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FAP869: College costs, usury, Stafford loan caps

August 26th, 2008

FAP869: College costs, usury, Stafford loan caps

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Student Financial Aid News
+ A number of articles from around the web including this one from the Baltimore Sun ask if college is being priced out of affordability, especially in an economic downturn
+ Yes, it is. Plain and simple, college is getting out of reach, especially with a lack of availability for some private student loans for students and parents with less than perfect credit
+ What should we do about this? Instead of making expensive colleges more affordable, create more affordable colleges. College pricing is an issue of supply and demand. There are two fundamental ways to move prices downwards. Reduce demand or increase supply. If everyone wants corn, and only a few people sell it, they can charge whatever they want. If a few people want corn and everyone sells it, you’d be hard pressed to make a profit.
+ The long term answer is to create more educational opportunities. More community colleges, more public schools, more for-profit institutions with sustainable revenue models, but more education in general. If you can create more of the most affordable kinds of education, it will bring down prices across the board.
+ As boring as it might sound, I would encourage every college student - heck, everyone in general - to read Economics for Dummies to get a clearer understanding of market forces, and why the free market works when you let it. Right now, we’re trying to game the free market by using taxpayer dollars and Wall Street investments to reduce a price without changing supply or demand, which does not work. Any time you have a third party subsidizing the cost of a good, the cost of the good goes up because the producers have no incentive to set pricing according to what the market will bear.

Scholarship Update
+ Cappex $1,000 Fashion Design Scholarship
+ To be eligible for this scholarship, you must have a high school diploma or GED and be currently enrolled in college or plan to enroll within the next 12 months. You also must explain to Cappex why you deserve this scholarship in the “Tell Us More” box at the bottom of the application. Application deadline is November 30, 2008. One award will be granted. Good luck!
+ Details at our free college scholarship search site

Mail Bag
+ Dallas writes in on episode 854: is the amount $5,500 in Stafford loans for 1 or 3 years?
+ 1 year - that’s the first year student Stafford loan cap
+ JJ Writes in on some commentary from February:
+ Where (on the web) can I go to see how the legislators voted?
+ Without forgiveness of student loan debt, have the legislators created a debtors prison for those who cannot repay? (At least, then, there would be an end in sight.)
+ How many college graduates have moved out of this country to avoid loan payments?
+ Who regulates the usury the loan companies charge?
+ You can always check legislative action on the Library of Congress.
+ We don’t know on the third question
+ Usury laws are governed on a state by state basis. Each state sets the legal definition of usury. No student loans of any kind currently fit the definition of usury as set in any of the states
+ Banks are exempted due to legislation from the 1980s. They’re indexed to commercial market rates.
+ If a lender charges above the lawful interest rate, a court will not allow the lender to sue to recover the debt because the interest rate was illegal anyway. In some states (such as New York) such loans are voided ab-initio.

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