“The Bank Always Gets Paid,” Mr. Potter
I met Lynn while working with Alan Collinge of the Student Loan Justice Organization. She too has been working with Alan to call attention to the plight of students who took loans out to pay for college and the mishandling by servicers of them.
The first story is of an older man who took out a Parent Plus Loan for his daughter, who has since died, and he is paying off the loan through garnished Social Security checks.
The second story is a time table and it is long. A younger person takes out a student loan for $10,000, graduates with a Bachelors degree, encounters many issues along the way, and works in the type of work which does not pay as well as many. The $10,000 debt turns into $30,000 over time. This is a well detailed story as told by Lynn a CPA. I plan to send this story to a few people I know to make a point. Monica’s story is one of most detailed accounts of student loan mischief and as close to fraud I have read. It is typical of what students face today.
Obama took the student loan lending business away from commercial interests and kept it within the government. The only problem, he left the servicing of the loans to commercial interests, who are in it for the money, and prey on unknowing teenagers trying to go to college, and eventually a living. These loans have greater profitability in default and are impossible to escape unless a person is disabled or dead.
Lynn Petrovich, CPA: In 2016, I prepared the return for an 80-year-old man who came into the tax clinic. He handed me his W-2 form which reported wages of $500 and a Social Security statement. He needed to file a tax return to obtain a refund of federal and state withholding reported on the W-2. While reviewing his Social Security statement, I noticed one-third of it was garnished. When I questioned him about this, he became very solemn, put his head down, and explained it was for an education loan taken out for his daughter “some time ago” to help her attend college. She had since died. Piecing together what he told me, I figured he took out a federal Parent Plus loan, had defaulted (before, during, or after his daughter’s illness and death), and didn’t know what to do. The default resulted in the garnishment of his Social Security, most likely without end for the rest of his life. There is not even an accounting of what is taken each year.
Between 1984 and 1987 Monica took out $10,000 in student loans. Over the next 30 years she made payments totaling over $24,000, yet she still owes more than $3,000 on her loans.
I first met Monica at a tax clinic in the early 2000s. As a CPA, I had been volunteering my time preparing tax returns pro bono on Saturdays during tax season. Monica and dozens of other taxpayers were waiting patiently to have their taxes prepared at this free clinic located at the Jersey Shore.
When it was her turn, Monica brought her completed interview/intake form to my workstation. I looked over the information she had provided and asked a few follow-up questions, including if she had any student loan debt.
She shifted in her seat and explained that she took out $10,000 in student loans when she was in college in the 1980s. She said that she has been doing her best to repay the loans since graduating but wasn’t really sure about how much she had repaid, how much of the principal she has knocked down, or how much she still owed. As a single person who rented, Monica needed all of the deductions to which she was entitled, so I encouraged her to get some specifics about her loans. She agreed to come back the following week with her student loan interest amount.
I’ve prepared Monica’s taxes many times since that first meeting in the early 2000s. Each year, she provided statements from her loan servicers which reported student loan interest received. During the 2017 tax season, while preparing her return, I discovered that she was still paying down the original student loan debt she’d taken out 30-plus years earlier.
How could that be?
My curiosity piqued, and I asked Monica if I could perform a review of her student loan debt. A week later, she handed me a large and overflowing manila folder containing 30 years’ worth of payments, loan documents, and servicer statements.
I dove into it with passion.
The following is a narrative on what I found (below narrative is summary recap of events by date, numbers are rounded):
1984 -1987: Origination of Student Loans
Monica attended a large public university outside New Jersey, graduating in the spring of 1987. In order to pay for tuition, housing, and other college costs, Monica obtained four (4) Federal Stafford FFEL loans for $2,500 each. All of the loans were fully subsidized.
What are FFEL Loans?
The Federal Family Education Loan program (FFEL) was a student loan program in which commercial bankers issued student loans directly to borrowers or colleges. FFEL loans are what the accounting industry calls “cash cows,” a type of business investment which rewards investors beyond risk (initial investment costs) with liberal guaranteed payments and profitability. FFEL loans are 100% guaranteed by the government, including subsidized interest rates, and administrative costs (special allowance payments).
FFEL loans issued for qualified educational expenses began to earn interest from the date the loan was distributed to the borrower or school (date of origination). While the borrower is in college, interest accruing on subsidized FFEL loans is paid by the government directly to the lender. Since this interest is paid by the government, the borrower is only responsible for repaying the original principal balance upon graduation.
The FFEL program was terminated by President Obama effective July 2010. Federal student loans are now issued directly by the government to borrowers (or colleges) and are a part of the Direct Loan program.
December 1987: Graduation, Repayment Begins
Monica graduated from college in the spring of 1987. Once her six-month grace period expired, her FFEL loans entered repayment.
Overview of Monica’s student loan debt in 1987:
Term of note: 10 years, 120 monthly payments
Monthly payment: $127.00
Interest Rate: 9%
Principal: $10,000 (because interest while attending college was paid to the lender by the government)
Interest over loan term: $5,238.00.
Total repayment: $15,238.00
Grace period: 6 months
Repayment to begin: December 1987
Over the next two years, Monica made consistent monthly payments of $127 directly to the commercial bank in New Jersey which originated the FFEL loans.
1989: Monica Gets a New Loan Servicer
November 1989; the commercial bank notified Monica that the servicing of her loans was being transferred to the Student Loan Servicing Center (SLSC), effective January 1990. The principal loan balance at the servicing transfer date was $8,706.
The commercial bank reported student loan interest received for 1989 was $746.33.
1990 – 1992: Negotiating New Terms in Hard Times
Despite working two jobs, full-time for a local nonprofit during the day and waitressing at the local bar at night, Monica had problems meeting her repayment obligations. She fell behind on the $127 monthly payments and approached her servicer for help.
July 1991; Monica signed a new note with SLSC (replacing her original loan note) for 90 monthly payments of her loans at 9% interest. Her new monthly payments were $136. The principal at note date was $8,148 plus accrued interest of $368 (for periods when she was unable to make payments interest was still being charged). With the interest capitalized (added to principal), her new principal balance totaled $8,516 ($8,148 plus $368).
1993 – 1995: Struggles and Forbearance
Over the next three years, Monica continued to work at least two and sometimes three jobs. Despite her hard work, she still struggled to make her loan payments. During these years, Monica’s housing and transportation costs accounted for more than 50% of her income. She had very little left for discretionary purchases and the payment of student loan debt.
November 1994; SLSC accelerated the loan due to nonpayment. The principal balance at acceleration was $7,325 plus accrued interest of $375. The interest was capitalized, bringing the principal balance to $7,700.
Monica requested forbearance. Forbearance allows student loan debtors to pause their payments for a short period of time. While payments are not due, the interest on the loan generally continues to accrue. As a result, the balance due will be greater after forbearance. SLSC agreed to grant a six-month forbearance, giving Monica a little bit of breathing room.
January 1995; Monica signed a new note with SLSC. Under the new deal, Monica would be required to pay 63 monthly payments of $154 at 9% interest. The principal of the note at signing was $7,325 plus accrued interest of $495, which came to a grand total of $7,820. Monica would begin payments in April 1995.
1996 – 1998: Increased Cost of Living Leads to Default
Over the next two years Monica did her best to make payments each and every month. Cost of living and transportation increased, continuing to swallow more than half of her monthly income. Monica skipped or delayed payments on her $154 plan.
August 1997 – ten years after graduation – Monica’s FFEL loans had been purchased by the NJ Higher Education Student Assistance Authority (NJHESAA). SLSC (the loan servicer) denied a request for economic hardship relief forbearance allowing the forbearance period to be interest free. Principal balance in August 1997 was $5,187.
[The NJ Higher Education Student Assistance Authority is a State agency which administers NJ CLASS loans (private student loan debt* originated through the sale of bonds to investors) and, as investments, maintains large quantities of purchased FFEL loans in their portfolio. As of 6/30/17, NJHESAA’s FFEL-owned loans totaled almost $2 billion].
*The Federal Reserve categorizes any loan that is not a Title IV loan as private. Title IV refers to the Higher Education Act of 1965 and amendments.
September 1997, after SLSC granted forbearance through April 1998, Monica signed another note with SLSC. The terms of the new note included 38 monthly payments of $173 at an interest rate of 9%. Principal balance was $5,187 plus accrued interest of $520 which was capitalized, bringing repayment of principal to $5,708. Payments were to begin May 1998.
1999 – 2003: Default and Rehabilitation
Over the next 2 years, Monica struggled to make the increased loan payments. Originally her monthly payment was $127 and a decade later, the monthly student loan commitment had jumped to $173. Working 60 hours a week, Monica’s yearly income rarely exceeded $25,000. In addition to struggling to keep up with the rising cost of living, Monica endured a series of medical catastrophes, fell behind on her payments, and defaulted in early 2000. NJHESSA told Monica she had to “rehabilitate” the loans.
Default of federal loans occurs when payment has not been made (or acknowledged by the lender) for more than 270 calendar days. Default causes the loan to be subject to higher interest rates, collection, and late fees. Collection costs for Monica’s loans were 18.5%.
A process where the borrower must bring the loans current by making consecutive monthly payments over no less than a 10-month period. Most often payments are determined by calculating 15% of borrower’s discretionary income, are not applied to the principal, and are used to pay for collection costs, fees, and interest.
Late 2000; Monica enters the rehabilitation program. After a year, she was notified by the guarantor, NJHESAA (who owned the FFEL loans), her rehabilitation was completed, and the loans had been referred to Sallie Mae for servicing. Principal at completion of rehabilitation was $5,282 plus accrued interest of $338 plus collection and late/collection fees of $1,076 (both of which were capitalized) brought the new loan principal balance to $6,697.
Monica signed a note with Sallie Mae for 104 monthly payments at $86.
February 2003; Monica continued struggling to make payments on the latest note. She was still working on paying off medical debt and dental work. Housing and transportation costs exceeded 60% of income. She requested and was granted a forbearance of 12 months.
2004 – 2007: Request for Consolidation
Early 2004; Monica’s forbearance ends. Housing and transportation costs still accounted for more than 60% of Monica’s income, and she was still paying off medical debt. Adding to this burden, she encountered large veterinary bills for her dog. Monica could not keep up with the new payment plan and was delinquent.
2006; Monica contacted NJHESAA and requested to have her loans consolidated. She completed the Direct Loan Consolidation application complete with loan detail, personal information, and references and submitted it to the Direct Loan Consolidation center. If the loan consolidation were approved, Monica’s loans would only be subject to 8% interest. She received a postcard informing her that her application had been received on 06/22/2006. Loan balance at June 2006 was $9,436. 18 years after graduation, her principal balance was almost as much as the original loan amount of $10,000.
There is no evidence her application for loan consolidation was ever processed and/or approved. If Monica’s loans had been consolidated, they would no longer be the cash cow FFEL-guaranteed loans were and may have been a deterrent to consolidation by the loan holders.
February 2007; Monica was notified by NJHESAA that her loans had again defaulted. They threatened garnishment of her wages. Monica agreed to a voluntary repayment arrangement of $112 a month over a 10-month period which required direct deduction of the payments from her bank account.
NJHESAA Form 1098-E for 2007 reported “defaulted FFELP loan” interest received of $972.87.
2008 – 2010: Struggling to Find a Solution
March 2008: After completing the second rehabilitation** program of her loans and 20 years after graduating from college; Monica entered into another repayment agreement with loan servicer AES, agreeing to monthly loan payments of $95.
[**According to studentaid.ed, prior to 2008, defaulted federal loans could only enter rehabilitation once. After receiving the notice from NJHESSA reporting her loans in default and threatening wage garnishment, Monica “volunteered” to make 12 monthly payments of $112].
NJHESAA Form 1098-E for 2008 reported “defaulted FFELP loan” interest received of $633.48.
2008 and 2010, Monica attempted to make monthly payments of $95. She was granted several periods of forbearance. In September 2010, AES notified Monica that her most recent forbearance had ended.
NJHESAA Form 1098-E for 2009 reported “defaulted FFELP loan” interest received of $580.77.
September 2010; Principal balance was $6,211, accrued interest of $1,000 (during forbearance) was capitalized, and resulted in new a principal balance of $7,209. Housing and transportation costs continued to hover around 55% to 65% of income. Old and new medical and dental bills exceeded $1,000.
NJHESAA form 1099-E for 2010 reported “defaulted FFELP loan” interest received of $225.86.
2011 – 2016:
Monica’s income stabilized a bit, and she was able to make monthly payments of $95.
2017 – 30 Years After College Graduation
January 2017; A statement issued by loan servicer AES reported principal balance at $3,208.
January 2017 According to servicer statements and after thirty years after college graduation, Monica still owed over $3,000 on her original student loans. Along the way, she’d made over $24,000 in payments. The loans were not consolidated, although she tried to do so to lock in a lower interest rate.
Her New Jersey refunds were levied for over a decade and seized by NJHESAA. Additionally, her tenant homestead rebates were also seized. Total amount of income tax refunds or homestead rebates taken by NJHESAA, exceeded $1,000.
Student loan payments are applied as follows:
1. First to late charges, fees, and collection costs,
2. Second to outstanding interest, and
3. Last to reduce principal.
During forbearance; interest does not stop accruing when payments were not made and if payments are less than the amount to pay accrued interest, the principal balance increases. When a borrower is seeking forbearance for FFEL subsidized loans claiming economic hardship, application must be made and approved by the loan servicer. Monica made application for economic hardship in 2007 but it was denied by the servicer.
Student loan borrowers should be aware of the daily interest cost of their loans. This is important because if payment is made for less than the daily amount, principal will never be reduced. At the beginning of Monica’s repayment journey in 1987, her daily interest cost on the 4 FFEL loans with a principal balance of $10,000 at 9% was $2.50 per day. She needed to pay at least $75 ($2.50 times 30 days) per month in order to satisfy the interest accrued and due before payment would be applied to principal. The daily interest rate decreases with each payment, assuming interest has first been fully satisfied.
Federal student loans are exempt from most consumer protections (Fair Debt Collections Act, Truth in Lending, Statute of Limitations), are excluded, for the most part, from oversight by the Consumer Financial Protection Bureau, and are dischargeable in bankruptcy only under the most dire of circumstances (you have to meet the Brunner test proving harm and undue hardship). Collection costs are punitive, enormous, and add to the principal.
Like most students entering college right after high school, Monica was a teenager when she signed her student loan contracts. It is apparent she had no idea what kind of indenture she’d “agreed to.” This can be said for the majority of student loan borrowers. Financial education at the high school level is seriously lacking, if existent at all. Student loans are originated between borrower (student) and lender without much scrutiny, oversight, awareness, or repayment considerations. Politicians in Congress made this possible.
Over the past decade, through both pro bono and paid tax preparation work; I’ve seen many student loan borrowers like Monica struggle to make ends meet and have tried to understand what is happening with their student loans. I’ve watched as refundable credits in the thousands of dollars have been seized by federal and state agencies year after year to pay for student loan debt. Many low-income taxpayers who took out debt decades ago and who have tried to pay this debt back, find – with accrued interest and collection fees – they owe much more than the original loan amount. Those who qualify for tax credits earned for dependents, education, or economic qualifications (refundable child tax credit, education, and earned income tax credits), never see the refunds which could have helped with housing, utilities, and child care. Instead the money is siphoned off into a vat of pots to pay for bloated collection costs, fees, interest, and most likely never touching principal. It is a cycle that can last decades, is rarely broken, and often without any reconciliation of seized funds.
This past tax season I prepared the return for an 80-year-old man who came into the tax clinic. He handed me his W-2 form which reported wages of $500 and a Social Security statement. He needed to file a tax return to obtain a refund of federal and state withholding reported on the W-2. While reviewing his Social Security statement, I noticed one-third of it was garnished. When I questioned him about this, he became very solemn, put his head down, and explained it was for an education loan taken out for his daughter “some time ago” to help her attend college. She had since died. Piecing together what he told me, I figured he took out a federal Parent Plus loan, had defaulted (before, during, or after his daughter’s illness and death) and didn’t know what to do. The default resulted in the garnishment of his Social Security, most likely without end for the rest of his life. There isn’t even an accounting of what is taken each year.
Without basic consumer protections, financial education, understanding, or advocacy, and absent the ability to discharge in bankruptcy, the contracts Monica and other borrowers enter to secure loans to help fund higher education are heavily lopsided in favor of lenders, investors, and loan servicers.
I question, as required by the basic principles of contract law, whether there is even a meeting of the minds between borrower and lender. Additionally, there seems to be some amount of unconscionable favor on behalf of one party over the other.
Student loan debt has topped $1.3 Trillion. By entering into these cumbersome, confusing, complicated, non-transparent contracts, the US has been devouring its citizens- young and – old in a cruel system of endless servitude.
Original principal 10,000
Interest added to principal 5,173
Collection fees added to principal 2,225
Revised principal increase over 30 years 17,398
Principal paid 14,370
Principal balance January 2017 3,028
Total paid over 30 years Dec 1987 thru Jan 2017
Paid toward principal 14,370
Paid toward interest 9,710
TOTAL PAID TOWARD LOAN 24,080
Lynn Petrovich, CPA
There is a structural problem in that these loans cannot be discharged in BK or any other way. This eliminates any power the borrower might have had.
However, this super status is what allows these loans to be made at below market interest rates. I would guess the market interest rate for an unsecured loan to an unemployed 20 year old would be high teens or low twenties, which makes borrowing for college much less attractive
These loans were fully funded by the Gov. Today, banks are no longer allowed to make student loans under Direct Loans. The loans are more profitable in bankrupycy. This borrower never had a cheap rate. The lowest she had was 8% even through the recession when people were buying cars at 0% loans.
«Many low-income taxpayers who took out debt decades ago and who have tried to pay this debt back, find – with accrued interest and collection fees – they owe much more than the original loan amount.»
That happens to mortgages too — the main difference is that “house prices always go up”, while obviously her education loan does not guarantee jumping from low-income to middle income or better.
The other big difference is that since “house prices always go up”, property mortgages have interest rates like 3%, while education mortgages hit like 9%, and 9% is pretty high — it means the debt doubles in 8 years. This simply reflects that the property lobby is more powerful than the student lobby.
But the idea that a $10,000 load from 1984 at 9% results over 34 years years in just $24,000 of repayment and the balance has shrunk to just $3,000 means that the borrower has overall been given a very generous deal, especially considering inflation over nearly 35 years has been 2.3 times, cutting the real value of her debt and current payments to 43% over the years.
In the UK the rate on student loans is just 6% nowadays, they are paid with a tax surcharge if the income is higher than roughly $30,000, and there is forgiveness after 30 years, and 40% of all student debts are never fully repaid, which means that many graduate jobs are not that great either.
What is rather worrying about the picture is not the cost of that debt though but that despite having a degree the borrower could not afford to repay it at a rate of $127 per month, despite having 2-3 jobs. That’s the big problem.
Student loans are not meant to be profitable as the benefit comes in the profitability of the economy. Indeed, they are more profitable in default. The idea is to get back a product which is profitable and fulfills a need in the economy. Burdening them with debt is a drag on them and the economy. Furthermore, the borrower was illegally denied of some of the rights under student loan regs. The penalties she paid are usurious. What is not contained in that article is the lady in question was ill, downsized, etc. in a not-so well paying occupation. There is a lot going on here.
I have seen your name before. Welcome to AB. New comments go to moderation to weed out spammers and advertising.
«a structural problem in that these loans cannot be discharged in BK or any other way.»
Well that “discharged” does not mean that they are just cancelled and that’s it: it means that someone had got to pay for them. Consider the case of the pensioner whose small OASDI payments are garnished because he co-signed a debt for his now dead daughter and he has to pay it back, suppose it had been “discharged” instead by the death of the borrower: the options for taking the loss would be the taxpayers in higher taxes, the other borrowers in higher interest rates, and both may object to that. As it is the loss is taken instead by by the parent who cosigned the loan, and might have benefited from his daughter’s support has she lived and earned more because of the loan. He took a very understandable risk to benefit his daughter (and potentially himself) in co-signing and lost the bet.
Now for me the issue is not that he chose to take the risk and regardless that he should be made whole at the expense of taxpayers or other borrowers, but that his final outcome is that he seems to be very poor.
Same as the other “sob story”: in both the problem is not that un-“discharged” debt is destroying their lives, because it is not even remotely extortionate, but that both are so poor that they cannot reasonably afford to pay it back.
We, the US, piss away more money in defense than in student loans and I live here.
Careful using the 0% interst on cars loans as an example. They are not really 0% interest. While the loans say that, there is always a “rebate or 0% rate” choice. The rebate covers the interest charges and if the consumer takes the rate, the bank gets the rebate.
In many cases, the consumer is better off taking the rebate and a normal rate rather the 0% rate.
Meanwhile, healthcare and education run for profit is an immense problem is this country, and is a huge burden on the economy with the restrctions it places on demand.
My thought is to have the FED run a student loan QE. Buy up all of these loans in the secondary market; extend the terms drastically; and lower the interest rates.
The stimulus on our economy would dwarf the mortgage QE stimulus(not that hard).
Having a well educated work force is far more profitable than having a population of younger people indentured to the gov. You are right. It was an easy example which is why I used it.
It’s pretty easy to repossess a car if a borrower defaults. Kind of difficult to do the same with an education as the collateral.
And the 10 year Treasury was 8.85% at 12/31/87 – this rate was about as far from usurious as you can get.
These aren’t 8% loans. More like 20% if you take the risk into account. And, no, the loans are not more profitable in bankruptcy. The average recovery on unsecured debt in a bankruptcy is near zero, or a 100% loss.
The reasons rates are higher on riskier loans is to account for higher loan losses. So the Treasury can issue 6% student loans without bankruptcy protection, and therefore suffer higher loan losses, and the resultant deficit will paid by taxpayers.
You make it easier on the borrowers, then you make it harder on the taxpayers
In the US (I notice some comments are about education debt in other countries), student loan debt is about the most non transparent debt available.
Consider teenagers signing on to college excited about the future and possibilities. Then being sucked into a black hole after 34 years of payment….or 10 years…or 5.
Most, if not all, student loan borrowers I council and/or meet have absolutely NO idea what they are getting into. Or what they got into.
And most regret it.
And then there is the back side to default, which is another black hole. There is little if any information after garnishment of income begins. It literally never ends. How is that fair?
There is NO annual accounting. Hell, these borrowers, young and old, don’t even know how how much they still owe, how much is applied to outrageous fees, how much to interest.
They are stressed beyond belief.
They are not investors.
They are simply trying to get an education.
The US Ombudsman’s Office handles defaulted student loan debt. It is a veritable black hole, mostly run, so I understand it, by the servicers themselves.
I challenge anyone here to be able to get (1) a reply from them (2) an accounting of the debt and/or (3) an agreement to make payments outside of garnishment.
Imagine if YOU had the power to seize people’s income any time year after year after year after year after endless year.
Wow! When did we devolve as a country into this madness?
I have afew minutes to approve this and then back to a meeting. There are 44 million people in the US with ~$1.4 trillion of student loan debt. i in 4 default and they sqirl around in that blackhole with no recourse, recourse of which our president enjoyed multiple times, and recourse which all of us on this board enjoy by law. The closest I can come to it is to say it is a debtors prison except you are on parole. You have no right to any federal programs while in default. And yes Sammy, student loans are more profitable in default because of all of this. And 18% penalties are usurious.
Back in a bit.
Welcome to AB Lyn. First comments always go to modertion to weed our spammers and advertising (usual spiel).
You need to change the title to “the Government always gets paid”
Since the government is both the lender and the collector on these loans this is 1000% the governments’ fault. You try to foist the blame on private enterprise servicers. Well who farmed out the servicing? The government. And the servicers are not loaning the money, nor defaulting on the debt; they are just trying to keep track (the least important issue here).
This seems to be another “good intentions gone wrong” story. Provided subsidized loans so that more people can go to college. Great. However the money obviously got sucked up in increased tuition, which the prospective students and parents didn’t get the implications of.
Here is a graph: https://www.bing.com/images/search?view=detailV2&ccid=%2f1X6xbqF&id=EA8483BFD66FE50EE0EB625C941C7C9597FF71DC&thid=OIP._1X6xbqFUyqQbG19HeLvywHaFL&mediaurl=http%3a%2f%2fwww.mybudget360.com%2fwp-content%2fuploads%2f2014%2f10%2fcollege-tuition.png&exph=560&expw=800&q=college+tuition+vs.+inflation&simid=608030172865564392&selectedIndex=2&ajaxhist=0
Since the early 80’s college tuition has increased 350% more than the inflation rate. The colleges have taken advantage of the subsidized loans to raise tuition rates.
Direct your ire correctly.
No, the servicers are commercial and they make the rules outside of what the law is, they do not account for any of their takings in detail, there is no accounting of the numbers, they misapply the rules for student loans, etc. Do you believe 18+% is usurious? It is. The government used to collect and when it was changed to Gov solely making loans (even though you can still gat a non-gov loan outside of the Gov) , the collection was setup for commercial servicers.
44 million people are indentured to paying $1.4 trillion or which 1 in 4 are in default and many others are delinquent at one time or another. The penalties as illustrated are severe.
College costs are up for families for discernable reasons. The largest cost increases have been books and healthcare. Most everything else in costs has stayed within reason. State support for colleges in Michigan alone went from ~60% to ~20%. To compensation tuition increases have gone up greater to compensate for inflation and the loss of appropriation since the seventies. By 2032, state support for Michigan state schools will have disappeared.
Now couple this with higher interest rates for loans, the size of the loans, the usurious penalties applied, the longevity of these loans, and the nation as a whole has a ‘”yuge” problem. We have let the bloodsuckers profit off getting an education at the expense of our children and the economy of the nation.
“The rising individual cost burden of attaining a college degree also has spillover effects on the rest of the economy. With declining state support and a persistent social and economic demand for college credentials, postsecondary education is increasingly financed through debt. This debt weighs on household finances, affecting the consumption and investment opportunities of borrowers, with ripple effects across other consumer debt markets and beyond. Debt service payments reduce disposable income and consumption spending. College graduates focused on paying down debt are putting off other investments, like buying a home or starting a family—or taking on yet more debt to obtain graduate degrees that are increasingly necessary as the labor market credentializes.”
My remarks are properly directed. The lot of you are going down the same old, “I got mine, now you get yours.” You got yours when states and government found a public education to be important and valuable to the economy and not just something held in reserve for those who have a disproportionate share of the nations income and wealth by design of political and commercial interests. It behooves us to financially support a well-educated population of people unencumbered by long term debt from gaining and education as it is beneficial to economic growth.
My remarks are well directed and deserved by those who would advocate everything is appropriate and fine.
I went to college in the late 70’s early 80’s. I remember my tuition was $515 per semester (State school), housing was around $500 and food around $300, so for around $1500 per semester, or $3000 per year, I went to college. I worked some, my parents paid for some and I took out a loan for around $2000 (it was some state guaranteed school loan program). Most of my wealthier friends did not have to work, nor take out loans.
I paid off the loan within a year or two of graduating (at a salary of $17K per year). A couple years later I went to graduate school, this time private Ivy League. Tuition was then unheard of $15K per year. I worked while in school, and graduated with a total of $10K student debt.
Today the tuition and fees, room and board per year at my undergrad school (in state) are $45,000 per year. My graduate school tuition alone is now $76.5K
not sure this comment will make anybody happy.
you (run) cloud your case with the “fact” that the borrower was in default, and the reasons for default are easy enough for the hard hearted to dismiss as “excuses.”
the real problem here, i think (i am no banker) is that there is no escape for the borrower. there should be. endless debt is a killer, whether it is student loan (on a bad education), mortgage loan (oversold by bank), or medical bill (extreme greed by providers), people get trapped in debt and have their lives destroyed.
i have seen, watched in progress, out and out fraud by banks (Wells Fargo) so I am prepared to accept that there was bad faith dealing in the cases you describe. at any rate, at some point the debts should be able to be discharged (bankruptcy: after all, if Our President can do it, so should the least of these)… then you only owe the lawyer.
i am not sure the banks EVER lose money from unpaid loans. referring to the interest rate as though it were somehow eternally just and necessary to protect the banks from loss, would turn out to be a cynical joke when the cases are examined carefully by anyone with a real sense of justice. somehow that’s the story that needs to be told.
The “hard hearted to dismiss as “excuses” people are here. Look at Blissex, Sammy, Jed who I will not bother with, etc. A couple of decades plus some and she is still, still paying a debt that would have disappeared quickly for many of us? Many would have said “no more” (to be polite). She stuck to it in spite of every roadblock to ending it. $10,000 is nothing in our economy and would hardly be missed.
I was sitting in the Stuttgart version of Ocktoberfest drinking litres of good beer. Two Irish sat with us and started talking about Ireland’s debt from their crash . . . something in the range of $2-3 hundred million. I just looked at them astounded. It is all in perspective of what is big. Like the Irish debt, the $10,000 was big for her and she paid it.
“Let me write you a check for the $200 million, we are in for $7 trillion in our crash as covered by the Fed.” It is all perspective.
by the way, this is only one part of the way in which America has become a vampire society, with the rich sucking the blood of the poor.
it’s not a new story, but for a time it looked like we had a government that was interested in preventing the worst abuses, and finding relief for those ground under the wheels.
«The penalties she paid are usurious.»
This is an argument that the debt was extortionate. But again she only paid $24,000 against a principal of $7,000 over 34 years, and the remaining balance of $3,000 was reduced in real value by 43% by inflation, and every time she stopped paying inflation whittled down her debt. Note also that the debt was incurred in the 1980s when 9% interest was hardly noticeable in real terms. Sure the debt was somewhat expensive, but it was just $10,000, and even if it expanded to $24,000 that was over 30 years, or $800 per year.
«What is not contained in that article is the lady in question was ill, downsized, etc. in a not-so well paying occupation. There is a lot going on here.»
That’s the other argument, and it is not that the debt was extortionate, but that the debtor is too poor to afford to pay it (bankrupt in effect).
Then the question again is: who should pay it? The creditor, that is taxpayers, or the other debtors, that is other students through higher interest rates?
What’s your preference? Because someone has to take the loss, debts
cannot simply be wished away.
That is the main issue is not so much the student debt, at least in the two cases you mentioned, but poverty so dire that $800 per year was the maximum that the debtor could afford to pay back.
The side question remains how comes that a graduate over 34 years could not afford to pay a $10,000 debt in £127 per month instalments, or why only 40% of UK student debts are fully repaid (and the taxpayers take the loss). It looks like that a lot of university education is not paying for itself, at least in terms of better salaries.
I could give a sh*t what you do in England. Do you understand this?
“She only paid???? It was only $10,000. Inflation whittled down her debt.” Is this your argument? For you, I suspect $10,000 may be a pittance. You sure make it sound like such. The majority of the burden of a public education in college was at one time carried by each state and funded by taxpayers. This has dropped dramatically to being a smaller proportion. This is no secret and was the way it occurred in the past. Funding an education through state and federal revenues and allowing student to pay a smaller proportion of the tuition burden the same as existed in the past still places a burden on taxpayers; however, it cuts out the leaches who have made a business out of making loans in the past or collecting/servicing loan today and their profits. There is no efficiency to this manner of funding education the same as there is no efficiency gained from a for profit healthcare. What it ends up to be is a battle between the have-nots and the haves in a scramble for resources. We still are a community and as a community we thrive economically when all of us do well.
It is also no secret; less is being appropriated for funding those with lower incomes than what was in the past. This gets back to what I have said, who funds public education. It also gets back to social support of people with food stamps, earned income credits, and healthcare. One way or another we as a community will pay for their lack of finding work, poor health, of not being fed well. Somehow it will be paid by an individual or by taxpayers. So do we let the collectors add on their fees and make it more expensive or do we reduce the burden so it is less expensive for them?
The side question as you called it is not that she could not pay off the $10,000 debt sooner. The question is why did she stick to paying it off when everyone was dumping more and more cost on her? You see a negative and I see a positive in that she is going to make it in spite of the bloodsuckers who penalized her in every possible way. That is tenacity and no body helped.
I would think in today’s market a degree is more helpful than not having one as the days of arriving in Detroit and going to work at Ford, Chrysler, or GM and making $28/hour with great benefits are long gone.
In fact, public investment in higher education in America is vastly larger today, in inflation-adjusted dollars, than it was during the supposed golden age of public funding in the 1960s. Such spending has increased at a much faster rate than government spending in general. For example, the military’s budget is about 1.8 times higher today than it was in 1960, while legislative appropriations to higher education are more than 10 times higher. . . . It is disingenuous to call a large increase in public spending a “cut,” as some university administrators do, because a huge programmatic expansion features somewhat lower per capita subsidies. Suppose that since 1990 the government had doubled the number of military bases, while spending slightly less per base. A claim that funding for military bases was down, even though in fact such funding had nearly doubled, would properly be met with derision.. . .a major factor driving increasing costs is the constant expansion of university administration. According to the Department of Education data, administrative positions at colleges and universities grew by 60 percent between 1993 and 2009, which Bloomberg reported was 10 times the rate of growth of tenured faculty positions. . . .Even more strikingly, an analysis by a professor at California Polytechnic University, Pomona, found that, while the total number of full-time faculty members in the C.S.U. system grew from 11,614 to 12,019 between 1975 and 2008, the total number of administrators grew from 3,800 to 12,183 — a 221 percent increase.
The number of non-academic administrative and professional employees at U.S. colleges and universities has more than doubled in the last 25 years, vastly outpacing the growth in the number of students or faculty, according to an analysis of federal figures. . . Rather than improving productivity as measured by the ratio of employees to students, private universities have seen their productivity decline, adding 12 employees per 1,000 full-time students since 1987, the federal figures show. . . .The ratio of nonacademic employees to faculty has also doubled. There are now two nonacademic employees at public and two and a half at private universities and colleges for every one full-time, tenure-track member of the faculty.
“In no other industry would overhead costs be allowed to grow at this rate—executives would lose their jobs,” analysts at the financial management firm Bain & Company wrote in a 2012 white paper for its clients and others about administrative spending in higher education. . . . There’s also been a massive hiring boom in central offices of public university systems and universities with more than one campus, according to the figures. The number of employees in central system offices has increased six-fold since 1987, and the number of administrators in them by a factor of more than 34.
Of course, why would you be unexpectedly different???
Related Spending Per Student
Net Tuition and State Support
“Figure 5 also illustrates a disturbing fact: public higher education in this country no longer exists. Because more than half of core educational expenses at “public” 4-year universities are now funded through tuition, a private source of capital, they have effectively become subsidized private institutions. Higher education has long been considered a public good, because an educated populace benefits society as a whole, not just the individual recipients of that education. Indeed, the mission statements of most state university systems cite this public benefit first and foremost: the Wisconsin Idea, the mission statement of the University of Wisconsin, describes the purpose of higher education as “serv[ing] and stimulat[ing] society;” the mission statement of Connecticut’s Board of Regents speaks of “contributing to the civic life of Connecticut’s communities.” However, the reality that public 4-year universities now receive a minority of their funding from public sources undermines the idea of higher education as a public good, a troubling development indeed.”
I will add to this and say the increased cost of financing an education has added to this herculean effort to gain an education. Interest rates for student loans are ridiculous with people such as Akers, Chinagos, Delisle, etc. pushing for higher rates and privatization. Obama kicked private student loan lending to the curb; but, Congress has allowed private interests such as Navient, Sallie Mae, etc. to service student loans with horrendous results. They are little better than loan sharks penalizing with double digit penalties and increased rates. 1 in 4 students with loans today are in default. The sum of all loans approaches $1.5 trillion. The IBR and Repaye programs are not working. The cost of many student’s education will last a life time.
Loan funding of a college education should have interest rates no higher than 3%. Private Enterprise should not be a part of it. After a period of time, student loans should be forgiven. For Profit college education should not exist. It is expected that state funding of public colleges in Michigan will end by 2032.
i think blissex missed a couple of points.
the person did not paythat 127 every month. there were periods of late
from what i saw at Wells Fargo, this would have incurred huge “penalties” and “fees” and there would have been absolute fraud as the borrower attempted to keep up with those or arrange a restructuring.
as for “someone has to pay” … not really. the bank takes a risk when it extends a loan. they should expect to take a loss. this happens with ordinary loans. in this case it appears that bankruptcy is not an option. moreover the loan for college should have been made and serviced directly by the government both to insure honesty, and to give the government a stake in seeing that the “education” was not itself fraudulent, and indeed to absorb the loss in the so called national debt if in fact it turns out that the borrow cannot repay the debt without unconscionable hardship. i haven’t noticed the national debt being repaid lately.
this is just a start on thinking through the problem. in general i think people should pay their debts. in general i think people should not make loans that cannot be repaid and then impose a life of debt slavery on the borrower. these are real problems and will not be solved by people who are not willing to think the whole thing through with at least a nod toward decency.
i am writing fast and not checking the “facts” of these two cases, so apologies if i mistate something. in general i am responding to the overwhelming fraud and predatory dealing i see going on in this country by those who have friends in washington.
The Gov loans the money and the Servicer administers the Loan
yes. i knew that. it’s what opens the way to fraud and abuse.
If you follow m.jed’s link to the NY Times article (and then do some math in your head) you find that the number of administrators has risen much faster than full time faculty because universities are converting full time faculty to part time faculty. Administration has increased only slightly faster than student population. The articles’ author is turning a mole hill into a mountain. Even so, I do not appreciate the mole hills that have started to show up in my yard.
The author does mention the real reason that costs have increased. There are more students. State budgets have increased to try to cover the increase in students, but as the ratio of students to taxpayers increases, the budgets do run into issues trying to keep up. As they spread more money across even more students, the students end up with a higher net costs.
Higher costs along with lower completion rates leads to higher percentage with debt loads they can not handle.
I saved this graph/chart to the last. It appears no one bothered to read the link to the Demos information. When I pursued my Masters at Loyola, a course was $300 – $350. I have not checked to see what a course would cost now; but I suspect much higher. This chart/graph stretches over 20-something years. Again, one can not look administrative bloat, etc. I imagine if we go back far enough one could find their were a number of priests who got together in 1870 and decided to have a university. Administration was small in comparison to today and so were the numbers of students and supporting taxpayers. I saved this chart till the end as it would be a distraction.
Faculty/Admin/etc. per 1,000 Studnts
Over a 20-something year period, it remains pretty much the same. Numbers compared to anecdotal. I will stick with the numbers.
A while back PGL did a post on Baumol’s Disease. I put up the chart for him.
Cost of Product/Services Over 20 years.
Please note the top three leaders in rising cost since 1997. I am sure there is a reason why books are so expensive. It defies reasoning as the process is simple. Tuition and books are two of three of the top costs.
Eight years ago in 2010 the numbers of Undergraduate peaked. It has been declining rapidly with 1 million fewer students in 2015 and continuing to drop in 2016. Atlantic Monthly’s “This Is the Way the College ‘Bubble’ Ends” has a nice July 2017 article, replete with charts and graphs and links to the Dept. of Education (see previous sentence) on what is going on in colleges.
I live in Michigan and I have seen the Republican Legislature go beyond controlling the state college budgets and cut budgets for colleges. I used to but graphics for product like Lunchables, ON Bacon Boards, etc. Simple , heh? 6 color rotogravure is not simple or cheap and accuracy of the print is astounding. Not sure why books would cost so much. Something to look at. Limited printings are not that difficult today.
Adminsitrative bulking up? Not that I see.
State Appropriations? This is from Econonmix Appropriations versus Tuitions and goes back to 1985. The drops in Appropriations started about 2000 and have carred on for the last 18 years.
State Appropriations versus Tuition
Between 2000 and 2011, healthcare costs increased $2,700 per employee. Not only do paents of students pay for their healthcare costs, they also pay for those at the schools from kindergarten through college. The 40% increase “more than accounts for the increased spending” shown in Figure 2 that I presented in a comment earlier.
Arne, Jed does not care about this which is why I pay no attention to his comments. The attorney from Michigan is wrong as the Republican Legislature in Michigan (where he is from) has consistently cut appropriations to public education in their battles with teachers, profs, etc. over funding for retirement, education, and maintenance. It I no secret. Repeatedly and over the years, I have presented multitudes of stats and dialogue in support of this topic of school debt and the vultures who feed upon students. I do not believe I am wrong.
«i think blissex missed a couple of points. the person did not paythat 127 every month. there were periods of late payments.»
I did not miss that — the problem is indeed that she could not afford even $127 a month for repayment the debt. Indeed if she repaid $24,000 over 30 years, as I pointed out, she managed to repay only $800 per year, or $67 per month.
I cannot believe that is a problem with the student loan system, as it is being presented here (at least that is my impression) — that is a problem with poverty, and themeanness of help against poverty.
So either the investment in the degree did not work out in getting a better paid job, or it did not work out for other reasons.
So the question is: who pays for the failed investment? The borrower? The taxpayers? The other borrowers?
Should have the borrower taken out insurance against events that could impair their ability to repay, like an illness or loss of job? That is often required for mortgages on property rather than mortgages on education.
If it is the taxpayers or the other borrowers who should cover the losses, which is what I suspect our poster is arguing, then obviously they will want to ration student loans, and grant them only to pretty good risks. But in the USA politically this choice has not been made, and the choice has been made to hand out loans liberally but the losses are borne by the borrower. In part because working class and upper class parents don’t want to pay for the failed investments in education of middle class children.
Is our blogger arguing that student loans should still be handed out liberally but losses should be taken by taxpayers or other borrowers? It is not clear.
«from what i saw at Wells Fargo, this would have incurred huge “penalties” and “fees” and there would have been absolute fraud as the borrower attempted to keep up with those or arrange a restructuring.»
All these for student loans are subject to government rules, and still over 30 years of 135% inflation, she had to pay only $24,000 (against an initial principal of $7,000 )or just $800 a year. That does not sound extortionate for the typical graduate. She was too poor to pay the full $1,500 a year, that to me sounds more like a problem of poverty than one of extortionate student loans and fees etc.; a problem with having made a bad education investment, more than one having been the victim of a lending scam.
Again the issue is simple: if someone made a bad education investment, either because a better job did not happen, or because bad health or death happened, who should take the loss?
Are you that naïve to believe the Srvicers follow the rules, laws, and guidelines? Naviente didn’t, Sallie Mae didn’t and others didn’t. Over a period of time she jas to report income also. At $24,000 she is above FPL for an individual; however, she would qualify for other programs. She is at 200% FPL. Who do you work for??
“So the question is: who pays for the failed investment?”
I think this is a critically good question, and as Blissex might guess, my answer IS the taxpayers rather than the “failed” student.
If the average student loan bet comes out ahead, then it is reasonable for society to pool the risk to allow more of these bets to be undertaken. Pooling the risk means that people like Monica, who was not a winning bet, should be subsidized, by people like me, who won and therefore had no trouble paying off student loans. Such a pool should have no need of commercial insurance if my average loan premise was correct.
There would need to be checks and balances. The bank has plenty of incentive to get Monica to pay, but there is no balancing ability to discharge the debt when the gamble failed.
It may be rather complicated in some cases to determine when the bet on a particular student loan has failed. A student working on a post-doc may have 10 year old loans they can barely afford, but should still be a good bet for eventually paying the loan on their own. Monica’s case seems clear. Someone other than the bank that profits from servicing the loan as long as possible needs to decide Monica’s case.
It is called Community Rating in Healthcare.
“Community rating is a concept usually associated with health insurance, which requires health insurance providers to offer health insurance policies within a given territory at the same price to all persons without medical underwriting, regardless of their health status.”
If we raise the livelihood of the lowest person on the ladder regardless of their status, the community economy benefit increases in the aggregate.
Others from the Student Loan Justice Org. may disagree with me; but, I have found the Gov. (Federal Direct Loans) to be easier to deal with than the places like Sallie Mae, EFS Services, etc. There is nothing to be gained by them in profitability. For whatever reason, they stopped banks from making loans only to allow commercial servicers into the process. It has been a disaster.
I chased one servicer for months in an attempt to get them to fix an error. Finally we received a letter which was sent to all the credit agencies. Then we had to chase the Experians of the world to get them to change the remarks in the Credit report. 6 months, multiple phone calls, and numerous letters were written. I was not low income and we were timely in our prescribed monthly payments except in the beginning when EFS sent the coupon book to the wrong address and it was returned to them. I found one man at EFS who finally listened to me and who wrote the letter.
The person who started this just arbitrarily did this and it was obvious what had happened to get to this point. It was their mistake.
“working class and upper class parents don’t want to pay for the failed investments in education of middle class children”
It’s a better gamble to bet on the success of the education of middle class children than to bet on the lottery. I think a number of readers here would be convinced by numbers that show we have not reached diminishing returns in our education investment, but many of the voters involved would need to a different kind of marketing.
“then it is reasonable for society to pool the risk to allow more of these bets to be undertaken.”
This is what a “bank” does. And now what the Federal Government is doing. But I think you underestimate how thin the margins are.
If you pool 16.66 student loans together you get a $1,000,000 portfolio, or pool, of loans. At 6% the return on the pool is $60,000 per year. So if even one, 1, of the 16.66 loans gets liquidated in bankruptcy or otherwise the entire return is gone. Run says 1 in 4 student loans is in default so the loss would be about $240,000 on the million dollar portfolio.
The government student loan portfolio is $1.4T so at 25% loss ratio that is $350B.
This is at current rules, if borrowers learn that student loan debt can be discharged in bankruptcy, expect a lot more of them will go down that path.
Federal Gov was always making student loans. It was when private companies came into the picture making loans in the past, there started to be problems. Furthermore, the gov was subsidizing them to make these loans.
Arne @ 8:42
thank you. well said.
not so sure. it’s too easy to come up with “numbers” to prove anything you want.
i would be more inclined to go by experience and observation. you appear to have “won” your college “bet.” i know too many people who did not. and while i was in college the experience reminded me more of a cattle drive than the “education” i expected. i’d be willing to support education (because after all these years i still believe in it) but not so willing to support cattle drive.
still, i believe the issue here was debt slavery, not education per se.
the folks who think everything is okay about these loans conveniently overlook some of the at least postential fraud in “late fees” “collection fees” interest raised because of late payment, and , as i found out when i bought out a Wells Fargo loan to save a friend from foreclosure, twenty thousand dollars in “lawyer fees” .
also, garnishing Social Security should be off the table. SS is a minimum insurance payment to keep working people… who paid for it themselves… out of the worst poverty in old age (or disability). allowing a collection agency (loan servicer?) to garnish that “if all else fails” promise of the government (in return for forced savings) makes a mockery of the whole idea. and tells you how careful our congress is to protect “the least of us” from the high end loan sharks who pay their campaign expenses.
Oh, and there are a crap ton of federal programs to help borrowers with student loans:
These programs are administered by the same or similar servicers described in Lynn’s accounting of this particular incident. They have done everything possible to defraud and increase their profitability. I have yet to run into a single student who said I want to have a loan and go bankrupt. In the beginning, they all want a college education as sold to them as the best way to be successful in today’s economy. I have guided quite a few students through the morass of going to college.
Combined with it’s massive collection power, exemptions from most consumer protections, confusing loan terms, complicated repayment and loan forgiveness or deferred payment programs, and inability of the borrower to file bankruptcy, federal student loans rake in billions in profit for the federal government.
Student loans work like credit cards. The interest rate charged is not simple interest (compounded annually – for example $10,000 times 9% = $900), but instead calculated daily on the unpaid balance. It is a moving target.
It is the daily interest rate (and fees) the borrower must stay ahead of it they are going to have a chance of paying it off.
Couple that with loan servicers who are predominantly profit-first (largest servicer is Sallie Mae, which is publically traded, who was forced to start a new company (nicer sounding Navient) because of brand/image deterioration (Google “Sallie Mae sucks” and see the thousands of hits). These servicers outright trick borrowers into agreeing to terms not in the borrower’s best interests, but instead to keep investors happy with the bottom line and the money flowing in.
Several years ago Sallie Mae got hit with an almost $100 million fine from the Consumer Financial Protection Bureau for gouging actively deployed military (many serving overseas on multiple deployments) with high interest rates and penalties causing many loans to default, despite laws which protect veterans and the military against these same abuses. Yet Sallie Mae continues to be allowed by the government to service federal student loans.
With student loan debt, America is devouring its youth. This is a self-destructive, suffocating economic priority.
“it’s too easy to come up with “numbers” to prove anything you want”
Dale, my point at 8:52 was supposed to be that while it may appeal to this group to discuss the numbers, that is not what will convince most people. Your response reinforces that.
“This is what a “bank” does.”
” At 6% the return on the pool is $60,000 per year.”
The bank only wins the gamble on the successful student by the interest paid. Society wins a great deal more because the successful student pays more in taxes during a more lucrative career.
My assertion that “it is reasonable for society to pool the risk” is only valid if the winners will take responsibility for more than the interest on the loan. That is NOT what banks do and it IS why loan servicing of student loans should not conform to banking industry norms.
The checks and balances needed for student loans are different from the checks and balances needed for real estate or consumer loans because the societal benefits are different.
“Society wins a great deal more because the successful student pays more in taxes during a more lucrative career.” That is similar to what a Community Rating in healthcare does. Healthier people are more productive and less costly. The current system benefits a few at the cost of the majority in student loans. In the end and in less time than what the Repaye program does; if the loan balance is written off, who cares if we get a young person who does well.
I probably did not explain it well enough in my example on healthcare.
re @11:16 thank you for clarifying that.
@11:34 i think it might be reasonable to suggest that by making college “government paid” the “extra” taxes paid by those students who win the college bet pay for their own “education.”
sorry it that is not too clear. my point is that rather than think of it as “the taxpayer” paying for the overall benefit to society of having a college educated population, think of it as each of those college educated (and successful) persons paying for their own education via their taxes.
in any case, the whole business can be managed better than driving people into debt slavery by lending them more than they can repay, especially under deceptive and predatory policies un-regulated by the government which has an interest in the “general welfare.”
especially when it becomes apparent that “education” is important to “society” as well as to individual (don’t want to use the word “welfare” here as it is too easy to be misunderstood…something like like individual ability to prosper (survive) even in a generally free market economy… just as important as food and basic housing and health care and ultimately hope for decent retirement)…
at that point, either “the government” or “the people” , when they see that the free market is not actually working for the needs of either the people as individuals or the “country” (as the ultimate guarantor of the prosperity of even the rich)…. has (have) a “right” or at least an “enlightened self interest” in arranging the “terms of trade” so they are at least not predatory, and perhaps the most efficient way of answering the needs of the many without unduly oppressing the few.
it actually can be done. has been done throughout history… even by the great champions of “free enterprise” when they see it suits their interests.
Because I am one of those who likes fussing about the numbers, I find it worth responding to Sammy. Understanding his ideas about how a bank would see it may help designing appropriate checks and balances for a system which clearly needs some tweaks (if not an overhaul).
I really do not have a problem with Sammy except when I am in the thick of it.
“think of it as each of those college educated (and successful) persons paying for their own education via their taxes.”
I understand, but that is not the whole story when I think of it as pooling risk as in insurance. I thank goodness when I am not the one who has to rebuild after a fire, but I know that my premiums pay for it. Similarly, successful persons are paying a little extra beyond their own education. It needs either altruism or a broad perspective on investment, or it breaks down into “working class and upper class parents don’t want to pay for the failed investments in education of middle class children”.
I wish you would put a name on this so I do not waste time answering you thinking it was me you are addressing. Hey, Loyola Chicago won today . . . My alma mater for my Masters. 🙂
i think Arne was replying to me.
i am not sure we are getting anywhere. no fault.
i hope i would not suggest not replying to Sammy, especially when he is being reasonable. But I hope you are looking at his numbers with at least enough skepticism to see that he is not addressing the point.
Which Lynn probably lays out better than i do.
Not worried . . .
I am happy you think such of Lynn. She is a CPA who donates her time during tax season. If you go to the end of this lengthy post, you will see her name as the author. This is a lot of extensive work done by her. I was happy to have access to it and glad she agreed to let me post both stories. This is reality for many people. I have been trying to get them to tell their stories as they are very similar in content. The commercial system is looting them freely with no recourse by them. The servicers do what they please, do not account for their actions, and answer to no one. As one Connecticut state banking regulator pointed out:
“The situation is so challenging that even a state banking regulator (financial attorney) struggled to figure it out. Bruce Adams, the general counsel for Connecticut’s department of banking, recounted his exasperation in dealing with a servicer when discussing his wife’s student loans in a recent interview. After multiple calls to the company where he heard different answers to the same question, Bruce Adams (43 years of age) had finally had enough.”
and that IS the point. you make it clear.
but you note how easy it was for everyone here to miss the point. i don’t want to say “hijacked the thread”… i don’t think they even realized that they had missed the point. it’s like one of those SAT questions: “what is the point of this essay”… which is a question apparently most people can’t answer. i always wondered about that.
and here i am doing it myself.
i hope you and lynn can find a way to get through to the people and the congress. but this is much more complicated than Social Security, which has an easy answer…. if i could only get people to see the point.
My neighbor in France has a daughter who goes to university in Bordeaux. Yearly outlay to her €790 for school fees. And that includes room and board. Oh yeah and healthcare included for everyone. Mainly private providers but single pay.
Bordeaux, a pretty area. Healthcare in France is taken care as is in much of Europe.Education is seen as more of an enhancement to the people resulting in greater economic security for the people and the nation. We need to do something different in the US other than using bloodsuckers to fund it.
18 and sign up for the Army and gets killed, it is your fault.
18 and sign a contract for a part in a porn movie, regret it later, your fault.
16 and driving drunk, get caught, go to jail, insurance increases, your fault.
18 and sign for a student loan and suddenly the 18 year old is as naive as a 9 year old and although the teen was signing a contract for a loan, it is found later that said teen can’t read very well while applying for a loan to attend a school of “higher” learning.
Teens do some mindless things and agreeing to pay the Massage Institute 14K for a 9 month course regrettably is the teens fault likewise to the teen that signed up for the 20k 2 year Chef’s Arts Institute where they promise 80k after graduation and job assistance. This is the troubled side of the majority of student loans and politicians should have stepped up to shut these schools out of the program.
Most people are naïve when it comes to fraud and the same laws or rules a student’s parents enjoy on other transactions which no longer apply to educational loans. Different worlds and beasts. No other loan works this way and lending institutions tread carefully with other loans when threatening a borrower. Student loans are more profitable in default.
Politicians like Joe Biden are beholden to the corporate banking system. There is a sound reason why Delaware Senator was one of the leaders for passage of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act.
We need to do something different in the US other than using bloodsuckers to fund it.
Maybe just ask the Universities to stop inflating the cost. The cost for university in the US since loans became available has out paced inflation by the double digits. It seems the universities are taking advantage of students. In periods before loans were available, parents funding education worried more about funding dorm/food/travel than tuition. Students that stayed close to home, higher education was easily affordable even for average incomes.
ah, mr smith
but robbing people with a fountain pen is what money lenders do. They are good at it, and being able to read, or even getting a higher education is no protection at all. it even happens to people a lot older than 18.
and in this case the predators are not even the lenders…. but the “servicers.”
and it may be that the availability of loans has something to do with it, but i think it has more to do with the end of tax subsidies. the people who own the government have just decided that they weren’t getting anything out of all that free public education.
The Joe Biden comment absolutely apt. BUT people seem not to know?
At Lehigh University graduation the man sitting next to me laughing as his brother’s son marched, Comment “$250,000 for four years and B- average”?
No one said university was supposed to be easy and cheap. If you scroll down in this thread, you will see how I have explained the reason(s) for cost. Again, something most people do not know or understand and politicians do not care as they protect another industry.
18 year olds are able to vote, join the military and die doing it, star in a porn movie (2 are quite life changing events one has to deal with) so we can’t have it both ways in my mind, that they aren’t responsible adults in some cases and excused for their age in other cases.
Credit card loans are also very profitable in default. Capital One for example is known to issue many cards to the same customer with small limits so all are max’d out and along the way each card takes on over the limit fees and late fees. This happens no matter one’s age so it hasn’t been very news worthy. But “student” implies “young” and so in news surrounding “education” loans, its portrayed as naive young student had no idea what he/she was signing so they should be cut a break at taxpayer expense. I’m not up for that.
But I’m up for limiting loans to students that have proven themselves in HS to be likely good college students and I support pressing universities on cost.
I really didn’t get the point of Biden beholden to loan industry yet still leading the charge on legislation that sounds like it is designed to prevent abuse… but i don’t know the whole story at all.
you, like everyone else here, has a “story” they want to believe about this. my story is that the loan industry is essentially predatory and has captured the government so it gets away with it. “age” has nothing to do with it. neither does “demonstrated ability to succeed’ (which turns out to have nothing to do with much of anything).
As for “no one said…. supposed to be easy and cheap.” Actually quite a few people are saying it should be cheap, at least for the student. As for easy… well, I guess part of my point is that most, maybe nearly all, “students” should not be “forced” into something they cannot meaningfully succeed at. During the sixties “mass education” turned out to mean “dumbed down.” Not that the kids were dumb, but that they were terribly mismatched in terms of interest and particular talent to even the mostly worthless stuff the universities were selling. Even I, who had a modest talent for such things, didn’t profit by the way it was being “taught,” could have acquired the “education” bit on my own (from my friends), and should have spent more time (i needed help) “learning” something someone would be willing to pay me for, and for which i had the requisite talent to “succeed.”
This may sound too personal to contribute much to the debate here, but my observation suggests that the same thing is true of at least 90% of the “students” i knew or have heard of since.
the answer is not “more” or “cheaper” “education” until we actually know what we are trying to achieve and whether or not it is achievable at any cost.
It is mere coincidence that “student debt” now rivals “health care” as a percent of GDP or is the “your money or your life” marketing?
sorry for the typos. that was not my problem when i was in school. my problem was that i got excellent grades.
as for they “they shoulda been smarter” meme. This is the same sop the “rich” give themselves for exploiting the workers “they should work harder, be smarter, take responsibility…”
The fact is NO one is smart enough to outsmart the professional money men who take your money for health care, education, or real estate…unless you hire a good lawyer. in which case you probably end up with no health care, no education, no house, and a legal bill you can’t afford.