Shady Sallie

The Department of Education’s Office of Federal Student Aid opened in 1998, a time of “reinventing government,” as President Clinton often reminded the nation.

“The intent of Congress in creating our office was to get politics out of the agency and focus on improving service for students,” says one former FSA insider, who agreed to talk only on condition of anonymity.
But during his tenure, he would see just the opposite— a program that might have saved taxpayers billions was instead buried by the Bush administration.

Bill Clinton campaigned in 1992 to end the federally guaranteed student loan program, in which banks lend the money and profit from government subsidies while insured against default. He proposed a simpler system: The Department of Education would get money from the U.S. Treasury at minimum cost and loan it to students. After meeting stiff resistance from the banking lobby, officials settled for phasing in the Direct Loan initiative alongside the guaranteed loan program, rather than replacing it, in 1993. Lower-income students especially liked the income-based repayment option that comes with Direct Loans, with its provision that the debt can be wiped away after 25 years instead of clinging on forever. By the 1997–98 school year, Direct Loans had grown to 33 percent of all student borrowing, or just over $10.9 billion.

Sallie Mae CEO Albert Lord vowed to win back the schools that had left for the Direct Loan program and to triple the company’s share price by moving into making, as opposed to just buying, loans. Lord also moved to diversify and privatize the company— a process completed in 2004, four years ahead of schedule. Sallie Mae began discounting its loans and stepped up its lobbying efforts.

Along with other student lenders, Sallie Mae sued Richard Riley, then secretary of education, in 2000, for offering discounts on interest rates and fees for Direct Loans in an attempt to keep the program competitive.

The case became moot, though, after the 2000 election. President George Bush appointed William Hansen, the CEO of the Education Finance Council, another plaintiff in the suit, to be the deputy secretary of education. Bush’s election, says the official, was the beginning of a war of attrition in the Office of Federal Student Aid, and by extension, the Direct Loan program. “The people Bush brought in told us we were no longer allowed to give speeches, talk to colleges, publish any brochures or reports, make any hires,” he says. “The annual Direct Loan conference was canceled. Our communications person wasn’t allowed to talk to the press without a [Bush] appointee in the room. You almost had to ask permission to go to the bathroom, and you never, ever got it.”

Gregory Woods, the head of the FSA, died of cancer in 2002, and half of Woods’s staff was dismissed. Woods’s replacement was Theresa Shaw, a former senior vice president and chief information officer for Sallie Mae. At least seven former employees, attorneys, or lobbyists for Sallie Mae have received high-ranking federal appointments to the Department of Education since 2000.

Ten years of government data now show that the guaranteed student loan program costs the government 10 times as much as Direct Loans, including administrative expenses. Yet since 1998, Direct Loans have dropped to just 23 percent of all student loans—a proportion that, in today’s larger student loan market, translates to not quite $14.8 billion.

Besides simply not promoting the Direct Loan program, the Bush-era Department of Education has taken concrete steps to dismantle it. In 2001, FSA officials saw a memo from Peter Fischer, assistant secretary of the treasury, to William Hansen. Hansen had proposed selling off the Direct Loan portfolio to Sallie Mae and other private lenders. Fischer called the idea illegal and compared it to the recent Enron scandal, because private companies stood to profit from the deal while taxpayers assumed the risk. FSA employees were threatened with firing if they made the memo public. In the most recent education legislation, a student’s right to consolidate her bank loans into the direct loan program, in order to take advantage of income-contingent repayment, was taken away. In 2004, Sallie Mae’s market share beat that of the Direct Loan program for the first time.


Back of the Class

The broad swath of devastation cut by Hurricane Katrina will take its toll on college students, and not just on the estimated 75,000 to 100,000 in New Orleans whose colleges are closed for at least the semester. The millions nationwide who receive federal aid stand to lose out in the current scramble to provide disaster relief from a national budget already overdrawn by billions of dollars.

Already, students and colleges in the region are getting the back of the hand when it comes to federal student aid. On Friday, September 16, Secretary of Education Margaret Spellings announced a $2.6 billion education relief proposal, of which just $227 million is going to post-secondary programs. Even that figure is misleading; $100 million of it is federal student aid that’s already been distributed, which the government is graciously allowing students and closed colleges to keep. Most of the rest is being doled out in $1,000-per-head payments to institutions taking on new students. If you’re still looking for direct aid to colleges and universities forced to close by the storm, that’s right, it’s not there. Nor is there any sort of funding to encourage students and faculty to return to the institutions like Tulane University that are a major economic engine for New Orleans.

Needy students nationally stand to suffer too. The Higher Education Act, which includes most federal student aid programs, is still overdue for reauthorization. With Katrina and Supreme Court nominations to deal with, the House easily passed a bill in late September to extend the current law for three months. The House version of the new bill, passed in July and discussed in this column, included a historic $11 billion in cuts, which were originally designated, over student protests, for deficit reduction. On September 13, the Senate Committee on Health, Education, Labor, and Pensions came out with a proposal student advocates like even less. Preliminary estimates show that this new version of the bill would save even more than the $11 billion, but rather than use this extra cash for two new grant programs for low-income students, which had previously been part of the Senate plan, it would redirect the money to hurricane relief, spread across hospitals, schools, and pensions.

Inside Higher Ed (, an industry publication, described college representatives as “livid” and “apoplectic” about the proposal. “The Senate is asking struggling students across the country to be the rainy-day fund for the federal government,” fumed the State PIRG’s Higher Education Project in a press release.

Colleges and universities in the Gulf region learned about this new proposal when they met with Senate aides to discuss their apparently doomed “wish list,” which included $10,000 grants to displaced students. As of a 2000 law, nonprofits, including private colleges, are not eligible for Federal Emergency Management Agency funds or low-interest loans. On September 25, The New York Times highlighted the plight of Xavier and Dillard universities, both nationally known, historically black colleges in New Orleans, both with small endowments and major damage from the storm. Xavier is requesting between $70 million and $90 million in the next year just to be able to reopen, let alone retain its faculty.

It’s true that the organizations and individuals now lining up for federal Katrina relief resemble a nestful of baby birds, hungry mouths agape. But neglecting the higher education sector as badly as current federal-aid proposals do appears shortsighted for a long-term effort at rebuilding. Right now, one of the few bright spots on the horizon for New Orleans is Tulane’s firm plan to reopen in January. The university is the city’s single biggest private employer, and unlike the big hotels and casinos, the bulk of jobs it provides are middle-class. Louisiana’s technical and community colleges are important for the region’s economic recovery too. Even as the fate of their own campuses hangs in the balance, they have already begun a free job-training program, offered on-site at hurricane shelters across the state, that will provide sped-up apprenticeships and certification in carpentry, plumbing, hazardous-waste removal, and other trades expected to be in demand as rebuilding progresses.

Meanwhile, the college students who stand to take the hardest blows from Katrina are—no surprise—the poorest in the area. Schools like Yale and Princeton have accepted students from Tulane and other area schools for the semester, often free of charge, with free room and board and other perks. Yet as of mid September, out of 21,000 Louisiana community college students whose education was cut short by the storm, only 635 had re-enrolled within the system. Delgado Community College in New Orleans expects no more than half its 17,000 students will return in the spring. That figure stands to be as devastating as any storm.


Broke and Loving It

The scene is the dotcom bust—San Francisco, 2001. Camper English, Dean LaTourrette, and Kristine Enea have recently exited the tech industry. Forced to dial it back, each of these young former professionals finds a new outlet for creativity. The result: a few new books, English’s Party Like a Rock Star Even When You’re Poor as Dirt and LaTourrette and Enea’s Time Off! guides to unemployment, that show the brighter side of being broke.

English, self-described “club trash,” became a nightlife reporter post-layoff. After he published a couple of articles on thrifty living, a small gay publisher contacted him about writing a guide to, well, the title really says it all. “I spent about six months buying my scammy friends drinks so they would share all their secrets” to drinking, dancing, and styling for free or cheap, English says.

We’re talking, naturally, over a $4 beer in the vast backyard of Zeitgeist, a legendary San Francisco biker bar. “I spent pretty much the whole advance that way.” The result is a funny book that blends down-to-earth, detailed advice (sign up on lots of e-mail lists to get free invites and giveaways, wear a crappy jacket and stash it in the corner instead of paying for the club coat check) with outrageous schemes and mean tricks (get a club soda, then bump into someone so it spills and force him to buy you another, you know, vodka tonic.) “The more illegal the things are, the less likely that I’ve actually done them,” explains the cheerful English, whose wraparound sunglasses and vintage-photo tee testify that he’s still living the life.

Although the book is pure fun, English, who holds down a part-time administrative job at a hospital for the health insurance, acknowledges a somewhat serious purpose for himself and legions of struggling friends. “I was an unemployed dotcommer, and I was going crazy trying to sit in the house and save money,” he says. “If you don’t go out and have some fun, you’re going to get really depressed.”

Dean LaTourrette and Kristine Enea have also run with the notion that unemployment shouldn’t condemn you to sit at home feeling sorry for yourself. In fact, says Enea, that can even be counterproductive for your job hunt. “Career counselors say you can’t spend all your time in front of the computer sending out résumés and reading rejection letters. Spend 20 to 30 hours a week on that and the rest of the time doing things you like and networking.” Their two books, Time Off! The Upside to Downtime, out this June, and last year’s Time Off! The Unemployed Guide to San Francisco, are packed with suggestions like these for making the best of enforced free time.

Like so many other good ideas, this one started in a bar. Enea had recently quit her tech job, and her old classmate LaTourrette’s company was going under. “We were meeting one afternoon in the Black Horse, the smallest bar in San Francisco,” Enea says, when the notion of an “unemployed” guide to San Francisco surfaced. “It was sort of tongue-in-cheek since so many people were laid off and were going to pink-slip parties and things like that. But we realized pretty quickly that we had stumbled across something a lot more serious. People wanted a more leisurely lifestyle and to be pursuing a job that was a little closer to the heart.” The two friends ended up writing a pair of guides that not only give suggestions for how to enjoy leisure time without a lot of money—for example, by volunteering, “rediscovering your hometown and spending time with friends and family—but support making the “leisure lifestyle” permanent by finding a job you love so much it doesn’t feel like work, as well as where you don’t have to spend 80 hours a week to make ends meet. In this, they align themselves with all sorts of movements and organizations promoting a better work-life balance, from Slow Food to flex time to voluntary simplicity.

Both Enea and her partner, as well as English, are themselves putting that philosophy into practice. Enea and LaTourrette self-published their books and formed their own media production company to throw “leisure-promotion” events—essentially, fun parties. English is following a similar route, promoting his book online through a website and blog; he’s gotten reviews and mentions as far afield as The Philadelphia Weekly and The Guardian
(U.K.). “There’s an irony in having to go through an economic downturn to discover what you really want to do,” says Enea. “I’ve talked to a lot of people who have downshifted and are much happier.”


Johnny Comes Marching Home to Loans

Maybe figuring that it is mostly worried moms keeping their kids home, the army, after its fourth straight month of recruitment shortfalls, has begun broadcasting a new series of TV ads. They feature young people telling their folks about the education benefits—up to $70,000 for college or $65,000 to repay student loans—and the chance to serve a worthy cause.

Kathy Allwein of Lebanon, Pennsylvania, found herself having that exact conversation with her younger son in 2002. Tony Allwein, now 24, graduated from Catholic school in 1999 and attended the Pennsylvania College of Technology, a public technical affiliate of Penn State, for three years, where he studied computer programming. He was putting himself through with student loans, and Kathy Allwein says the debt was a big factor in his decision to drop out and, soon after, join the army.

“I knew that getting my loans paid off would be a huge benefit for myself and my parents,” Tony Allwein, now stationed in Germany, said by e-mail. “Four years of service to erase a $19,000 debt seemed pretty good. The fact that I could finish my education in the army sounded really good.”

Now members of the anti-war group Military Families Speak Out, Kathy and her husband weren’t exactly thrilled. “We fought him every step of the way,” Kathy says. “Tony just told me I worried too much, that he wouldn’t have to go to Iraq.” The Allweins knew better, but at least, they thought, his education debt would be taken care of.

“That recruiter sat in our living room and promised the whole family that these loans would be taken care of in full,” Kathy says, her voice steely. “In his contract it was stated that they would take care of them.” In Iraq, Tony served as a rear gunner on a convoy, for a month or two lacking much needed body armor. His active duty ends in November 2006 and he is eligible to be called back for four years after that. And just last month, his family found out that his loans would not be repaid by the U.S. government. Not one cent.

“We kept getting hounded by these people,” Kathy says of the student loan collectors. “They kept calling and asking why these weren’t being paid. His recruiter told us it always takes a while, so just be patient and they’ll be taken care of. I went through my congressman and they sent me a packet of information that I did not understand. I have a friend who’s an attorney and she explained the whole thing to me.”

The fine print states that since Anthony’s loans came from from a private lender, not the government’s guaranteed federal student loan program, they weren’t covered. Private or alternative student loans make up one of the fastest-growing sectors of the student loan market, with an estimated volume of $10.5 billion in the 2003-04 school year (compared to a total of $81.5 billion in federal student loans). Marketed by most banks and all the big student loan companies, including Sallie Mae, private loans are the only choice for the growing number of students whose financial need goes beyond federally subsidized loan limits. But they feature higher interest rates and often fewer repayment options. Kathy said her family, which almost certainly would have been eligible for federal loans, was not aware of the difference when Tony went to school.

Tony’s recruiter said he wasn’t allowed to talk to the press. A military source did confirm the details of Allwein’s story, though, including that Anthony’s contract stated the loans would be repaid.

The Allweins are not the only family complaining that recruiters are getting desperate or sometimes misleading. With the war getting less popular every day, there have been reports of recruiters falsifying documents or passing recruits answers on the qualifying exam. The New York Times reported in May that recruiters are feeling pressure to bend the rules, even accepting one young man straight out of a psych ward. There has been talk of accepting older and less-educated people and overlooking a record of minor crimes.

For now, Kathy, an administrative assistant, and her husband, who works for the Hershey Company, will have to make those loan payments themselves. It will not be easy with their youngest soon heading to college. In a word, Kathy says, she feels “betrayed.”

Tony Allwein echoes his mother’s sentiments. “I really feel that I, as well as my parents, got screwed pretty badly. The reason I joined the army was to get rid of my loans. It was bad enough I was sent to fight a war I had no idea why I was fighting. Then I came back to Germany to find out my loans wouldn’t be paid, like my contract said.”


High Interest in Low Interest

If you have federal student loans, the date July 1 should be in flashing red lights. That’s the deadline to consolidate loans at the lowest interest rate ever. Instead of making multiple payments to different lenders at variable interest rates, you’d have one monthly payment at a rate that, crucially, will stick in the same low place throughout the life of the loan. Recent grads, still in their six-month grace period, can lock in a rate as low as 2.77 percent, and borrowers already paying can go as low as 3.375 percent.

“My dad’s applying for consolidation now,” says Ryman Sneed, 22, a North Carolina native who graduated from Marymount Manhattan College with a BFA in drama last month and is auditioning while waitressing full-time at Bowlmor Lanes. “I’ll start making payments in August. To be honest, I don’t really know what all goes into that. I just know I have to pay off the loans and factor it into my expenses.”

Going through consolidation may seem like a bit of extra red tape in an already complicated process, but in this case it’s worth it. According to lending company Nelnet, a grad like Sneed, who owes $20,000, could save about $4,300 over a 20-year repayment period by locking in the current rate. On July 1, the rates, set annually by the results of a 91-day Treasury bill auction, will be hopping to 4.7 percent for new grads and 5.3 percent for others. That’s the biggest single rate hike in the 40-year history of student loans.

Consolidation only becomes a bad value, says Kate Rube of the State PIRGs’ Higher Education Project, when borrowers take advantage of the opportunity to procrastinate. “You don’t need to stretch out your payments just because you’re consolidating, and students shouldn’t let lenders tell them differently. You should pay on a monthly basis as much as you can manage.” In other words, don’t forego 10 high-payment years for three decades of obligation and compounding interest.

There’s evidence that grads like Sneed are rushing through the consolidation window. Local-news outlets from St. Louis to Syracuse have run stories on the change. Alumni e-mail lists are abuzz. Consolidation lenders are bombarding students with solicitations. College financial aid offices are doing their part too, sending out e-mails and hosting information sessions.

Still, as Sneed suggests, it’s not always easy to get overwhelmed grads to pay attentions. “A month ago, we physically mailed out 800 invitations to students who had loans to let them know it’s in your best interest to consolidate now,” says Chloe Haygood, a cheerful financial-aid representative at Tulane University in New Orleans. “All of our preferred lenders came out. We had a turnout of 50 or 60 people. It was finals week, so we’ll attribute it to that!”

For those a few years out of school, consolidation can be even more daunting. Tamala Dunn earned her B.A. from Rutgers in 1998. Over the years, she received a series of deferments and forbearances because of low income. By the time she finally started making payments this January, the initial $16,000 had ballooned, with interest and fees, to around $27,000. “I came across an article that indicated this was the final month to get low interest rates,” said Dunn, now a mother of four. “I’m still trying to figure out the consolidation process and who I should choose for my lender.”

Haygood reminds anyone considering consolidation to start by going to, a government database where you can check the current status and originators of all your student loans. If you hold loans from more than one lender, you have the right to shop around, and it’s worth it: Some plans come with a .25 percentage point reduction on the existing interest rates, others allow consolidators to keep their six-month grace period—which is ordinarily waived upon consolidation—and some will discount the interest or the principal after a certain number of on-time payments.

Borrowers should also consider getting a consolidation loan directly from the federal government by going to The feds offer a variety of repayment plans, including an income-contingent plan. The State PIRGs offer their own website,

The Department of Education has announced that current students, for the first time, will be allowed to consolidate, if they’re willing to start paying back their loans as soon as they graduate. The only catch is that if you’ve already consolidated once, you won’t be able to do it again unless you go back to school and get another loan.

Consolidation is such a great deal for students, in fact, that the big lenders would like to make it go away. “They don’t like it because it encourages so much competition,” says Rube of the State PIRGs. She cites lender-backed bills now in Congress to eliminate fixed-rate consolidation, which the Higher Education Project is opposing.

For now, though, the lenders still have to beg for your business. “I’ve never seen it this competitive,” says Haygood, a 2002 graduate of the University of New Orleans, who has her own student loans from her first year of graduate school and is herself planning to consolidate. “I’ve received e-mails from two different lenders, saying ‘We have your application all ready to go, just sign here!’ ”


I Was a Really Young Real Estate Mogul

At 22, Cindy Umanzor is already tired of New York City rents. She came from San Francisco four years ago to attend the New School, where she graduated this May. Although her rent in the Bronx and Brooklyn has been relatively skinny, ranging from $550 to the current low of $375, she says, “I’m planning to buy an apartment because I don’t like paying rent and it’s a waste of money. I want to be paying toward something that’s mine.”

Young people like Umanzor are jumping into this white-hot housing market with both feet. Between 1995 and 2004, according to the U.S. Census, the percentage of people under age 25 who owned homes leaped 59 percent, while the percentage among those 25 to 29 rose 17 percent. Meanwhile, the overall percentage of home buyers grew just 6 percent. Of course, twentysomethings are still far less likely to own than the general population. In 2004, the national home ownership rate was at an all-time high of 69 percent; for those 25 to 29, it was 40 percent. And New York City is a renter’s city: Two-thirds of its residences are rentals.

Still, with interest rates dropping and prices soaring, more young people are saying now’s the time to own. That was Al Golzari’s thinking. The 30-year-old corporate product manager saved up for a year and a half to make a $19,000 down payment last December on a $140,000 condo in Hackensack, New Jersey. He rents it out, making him a landlord and investor. “I just happen to like real estate, it’s a tangible thing. With stocks you’re just buying stuff on paper.” Now Golzari is looking for a second property to live in; he’s trying to stay under $300,000 in the Village, which will probably mean a studio.

At 31, Nick Sklavounakis is already a mini-mogul. The Queens native, the son of immigrants who once owned a Greek diner, was a computer prodigy; he started earning money for programming at the age of 13. He saved up for 15 years to make a $140,000 down payment two and a half years ago on a three-story building in Williamsburg. He has four tenants and is almost ready to rent the first floor as commercial space after $75,000 in renovations—which he also saved up for rather than borrowed. “I don’t spend money on anything. I don’t drink, I don’t drive a car, I don’t buy clothes—sometimes I look homeless,” he says.

Sklavounakis, Golzari, and Umanzor prove that the security of home owning isn’t just for heirs. Umanzor’s currently interning at MTV and looking for an entry-level job in marketing or promotions. Her mother, a registered nurse, will help her out with the down payment and quite possibly the mortgage until she gets on her feet. She’s looking for something under $200,000, probably “far out in Brooklyn or Queens.” Golzari has quite a debt portfolio. “I’ve got student loan payments for my undergrad and MBA, car payments, and credit card debt.” He bought the condo without help from family by paring down his lifestyle.

Sklavounakis has a 10-year plan for financial independence; for now, he works a full-time tech job nights and acts as super by day. It’s been a steep learning curve. “I’ve had to deal with just about every city agency. I’ve had to evict a nonpaying tenant, [handle] a tenant death, change the use of the building, get a new water main, new electric lines.”

These young people earn gold stars for saving and buying within their means. Yet “there’s plenty of dangers for young people and for low-income people” in this market, says Elaine Toribio, senior policy analyst for the nonprofit Citizens Housing and Planning Council. In the past few years, traditional 10 percent down payments have given way to deals with 5 percent, 3 percent, or even zero down. Some buyers are even turning to “interest-only loans,” in which you don’t begin to pay off the principal for five to seven years. Get into a deal like that and you’re basically renting from the bank.

Meanwhile, with interest rates so low, lending guidelines have been relaxed. Traditionally, buyers could qualify for mortgages if they devoted 28 percent of their income to a monthly payment. Now buyers can spend up to 40 percent, a proportion that qualifies under federal guidelines as a “high” burden for housing. And values can’t keep rising forever, meaning investors could get stuck with a bad deal.

Toribio says that while buying early can be a great way for young people to build wealth and put down roots, it’s important to keep a reserve on hand for maintenance and emergencies and to estimate future income realistically. In other words, owning is as safe a move as you play it.


Poor Students, Fast Learners

Roxy (Roxanna Henry) and Ginger (Mayzabeth Lopez) have more in common than nicknames that make them sound like cast members in Chicago. Both are young women of color in their twenties, with composed demeanors and glasses. Both have been studying at Hunter College. Both are, or have been, on welfare. And both work for the Welfare Rights Initiative, a nearly unique player in the acrimonious debate over welfare reform.

WRI encompasses a special course at Hunter called Community Leadership and a remarkably effective education and advocacy operation staffed by current and former welfare recipients who are also college students and very often single moms. Their mission is self-determination and self-reliance through higher education.

A 27-year-old mother of an eight-year-old son, Lopez has just graduated from Hunter with a B.A. and plans to go on to law school. “As a child growing up in poverty, the only thing I could think of was getting out by going to school. Then to be told by a caseworker that I had to drop out and work was stressful and heartbreaking.” When Clinton’s welfare reform was passed in 1996, workfare requirements went up and exemptions for education ended in most states. In 1995, the CUNY system alone had almost 27,000 students on welfare; this year, there are about 5,000.

Coincidentally, 1995 was the year Community Leadership, funded by a grant from the Child Welfare Fund, enrolled its first students. Maureen Lane, the current director of WRI and a formerly homeless welfare recipient herself, was among them.

Lane, whose girls call her Mo, cites a study revealing that 88 percent of women on welfare who manage to earn a B.A. end up self-supporting, with a living-wage job. “Access to education, making people able to get a degree that connects them to a job that has benefits, is, like, enlightened social policy,” she says in mock wonderment.

More often, New York City’s poorest students are finding it impossible to juggle the competing claims on their time from work, school, workfare, and child care. In order to retain a Pell Grant for federal student aid, a student must be enrolled at least 12 hours a semester and remain in good standing by showing up and doing the homework. But needing the medical and housing benefits that come with public assistance, and unable to cope with the red tape required to stay in school, students are dropping out in droves to complete their required 35 hours a week of the Work Experience Program (WEP). They’re mostly assigned to dead-end tasks like mopping the subway or picking up trash in parks. “I’m not going to do WEP—unh-unh,” as one mother who wanted to stay in school put it.

Back in 2000, the women of WRI partnered with local and state legislators, including Republican state senator Ray Meier, to draft a law that should be helping more than it is. The measure allows New York welfare recipients enrolled in approved two-year and four-year colleges and other training programs to fulfill their workfare requirements through work study and internships.

As the stack of sample letters and forms Henry and Lopez pass out at monthly trainings shows, earning that right in writing is only the beginning. Uninformed caseworkers typically call students in for meetings, accuse them of violating the rules, and attempt to assign them to WEP. Often students must file for “fair hearings” before a judge in order to win their right to stay enrolled. The meetings themselves can take up most of a day, playing havoc with class schedules, not to mention burdening students with paperwork that can fill several binders.

Roxanna Henry, who’s in her fourth year of school and is on public assistance as her mother’s dependent, says, “I recently was able to speak with the deputy commissioner of HRA [Human Resources Administration],” which runs welfare in New York City. “He asked me what the problem was with the implementation of the law. It just is a matter of being able to retrain the workers. A lot of students are going to school or want to go to school and told they can’t.” Through the monthly “Know Your Rights” trainings at Hunter, and by accompanying people to their fair hearings and acting as advocates, WRI has helped nearly 2,000 public-assistance recipients stay in school. The program has not lost a single case at a fair hearing.

Now, WRI is turning its attention to a new generation. Eighteen- to 21-year-olds, still on their parents’ welfare budgets as dependents, are also being told they need to do WEP rather than enroll in college. WRI is starting to visit high schools to give these young people the same message that all Americans would ideally hear: Higher education is available to you, and it’s your best chance at a better future.


Stress Test

Rebecca Pronsky felt the first doubts about her tutoring job when her students started throwing up. “I was seeing this kid for 10 days straight. He was home from boarding school on what was supposed to be his spring break. His parents wanted him to take the last old SAT before they changed it. His hair was falling out while I was tutoring him, I think from stress. Two times he had to leave the room to throw up. I was like, ‘Are you OK? Do you need to stop?’ His mom says, ‘We really need to get his verbal up to 780 [20 points shy of a perfect score] or he’ll never get into Yale.’ ”

Pity the kid, and know he’s not alone. On New York City’s Upper East Side and in its affluent suburbs, parents facing ever sharper competition for the “right” schools are hiring more supplemental tutors each year, in pursuit of higher grades and the perfect score. Yet a palpable irony lurks behind the practice tests and the No. 2 pencils. A seemingly endless supply of Ivy League graduates, like Rebecca, a 24-year-old alumna of Brown, can’t find any better job than the freelance, part-time, no-benefits gig of tutoring the next crop of hopefuls to take their place.

Supplemental tutoring and test prep are booming in the U.S.: They’re expected to become a $960 million business this year, compared to $702 million just two years ago. A new, more complex SAT introduced this spring has caused a spike in families investing in both private tutors and test prep courses like those run by Princeton Review and Kaplan, the market leaders. In New York City, however, the tutoring business has been exploding for several years.

“New York schools are getting so aggressively competitive,” says Benjamin Soskis, a 28-year-old Yale graduate and Columbia Ph.D. student who tutors part-time. “I’ve seen it change over six years. It’s like an arms race. Most of the families where I tutored, I was not the only tutor. There are usually three or four in different subjects. It must run thousands of dollars, on top of a private-school education.”

The tutors don’t see most of that money; the companies that hire, train, and book them take a big cut. The rate for private SAT, ACT, and subject tutors in New York varies widely, from the $40 an hour Pronsky earns to nearly $400 an hour for individualized boutique tutoring with top-shelf private companies like Inspirica and Advantage tutors. Making those rates can require advanced degrees and classroom experience. At the other end of the food chain, one Kaplan SAT prep teacher, who works with large groups under tightly controlled conditions, reports earnings of just $15 an hour.

Most twentysomethings who tutor see it as a convenient means of making money while pursuing a true passion on the side. “I was having real trouble finding any kind of paying job,” says Seth (not his real name), a 24-year-old Yale grad. “Kaplan has been my steadiest employer—they always need somebody. I can pick up $40 or $50 on the weekends proctoring a practice test.” That leaves plenty of time for his band, which performs at small venues two or three nights a month.

Pronsky, a singer-songwriter, figures she “probably breaks even” on her music, when the cost of marketing, promotion, and touring is factored in. Before she started tutoring, she was on unemployment for six months. “Forty bucks an hour sounded really good when I started,” she says. “But you have to go there and back, do the prep, the weekly progress report, and appease the crazy parents. The mothers have my cell phone number; they call at all hours.” She says she makes between $200 and $400 a week, which is not enough to be a “psychotherapist making house calls.”

For the tutors, helping the teenagers through the first big transition of their lives is often a pleasure; it’s the parents who can be hard to deal with. Itamar Moses, 29, another Yale graduate, earned $80 to $90 an hour with a private company while his playwriting career was getting off the ground. “I really liked all the kids, and then you had the occasional excessive parental anxiety. They’re extremely on edge about their students’ progress, they know it’s such a big deal, and they feel powerless.”

Before they start tearing their hair out—or making their kids’ hair fall out—the parents might ask why it’s so crucial to get their kids into those brand-name schools. A gold-plated degree may be a status marker, but in this day and age, it’s far from ensuring economic security or a great career. Just ask your average SAT tutor.


Russell Simmons, Tax Man

Hip-hop culture is the 800-pound gorilla of youth marketing. About the only thing that isn’t yet sold with a veneer of phatness is help filing your taxes. Wait, stop—rewind. This tax season, the 4-15 frantic can seek solace from Russell Simmons, founder of Def Jam Records and now UniRush Financial Services, who has partnered with TurboTax to get 18- to 24-year-olds to file their taxes online and, not incidentally, buy one of his latest products: the prepaid debit Rush Card.

The concept is simple, at least in the convoluted way of today’s multibillion-dollar financial services industry. About one-quarter of 18- to 24-year-olds don’t have a bank account. Low-income people of all ages are the most likely to be “unbanked.” This keeps them on the margins, unable to build the credit history that is crucial for making big purchases. Similarly, 16.5 million people each year have such low income that they don’t bother to file their taxes, losing out on billions of dollars in unclaimed refunds and the Earned Income Tax Credit. The average 18- to 24-year-old who files gets a refund of $900.

Now a tie-in between Intuit, the maker of TurboTax, the leading preparation software, and UniRush, the marketer of the Rush Card, is aiming squarely at this previously untapped market.

At the Rock Your Refund site, you can sign up for a new Rush Card for a discounted $9.95 activation fee. You’ll get a prepaid Visa card that looks and works like a regular credit card, but offers neither credit nor a checking account. You can add funds to it at a bank ATM or through direct deposit of your paycheck. Then you can use TurboTax to file online for $5.95 federal and $9.95 state, pay with the Rush Card, and have your refund directly loaded onto the card. Just give the IRS the router number for your account—the same one you give your employer for your wages—and it’s all set.

Simmons’s Rush debit card is one of many new financial products that have cropped up in the past decade as so-called “fringe banking”—credit for people without much cash—gets bigger. As Craig Marshall, the COO of Simmons’s Rush Communications, describes it, the company noticed a while back that online orders were coming in for its Phat Farm and Baby Phat hip-hop clothes from people who didn’t have credit cards or even debit cards. They decided to offer their customers a prepaid Visa card, which is available branded with the pink Baby Phat kitty. Today the Rush Card has 500,000 users, with an average age of 26 and average income of $26K a year.

Luis, a 19-year-old Hispanic cook and club promoter from Los Angeles, is a typical prepaid Visa user. Although he has a Bank of America debit card, he says he rarely uses it. Instead, he keeps $300 to $600 on his Visa. It is “safe and convenient,” he says, with no drawbacks that he can see—the fees don’t seem that high. Luis also probably won’t be filing any taxes this year—“I’m not quite sure how to do it,” he says sheepishly.

Marshall makes the Rush Card sound like a veritable community service for the unbanked. He says their customers would otherwise be using high-fee check-cashing places or payday lenders that can charge 500 percent interest. “They may get paid on a Friday, put the cash in their pocket, and it’s gone,” he says. “This allows them to save.” What he won’t say is that as the New York Public Interest Research Group found in a 2003 study, prepaid Visa cards are on average just as expensive as check-cashing places—with something like $322 in annual fees, versus $323 for the check-cashers. Rush Cards are a good bit cheaper than that, but still average $180 a year. A basic, low-fee, no-minimum checking account, which New York banks are required by law to offer but do not market much, costs just $36 a year, if you can avoid overdraft fees.

Marshall bristles at the idea that the Rush Card might be a bad value or that there’s any contradiction between marketing, say, a $700 Motorola Baby Phat phone and a prepaid bank card in nearly the same breath. “Products like these are aspirational,” he says. “We trust our customers’ ability to make choices.” But not to keep a pocketful of cash over the weekend?

Targeting low-income and first-time filers for their tax refunds has an especially unsavory history. A class-action case against H&R Block, set for trial in Chicago this year, could have the company paying back millions to people it offered “refund anticipation loans.” By some calculations, H&R Block collected up to a 2,000 percent annualized interest rate on some of those refunds.

TurboTax, to its credit, appears to be offering young people like Luis a real service at a more than fair price. Maybe Simmons and company should consider replacing their pricey plastic with a low-cost basic checking account. Now, that’s off the hook.


Greed Aid

The Student Aid Reward Act (STAR Act) introduced in both houses of Congress March 15 provides an unusually clear test of our national priorities. Do lawmakers really want to increase aid to needy students? Or would they prefer to keep lining the pockets of the banking lobby?

At issue is the Direct Loan Program, one of two federal vehicles for student loans. As the name suggests, direct student loans are made straight out of the U.S. Treasury. Private companies bid for the contracts to handle the loans, without special fees or subsidies. By contrast, in the Federal Family Education Loan program (FFEL), banks and marketers like Sallie Mae receive subsidies from the government as incentives to make student loans, which are also guaranteed by the treasury against default.

President Bill Clinton, who introduced the direct loans in 1993, described their creation as taking “on powerful vested interests in behalf of the national interest . . . remov[ing] a government-guaranteed income from several interests who like the system as it is now.” Clinton hoped to eliminate bank loans entirely, but the Consumer Bankers Association, MBNA, and other groups fought hard and won, and the programs have coexisted ever since.

Well, over 10 years later, the numbers are in. According to President Bush’s latest education budget, loans made through FFEL in 2004 cost the federal government $12.09 on every $100. Direct loans cost just 84 cents. The STAR Act, sponsored by Democrat George Miller and Republican Tom Petri in the House and Democrat Ted Kennedy in the Senate, proposes making some of the savings available to colleges who choose direct loans, with the stipulation that the schools pass it on in the form of Pell Grants to lower-income students.

For many students from families making less than $40,000 a year, those higher grants could determine whether they get to college at all.

As it stands, banks are profiting from FFEL and then using those profits for marketing and incentives to keep schools in the fold. Only about 1,200 colleges now use direct loans, making up about 30 percent of total loan volume. According to the Congressional Budget Office, even a modest expansion in the Direct Loan Program could save up to $12 billion in the next 10 years. Many colleges would save enough to increase their Pell Grants by as much as a thousand bucks each.

FFEL is worth a lot to the nation’s powerful financial-services lobby, and those bankers won’t give it up without a fight. Since 1994, student loan volume has nearly quadrupled to $85 billion annually, and it’s still growing. Student lenders are some of the most profitable companies in the country. They pad their bottom line by trading loan portfolios and marketing private or “alternative” loans at higher interest rates. For Sallie Mae, which dominates the student loan market, profits ballooned from $384 million in 2001 to $1.3 billion last year. And every dollar it lends is still underwritten by the federal government.

That doesn’t seem quite right to Craig Munier. He is the director of the Office of Scholarships and Financial Aid at the University of Nebraska-Lincoln and a member of the National Direct Student Loan Coalition. “I’ve been in financial aid for 25 years,” he says. “As student borrowing has increased in this country, there are never any economies of scale. The federal government was paying lenders the same rates on their capital at 1980 volumes and 2000 volumes. When I buy a box of paper clips I expect to pay one price; if I’m buying a truckload of paper clips I expect a different price. When I would ask, why can’t we reduce incentives and increase grants to students, the lending companies would scream back, ‘You can’t dare touch our profits, cause we’ll stop participating.’ ”

Predictably, the student loan lobby has come back with its own study from PricewaterhouseCoopers, saying the savings for direct loans are not all that high. “We think it’s pretty close to a wash, but we don’t have the exact figures,” says Shelly Repp, general counsel for the National Council of Higher Education Loan Programs, an industry group. The study was sponsored in part by the Consumer Bankers Association, the same folks who brought you last month’s screw-the-middle-class bankruptcy bill.

“The people that are fighting this and arguing that direct lending does not save money are without exception profiting from the status quo,” says Munier. His group, on the other hand, is composed of financial-aid officers from over 100 schools who come to Washington on weekends, often at their own expense, to promote a program they believe in.

“I am not paid to do this. I do it out of my love and belief that this is a good program for students,” Munier says. “It’s a very simple issue for me. We have very little money because of the large deficits in our country. Are we gonna use the little money we have to subsidize the banking industry, or low-income students? I know how I would vote.”