Iowa Student Loans

Last week the Project on Student Debt released "Student Debt and the Class of 2007." My home state, Iowa, moved up one to claim the top spot. It was no small coincidence that over the weekend Iowa's Attorney General released his own report documenting the Iowa Student Loan Corporation's misleading advertising and improper practices.

This weekend's report outlined the dubious practices of Iowa Student Loan, including that it:

• paid employees bonuses based on loan volume
• paid colleges based on the number of borrowers
• falsely marketed private loans as the lowest-cost options
• steered students into private loans at the expense of cheaper federal loans with better repayment terms
• compared itself in market share and price offerings to for-profit lenders

Iowa Student Loan published numerous misleading advertisements aimed at increasing loan consolidation. For example, they published a table showing a hypothetical student with $60,000 in loans could cut their monthly payment in half, from $700 to $337. They did not mention the term of the loan would extend to 30 years and increase the student's total interest payments from $24,188 to $74,752.

This is a real problem in a state where students at each of the state's three public four-year postsecondary institutions all face debt loads above the national average. At the University of Iowa (my alma mater), 61% of students graduate with an average debt load of $22,181. The University of Northern Iowa averages about the same debt load but has a higher percentage of students borrowing. At Iowa State University, the state's land-grant college, graduates average $31,501 in debt. Both Iowa and Iowa State have higher graduate debt burdens that any of their peers.

There's no particular reason why Iowa should have this problem. Its economy has not been hit particularly hard. Its universities are not particularly expensive (the sticker price, that is). And its taxpayers are not particularly frugal. Instead, middling government support for higher education and a student loan corporation more worried about its loan volume and competing with the for-profit sector have slowly made Iowa what it is today: the least affordable higher education state in the country.