Wednesday, October 08, 2008

Sallie Mae - the Next Taxpayer Bailout

I teach part time at the University of Phoenix and ITT Technology Institute in the greater Salt Lake City area. I really enjoy the students and the learning process. My students could not be any more different.

The University of Phoenix students are working adults. They are very mature and respectable. They understand and seem to cherish higher learning. The papers I receive -- both individual and learning team papers -- are usually very well written, researched and documented. The student present their ideas well. They interact with me and each other in a professional manner. Many of them pay for their school through an employer tuition reimbursement program, especially the MBA students. However, many obtain student loans.

At ITT, almost every student pays for tuition via federal student loans; something like 80-90 percent of the students. These students are hands-on students. They like working with computers and doing "work" on the computer. They like to build networks, install operating systems, design programs; they do not like to write papers or do presentations.

One thing that I have learned from bankers and the students themselves, repayment is a concern.

ITT students will go in-debt around $80,000 for a BS; half that for an AS. I have had students that told me they took the loans and got reimbursed from work but spent the loaned money -- all of it -- gambling somewhere in Nevada.

The risk associated with loaning to students must be high. I am all for investing in education but there should be a clear method to do a risk assessment on each borrowing student, and make a business decision.

A banker I spoke with one day said the bank is forced to make students loans to people they know will not repay it. Its delinquency rates are extremely high.

I wonder how long it will be before Sallie Mae cannot cover its debt and will ask Washington for a bailout for the risky student loans that have gone bad?

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