Not sure what to make of this write-up in the Portland Tribune on the student loan problems. The story oversimplifies, in that it talks about how the mortgage crisis has “infected” the student loan sector. Strictly speaking, I don’t think that’s true.

The student loan industry and some parts of the private education for profit industry created there own problems. It doesn’t take much digging to find a series of nested problems, including outrageous tuition Example: As the article points out, tuition of $45,000 at Western Culinary Institute. As comments following the article note, this qualifies you for a job paying $10-$12 per hour. It doesn’t take much math skill to see that that’s a real problem. Underneath are a number of questionable transactions. For example, how is it that a private lender would ever loan a student $45,000, when the student has no collateral and will graduate and qualify for the low paying jobs? Doesn’t make sense, does it?

David Sugerman

Happened sooner than I expected, but today Sallie Mae’s CEO predicted an impending train wreck. Sallie Mae lost $104 million in the first quarter, reportedly due to drying up funds. My guess is that this is going to wreak major havoc on the trade-school-for-profit industry. And while I’m no industry analyst or smart guy, I can’t help but wonder if there’s going to be a double whammy. Maybe Sallie Mae sold all the paper after it wrote a bunch of high interest student loans, but some entity is holding the bag. Students graduating $50,000-100,000 in high-interest debt are coming into a dismal economy. And worse, many have attended notorious culinary programs that qualify them for low-paying kitchen jobs. So what happens when student borrowers start to defer or even default on their loans? So the private trade-school-for-profit industry seems to have made out pretty well in this deal. They got their money. Maybe I’m missing something, but it seems like the students and lenders are left in a tough position. David Sugerman