The more the government subsidizes tuition, the higher tuition rises. College tuition costs have nearly tripled since 1980. In his book, "Going Broke By Degree: Why College Costs Too Much," Dr. Vedder argues that increased federal spending on higher education has contributed to rising tuition costs. In other words, federal subsidies are not making higher education more affordable because colleges and universities simply consume this additional source of revenue. On the supply side, this federal aid makes universities less sensitive about their own costs. "Increases in financial aid in recent years have enabled colleges and universities blithely to raise tuition, confident that Federal loan subsidies would help cushion the increase," then-Secretary of Education William J. Bennett said in 1987. The "Bennett hypothesis" -- the theory that as long as the government ensures the bills will get paid, colleges will raise tuition -- makes sense, especially in light of Washington's guarantee of an affordable college education for all who want one. [Source]
Increased availability of student loans should theoretically make college more affordable, but research has proven government lending to be grossly counterproductive. Though these programs attempt to make school more accessible to people of low income, they have defeated their intended purpose by driving tuition costs up exponentially. Initially, banks refused to offer loans to college students, because young adults typically lack any substantial assets or collateral. The abnormal nature of this market eventually led to government involvement in funding of higher education, but with many unintended consequences. Universities race to absorb the greatest portion of federal funding by raising tuition costs. This research builds upon the Bennett Hypothesis, an idea circulated in the 1980s by U.S. Secretary of Education William J. Bennett. Many factors play a role in the convoluted issue of spiked tuition costs, but a strong case can be made for the Bennett Hypothesis. [Federal funding directs tuition, The Daily Evergreen, September 28, 2010]
Federal Education Aid and Higher Education Inflation - There is a ConnectionBeginning with the Higher Education Act of 1965, the federal government ... has provided significant funding to help ensure that low- and moderate-income students and families are not prevented from receiving a postsecondary education simply because of financial circumstances. This year, thanks to the Education Act, roughly $90 billion [was invested] in higher education, with the bulk of that money, about $65 billion, [going] directly to students. On the supply side, this federal aid makes universities less sensitive about their own costs. "Increases in financial aid in recent years have enabled colleges and universities blithely to raise tuition, confident that Federal loan subsidies would help cushion the increase," then-Secretary of Education William J. Bennett said in 1987. The "Bennett hypothesis" -- the theory that as long as the government ensures the bills will get paid, colleges will raise tuition -- makes sense, especially in light of Washington's guarantee of an affordable college education for all who want one. [The Tuition Aid Trap, The Cato Institute, October 9, 2003]
The more the government subsidizes tuition, the higher tuition rises. These are the same institutions that teach our young that capitalism is bad and that socialism is good while continuing to raise the tuition. They have the best of both worlds -- they use the capitalistic system to justify raising tuition and depend on the socialistic system to get the subsidies from the government (taxpayers) to continue to raise tuition to line their own pockets.
According to economist Richard Vedder, college tuition costs increased by 295 percent between 1982 and 2003, a growth rate higher than health care costs (195 percent), housing (84 percent), and all items (83 percent). In his book, "Going Broke By Degree: Why College Costs Too Much," Dr. Vedder argues that increased federal spending on higher education has contributed to rising tuition costs. In other words, federal subsidies are not making higher education more affordable because colleges and universities simply consume this additional source of revenue. [The Facts on Federal Education Spending, The Heritage Foundation, November 9, 2006]
The US House of Representatives passed new legislation last week that Democratic majority leaders claim is the largest college student aid package since the 1944 GI Bill. In reality, the College Cost Reduction Act of 2007 will do little to alleviate the financial burden for millions of college students who are confronting skyrocketing tuition costs and a crushing level of student loan debt. While the GI Bill provided tens of billions to enable returning veterans to attend college, the Democrat-sponsored bill does not propose any new actual spending. Instead, small increases in student aid will be paid for by cutting $19 billion in federal subsidies to the student loan industry over the next five years. College costs—including tuition, fees, books, materials and living expenses—have outpaced inflation by nearly 40 percent over the last five years. The College Cost Reduction Act will do nothing to stop the single most important cause of rising student costs: ever-increasing tuition rates. Throughout the country, colleges and universities continue to raise rates, in large measure due to a reduction in state funding. [House passes meager “College Cost Reduction Act,” Tuition rates continue to skyrocket at US colleges, World Socialist Web Site, July 18, 2007]
Student loan debt is more of a financial drain on Americans than ever before. Americans now owe more on student loans than they do on credit cards. As hard as that is to believe, that is actually true. Americans now owe more than $849 billion on student loans, which is a new all-time record. [75 Ways That the Government and the Financial Elite Will Be Sucking Even More of the Life Blood Out of the American People In 2011, The Economic Collapse Blog, October 23, 2010]
This chart from Clusterstock (via Carpe Diem) shows the cost of college tuition comparison to historical housing prices and the Consumer Price Index (CPI) over the same period. The CPI is designed to track our cost of living by estimating the average price of consumer goods and services purchased by households. Everything was normalized to 100 starting in 1978. While housing went up 4x at its peak (~400), college tuition has gone up over 10x. [Charts: College Tuition vs. Housing Bubble vs. Medical Costs, My Money Blog, August 31, 2010]
Meet 5 Big Lenders Profiting from the $1 Trillion Student Debt Bubble (Hint: You Know Some of Them Already)As the student movement grows and rallies around the country, we look at the lenders raking in cash off the backs of the U.S.'s students
November 28, 2011
June 15, 2011
CNN Money has a chart, above, showing the stark rise in average college costs at four-year public universities compared to wages since 1988.
The article accompanying the chart concludes that college is now out of reach for many middle class families, as federal aid hasn't kept pace with the ballooning costs. Financial assistance from federal and state sources, and colleges and universities themselves, is up 140 percent since 1991, according to a report by the National Center for Public Policy and Higher Education. But students are still taking out more loans to make up the difference.
Economists told The Lookout that the college affordability crisis is primarily affecting those in the bottom 20 percent of American's income distribution. As society's income distribution has become radically more unequal, the economic value of a college degree has gone up, allowing both public and private colleges to hike prices.
A recent Pew study found that 60 percent of Americans don't think colleges are providing their students with a good value, and 75 percent say college is financially out of reach for most people.
Government/Corporate Complicity to Rip Off College Students for Profit and Obama's Student Aid and Fiscal Responsibility Act of 2010law school tuition has risen nearly 1,000 percent after adjusting for inflation: around 1960, “median annual tuition and fees at private law schools was $475 … adjusted for inflation, that’s $3,419 in 2011 dollars. The median for public law schools was $204 … or $1,550 in 2011 dollars … in 2009 the private law school median was $36,000; the public (resident) median was $16,546.”
Due to market distortions like the proliferation of unnecessary state licensing requirements that require useless paper credentials, and financial aid that directly encourages colleges to raise tuition, colleges can raise tuition year after year, consuming a larger and larger fraction of the increased lifetime earnings students hope to obtain by going to college.
As George Leef notes, “long-term average earnings for individuals with BA degrees have not risen much and in the last few years have dipped.”Meanwhile, college students learn less and less with each passing year.
“Thirty-six percent” of college students learned little in four years of college, and students now “50% less time studying compared with students a few decades ago, the research shows.” Thirty-two percent never take “a course in a typical semester where they read more than 40 pages per week.”
People thought college was too expensive back in 1960, when tuition was just a tiny fraction of what it is today. For example, they worried about the rising cost of a law school education, and the resulting increase in student loans and debt:
“The cost of attending law school at least doubled in the [past] 16 years,” “raising the question whether able, but impecunious, students are being directed away from law study … schools reported that students were reluctant to take out loans owing to ‘fear of debts, particularly during the low income years immediately after graduation.’”They could never have imagined what a monumental rip-off college tuition would be today.
Cultural factors may also have contributed to students’ willingness to pay exploding law school tuitions. Too many people have gone to law school in recent years thanks to the romanticization of the legal profession in shows like “Ally McBeal” and “L.A. Law” that make law look sexy and exciting. (Legal shows also falsely suggest that most judges are wise and that the legal system is swift and just, rather than conveying the unpleasant reality: that our legal system is a slow, costly, inefficient mechanism for enforcing often-arbitrary legal norms that are invented by judges and lawyers or enacted by legislators who frequently do the bidding of special-interest groups.)
For a fascinating discussion of how the country has been harmed by legal norms invented by law professors who dislike free markets, and by massive lawsuits launched by law school litigation clinics, read Walter Olson’s book Schools for Misrule: Legal Academia and an Overlawyered America, which got good reviews from some law professors and the Wall Street Journal.
May 19, 2011
An earlier article discussed Permanent Debt Bondage from America’s Student Loan Racket:
It explained government/corporate complicity to rip off students for profit, a racket continuing under Obama. His July 2010 Student Aid and Fiscal Responsibility Act perpetuated the scam. It enriches providers, entrapping millions of students permanently in debt, because rising tuition and fee amounts — plus interest, service charges, and late payment or collection agency penalties — are too onerous to repay.It’s part of the grand scheme, of course, to transfer maximum public wealth to America’s super-rich already with too much. Ongoing for over three decades, it accelerated under Obama, a corrupted Wall Street/war profiteer tool, destroying America for power and profit.
Millions of Students Permanently Entrapped in Debt
Many students, whether or not they graduate, have debt burdens approaching or exceeding $100,000. If repaid over 30 years, it’s a $500,000 obligation, and if default, much more because debts aren’t forgiven. As a result, once entrapped, escape is impossible. Bondage is permanent, and future lives and careers are 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 freely 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 even harder or impossible.
Moreover, under a congressionally-established default loan fee system, holders may keep 20% of all payments before any portion is applied to principle and interest due. A borrower’s only recourse is to request an onerous and expensive “loan rehabilitation” procedure, requiring extended payments (not applied to principle or interest), then arrange a new loan for which additional fees are incurred.
As a result, for many, permanent debt bondage is assured. In addition, no appeals process allows determinations of default challenges under a process letting lenders rip off borrowers, many in perpetuity.
At issue is a conspiratorial alliance of lenders, guarantors, servicers, and collection companies enriching themselves hugely at borrowers’ expense, thriving from extortionist fees and related schemes. It’s a congressionally-sanctioned racket, scamming millions of indebted victims.
Moreover, lenders thrive on bad debts, deriving income from inflated service charges and collection fees. They’re more than ever today as default rates soar, lifetime rates now nearly one-third of undergraduate loans, higher than for subprime mortgages. In fact, they’re higher than for any other lending instrument, and rising.
Soaring Defaults During Hard Times
Since America’s economic crisis began in late 2007, an April 21, 2009 Wall Street Journal (WSJ) Anne Marie Chaker article highlighted the burden on students headlined, “Student Loans: Default Rates are Soaring,” saying:
The combination of economic weakness, rising tuitions and poor job prospects caused defaults on student loans to skyrocket. According to Department of Education numbers for those federally guaranteed, estimated FY 2007 default rates reached 6.9%, up from 4.6% two years earlier.Conditions are now far worse according to a February 4, 2011, Mary Pilon and Melissa Korn WSJ article headlined, “Student-Loan Default Rates Worsen,” saying:
They “rose to 13.8% from 11.8% for students beginning repayment in (FY) 2008 compared with those starting a year earlier,” according to new Department of Education data.They measure defaults within the first three years of repayment. Over their lifetime, however, they approach two and a half times that level, perhaps heading for 50% if economic conditions keep deteriorating while tuition and fee rates rise.
For every student defaulting, “at least two more fall behind in payments,” according to a new study. Conducted for the Institute for Higher Education Policy by Alisa Cunningham and Gregory Kienzl, it can be accessed in full through the following link:
It explains that around 40% of borrowers were delinquent within a five year repayment window. Almost one-fourth of them postponed payments to avoid delinquency; however, doing so made their interest and overall debt burden more onerous because escape is impossible.
Data from five of the country’s largest student loan agencies showed only 37% of borrowers who began repayments in 2005 did so on time, a number now decreasing during hard times.
On April 11, Lewin headlined, “Burden of College Loans on Graduates Grows,” saying:
“Two-thirds of bachelor’s degree recipients graduated with debt in 2008, compared with less than half in 1993.”However, rising debt burdens contribute to soaring default rates, especially for private for-profit universities. Moreover, given Pell Grant cuts and rising tuitions, students will be more than ever indebted and strapped to repay during hard times because Congress rigged the system against them.
As a result, education policy experts expect serious implications for future graduates. According to Lauren Asher, Institute for College Access and Success president:
“If you have a lot of people finishing or leaving school (entrapped in) debt, their choices may be very different than the generation before them. Things like buying a home, starting a family, starting a business, saving for their own kids’ education may not be an option if they’re trying to repay student debt.”
Moreover, “(t)here’s much more awareness about student borrowing than there was 10 years ago. People either are in debt or know someone in debt.”
“About two-thirds of the people I see attended for-profit (universities). Most did not complete their program, and no one I have worked with has ever gotten a job in the field they were supposedly trained for. For them, the negative (debt default) mark on their credit report is the No. 1 barrier to moving ahead in their lives. It doesn’t just delay their ability to buy a house, it gets in the way of their employment prospects, finding an apartment, almost anything they try to do.”A Final Comment
If that’s not just cause to resist, what is? If not now, when? If not us, who? If that future doesn’t arouse public anger, what will?
May 16, 2011
College education is big business, and with easy Federal loans, prices for everything from tuition to text books is going through the roof. Once degreed, the majority of college grads are ill-equipped to handle the current marketplace. Many of those who entered college just five years ago simply can’t find work in a 21st century economy that’s imploding on all sides. What college grads are left with are massive loans that can’t be repaid and a room in mom and dad’s basement.
This latest video from the National Inflation Association should be viewed by parents and potential college students alike.
If you’re dead set on sending your kids to college, or you yourself are preparing to enter higher education, look at the future to determine what you should be learning. China will be the leading economy by the end of the decade — perhaps consider becoming fluent in Chinese. Seen the prices of commodities lately? With monetary printing, a growing global population, and the possibility of major weather changes (natural or man made) we suggest take a close look at careers in resource-based (food, energy, water) industries.
Watch College Conspiracy:
May 16, 2011
College presidents and the American public have very different ideas about who should pay for college and whether higher education is a good deal, a new Pew Research Center study finds.
Three-quarters of college presidents, on the other hand, say college is a good or excellent value, and 42 percent of them say college is affordable for most people.
Terry Hartle, chief lobbyist at the American Council on Education, tells the Lookout that there's a simple reason college presidents and the general public are so out of sync.
"I think the reason that college presidents think college is more affordable than the general public is that college presidents are acutely aware of how much money is going into student aid each year," he says.Hartle also points out that 25 years ago, when college was much cheaper on average, 60 percent of Americans said higher education was unaffordable for most people.
It's true that the sticker price of college has nearly tripled since 1980, even after costs are adjusted for inflation. Advocates of higher education, like Hartle, argue that grants and financial aid have filled that gap--but economists have found that the average family is paying a higher percentage of its income to finance college than it did 30 years ago. Families in the lowest 20th percentile of income have found college more financially out of reach over the same period, suggesting that financial aid has not kept pace with ballooning costs.
Meanwhile, six in 10 college presidents say students are less prepared for college and study less than their counterparts had 10 years ago. Their pessimism is borne out by research. A comprehensive study finds college students only study 12 hours a week on average. And a 2008 study found that one-third of college students are enrolled in pricey remedial courses because they lack proficiency in basic math or reading.
Ohio State University researchers surveyed more than 3,000 adults aged 18 to 34 for the study, which is published in Social Science Research. Their study found that the more debt from college loans and credit cards individuals had in their name, the more control they felt over their lives. There is, however, a catch: People over the age of 28 started to show signs of stress and worry about their debt. The downshift in debtors' moods stems from the ongoing growth of their debt obligations over time--though it is of course also true that adults have a general propensity to worry more as they age. - The more debt college students have, the higher their self esteem, The Lookout, June 16, 2011
June 16, 2011
Washington Gov. Chris Gregoire approved huge budget cuts today that will hike tuition at the state's premier public university by 16 percent, the Associated Press reports. Tuition at the University of Washington will cost twice as much when Gregoire leaves office than it did in 2005.
In Texas, college tuition has risen by more than 70 percent since it was deregulated during a budget crisis in 2003. Those increases have prompted Gov. Rick Perry to ask college administrators to figure out a way to provide a college education--including books--for $10,000.
September 27, 2011
Sure, they'll help pay for college. But good luck paying them back.
1. Your Co-Signer Could Do You More Harm Than Good
Before they will lend thousands of dollars to a college-bound 18-year-old, around 80% of private lenders require a co-signer, according to the Consumer Bankers Association. Typically, that's a parent or another relative, but it can be anyone willing to take responsibility for paying back the loan.
Private lenders often tout the benefit of an adult cosigner, saying that because students don't have much of a credit history, the a co-signer's good standing can help secure a lower interest rate. That's true, but it also puts the student at the mercy of the parent's credit history, which may not be so stable these days.
And if a parent's credit standing falls, the interest rates families get on private loan when the student is a freshman in college might be the lowest they'll ever see. Each year a student applies for a private loan, the lender takes a fresh look at his cosigner's credit profile. If the lender sees a lower credit score, more debt or missed payments to other lenders, it will likely offer a higher interest rate on a loan than it did when the student was a freshman in college. Falling credit is a sign of a riskier borrower, says a spokeswoman for the CBA, which warrants higher rates.
2. You May Be in Over Your Head
When Jason Wagner was studying to be a pilot at Embry-Riddle Aeronautical University in Prescott, Ariz., he figured he'd have no trouble landing a job and making payments on what eventually totaled $130,000 in mostly private student loans. But in the seven years since he graduated, it's been harder than he thought. In 2008, he worked out an agreement to lower his monthly loan payments, and next month, for the first time, he says he will probably miss a payment.
Wagner isn't alone. Nearly 10% of federal student-loan borrowers defaulted during the two years ended Sept. 30, 2010, according to the Department of Education, up from 7% in 2008. Private student loan defaults are rising also: Around 5.4% of private student loans defaulted during the second quarter of this year, up from 4.5% a year ago, according to Moody's Investors Service Private Student Loan Indices, which tracks loans.
Getting back on track after defaulting is difficult: college graduates' credit scores can plummet, which can make it difficult to get approved for credit or to rent an apartment. And critics say many graduates who are dealing with overwhelming debt loads try to find jobs with salaries that allow them to pay back the loans, instead of a job they want.
For its part, Sallie Mae, the largest private student lender, says it wants to help its customers graduate and be successful in repaying their student loan obligation so it does everything it can to assist them along the way to achieve those goals. Many private lenders allow delaying payments for a year. And students who have difficulty repaying federal loans may be able to sign up to delay payments for up to three years and in some cases forbearance for up to five years.
3. The More Expensive Your College, the Cheaper Your Loans
Financial aid experts agree: the cheapest loan a college student can get is a government-sponsored subsidized Stafford loan. The rate is a rock-bottom 3.4% for the current academic year -- about less than half the cost of an unsubsidized Stafford loan -- and the government covers interest payments while the student is in college and for six months after graduation.
But to get approved for such a deal, students must demonstrate financial need, which is partly determined by the cost of their chosen school. That means a student at an expensive private college can show more need, and therefore, may get cheaper loans, than a student at a lower-cost school, says Mark Kantrowitz, publisher of FinAid.org and Fastweb.com.
This hidden incentive to choose a more expensive college is particularly powerful for students from wealthier families, because higher tuition costs can offset a higher family contribution, at least in the government's formula for demonstrated need.
About one in four students from households earning $100,000 or more receive a subsidized Stafford loan when they attend a university that costs $40,000 or more a year, according to a study by FinAid.org. But only one in 14 do when they attend a school that costs $10,000 to $20,000. Of course, foregoing the loan in favor of a cheaper college may still be a better financial move overall, says Rod Bugarin, a financial aid expert at New York-based Aristotle Circle, which helps families get financial aid.
A spokeswoman for the U.S. Department of Education, which administers the Stafford loan program, noted that at any college, the maximum amount a dependent student can borrow in subsidized Stafford loans is $23,000. And that only goes so far at the most expensive schools anyway.
4. You're Stuck With Us -- Forever
Facing almost $100,000 in student loans for two daughters' college educations and other debts, Eileen Pearlman, a speech language pathologist in Chicago, Ill., figured filing for bankruptcy would bring relief. She quickly discovered otherwise.
Student loan debt can almost never be discharged in a bankruptcy. For example, of the 72,000 federal student loan borrowers who filed for bankruptcy in 2008, just 29 succeeded in getting part or all of that debt discharged, according to the most recent data from the Education Credit Management Corporation, which until recently provided guarantees for federal loans issued by private lenders.
"You're more likely to die of cancer or in a car crash than you are to get your loans discharged in bankruptcy," says Kantrowitz.And if you can't pay? The federal government can garnish up to 15% of the borrower's or cosigner's wages until the debt is paid off; private lenders can take up to 25%. For federal loans, the government can also intercept income tax refunds, future lottery winnings and up to 15% of Social Security benefits. And many private lenders, with the exception of Sallie Mae, Wells Fargo and the New York Higher Education Loan Program, can go after a borrower's estate upon his death.
For families who have missed four to 12 months worth of payments, the most realistic option is to work out a payment plan with the lender, says Kantrowitz. With federal loans, for example, borrowers can clear a default from their record if they make nine out of 10 consecutive full on-time monthly payments.
5. Parents, You're Off the Hook -- Kind Of
Most private lenders require student borrowers to have a cosigner. It's most often a parent, but whoever it is, they're equally responsible for the loan until it's paid off. Few cosigners know, however, that most lenders allow the cosigner to exit the contract if loan payments are made on time for the first 12 to 48 months and the graduate has excellent credit.
But those terms are harder to meet than they first appear. For example, before Sallie Mae will approve a cosigner release for its most popular student loan, called the Smart Option, the lender says it needs to review the student's credit history for good standing with his or her other debts, including credit cards, car loans and even rent payments. In addition, the student needs to prove his income is high enough to manage the monthly loan payments solo.
The company says that the customers who meet the criteria do receive approval for a cosigner release after the first 12 months of on-time payments after graduation on a case-by-case basis. For example, a college graduate with $20,000 in federal loans, $10,000 in private loans and an annual salary of $45,000 (about average for recent grad) may be able to demonstrate sufficient income to handle the $125 in monthly private loan payments, the company says.
For parents who have cosigned for multiple private loans, it may be possible to exit the loan if the borrower consolidates. The cost, though, might be a more expensive loan for the student. In a consolidation, the borrower gets a new interest rate, and if his credit score is lower than his parents', the result could be a higher interest rate and larger monthly payments.
6. We'll Spring for Spring Break
Federal and private loans don't just cover tuition and room and board. They also pay for what's called the cost of attendance, which includes, say, transportation to and from a student's hometown -- or other places, says Kantrowitz, which might include even Fort Lauderdale or Cabo San Lucas for spring break. Loans can also pay for health care expenses, computers and even winter clothes, says Bugarin.
To be sure, Bugarin says, what's covered by loans is largely determined by the college's financial aid office, and spring break trips don't usually get the green light unless they're related to an academic experience.
"Financial aid officers are there to ensure that the student doesn't take on too much debt," he says.And students will have to provide documentation explaining why they need larger loans before a financial aid officer increases their loan size.
But even if an aid officer is willing to sign off, a larger loan may not be the best way to cover these expenses (see No. 4: "You're stuck with us -- forever"). A short-term alternative for miscellaneous expenses may actually be a credit card: Student cards now offer 0% interest rates for up to nine months, and parents may be able to qualify for a card with a 0% rate for nearly two years. That could be enough time to pay off those expenses without incurring interest.
Click Here for More Things Student Loan Companies Won't Say