October 4, 2011

The Truth About Student Loans

College costs have tripled since 1980, and are going higher, even as wages for the middle class have stagnated; federal intervention has caused college costs to spiral out of control, and Obama promises even more intervention — so expect costs to continue to skyrocket as five big lenders profit from the $1 trillion student loan debt.

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 Connection

Beginning 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.

Pell Grants

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

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 by burning his Sallie Mae student loan bill. UC Davis, responding to the brutal pepper-spraying of students last week, also kept their 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 the OccupyStudentDebtCampaign 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 UC Davis were protesting a proposed hike in their tuition a full 81% 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, NYU 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: JP Morgan 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 corporation, 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 which 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 [PDF] 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 number 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.

3. Discover

After buying the remains of Citi's Student Loan Corporation, 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, online savings 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.

4. NelNet

Based in Lincoln, Nebraska, NelNet was founded in 1978 as the UNIPAC Loan Service Corporation 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.

5. JPMorgan Chase 

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 purchased Collegiate 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 Senator Mark Warner, $55,750 to Tennessee Senator 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.”

Sad Chart of the Day: College Tuition v. Median Wages

The Lookout
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 gap is even more steep if we go back a few more years--college costs have nearly tripled since 1980, even as wages for the middle class have stagnated.

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 2010

Mind-boggling Increase in Tuition Since 1960 Even as Students Learn Less and Less

May 25, 2011

There has been a truly mind-boggling increase in college tuition since 1960. For example, law 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.

America’s Student Loan Racket: Soaring Default Rates

Veteran's Today
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.

Students at for-profit schools fare worst at 25%, but sharp tuition increases at public and private nonprofit universities place greater burdens on their graduates, assuring rising defaults, especially over their lifetime.

Moreover, rising levels may cause many colleges to become ineligible for government-backed Pell Grants and other student loans. To qualify, they formerly had to show less than 25% of students defaulting within a two year window. If they breached that threshold for three consecutive years, or hit 40% in a single year, they could lose out altogether.

Now, under the 2008 Higher Education Opportunity Act increasing the default window to three years, the ineligibility threshold rose to 30%, penalties not beginning until 2014.

On March 15, New York Times writer Tamar Lewin headlined, “Loan Study on Students Goes Beyond Default Rates,” saying:
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.”
Many of them have their own horror stories about how predatory lenders, servicers, guarantors, and collection companies rip them off under an escape-proof system.

The entire scheme amounts to legalized grand theft, the equivalent of what Wall Street banks do to investors with impunity.

According to Deanne Loonin, a National Consumer Law Center attorney:
“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
America today is characterized by a combination of rising poverty, unemployment, home foreclosures, homelessness, hunger, student debt entrapment, and despair, mocking the notion of a fair and equitable society.

Not at all under a corrupted political duopoly, sucking public wealth to America’s super-rich, spurning popular needs, waging permanent war, and heading the nation for tyranny and ruin.

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?

College Education: The Largest Scam in U.S. History

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.

At one time, college was an investment. Today, it’s become, as one interviewee in the documentary suggests, indentured servitude.

For parents and teens looking at colleges, we suggest taking a close look at the amount of money that will need to be spent and borrowed, compared to the benefits that will come out of the degree pursued. Thirty years ago, a bachelor of business would have been a desired degree to hold. In an economy with over 20% unemployed, one must ask: how many business administration and management jobs will there be four or five years from now, especially if we continue to lose production capacity to cheap foreign labor.

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.

Most importantly, prepare your mind for a post-college environment where, rather than finding a job for someone else, you are able to invent your own.

For those who have chosen to avoid college, perhaps the best route to take is some type of modern-day apprenticeship in a field that will thrive during a recession or depression. Learn to farm, to purify and treat water, carpentry, metal works, and other jobs that produce physical goods needed by society. You may not end up being rich (but you might), however, you’ll be much better off than the guy in the basement with no idea about what to do with a degree an employer could care less about.

Watch College Conspiracy:

63 Percent of College Presidents Think Students Should Pay for Education

The Lookout
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.

Almost two-thirds of the presidents of public and private four-year and two-year colleges say that students should pay for their own education.

Meanwhile, less than half of members of the general public agrees with that assessment, with a majority saying either the federal or state government, private donors, or a combination of those should pick up the largest share of a student's college tab.

Perhaps this reluctance to pay is due in part to a widespread belief that colleges are ripping people off. Nearly 60 percent of Americans say the U.S. higher education system is not providing students with a good value. And 75 percent of Americans say college is financially out of reach for most people.

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.

University of Washington to Hike Tuition Following Steep Budget Cuts

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

The Lookout
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.

A report on Stateline.org explains that higher education budgets are also on the cutting board across the country, after facing years of smaller cuts since the recession began. Nevada is cutting public higher education funding by 15 percent, and Arizona state budget cuts have resulted in a 20 percent tuition increase at Arizona State University.

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.

Higher education lobbyist Terry Hartle told The Lookout public colleges are the first to get hit in a budget crunch because college students "look very much like paying customers," and it's more politically palatable to cut higher ed funding that K-12 spending. In-state tuition has jumped 7.9 percent just this year, according to a recent study, and the average college student's debt is now a record $23,000. Pennsylvania State University has the most expensive in-state tuition and fees of any public college, at more than $15,000 per year, according to the U.S. News and Report.

According to data from the National Association of Budget Officers, 18 states cut K-12 and higher education spending in fiscal 2011, by $1.8 billion and $1.2 billion respectively. But proposed cuts for the next fiscal year are much steeper: They total $2.5 billion for K-12 schools and more than $5 billion for higher education.

Things Student Loan Companies Won't Say

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

1 comment:

  1. Very true about private lenders. This really goes for any education loans really, that's why I always tell future college kids to go after scholarships and grants.


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