Editorial

Costly lessons haunt students after college

Money: what a tricky little word. We hate it, but we want more of it. Most students are being robbed of it without realizing it.

One way to save a little money is by consolidating multiple loans taken out for higher education. Ideally, making one single monthly payment would lower the overall interest rate. However, just last year, loan companies and alumni associations were coming up with agreements that certain lenders would promise a payment for access to the names of graduates. The lender would theoretically pay the association more if more graduates used its consolidation loans.

While students continued to put trust into their financial aid departments to provide them with the best economic plan possible for this expensive time of life, many schools were allowing kickbacks for "preferred lender" status. Students thought they were getting the best deal, when in reality someone else was getting a payoff.

When New York State Attorney General Andrew Cuomo began working on a nationwide investigation of the $85-billion-a-year student loan industry, students began to learn that the heart of this investigation is the unethical relationship between lenders and college financial aid offices and their "preferred lenders" lists. People were shocked that over 400 colleges and universities across America were receiving kickbacks from student loan companies.

At the end of July, Cuomo reached agreements with more than 10 major student loan companies that they would not make special deals with universities. Fredonia is among the 29 four-year SUNY campuses that have agreed in this settlement to adopt Cuomo’s code of conduct. The code states that: colleges are unable to receive anything of value from a lender institution, including trips; preferred lender lists must be based on the best interests of the students, and the criteria and process used to choose preferred lenders must be fully disclosed.

Even though Cuomo's work has made a dent in this unethical, and now, illegal scandal, there are still lenders and colleges using legal methods to direct students in a particular financial direction, which may not be in their best interests.

Credit card companies are exacerbating these unethical schemes. Where it may be unclear to some students how to take out a student loan, many do not have a problem locating a credit card company. Credit card solicitation on college and university campuses is common. Where some campuses restrict solicitation (just recently including Fredonia), numerous schools form multi-million dollar partnerships with credit issuers who will encourage students to apply for credit.

It is indisputable that college years are a time to build a good credit history for life after college. They provide people protection for purchases, allow students to shop online for cheaper school materials and provide a pillow for emergencies. Not only does a good line of credit help people purchase smaller material items, but it also makes people desirable candidates for larger loans for houses and cars. Moreover, many employers often review credit reports when hiring and/or evaluating employees.

Using credit will benefit responsible users, but since most 18-year-olds are eligible for a card without parental consent or employment, their financial inexperience puts them at high risk for bad credit. Late or missed payments stay in a person’s credit history for seven years.

In a survey that was released September 2000, Nellie Mae, an originator of federal and private education loans and a leader in debt education and financial management for students, inspected credit card ownership among undergraduate and graduate students who were applying for credit-based loans with their company. They found that 95 percent of graduate students have at least one card. Undergraduates carried an average balance of $2,748 while graduates carried $4,776. Conducting another study in 2007, they found that the average balance for graduate students had shot up to $8,216 and 78 percent of undergraduates had at least one card. Today, 32 percent of students have four or more cards.

Even though institutions for higher education are beginning to turn down incentives from student lenders and credit card companies, there are still legal scams that pry on financially naive students.

If students are going to abstain from being legally robbed by corporations that are looking to make a quick buck, they need to become economically educated. This should start with parents educating their children prior to college about how to be responsible and aware when taking out loans and using credit. Conversely, accountability cannot be solely placed on parents because college students are considered adults whether they are ready to be or not.

Higher education does not just include what professors teach about and test on; it includes learning about real-life responsibilities outside of the classroom. There are honest people looking to help students in financial turmoil, but there are also a lot of people who are not.

By becoming equipped with economic knowledge, looking at and outside of "preferred lender" lists and only charging necessities to their credit cards, students can avoid living a life haunted by uneducated financial decisions.