By: Chuck Bentley, Crown Financial Ministries

Dear Chuck,

When students were paying 10% on student loans, we couldn’t get 1% interest on the money we put in savings. It seems like students and families who continue to take these loans are getting ripped off. Would you please address usury?

Looks Like Usury to Me

Dear Looks Like Usury to Me, 

This question has many aspects to it that I will attempt to address: first, the problems of usury and rip-offs and, then, some possible solutions to student loan debt.  

Usury

Usury, as defined by Merriam-Webster, is “the lending of money with an interest charge for its use, especially the lending of money at exorbitant interest rates.” Usury laws are an attempt to protect people from predatory lenders who tend to take advantage of people in desperate circumstances. 

Typical federal student-loan rates for people with good credit today range from 4.99% to 7%. In the case that you cited, a 10% interest rate for student loans is above the market rate but does not fall into the definition of usury. It appears that way when compared to the market rate for passive savings, but you have to compare it to the available market for student loans. 

Student loans are legal and optional, and most do not borrow the money under desperate circumstances but rather to pursue a desired goal. However, many students and families who take on these loans are unaware of the long-term consequences. 

Rip-Offs 

Student loan debt is second only to mortgage debt in America, as millions borrow to attend school in hopes of a brighter future and an increase in lifetime earning power. But the “borrow your way to a diploma” method continues to get more expensive and is unlikely to change soon. 

“How Government-Guaranteed Student Loans Killed the American Dream for Millions” by Daniel Kowalski reveals that there is absolutely no incentive for colleges and universities to lower their prices. He reports that in 1980, there were 3,231 higher-education institutions in the U.S., but by 2016, there were 4,360. In reference to a Forbes article, he says that the average price of tuition has increased eight times faster than wages since the 1980s.

Another Forbes article states that the tuition at Harvard in 1840 was $75 a year. If that price had risen at the same rate as prices (or the inflation rate), the cost in 2015 would have been $1,703, not $45,278. (2022-23 tuition is $52,659.) “But it is arguable whether today’s college graduate is in a real sense more educated than ones in 1840 when individuals like Samuel F.B. Morse and John Deer were revolutionizing communications and agriculture, and some with far lesser education (think Abraham Lincoln) were making big contributions in law and politics,” the article states.

Today, many college graduates are underemployed, but there is no evidence this was a problem among 19th-century graduates. As federal aid has increased, so have tuition fees. The proportion of recent college graduates (the article is dated 2015) from the bottom quartile of the income distribution is lower today than in 1970—before Pell Grants or massive federal loan programs. In addition, administrators now outnumber faculty. 

Student loans have benefitted colleges and universities, with the burden falling on students, taxpayers, and those hoping to get a degree in the future.  

Many people are discovering that their assumption that a university education was necessary for financial security was false. The opposite has happened. Students often graduate with diplomas and debt, sometimes in the hundreds of thousands of dollars—but without job security.  

Merrill Matthews wrote a compelling article titled “University Endowments Should be the Primary Source of Student Loans.” “At the end of fiscal year 2020, the market value of the endowment funds of colleges and universities was $691 billion . . . If colleges and universities had to turn to their endowments as the first line of student loans, they might decide to get their costs under control,” the article states.

How to Avoid Student Loans

Parents should not borrow money for their children’s higher education. If you want to help cover a university education, start saving early. Demand academic excellence from your schools to prepare your children to qualify for scholarships. I used to tell my boys that getting good grades would be the highest-paying job they could have in high school. Our rule was that nobody would borrow to attend college. Either we would find a way to pay for it via savings and scholarships and jobs while in school, or they would not attend.  

Here are some tips for students who want to get an education without borrowing money:  

• Start saving early, and learn how to budget. 
• Research average salaries for careers that interest you before going to college.
• Consider trade schools.
• Consider careers that do not require a college degree.
• Fill out the FAFSA (Free Application for Federal Student Aid) early.
• Apply for grants and scholarships early.
• Students should work part-time, live at home, and take advantage of community colleges. 
• Accelerate time to complete the college degree by:
  • Taking AP and college courses in high school.
  • Attending summer and winter classes. 
  • Taking more than the average number of hours of classes. 
• Rent or buy used textbooks.
• Become a resident assistant (RA) to get free room and board.
• Pray, and seek wise counsel. 

Dealing with Student Loan Debt

If you have a student loan now, look at refinancing options to reduce your interest rate. Make a plan to apply all extra income toward the reduction of the debt. Attempt to pay it off as soon as possible. Ask the Lord to give you help in accomplishing this goal.

By: The Consumer Financial Protection Bureau (CFPB)

Numerous student loan borrowers recently submitted complaints to the CFPB about companies that promised them student loan forgiveness or loan forbearance in exchange for fees amounting to hundreds or thousands of dollars. Borrowers believed they were talking to their servicer or a company authorized by the U.S. Department of Education (ED) because they often knew private information such as the borrower’s loan balance or recent consolidation activity. This is fraud.

Legitimate options for getting rid of your federal student loans:

• Loan forgiveness is not available for all student loan borrowers at this time, though there are programs to forgive federal student loans for specific borrowers, such as public service employees, and discharge loans in other circumstances. On October 6th, 2021, the ED updated the Public Service Loan Forgiveness (PSLF) program to provide a limited-time opportunity for student loan borrowers to receive credit for payments that would otherwise not qualify for PSLF. This opportunity ends on Oct. 31, 2022.
• Eligible borrowers can now apply for a full or partial discharge of loans up to $20,000. This one-time debt relief is provided by the ED as part of the Biden-Harris Administration student debt relief plan. As of today, the application is open but debt discharge is paused. Due to a court order, the ED is temporarily blocked from processing debt discharges. However, eligible borrowers are still encouraged to apply (no later than Dec. 31, 2023). The ED will continue to review applications and quickly process discharges when they are able to do so.
• Federal student loan servicers cannot charge you to apply for loan forgiveness, income-driven repayment (IDR), deferment, forbearance, or to file any other paperwork. Federal loan servicers do not charge any application or processing fees to consolidate your federal loans into a Direct Consolidation Loan.
• The CARES Act pause on payments and interest for federally held student loans has been extended through Dec. 31, 2022. Forbearance on qualifying loans will happen automatically. No one will contact you to sign up for CARES Act forbearance. There is no fee to enroll in CARES Act forbearance. If your payment will be too high when the pause ends, please reach out to your servicer directly to explore a variety of payment relief options. Your federal loan servicer will not charge you any application or processing fees to help you switch to a different repayment plan such as an IDR plan or enroll in any of the deferment or forbearance options available to you.

In addition to submitting complaints to the CFPB and the Federal Trade Commission (FTC), we encourage consumers to learn how to recognize these scams and how to report scammers to authorities.

Here are some red flags to watch out for:

• Charging upfront fees for free programs

Scammers often attempt to charge for programs that all borrowers can access for free, including preparing the paperwork. Loan forgiveness or discharge (to the extent those programs are available to you), loan consolidation, student loan forbearance, and deferment are all free programs provided by your servicer. If a company is asking you to pay large amounts of money upfront, it is likely a scam and should be reported. Do not give any money or personal information to the company. Contact your loan servicer to determine what options are available to you. You can find out who your servicer is by logging in to your Federal Student Aid account or calling 1-800-433-3243.

• Pressure to decide quickly

Scammers might tell you that you only have 24 hours to take advantage of an offer or program. This is a red flag. Most government-offered programs do not require this sense of urgency. Confirm whether this is a legitimate company before you take any additional steps.

• Encouraging you to cut off communications with your loan servicer

This is a warning sign that this company is not working in your best interest. As a student loan borrower, it’s important for you to maintain communication with your servicer. If someone urges you to make payments to their company instead of your loan servicer or to stop communicating with your loan servicer, do not give them any information. Do not stop making payments to your servicer.

• Claiming to be affiliated with your loan servicer or the ED

Scammers might name-drop organizations you have a loan account with. Be careful of statements like “we work with the Department of Education” or “we’re partnered with your loan servicer.” If someone contacts you and claims to be partnered with your loan servicer, hang up the phone and contact your loan servicer directly to confirm. Call the number provided on your billing statement or through your servicer’s web portal. Do not use the contact information provided in an email or voicemail message.

There might be times when your student loan servicer contacts you about Public Service Loan Forgiveness (PSLF). As part of a recent settlement with the CFPB, Edfinancial, a federal student loan servicer, is required to contact all of its Federal Family Education Loan Program (FFELP) borrowers to inform them of the limited PSLF waiver so that eligible borrowers can take advantage of the waiver before it expires.

• Asking for personal information via email or over the phone

Scammers often ask for personal information like your full Social Security number, bank account number, FSA ID, or studentaid.gov password. Do not give any personal information to an unverified company over the phone. If you suspect the caller may be a scammer, hang up and contact your servicer directly to determine if there are any actions required for your loan. If you have provided your personal information to a scammer, we have listed some tips for avoiding scams below.

Tips for avoiding scams

• The person contacting you might have correct information about you or your loan, but that doesn’t mean they’re legitimate. Some scammers knew the borrower’s loan balance or about their recent application for consolidation. This led borrowers to believe they were talking to their servicer or another legitimate entity.
• Don’t share your personal information. Consumers reported being asked for their Social Security number, bank information, FSA ID, and studentaid.gov login information. This allows them to steal your money and cut you off from your servicer, so they can’t notify you of missed payments.
• Don’t sign a power of attorney. Some consumers have been asked to sign a power of attorney allowing the company to deal with the student loan servicer on their behalf. This allows them to make financial decisions for you. Don’t give this power to someone unless you know them personally and trust them!
• Stay in contact with your servicer. Sign into your student loan servicer’s web portal to periodically check in on your loans. Any notices for your student loans will be available through your servicer’s website.
• Take your time. An honest company will not pressure you to make a decision quickly. If you’re unsure, end the conversation and research the company to confirm whether or not they are legitimate.
• Keep track of your student loans. Student loans can be confusing, and scammers rely on that. If you know the types of loans you have and who your servicer is, it’s harder for scammers to take advantage.

If you’ve been contacted by a scammer or defrauded

• Cancel your payments. If you realize this after the fact, work with your bank to cancel or block your scheduled payment. Your bank should have policies in place to help you avoid future fraudulent activity.
• Contact your servicer. They can help you protect your account. If you signed a power of attorney giving the scammer the right to communicate with your servicer on your behalf, get it revoked.
• Submit a report to the Federal Trade Commission (FTC). In addition to reporting your complaint with FTC, you can contact the Department of Education Office of Inspector General. 
• Contact state officials. Let the Attorney General in your state know. Contact your state student loan ombudsman if you have one.

By: MoneyWise

Student loan debt is a significant issue. Many high school students are receiving their diplomas and heading off to college.

How will they cover the costs? Based on statistics, a significant number will use debt.

Why? It is not purely a function of costs. Sometimes, students believe some lines of thought that result in significant student loan debt.

If you are a student, try to avoid these lines of thought:

1. Attending a costly school will get me a better job. Higher tuition does not always equate to higher salaries. Employers do not look at the amount you paid to get a college degree. They just look at your degree. This is especially true after your first job. After your first job, where you went to school starts to take a back seat to your prior work experience. Find a school that makes financial sense for you.
2. I need the “college experience.” Certainly, there is nothing wrong with enjoying your time in college, especially if it works with your finances. But more and more students are realizing that having the “college experience” is not worth having the college debt. Instead of attending social after social, they are getting jobs to help offset their tuition costs. They are working hard to make sure they are not still paying for their education ten years after graduation.
3. It is ok to stretch out college. Certainly, there is some leniency here, but be very careful when choosing to stretch out your degree program. Two things can happen. First, you tend to end up paying more. This is especially true if you find yourself unable to pay for living expenses. Second, you run a greater risk of not completing your degree. And don’t take throwaway classes. Make your investment worth it. Finish your degree in a timely manner.
4. I don’t need to know what I am signing. You should educate yourself on student loans. Before you sign any papers, understand what you are committing to. Know what it will take to pay off the loan. Also, know how it compares to other alternatives. You will need to understand your loan when you’re paying it off, so you better understand it prior to signing the agreement.
5. Everything will take care of itself. Student loans don’t just go away. They even survive bankruptcy. I’m less concerned with the student who feels burdened by their loans than the one who feels no burden from their debt. Student loans are a debt to be repaid and students need to view them as such.
6. There is no other option. Without question, the cost of higher education presents a formidable challenge for many current and future college students. But this does not mean there are no other options. Change often necessitates additional change. A change in the cost of college may require you to reconsider what going to college looks like. It is very likely that your college experience will not look like your parents’ college experience.