STUDENT DEBT Life Sentence of Poverty – UPDATES
a message from a truth soldier
A student that enters into the prison of debt.
Will spend most of their lives, up to 35 years for many.
Just paying off a student loan for an education that should of been free.
and for an education that gets out dated so quickly, that just a few years later that certificate from the college or University is worthless.
If you do not land a very good paying job immediately upon graduation, you never will.
No one will hire you with an out dated piece of paper.
They will just go out and hire an other student who is just graduating.
Students will also be burdened with huge taxes, fees and a really high cost of living for the rest of their lives.
Add to that, the fact that, they the students will never be permitted to take out another loan for a car, a home, or even to start up a small bussiness.
Students will be trapped in a prison of financial enslavement.
Most students will never get a job that will give them enough income to live at a reasonable standard and still pay their loans.
The credit system and the corporate system has destroyed the middle class.
The corporate governments and the corporations have taken all the money out of society.
For a while people went to the credit system to try and save their standard of living.
But today people and society is so poor that no one has any real money.
Everyone is living on credit.
Will, you need to understand that the corporate credit system is a criminal pyramid scheem that is doomed to collapse.
The only good thing then will be that the students will no longer be in debt because all of society will have gone bankrupt because of the financial criminals that run the corporate banks.
I have always said in many of my previous articles of truth,
That if society is not guided into the future by truth, that society is doomed.
Will, now you see what happens when everynoe tries to live by credit and get money they never worked for.
So also please understand that the root problem of society is that everytime the banskters create money out of thin air and then lend it out.
They are dropping the value of the money in your pocket that you worked really hard for.
So in reality..
The credit system and corporatism are and have completely fucked up this world.
That has happened because you the sheeple always refused to live by truth.
You previous generations were to busy enjoying the good life with money you never earned.
Your good life came at the cost of your childrens future.
As we see today.
Below you can read the horror of the situation that all the young people face for the future.
[TheTruthSoldiersClub] STUDENT DEBT
FACTS ABOUT STUDENT DEBT
How Students are Painting Montreal Red
On Wednesday night in Montreal, we shared a long dinner with student organizers, discussing everything from police tactics in Montreal and New York to the necessity of an anti-racist and anti-colonial framework for our movements. Our hosts noticed that, around the time that the nightly 8:30 p.m. march was supposed to begin, we were getting nervous about missing it. They laughed and said, “Don’t worry, it will go on until 2 a.m.” Or at least they normally do.
By midnight, after peacefully and joyfully marching through the city for hours, the police charged our march of about 4,000 people with batons and pepper spray. In a moment the scene became one of chaos and confusion. Many in the crowd turned around and ran, but there were police behind us, too, coming straight at us with their batons out as people were pepper sprayed and thrown to the ground. Eventually, we found our way out of the melée and asked our Canadian comrade what had happened to provoke the police. “Nothing,” she answered. “They just got tired of us.”
We had been lucky. Moments after the police charged us, they surrounded a group of 506 protesters and arrested everyone in what became the largest single mass arrest since the indefinite student strike began here in Quebec 103 days ago.
The student movement in Quebec is growing. On Tuesday, an estimated 300,000 to 400,000 students, workers and supporters took to the streets to protest tuition hikes and the passing of the new, draconian anti-protest law — Law 78 — as well as to celebrate the 100th day of the student strike. But state repression is also growing. Last night’s mass arrest and other forms of police violence bear witness to the new climate of fear and repression that the Charest government is trying to create in order to break the student movement.
The passing of Law 78 is a direct attack on the freedom of assembly and the right to protest. It not only bans unpermitted marches or any unpermitted gathering of more than 50 people, but the vaguely worded “special law” also threatens to levy enormous fines against organizers, unions, and potentially anyone who participates in an unpermitted assembly. The law comes in response to the growing popularity of the student movement and can be read as symptom of the government’s inability to control the movement; it is a sign that in some ways the students are winning. In fact, since its passage last Friday, the nightly marches have only gotten larger as more people see the struggle expanding from the single issue of university tuition to a broader one that includes the right to protest and the suppression of dissent.
The media in the United States have hardly noticed the Quebec student strike, despite it being the longest and largest in the history of North America. Those of us who have been following the movement have been amazed by the sheer numbers that these mass demonstrations have mobilized, with hundreds of thousands taking to the streets on major days of action. What is less known, but equally important, is that every single night for the past month there have been marches of several thousand protesters. These high-energy marches snake their way across the eastern side of the island for hours, through residential and commercial neighborhoods. People in bars, restaurants and apartment windows shout back, wave flags, chant with the protesters and cheer them on, even banging their pots and pans, in reference to the Latin American tradition of cacerolazo protests. The breadth of politicization and the everyday forms of solidarity in Montreal is formidable to witness.
“This didn’t happen overnight”
The prevalence of the red squares that symbolize the student strike is stunning: pinned in the hair of a girl on the metro, worn as earrings by another, attached to a baby carriage, or duct-taped on backpacks, shoes, bike helmets and cell phones. But most of all the small, red felt squares are safety-pinned to people’s jackets or shirts, a visible expression of the crushing student-loan debt that Canadian students face — on average, $27,000, according to the Canadian Federation of Students. They’re derived from to the expression “carrément dans la rouge,” literally translated as “squarely in the red.” They are everyday reminders of the increased burden of debt that will come with increased tuition. So many people are wearing the red squares, some claim that the dollar stores where the red felt is bought are running out of it.
When we express disbelief that one of the biggest universities in Canada, the Universitité du Montréal, has been forced to cancel classes and end its semester early because of the strike, and when we are amazed at the prevalence of red squares, people simply say, “Yes, but we have been working for two years to get here.” And it is true. The tuition hikes have been on the table since 2010, when the tuition freeze ended. In March 2011, Quebec announced its plan to raise tuition by $325 a year over 5 years. In response to this, protesters occupied the finance minister’s office.
When we ask how, over that time, so many students have been mobilized and politicized, the answer is both simple and complex. As student organizer Myriam Zaidi said, “We’ve been standing on corners handing out leaflets and having conversations with people about this for years. Just opening up that space of conversation has been hugely important. This didn’t happen overnight.” These basic forms of disseminating information about the tuition hikes and fostering debate about these issues have been pivotal in mobilizing massive on-the-ground support behind their call for a strike.
But the more complicated answer to our question lies in the organizing structure and history of student unions at universities in Quebec. Organized at a variety of levels — from that of the whole Quebec Province all the way down to individual departments — these unions provide a way for students to organize politically, granting them both legitimacy and power. Longer-term mobilizing strategies include campaigns to build strike votes at general membership meetings, carefully navigated negotiations with governments and university administrations, and coalition-building between the various unions. These have been pivotal in securing a unified front during the current strike. This current round of protests are also only the most recent expressions of a much longer history of radical student unionism in Quebec, which dates back to the 1960s.
All in all this has meant that when, on February 14, the student unions at the University du Montréal called for a strike, they already had a very strong base level of support. From there, picket lines were organized in front of classrooms, and efforts to shut down the university required constant organizing and action. As one student organizer told us, “In those first few weeks, it was very tedious. We knew the class schedule, and we would stand outside the classrooms with signs … Many students would know this was going on and just stay home … One conservative history professor charged the picket line once.”
The university didn’t take these actions lightly. Our friend went on to describe how, in March, fed up with the picket lines and the strike, the university hired a notorious strikebreaking security firm. Armed guards patrolled its hallways, interrogating people about why they weren’t in class, stopping professors, and students alike to bully and harass them. This, however, only lasted a few days until widespread outrage from faculty of all political leanings forced the administration to withdraw the guards. Unbroken, the strike continued to the present, and now the provincial government has called for an early end to the semester in yet another attempt to break it.
There are varying levels of support at different universities and in different parts of Quebec. At the English-speaking, elite McGill University, support has not been as widespread, and an attempted student strike there has not been successful (despite having had an occupation of the administrative offices there in the winter). In some ways, this is emblematic of historic divisions between the French-speaking and English-speaking communities in Montreal and Quebec, and of the way that these divisions also fray along class lines. Occasionally this has meant that the protests have a nationalistic flavor to them, with people carrying the Quebec flag and chanting things like: “A qui le Québec? A nous le Québec!” (Whose Quebec? Our Quebec!)
These nationalist undertones have been increasingly contested by student organizers of color who have been actively working to articulate an anti-racist and anti-colonial analysis within the movement, while also combating the false view that the movement is dominated by white students. These efforts are increasingly successful, as shown by the creation of the students-of-color and anti-racist coalitions that had a presence at Tuesday’s march. (Listen to an interview with one of the organizers here, starting at 23:00.)
During these marches, or while banging pots on street corners with our Montreal comrades, the question often on our minds is how we as students in New York City can stand in solidarity with them. The first answer, of course, is to build our own movement and to build it in explicit connection with the one happening here in Montreal. We too are facing tuition hikes at public schools, from New York to California. We too are met with repression and violence when we express dissent. And, fundamentally, the core issues at stake here are the same ones that students and workers around the world are facing right now: the implementation of austerity measures, the increasing privatization of education and (to use Prime Minister Charest’s unapologetically Thatcherism language) a “cultural revolution” in the way we think of education. What was once a common good is being purposefully transformed into an elite commodity available to only those who can afford it.
Last night, as we marched in Montreal, it was with the knowledge that hundreds of our Occupy Wall Street comrades in New York were marching in solidarity for the third time. (Here is video of the first.) Occupy Wall Street itself grew out of solidarity with the Tunisian and Egyptian and Spanish and Greek uprisings, after people began asking themselves, “How do we do that here?” Our generation of students in the United States has yet to mobilize on a mass scale, but after watching what’s happening up here in Quebec, perhaps that will change.
“Manissa McCleave Maharawal is a writer, activist and a doctoral student in the anthropology department at the CUNY Graduate Center. She has been involved with and written extensively about the Occupy movement since it started.”
HOW BIG A RISK TO THE ECONOMY FROM STUDENT DEBT?
Student debt represents a financial challenge for America, some economists say, but in a way that’s different from the big buildup in mortgage debt that led to a deep recession.
By Mark Trumbull, Staff writer
Surging student-loan debt has become a burden on the US economy – andPresident Obama is warning of a “tremendous blow” that could occur for millions of students in the form of an interest-rate hike in July.
So how big is this issue? Does student debt represent a brewing crisis?
Student loans pose a significant financial challenge for America, some economists say, but in a way that’s different from the big buildup in mortgage debt that ended in a housing bust and deep recession.
RECOMMENDED: 5 ways Obama wants to ease student debt
“It’s not a bubble that will burst,” says Chris Christopher, an economist at IHS Global Insight in Lexington, Mass. “People still need to go to college…. The [financial] returns of education are still very vast.”
Yet the debts resulting from college are a high and rising burden that now totals more than $1 trillion, by one official estimate. For a graduate, the burden can be like paying a second rent check each month. And the job market is still in poor shape, meaning that many grads face the loan payments while unemployed or underemployed.
The result is additional weakness in the economy. “People are delaying marriage,” postponing having children, and taking a pass on home purchases, Mr. Christopher says. “They’re living with their parents. They’re not spending as much as they otherwise would have.”
The problem is big enough that it’s putting pressure on the US government – the nation’s major provider of college loans and financial aid – to provide some sort of relief.
In an appearance at the University of North Carolina in Chapel Hill on Tuesday, Mr. Obama proposed that one major step should be to keep interest rates on federal college loans from jumping on July 1, when a government-orchestrated discount is set to expire.
More than 7.4 million students would see their interest rate on federally subsidized loans double if Congress fails to act, the White House says, with the rate climbing from 3.4 percent to 6.8 percent.
“Stopping this from happening should be a no-brainer,” Obama said. “The Stafford loans we’re talking about, they’re named after a Republican senator…. This shouldn’t be a partisan issue.”
Although the problem is large, the $1 trillion in student loans is only about one-tenth the scale of America’s home mortgage debts. And fewer than 10 percent of recent graduates are defaulting on their federal loans, finance experts say. That means this isn’t the kind of issue that’s likely to cause a new recession or cause a fiscal crisis for the federal government.
But the economic impacts – such as delaying marriage – are already felt, and they could persist for some years.
Alongside the interest-rate issue, where proponents of an extension see an urgent deadline, the buildup of student debt is prompting other calls for action:
• Rep. Hansen Clarke (D) of Michigan is proposing a Student Loan Forgiveness Act of 2012. It wouldn’t wipe away all student debt, but would forgive loan balances remaining for Americans who have made payments equal to 10 percent of their discretionary income for 10 years (the typical payback period for student debts).
• Some lawmakers hope to change bankruptcy law so that privately issued student loans could be discharged in bankruptcy, like other consumer debts such as credit-card or auto loans.
• Obama argues that, alongside federal programs to expand access to higher education, the government needs to send a signal to colleges that generous federal aid is not an excuse to keep raising tuition faster than the overall inflation rate. If colleges can’t control their costs, Obama told students in North Carolina, “then funding you get [from taxpayers] will go down.”
• Others are promoting better information, so it’s easier for students and parents to evaluate the costs and expected benefits of a postsecondary degree. Obama touted one step that has recently been made with this goal, a “know before you owe” initiative being launched by the new Consumer Financial Protection Bureau. The CFPB is also developing a “college cost comparison worksheet.”
The backdrop for Obama’s Tuesday speech in North Carolina was clearly political. Although not framed as a campaign speech, he cast himself as a populist defender of ordinary Americans, standing up against Republican skeptics of federal student-aid programs.
“This generation is not getting off to the same start as previous generations,” the president said. “There are fewer grants. You get a lot more debt. Can I get an amen?”
He got more than a few amens and cheers from the crowd, as he told them how he and his wife worked for years to pay off their own student loans (finishing that task only eight years ago).
North Carolina is seen by political analysts as an important swing state, potentially winnable by either party in November. Obama, seeking to galvanize the youth vote, was scheduled to address the same topic Tuesday evening inColorado, another state that’s up for grabs.
But the issue is about much more than politics, financial experts say.
The nation’s future prosperity depends on having growing cohorts of highly trained workers, on helping young people better match their talents and goals with likely fields of employer demand, and on managing the costs of education efficiently.
A sign of the times: growing discussion of whether getting college degrees is worth it, when tuitions are so high and the job market is so weak.
He says people are absolutely right to worry about how they’re going to pay the debts before they borrow.
Mr. Kantrowitz, like other education experts, says that a college typically offers rewards that more than offset the costs. But it may make sense to chase your dreams from an in-state public college, if the alternatives would mean much higher debt, he says.
The debt issue is a top-of-mind concern for students like Stephanie Simone, a freshman at Northeastern University in Boston. With plans to major in business administration, she’s hopeful of pursuing a career that will allow her to manage the debt burden. But since she’s tapping both federal and private loans, “it’s something to think about,” she says.
Referring to the more expensive private loan, she says, “I’d like to pay it off as quickly as possible.”
Nearly two-thirds of college students rely partly on some form of financial aid, whether that be grants and scholarships or loans. And for a grad who borrows, the typical balance as he or she leaves school is about $25,000, Obama said.
Most borrowers can make ends meet after they graduate, Kantrowitz says, especially if their starting salary is higher than their outstanding debt.
One challenge currently is that the economy often works against students in two ways: After school, it’s harder to get a good job. And while in school, it’s easier to rack up debt because parents may also be struggling, perhaps with college savings that were depleted during the recession.
That doesn’t mean that high-priced colleges are necessarily out of reach. In a recent report, the Project on Student Debt pointed to four colleges that pair high tuition with “no-loan” or “reduced-loan” aid policies for low- and middle-income students. The result at these colleges (Pomona, Princeton, Williams, and Yale) is students graduating with average debt below $10,000.
Similarly, Bloomberg Businessweek recently found a wide range of outcomeswhen it teamed up with the Seattle firm PayScale to rate colleges on their financial payoff. The rankings compared the typical cost of degrees with the expected earnings of graduates over 30 years.
Some Ivy League schools did well on bang for the buck, because of their generous financial aid. Meanwhile, “return on investment” tended to be highest in fields like engineering and science.
As Obama’s personal story bears out, college loans isn’t a new story in the lives of young Americans. But with the scale of debt rising, some economists predict that Congress will intervene to restructure the system at some point so that fewer Americans feel that government-provided loans are a permanent millstone.
“Maybe the government has to take a haircut in some way,” says Christopher at IHS Global Insight. “The pressure is building.”
HAS COLLEGE DEBT KILLED ENTREPENEURISM?
Has College Student Debt…
Killed The Entrepreneur In You?
College student debt has many faces. Meet one of them. Meet Mr. Sutter. He is a very recent college grad who I met recently over a professional social network.
He’s young. He’s bright. He has what he calls an “absolutely awesome” job as an analyst doing marketing at a reputable firm. His degree is in sociology.
I wanted to know whether this type of debt was a burden keeping recent graduates from starting their own businesses. Consider that the average college student debt amounts to nearly $25,000.
That, along with other subsidies, scholarships and personal savings that some of these students depend upon for no less than 4 years to complete their studies are most definitely more than sufficient funds to buy a running, profitable business – a business that could eventually pay for some sort of academic certification in cash, if so desired.
Instead it all has gone for college.
My question fundamentally was “Did college pay off if what you got in the end was only a sheepskin and neither a job nor a business of your own, given also that today 1 in 10 graduates 25 years and younger are unemployed with poor prospects of employment, plus half of those who are employed are working at jobs that don’t require a degree?”
This is a pretty sad situation, right?
Willing To Share Your Story?
Click here to tell us what college has
done for your entrepreneurial spirit.
Well, Mr. Sutter agreed. Remember, he’s no dummy. He’s the sociology major in the batch of graduates employed at a job that did require a degree.
But check out what he said about himself and his generation regarding life and work and college student debt. It is highly revealing.
Would I Be Worth More Without This College Student Debt?
Read the following and ask yourself “What’s the true measure of a man’s value?”
Dear Mr. Muñoz, I appreciate your cross-cultural analysis.
Currently I’ve been with an undocumented girlfriend. She is fortunate enough to have a tip-based job which allows her a certain amount of financial freedom.
I recall the days working in a restaurant, alongside recent Latin American Immigrants, who were not educated in their own language, let alone English. I remember the multiple ‘hustles’ of their lives, selling or ‘flipping’ used cars, jewelry, etc.
However, I recall distinctly a dishwasher who came to the states illegally and with a debt of $5,000 owed to his brother. He managed to work off that debt in a year, and eventually land his own room and car at $9.50 an hour.
These people are incredibly resourceful and persistent.
As a recent college grad with a decent job, I still feel the paralyzing grip of my freedom. I am not following my heart. I want to travel. But I have to pay off a small loan. I want to move away and do a conservation internship. But I don’t want to move back a year later broke and with no job prospects.
I am going through a legitimate crisis. This phenomenon is pretty selective to the twentysomething graduates, who struggle to find their calling in a world of unlimited opportunities.
We see our peers who have done so much. They’ve traveled, lived abroad, worked in fulfilling positions, and we begin to question our entire life path.
For us, as compared to recent immigrants, our fight is not for survival, but for individual fulfillment.
After reading his message to me I asked myself, college student debt aside, how can someone so privileged be so honestly unsatisfied with life?
He expresses such a clear longing for emulating peer behavior all the way into his mid-twenties to gain purpose in life, while also admiring the tenacity of those less privileged than himself, yet failing to see that life is a struggle and that he is fairing far better than most?
I would like you to ponder this please and share your own experience with the visitors of this site knowing the following, that I do agree with Mr. Sutter about his assessment of his generation. I do believe that this angst is commonplace among people in their twenties and thirties today.
But the enterprising spirit is a purposive spirit. It seeks to fulfill its destiny. So what did college do for that spirit in this young man? Where has the sense of wonder gone from age 5 to age 25 in his generation, such that what remains is chiefly a desire just to see the world and work for free?
Where are the dreams being put into practice for making a difference where you’re at; for being of significance to the neighbors that you’re surrounded with where you live? Where’s the initiative to start in community for the goal line and never relent, rather than look upon life as if it were a tour down some Caribbean beach front?
College Student Debt Is Owed In More Ways Than Financial
As you prepare to share your views below, please also consider my reply to young Sutter. It is characteristic of my worldview and what drives me to accomplish those objectives that make my life of significance every day. Here’s what I told him.
Thank you for a very candid message. I truly appreciate it. You said that as a recent college grad with a decent job, you still feel the paralyzing grip of your freedom, and that you’re not following your heart. Good. You actually demonstrate a greater sensitivity to the facts of life than your peers.
Consider that there is no such thing as total freedom. Since free is only he who does what is good, as doing what is wrong makes you a slave to wrong doing, then freedom has limitations. We are only free to do what is right, thus only in doing what is right are you truly free. There is ample room to do what is right. So freedom is a vast space for the right doer. But it is not without boundaries.
If you follow your heart and your heart wishes for frivolities, you will be a slave to the trivial. You will waste your life, because concentrating your strengths on the trivial is not good.
It’s interesting that you describe your condition as being paralyzing. Paralysis is evidence of conflict. You want to leave, but you don’t want to be forced to come back. You want to experience what you cannot afford, but you must pay now for what you already experienced having used college student debt.
You’re in your 20s and you see this pattern happening across your entire age group. You call it struggling to find a calling in a world of unlimited opportunities.
The first thing to ask yourself is “Who is calling?” If you’re not following your heart, because you don’t have all the answers within you, yet you have a distinct sense that there is a purpose to your life, which necessitates intelligence to apprehend, then what intelligence is calling you to that purpose?
The source of all anxiety in life is our search in us for answers that do not exist within us. We are not made to fret. We’re made to trust. Who do you trust?
Unless you begin meeting your purpose in life day by day, you’ll never find fulfillment.
Write back if you want some tips.
He did write back. Now is your turn to write. So you have college student debt. So did I. What do you think as graduates we also owe to our neighbors and not just to a bank?
STUDENT LOAN DEBT THREATENS RECOVERY
(AP) Recovery threatened by runaway student loan debt
By TOM RAUM
The federal student loan program seemed like a great idea back in 1965: Borrow to go to college now, pay it back later when you have a job.
But many borrowers these days are close to flunking out, tripped up by painful real-life lessons in math and economics.
Surging above $1 trillion, U.S. student loan debt has surpassed credit card and auto-loan debt. This debt explosion jeopardizes the fragile recovery, increases the burden on taxpayers and possibly sets the stage for a new economic crisis.
With a still-wobbly jobs market, these loans are increasingly hard to pay off. Unable to find work, many students have returned to school, further driving up their indebtedness.
Average student loan debt recently topped $25,000, up 25 percent in 10 years. And the mushrooming debt has direct implications for taxpayers, since 8 in 10 of these loans are government-issued or guaranteed.
President Barack Obama has offered a raft of proposals aimed at fine-tuning the system and making repayments easier. Yet the predicament of debt-burdened former students has failed to generate much notice in the GOP presidential campaign. Instead, the candidates are dismissive of government student loan programs in general and Obama’s proposals in particular.
Rick Santorum went so far as to label Obama “a snob” for urging all Americans to try to obtain some form of post-high-school education _ even though some polls show over 90 percent of parents expect their children to go to college.
Front-runner Mitt Romney denounces what he calls a “government takeover” of the program. Newt Gingrich calls student loans a “Ponzi scheme” under which students spend the borrowed money now but will “have to pay off the national debt” later in life as taxpayers. And Ron Paul wants to abolish the program entirely.
Lifting student debt higher and higher is the escalating cost of attending schools, with tuition increasing far faster than the rate of inflation. And enrollment has been rising for years, a trend that accelerated through the recent recession, fueling even more borrowing.
Mark Zandi, chief economist at Moody’s Analytics, argues that government loans and subsidies are not particularly cost-effective for taxpayers because “universities and colleges just raise their tuition. It doesn’t improve affordability and it doesn’t make it easier to go to college.”
“Of course, it’s very hard on the kids who have gone through this, because they’re on the hook,” Zandi added. “And they’re not going to be able to get off the hook.”
It’s not just young adults who are saddled.
“Parents and the federal government shoulder a substantial part of the postsecondary education bill,” said a new report by the Federal Reserve Bank of New York. And some of the borrowers are baby boomers, near or at retirement age. The Fed research found that Americans 60 and older still owe about $36 billion in student loans.
Overall, nearly 3 in 10 of all student loans have past-due balances of 30 days or more, the report said.
Complicating the picture further: Like child support and income taxes, student loans usually can’t be discharged or reduced in bankruptcy proceedings, as can most other delinquent debt. This restriction was extended in 2005 to also include student loans made by banks and other private financial institutions.
“This could very well be the next debt bomb for the U.S. economy,” said William Brewer, president of the National Association of Consumer Bankruptcy Attorneys.
“As bankruptcy lawyers, we’re the first to see the cracks in the foundation,” Brewer said. “We were warning of mortgage problems in 2006 and 2007. The industry was saying we’ve got it under control. Nobody had it under control. Now we’re seeing the same signs of distress. We’re seeing huge defaults on student loans and people driven into financial difficulties because of them.”
A report by his group noted that missing just one student loan payment puts a borrower in delinquent status. After nine months, the borrower is in default. Once a default occurs, the full amount of the loan is due immediately. For those with federal student loans, the government has vast collection powers, including the ability to garnishee a borrower’s wages and to seize tax refunds and Social Security and other federal benefit payments.
Nigel Gault, chief U.S. economist at IHS Global Insight, said the student loan crisis may not torpedo the financial sector as the mortgage meltdown nearly did in 2008, but it could slam taxpayers and the still-ailing housing market.
“When student loans don’t get repaid, debts are going to be transferred from the borrower to the taxpayer,” further raising federal deficits, he said. And overburdened student-loan borrowers may fail to qualify for mortgages and “stay much longer in their parents’ homes,” Gault said. Young adults forming households have historically been the bulk of first-time home buyers _ and their scarcity could dampen any housing recovery.
“When kids do graduate, the most daunting challenge can be the cost of college,” Obama said in his State of the Union address, asking Congress to extend a temporary cut _ due to expire in July _ in federal student-loan rates. The reduced federal rate is now 3.4 percent. It the cuts aren’t extended, it will rise to 6.8 percent.
Still, Obama said: “We can’t just keep subsidizing skyrocketing tuition. We’ll run out of money.”
Obama also asked Congress to extend the current tuition tax credit, double work-study jobs over five years and let borrowers consolidate multiple student loans at reduced interest rates.
But in this intensely partisan year, any congressional action seems dubious.
“I wish I could tell you that there’s a place to find really cheap money or free money and pay for everyone’s education, but that’s just not going to happen,” Romney says. “Now the government is taking over the student loan business. I think you’ll get less competition.”
The government has not taken over the student loan business. The private loan industry is still writing student loans, usually at interest rates far above the government ones.
What the Republicans are zeroing in on is a section in Obama’s health care overhaul that eliminated big banks as middlemen in managing federal school-loan programs. Also, the new federal Consumer Financial Protection Bureau is clamping down on the lightly regulated private student loan industry.
Santorum, who now says calling Obama a “snob” for promoting higher education was “probably not the smartest” choice of words, has been seeking to rally blue-collar support by emphasizing that many jobs do not require college degrees _ and suggesting many colleges are liberal bastions.
Follow Tom Raum at http://www.twitter.com/tomraum
US FACES STUDENT DEBT CRISIS
rnCertainly there is a dire need to increase job opportunities so that college students are able to pay off their debts, but this is more of a round-about solution rather than a direct one. There is more to this crisis and there are more issues related to it that the candidates need to address.
rnAccording to recent figures the student loan debt has become greater than the credit-card debt had been in 2010 and is rapidly approaching the one trillion dollars mark. On average an undergraduate students comes out of college with a debt of twenty-five thousand dollar in their name.
rnAccording to surveys, approximately 76% of college going youngsters believe that colleges have become harder to afford in the last 5 years. That is because tuition fees have risen so much that it is unaffordable for most families. Hence, the students have to take out a loan if they really want to attend college.
rnCutting the student aid is not the solution, they actually need more aid and colleges should be made more affordable, so that higher education is in the reach of the public, which is a more direct solution to this problem, rather than only the creation of more jobs.
rnOther experts theorize that the reduction of federal funded educational loan programs would mean that the students will be forced to choose other lower-cost alternative. The availability of the federal loans may be the reason why colleges have raised their tuition fees so much. Therefore, after reduction of federal education loans the students would have lesser student debt in the long term and the colleges will have to reduce their fees in order to attract more students.
rnCuts in the budgets for community colleges means that students have to resort to private for-profit colleges for degrees and trainings that were previously available through the lower-cost alternative: community colleges. The needy are the most vulnerable after repeated frustrations of not being able to enroll in their desired courses semester after semester in community colleges. To complete their education and to further their career they enroll themselves in private colleges by taking out student debt. Another fact is that the middle aged students are the ones that have pushed up the student debt the most.
rnThere are numerous reasons due to which students are forced to seek loans for their education purposes. The creation of jobs in short is not addressing those reasons, though it will be helping in the process of repayment of those loans.
rnWith an increasing number of students taking loans and no jobs to help them in the repayment, their loan interests are piling up making the size of their loans larger and larger every month. Along with the creation of jobs the candidates need to focus on the issue of increasing the budgets for community colleges so that affordable education can become a choice.
rnPicture Source: economyincrisis
STUDENT DEBT AND SENIOR CITIZENS
MONDAY, APRIL 02, 2012
by CalculatedRisk on 4/02/2012 07:18:00 PM
From the WaPo: Senior citizens continue to bear burden of student loans
New research from the Federal Reserve Bank of New York shows that Americans 60 and older still owe about $36 billion in student loans … More than 10 percent of those loans are delinquent. As a result, consumer advocates say, it is not uncommon for Social Security checks to be garnished or for debt collectors to harass borrowers in their 80s over student loans that are decades old.
The NY Fed research has some data and graph on student debt: Grading Student Loans
The outstanding student loan balance now stands at about $870 billion,1 surpassing the total credit card balance ($693 billion) and the total auto loan balance ($730 billion). With college enrollments increasing and the costs of attendance rising, this balance is expected to continue its upward trend.
This chart from the NY Fed shows the student debt outstanding by age. From the NY Fed:
Among people under thirty years old, 40.1 percent have outstanding student loan debt. Among people between the ages of thirty and thirty-nine, 25.1 percent have outstanding student loan debt. In contrast, only 7.4 percent of people who are at least forty years old have outstanding student loan debt. As a result, $580 billion of the total $870 billion in student loan debt is owed by people younger than forty.
There is much more in the research paper.
THE COLLEGE DEBT MACHINE A NATIONAL DISGRACE
With so much consumer and mortgage debt having been accumulated in the U.S. over the past 10-20 years, it was inevitable that those who have become addicted to credit would create a separate feel-good category that they like to call “good debt.” Student loans are often touted as being “good debt.” In this regard, Mr. ToughMoneyLove believes that our colleges and universities have not received enough of the blame for promoting student loans as “good debt’ and for making students and parents alike feel all warm and fuzzy about going off to college riding on a staggering pile of student loans.
The facts are that our colleges and universities are uniquely and perversely playing dual roles in the entire student loan debt fiasco. They themselves are addicted to student loan credit because they need it to prime the enormous tuition pump and get students in the door. Second, they also play the role of credit drug dealer, with massive and energetic student financial aid offices instructing students and parents in all of the different ways they can and should borrow money to attend. Usually, this “aid” is not aid at all, but combinations of federal and private student loans. Sometimes the college will sweeten the deal with a tuition discount, similar to a “rebate” offered by a new car dealer. Anything to keep the customer on the car lot or the student on campus.The actual data on college tuition and student borrowing paints a clear picture of the disgraceful role played by colleges and universities in the student loan industry. I have reproduced three charts published by the National Center for Public Policy and Higher Education. The first chart tracks the increase in tuition and fees since 1982 at our colleges as compared to other components of our economy. (You can click the images to enlarge.)
As you can see, tuition and fees have shown a relentless increase over time at a rate that is four times greater than increases in the consumer price index and three times faster than increases in family incomes. Colleges have been called to the carpet on this many times. I have yet to hear or read any plausible explanation or justification for why this should happen and why it should be allowed to happen. Colleges expect us just to accept this as the way it is. I don’t.
The next chart (labeled Figure 6) shows the number of college students using Federal Stafford loans. The increase is from 4.1 million borrowers in 1997-1998 to 6.1 million borrowers in 2006-2007, a 50% increase in just ten years.
Finally, the chart labeled Fig. 7 shows that total student borrowing in dollars as grown from $41 billion in 1997-1998 to $85 billion in 2007-2008, a 100% increase!
To summarize, colleges and universities have inflated their budgets at a pace that makes our federal government appear almost conservative in comparison. They have fed their massive budget increases by loading up more and more of our young adults with similarly dramatic increases in debt that has to repaid when they leave school.
By the way, college graduate and professional programs are just as bad if not worse. I have in the past written about cash-cow MBA programs and law schools that lure students in with unrealistic expectations and unfulfilled promises of riches at graduation.
Do you think it is mere coincidence that students who graduated from colleges over the past ten years have become so comfortable with debt? This is what they were taught in college. Because so many were sucked into this college debt addiction as maturing adults, they think that debt and credit is no big deal. These are the same college grads (MBA’s in particular) who have been running things on Wall Street, designing all kinds of new debt instruments to leverage then crash and burn.
At least our colleges could offer courses such as “Debt and Credit: Forget What You Learned Here” or “Budgeting for Life: Don’t Do What We Do.” Have you seen any course offerings like this? Heck, I would volunteer to teach them.
All of this is just plain shameful. I don’t know why parents, students, and voters tolerate this. Parents and students could vote with their tuition money by not attending private colleges that overprice and underdeliver. Parents and voters could demand that their state’s public colleges and universities adopt and adhere to sound financial plans. How about we ask colleges to at least not lead the nation in hyper-inflationary increases? Let the health care industry move into first place. We will go after it next.
Your turn readers. Does this not bother you?
ONE IN TWO NEW GRADUATES ARE JOBLESS OR UNEMPLOYED
The college class of 2012 is in for a rude welcome to the world of work.
Young adults with bachelor’s degrees are increasingly scraping by in lower-wage jobs — waiter or waitress, bartender, retail clerk or receptionist, for example — and that’s confounding their hopes a degree would pay off despite higher tuition and mounting student loans.
An analysis of government data conducted for The Associated Press lays bare the highly uneven prospects for holders of bachelor’s degrees…
…Taking underemployment into consideration, the job prospects for bachelor’s degree holders fell last year to the lowest level in more than a decade.
…About 1.5 million, or 53.6 percent, of bachelor’s degree-holders under the age of 25 last year were jobless or underemployed, the highest share in at least 11 years. In 2000, the share was at a low of 41 percent, before the dot-com bust erased job gains for college graduates in the telecommunications and IT fields.
Hey, Kids! We’re pretty sure more class warfare will work if you just give us another four years!
THE DARK SIDE OF STUDENT DEBT
Defaulting on your loans can ruin your financial life. We show you how to repair the damage.
By Jane Bennett Clark, Senior Associate Editor
From Kiplinger’s Personal Finance magazine, June 2011
Imagine going to college to improve your life and walking away with $500,000 in student debt. That number is no typo. A young Seattle couple ended up so mired in debt on the way to their degrees that they “couldn’t even make the initial payments,” says Christina Henry, of Seattle Debt Law. After the collection agencies started calling, the couple, who have two children and earn a total of $80,000, visited Henry for help. “They took out as much as they were able to and didn’t even know how much they had. It’s the most egregious case I’ve ever seen.”
Consider it a cautionary tale. Over the past decade, college students have had every reason to borrow for college and little reason not to. College costs exceeded inflation by as much as six percentage points a year, bringing the average annual price of a private-school education to $37,000. Congress raised the maximum on federal student loans and introduced the Grad PLUS loan, allowing graduate students to borrow up to the cost of attendance. And until 2008, when credit began tightening up, lenders handed out private student loans as if they were party favors.
Result? More students borrowed, and in larger amounts. The average debt at graduation was $24,000 in 2009, up 6% from the year before, according to the Project on Student Debt. But that understates the dramatically higher debt that some students racked up. And many of them got swamped by their bills almost immediately. Of the 3.4 million federal-loan borrowers who entered repayment in 2008 (as the economy slid into recession), 7% defaulted within the year, the highest percentage in more than a decade (see the explanation of late-payment penalties below). That statistic doesn’t include the thousands of borrowers who fell behind on their payments without defaulting, or those who couldn’t keep up with their private student loans.
Missing a few payments invites dunning calls and letters, but defaulting has the potential to destroy your future. Being on the dark side of federal student debt means the feds can demand payment in full, assign your case to a collection agency, garnish your wages, pocket any state or federal refunds, and even come after your benefits in your old age. “We see people who defaulted on loans in the 1970s and 1980s whose Social Security benefits are being garnished,” says Paul Combe, of American Student Assistance, an agency that guarantees federal loans. Worse yet, old, neglected loans carry decades’ worth of fees, interest and collection costs. “A $2,000 loan that defaulted 20 years ago is now $30,000,” says Combe.
The federal loan program offers several plans that can get you back on track. With private loans, you have to negotiate with the lender. Either way, start by knowing what types of loans you have, where they originated and who services each one. For federal loans, go to the National Student Loan Data System. For private loans, review your loan agreements, which should include the terms of the loan and repayment options.
Help with federal loans. With the federal loans known as Staffords (now part of the Federal Direct Loan program), as well as Grad PLUS loans, the loan goes into delinquency when your payment is 21 to 30 days late. If you fall 60 days behind, the loan agency will report the lapse to the national credit bureaus. Meanwhile, late fees and interest will add up.
If none of the federal repayment programs offers a solution, apply to your lender fordeferment or forbearance. Deferment lets you forgo monthly payments, usually for a year at a time, for up to three years. The feds pay the interest on subsidized Staffords but not on unsubsidized loans.
Accrued interest gets tacked on to the principal. You have a legal right to deferment if you meet certain criteria, including economic hardship or status as a half-time student or you are on active duty in the military.
Forbearance gets you off the hook on payments for up to five years, in yearlong increments. Generally, the lender decides whether you qualify. Interest accrues on all the loans, including subsidized Staffords. Forbearance makes most sense for borrowers who are experiencing a short-term financial crunch, not those whose situation is unlikely to improve. Such borrowers are better off in an income-based plan, which can reduce the payments to as low as zero and offers forgiveness after 25 years.
Defusing default. If you fail to make a payment for more than 270 days, your loan is technically in default, but most lenders wait 360 days to make the default official, giving you a window in which to redeem yourself. (If you’re in that phase, call your lender immediately to discuss your options.) After the loan defaults, you lose access to forbearance and deferment, as well as to future federal student aid, and the default goes on your credit record.
Uncle Sam gives you several ways to get back in his good graces. One is to rehabilitate the loan, in which you contact your lender and arrange to make nine timely, “reasonable and affordable” payments over a ten-month period. The Department of Education sets guidelines as to what constitutes reasonable and affordable and stipulates that the lender can’t require a minimum payment. In practice, however, negotiating the amount with the lender can be “a huge problem,” says Deanne Loonin, of the National Consumer Law Center. If you and the lender can’t come to terms, contact the Federal Student Aid Ombudsman, at 877-557-2575, and ask for help. If you rehabilitate your loan, the default disappears from your record.
The other strategy is to consolidate your loans with the Federal Direct Loan program, which lets you immediately enter one of the income-based repayment programs. (If you have already consolidated your loans in the Direct Loan program, you generally are not eligible to do so again.) “The advantage of consolidation is that it’s faster. You don’t have to make nine payments first,” says Loonin. But the default remains on your credit record for up to seven years.
You may conclude that your debt is simply insurmountable and decide to try for bankruptcy. To succeed, you must demonstrate to the court that your payments impose “undue hardship,” with no prospect of remedy, and that you made a good-faith effort to repay.
In a few circumstances, such as death or permanent disability, or if the school closed while you were enrolled, your federal loans are eligible for cancellation. For details, go towww.studentloanborrowerassistance.org.
Help with private loans. Lenders of private student loans typically consider you to be in default as soon as you blow past the payment period, and you can count on receiving collection calls shortly thereafter.
To avoid that scenario, some lenders allow you to make lower payments for a few years and catch up later. They may also grant you forbearance, for three months at a time, during which interest continues to accrue. But don’t expect them to go out of their way to extend these deals, says Loonin. Check your promissory note. If you don’t see an alternative plan, call the lender and try to arrange one.
Unlike the federal government, which can garnish your wages and pursue the debt indefinitely, lenders of private loans must sue to collect on a default, and they are subject to your state’s statute of limitations, usually six years. Lenders can and do take borrowers to court, says Loonin. “We’ve seen more-aggressive collection efforts, including more lawsuits, on the private-loan side.”
If they succeed, they can garnish your wages, put a lien on your house and tap into your bank account. As with federal loans, private loans are extremely difficult to discharge in bankruptcy and require that you meet the same stringent standards. But a lender might consider settling the debt when the prospects for full payment are dim, says Henry. That was the case for her Seattle clients. With no chance of repaying the entire amount, the couple settled some of their private loans, arranged an income-based repayment plan on the federal loans and hope to discharge the remaining debt in bankruptcy.
THE STUDENT LOAN CRISIS EVERYONE SAW COMING
President Obama has fought hard to ease the student-debt burden, but Republicans threaten his fragile gains
When there are Americans whose Social Security checks are being garnished to pay off their outstanding student loan debt, then it is clear that the United States has a problem. And the rising number of seniors who haven’t paid off loans taken out decades earlier is only one of several reasons to be alarmed by a report on student loan debt released by the Federal Reserve Bank of New York in March.
Total debt, as of the end of the third quarter of 2011, had reached $870 billion, a number, the Fed was quick to point out, that eclipses what Americans owed on their credit cards and on their auto loans. According to a more recent report from the Consumer Financial Protection Bureau (CFPB), the amount currently owed on both federal and private student loans has already broken the trillion-dollar barrier.
That’s not just bad for the people struggling to pay off their debt — people who, according to CFPB student loan ombudsman Rohit Chopra, are being punished for “doing exactly what they were told would be the key to a better life.” The burgeoning debt numbers also pose a growing threat to the larger economy: money spent paying back student loans is money that isn’t stimulating overall economic growth. Who will dare risk becoming a first-time home-buyer, for example, or buy a new car, when still struggling to pay back thousands of dollars on their education?
The Fed and CFPB reports launched a new round of well-deserved hand-wringing about the student loan “crisis.” But one of the things that makes this crisis different from previous financial disasters — like, for example, the subprime mortgage debacle — is that it actually hasn’t been ignored. In fact, you can make a good argument that the Obama administration has tackled the student loan crisis vigorously from the get-go, and achieved some signal triumphs, even while being ferociously opposed by Republicans at every single step of the way. Judging the overall success of Obama’s efforts is tricky — it may take many years for Obama’s reforms to make a dent in the overall quantity of outstanding debt — but there is little question that the White House is trying, and that for some students, at least, it has become easier to pay the bills.
The story of how President Obama has worked to help borrowers pay off their student loan debt and ease the path to affording a college education is a case study in how the current administration has worked to fix a broken system in the context of a political process that makes achieving any kind of progressive change almost impossible. And it also illustrates how the hard-won successes already achieved are extremely vulnerable. If, for example, Republicans take control of the White House and the Senate this November, and follow up by implementing the agenda outlined in Rep. Paul Ryan’s proposed budget, the impact on struggling student loan borrowers will be severe. One of the few fronts on which the Obama administration can claim to have made real progress would suddenly turn into yet another retreat.
The story begins in July 2009, when Education Secretary Arne Duncan announced a number of changes to how the federal student loan program operates. Interest rates on existing student loans were cut almost in half, from 6 percent to 3.4 percent. More important, Duncan introduced a new way of paying back loans, called “income-based repayment.” Previously, student loan borrowers had to pay back a set amount each month, regardless of how much they were earning. Under the new system, borrowers only had to pay 15 percent of whatever income they were making, and if, after 25 years, they still hadn’t paid off their loan, the remaining debt was written off.
The Obama administration doesn’t deserve primary credit for those changes, however. The new rules were part of the implementation of a law passed in 2007 during the George W. Bush administration, the College Cost Reduction and Access Act. But it’s probably worth noting that that law — the brainchild of liberal California Democrat George Miller — was passed by the Democratically controlled Congress that came into power in 2006 and was initially opposed by a majority of Republicans in both the House and the Senate. It might also be worth noting that back in 2005, when Republicans held power in Congress, and forced through a major revamping of the nation’s bankruptcy laws, a little-noticed-at-the-time provision ensured that private sector student loans could no longer — except under extreme circumstances – be discharged as a result of a bankruptcy declaration. This blatant handout to the private student loan industry set the template for what was to follow: Democrats have tried to make it easier for borrowers to cope with their debts, while Republicans have worked to make it more difficult.
The next major step, for which the Obama administration deserves a large amount of credit, came in the form of a major revamp in how the student loan industry operated, passed into law in March 2010 as part of the Affordable Care Act. Prior to reform, about 65 percent of federally backed student loans originated from the private sector, with the government guaranteeing the loans against the default. The system resulted in rampant corruption – loan companies paying off college financial aid administrators — and was savaged by critics as an expensive government handout to the private sector. By cutting out the middle man and converting all federally guaranteed student loans to direct loans administered by the government, the Obama administration ending up saving an estimated $68 billion — money that was then used to pay down the deficit and help fund a top Obama education priority, the significant expansion of the Pell Grant program.
Republicans screamed bloody murder – attacking the reforms as a “Washington takeover” of the student loan industry — a criticism echoed recently on the campaign trail by Mitt Romney, who described Obama’s student loan reforms as a “government takeover.” It was an assault that never made much sense, as the industry would not have existed without the federal guarantees and ended up costing taxpayers more than a government-administered program. But with Democrats in control of both the House and the Senate, the GOP couldn’t stop it. And advocates working in the higher education sector generally gave the reform good marks, even while noting that there was much work to be done: “For students and families, this is all good news,” Lauren Asher, president of the Berkeley, Calif., think tank the Institute for College Access and Success, told Bankrate.com, at the time of the bill’s passing.
After the midterm elections, further legislation to address burgeoning student loan debt — such as Sen. Richard Durbin’s, D-Ill., efforts to once again allow student loans to be discharged in bankruptcy hearings – became politically unfeasible. Indeed, at least one Republican presidential candidate, Rick Santorum, even called Obama a “snob” for encouraging the very idea that more Americans should go to college. But the White House continued to seek creative new ways to lower the student-debt burden. In October 2011, as part of his “We Can’t Wait” initiative, Obama announced an expansion of the income-based repayment program. Now borrowers would only have to pay 10 percent of their income, and the debt would be forgiven after 20 years instead of 25. The Department of Education also announced that borrowers who had taken out different kinds of federal loans would be allowed to consolidate them all together into a single payment plan with lower interest rates. Again, Republicans protested, complaining that Obama’s measures would encourage “increased borrowing across the board.”
And finally, the Consumer Finance Protection Bureau, a centerpiece of the Dodd-Frank bank reform act that Obama fought for against extraordinary GOP resistance, has made it abundantly clear that policing bad practices in the private loan industry will be a high priority of the new agency.
Taken in sum, the Obama administration has been consistent in its efforts to ease debt repayment, boost financial assistance to low-income Americans seeking a college education, and crack down on abuses in the student loan industry. As a result, many holders of student loans should be able to lower their payments, although some education activists say it’s not clear that many Americans are taking advantage of things like the income-based repayment mechanism. But perhaps the most worrisome element to consider about the reforms is how tentative they are. In fact, the tide could start turning in the opposite direction as early as this summer. On July 1, the interest rate break included in the 2007 College Cost Reduction and Access Act expires, and the current Republican-controlled House has shown no interest in funding its extension. The recently released Ryan budget also calls for the repeal of Obama’s expansion of the income-based-repayment program. As a result of the various budget and debt ceiling showdown battles of the last two years, the Pell Grant program has been steadily whittled down ever since its initial stimulus-bill-funded expansion. Indeed, Ryan’s budget would move Pell Grants from mandatory spending into the discretionary spending category, making it even easier to shrink the program in the future.
Of course, Republicans have an easy explanation for their opposition to expanding the Pell Grant program, forgiving student debt and keeping interest rates low on student loans: We can’t afford it. And there is some truth to that. If revenue increases are off the table, then the problem of how to pay for low loan rates, while at the same time providing expanded financial assistance, does become acute. But that just raises, once again, the question of priorities. We know, without any question, that college education translates into higher incomes. But the current Republican Party, by its own actions and rhetoric, has made it abundantly clear that protecting lower taxes for the wealthy is more important than ensuring that as many Americans as possible can get a good college education without consigning themselves to a lifetime of onerous debt. In contrast, Obama, working under the constraints of a system that allows him almost no freedom to operate, has consistently enacted reforms that relieve the pressure of that debt, and help ease the way to higher education. If that’s snobbery, if that’s a “government takeover,” then maybe we need more elitist big government, and not less.
TUESDAY, MAY 15, 2012 6:00 PM UTC
These days, a law degree comes with $150,000 of debt — and no guarantee of a job after graduation
BY PAUL CAMPOS
Last summer a young lawyer wrote to me about her struggles to find employment. Her story was all too familiar: After graduating with honors from a middling law school, she was unable to find a real legal job, and was reduced to taking a series of temporary, low-paying positions that did not allow her to even begin to pay off educational debts that, three years after graduation, had ballooned to nearly a quarter of a million dollars.
Rather than merely lamenting her situation, however, she explained to me she was more fortunate than many of her fellow recent graduates: “I know that I am better off than a lot of these younger lawyers. I get job interviews. I can afford the apartment I share with my friend. I have a great resume. I am an excellent researcher and writer. I rarely go to bed hungry anymore.”
That last sentence stayed with me. I have been researching what’s been happening to recent law school graduates, and it’s no exaggeration to describe the situation as a growing catastrophe. The statistics are shocking:
Approximately half of the 45,000 people who will graduate this year from ABA-accredited law schools will never find jobs as lawyers. (The Bureau of Labor Statistics estimates that over the next decade 21,000 new jobs for lawyers will become available each year, via growth and outflow from the profession.)
Most of those who do find jobs will be making between $30,000 and $60,000 per year.
People currently in law school are going to graduate with an average of $150,000 of educational debt. This debt will have an average interest rate of 7.5 percent, meaning the typical graduate will be accruing nearly $1,000 per month in interest upon graduation. Unlike almost every other form of debt, these loans cannot be discharged in bankruptcy.
In short, one out of every two law graduates will not have a legal career, and most of the rest will never make enough money to pay back their educational loans. This means they will either have to rely on other sources of income (spouses, extended family) to service their debts, or they will have to go into the federal government’s new Income-Based Repayment program. This program will keep people in debt servitude for 25 (soon to be reduced to 20) years, during which time the balance on their loans will grow, making it almost impossible for them to qualify for mortgages and many other forms of consumer debt. Finally, the debt – which for many law graduates will have grown to more than $1 million – will be discharged, meaning, of course, that taxpayers will be left to pick up the tab.
All this adds up to a completely unsustainable system – one in which the cost of acquiring a law degree no longer bears any rational relationship to the benefits the typical graduate can expect to receive from it. In this regard, the economic disaster that legal education has become is merely a particularly stark example of theincreasingly absurd financial structure of higher education in America.
How did we get into this mess? The basic problem – one that goes far beyond the growing crisis inside America’s law schools – is a product of two related myths. The first is that educational debt is almost axiomatically “good debt” – that is, the sort of debt that will generate a positive return on investment. The second is that the market for higher education is rational and efficient.
For generations now, Americans have been told that it always makes sense to invest in higher education for themselves and their children. This belief was so strong that it had three unfortunate consequences: It convinced politicians and taxpayers that there was no good reason to subsidize public higher education (if people were going to enjoy such a good return on an investment why should the government subsidize it?). It encouraged colleges and universities to adopt a business mentality, which increasingly led these institutions to make revenue maximization their top goal. And it led the purchasers of higher education not to ask hard questions about whether what they were buying was worth the price they were being asked to pay for it.
It is true it is more realistic to expect prospective law students to try to determine the real net present value of attending law school than to expect high school students to make the same calculation regarding a college degree. Still, in the case of law schools the ceaseless message that more higher education is always worth the cost has combined with the misleading reporting practices regarding employment and salary outcomes to produce a classic case of severe market failure: Most law students now pay far more for their degrees than those degrees are worth.
The result has been several consecutive decades of rising costs in real dollar terms. Law schools provide a particularly stark example of these trends: A generation ago, as measured in 2012 dollars, annual tuition at Harvard Law School was $12,500 per year. Resident tuition at my alma mater, Michigan Law School, was $4,400 per year, again in current 2012 dollars. Today the respective figures are $51,000 and $48,000.
Despite the rhetoric of self-interested and/or clueless academics, higher education is not “priceless.” At some point, the cost will come to outweigh the benefit. That point has already been reached for countless university graduates in general, and law school graduates in particular. As prospective students and their families become aware of this fact, our debt-fueled higher education bubble, like so many other financial bubbles before it, will pop.
Paul Campos is a professor of law at the University of Colorado at Boulder.MORE PAUL CAMPOS.
STUDENT LOAN DEBT RISES NO MATTER THE ECONOMY
Student Debt During the Great Recession Puts Borrowers in a Bind
Barnard College graduates listen to President Barack Obama deliver their commencement address on the campus of Columbia University in New York on May 14, 2012.
By Christian E. Weller | May 3, 2012
The cost and size of today’s student loans are the subject of dinner table discussions across our nation because without congressional action interest rates on federally subsidized student loans will increase on July 1. As is often the case with bread-and-butter issues such as the cost of college education, the size of education debt and the potential for higher debt payments warrant the increased public attention.
The most recent data on outstanding education loans during the Great Recession of 2007-2009 reveal that in both good and bad economic times the cost of a college education only increases, as does the debt burden of borrowers. The number of borrowers and the typical loan amount grew amid the most recent economic and financial crisis. This is especially stunning since the expansion of education debt occurred at the same time that other credit markets, especially mortgages and credit cards, contracted. Households went deeper into education debt during the crisis as other forms of credit became less prevalent.
The result is even less economic security today for those who went deeper into debt to pay for their education in those years. The numbers tell the tale.
The Federal Reserve conducted a survey of the same group of households in 2007 and 2009 to paint a comprehensive picture of household assets and debt during the financial and economic crisis. This data set contains information on education debt—all private and publicly subsidized installment loans that the household has taken out to pay for education—in addition to other crucial variables, such as the household’s age, income, total wealth, total other debt, and race and ethnicity, among others. The underlying household data was released in April 2012 and are thus the most recent data with this level of detailed household information.
The financial and economic crisis of those years marked a period of widespread declines in household debt levels. Mortgages and credit cards declined as households repaid their debt and banks foreclosed on bad debt. But the same was not the case for education loans. Education loans typically cannot be discharged in bankruptcy, which may explain why education debt didn’t fall like other forms of debt did. But there are other factors at work, too. The summary data illustrate that education loan borrowers became economically less secure during the crisis because they had more debt—education and noneducation—after the crisis than before. There were also generally more households with education loans and the amount owed on education loans went up during the crisis.
Education loan borrowers in 2009 were less wealthy after the crisis than in 2007. The inflation-adjusted wealth amount of the median borrower went from $45,280 (in 2009 dollars) in 2007 to $28,160 in 2009. And the share of education loan borrowers with no wealth—defined as either debt equal to total assets or, more likely, no assets and no debt—or negative wealth went from 28.7 percent in 2007 to 35.6 percent in 2009. (see Table 1)
The drop in wealth among education loan borrowers resulted in part from more noneducation debt, even though debt in the overall economy went down during this period. The median noneducation debt amount of education loan borrowers increased from $53,851 in 2007 to $62,000 in 2009. (see Table 1) One possibility for this trend is that those who owed education loans were still more likely to have a job or get a job than other households, and thus they were more likely to access the more limited credit markets.
Other factors made it harder for households to get out of the deepening economic security hole. Borrowing households, for instance, had less time to recover their wealth losses as the median age of education borrowers went from 35 years old in 2007 to 39 years old in 2009. This could mean that older households borrowed more education loans to pay for additional education to get a leg up in a tougher labor market.
Debt payments stayed constant and incomes rose, making it easier to bear the increasing debt burden, at least until interest rates rise again. Education debt accumulates alongside higher educational attainment. And people with greater educational attainment experienced lower unemployment rates and thus more stable incomes during the Great Recession than people with less educational attainment. But the wealth of the well educated still fell substantially due to the massive house and stock price losses and increasing amounts of debt. Education borrowers’ total debt payments grew by .5 percent from an annual $12,300 (in 2009 dollars) in 2007 to $12,360 in 2009, while their median income grew by 10 percent from $60,704 in 2007 to $66,746 in 2009. (See Table 1)
Debt payments grew at about the same rate as income, even though interest rates fell during the period. Households had additional incomes, but their growing debt levels limit the benefit of those additional resources as rising interest rates could quickly take a bigger bite out of incomes, making it harder for households to recover the economic security lost during the Great Recession.
More households owed education loans in 2009 than in 2007. The total share of households with education debt went from 16.2 percent in 2007 to 17.6 percent. The share of households with education loans increased for almost all groups except for Hispanics and households headed by someone without a high school degree. (see Table 3)
The median amount owed by borrowers also grew during the Great Recession. The median education debt amount increased by $2,573, from $12,427 in 2007 to $15,000 in 2009. And almost all groups of households saw rising education debt levels, except for households without high school degrees.
The largest increase in the median education debt amount—$5,715—occurred among African-American households. Households of other races and households with a high school degree also saw comparatively large increases in education debt. That is, households that disproportionately struggled due to higher unemployment, lower wages, and fewer benefits than their counterparts, such as African Americans, saw faster debt increases than their counterparts. It is possible that struggling groups were more willing to go deeper into debt than their counterparts in an effort to regain some economic security during the difficult labor market during and after the Great Recession.
The summary data show that rising education loans put many student loan borrowers, especially vulnerable households, into an economic bind, making it more difficult to climb out of a deepening hole. Allowing interest rates on new student loans to climb without countervailing measures will thus put additional pressures on an increasingly struggling middle class that continues to need to borrow to attend ever more costly colleges and universities.
Christian E. Weller is a Senior Fellow at the Center for American Progress and an associate professor, Department of Public Policy and Public Affairs, at the University of Massachusetts Boston.
 The Federal Reserve conducted its regular triennial Survey of Consumer Finances, or SCF, in 2007. The Federal Reserve contacted the sample of households from its 2007 SCF in 2009 for a reinterview to capture the effect of the worst recession since the Great Depression, and almost 90 percent of households participated. The result is a unique, nationally representative panel data set that captures the crisis’ impact.
 The Federal Reserve Bank of New York publishes another data set, which offers data with much less detail on the borrowers, but is available each quarter. See Federal Reserve Bank of New York, “Quarterly Report on Household Debt and Credit,” (2012).
 All dollar amounts are in 2009 dollars. The median is the data point that splits the number of observations, in this case households, exactly in half.
 The data in Table 3 showing the distribution of education loans by size also show that education loans above $10,000 grew, while the share of education loans below $10,000 shrank between 2007 and 2009. That is, the rise in the median loan amount was driven by rather widespread growth of education loans in the upper 60 percent of the loan distribution.
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DEBUNKING THE STUDENT LOAN CRISIS
State cutbacks to higher education are forcing some people to take out more student loans.
NEW YORK (CNNMoney) — Total student loan debt has topped $1 trillion … but there’s no need to panic.
Most borrowers have a reasonable amount of debt, and the total balance is not likely to cause major damage to the economy like the mortgage crisis did, experts say.
“I don’t think it’s a bubble,” said Mark Kantrowitz, publisher of Finaid.org, a financial aid website. “Most students who graduate college are able to repay their loans.”
This is not to say that there aren’t problems with student loans, which now exceed the amount of credit card debt and auto loans. Students are taking on more debt, on average, and more than a quarter of borrowers are behind on their payments. And a hefty debt load could delay recent graduates’ purchase of a home or starting a business.
But all the talk of a crisis or bubble in the student loan industry is exaggerated, experts say.
There’s no doubt that student loan balances are rising fast, bucking the trend of other consumer debt, which fell during the Great Recession. In 2007, the total level of student loan debt was about $600 billion.
But more people are going to college these days, said Sandy Baum, senior fellow at the George Washington University School of Education. This is prompted in part by the economic downturn: When people lose their jobs or the economy turns shaky, a lot of folks return to school to learn new skills or bolster their resumes.
In the fall of 2010, there were 22 million undergraduate and graduate students in college, the U.S. Department of Education reported this week. Two years ago, the figure was 19 million.
“Enrollment has increased dramatically, so of course debt is growing,” Baum said.
More undergrads also needed to borrow to finance their educations, especially since tuition costs have also been rising fast. Some 82% of first-time, full-time students received financial aid in the 2009-2010 school year, up from 76% two years earlier.
Their individual debt load is on the rise, as well. The average amount of student debt in 2010-11 was $27,200, up 54% from a decade earlier, according to Finaid.org.
But that figure is skewed by a relatively small number of people who have high debt loads, said Kantrowitz. They are mainly graduate students, people who took out a lot of private student loans and those who have been in default for years. Only 10% of borrowers have more than $45,000 in loans, Kantrowitz said.
Some 90% of new student lending comes from the federal government, and the amount undergraduates can borrow is generally capped at $31,000.
What’s raising red flags is that the default rates on federal loans are climbing. They hit 8.8% in 2009, nearly double the rate five years earlier, according to the most recent Department of Education figures. (See CNNMoney’s Economy blog for ways to manage your loan payments.)
This jump is being fueled in particular by for-profit colleges, which have default rates of 15%, prompting federal officials to put in new rules. Now, schools with excessive default rates can lose their eligibility for the federal loan program.
Still, heavy debt loads can make it tough for young adults to establish themselves, especially these days. The Great Recession has made it tougher for young adults to find a job.
The unemployment rate for those age 16 to 24 with bachelor’s degrees stood at 8.1% in February, up from 4.6% four years earlier. Many others find themselves underemployed.
“Having a lot of student debt can make a person’s life very difficult,” said Lauren Asher, president of the Project on Student Debt.
But workers with bachelor’s degrees earn about $650,000 more over their lifetime than their peers who only have high school diplomas, a recent Pew Research Center analysis found.
“It’s an economic investment,” said Sarah Turner, professor of economic and education at the University of Virginia, Charlottesville. “It’s not going to work for everyone, but on average, it has a high return.”
Kantrowitz expects defaults to climb for another year, before starting to decline. That’s because the economy is slowly strengthening and unemployment rates are coming down.
FRIGHTENING STUDENT LOAN DEBT FOR FIRST GENERATION
According to an article released by CNN Money, the Project on Student Debt reported that average student loan debt for seniors who graduated last year (May 2009) was $24,000, up 6% from the year before. This increase in national student loan debt has also resulted in an increase in what today are known as The Boomerang Kids; a label that a graduate from Northwestern University may hold well until her late 40’s should she fail to find a way to pay off her student loan debt faster than scheduled.
Meet Kelli Space
As a first generation college graduate myself, I know the hard work, determination and incredible pressure that goes into succeeding at something that has never been done by anyone in your family before; graduate from college.
We have all heard the saying “Knowledge is Priceless” – This doesn’t seems to be apply to Kelli Space, a proud 23 year old, first-generation college graduate from Northwestern University. Kelli was to first in her family to go to college (even extended family) and had great hopes of achieving The American Dream. What everyone failed to tell her was that this dream would come at a very hefty price tag; $200,000 in student loan debt to be exact!
Image From Crushable.com: Interview With Kellie Space
I recently came upon Kelli’s story when a good friend of mine passed it along to me in hopes that I could bring awareness to this story through my readership. After reading Kelli’s story I was appalled. How could anyone be allowed to incur so much student loan debt for a bachelor’s degree, or any degree at that matter?
Today, Kelli is faced with a student loan repayment schedule of approximately $900 a month for the remainder of 2010, after which her monthly student loan repayment cost will shoot up to approximately $1600 for the next 20 years of her life.
That, my friends, is frightening! So much, for her American Dream!
Who’s To Blame?
Many people will automatically point the finger at Kelli and say that the student loan debt she incurred for her education is her fault. After all, the national average student loan debt for 2009 was only $24,000 and she could have easily elected to attend a cheaper college.
The reality is that there is plenty of blame to go around. T the profiteering banking institutions that allowed her to incur the debt, and school officials for not doing a better job to educate their students on the dangers of incurring an exorbitant amount of student debt but most of the blame can go to the Government for guaranteeing federal student loans. If it wasn’t for the government guaranteeing federal student loans, many more students would not be able to afford a college education, resulting in the drop in the price of tuition.
I, on the other hand, sympathize with Kelli. Her story is a perfect example of something that is very wrong in our country, and around the world, and that is challenging the very foundations of the American Dream for many college grads; the lack of Financial Education.
Take It Upon Yourself To Increase Your Financial Education
Before the 1950’s, credit was not a part of the American vocabulary. Today, college grads finance their education, cars and homes along with other expenses, living a life of financial bondage and working simply to pay off debts.
Most of us do not get a financial education from our parents and unfortunately schools don’t teach financial education either – It is up to you to invest in yourself and Increase your Financial Intelligence.
Unfortunately, other than the website Kelli set up for donations, she doesn’t have much hope of receiving help with student loans she incurred in her pursuit of a better life. Her only options now are to work harder to pay off her debts or to start a business that she can build over the next 5-10 years to pay off her debts faster. Her financial situation will test her will, but it’s possible.
Learn from mistakes such as Kelli’s but most importantly – Don’t live a life of Financial Bondage! Invest in yourself!
Start Increasing Your Financial Intelligence Today!
UNDERSTANDING STUDENT DEBT
A protester from a rally yesterday in New York against the cost of higher education. (Photo by Don Emmert/AFP/Getty Images)
Yesterday, the level of American student debt passed the trillion dollar mark. There was little mention of the milestone in the mainstream media, but the Occupy Student Debt Campaign and its allies marked the occasion with “1T Day,” a national day of action. A few hundred gathered in New York’s Union Square and demonstrations were held in 20 other cities.
It’s a start, but it doesn’t come close to the scale of the problem. That’s an important juxtaposition: student debt and the crisis of higher education more generally is more pronounced in the United States than elsewhere in the developed world, but the level of student organization and resistance is lower here. Part of the trouble is awareness. To do my part, I’ve assembled a quick dossier.
Dissent‘s Jeffrey Williams has compared student debt to the “spirit of indentured servitude” in some of the best essays on the topic, including “Debt Education: Bad for the Young, Bad for America” and “Occupying Student Debt.”
The reason that debt has increased so much and so quickly is that tuition and fees have increased, at roughly three times the rate of inflation. Tuition and fees have gone up from an average of $924 in 1976, when I first went to college, to $6,067 in 2002. The average encompasses all institutions, from community colleges to Ivies. At private universities, the average jumped from $3,051 to $22,686. In 1976, the tuition and fees at Ivies were about $4,000; now they are near $33,000. The more salient figure of tuition, fees, room, and board (though not including other expenses, such as books or travel to and from home) has gone up from an average of $2,275 in 1976, $3,101 in 1980, and $6,562 in 1990, to $12,111 in 2002. At the same rate, gasoline would now be about $6 a gallon and movies $30.
Also in Dissent, Mike Konczal synthesizes the three crises in higher education affordability and offers a progressive alternative.
Free public universities would function like the proposed “public option” of healthcare reform. If increased demand for higher education is causing cost inflation, then spending money to reduce tuition at public universities will reduce tuition at private universities by causing them to hold down tuition to compete. This public option would reduce informational problems by creating a baseline of quality that new institutions have to compete with, allowing for a smoother transition to new competitors. And it allows for democratic control over one of the basic elements of human existence—how we gather information and share it among ourselves.
For a decidedly less social-democratic take, Malcolm Harris’ engaging N+1 piece from last year is also worth a read. In it he identifies an “education bubble.”
[W]hile college applicants’ faith in the value of higher education has only increased, employers’ has declined. According to Richard Rothstein at The Economic Policy Institute, wages for college-educated workers outside of the inflated finance industry have stagnated or diminished. Unemployment has hit recent graduates especially hard, nearly doubling in the post-2007 recession. The result is that the most indebted generation in history is without the dependable jobs it needs to escape debt.
The state of the job market for college graduates looms in New Inquiry co-editor Atossa Araxia Abrahamian’s “Going Lebron.”
I still don’t understand why the agency recruited a philosophy major over a subservient fifteen-year-old. My tenth-grade self would have been much happier—and more productive—in the noisy backroom full of computer servers and fans. Not too long ago, I would have cranked up the volume and reveled in Courtney Love’s screeching. But I was in college.
Instead I went home and read a lot of Marx.
And finally there’s Sarah Jaffe’s Alternet offering, a piece that draws on a wealth of labor statistics.
The story is the same around the country. The economy is stagnant, the job market terrible, and graduates who used to believe their degrees would lead to good jobs are struggling. Meanwhile, the unforgiving student loan system continues to penalize them for their inability to pay.
Student Debt Serfdom:
And for the visually inclined, last month, I spoke on a Jacobin and Dissent co-sponsored panel on the politics of student debt. The discussion, chaired by Sarah Leonard, also featured Sarah Jaffe, Andrew Ross, Annie Spencer, and Jeffrey Williams.
DECRYING THE STUDENT DEBT CRISIS,
DEMONSTRATORS TAKE TO THE STREETS
SOURCE: Campus Progress / Tianxinyi Liu
Student loan debt recently exceeded $1 trillion, and activists marched through Washington D.C. to raise awareness of the growing crisis.
College students, organizers from the Backbone Campaign, and members of the Occupy movement took to the streets on Tuesday afternoon to promulgate the increasingly troubling issue of student loan debt, which hit the $1 trillionmark earlier this year.
Demonstrators, who dressed in caps and gowns, were escorted by police as they marched from Freedom Plaza in Washington, DC to the headquarters of Sallie Mae, tugging along a massive ball and chain meant to symbolize the burden of student debt.
“Pain for the many, profits for the few, hey Sallie Mae, we’re coming for you!” protesters chanted as they marched, among other catchy phrases. The chants reverberated through the streets as the protestors made their way down Pennsylvania Avenue.
“Predatory lenders such as Sallie Mae profit from student loan defaults. It’s time to focus on Main Street, on our nation’s future, on solving problems we face in our communities,” said Diane Wittner, an educator and director of Chesapeake Citizens, who spoke at the rally.
Wittner noted that the typical college student graduates today with more than $20,000 in debt.
Sallie Mae, founded as the Student Loan Marketing Association, has aggressively lobbied against any efforts to reform the current student loan process. Protestors agreed that the financial giant, which manages more than $180 billion in debt for more than 10 million borrowers, needs to be dissolved.
“We have to stop student loan debt profiteering off our young people,” Bill Moyer, the executive director of the Backbone Campaign, told Campus Progress. “Students often don’t know the risks until it’s too late.”
Indeed, the most pervasive risk is being buried in debt for most of your life—a problem that’s only exacerbated by the fact that the unemployment rate for college-aged Americans is at an all-time high.
For policymakers, a viable solution to the student debt crisis remains elusive. Yet those demonstrating on Tuesday had no reservations about their vision for making access to higher education an affordable reality for all Americans.
Yve Susskind, the managing director of the Backbone Campaign, told Campus Progress that she wonders why poverty should be a barrier to a college degree.
“The solution is free higher education,” she said. “This is about raising awareness and helping people see that student debt is not something we have to live with.”
According to a press release from the Backbone Campaign, free higher education at public universities is a “surprisingly affordable and practical permanent solution to the crisis.” Those marching agreed that an expanded program offering free, public higher education could a key to renewing American prosperity.
Regardless of what the ultimate solution might be, raising awareness about the long-term consequences of student loan debt is a necessary task that, until recently, has not been getting the attention it deserves.
Check out more photos from the rally here:
Graham White is a journalism intern for Campus Progress. You can follow him on Twitter @GrahamWhiteNY. Tianxinyi Liu is a video intern with Campus Progress.
HOW WORRISOME IS STUDENT DEBT?
Judith Scott-Clayton is an assistant professor at Teachers College, Columbia University.
Student loan debt has risen to its highest level ever, with starting balances averaging $24,000 among the two-thirds of graduates who borrowed for their degree, Tamar Lewin noted in an article in The New York Times on Monday. This increase has heightened longstanding concerns that college students are borrowing too much.
Economists tend to be less troubled by the trend, Ms. Lewin noted, viewing student loan debt as a worthwhile investment that pays off over a lifetime. Many economists even raise the concern that an irrational aversion to debt may lead some capable students to forgo college.
So should we stop worrying about student debt? Or are students and their families right to be alarmed? The key question is this: Are graduates better off, even with all that debt, than if they hadn’t gone to college at all?
The answer seems clear: even with $24,000 in debt — comparable to the cost of a new midsize car — the average four-year college graduate is likely to be substantially better off over the long term than someone with only a high school education, data show.
Median annual earnings for full-time workers with a bachelor’s degree are around $53,000, compared with $33,000 for those with a high school diploma, and unemployment rates among college graduates are just over half of the rates for those without a degree.
Yet there are at least three reasons this level of debt may be troubling.
First, while the returns to a college degree accrue over a lifetime, loan repayments are typically expected within 10 years of graduation. And graduates don’t typically earn $53,000 in their first year of employment; it may take a decade or more to reach this level. The median graduate is likely to start out somewhere closer to $35,000.
Second, not every graduate will get the average outcome. For those who do worse, the debt may be particularly burdensome. And it is not easy for students (or even economists) to predict what the economy will be like several years from now, or how any individual will fare in it.
So while it may be an excellent investment on average, there is a real risk that some graduates with $24,000 of debt will face unmanageable monthly payments particularly in the early years of their careers.
On the standard 10-year repayment schedule with a fixed interest rate of 6.8% (the current rate for unsubsidized federal student loans), monthly payments would be about $276. If payments up to 10 percent of gross monthly income are considered affordable, then a graduate would need to earn $33,000 annually to comfortably manage this debt. Most will do so, but many will not.
Third and perhaps most important, not every borrower will graduate. Among 2003-4 college entrants who ultimately borrowed $22,000 or more, 31 percent did not have any postsecondary credential six years later (see chart below). And unemployment rates and earnings for people with “some college, no degree” look much more similar to those with only a high school diploma than they do to bachelor’s degree recipients.
Luckily, federal loans have options beyond the 10-year repayment plan, and many students take advantage of them. Graduated, extended or income-contingent repayment plans may offer substantially lower monthly payments, with repayment periods of up to 25 years (see these loan repayment calculators offered by Mark Kantrowitz ofwww.finaid.org).
Policy changes tucked into last year’s health care act also strengthened protections for those who face economic hardships.
These additional options and protections — which apply only to federal loans, not private loans — reduce but do not eliminate the risk students take when they borrow for their education. So anxiety is likely to continue because, frankly, this stuff is complicated, and the consequences of defaultingon a student loan are severe.
Plenty of resources are available to help students learn how to borrow responsibly. But some, like this 56-page federal guidebook, may be too much for young adults to digest, givenhigh rates of financial illiteracy. Those who try to navigate these resources on their own may come away feeling frightened rather than informed.
Policies like the one at Tidewater Community College in Virginia, which require students to estimate their loan repayments and plan their budgets before taking a loan, may be the best strategy for promoting wise borrowing decisions.
No one is ever going to love their student loans. But we don’t want students to be afraid of them, either — because forgoing a college degree may be the biggest risk of all.
OCCUPY URGES STUDENTS TO DEFAULT ON LOANS
Image source: OccupyStudentDebt.com
Over the last few months, college students have voiced a number of demands like these during Occupy Wall Street protests:
- American colleges and universities should freeze tuition at current levels.
- The government should intervene and cancel all student loans.
Those demands look pretty pale in comparison to those that have just been voiced by Occupy Student Debt, a new organization that wants one million students to sign a pledge that they refuse to repay their student loans. The organization is hoping that a mass default will force the government to intervene to help debt-burdened students, or force lending institutions to cancel outstanding loans. To date, the number of graduates who have signed the pledge is hovering only the hundreds, not the thousands or beyond. But if the movement really catches on, it is bound to cause some major ripples among colleges and loan providers.
To quote from the Occupy Student Debt website . . .
“We were told to work hard and stay in school, and that it would pay off. We are not lazy. We are not entitled. We are drowning in debt with few means of escape.
“We would give anything to pay our debt, but we are un(der)employed due to the jobs crisis and lack of consumer protections and refinancing rights make things extremely difficult.
“The student loan bubble may not burst with a bang, but it is slowly suffocating us.”
Will simply refusing to repay loans have the impact that Occupy Student Debt is hoping for? At this point it is difficult to tell. However in a recent post on Huffington Post our friend Anya Kamenetz, who writes for EduPunks, is quoted as offering the following cautions:
- There are consequences for actually defaulting on loans, such as the garnishing of wages and tax refunds in future years.
- Students who refuse to repay loans could trigger a backlash, especially from older Americans who took loans and then paid them back responsibly.
Those are realistic possible outcomes of refusing to repay loans. But let me tell you a personal story. When I was in graduate school, I borrowed $2,150. (Thankfully, not a penny more.) And a decade later, I finally closed out that loan after repaying nearly $9,000. If I had borrowed $10,000, I’d really be in one deep hole and default would look pretty doggone rosy to me too.
So all I can say to the Occupy Student Debt people is that come what may, my heart is with you.
College Campuses Become the Center for Occupy Protests
Occupy Campus Website Is a One-Stop Spot to Monitor Campus Protests
“College Conspiracy” Video Highlights Students’ Tuition Complaints
Occupy Wall Street Movement Airs Frustration with American Higher Education
New Study Finds that StraighterLine Undercuts the Cost of Community College and Other Learning Options
It’s hard not to notice one of the prevailing narratives coming out of the Occupy Wall Street protests: the weight of student debt. As one scholarsummed up the grievances at the “We are the 99 percent” blog through a computer-scripted textual analysis: “Free us from the bondage of our debts and give us a basic ability to survive.”
The current amount of borrowing and student debt has prompted a national conversation over whether these burdened students brought their misfortunes among themselves through poor decision-making or whether they are victims of a system that has failed to deliver on the promise of higher education as a surefire means to a stable, decently paying job. Others still are questioning the notion that obtaining a college degree is even worth the cost at all.
Just how pervasive and burdensome has student debt become in recent years? Here are five things to know:
Shrinking funds and limited grants are prompting students nationwide to borrow more and more to get through their education. The aggregate amount of all student loan debt in the country is likely to clear $1 trillionin the coming months. Student loan balances are highest in California and the Northeast, but are rapidly rising in regions like the Southwest. Moody’s Analytics’ July 2011 report found that while aggregate consumer lending balances have gone into decline since 2009, student loan balances continue to grow at a steady rate of more than 10 percent per year. The report also estimates that the pool of borrowers will likely continue to grow at a rate of 2 percent per year.The economics behind a push for borrowing and obtaining higher education are fairly simple: In tough economic times, the conventional wisdom for those facing unemployment or underemployment is to go back to school, wait until the wave passes, and hopefully graduate with extra skills and credentials that give them an edge in finding employment as recovery begins to pick up. But if long-term economic prospects are dim, as they are proving to be in the current economic downturn, graduates emerge from school with a heavy debt load and few means of paying it off.So exactly how many students get saddled with debt after graduation, and by how much? Studies from the Project on Student Debt show that 67 percent of students graduating from four-year colleges in 2008 had student loan debt, a 27 percent increase from four years prior. The graduating class of 2011 alone had the highest estimated average student debt at $22,900, according to Mark Kantrowitz of Fastweb.com and FinAid.org – an 8 percent growth from last year and an inflation-adjusted 47 percent increase from just ten years ago.Not surprisingly, the combination of high student debt and low job prospects has resulted in a spike in federal student loan defaults, with the default rate reaching 8.8 percent in 2010 – the highest rate in more than a decade.3. Private loans and for-profit colleges are the riskiest choices — but they too are growing.
Loans are typically divided into two categories: federal loans and private loans. Federal educational loans are capped, and interest rates are fixed anywhere from 3.4 to 7.9 percent, depending on the type of loan. However, there is no set limit on the amount of private loans one can take out, or on the interest rates banks can charge for them — and interest rates can change over the years. Private loans are by far the riskiest option a student borrower can make, but private loan borrowing has increased significantly among college undergraduates in recent years. According to the Project on Student Debt, 14 percent of undergraduates took out private loans in the 2007-2008 academic year, up from just 5 percent four years prior. African-American undergraduates were the most likely group to take out private loans, comprising 17 percent of all private student loan borrowers that year.One of the primary problems with private loans is that it is notoriously difficult to shed once a person has it. In 2005, Congress passed the Bankruptcy Reform Act, which exempted private student loans from being discharged when a person declares bankruptcy. Last year, Representative Steve Cohen (D-Tenn.) introduced to Congress HR 5043 – the Private Student Loan Bankruptcy Fairness Act. The Act would allow private student loans to return to their pre-2005 status, eligible to be discharged in bankruptcy alongside other types of consumer debt. The Act, however, has not yet passed a vote in Congress.Congress has also been working to enact protections for students at for-profit colleges, where more than half of student loan defaults originate. Critics have accused these schools of targeting low-income and minority students for recruitment to bring in funding from financial aid but have few job prospects upon graduation. Attendance at for-profit schools has exploded in recent years — Moody’s notes that though for-profit enrollment still makes up less than 10 percent of the total, the for-profit enrollment volume has tripled over the past 10 years.In recent years, the Obama administration has passed several regulations that restrict schools from paying recruiters based on the number of students they enroll, and place a higher mandate for states to monitor these schools’ practices. Most recently, it enacted a rule that restricts federal aid for institutions where less than 35 percent of former students are making loan payments each month and where estimated annual loan payments exceed 12 percent of students’ earnings after graduation. The so-called “gainful employment” rule goes into effect July 2012.
4. Community college students face debt problems of their own.
Of course, high-profile, expensive four-year colleges that can require heavy debt burdens are not the only means by which students can get an education. State schools and community colleges are generally more affordable ways to obtain a college degree and competitive skills for the job market. The age of austerity begs the question: “Why end up with tens of thousands of dollars of debt for a brand-name school when you can get the same degree at half the price?”
For middle-class students looking to find ways to cut costs, community colleges are a thrifty option. But for low-income students who generally make up the bulk of the community college population, educational finances are still a problem. Students at community colleges are just as likely to need financial aid as students at other institutions, but have many fewer options to obtain it. A report from The Institute for College Access & Success (pdf) found that while community college students are more likely to receive federal Pell grants, reserved for financially needy students, they are less likely to receive institutional grants, work-study opportunities or state grants. The report states that community college students are less likely to take out federal loans to fund their education, either because they are hesitant to borrow, do not know that they are eligible for federal financial aid, or because some schools do not participate in federal loan programs. In many cases, students who are eligible for federal student loans end up taking out riskier private loans instead.
5. A higher education bubble on the horizon?
With soaring tuition, borrowing and default, fear of a bubble in higher education spending has proven to be “one of the year’s most fashionable ideas.” The idea that an education bubble could burst in the same manner as the housing market did made headlines earlier this year when businessman Peter Thiel, co-founder of PayPal, established the Thiel Fellowship to offer a select group of young adults $100,000 eachnot to go to college and start companies instead. In an interview with the National Review, Thiel said:
[The education bubble] is, to my mind, in some ways worse than the housing bubble. There are a few things that make it worse. One is that when people make a mistake in taking on an education loan, they’re legally much more difficult to get out of than housing loans. With housing, typically they’re non-recourse — you can just walk out of the house. With education, they’re recourse, and they typically survive bankruptcy. If you borrowed money and went to a college where the education didn’t create any value, that is potentially a really big mistake …
In response to Thiel’s ideas, Slate’s Annie Lowrey scoffed at the idea that current trends in educational borrowing are similar to the subprime mortgage crisis:
It could be that Thiel is right, that college students, en masse, are overpaying for their educations. But it seems more likely that some college students attending certaintypes of schools are overpaying. If you want to be an aerospace engineer and have the chops to get into Caltech, the quality of the education, contacts, and fellow students on offer might really be worth $200,000 to you. A diploma from the school practically guarantees a good salary.
That is not true for many other institutions—particularly not for online, for-profit schools, the worst of which egregiously overcharge for worthless degrees … But that marketplace is rapidly changing. The federal government is cracking down. Share prices for such companies have plummeted. Students have gotten savvier. Low-cost, high-quality competitors have entered the market. It might take some time. But tuition should drop too.
But what of the loan bubble, the outstanding pool of nearly $1 trillion in debt students have racked up paying those spiraling tuitions? It is worrisome, but mostly for the individuals on the hook for ballooning payments, not for the whole financial system, as with mortgage-backed debt.
While the debate rages on over whether an educational bubble is really on the brink of bursting, it may be much clearer to see how trends in debt and educational payoff are causing major shifts in the idea of education in American culture. Far from yesterday’s assumption that all education is valuable education, and that paying a premium for a degree from a prestigious university is a safe investment for a secure, well-paying job, today’s resounding advice is much different: choose your field of study carefully, consider affordable options above prestige and don’t make the assumption that a degree from a high-profile institution will grant significant employment advantages.
WHO’S MAKING A KILLLING OFF STUDENT LOANS?
We look at five lenders that are raking in serious cash from America’s debt-ridden graduates VIDEO
Underneath the now-iconic red sculpture at Liberty Plaza, now cleared of tents and ringed by barricades plastic-cuffed together, several “students” stood draped in fake chains over their caps and gowns, brandishing debt bills instead of diplomas.
They might have been performing, as part of a press conference unveiling a national student debt refusal pledge, but the dramatization of what happens upon graduation to many of America’s students was spot-on. Despite a few moves by the Obama administration in past years and even recent months to lessen the burden of student loans, many graduates are still saddled with more debt than they can conceivably pay back and have little hope of finding a good job in the current economy.
Monday saw protests against tuition hikes on either end of the country; at New York’s Baruch College of the City University of New York, the Board of Trustees voted for another tuition hike and according to reports, a student kicked off the day’s actions byburning his Sallie Mae student loan bill. University of Californis, Davis, responding to the brutal pepper-spraying of students last week, also kept its focus on economic issues, chanting, “No cuts, no fees, education must be free,” and reportedly shutting down the financial aid building.
The talk of debt refusal or debt strikes, as I reported just recently, has ratcheted up along with the momentum of the Occupy Wall Street movement, as the occupiers made the connection between Wall Street bankers and student debt — right down to the bailouts, as student lenders received a bailout of their own from the federal government, which handed over billions in taxpayer dollars to the banks and lenders in exchange for loans that could no longer be sold on the secondary market.
Recent grads with mountains of debt know that without their tax dollars, these big lenders wouldn’t continue to exist. They want their loans forgiven or at least written down, and they think the lenders should pay. The principles laid out on theOccupyStudentDebtCampaign site call for free tuition at public universities, an end to interest on student loans, and for private and for-profit institutions to open their books so that students know how their money is being spent.
As of 2010, the government directly lends up to $31,000 to students for their undergraduate years. Yet that total isn’t even a year’s tuition at many schools, let alone enough to cover living expenses and textbooks for four full years. As the economic crisis continues to stifle the economy and strangle state budgets, even public universities are seeing tuition hikes — the students pepper-sprayed at U.C. Davis were protesting a proposed hike in their tuition a full 81 percent in four years. So many students turn to private lenders to fill the gap between what the government will provide and what they realistically need to pay for school. Though those private lenders no longer get direct government subsidies, many of them still have billions on the books in federally subsidized debt, and even the private loans (often at variable interest rates, vulnerable to hikes when borrowers can least afford them) still have protections unlike almost any other type of debt, as student loans cannot be discharged in bankruptcy.
Jon Walker at FireDogLake described the now-defunct federally subsidized private lending system thus:
“The Federal Family Education Loan Program (FFEL) was a classic lemon socialism program. It provided a nearly total government guarantee for ’private’ student loans. If the loans did well, the large financial companies got the profit, if they didn’t preform, the government socialized the loses. These broken incentives spurred risky behavior from the companies.”
“Student loans are among the most lucrative you can make because the borrower has no protections and the creditor is afforded extraordinary powers,” noted Andrew Ross, New York University professor and labor expert, at the student debt press conference. Ross spoke, too, of the need for professors to work in solidarity with the students on this issue since their salaries are paid through the debt of their students.
“Our public universities, once the democratic gold standard worldwide, are increasingly and ruinously dependent on debt financing from the people they are supposed to serve,” he said.
So just who are the lenders profiting from the massive student debt load?
You already know some of the names: JPMorgan Chase, U.S Bank, Citi, Bank of America. Others are non-bank student lenders. What all of them have in common, though, is that their practices are shrouded in secrecy. A recent release from the Consumer Financial Protection Bureau, the brainchild of now-Senate candidate Elizabeth Warren, called for an investigation into the industry:
“It has been operating in the shadows for too long,” Raj Date, the Treasury Department adviser who is running the Consumer Financial Protection Bureau, said in a release. “Shedding light on this industry will benefit students, lenders, and the market as a whole.”
Here, we take a look at five of the lenders raking in the cash off the backs of the U.S.’s students.
1. Sallie Mae
The SLM Corp., better known as Sallie Mae (and originally called the Student Loan Marketing Association), is the largest student lender in the United States. It was created in 1972 as a government-sponsored enterprise, but fully privatized in 2004. It also services loans provided by the federal government, and holds, services and collects loans made under the now-discontinued Federal Family Education Loan Program (FFELP), the federally subsidized private lending program that was recently replaced with direct federal loans. These loans were, up until the end of the program, Sallie Mae’s main source of income.
And just like in the mortgage market, Sallie Mae has been accused of making “subprime” loans to borrowers who will be attending for-profit or trade schools that have low graduation rates, making the loans a bad risk. Stephen Burd at the New America Foundation’s Higher Ed Watch wrote in 2008, “Still, Sallie Mae won’t overtly admit fault and poor management. Instead, the company and its promoters on Wall Street have been testing another explanation for its difficulties. An analyst with CreditSights Inc., in New York, recently tried it out when he told Bloomberg.com that the loan giant had been ‘blind-sided’ by the rising default and delinquency rates on the subprime private loans it had made to low-income and working-class students attending trade school of dubious quality.”
The last year that the FFELP existed, Sallie Mae held a frightening $154.1 billion in FFELP loans.
Like all of the student lenders, in 2008, Sallie Mae got what amounted to a sizable government bailout from the Ensuring Continued Access to Student Loans Act (ECASLA), which the Campaign for America’s Future described in a report as one that “allowed lenders like Sallie Mae to sell loans back to the Department of Education through a number of loan-purchase programs.” On the strength of that government bailout, the company’s profits surged to $324 million.
The CEO of Sallie Mae, Albert Lord, according to CAP “has reaped more than $225 million from the student loan business over the course of his career. In 2008, even as profits declined, Lord received $4.7 million in total compensation. He has used a portion of the proceeds to build himself a private golf course.”
Sallie Mae has spent millions lobbying against student loan reform, including lobbying the nonpartisan Congressional Budget Office, which made recommendations on the cost savings of the government’s switch to direct lending. Over the last three campaign cycles (2012, 2010 and 2008) Sallie Mae’s PAC has spent $1,583,557, favoring Democrats in ’08 and ’10 but so far this year favoring the GOP.
In 2010, when Citigroup decided to get out of the student loan business, Sallie Mae paid $1.2 billion for the rights to collect payments and service $28 billion in federally backed loans.
2. Wells Fargo
Wachovia and Wells Fargo were the third- and fourth-largest originators of federally subsidized private loans under FFELP in 2009, with $5.54 billion and $5.14 billion, respectively. After their merger, the resultant behemoth is the country’s second-largest private student lender.
As we reported recently at AlterNet, Wells Fargo reported profits of $12.36 billion in 2010, and is No. 23 on the Fortune 500, just above Procter & Gamble. Headquartered in California, the bank has $1.26 trillion in assets and $93 billion in revenues. And, of course, it got $25 billion in TARP funds from the government and borrowed another $300 billion through the Federal Reserve during the financial crisis, which it helped create — Wells Fargo is the country’s largest consumer lender and is the only one of the nation’s big banks that offers payday advance loans, which it calls “Direct Deposit Advance” and has direct financial connections to six of the top seven payday lenders.
The company has faced allegations of racial bias in its mortgage lending processes, though there’s no information about similar allegations of its student lending. Salon reported:
“Wells Fargo has a history of targeting vulnerable communities for risky financial products. At the height of the subprime lending mania in 2006, the bank was more likely to loan subprime mortgages to Latinos and African-Americans than whites, according to a September 2009 report by the Center for American Progress, a process known as “reverse red-lining.” For financially stable borrowers, the targeting was even starker: Middle-class blacks were four times more likely than middle-class whites to get a dangerous mortgage. Middle-class Latinos were nearly three times more likely.”
Wells Fargo is now offering a new fixed-rate private student loan, which would allow borrowers to lock in one rate for the life of their loan; however, the rates can be high — up to 14 percent for those attending community colleges or trade schools, or in other words, for lower-income borrowers.
In Minnesota recently, a group of Occupy-affiliated activists “mic-checked” Wells Fargo CEO John Stumpf, calling him out for his bank’s foreclosure and student debt policies.
After buying the remains of Citi’s Student Loan Corp., Discover Financial Services became the third-largest provider of private student loans. Best known for the Discover Card, of course, the company’s website proclaims:
“The company operates the Discover card, America’s cash rewards pioneer, and offers personal and student loans, onlinesavings products, certificates of deposit and money market accounts through its Discover Bank subsidiary.”
According to Canadian Business magazine, of Discover’s $52.51 billion in total loans (as of May 31, 2011) $4.57 billion was student loans, up from $820 million the previous year — which reflects the buyout of Citi’s loans.
Harit Talwar, the company’s vice president for US Cards, said of student lending at a conference in May, “We really like this business. In the U.S., as you know, education costs are increasing much faster than income. And therefore, students need funding for tuition fees.”
Discover’s PAC has spent $2,221,136 over the last three election cycles on candidates, mostly to Republicans.
Based in Lincoln, Neb., NelNet was founded in 1978 as the UNIPAC Loan Service Corp. and renamed NelNet in 1996. It reported net income of $165.5 million for three quarters of 2011, and has net student loan assets of $24.6 billion. Its press release states:
“In September 2009, Nelnet began servicing student loans for the Department of Education (Department) under a contract that will increase the company’s fee-based revenue as the servicing volume increases. At September 30, 2011, the company was servicing $44.6 billion of loans for 3 million borrowers on behalf of the Department, compared with $21.8 billion of loans for 2.5 million borrowers on September 30, 2010. Revenue from this contract increased to $12.8 million for the third quarter of 2011, up from $8.7 million for the same period a year ago.”
That’s $12.8 million in a quarter for servicing federal loans.
The lender has been riddled with controversy; in 2006, Inside Higher Ed reported that NelNet had overcharged the government about a billion dollars. (They settled in 2010 for $55 million to resolve a whistle-blower lawsuit — which also targeted Sallie Mae.) And Higher Ed Watch reported in 2007, in a piece called “NelNet’s Friend with Benefits”:
“Amidst revelations this spring of industry wide kickbacks, improper inducements, and gifts from student loan providers to colleges and universities, Nelnet quickly shut down a Nebraska investigation into its activities by agreeing to provide $1 million to the state in support of a national financial aid awareness campaign.
As we reported two weeks ago, seeking higher office in Nebraska with Nelnet’s support can be a lucrative endeavor. Democratic Sen. Ben Nelson received almost $65,000 in the 2005-2006 election cycle alone from Nelnet and Union Bank executives and officials. This June, Nelson co-sponsored an amendment that would have sent $4 billion in financial aid earmarked for students instead to for-profit student loan companies like Nelnet. Nelson’s amendment lost 61-36.”
NelNet’s PAC has spent $398,731 on campaign donations since 2008, and it’s spent $2,780,000 on lobbying since 2007; its lobbyists have included Clark Lytle Gelduldig & Cranford, the firm recently outed by Chris Hayes on MSNBC as doing opposition research on the Occupy Wall Street movement.
JPMorgan this year became the country’s largest bank by asset size, surpassing the troubled Bank of America, and its private student loan division came into shape when it purchasedCollegiate Funding Services in 2006, creating Chase Student Loans.
In 2009, Chase held $11.1 billion in FFELP loans, not a huge amount when you consider its $2.29 trillion in current assets. Still, the giant has been accused of some shady lending practices.
Back in 2007, NPR reported:
“The House Education and Labor Committee says it has evidence that JPMorgan Chase paid five student aid officials to do work for the bank while they were still on their school’s payroll. JPMorgan Chase confirmed it did pay school officials to do work related to student loans, but the bank says it doesn’t do that kind of thing anymore.
The company says it has also stopped throwing lavish parties for university officials, like the $70,000 cruise in New York Harbor that student aid officers enjoyed in 2005.”
JPMorgan Chase spends lavishly on campaigns and lobbying as well, dropping $5.8 million in just the last year on lobbyists and having given $109,750 to Mitt Romney, $79,150 to Virginia Sen. Mark Warner, $55,750 to Tennessee Sen. Bob Corker, and $37,439 to Barack Obama.
And just recently, the bank was pushed to reinstate a deferment program for active duty military servicepeople, after NBC News reported on a family that “received a letter alerting them the bank decided to end the program and would no longer allow active-duty troops to delay paying their student loans, even if they were away at war.”
SEVEN WAYS TO FIX THE STUDENT DEBT CRISIS
Some protesters urged Congress to forgive all student debt, which now totals roughly $1 trillion dollars, but that was clearly a non-starter.
Leading financial aid expert Mark Kantrowitz, the publisher of Finaid, recently posted a paper on the website of the National Association of Student Financial Aid Administrators that outlines ways to help reduce student debt.
Here are seven of Kantrowitz’s suggestions, including perhaps the most controversial — allowing graduates to once again be able to discharge student debt in bankruptcy court
1. Congress should repeal the exception to bankruptcy discharges for federal and private student loans. There are anti-abuse provisions in the U.S. Bankruptcy Code that are sufficient to prevent deadbeats from walking away from their debt after graduation.
2. The buying power of the federal Pell Grant has dropped significantly and needs to be dramatically boosted. Twenty-five years ago, the Pell Grant covered a third of the cost of college for low-income students, but now it covers less than a fifth of the cost. Raise the Pell Grant from $5,550 to $11,000.
3. Congress should make the income-based repayment plan available immediately for all federal student loan borrowers, including borrowers already in repayment. Currently only 2.25 percent of the 36 million federal student loan borrowers are participating in the income-based repayment option, although 10 percent are eligible.
5. Make all incoming students participate in a financial literacy mini-course during orientation or their first semester.
6. Students should be required to read and sign a statement about their cumulative debt before they can borrow more money. Kantrowitz proposes something like this:
You have borrowed a total of $_____ so far to pay for your education. If you continue borrowing at the same rate, your debt at the start of repayment (including capitalized interest) will total $_____. This money is a loan and must be repaid with interest. The loan payments are estimated to be $______ a month, assuming level repayment with a standard 10-year repayment term. You are responsible for repaying this loan even if you aren’t satisfied with the quality of the education you received or are unable to get a good job after graduation.
7. Colleges must take steps to prevent students from graduating with excessive debt even if that means students enroll at different institutions.
STUDENT DEBT IS STIFLING HOME SALES
Roshell Schenck has a Ph.D. in pharmacy and earns $125,000 a year. Yet, because she has more than $110,000 in student loan debt, counselors have told her she can’t qualify for a mortgage. “I’d love to buy and can afford to buy,” says the 28-year-old graduate of Lake Erie College of Osteopathic Medicine in Erie, Pa. With lenders scrutinizing college loans more closely than in previous years, it’s almost impossible for borrowers such as Schenck to get approved for mortgages. “My debt is crushing my chances of purchasing a home.”
Last year outstanding education debt passed credit-card debt for the first time, according to Mark Kantrowitz, publisher of FinAid.org, a student loan website. Totaling close to $1 trillion, America’s mounting pile of outstanding student debt is a growing drag on the housing recovery, keeping first-time home buyers on the sidelines and limiting the effectiveness of record-low interest rates.
According to a recent Federal Reserve study, only 9 percent of 29- to 34-year-olds got a first-time mortgage from 2009 to 2011, compared with 17 percent 10 years earlier. “First-time home buyers are typically an important source of incremental housing demand, so their smaller presence in the market affects house prices and construction quite broadly,” Fed Chairman Ben Bernanke said at a homebuilders’ conference in Orlando on Feb. 10.
Recent college graduates carry an average debt load of more than $25,000, limiting their ability to qualify for mortgages even if they’re able to land a job in a market with an unemployment rate of 9 percent for 25- to 34-year-olds. Dubbing it a “student loan debt bomb,” the National Association of Consumer Bankruptcy Attorneys (NACBA) warned on Feb. 7 about the effects of rising student debt on recent graduates, parents who co-signed their loans, and older Americans who’ve gone back to school for job training.
“Just as the housing bubble created a mortgage debt overhang that absorbs the income of consumers and renders them unable to engage in consumer spending that sustains the economy, so too are student loans beginning to have the same effect, which will be a drag on the economy for the foreseeable future,” John Rao, vice president of the NACBA, said on a conference call.
People aged 25 to 34 made up 27 percent of all home buyers in 2011, the lowest share in the past decade and six percentage points below their 33 percent share in 2001, according to the National Association of Realtors. “Students coming out of college are burdened with more debt than traditionally they have been, and they are also coming into an economy that is underperforming previous recoveries,” says Rick Palacios, a senior research analyst at John Burns Real Estate Consulting in Irvine, Calif.
Palacios says first-time buyers are key to a housing recovery because they allow current owners to move into larger, pricier homes. “Move-up buyers need somebody to purchase their homes to move,” he says. “You need that first leg in the recovery to materialize.”
Since the overall number of first-time home buyers has fallen, people aged 25 to 34 still accounted for 52 percent of that group last year, near the average since 2005, according to the Realtors group. Still, almost 6 million Americans in that group lived with their parents in 2011, up from 4.7 million when the recession began in 2007, according to U.S. Census Bureau data.
Although housing prices have fallen by about one-third from their 2006 peak, young adults who are starting to move out of their parents’ houses want to rent, not buy. While single-family housing starts posted their worst year since 1963 last year, multifamily housing construction has surged as more Americans rent.
It may take years before young people return to the market as home buyers. For her part, Schenck, who lives in Waterford, Pa., and works as a pharmacy manager for a grocery chain, still wants to buy at some point. She’s trying to build enough savings for a larger down payment, to increase her odds of getting a mortgage. “I haven’t given up hope of one day owning my own home,” says Schenck. Still, “the dream feels like it’s farther out of reach than I ever thought it would be.”
The bottom line: Only 9 percent of 29- to 34-year-olds got a first-time mortgage from 2009 to 2011, vs. 17 percent 10 years earlier.
The student loan crisis finally reached center stage in Washington after the House GOP budget called for letting interest rates double on government-subsidized loans (and for deep cuts in Pell grants and other student support). If it passes, students who borrow the maximum will end up paying as much as $1,000 a year in added interest. President Obama sensibly called for extending the lower rate, stumping at colleges and on talk-shows to enlist students and others in the cause.
Republican leaders quickly realized the perils of angering young voters. In another flip-flop, Mitt Romney decided to support extending the lower rate, while the House GOP passed an extension but taunted the president by stipulating that it be paid for with money taken from the preventive health fund created by the Affordable Care Act. Senate Democrats propose paying for it by closing a loophole that doctors, lawyers and small businesses use to avoid payroll taxes.
Ignored in the standoff is that even at the lower rates, more and more students can’t afford the college education or advanced training everyone but Rick Santorum believes they need. Since 1982 the cost of living has doubled and healthcare costs have tripled; college tuition and fees have exploded more than four times. All this comes amid revelations about the hundreds of billions in loans—at below-market rates—ladled out to the banks by the Federal Reserve and Treasury during the financial crisis.
The student loan crisis has had two effects. The United States, once the leader in the percentage of college graduates age 25 to 34, has dropped to sixteenth among thirty-six developed nations, with more and more students dropping out because they can’t afford the rising costs. The second effect is ruinous debt: the average indebted college graduate is $25,000 in hock. Total student debt exceeds $1 trillion—now greater than credit card debt. And student debt is inescapable. Bankruptcy rarely extinguishes it; even Social Security payments can be garnished in case of delinquency.
These debts weigh down the entire economy. Many students are forced to move back in with their parents after graduation, which depresses the housing market. Public interest work is less affordable; as Pam Brown of the Occupy Student Debt Campaign puts it, “The debt makes us very individual; we can’t afford to help someone else.” Now more than half of college graduates under 25 can’t find full-time work, and wages for recent graduates are lower than they were in 2000. Not surprisingly, delinquencies—and the fines and penalties that follow—are rising.
It is long past time for reform. Representative Hansen Clarke introduced a bill that would forgive up to $45,520 in student debt after a borrower makes ten years of payments at 10 percent of income. The Occupy Student Debt Campaign is calling for a write-off of existing debt as well as free public higher education. Students in California are pushing an initiative that would make four years of state university free for all full-time, in-state students who maintain at least a 2.7 GPA or do seventy hours of community service a year. Lost tuition would be paid for with a modest surtax on those earning more than $250,000.
Making public college (or advanced training) free for those who merit it isn’t a radical idea. For many years the United States led the world in free K–12 education. The GI Bill paid for college or advanced training for a generation of vets after World War II, which gave us the best-educated citizenry in the world and broadened the middle class. As recently as 1980, Pell grants covered 69 percent of public college costs; now they cover less than 35 percent.
We can easily afford the estimated $30 billion annual cost of free college education; a financial-transactions tax would raise many times that sum, and it would inhibit destabilizing speculation on Wall Street. We would reap the benefits of a better-educated citizenry, and young people could be more entrepreneurial and more public-spirited.
But Washington is too paralyzed by the elite fixation on austerity and too polarized by partisan divides to consider anything this bold. The Occupy Student Debt Campaign is right: reform will come only from outside the Beltway, when students, parents and those who understand how student debt weighs down our economy come together to demand it.
STUDENT DEBT IN DEPTH
By The New York Times, May 15, 2012
For years college costs rose faster than family income, and more recently states have cut back on public college funding. No wonder there’s a crisis?? The New York Times reports:
Part 1 A Generation Hobbled by Student Debt
A Generation Hobbled
by the Soaring Cost of College
By ANDREW MARTIN and ANDREW W. LEHREN
The New York Times, Published: May 12, 2012
(Reprinted under section 107 of the US Copyright Act which allows for fair use of copyrighted materials for nonprofit educational purposes.)
ADA, Ohio — Kelsey Griffith graduates on Sunday from Ohio Northern University. To start paying off her $120,000 in student debt, she is already working two restaurant jobs and will soon give up her apartment here to live with her parents. Her mother, who co-signed on the loans, is taking out a life insurance policy on her daughter.
“If anything ever happened, God forbid, that is my debt also,” said Ms. Griffith’s mother, Marlene Griffith.
Ms. Griffith, 23, wouldn’t seem a perfect financial fit for a college that costs nearly $50,000 a year. Her father, a paramedic, and mother, a preschool teacher, have modest incomes, and she has four sisters. But when she visited Ohio Northern, she was won over by faculty and admissions staff members who urge students to pursue their dreams rather than obsess on the sticker price.
“As an 18-year-old, it sounded like a good fit to me, and the school really sold it,” said Ms. Griffith, a marketing major. “I knew a private school would cost a lot of money. But when I graduate, I’m going to owe like $900 a month. No one told me that.”
With more than $1 trillion in student loans outstanding in this country, crippling debt is no longer confined to dropouts from for-profit colleges or graduate students who owe on many years of education, some of the overextended debtors in years past. Now nearly everyone pursuing a bachelor’s degree is borrowing. As prices soar, a college degree statistically remains a good lifetime investment, but it often comes with an unprecedented financial burden.
Ninety-four percent of students who earn a bachelor’s degree borrow to pay for higher education — up from 45 percent in 1993, according to an analysis by The New York Times of the latest data from the Department of Education. This includes loans from the federal government, private lenders and relatives.
For all borrowers, the average debt in 2011 was $23,300, with 10 percent owing more than $54,000 and 3 percent more than $100,000, the Federal Reserve Bank of New York reports. Average debt for bachelor degree graduates who took out loans ranges from under $10,000 at elite schools like Princeton and Williams College, which have plenty of wealthy students and enormous endowments, to nearly $50,000 at some private colleges with less affluent students and less financial aid.
Here at Ohio Northern, recent graduates with bachelor’s degrees are among the most indebted of any college in the country, and statewide, graduates of Ohio’s more than 200 colleges and universities carry some of the highest average debt in the country, according to data reported by the colleges and compiled by an educational advocacy group. The current balance of federal student loans nationwide is $902 billion, with an additional $140 billion or so in private student loans.
“If one is not thinking about where this is headed over the next two or three years, you are just completely missing the warning signs,” said Rajeev V. Date, deputy director of the Consumer Financial Protection Bureau, the federal watchdog created after the financial crisis.
Mr. Date likened excessive student borrowing to risky mortgages. And as with the housing bubble before the economic collapse, the extraordinary growth in student loans has caught many by surprise. But its roots are in fact deep, and the cast of contributing characters — including college marketing officers, state lawmakers wielding a budget ax and wide-eyed students and families — has been enabled by a basic economic dynamic: an insatiable demand for a college education, at almost any price, and plenty of easy-to-secure loans, primarily from the federal government.
The roots of the borrowing binge date to the 1980s, when tuition for four-year colleges began to rise faster than family incomes. In the 1990s, for-profit colleges boomed by spending heavily on marketing and recruiting. Despite some ethical lapses and fraud, enrollment more than doubled in the last decade and Wall Street swooned over the stocks. Roughly 11 percent of college students now attend for-profit colleges, and they receive about a quarter of federal student loans and grants.
In the last decade, even as enrollment at state colleges and universities has grown, some states have cut spending for higher education and many others have not allocated enough money to keep pace with the growing student body. That trend has accelerated as state budgets have shrunk because of the recent financial crisis and the unpopularity of tax increases.
Nationally, state and local spending per college student, adjusted for inflation, reached a 25-year low this year, jeopardizing the long-held conviction that state-subsidized higher education is an affordable steppingstone for the lower and middle classes. All the while, the cost of tuition and fees has continued to increase faster than the rate of inflation, faster even than medical spending. If the trends continue through 2016, the average cost of a public college will have more than doubled in just 15 years, according to the Department of Education.
Much like the mortgage brokers who promised pain-free borrowing to homeowners just a few years back, many colleges don’t offer warnings about student debt in the glossy brochures and pitch letters mailed to prospective students. Instead, reading from the same handbook as for-profit colleges, they urge students not to worry about the costs. That’s because most students don’t pay full price.
Even discounted, the price is beyond the means of many. Yet too often, students and their parents listen without question.
“I readily admit it,” said E. Gordon Gee, the president of Ohio State University, who has also served as president of Vanderbilt and Brown, among others. “I didn’t think a lot about costs. I do not think we have given significant thought to the impact of college costs on families.”
Of course, economists and many parents say that the only thing worse than graduating with lots of debt is not going to college at all, since study after study has shown that graduates earn more over a lifetime. And most college students in the United States manage to eventually pay back their student loans.
To that end, the Obama administration has given out more grants and loans than ever to more and more college students with the goal of making the United States first among developed nations in college completion. The balance of federal student loans hasgrown by more than 60 percent in the last five years. And in 2007, Congress made sure the interest rates on many of those loans were well below commercial rates; currently, a debate over keeping those lower rates from doubling in July is roiling lawmakers.
But even if student loans are what many economists consider “good debt,” an increasing number of borrowers are struggling to pay them off, and in the process becoming mired in a financial morass.
Education Department data shows that payments are being made on just 38 percent of the balance of federal student loans, down from 46 percent five years ago. The balances are unpaid because the borrowers are still in school, have postponed payments or have stopped paying altogether.
Nearly one in 10 borrowers who started repayment in 2009 defaulted within two years, the latest data available — about double the rate in 2005.
Economists do not predict a collapse of the student loan system, which would, in essence, mean wholesale default. And if there were one, it would be unlikely to ripple through the economy with the same devastating impact as the mortgage crash. Though now larger than credit card and other consumer debt, the student loan balance remains smaller than the mortgage market, and most student loans are issued by the federal government, meaning banks wouldn’t be affected as much.
Still, economists say, growing student debt hangs over the economic recovery like a dark cloud for a generation of college graduates and indebted dropouts. A study of recent college graduates conducted by researchers at Rutgers University and released last week found that 40 percent of the participants had delayed making a major purchase, like a home or car, because of college debt, while slightly more than a quarter had put off continuing their education or had moved in with relatives to save money. Roughly half of the surveyed graduates had a full-time job.
“I’ll be paying this forever,” said Chelsea Grove, 24, who dropped out of Bowling Green State University and owes $70,000 in student loans. She is working three jobs to pay her $510 monthly obligation and has no intention of going back.
“For me to finish it would mean borrowing more money,” she said. “It makes me puke to think about borrowing more money.”
‘Nothing Is Free’
Christina Hagan is an Ohio lawmaker who says students need to understand that attending college is not an entitlement. Last year, she was appointed to fill a seat once occupied by her father in the Ohio House of Representatives.
Ms. Hagan, 23, is also a college student.
She will graduate shortly from Malone University, an evangelical college in Canton, Ohio, with more than $65,000 in student debt (among her loans is one from a farm lender; she had to plant a garden to become eligible). Though she makes $60,000 a year as a state representative, she plans to begin waiting tables in the next few weeks at Don Pancho’s, a Mexican restaurant in Alliance, Ohio, to help pay down her student loans and credit cards. She pays about $1,000 a month.
“I placed a priority on a Christian education and I didn’t think about the debt,” said Ms. Hagan, who says she takes responsibility for her debt and others should do the same. “I need my generation to understand that nothing is free.”
While Ms. Hagan’s perspective is unusually personal, it is a common view among lawmakers here in Ohio and many states. Across the country, elected officials are increasingly unwilling to assume a large share of the bill for public colleges and universities, which seven out of 10 students attend. The change has contributed to sharp increases in tuition and more fund-raising — and the need for students to borrow more.
From 2001 to 2011, state and local financing per student declined by 24 percent nationally. Over the same period, tuition and fees at state schools increased 72 percent, compared with 29 percent for nonprofit private institutions, according to the College Board. Many of the cuts were the result of a sluggish economy that reduced tax revenue, but the sharp drop in per-student spending also reflects a change: an increasing number of lawmakers voted to transfer more of the financial burden of college from taxpayers to students and their families. (Local funding is a small percentage of the total, and mostly goes to community colleges.)
“To say that tuition goes up because the state doesn’t pay enough money, well, that is the taxpayers’ money,” said Ohio’s governor, John Kasich, a Republican elected in 2010 whose budget included cuts to higher education because of the end of federal stimulus money.
Donald E. Heller, an expert on higher education, said elected officials in both parties had figured out that colleges were one of the few parts of state government that could raise money on their own. If lawmakers cut state financing, the schools could make it up by raising tuition.
“It lets legislators off the hook and makes universities look like the bad guy,” said Mr. Heller, dean of the College of Education at Michigan State University.
Ohio’s flagship university, Ohio State, now receives 7 percent of its budget from the state, down from 15 percent a decade ago and 25 percent in 1990. The price of tuition and fees since 2002 increased about 60 percent in today’s dollars.
The consequence? Three out of five undergraduates at Ohio State take out loans, and the average debt is $24,840.
If any state is representative of the role government has played in the growth of student debt, Ohio makes a good candidate. While other states have made steeper cuts in recent years because of the recession, Ohio has been chipping away at it far longer. It now ranks sixth from the bottom in financing per student, at $4,480.
In the late 1970s, higher education in Ohio accounted for 17 percent of the state’s expenditures. Now it is 11 percent. By contrast, prisons were 4 percent of the state’s budget in the late 1970s; now they account for 8 percent. Federal mandates and court orders have compelled lawmakers to spend more money on Medicaid and primary education, too. Legislators could designate a greater percentage of the budget to higher education by raising taxes, but there is no appetite for that. Governor Kasich has signed a pledge not to raise taxes, as have about two dozen legislators.
Some Ohio elected officials say state colleges and universities have brought the debt problem upon themselves.
They suggest, for example, that state schools are bloated, antiquated and don’t do a good enough job graduating students or training them for the work force. Some complain about the salaries of football coaches and college presidents, like Mr. Gee, who has a compensation package of $2 million a year as president of Ohio State. Mr. Kasich questions why all state universities need to offer every major, like journalism or engineering, instead of parceling those programs among the schools.
“It’s not just inefficiencies,” said the governor, an Ohio State graduate. “It’s, ‘I want to be the best in this.’ It’s duplication of resources. It’s a sweeping change that is needed across academia.”
There is an ideological and political tug of war as well. State Representative John Patrick Carney, a Democrat, said if legislators were serious about financing higher education they could find a way, like eliminating tax breaks for corporations. He noted that even as funds for higher education were being reduced, Mr. Kasich and the Republican-controlled Legislature eliminated the state’sestate tax, which will cost the state an estimated $72 million a year.
Mr. Carney said he worried that the constant tuition and fee increases would limit access to college for lower- and middle-income students — a founding principle of public universities. At least two-thirds of Ohio lawmakers attended public colleges or universities, including Mr. Carney, an Ohio State graduate.
“It’s hard to say it’s affordable when students leave with that much debt,” he said.
The new financial reality for colleges has left administrators scrambling to maintain academic quality and all-important rankings with diminished state resources. That puts an even higher premium on attracting top-tier students — the rankings depend on them — and playing down the burdens of college debt.
Buy Now, Pay Later
At Ohio State, “college can be a reality for everyone, no matter your income or background,” its Web site says, while at Ohio Northern, future students are urged to get over the “sticker shock,” and focus instead on “return on investment.”
Oberlin College’s Web site tells prospective students that its financial aid policy is simple: “We meet the full demonstrated financial need of every admitted student.” The University of Dayton declares itself “one of the most affordable private Catholic schools in the country” and a “lifetime investment, appreciating over the course of time.”
The costs for these colleges? At Ohio State, about $25,000 a year for tuition and fees, room and board and living expenses; at Ohio Northern, about $48,000; at Oberlin $60,000; and at Dayton $48,000.
Colleges are aggressively recruiting students, regardless of their financial circumstances. In admissions offices across the country, professional marketing companies and talented alumni are being enlisted to devise catchy slogans, build enticing Web sites — and essentially outpitch the competition.
Affordability, or at least promising that the finances will work out, is increasingly a piece of the pitch.
Almost all colleges promote the money they give away in financial aid, though generally only the most elite schools — like Oberlin in Ohio — are able to provide enough in grants and scholarships to significantly keep student debt down.
College marketing firms encourage school officials to focus on the value of the education rather than the cost. For example, an article on the cover of Enrollment Management, a newsletter aimed at college admissions officials, urged writers of admissions materials to “avoid bad words like ‘cost,’ ‘pay’ (try ‘and you get all this for…’), ‘contract’ and ‘buy’ in your piece and avoid the conflicting feelings they generate.”
“There are direct marketing ‘words’ that can make or break your piece,” the article, published in 2009, added.
The financial aid award letters to newly admitted students can also be a minefield for students and parents sorting through the true costs of a school. Some are written in a manner that suggests the student is getting a great deal, by blurring the line between grants and loans or not making clear how much the student may have to pay or borrow.
A quick reading of an award letter from Drexel University, received by a New Jersey applicant in March, implied that the student would owe nothing and might actually walk away with money. The expected payment to Drexel, it said in highlighted bright yellow, would be a negative $5,900. The calculation presumed grants, student loans and a $42,120 loan taken out by the parents toward the $63,620 estimated cost — figures also included in the letter but not highlighted.
A Drexel spokeswoman said that the letter was not misleading and that it had not received complaints about it. But for many students, the financial realities of attending a college conflict with the optimistic rhetoric of campus tours, financial aid materials and salesmanlike admissions officers. And many of them don’t realize it until it is much too late.
“The overall message was, ‘It’s doable and normal to go into that much debt,’ ” said Jillian Potter, 23, who grew up in Ohio and attended Anderson University, a nonprofit private Christian school in neighboring Indiana.
Ms. Potter figured she would have to borrow about $10,000 a year. But the tuition increased every year, and because she didn’t declare a major until her junior year, she needed five years to graduate.
A social worker, she now owes $80,000. “I try not to think about it because it’s really depressing,” she said.
For Evan Frank, Ashland University, a nonprofit private school in Ohio, dangled the possibility of a sports scholarship, he said. Mr. Frank liked the campus and was promised a spot on the football team. His high school guidance counselor encouraged him and so did his family, though they couldn’t help financially.
Ashland offered to knock about $12,000 off the costs, and when Mr. Frank called financial aid to ask for more, they suggested he keep applying for scholarships. No one at the time said to consider a cheaper alternative, he said. Ashland costs about $42,000 a year.
“Maybe at the time I was a little naïve,” said Mr. Frank, 22, a senior who owes $80,000. “Everyone was like, ‘You can get grants, you can always get loans.’ I wanted to play football really bad, and I hoped eventually I’d get a football scholarship.”
Many students and parents don’t have a firm understanding of the cost of attending college, or the amount of debt they will incur. And most colleges aren’t much help. Student debt is not their primary concern in the end — the loan money usually gets deposited directly with the colleges, so they get paid either way — and the main job of the admissions staff, after all, is to admit students.
“Ultimately with everything in financial aid, from start to finish, the student and their family need to take responsibility and monitor their aid,” Melanie K. Weaver, the director of financial aid at Ohio Northern, said in an e-mail. “With over 3,000 on aid it is difficult for our office of 10 staff members to stay on top of every student.”
While there are standardized disclosure forms for buying a car or a house or even signing up for a credit card, no such thing exists for colleges.
Instead, college pricing is complicated by constant tuition increases, a vast array of grants and loans and a financial-aid system that discounts tuition for most students based on opaque formulas. “No one has a vested interest in simplifying the process but families,” said Mark Kantrowitz, the founder of FinAid, a Web site devoted to explaining college financial aid. “It obscures the price of a college and makes the choice of college not depend on the price but other factors.”
Federal regulations require financial aid officers to counsel students when they take federal loans and again when they graduate. The counseling typically consists of making sure they complete a brief online course about student loans and repayment.
Beyond that, it is up to the college to decide what, if any, debt counseling to provide. With a few exceptions, their track record is not very good, according to students and experts on college finance. Until Congress banned the practice a few years ago, some colleges outsourced counseling to private lenders, the same ones offering loans. Now many colleges do little beyond what is required by law, experts say.
Ohio Northern administrators said they were trying to come to grips with the growing debt of their students — an average of $48,886 for borrowers — at a time when enrollment is down slightly, as it is at many of the small nonprofit private colleges with which it competes.
Financial aid officers have not yet told any prospective students that they cannot afford to attend, school administrators said. But Ms. Weaver, the director of financial aid, noted, “We are having that conversation.”
Mr. Frank, at Ashland, said he did eventually receive financial counseling — on the day he arrived for football camp as a freshman.
A financial aid adviser suggested Mr. Frank rethink his decision to attend “because the way it’s looking you are going to be looking at a high amount of debt if you are going to stay here,” he recalled. “I wanted to play football really bad, and I was already moving in for camp,” he said. “I wasn’t going to turn back then.” He never did receive a football scholarship.
Officials at both Ashland and Anderson Universities said they provided thorough financial aid counseling to incoming students.
Ms. Griffith, the Ohio Northern student whose mother is taking out life insurance on her — a precaution that might be unnecessary because some lenders forgive loans upon death — said she wished someone had been frank with her about the consequences of taking on so much debt. (She also received grants.) She is searching for a full-time job in marketing, her major, while earning $225 a week at two restaurants.
“When I was young, I wanted to get out of Putnam County, get out of the cornfields,” said Ms. Griffith, who is from rural Ottawa, Ohio. “I would love to get away. But it would be more financially responsible if I got a job near here and lived with my parents.”
The Shadow of For-Profits
Wanda McGill has stopped opening her student loan bills.
She isn’t sure how much debt she has accumulated, though she thinks it’s about $100,000. But Ms. McGill, a 38-year-old single mother, knows for sure she cannot pay it.
Ms. McGill said she dropped out of DeVry University, a for-profit college with a branch in Columbus, two years ago after she ran out of money — even with the loans. She now makes $8.50 an hour working for an employment training center in Florida.
“I was promised the world and was given a garbage dump to clean up,” she wrote in an online complaint at consumeraffairs.com. “Like my life was not already screwed up with welfare and all.”
The student loan crisis has spread from for-profit colleges to more traditional institutions, but the for-profit colleges continue to represent the worst of the problem. Students complain that they were misled about the costs of education and that their job prospects were exaggerated. Government reports and lawsuits have accused some for-profit colleges of outright fraud, including doctoring attendance records or peddling near-worthless degrees.
The result? Students at for-profit colleges are twice as likely as other students to default on their student loans. Moreover, among students seeking a bachelor’s degree, only 22 percent succeed within six years, compared with 65 percent at nonprofit private schools and 55 percent at public institutions. (For-profit students, however, tend to do better at obtaining associate degrees and certificates.)
Leaders of the for-profit industry defended themselves, saying they were providing higher education for lower-class students that traditional colleges had left behind. “The reality is the type of students we attract have no other opportunity,” said Steven Gunderson, head of a leading trade organization. “We are the ones that provide a path to the middle class.”
Still, the outcomes for many students have been so poor — and the reported abuses and misdeeds by the colleges so abundant — that the for-profit colleges have played another role in the worsening debt problem: drawing attention away from nonprofit private and public colleges and universities, which have been slow to face public scrutiny.
The situation has parallels to the mortgage crisis of a few years ago, said Barmak Nassirian, associate executive director of the American Association of Collegiate Registrars and Admissions Officers. The for-profit colleges are like the subprime lenders — attracting the limelight because they represent the worst of the problem, he said.
“Mainstream higher ed can really self-righteously look at the big problem out there and say, ‘The problem lies with the other guy,’ ” Mr. Nassirian said. “If you are looking at highway robbery and raping and pillaging, that is true. But there are all kinds of unfortunate practices in traditional higher education that are equally as problematic that are reaching the crisis point.” Last year, Congress approved regulations to curb abuses in the for-profit sector, but there has been less focus on establishing broader rules for traditional colleges and universities.
The Obama administration has tried to make college pricing easier to understand; as of last year, colleges and universities were required to post calculators on their Web sites that explain the net price after grants and loans, but critics say they can be confusing, misleading or hard to find. And the administration has proposed that colleges be required to offer a “shopping sheet” to make it easier for families to measure the true costs and benefits.
“We just have to get them much more information,” said Education Secretary Arne Duncan. “If you’re going to college, you need to know not what the first year costs. You need to know what it’s going to cost for the long haul.”
But even with more information, students and their parents seem willing to pay the ever-escalating price of a college degree, which remains the key rung up the ladder of economic mobility.
Denise Entingh, 44, dropped out after two quarters at Columbus State Community College because she didn’t want to wait any longer to get into the nursing program. So she signed on at the Hondros School of Nursing, a for-profit college that advertises “No Waitlist!” on a billboard a few blocks from Columbus State.
Ms. Entingh said she expected to borrow about $45,000 to get a bachelor’s degree in nursing from Hondros, which costs more than three times as much as Columbus State.
“It scares the hell out of me,” she said of her debt load. “But I think it will be all right. I’m not going to worry about it right now. I had to take that plunge.”
Andrew Martin reported from Ada, Ohio, and Andrew W. Lehren from New York.
By ANDREW MARTIN
The New York Times, Published: May 14, 2012
(Reprinted under section 107 of the US Copyright Act which allows for fair use of copyrighted materials for nonprofit educational purposes.)
COLUMBUS, Ohio — In a wood-paneled office lined with books, sports memorabilia and framed posters (including John Belushi in “Animal House”), E. Gordon Gee, the president of Ohio State University, keeps a framed quotation that reads, “If you don’t like change, you’re going to like irrelevance even less.”
Mr. Gee, who is often identified with a big salary and spendthrift ways, says he has taken the quotation to heart, and he is now trying to persuade Ohio State’s vast bureaucracy, and the broader world of academia, to do the same.
At a time of diminished state funding for higher education and uncertain federal dollars, Mr. Gee says that public colleges and universities need to devise a new business model to pay for the costs of education, beyond sticking students with higher tuition and greater debt.
“The notion that universities can do business the very same way has to stop,” said Mr. Gee, who is also the chairman of a commission studying college attainment, including the impact of student debt.
College presidents across the country are confronting the same realization, trying to manage their institutions with fewer state dollars without sacrificing quality or all-important academic rankings. Tuition increases had been a relatively easy fix but now — with the balance of student debt topping $1 trillion and an increasing number of borrowers struggling to pay — some administrators acknowledge that they cannot keep putting the financial onus on students and their families.
Increasingly, they are looking for other ways to pay for education, stepping up private fund-raising, privatizing services, cutting staff, eliminating departments — even saving millions of dollars by standardizing things like expense forms.
And Wall Street is watching.
Moody’s Investors Service, in a report earlier this year, said it had a favorable outlook for the nation’s most elite private colleges and large state institutions, those with the “strongest market positions” that had multiple ways to generate revenue. Ohio State, for instance, received a stable outlook from Moody’s last fall, though the report cautioned about the school’s debt and reliance on its medical center for revenue.
But Moody’s issued a negative outlook for a majority of colleges and universities heavily dependent on tuition and state revenue.
“Tuition levels are at a tipping point,” Moody’s wrote, adding later, “We anticipate an ongoing bifurcation of student demand favoring the highest quality and most affordable higher education options.”
Colleges can be top-heavy with administrators and woefully inefficient, some critics say, and some have only recently taken a harder look at ways to streamline their operations.
“Schools are very good at adding new things, new programs,” said Sherideen S. Stoll, vice president for finance and administration at Bowling Green State University in Ohio. “We are not so good at looking at things we have been doing for 20 or 30 years and saying, ‘Should we be offering those academic programs?’ ”
At Bowling Green, 62 percent of graduates have debt that averages $31,515, the highest among Ohio public universities that publish the data. In addition to raising tuition, which has been limited by state-mandated caps, the university has laid off employees, encouraged early retirements, required unpaid furloughs and limited pay increases, Ms. Stoll said. The belt-tightening hasn’t yet reached the point that academic quality has suffered, she said, but Bowling Green may not be able to offer as much in the future.
“We’ve done everything and anything to try to operate much more efficiently,” she said.
The problems aren’t confined to public colleges. Administrators at some nonprofit private institutions said they too had come to realize they could not keep raising tuition and fees. Families have become more price-sensitive since the economic collapse and are seeking deeper discounts on the sticker price.
“We know the model is not sustainable,” said Lawrence T. Lesick, vice president for enrollment management at Ohio Northern University. “Schools are going to have to show the value proposition. Those that don’t aren’t going to be around.”
There is a dispute about why college costs have risen so much. Before the economic crisis, some critics argue, both public and private colleges participated in a costly “arms race” to provide better amenities to lure the best students and faculty: new dormitories with one student to a room, frequent sabbaticals for professors, upscale cafeteria food, expanded counseling services and gymnasiums that rival the fanciest health clubs in Manhattan.
Others say education is intrinsically expensive. Health care costs, for instance, have taken a toll, since colleges are labor-intensive. And the expense of keeping up with technology, like wireless Internet and new computers, is high. Here at Ohio State, where tuition has increased by nearly 60 percent since 2002, there is a gleaming new student union, climbing walls that can accommodate 50 students at a time and $2 billion in construction projects under way.
Mr. Gee’s compensation package this year, moreover, is worth about $2 million, and The Chronicle of Higher Education has called him the highest-paid public university president. The Dayton Daily News recently reported that Mr. Gee had billed Ohio State for $550,000 in travel in the last two years.
The travel expenses prompted some to question if Mr. Gee practices what he preaches.
“He’s very capable. He’s a very smart guy, and he’s engaging and all these things,” said Dale Butland, a spokesman for Innovation Ohio, a nonprofit policy research group. But he added, “Students and their parents who are struggling, not just with coming up with the money, but paying off the debt, I think there is a disconnect between what they are being asked to do and what they are seeing the leader of the university doing.”
Mr. Gee maintains that Ohio State is getting its money’s worth. On his watch, Ohio State has become a more prestigious university, he says, while remaining a relative bargain, even with fewer resources from the state. It now receives just 7 percent of its budget from the state.
Ohio State costs about $25,000 a year for in-state residents who live on campus. The average debt for graduates who borrow is $24,480.
A lanky 68-year-old who is known for his bow ties, horn-rimmed glasses and sometimes zany antics (he has shown up, unannounced, at 21st birthday parties for his students, which he finds on Facebook), Mr. Gee has had the top job at five universities, including twice at Ohio State. He returned to the Columbus campus in 2007 after stints at Brown and Vanderbilt. Mr. Gee acknowledges that college affordability and student debt are growing problems that university presidents long ignored. He said they now needed to address them quickly.
“We have not been as conscious about costs as we should be, and that has now come home to roost,” he said.
Like many other college presidents, Mr. Gee has set about trying to make Ohio State’s highly decentralized bureaucracy more efficient. He said he planned to find $1 billion in inefficient spending in the university’s $5 billion budget over the next five years and redirect the money toward priorities.
“We are like Noah’s Ark,” he said. “We do two of everything.”
The university saved $20 million simply by switching to common vendors for pens, copiers and overnight shipping; previously Ohio State’s 14 colleges chose their own. Creating a common expense report will save $75 million.
“When I got here, I asked to see their long-term financial model, and they brought me a paper for one year, and I said, ‘What?’ ” said Geoff Chatas, a former banker whom Mr. Gee hired in 2010 as chief financial officer. “Now we have a 15-year plan.”
Mr. Gee said he was considering selling off Ohio State’s airport and golf courses, and he might privatize campus parking, though faculty members are balking at the idea. Last year, Ohio State became the first public university to issue a 100-year bond, for $500 million.
He is also is trying to beef up Ohio State’s enrollment of out-of-state and international students, who bring in more tuition revenue and higher test scores. And, he is pressing donors for more money, a task in which he is particularly skilled.
At a ceremony to honor a $100 million donation from Leslie Wexner, the clothing magnate and Ohio State graduate, Mr. Gee choked back tears.
“Every time I get a lot of money I cry,” Mr. Gee told the crowd. “And I got a lot of tears left.”
SLOW JAMMING THE STUDENT DEBT CRISIS
INTEREST RATES TO DOUBLE ON FEDERAL STUDENT LOANS
Photo Credit: Bark
Interest rates on federal student loans will double unless Congress takes action by this summer to keep the low rates in place.
Currently federal student loans pay 3.4% interest but that rate is set to expire this summer. So unless Congress takes action to keep the rates low they will revert back to the old rate of 6.8%.
The big question now is if Congress will actually pass legislation that will hold the interest rate where it is currently considering that the low rate costs the U.S. government about $5.6 billion a year. In light of a budget conscious and deficit reducing Congress it is entirely plausible that the subsidy for the low rate federal student loans will be left to expire.
In recent sessions Congress has cut out subsidized loans for graduate students and $8 billion from the Pell Grant program. Under those changes graduate student would have to either start repaying their loans while in school or let interest start to build until after they graduate.
These changes going into effect July 1, 2012 will only make the cost of an unaffordable education even more unaffordable.
So what do you think, should Congress act to keep federal student loan rates at their current rate or let them double to help bring down the national deficit?
BALOONING STUDENT DEBT
their education than they owe for everything else they’ve ever purchased combined . . . electronics, groceries, vacations, furniture, all of it. That’s an amazing fact that’s also simultaneously depressing on so many levels.
Unfortunately, what lands a lot of these borrowers in truly dire financial straits isn’t the initial cost of attending said college/university. It’s the dangerous combination of loan defaults mixed with soaring interest rates that balloons many debts into gargantuan tangles of stress and anguish. This makes you wonder; if the total debt for students in 2011 is that much higher than it was in 2000, shouldn’t the colleges or government do something about it as compared to allow the bubble to grow? This post might have worked better around Halloween, so excuse the lateness, but here’s a few horror stories to help drive the point home.
– 42 year-old practicing physician Michelle Bisutti’s initial $250,000 loan more than doubled, yes doubled, to $550,000, the result of her deferring loan payments while she completed her residency, default charges, and relentlessly compounding interest rates. Among one of the unimaginably harsh charges: a single $53,870 fee for when her loan was turned over to a collection agency. Incredible.
– 32 year-old Fiona Burke’s (not her real name) student debt situation was scary enough at $163,000, but then she went and married a man who single-handedly added another $300,000 in debt to the bill, for a combined nightmare situation that’s now hovering right around half a million dollars. The couple was recently forced to move back in with her parents, and now Burke’s holding down three part-time jobs in order to make her $750 a month student loan payments. Last spring, her payments rose to over $1,050 monthly. Meanwhile, a few of her husband’s loans have already slipped into default.
– And yes, I saved the worst for last. 66 year-old college professor William Bell (not his real name) is a fugitive who fled the country in 2006 because of his astronomical student debt of, . . . are you ready for this . . . $1.75 million. His initial loan was just over 100 grand but, as you might have guessed, thanks to 25 years worth of late fees and penalties, his debt soared 10-fold. And the way things stand for him now, Bell can’t even pay the interest on the loan.
According to the most recent ‘guess-timations,’ combined student debt totals are expected to reach 1 trillion by the end of 2011. And just so we’re clear, here’s what 1 trillion dollars looks like written out: $1,000,000,000,000. That’s a one with twelve zeros behind it. Yikes. I think I better end this post . . . I’m actually starting to scare myself now…
by Stephen Lendman
Higher education today isn’t like it used to be. US students face crisis conditions. Washington and lenders wage financial war on them. In addition, dozens of budget-strapped states cut funds to public colleges and universities. Students are directly impacted by sharp tuition hikes (double-digit at some schools) and less financial aid. As a result, many thousands are entirely shut out. Others relying on student loans face permanent debt bondage. By end of 2011, student loan debt will top $1 trillion. It already exceeds credit card indebtedness. Moreover, in the past year alone, students borrowed over $100 billion, double the amount a decade ago adjusted for inflation.
Borrowing is one thing, repaying another. Therein lies the rub. Many former students end up debt slaves for life. With interest, collection charges, penalties, and other costs, some burdens exceed $100,000, Over their lifetime, they can rise five-fold or more for some.
Repaying graduate school debt pushes it higher. New medical professionals can owe $200,000 or more at first. An unidentified one said he’ll pay $1,000 a month for the next 30 years. With higher inflation, monthly costs will rise exponentially.
Many end up trapped for life because debt can multiply five-fold or more over its lifetime. As a result, a new medical professional paying $1,000 a month now may owe $5,000 or more monthly in 30 years, and if obligations aren’t repaid, burdens rise annually.
A March 2011 Institute for Higher Education Policy study titled, “Delinquency, The Untold Story” examined repayments from October 2004 – September 2009.
It showed only 37% of student loans are paid on time. Another 15% of students default, 26% are delinquent, 12% use forbearance to temporarily suspend payments, and 11% defer them because of re-enrollment, economic hardship or unemployment. However, doing so increases burdens as interest and other costs rise.
Moreover, default data greatly understate an exponentially rising burden, facing growing numbers of students indebted for life and unable to repay. More on that below.
On September 12, New York Times writer Tamar Lewin headlined, “Student Loan Default Rates Rise Sharply in Past Year,” saying:
According to way understated Department of Education data, “8.8% of borrowers overall defaulted in the fiscal year” ending September 20, 2010, “up from 7% the previous year.”
According to Institute for College Access & Success and Project on Student Debt program director Debbie Cochrane, “The extent of borrower distress is barely touched upon” by these numbers.
Last spring, the Senate Health Education Labor and Pensions Committee found “some companies estimated their former students had staggeringly high lifetime default rates – in one case, 77.7%.”
On November 2, Tamar Lewin headlined, “College Graduates’ Debt Burden Grew, Yet Again in 2010,” saying:
Student loan burdens increased another 5% in the fiscal year ending September 30, 2011. Average debt hit a record high. At least two-thirds of the class of 2010 graduated with student debt, besides others incurred for them by parents or other family members.
Finaid.org’s Mark Kantrowitz said “Student debt goes up and it doesn’t ever go down. We’re clearly heading in the direction of decreased college affordability.” Lower income family students already are greatly impacted.
Kantrowitz estimates class of 2011 loans by students and parents at $34,000. Whether or not they graduate, many students have debt burdens approaching or exceeding $100,000. If repaid over 30 years, it’s multiples higher, and defaulting brings no relief.
Once entrapped, escape is impossible. Bondage is permanent, and future lives and careers greatly impaired or ruined.
Congress ended bankruptcy protections, refinancing rights, statutes of limitations, truth in lending requirements, fair debt collection ones, and state usury laws when applied to federally guaranteed student loans.
As a result, lenders may garnish wages, income tax refunds, earned income tax credits, as well as Social Security and disability income to assure defaulted loan payments. In addition, defaulting may cause loss of professional licenses, making repayment harder or impossible.
Moreover, under Congress’ default loan fee system, holders may keep 20% of all payments before any portion is applied to principle and interest. A borrower’s only recourse is to request an onerous, expensive “loan rehabilitation” procedure.
It requires extended payments not applied to principle or interest. A new loan must then be arranged, incurring additional fees.
As a result, many former students face permanent debt bondage. In addition, no appeals process allows determinations of default challenges under a process letting lenders rip off borrowers, many in perpetuity.
A congressionally sanctioned conspiratorial alliance of lenders, guarantors, servicers, and collection companies enrich themselves hugely at borrowers’ expense. They thrive from extortionist fees and related schemes. Millions end up scammed.
Moreover, lenders thrive on bad debts. They derive income from inflated service charges and collection fees. Today they’re more than ever as default rates soar.
Lifetime rates now affect one-third of undergraduate loans, higher than for subprime mortgages. In fact, they exceed other lending instrument burdens and are rising.
Obama’s new student loan repayment plan (unveiled in late October) is more scam than relief.
Since taking office, he created few jobs, did little for beleaguered homeowners under water on mortgages or facing foreclosure, and promises harder times head under planned austerity on top of cuts already made.
Few students will benefit from his new loan repayment plan, none facing default. Federal student loan repayment schedules will be modestly relaxed. Congress already approved them. Students who consolidate multiple loans may save half of 1% on interest charges.
Instead of mandated payments up to 15% of annual incomes over 25 years, indebted students will pay up to 10% over 20 years. Qualifying students will get debt forgiveness after 20 years.
Out of 36 million indebted current and former students, less than half a million choose repayment caps because of onerous terms. Expect fewer numbers to accept Obama’s.
Pre-2008 borrowers are excluded. So are those with private loans and others in default. Only federal Stafford, PLUS, and consolidated Direct Loan and Federal Family Education Loan borrowers are covered it they qualify.
As a result, expect few indebted students to be helped. Total indebtedness will rise, not fall. Rising tuitions and fees will increase growing burdens. Relief is nowhere in sight. At a time Wall Street practically borrows free, federal education loans cost 6.8%. Over time, interest burdens alone increase exponentially.
The Department of Education scams borrowers instead of helping. In today’s environment, student and other federal loans should be near interest-free.
Given a protracted Main Street Depression, austerity exacerbating it, and budget priorities favoring Wall Street, war profiteers, and other corporate favorites, expect greater than ever student loan repayment burdens.
Americans face rising poverty, unemployment, home foreclosures, homelessness, hunger, student debt entrapment, and despair. The very notion of a fair and equitable society is mocked.
With no planned relief coming, imagine what’s ahead for millions, including inescapable lifetime student debt burdens.
Stephen Lendman lives in Chicago and can be reached email@example.com.
DEBT COLLECTION FOR STUDENT LOANS INTENSIFIES
By Joey Ferguson, Deseret News
Published: Monday, March 26 2012
Debt collection is intensifying for student debtors as the U.S. Department of Education ramps up its collection efforts
The Education Department has contracted a copious amount of debt-collection companies in response to the $67 billion of student loans in default, according to Bloomberg.
The government contracted debt collection agencies and helped the Education Department recover $11.3 billion last year. Government contracts and Education Department data show that debt collectors made about $1 billion in commissions for the recovered $11.3 billion.
Oswaldo Campos, who is disabled from liver disease, was told if he didn’t pay $219 a month toward his $20,000 in defaulted student loans then Pioneer Credit Recovery would confiscate his pay.
“I know I owe this money and I want to pay it back — I just can’t,” Campos told Bloomberg with tears in his eyes.
Not even bankruptcy can save a debtor from student loans, which means they are more difficult to eliminate than credit card debt or delinquent mortgage. Because the government is involved, a borrower can have their tax refunds, Social Security payments and paychecks confiscated as well.
“Student-loan debt collectors have power that would make a mobster envious,” Harvard Law Professor Elizabeth Warren, who helped establish the Consumer Financial Protection Bureau and is now running for a U.S. Senate seat from Massachusetts, told Bloomberg.
Debt collectors received almost 181,000 complaints last year, which has led to intervention from the FTC, which is cracking down on agencies that aren’t obeying the rules.
Three companies that work for the Education Department settled federal and state allegations of abusive collections, according to Bloomberg.
Consumers need to understand their state’s statutes governing debt collectors’ ability to sue over old debts, Reilly Dolan of the FTC told ABC News.
IS THE STUDENT LOAN DEBT BUBBLE READY TO BURST
**Today’s guest post is contributed by Harry Campbell.**
This spring, more than 1 million new graduates will be thrust into the work force. And according to a recently published Rutger’s study, more may come out of school with debt than come out with jobs. Today’s graduates face the perfect storm of a weak job market combined with an overly saturated applicant pool. There was a time when a college degree held significant value and graduates would be inundated with job offers. That time has passed, and now there looms a bigger problem.
We all know the cost of college is skyrocketing. Public and even private schools have increased their tuitions at a pace that severely eclipses inflation. Since 1981, the price of tuition at US colleges has increased 6.4% annually, more than double that of inflation. These unsustainable tuitions are afforded, in large part, by student loans. Student loan debt has now grown to over $1 trillion, surpassing even credit card and auto debt. Universities are responding to budget cuts by increasing tuition and students are taking out more and more debt in order to finance this whole operation.
Signs of a Bubble
During the housing bubble, cheap money was made available to people who had no business owning properties. Banks were even making up investment options like interest only mortgages to entice borrowers. Eventually the market could not support rising house prices and the housing bubble burst. Similarly, the price of college will continue to rise until the market revolts. But unfortunately for students, student loan debt cannot be discharged in bankruptcy court and social security payments can even be garnished to pay off student debt.
Currently, there is almost no underwriting on student loans. 17-year-old high school students and their parents are being allowed over and over to determine what level of financial burden they can take on. So far, students have seemed willing to shoulder tremendous amounts of debt in order to pursue the college of their dreams. In fact, 1 in 5 students from the Rutger’s survey actually deferred their student loans by going to graduate school and taking on more debt! The point of all this is that getting a student loan has become too easy.
A Presidential Debate
Mitt Romney and President Obama have recently come to the defense of student loans, asking congress to maintain the current low rate of 3.4% on new Stafford loans for another year. With so many young professionals struggling to pay off debt, this seems like a no brainer, right?
However, we need more than a 1 year or temporary fix. Government budgets are cutting more and more from public education, and in response, universities are raising their tuitions and in turn raising student debt. Given the current job market, many students from the Rutgers survey indicate they would actually choose a different major if they could do it all over again. Nearly half of them were actually working at jobs that didn’t even require a college degree.
Is College for Everyone?
I think too much emphasis is being placed on going to college these days. I don’t think it’s a good investment to go into $100,000 of debt to get a humanities or fine arts degree from a mid-level university. From a financial stand point, this is a bad investment. Unfortunately, the government is making lots of bad investments with student loans.
The government needs to focus their efforts on awareness. As the study above showed, upon entering a stale job market, many students wish they could go back and change majors. Does a 3.4% or 6.8% interest rate really make much of a difference when you’re working a minimum wage job and saddled with $100,000 of debt? My solution is to force colleges to show true rates of employment and pay by major right next to yearly tuition. I think a lot of students would make different choices given this information.
The real question here isn’t whether the student loan debt bubble will pop, but when? Prospective parents of college students should not ignore common sense in obtaining a degree. People used to say you can’t put a price on education, but that axiom no longer holds true. The cost of college is becoming more and more ludicrous and student loans are only allowing the madness to continue.
Discussion Questions: Do you think student loan debt is a problem? Should student loans be looked at more like an investment or do you think our current setup is acceptable?
Harry Campbell is the founder of Your Personal Finance Pro; he lives and works as an Aerospace Engineer in San Diego, CA. Harry started his blog in January of 2012 and writes about real estate and personal financial advice for young professionals.
Opinions expressed are solely those of the author and do not necessarily reflect the opinions of CreditKarma.com or its founders.
OCCUPY STUDENT LOANS
A prominent (if disputed) criticism of the Occupy Wall Street movement has been its amorphous, platform-free nature. But as the protests that began in New York in September have continued, spreading across the United States and the world, one clear issue of concern has emerged: student loan debt.
On the movement’s unofficial manifesto, the “We Are the 99 Percent” Tumblr blog, young adults hold handwritten signs with their personal stories. More often than not, they include tens of thousands of dollars of debt and, the former students write, little hope for good job opportunities.
From another: “Graduated college: May 2010. Debt: $35,000. Jobs in US: None.”
Some are resigned: “I am 38 years old. It will take me almost 30 years to pay off my student loans (in 2023).” Others are plaintive: “I am 24 years old and am $90,000 in debt from getting a college education. Why are we being punished with debt for getting a higher education?”
The protests (which New York City authorities are trying to shut down this morning) came at a moment when several trends were already converging, observers say: rising college costs, an increasing emphasis on promoting higher education for low-income students, more borrowing and decreasing numbers of jobs for new graduates.
But while the roots of the outcry over loans may be clear, the long-term repercussions are not. The movement’s focus could be a political flash in the pan, dissipating once the world’s attention turns elsewhere. Or the growing public awareness of student debt could lead to better consumer protections, especially on private loans, or to more responsible borrowing habits.
The anger about student debt could also create difficulties for President Obama, for whom students and young graduates are a key voting bloc, although it’s unlikely that federal loans make up the majority of the most problematic debt. Many of the students with the most onerous burdens took out private loans, which had few consumer protections until the recent past. Banks, a key target of the Occupy protesters’ ire, also now play a much smaller role in the federal student loan program after changes made in 2009.
Higher education advocates and experts worry there could be one lasting outcome: the protesters’ message of crushing debt and “worthless” degrees could discourage students from borrowing even a reasonable amount in order to get an education.
“You have an unsustainable system,” says Deanne Loonin, a lawyer at the National Consumer Law Center and director of the center’s Student Loan Borrower Assistance Project. “All those forces can’t go on forever. You can’t keep the reliance on loans, the accelerating cost of education, the open-door policy. There’s a lot of forces that have been resistant to change. If something’s going to change things, this is it.”
A Growing Outcry
Since the original Occupy Wall Street protest began Sept. 17, student loans have become a rallying point. Occupy DC protested outside the main office of Sallie Mae, the student loan giant, blocking the entrances to the building and posting signs equating student debt with slavery. An Occupy Boston march demonstrated outside Bank of America and the Harvard Club, chanting “Not just for the rich and white, education is a right,” the Associated Press reported.
Student loan debt had been growing for decades without becoming a major public concern. The recession, which has led to a spike in loan default rates and caused many underemployed graduates to feel their degrees were not worth the money, has been a tipping point in public opinion, says Anya Kamenetz, the author of Generation Debt.
“Student loan debt has been rising inexorably, and college students in the last couple of years are entering one of the worst job markets in a generation,” Kamenetz says. “There’s a real feeling of betrayal that hits a lot of people when they find out that the debt they were told was good debt is not paying off.”
Low-income students, college dropouts, or nontraditional students at for-profit colleges have felt for years that they took on debt and received little in return, Loonin says. But the Occupy movement has also drawn more traditional students who borrowed to attend a four-year college. Those students and their parents are wealthier, have more political clout, and are more likely to get attention.
“I think it was sustainable because there were enough rewards for people,” Loonin says of increases in borrowing. “It feels like that connection has been broken for a lot more people, and I think it’s that combination that’s leading some of the more traditional students and their families to speak up.”
The Occupy movement has also reinvigorated a two-year crusade for student loan forgiveness that Robert Applebaum, a lawyer, launched in 2009. Applebaum’s proposal called for forgiving all student debt as a means of economic stimulus, and economists panned it: Justin Wolfers, an associate professor of business and public policy at the University of Pennsylvania, wrote on the popular Freakonomics blog that it was the “Worst. Idea. Ever.” But Applebaum’s petition eventually gained more than 650,000 signatures, and a version posted to the White House’s “We the People” petition site gathered more than 30,000 and received an official written response.
“We agree that reducing the burden of student loans is an effective way to stimulate the economy and save taxpayer dollars,” Roberto Rodriguez, a special assistant to the president for education policy, wrote.
The response went on to tout the Obamaadministration’s plan to ease repayment for some borrowers. That plan, announced in October and designed to be implemented without needing permission from Congress, would give a slight interest rate cut to borrowers who consolidate their federal loans and expand income-based repayment. White House officials billed it as a response to Applebaum’s petitions and the growing concern surrounding student debt.
If the focus on loans continues, it could present problems for the White House, which has increased the federal government’s role in student loan programs. Many of the changes pushed by the Obama administration, including the switch away from bank-based lending and the recent expansion of income-based repayment, relate to the Occupy demonstrators’ grievances. Some of the government’s “profit” from student loans has been redirected toward expanding Pell Grants for low-income students. And private loans fall largely outside the administration’s purview.
Still, dissatisfaction among college students and young graduates could pose a formidable problem for the Obama administration because that group was a strong constituency for the president in the 2008 election, says Mark Kantrowitz, publisher of Finaid.org.
“The default rates would have to at least quadruple before the profits to the federal government would disappear,” Kantrowitz says. “The student loan issue is an issue for the Obama administration because it’s the students who elected him. If their issues aren’t addressed, it could affect the next election.”
Criticisms of the student loan program have emerged in the race for the Republican nomination: Texas Rep. Ron Paul called for the program’s elimination during a recent debate, and Newt Gingrich called the program an “absurdity.” Herman Cain has said the government should get out of the student loan business altogether. (Few Occupy protesters would support a system that relies entirely on private loans, the source of many of their grievances. But federal student loans have historically enjoyed bipartisan support, and the criticism is a strong indicator of their recent unpopularity.)
So far, Applebaum at least is willing to give the president the benefit of the doubt. The administration’s proposed loan changes are modest when compared with his call, echoed by many Occupy protesters, to eliminate student debt entirely. “It really doesn’t do much to help anyone,” Applebaum says of the new initiative. “That’s not, in my opinion, because the president doesn’t want to do more. It’s that he can’t do more. There’s only so much he can do on his own.”
As student debt has become a focus of the Occupy movement, some wonder how it surpassed concerns about financial regulation, income inequality and other societal issues.
While some Occupy protesters report debt levels that would previously have been considered reasonable — $25,000 or less — many carry larger amounts. Media reports focus on students with at least $50,000 in debt, and anecdotes of students with more than $90,000 in debt are not uncommon.
Still, borrowers with such catastrophic debt are part of a “1 percent” — although not the 1 percent that is the movement’s target. Students who are in debt for more than $100,000 from an undergraduate degree are make up less than 0.5 percent of all borrowers, says Lauren Asher, president of the Institute for College Access and Success.
“The people who are really protesting are pretty much the people who went to college and don’t have the life they expected to have right after college,” says Sandy Baum, a policy analyst who focuses on financial aid. “You have to sympathize with them, but they are not focused on the greatest of social ills. They’re focused on their circumstances right now.”
Borrowers with more than $40,000 in undergraduate debt likely relied at least in part on private loans, meaning that they are ineligible for income-based repayment and other federal provisions that can ease repayment for borrowers who are facing financial hardships. Congress tightened regulations on private loans in August 2008, requiring more disclosure and information about federal options for prospective borrowers, but students who borrowed privately before that often did not realize how onerous the loans could be until they encountered financial trouble, Asher says.
Because lenders like Sallie Mae often issued both federal and private loans, many borrowers did not even know the difference. While many cite large debt burdens and low incomes, few seem aware of programs like income-based repayment, which allow borrowers whose loan payments exceed a certain percentage of their discretionary income to cap the payments. (The program is available only for students with federal loans, not those who have incurred private debt.)
“It’s highlighted how much more needs to be done to get the word out about income-based repayment and other ways that people can help keep their federal student debt from harming their financial future,” Asher says.
Asher and Baum say they hope the focus on debt has positive results. Future students might borrow more carefully, they said. Or the government could regulate private loans more strictly. But they fear that concerns about borrowing will go too far, and that the stories of unemployed borrowers with six-figure debt will discourage from taking out even relatively safe federal loans to pay for college. Students should be able to borrow up to a conservative estimate of their starting salary after graduation — say $25,000 or $30,000 — as long as they are realistic about their ability to make the payments, Baum says.
“There’s a risk that the fear of unmanageable debt will deter people from going to college, or from finishing college, when it’s still the best investment they can make in their future, if they shop around, borrow wisely, and stick to federal loans,” Asher says.
Some of the testimonials indicate that their fears are not unfounded.
“My entire life, I have wanted nothing more than to go to college & make something of myself,” one wrote. “Now that I have read some of the stories, I am afraid to go to school.” Another wrote that he wanted an education but would not enroll even at the local community college, where tuition is low, due to concern about accumulating debt.
For the protesters, higher education is part of a system that many view as rigged against them, says Applebaum, whose push for forgiving student loans has become closely associated with the Occupy movement. “We have finally reached a tipping point for people in America — they’re fed up,” he says. “I hear a lot of criticisms about the Occupy protests talking about how it’s not coherent, they don’t have a lists of specific demands. That’s ridiculous to me. They’re protesting the whole system. It’s the whole system that’s rigged against them, and they know it, and they’re sick of it.”
One protester has formed the EDU Debtors’ Union, which she describes as a “labor union” for debtors that would use default as a tactical message to negotiate for better loan terms.
But even the protesters who are concerned about their loans now have better future prospects than people who never went to college, Baum counters. “It’s easy to come up with an anecdote of a person who borrowed a lot of money and is in bad shape,” she says, adding that such people deserve sympathy and help. “We can find people who borrowed $25,000 and went to college and are so grateful they had that money, but putting one of them up there doesn’t have the same impact.”
Applebaum — along with many of the protesters — sees it differently. The notion of “good debt” is a lie, he says. “In the last 30 years, we’ve turned education into a commodity,” he says. “We used to fund higher education through a series of grants and scholarships and savings. We’ve lied to a generation of Americans by telling them it’s quote-unquote ‘good debt.’ We’ve sold them a bill of goods.”
In the meantime, the testimonials on the Tumblr and the protest signs referencing student loans continue to multiply. “I have $90K in student loan debt,” the latest read Wednesday night. “My payments are 20% of my income. By the time I pay off my debt, I will have paid the government double what I borrowed.”
Sunday, June 10, 2012
America’s Student Loan Racket
Stephen Lendman, Contributor
This writer’s recent book titled How Wall Street Fleeces America: Privatized Banking, Government Collusion and Class War includes a chapter on America’s student loan racket. It discusses the issue in detail.
It explains a disturbing government/corporate partnership. Students are exploited for profit. Providers are enriched. For many, rising tuition and fees make higher education unaffordable. Others need large loans to attend. As a result, they become debt entrapped.
Some face burdens up to $100,000 or higher. If unpaid after 30 years, it’s a $500,000 obligation. If one defaults or declares bankruptcy, it’s unforgiven. Bondage is permanent.
Lenders thrive from defaults. Wages can be garnished. So can portions of Social Security and other retirement benefits. A conspiratorial alliance of lenders, guarantors, servicers, and collection companies derive income from debt service and inflated collection fees.
Principal, accrued interest, late payment and collection agency penalties create enormous burdens to repay.
Once entrapped, escape is impossible. Unless repaid, future lives and careers are impaired. Today’s economic crisis exacerbates conditions. Job opportunities are scarce. Ones for higher education grads are even fewer.
Around year-end 2011, student debt exceeded $1 trillion. It’s staggering. It increases nearly $3,000 per second. It exceeds credit card and auto loan obligations. It’s second only to outstanding mortgage debt. It’s rising exponentially.
A lost generation threatens.
It’s part of the grand scheme to transfer maximum wealth to America’s super-rich. It’s been ongoing for decades. Under Obama, it has accelerated.
On May 12, The New York Times addressed the issue. Titled “A Generation Hobbled by the Soaring Cost of College,” writers Andrew Martin and Andrew Lehren overall did a credible job worth reading.
To start paying off her $120,000 in student debt, she is already working two restaurant jobs and will soon give up her apartment here to live with her parents. Her mother, who co-signed on the loans, is taking out a life insurance policy on her daughter.
Griffith knew college costs were high. She never imagined owing $900 a month after graduating. “No one told me that,” she said.
Nearly every baccalaureate candidate borrows to attend. Most can’t imagine a future “unprecedented financial burden.”
Ninety-four percent of students who earn a bachelor’s degree borrow to pay for higher education — up from 45 percent in 1993.
According to Consumer Financial Protection Bureau deputy director Rajeev Date:
If one is not thinking about where this is headed over the next two or three years, you are just completely missing the warning signs.
He compares student loans to risky mortgages. Its extraordinary growth surprised many. Its roots, in fact, are deep. Its “cast of characters” includes college marketing officers, state and federal lawmakers, administration officials, and predatory lenders, guarantors, servicers, and collection companies.
Loans are easy to get. They’re tough to service. They’re not forgiven. For many in today’s job market, they’re impossible. Onerous debt escalates to greater amounts. A vicious circle entraps graduates and dropouts, many for life.
Since crisis conditions erupted, states and cities nationwide slashed budgets. Education paid heavily. Adjusted for inflation, spending per college student reached a 25-year low.
At the same time, tuition and fees keep rising exponentially. If current trends continue “through 2016, the average cost of a public college (education) will have more than doubled” in the last 15 years.
Students and parents are unprepared. So-called experts claim not attending college is worse than graduating with debt. They, of course, have none to repay, and feel secure in well-paid jobs in an unfriendly environment for new grads.
Obama let a bad situation fester. Last October, he offered pathetic relief. Repayment schedules were relaxed slightly. Only federal loans are affected. Students in default don’t qualify. Moreover, for everyone who does, two or more fall behind in payments. A bad situation grows worse.
At most for the few qualifiers, savings are miniscule. At most, they’re about one-half of 1% on interest.
Nearly 10% of borrowers who began repayments in 2009 defaulted in two years. It’s double the 2005 rate. Some worry about the student loan system replicating the housing crisis. Doing so would have enormous economic implications.
Economists say the issue “hangs over the (economy) like a dark cloud for a generation of college graduates and indebted dropouts.”
Major purchases are delayed or abandoned. At issue is repaying student debt forever, according Bowling Green State University dropout Chelsea Grove. She owes $70,000. She’s working three part-time jobs. She’s not going back. She can’t afford it.
Twenty-three-year old Chistina Hagan is an Ohio lawmaker. She also attends Malone University. She’ll graduate shortly with over $65,000 in debt. Despite earning $60,000 a year, she’ll take a waitress job to service her $1,000 a month obligation. For her, it includes credit card debt.
Nationwide from 2001 – 2011, state and local per student financing dropped 24%. Over the same period, state school tuition and fees rose 72%.
Ohio State University gets 7% of its budget from Columbus. A decade ago it was 15%. In 1990, it was 25%. Decades earlier at some state universities, students attended free.
Today’s financial reality creates enormous burdens. At issue is handling costs and repayment obligations. Then it’s about finding decent jobs too few in number.
Few understand what they’ll face. Colleges recruit students aggressively. Financial aid is touted. Fine print language is a “minefield” to understand.
Some are written in a manner that suggests the student is getting a great deal, by blurring the line between grants and loans or not making clear how much the student may have to pay or borrow.
What’s portrayed as “doable” and “normal,” in fact, becomes onerous and unmanageable. Annual tuition increases aren’t factored in. Neither is inflation and high interest rates.
College admissions staff don’t explain.
While there are standardized disclosure forms for buying a car or a house or even signing up for a credit card, no such thing exists for colleges.
College costs are complex. Besides rising tuition and fees, “a vast array of grants and loans and a financial-aid system that discounts tuition for most students (use hard to understand) opaque formulas.”
Moreover, colleges avoid discussing affordability issues and possible future debt obligations. Growing numbers are like Wanda McGill. She “stopped opening her student loan bills.”
She’s not sure how much she owes but thinks it’s about $100,000. She can’t service it. After exhausting her funds, she dropped out of DeVry University’s Columbus branch. Now she earns $8.50 an hour.
‘I was promised the world and was given a garbage dump to clean up,’ she said. ‘Like my life was not already screwed up with welfare and all.’
She’s not alone. Epidemic conditions rage across America. An Occupy Student Debt protest joined other OWS campaigns.
Its website “What You Need To Know” section says:
We did what we were told to do and ‘followed our dreams,’ but we are now trapped by what was meant to be an investment in our futures, not a noose.
Obama’s recent student loan ‘reform’ has done nothing for those in default, or those of us with private (bank-backed) loans through Sallie Mae, Citibank, and so on.
If we default, we cannot rent or buy homes, or even find jobs with the 60% of employers that check credit. Our professional licenses (i.e. nursing/teaching) can be revoked. And with the fees assigned to defaulted loans that double the amount owed, getting back on one’s feet is nearly impossible.
Not only would voluntarily defaulting do nothing to solve the underlying problem of out-of-control student loan debt, but defaulting can result in any number of detrimental outcomes, including, but not limited to the consequences listed above.
Today’s crisis spread from for-profit institutions to others. However, former ones represent the worst problem. Students complain they’re mislead. Lawsuits charge fraud, deception, doctoring attendance records, or offering near-worthless degrees.
As a result, their students are twice as likely to default. Among baccalaureate candidates, only 22% succeed in six years. At non-profit private schools, it’s 65%, and at public ones it’s 55%.
According to American Association of Collegiate Registrars and Admissions Officers associate executive director Barmak Nassirian:
Mainstream higher ed can really self-righteously look at the big problem out there and say, ‘The problem lies with the other guy.
But there are all kinds of unfortunate practices in traditional higher education that are equally as problematic that are reaching the crisis point.
Political Washington largely ignores the problem. It’s done little to curb abuses. Action belies lip service. A sinkhole of trouble deepens. A lost generation threatens.
Higher education today involves crushing debt burdens too onerous to repay. Rising poverty, unemployment, few job prospects, and a system sucking wealth to America’s super-rich makes today’s crisis unmanageable.
Education beyond secondary school once meant brighter futures. Today it ensures debt entrapment too demanding to repay. Neoliberal harshness polarized American society along class lines. It also affects Europe.
In modern times, it’s harder than ever to cope. For growing numbers of deeply indebted students it’s impossible. Their dreams became no-escape nightmares.
Stephen Lendman lives in Chicago and can be reached at firstname.lastname@example.org. His new book is titled How Wall Street Fleeces America: Privatized Banking, Government Collusion and Class War
Also visit his blog site at sjlendman.blogspot.com and listen to cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network Thursdays at 10AM US Central time and Saturdays and Sundays at noon. All programs are archived for easy listening.
Death and Student Debt
Collection agencies do not make condolence calls. I understand this, believe me. But there are certain events in life during which people deserve to be treated with more than standard human decency. (Yes, I realize I’m pretending that treating people with human decency is standard these days. Humor me.) A death in the family — especially the death of a child — is one of those times.
Or at least it used to be. The story of Francisco Reynoso’s struggle to pay off his dead son’s student loans, while dealing with collection agencies in the midst of his grief, suggests that times are changing. And not for the better.
Apparently, Ben Franklin was only partly right. These days, nothing in life is certain, except death, taxes, and student loans.
A few months after he buried his son, Francisco Reynoso began getting notices in the mail. Then the debt collectors came calling. “They would say, ‘We don’t care what happened with your son, you have to pay us,'” recalled Reynoso, a gardener from Palmdale, Calif.
Reynoso’s son, Freddy, had been the pride of his family and the first to go to college. In 2005, after Freddy was accepted to Boston’s Berklee College of Music, his father co-signed on his hefty private student loans, making him fully liable should Freddy be unwilling or unable to repay them. It was no small decision for a man who made just over $21,000 in 2011, according to his tax returns.
“As a father, you’ll do anything for your child, Reynoso, an American citizen originally from Mexico, said through a translator.
Now, he’s suffering a Kafkaesque ordeal in which he’s hounded to repay loans that funded an education his son will never get to use loans that he has little hope of ever paying off. While Reynoso’s wife, Sylvia, is studying to be a beautician, his gardening is currently the sole source of income for the family, which includes his 18-year-old daughter Evelyn.
And the loans are maddeningly opaque. Despite the help of a lawyer, Reynoso has not been able to determine exactly how much he owes, or even what company holds his loans. Just as happened with home mortgages in the boom years before the 2008 financial crash, his son’s student loans have been sold and resold, and at least one was likely bundled into a complex Wall Street security. But the trail of those transactions ends at a wall of corporate silence from companies that include two household names: banking giant UBS and Xerox, which owns the loan servicer handling the bulk of his loans. Left without answers is a bereaved father.
ProPublica even applied its considerable investigative prowess to determining just who owns the student loans that collection agencies are hounding Freddy’s bereaved family to pay — and couldn’t do it. The resulting timeline shows how Freddy’s Renynoso’s student loan originated with Bank of America and Education Finance Partners, but was then sold and re-sold, again and again, until it finally “landed in a Swiss Bank and then fell off the map.”
If that sounds familiar, it should. Student debt has ballooned in the last couple of decades, and more than tripled in the last ten years. The total amount owed by U.S. students now tops $1 trillion. Student loan defaults have reached their highest level in a decade.
Borrow horror stories abound. The Consumer Financial Protection Bureau collected thousands of them, and made them available online. Some students and graduates have turned to sugar-daddies and sex work to repay student loans. Other’s have done the math and given up hope of ever paying off their student debt. Colleges are getting in on the act, by acting as collection agencies and withholding transcripts from graduates who are in default on student loans — even though the colleges themselves aren’t out any money.
Meanwhile, the usual suspects are making huge profits.
So just who are the lenders profiting from the massive student debt load?
You already know some of the names: JPMorgan Chase, U.S Bank, Citi, Bank of America. Others are non-bank student lenders. What all of them have in common, though, is that their practices are shrouded in secrecy. A recent release from the Consumer Financial Protection Bureau, the brainchild of now-Senate candidate Elizabeth Warren, called for an investigation into the industry:
It has been operating in the shadows for too long, Raj Date, the Treasury Department adviser who is running the Consumer Financial Protection Bureau, said in a release. Shedding light on this industry will benefit students, lenders, and the market as a whole.
Record borrowing by college students who are graduating without jobs could lead to major problems in the nation’s economy, according to a recent report by Moody’s Analytics.
…The Moody’s report points to the fact that student loan volume growth, unlike other lending, has accelerated during the recession. This is due in part to people seeking more education and retraining as well as some students opting to remain in college longer to avoid poor job prospects.
The report indicated that in addition to college enrollment tripling over the past four decades, “demand [for student loans] is driven by the cost of education, which has grown at an extraordinary rate over the past three decades.” Based on Consumer Price Index data, the cost of tuition and fees has more than doubled since 2000, and has outpaced inflation across all goods, health care, housing and energy.
Student lending has also increased due to state governments making cuts to their public education institutions, causing colleges to raise tuition. Further, college endowments have recovered slowly throughout the economic downtown, forcing schools to increase tuition and limiting the amount of in-house money for scholarship use.
The Reynoso’s are hardly alone. An April article by ProPublica’s Marian Wang (who also wrote the Reynoso family’s story) shows that even students with federal students loans aren’t safe. Now that the federal government is transferring student loans to loan servicing companies, student and their families are getting lost in the shuffle.
Back in April, I wrote that lawmakers have “transformed student debt into life-long debt.” Now, it’s “zombified” student debt, that follows you to the grave, and then feeds on your family once you’re in the ground.
Freddy Reynoso died on September 4th, when he lost control of his car on his way back from a job interview, and the car flipped over. Marian Wang writes that at least one of Reynoso’s loans was cancelled after his death: his federal student loan, because the government cancels student loans if a student dies.
Not so with private student loans. They are not dischargeable through bankruptcy, hardship, or even death.
According to Francisco Reynoso, the calls started a few months after his son died. Francisco Reynoso says the debt collectors more or less told him, “We don’t care what happened to your son, you have to pay us.” They didn’t care about the law either. Legally, debt collectors must go through the borrower’s attorney, once one has been hired. But the debt collectors kept calling — every day, several times a day — even after the family hired and attorney.
Meanwhile, the only party that knows, and is obligated tell Francisco just who owns Freddy’s student debt, and how much is owed, has yet to do so. Not that he hasn’t asked them — in writing.
Maybe conservatives who insist the market can fix student loans, should ask the Reynoso family what they think about that.
Ozzie Warrington says, And since the govt gives out ALL loans now they are in debt to the illegal govt.
Daniel J Towsey says, Yes Ozzie..it is all one lie on top of another which equal complete insanity..the money has made the bankster money masters completely criminally insane