Posts Tagged Student loan
How Detroit Can Help Solve America’s Student-Loan Crisis: A Political Solution – Garance Franke-Ruta – The Atlantic
How Detroit Can Help Solve America’s Student-Loan Crisis: A Political Solution
Offering college graduates reduced debt in exchange for moving to distressed cities could address two public-policy problems at once.
GARANCE FRANKE-RUTA AUG 20 2013, 8:00 PM ET
A view of the Midtown area is seen looking south on Woodward Ave. in Detroit. (Carlos Osorio/AP)
The day I paid off my undergraduate student loans felt like a momentous inflection point.
I had just sold my first apartment, which I’d bought in Dupont Circle in 2000 on pretty much the lowest possible income you could make and buy a place in Washington, D.C., in what turned out to be the waning days of the era when you could afford to buy tiny apartments in Dupont Circle on such salaries. Three years of piecemeal renovations later, I sold it for enough that that I was able to turn around after settlement and write the largest check I’ve ever written, then or since, to the U.S. Department of Education, for the full amount I owed.
Rousseau called money the instrument of liberty, but the converse is also true. Debt is the enemy of individual freedom. For the first time in my adult life I was debt-free. But what it felt like was more like this: For the first time in my adult life I was free.
The experience taught me several things:
- The real American dream is not buying your first home, it is selling your first home at a profit. (I’m only half joking.)
- What people with major student loans need most is exactly the thing they have always lacked, and why they have such loans to begin with. They need capital, or, barring that, a means of reducing the principal on their debt, such as through one of the loan-forgiveness programs the federal government runs for people who do valuable and important work in under-served communities.
- It is almost impossible to get rid of major debt on the installment plan in any kind of timely fashion unless you make far more money than many people — and especially those with Big Debt — wind up earning during their first decade after graduation. Despite Pell grants and work study and summer jobs and an extremely generous discount from my university, I graduated with about the same debt as the average American college graduate today (more, actually, if you run the number through the inflation calculator), then found myself unable to put much of a dent in the sum while running through journalism’s notoriously low-paying starting-salary positions.
- The government routinely uses the housing market to achieve broader social-policy goals, and it can be a major factor in transforming aspects of people’s lives that extend far beyond where they live and in what kind of square footage. Housing policy can be used to transform communities and help individuals build wealth at the same time. Back in 2000, D.C. was all-in on the still-pretty-novel first-time-homebuyer tax credit to encourage people to return to the underpopulated city and help shore up its tax base. That helped encourage people like me to buy. People like me buying in Washington in large numbers changed the city, but owning real property also changed my life in all sorts of ways I was not able to anticipate.
* * *
I bring all this up because on Thursday and Friday, President Obama will take his summer policy speech-making tour to Binghamton University, the State University of New York, in Vestal, N.Y., and Lackawanna College in Scranton, Penn., for a town hall and remarks focusing on higher-education policy. “We have to fundamentally rethink how higher education is paid for in this country,” the White House announced in previewing the speech.
So here’s one idea. Tie together college debt reduction and housing in a way that’s potentially liberating to individuals and beneficial to the recovery of distressed communities at the same time to a create a virtuous cycle like the one I accidentally stepped into in Washington.
Cities like Detroit, Cleveland, and Gary, Indiana, need people. Young people, college-educated people, people with an entrepreneurial spirit who might be willing to put down roots and pay local taxes and taken on renovation projects and bring new views and businesses and opportunities to distressed, underpopulated communities.
Debt-burdened recent college graduates, for their part, need cheap housing and to pay off their student loans. They need to live in a place they can afford, and they need some means of reducing the principal on their debt in a timely fashion so they can get on with their lives. Even the existing program that allows people to pay no more than 10 percent of their income on federal student loan debt isn’t enough, because as helpful that may be to those in the program, it does nothing about the real problem — enormous underlying principal balances, thanks to the massive ramp-up in college costs – for 20 years.
Maybe it’s time to try to yoke these two problems together and allow for partial loan forgiveness for people who commit to living in distressed communities for a set period of time. The rents in Detroit couldn’t be cheaper, nor could houses, should anyone want to lay down deeper roots. Think of it as something akin to Washington’s first-time-homebuyer tax credit, but available to renters, too, and accomplished through educational-debt reduction rather than the tax code.
- How Detroit Can Help Solve America’s Student-Loan Crisis (theatlantic.com)
- How Cleveland Can Help Solve America’s Student-Loan Crisis (theatlanticcities.com)
- The Decline and Fall of Detroit, cont. (weeklystandard.com)
- Time to Bring Bankruptcy Back for Student Loan Debt (gawker.com)
- Matt Taibbi On “The Dirty Little Secret” Inside The Student Loan Bubble (zerohedge.com)
- Report Argues For Bankruptcy Protection For Student Loans (huffingtonpost.com)
- More students taking on more student loan debt, Department of Ed reports (dailykos.com)
- Student Loans, Detroit, and an Idea to Fix Both (pattidudek.typepad.com)
- The Government Profits from Student Debt Defaults (marginalrevolution.com)
- Credit Card Debt: Falling, But Still Very High (dailyfinance.com)
Year Of Law School Now Mandatory For Nation’s 25-Year-Olds | The Onion – America’s Finest News Source
Year Of Law School Now Mandatory For Nation’s 25-Year-Olds
WASHINGTON—Under the provisions of a bill approved by Congress and signed into law Tuesday, every 25-year-old American, regardless of prior life commitments, is now legally obligated to enroll in a full year of study at one of the nation’s accredited law schools. “This new measure gives us the means to compel 25-year-olds to simultaneously placate their parents, impress their friends with complex-sounding legal jargon, and effectively avoid any real-world responsibilities for another full year,” said Rep. Steve Buyer (R-IN). “We can think of no better way for our young people to squander their postcollegiate aimlessness.” Congress is reportedly seeking further legislation that would provide for an additional nine months of grumbling over LSAT prep, and up to five years of whining about paying off student loan debt.
- Year Of Law School Now Mandatory For Nation’s 25-Year-Olds (theonion.com)
- U.S. Facing Helium Shortage | The Onion – America’s Finest News Source | American Voices (mbcalyn.com)
- Area Man Lives Vicariously Through Son’s Bully | The Onion – America’s Finest News Source (mbcalyn.com)
- Americans Pool Together $945.23 To Counteract Corporate Money’s Influence In Politics | The Onion – America’s Finest News Source (mbcalyn.com)
- Governor Too Embarrassed To Say Which State He Leads | The Onion – America’s Finest News Source (mbcalyn.com)
- U.S. Improves Infrastructure With Transnational Power Strip | The Onion – America’s Finest News Source (mbcalyn.com)
- New Preventative Drug Would Kill People Before They Get Alzheimer’s | The Onion – America’s Finest News Source (mbcalyn.com)
- Moving To New City To Solve All Of Area Man’s Problems | The Onion – America’s Finest News Source (mbcalyn.com)
- Mike Holmgren Finally Admits To Friends That He’s Working For Cleveland Browns | The Onion – America’s Finest News Source (mbcalyn.com)
- Why Women’s Professional Soccer Failed in the U.S. | The Onion – America’s Finest News Source (mbcalyn.com)
A bill banning career schools from using student loan money for recruitment could doom predatory colleges
On a conference call with reporters Wednesday morning, Sen. Kay Hagan, D-N.C., promoted that would prohibit for-profit colleges from using taxpayer-funded financial aid for marketing, recruiting or advertising purposes.
Make no mistake, Hagan’s bill, if it becomes law, would cut for-profit schools off at their knees. The top 15 publicly traded for-profit colleges derive 85 percent of their revenue from federal financial aid. If they can’t spend that money on marketing, recruiting and advertising, then they effectively can’t market, recruit or advertise — or at least not at anywhere near the scale they currently do.
I reported last month that one of the biggest for-profit colleges, spends a quarter of its $1 billion-plus revenue on marketing and recruiting. But in the course of answering a question I asked Sen. Hagan about the assertion by for-profit school lobbyists that more regulation would decrease educational opportunities for low-income Americans, minorities and military veterans, the senator delivered an even more eye-popping statistic. Hagan serves on the Senate Health, Education and Labor and Pension Committee that has been leading the government’s investigation into the for-profit sector. One of the schools the committee looked at, said Hagan, had 1,700 recruiters and only one counselor.
A little follow-up research reveals that school to be Bridgepoint Inc., a relatively recent, but very fast-growing entry into the for-profit sector. According to HELP committee as of March 2011, Bridgepoint employed recruitment sales staff, and job placement counselor. Bridgepoint spends 30 percent of its revenue on marketing and recruitment. (The Chronicle of Higher Education that Bridgepoint did not contest the numbers in a press release.)
Why would a school with a total, at the time, of 77,892 students, need 1,703 recruiters? An extraordinary withdrawal rate of 84 percent from its two-year associate degree program might go some way toward explaining that. To keep generating new revenue from federal loans, Bridgepoint must keep enrolling new students.
Bridgepoint would not exist in its current form if Sen. Hagan’s bill becomes law. Technically speaking, that might be construed to support the argument that the type of student that enrolls at Bridgepoint — low-income, minority, military veteran — would have fewer opportunities for an education. But given those withdrawal rates, as well as the very high student loan default rates that plague the for-profit sector, one has to ask, is that such a bad thing?
- Mitt’s for-profit school mess – Salon.com (mbcalyn.com)
- For-Profit Colleges under Fire on All Fronts (blogs.lawyers.com)
- When Privatization Doesn’t Work (newyorker.com)
- America’s worst colleges (salon.com)
- Complaints in Iowa grow with expansion of for-profit colleges (thegazette.com)
- Mitt’s for-profit school mess (salon.com)
- My Colleges and Careers Helps Students Prepare for Proposed Government Regulations Before Going Back to College This Fall (prweb.com)
- Colleges Establish New Guidelines on Student Loans (loans.org)
- Student Loan Debtors Are Often College Dropouts (pubcit.typepad.com)
- Romney’s Higher Education Plan: A Giveaway To The Wall Street Banks And Predatory Schools That Fund His Campaign (thinkprogress.org)
Student loans in America
Nope, just debt
The next big credit bubble?
Oct 29th 2011 | NEW YORK | from the print edition
IN LATE 1965, President Lyndon Johnson stood in the modest gymnasium of what had once been the tiny teaching college he attended in Texas and announced a programme to promote education. It was an initiative that exemplified the “Great Society” agenda of his administration: social advancement financed by a little hard cash, lots of leverage and potentially vast implicit government commitments. Those commitments are now coming due.
“Economists tell us that improvement of education has been responsible for one-fourth to one-half of the growth in our nation’s economy over the past half-century,” Johnson said. “We must be sure that there will be no gap between the number of jobs available and the ability of our people to perform those jobs.”
To fill this gap Johnson pledged an amount that now seems trivial, $1.9m, sent from the federal government to states which could then leverage it ten-to-one to back student loans of up to $1,000 for 25,000 people. “This act”, he promised, “will help young people enter business, trade, and technical schools—institutions which play a vital role in providing the skills our citizens must have to compete and contribute in our society.”
Almost a half-century later these modest steps have metastasised into a huge, federally guaranteed student-loan industry. On October 25th the Obama administration added indebted students to the list of banks, car companies, homeowners, solar manufacturers and others that have benefited from a federal handout.
Johnson’s lending programme was altered almost straight away. The intention of providing students with an education through “business, trade and technical schools” was expanded to include the full, imaginative panoply of American education, regardless of economic utility. Interest rates and terms have all been adjusted numerous times.
The result is a shifting, difficult landscape only barely understood even by insiders. For students, the task is that much larger. They must choose between an array of products, including subsidised and unsubsidised “Stafford” loans (named after a Republican senator) via the William D. Ford loan programme (named for a Michigan congressman), loans directly from the government, “Plus” loans (for parents of dependent children) and “Perkins” loans (named after a congressman from Kentucky), plus an array of private options.
On top of all this, there are choices about how to consolidate, restructure and pay the debts. Many students are understandably overwhelmed. Deanne Loonin of the National Consumer Law Centre has one client with $300,000 in debt from a failed effort to become an airline pilot. That liability could have been reduced by a better understanding of products.
Two things, however, are clear. The size of student debt is vast (see chart), and lots of borrowers are struggling. More than 10m students took out loans for the latest academic year, according to a report issued on October 26th by the College Board, a consortium of academic institutions. Almost a third of students graduating from college, and 69% of the ones dropping out, hold debt tied to their education.
The total amount of debt is staggering. The New York Federal Reserve Bank puts it at $550 billion, but includes a footnote in the “technical notes” section suggesting this may be an underestimate. Sallie Mae, the school-loan equivalent of the housing industry’s Fannie Mae and Freddie Mac, reckons there are $757 billion-worth of outstanding loans. A bank heavily involved in the area says there is at least another $111 billion in purely private loans, and with new lending estimated in excess of $112 billion for this year alone, the total amount outstanding will surpass $1 trillion in the not-so-distant future.
Critics allege a viciously wasteful circle: the size of the loan pool expands to enable students to pay ever higher fees to schools whose costs expand because money is coming their way. That was just about sustainable in the good times, a lot harder when there are fewer jobs to be had.
Signs of strain are everywhere. In September the Department of Education reported that in 2009 the default rate, which is defined as non-payment for 270 days, had reached 8.8%. By some estimates delinquency rates, an earlier indicator of stress, for student loans exceed 10%, ten times that for credit cards and car loans. Ms Loonin’s average client has a low-paying job, $30,000 of debt and is in arrears.
This is despite punitive laws to enforce repayment. In response to clever students burying their obligations in court during the 1970s, anti-default provisions were imposed to make it almost impossible to shed student loans in bankruptcy. In 1991 the statute of limitations for non-repayment was eliminated.
Many troubled borrowers could avoid default if they used government options to consolidate their loans and make minimum payments, says Ms Loonin, but they are unaware of the possibility. Their primary contact with the industry after being granted a loan is through collection agents who are compensated based on how much they collect, and who therefore have little incentive to explain alternatives.
There are increasingly loud calls for reform of the system, with demands that range from a full-fledged bail-out of borrowers to a phased curtailment of government lending. For now the bail-out is the bigger priority for politicians. For many years government-backed loans were distributed through banks which earned a fee and occasionally had to assume a little bit of risk, but in 2009 the business was entirely absorbed by the federal government.
The changes announced this week are designed to ease the pressure on struggling graduates. Borrowers who qualify will get payment relief, not debt relief. Their payments will be capped at 10% of income rather than 15%, but interest will continue to be applied to their underlying debt and may expand rather than contract over time. There will also be forgiveness after 20 years, rather than 25. The administration says these changes will have no cost to taxpayers. If there is one lesson of the past 46 years, it is to be dubious of that claim.
- Student loans in America: Nope, just debt | The Economist (policyabcs.wordpress.com)
- Follow-up on Obama student loan initiative (costofcollege.wordpress.com)
- Student Loans In America: the Next Big Credit Bubble (news.slashdot.org)
- Who will benefit from Obama’s student loan plan? (cbsnews.com)
- Obama saves Students from Student Loans! Kinda. Maybe. (bankruptcycrossroads.com)
- Obama’s New Student Loan Plan: Will It Let You Pay Less? (dailyfinance.com)
- Kline: Obama loan plan a ‘mistake’ (politico.com)
- Students with private debt left out by Obama plan (bottomline.msnbc.msn.com)
- Student Loan Forgiveness (dopersoundoff.wordpress.com)
- Got a Student Loan, No Problem (ricrx.wordpress.com)