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Students Protest Debt While These Companies Rake in Money

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Last week, a group of students gathered at Zuccotti Park dressed in graduation robes and covered in chains to protest heavy college debts. Meanwhile, according to Salon.com, a Hunter College student burned his Sallie Mae loan bill in protest.

While burning a bill may not have quite the symbolic significance of burning a draft card, rumblings of a student debt revolt have been in the air for a little while. In perhaps the most blatant example, the chain wearing Zuccotti students announced the formation of the Occupy Student Debt Campaign. One campaign organizer, quoted by Fast Company, believes that her entire life has been destroyed by student loan debt.

Meanwhile, several prominent US companies are making a ton of money off of student loans. The Salon.com article lists the five biggest student lenders, starting with Sallie Mae, who currently own $151.4 billion in loans. They’re followed by Wells Fargo, Discover, Nelnet, and JP Morgan Chase, all of whom own at least $10 billion dollars worth of debt.  

More damningly, these lenders have been accused of engaging in several predatory practices. For example, its been suggested that Sallie Mae has made subprime loans to students attending for profit schools with high dropout rates. Wells Fargo has recently begun offering fixed rate loans but the percentages go as high as 14% for “those attending community colleges or trade schools, or in other words, for lower-income borrowers.”

And remember, unlike other types of loans, student debt does not go away with bankruptcy.

The recent fervor over student loans comes at a time when a college degree is both more necessary and worth less than ever. A recent NY Times magazine article sums this up nicely, and points out that, while a college degree is no longer a guarantee of a middle class life, not having one goes a long way towards preventing one.

Going further, these issues have raised questions over the possibility of a student debt or education bubble. As CBS News reports, default rates have risen from 7% to 8.8% in the last fiscal year and other issues, like the minimal amount of information about individual borrowers, make these loans risky. However, as the article is quick to point out, heavy government involvement in student lending and the relative smallness of the industry mean we won’t see a housing bubble style implosion any time soon.

That said, increasing protest and rising default rates suggest that something needs to change in the educational lending market.
POSITION:  No positions in stocks mentioned.

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