Education: the American dream. In a country where innovation and invention are prized, education represents the cornerstone of achievement, the possibility of advancement and basic rights for all citizens. Yet, the American education system is struggling. K-12 education is plagued by funding cuts, swelling classroom numbers, shrinking numbers of teachers, and other problems. Higher education is growing more and more expensive, even with student grants, scholarships, and loans, and predatory lenders are moving in around the edges to take advantage of it.
The United States has been in the grip of a sustained predatory lending crisis since 2008, when the housing crisis began to pull the economy apart. Student debt has been fingered as the possible next big debt bubble, with alarming numbers of students defaulting on their loans or struggling to make minimum payments. Part of the reason for that appears to be predatory lending practices which take advantage of ill-prepared borrowers who simply want their piece of the dream of America and the promise that education provides.
First-generation college students, children of immigrants and students of color appear to be in the crosshairs of predatory lenders using a variety of techniques to get students to sign exploitative loan paperwork that disadvantages them for decades in exchange for help with attending college. Notably, these groups are most likely to drop out of school, taking their debt with them — it’s difficult to repay debt accrued during college if you leave without qualifications or marketable skills. Between predatory for-profit colleges using students like cash registers and lenders who consider students as financial assets, some of the least financially literate and able to handle big loans are left crunched between a rock and a hard place.
College can become a financial trap even for a savvy student, but it’s particularly challenging in the wake of some key changes to student loan policies, combined with predatory practices like those used with other kinds of loans, such as home and car loans. Lenders offer enticing amounts of money to young adults who may not fully understand the ramifications (including how much they’ll pay over the life of the loan and when they’ll have finished paying it off), but they don’t scrutinize applicants for assistance closely to assess the ability to repay or manage loans. Lenders also take advantage of programs like deferred interest and government assistance with loans to push students into making potentially unsound financial decisions.
As students are sold a dream of education in a country where education is highly valued, many are finding that it comes with a bitter price. Similar exploitative lending practices are at work in their communities, creating snarls of debt that can become intergenerational as family members struggle to repay loans and support each other. This leaves people of color, immigrants and first-generation college students at a disadvantage right out the gate in comparison with their white, more socially privileged counterparts. Is upward mobility becoming increasingly out of reach for some of the most marginalized in society?
Photo credit: Maryland Governor O'Malley teleconferences with President Barack Obama about student loans, MD Gov Pics.