The original intent of the Federal Student Loan Program was to enable Americans with limited financial resources to access post-secondary education. Instead, it has become the money source that colleges and higher education live on.
More than 85 percent of all money going into higher education is funded on the backs of students and their parents through highly unorthodox loan mechanisms, most often referred to by schools as “Student Financial Aide.” Schools actually want people to believe that they are doing something good for students and their families by putting them into loans, when in fact these schools are plundering the trust of students and often setting these students up for a lifetime of financial harm.
The current federal student loan system is designed to create a false profit of more than $50 billion a year for the Federal Government through high interest and high fee assessments. This false “profit” is used by the government to finance other government programs.
Most student loan debt will never be repaid. And the Federal loan programs are specifically designed for this to be the case. For as long as loans are on the books, the government continues to accrue interest, along with interest upon interest; a predatory lending practice that no bank would be allowed to do.
However, while this is going on — again fostered on the student as a “good thing” and as a benefit — student loan borrowers carry for decades the albatross of student debt being inaccurately and unfairly reported in their credit files.
Most student loan borrowers will make a payment today and wake up tomorrow owing more than they did before the payment was made. And credit bureaus do not know how to account for this anomaly when calculating credit scores. More than 500,000 people per month complain to the government about how Federal student loans are creating problems with their credit files.
The Federal government has misrepresented the real expected outcomes of deferred cancellation programs, such as public service loan forgiveness, in as much that the requirements to meet the conditions of these programs is practically impossible to satisfy. These were intentional and clever lies told by Congress to make programs sound good, while knowing full well they would never actually produce promised outcomes.
Very, very few members of Congress understand the full nature or complexities of the student loan monster which Congress has created — nor do they seem to care or want to take the time to understand. Instead, they leave the problem to career committee staffers to “work on it.”
Yet, members of Congress are very quick and very loud to criticize the executive branch for what they deem to be operational administration failures, when in fact these failures are because of failures in the law that Congress wrote.
The Office of Federal Student Aid is simply too big an organization, handles too much money, and has too much responsibility for oversight of colleges to be embedded as a subsidiary of the U.S. Department of Education. It should operate more like the Federal Deposit Insurance Corporation and should oversee schools the same way the FDIC regulates banks.
In a follow-up article I will set forth recommendations for how we can go about addressing and solving our nation’s student loan debt crises and bringing sanity to the way in which post-secondary (after-high-school education) is financed.