usury. Repaying the average loan — $20,000 — over 10 years at the top rate costs more than twice that amount.

That's no way to start a career, but the problem is affecting more and more students. The size of an average loan has doubled in a decade. And every week, it seems, some college financial aid officer gets the boot for accepting discounted stock, golf outings or boozy lunches from deep-pocketed lenders seeking preferred positions.

As awful as the situation is, there's no mystery about why it's happening, or what forces need to be brought under control for it to improve.

The first is the rapidly rising cost of college. Over the past 20 years, tuitions have risen 385%, roughly double the rise in health care costs, according to Education Secretary Margaret Spellings.

At the same time, federal financial aid has stagnated. Twenty years ago, the federal Pell grant for poor students (maximum: $4,300 a year) paid 80% of the cost of going to a public university. Today it pays only 40%.

Resource: http://news.yahoo.com