Student Loan Sinkhole

[partyhardy]

http://www.pbs.org/now/shows/525/

This is an older video from December 2009 but it is still very relevant today. It's quite long, but it gives an excellent perspective of the business of student loans.

I know people will say "if you take out the loans, you deserve to pay them back." But when does it go from a matter of personal responsibility to flat out extortion? Why have we made it so difficult and expensive to obtain an education when it would justifiably benefit our country? Why have we allowed private banks and lenders to use our taxpayer money to make themselves profits? Why do we allow bailouts for corporations and banks and allow them to file for bankruptcy when they make mistakes and take risks but cannot give the same satisfaction to the people who just want to create a better life for themselves?

All I know is the system is broken...and somehow needs to be fixed fast!

[Sstashmoo]

Quote: "All I know is the system is broken..."

People borrowing money and not paying it back is a large part of what broke it. Nobody loans money not caring about it being repaid. If you borrow money to go to school, you are OBLIGATED to pay it back. If you don't think you should have to, then don't borrow it. No financial institutions are getting rich off student loans. It's a losing proposition.

[partyhardy]

Quote: "All I know is the system is broken..."

People borrowing money and not paying it back is a large part of what broke it. Nobody loans money not caring about it being repaid. If you borrow money to go to school, you are OBLIGATED to pay it back. If you don't think you should have to, then don't borrow it. No financial institutions are getting rich off student loans. It's a losing proposition.

You must be joking, right? First of all, what broke the system is banks getting involved in the first place. It ended up creating a bubble with easy money available with tuition costs rising way higher than the rate of inflation. Now you either have to be rich, borrow money, or work two full time jobs while going to school.

Second of all, financial institutions are making a KILLING off of student loans. Most of them are backed by the federal government, so if the borrower doesn't pay, the federal government picks up the tab, plus interest. Also, bankruptcy protection [[which banks do enjoy, mind you), removal on student loans allows banks to charge as this wish. Not only did it remove free market principles [[hypocrites much?), but there have been a lot of fraud or shady practices involved. There have been cases where people have paid $30,000 in payments to see their principal balances fall by $2,000. It's a WINNING proposition. Please open your eyes and do a little research next time before adding your inaccurate, mundane responses. Thanks in advance...

[partyhardy]

"The result was the FFELP, which privatized the banks' profits while socializing losses by imposing them on the taxpayers. The loans continued to be "originated" by the banks, which meant the banks advanced credit created as accounting entries on their books the way all banks do. Contrary to popular belief, banks do not lend their own money or their depositors' money. Commercial bank loans are new money, created in the act of lending it. The alleged justification for allowing banks to charge interest although they are not really lending their own money is that the interest is compensation for taking risk. The banks have to balance their books, and if the loans don't get paid back, the asset side of their balance sheets can shrink, exposing them to bankruptcy. When the risk is underwritten by the taxpayers, however, allowing the banks to keep the interest is simply a giveaway to the banks, an unwarranted form of welfare to a privileged financier class at the expense of struggling students."

"Worse, underwriting these private middlemen with government guarantees has allowed them to game the system. Under the FFELP, banks actually profit more when students default than when they pay back their loans. Delinquent loans are turned over to a guaranty agency in charge of keeping students in repayment. Pre-default, guaranty agencies earn just 1 percent of the loan's outstanding balance. But if the loan defaults and the agency rehabilitates it, the guarantor earns as much as 38.5 percent of the loan's balance."

http://www.truth-out.org/student-loa...-business58148

[Danny]

In other means Don't accept a student loan until you find a way to pay back the banks and the federal government. It's simple, logic and ethical. Most folks don't even listen.

[Sstashmoo]

Quote: "Please open your eyes and do a little research next time before adding your inaccurate, mundane responses."

What like don't borrow money you cannot repay? So your claim is banks are ganging up on students and mistreating them with high interest rates? Do you know anything about competition to make loans that all lending institutions engage in? If student loans were such a sure thing, they would be easy to get and cheap, because all banks would be wanting to write them. I just read a piece not very long ago, about all the lending institutions taking it in the backside on student loan defaults.

So the Fed just pays back the bank and everybody walks away? Not according to these people:

""What Happens If You Default on Your Student Loans

Know what to expect if you fall behind on student loan payments.

The government has powerful tools to use against borrowers who don't make student loan payments. Here's what you can expect if you are in default on a student loan.
Tax Refund Offsets

The IRS can intercept any income tax refund you may be entitled to until your student loans are paid in full. This is one of the most popular methods of collecting on defaulted loans, and the Department of Education annually collects hundreds of millions of dollars this way.
You can challenge a tax refund offset. To learn more about acceptable reasons to challenge offsets and how to do so, see the National Consumer Law Center's Student Loan Borrower Assistance website at www.studentloanborrowerassistance.org.
Your Paycheck Garnished

The government can take [["garnish") a limited portion of the wages of a student loan debtor who is in default. It can take up to 15% of your disposable income. However, it cannot take more than the equivalent of 30 times the current federal minimum wage.
As with the tax refund offset, you can object to a wage garnishment. To learn more about the reasons for objection and how to object, see the National Consumer Law Center's Student Loan Borrower Assistance website at www.studentloanborrowerassistance.org.
Another way to avoid wage garnishment is to contact the holder of your loan and negotiate a repayment schedule. For more information, see Nolo's article on Student Loan Repayment Options.
Your Federal Benefits Taken

The government can take some federal benefit payments [[including Social Security retirement benefits and Social Security disability benefits, but not Supplemental Security Income) as reimbursement for student loans.
The government cannot take any amount that would leave you with benefits less than $9,000 per year or $750 per month. And, it cannot take more than 15% of your total benefit.
For example, if Doug receives monthly federal benefits in the amount of $900, the government may take either $150 [[the amount of Doug's $900 benefit that is over $750) or $135 [[15% of Doug's total benefit of $900), whichever is less. So, in this case, the government can take only $135 each month.""


http://www.nolo.com/legal-encycloped...cle-29859.html

[partyhardy]

What like don't borrow money you cannot repay? So your claim is banks are ganging up on students and mistreating them with high interest rates? Do you know anything about competition to make loans that all lending institutions engage in? If student loans were such a sure thing, they would be easy to get and cheap, because all banks would be wanting to write them. I just read a piece not very long ago, about all the lending institutions taking it in the backside on student loan defaults.

Seriously, did you even watch the video or read the article? It's a yes or no question...

Students don't borrow money to go to college and expect not to pay them. Most students make a good faith effort to pay them back, however, unless you have been living under a rock for a long time, we're in the middle of the biggest economic nightmare since the Great Depression. The Federal Direct Government Loans [[which you posted the repercussions from these types of loans, NOT loans from banks, by the way...), offer better payment terms, and are more flexible payment options for students if they lose their job or have an economic hardship. Private banks with private loans or FFELP loans [[which will no longer be given due to Obama's student loan reform which was included in the Health Care Bill) can choose whether or not to help the borrower out. However, if you read the article or watched the video, you would have realized that it is more beneficial to the bank for a borrower to default because it adds extra fees and collection charges which can more than double the original balance. And since student loans cannot be discharged in bankruptcy, the debtor will be in debt until they die or pay off the loan. FFELP loans will be paid with tax dollars, but banks will still continue to collect on the defaulted loan. Private loans [[not guaranteed by the government) also cannot be discharged in bankruptcy, so the bank will get their payment in one way or the other by garnishment or lawsuits, etc.

Your attempt to say that student loans are not a sure thing is just unfounded. There is no risk involved...you cannot get rid of the debt!! And yes, there were a lot of student loans written a few years ago...because there is NO RISK [[can you understand?). Now these borrowers are underwater and the only recourse they have is to pay them back, prove undue hardship [[which is not defined, so it's a matter of opinion), or to die!

People like you who say "well just pay back the money" are entitled to your opinion. But, wouldn't a more logical approach be to question why students loans are having high defaults? Or why has tuition increased to insane amounts that hinder many from going to college, or having to accept a mountain of debt just to obtain an education? [[Well, we do know why tuition has increased much higher than the rate of inflation....think bubble, like mortgage bubble, except while people can walk away from their houses which adjust prices, this bubble isn't allowed to burst because you cannot walk away from it, so tuition will never go down unless there is a corrective action). I thought it was our untold duty to make sure our next generations had it better than we did...isn't that how a society supposed to work? Those who continue to do things like business as usual without questioning is why our country is in shambles today!

[MCP-001]

Looking at it from the other side of the equation: Why is it that colleges and universities have jacked up their costs to the point that students find it necessary to take out a student loan which eats up most, if not all, of that individuals earning potential for a significant portion of their career after their schooling is completed?

Several hundred dollars a credit hour for courses?

Ridiculously overpriced text books and are frequently "updated"?

And to have the audacity to charge administrative fees, on top of the above costs?

I've yet to hear an adequate explanation on why this shakedown is allowed to continue.

[Ray1936]

Looking at it from the other side of the equation: Why is it that colleges and universities have jacked up their costs to the point that students find it necessary to take out a student loan which eats up most, if not all, of that individuals earning potential for a significant portion of their career after their schooling is completed?

Several hundred dollars a credit hour for courses?

Ridiculously overpriced text books and are frequently "updated"?

And to have the audacity to charge administrative fees, on top of the above costs?

I've yet to hear an adequate explanation on why this shakedown is allowed to continue.

Excellent post. I've always felt that most universities are nothing but money mills and a form of academic welfare for misfits who can't do anything but teach.

You may now slash and burn both me and MCP.

[partyhardy]

Looking at it from the other side of the equation: Why is it that colleges and universities have jacked up their costs to the point that students find it necessary to take out a student loan which eats up most, if not all, of that individuals earning potential for a significant portion of their career after their schooling is completed?

Several hundred dollars a credit hour for courses?

Ridiculously overpriced text books and are frequently "updated"?

And to have the audacity to charge administrative fees, on top of the above costs?

I've yet to hear an adequate explanation on why this shakedown is allowed to continue.

You have a very good grasp on the situation, and you're absolutely correct, it really is a shakedown.

A possible reason costs are going higher and higher is due to easy obtainable money on credit. If you have a system in place where it's easy to get a loan, and when more people borrow money for a said product or in this case tuition, it raises the price. Schools have no incentive to lower prices because banks have made private loans easy to obtain when federal loans have been exhausted. Since student loans can't be written off in bankruptcy, there is virtually no risk, so they can be handed out with ease.

This cycle will keep continuing unless either: [[1) bankruptcy protection is added to student loans, loans are written off, higher risk loans are more difficult to obtain, less students are able to enroll, colleges have to lower costs to keep attendance higher or [[2) students just decide that college is too expensive and don't enroll. Seeing that we're in a recession [[maybe a depression), which usually means more people go back to school, and also that we have it engrossed into kids heads these days they need to go to college to be successful, so [[2) may be difficult to obtain.

I'm not an advocate for people not paying back their loans, but you're right, it's a shakedown. They paid too much for a product that was artificially inflated. And now since we're in a deep economic correction, they now are unable to pay their loans back. The reasons are more deeply rooted than everyone just doesn't want to pay their bills. I hope we can alter the system so that kids in the future have a much easier and more affordable time in college.

[Pam]

a form of academic welfare for misfits who can't do anything but teach.

Misfits need jobs too.

[Papasito]

All I know is the system is broken...and somehow needs to be fixed fast!

Didn't the Government just do a big takeover of the student loan market?

[gibran]

Misfits need jobs too.

gee I must have landed in the island of misfit professions...couldn't make it in the real world so I spent more years in school... I am still waiting for SANTA or SATAN [[gee never saw that resemblance...another post though)to pick me up and deliver me to the real world...

guess I missed the memo from my academic peers that all my years in the real world should be swept under the carpet...running Hospitals, clinics and programs...should I also discount the two companies that still exist today that I founded..while going through my Doc program.....ummmm...maybe the fact that I still continue to teach Full time and run a business on the side may qualify me for the passport to the REAL world [[thought that was a reality show)...

oh well I just will default [[opps nothing left to default since I paid for my university ...all three of them with minimal student loans and paid the 2000 dollars I did borrow back on time)... but I do have to agree ... the loans sold off to Private banks were just so fair and understanding how much our country need educated people so they made it easy to obtain... I also agree that costs are way out of control ...but my salary has not risen in three years [[not griping because I love what I do and I am sensitive to the fact we have an economic crisis going on).

SOme of us teach because we love to...but according to some posters we should be the first shot...[[dam like in cambodia or imprisioned like in Germany in the 1930's....dam us liberals we get screwed all the time)... thats ok we need stupid people that don't ask to many questions and generalize from fox news reports..

You see I always respected the craftsmen, farmers and those without an education who made it .. I admire the millionaires whose education was in thier development of business or the hard working waiteress whose second job supported their families.. I also admire the MSFW who pick our foods... I admire the garbage man and the self taught IT guys...but according to the above I should not respect those who educate...wow

[Detroitej72]

Excellent post. I've always felt that most universities are nothing but money mills and a form of academic welfare for misfits who can't do anything but teach.

Ray, common man, your smarter than that.

Don't drink the right wing kool-aid that FoxNews and their talking heads serve daily, as it is about as truthful as the North Korean news service.

[Pam]

SOme of us teach because we love to

And it definitely takes a special talent or skill to do it right. I know I couldn't do it.

[ghettopalmetto]

Looking at it from the other side of the equation: Why is it that colleges and universities have jacked up their costs to the point that students find it necessary to take out a student loan which eats up most, if not all, of that individuals earning potential for a significant portion of their career after their schooling is completed?

The average high school graduate earns $1.2 million over the course of a lifetime.

The average person with a bachelor's degree earns $2.1 million over the course of a lifetime.

http://usgovinfo.about.com/gi/o.htm?...bs/p23-210.pdf

Even if you spend $100,000 on a four-year degree, you're reaping a 900% return on investment. I'd say that's pretty solid, and not even close to "most, if not all, of a person's earning potential"--ESPECIALLY when it is clear that it is the *lack* of a college degree that limits a person's earning potential.

Now, if you decide that such a career path is not for you, that's your prerogative. But if you want to put college education in terms of dollars and cents, let's talk about the whole picture. Speaking only to the costs is intellectually dishonest.

[MCP-001]

Now, if you decide that such a career path is not for you, that's your prerogative. But if you want to put college education in terms of dollars and cents, let's talk about the whole picture. Speaking only to the costs is intellectually dishonest.

Hardly.

You're confusing the benefits of an education with the actual cost of providing it.

As I've stated above, with colleges and universities sitting on multi-million/billion endowments along with a guaranteed cash flow from Lansing and Washington every year, how can they rationally justify the cost of tuition rising faster than the rate of inflation for decades?

The necessity of consistently replacing text books? Does Calculus, Chemistry, Physics, PoliSci, Biology or most of the other fields of study change that quickly? Yes, new information is constantly discovered, but not that quickly as to require a whole new edition of your book, rather than handouts to cover those changes.

I haven't even gotten to the point that the infrastructure for teaching is already in place [[i.e. buildings, computers, black/white boards, etc.).

And the source of knowledge isn't a sure-fire guarantee that the person will actually be smart.

Don't forget, Otis Mathis was functionally illiterate. And a graduate of Wayne State.

Kwame Kilpatrick graduated with honors from Florida A&M & MSU.

Jennifer Granholm went to UC-Berkley and Harvard.

[[and to be fair, Mike Cox & Rick Snyder both went to UofM..I'm trying not to segue into a politics discussion here, just pointing out facts).

[ghettopalmetto]

Hardly.

You're confusing the benefits of an education with the actual cost of providing it.

As I've stated above, with colleges and universities sitting on multi-million/billion endowments along with a guaranteed cash flow from Lansing and Washington every year, how can they rationally justify the cost of tuition rising faster than the rate of inflation for decades?

Any discussion of costs--in any regard--merits discussion of the benefits alongside it. To isolate costs of anything without discussing benefits is simply the approach of a penny-wise pound-foolish cheap bastard.

Please cite sources for your funding information. If you've picked up a newspaper at all in say, the past 15 years, funding for higher education is anything but guaranteed. Federal monies are typically in the form of research grants, which must be applied for and earned through scrutiny of research proposals. State funding--especially in Michigan--has been drastically reduced in the past decade. Please show which parts of that funding are "guaranteed".

Professors and staff need to be paid. Buildings need to be maintained. Laboratories, technology, and other facilities require constant upgrades to attract top talent--both students, as well as professors and researchers.

And yes, new editions of books are required to reflect the most current information, theories, research, data, and practices. If you're paying $15,000 in tuition, do you really want to learn out-of-date material?

The modern university isn't a little one-room schoolhouse. And no one forces anyone else to pursue higher education. Quitcher bitchin.

[Blarf]

The government doesn't have to pay back their debt, so why should the people?

[MCP-001]

Any discussion of costs--in any regard--merits discussion of the benefits alongside it.

...If you've picked up a newspaper at all in say, the past 15 years, funding for higher education is anything but guaranteed. Federal monies are typically in the form of research grants, which must be applied for and earned through scrutiny of research proposals. State funding--especially in Michigan--has been drastically reduced in the past decade. Please show which parts of that funding are "guaranteed".

Spoken like a true defender of the status quo.

So, funding not guaranteed, huh?

Go to Art. VIII, §4.

Federal money.

More federal money.

Hey, look here, even more federal money.

Professors and staff need to be paid. Buildings need to be maintained. Laboratories, technology, and other facilities require constant upgrades to attract top talent--both students, as well as professors and researchers.

I'll tell you what, I'm not going to hand hold you through the rest of this discussion. It's now your turn to pony up some details. You point out why colleges and universities cannot support those expenses with the overpriced credit hours, admin fees and everything else including the kitchen sink piled onto their students backs [[or even, GASP, their endowments) to keeps cost affordable for their students?

And yes, new editions of books are required to reflect the most current information, theories, research, data, and practices. If you're paying $15,000 in tuition, do you really want to learn out-of-date material?
...

Sorry, but if I want hyper-accurate information, then I'll go to my computer. But when people are taking foundation courses for their degrees, that information does not change that quickly. Nice try.

[ghettopalmetto]

Seriously? You're going to point to $50 million in federal grant money for sustainability as "guaranteed" money? The annual budget for the University of Michigan alone is north of $3 billion.

I'm sorry you don't place any value on education, MCP-001. Your posts clearly reflect that. For all I know, higher education is as expensive as it is strictly to weed out people like you. And I'm okay with that, because higher education is obviously not a commodity that means a damned thing to you.

For what it's worth, I feel like I received incredible value for my tuition dollars. And I find those "overpriced" books to be invaluable resources in my professional career--the career I wouldn't have if I were a chickenshit miser who only sees dollar signs everywhere he looks.

[rb336]

Ridiculously overpriced text books and are frequently "updated"?

In a lot of fields, new information is added at a rapid rate and it is important to update the texts to show the most current data, theoretical frameworks, etc. Books are expensive, no doubt, but they do not have the economies of scale of mass-market publications, and often have higher production costs due to higher paper quality, photographic plates, better bindings, etc. for almost 100 years, text book publishing had a government subsidy to keep costs down. that went away in 1981/82. students in college saw book costs double the next semester.

[GOAT]

I personally don't think student loans should have as much interest as was it tacke don. In fact it should a revenue neutral loan that would be enough to cover just the inflation only.
For gov'ts to make money off of these loans is disgusting!

[Danny]

Trouble with your student loans:

GET A DEFERENT!

That will keep the bill collectors off your back until you finances in order.

[MCP-001]

In a lot of fields, new information is added at a rapid rate and it is important to update the texts to show the most current data, theoretical frameworks, etc. Books are expensive, no doubt, but they do not have the economies of scale of mass-market publications, and often have higher production costs due to higher paper quality, photographic plates, better bindings, etc. for almost 100 years, text book publishing had a government subsidy to keep costs down. that went away in 1981/82. students in college saw book costs double the next semester.

In some of the cutting/bleeding edge courses, yes, you are correct.

The point I am trying to make was back when I was in college, I needed to purchase three different Calc books to complete the courses because the instructors/college absolutely insisted on using the latest edition. My other core classes were equally bad.

You can't argue with a straight face that a subject like calculus changed so much within two years that you needed to print three versions of the same textbooks to explain it.