In The Public Interest : Students Need a Strong Financial Watchdog Too

06/19/2010 05:12 am ET Updated May 25, 2011

There's a lot of debate in the media these days about the financial reform legislation, but I haven't heard or read anything that talks about college students.

Recent statistics indicate that there are over 18 million of us. That's six percent of the population, and that six percent represents a key part of our country's future. But many of us emerge from college stifled by debt.

Next year, I'll graduate from Indiana University-Bloomington with tens of thousands of dollars of private loan debt, and a report we released last fall - Subpriming Indiana Students - noted that I won't be alone.

Sixty-two percent of Indiana's college graduates carry student loan debt - an average $23,264 per student. Even if most of this is in the form of safer, federal loans, a significant amount is in private student loans, which are under-regulated and much riskier. Indiana students graduated with an average of $3,556 in private student loans in 2008.

Ever since I was young, I was told how important it was to get a college degree. Now that I've been in college for a few years, I also understand how society benefits from our education. But at some point the benefits of a college degree are undercut by the deep financial risk students take on to get it.

Interest rates on private student loans can be as high as 18 percent, and fees can be pegged at 10 percent of the loan principal. And marketing is aggressive. Consider that two out of three borrowers with private student loans forgo taking out the maximum in federal loans for which they qualify!

Given the shrinking state investment in higher education, uncertain federal grants and less parental assistance, we are prime targets for private student lenders who are marketing supposedly "easy" financing at a time when we feel desperate to fund our dreams.

The 33,000 students in Indiana who attend for-profit colleges are really taken for a ride. Graduates from for-profit colleges carry an average of $32,650 in debt. Many of these colleges make their own private loans to the students, promising students a high-paying job at graduation to handle the repayment. In reality, those loans are a rip-off. Corinthian College actually plans for over 50 percent of its private student loan borrowers to fall into default.

By the time my father started planning for my college career, he was seasoned in the loan process. I am the third child to attend college. But even he was thrown a few curve balls. My early private loans were through Sallie Mae. This year, however, my father and I discovered that the terms had changed significantly since my freshman year. As a result, we stopped borrowing from Sallie Mae and took out this year's loan through my hometown bank. We considered a federal PLUS loan for my parents to help pay the costs, but the requirement to make payments while in college made it an unfeasible option.

Taking out these private loans was initially an easy decision I made together with my dad when I planned on a business degree. But my experience at IU has convinced me to instead dedicate myself to a career in public service.

Will I be able to do that? 

The bottom line is that the level of debt I took on for my degree was my choice, regardless of the consequences. But at the very least, students and families should be assured that the private loan products are fair and transparent. And students should be protected from the predatory lending practices of their own institutions.

And so this is the point. We students need the Wall Street reform legislation the U.S. Senate is now considering, and we especially need the proposed Consumer Finance Protection Agency (CFPA).

Among other watchdog tasks, the CFPA would keep an eye on the loan market for students and set strong rules for fairer private student loan marketing and terms.

In order to really protect students, and all citizens, this new agency needs greater independence in order to protect us. It shouldn't be in the Federal Reserve or any other existing bank regulator, and it should be free from veto authority of these regulators. And of course, it should have full authority over all types of lenders, including those that make private student loans. A strong CFPA can control student debt burden, and help keep student dreams of a better world within reach.

Speaking for all students, I urge our senators to stand strong against the barrage from the lobbyists and their employers - the big banks and corporations - and to vote in the public interest, in students' interest.