Sunday, August 19, 2012

More Thoughts About Recent Claims That Student Lending Crisis Does Not Exist

A few days ago, I wrote a piece in response to a discussion by higher education experts who are now claiming that, while student debt is growing, there is not a full blown crisis. Some of the panelists even went so far as to argue that stories about student loan debt are being "overblown" and "sensationalized." There are a number of reasons why this group of experts - who do not really engage with actual student loan debtors or activists who represent them - are making these misleading remarks.

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Take this mortgage scenario as an illustration of how they are pushing the "denial" message. Perhaps this group could come together to solve the mortgage crisis. They could all say that most mortgages aren't underwater and that all mortgage borrowers just need to be better informed about borrowing. That would mean the crisis would be solved! It's similar to the new Bureau's fact sheet and how the lenders, the very institutions who have created the problem and preyed on borrowers, are now offering financial literacy programs. There again, the problem is solved, because the lending institutions are providing information about the dangers of borrowing too much for college, even though most Americans don't have a choice and must borrow large sums of money to earn a college degree. Luckily, they have these financial literary programs that have been designed by the lenders themselves! That means, if the borrower and the borrower's family takes out too much money, well, it's their own fault. They should have known better. And if the borrower is paying their student loan debt in a timely fashion, then what's the problem? There isn't one, right? Well, according to these experts, that's right. This type of analysis completely overlooks the borrower's reality and all those complex everyday life facts, i.e., she might be living at home, working two or three low-wage jobs, uninsured, and thus living month-to-month. But as long as she's sending in her loan payments every month, there isn't a crisis. No problem here. So, dear American public, please carry on with your business.

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I also take issue with one of Sandra Baum's comment. Baum, incidentally, used to work for the College Board (hereafter, referred to as CB). CB used to be a private lender. Now, it describes itself as such: "an organization made up of colleges." Sounds vague and perhaps innocuous. However, CB was a private lender until 2007. I had a day-long debate with Baum and another one of her colleagues, when she was a consultant at CB many years ago. It was frustrating, too, because Baum did not disclose the fact that CB had been a previous lender. The content of debate, in my view, seemed disingenuous because she failed to tell me this fact. But I don't wish to digress. Here's my point about Baum's recent remark at this panel. The headlines do not divert us from the real issues, as she asserted. In fact, the headlines lead us to the real issues that borrowers are facing, and I think she knows that.

Furthermore, the KC Fed economics needs to read the NY Fed report on student loans, a report that is quite grim. He also has demonstrated his lack of knowledge of the subject by comparing historical cohort default rates. It's a known fact, or at least it should be, that these rates are manipulated by the schools and that better measures of default rates are available. For instance, the 2013 U.S. Budget, put out by OMB, estimates that Stafford loans issued in 2013 will have a life of the loan default rate of 23%.

Bottom line: with the increasing numbers of conferences and persistent claims that student loans are not a problem is proof that they are indeed a problem. If they weren't a problem, there would not be such a barrage of experts denying this truth.


Nando said...

These pigs know that the public is starting to catch onto the "higher education" cartel - and the student loan racket. Currently, attaining a college education in the United $tate$ is a gamble. That is a travesty!

If student debt was not a significant issue in this country, then these policyheads and ass-clowns would not need to deflect criticism so often. They seek to divert attention away from this issue - which IS affecting millions of graduates.

Citizen Zeus said...

Actually calling it a "gamble" is being too generous. The situation is significantly worse. Yes, one does learn and retain something of value from a college education. However, the opportunities to use that knowledge to get paid a decent salary and to pay down skyrocketing tuition costs are vanishing outright. It's simply not sustainable nor fair. 23% forecast default rate is more than twice any acceptable limit and shows the new normal is not so much a gamble as a rigged losing game. Simply ask "Who benefits? Who pays?" Cryn has been asking that and she rightfully demonstrates that those who benefit are trying to cover their tracks with denial. But denial cannot be a substitute for reality. Ultimately we all pay, including the deniers, when a truth of this magnitude is swept under the rug.

Anonymous said...

I am trying to wrap my head around how "experts" are able to claim that the student loan lending problem isn't a "crisis." The fact that they're holding these meetings or whatever you want to call them to discuss how loans are NOT a problem, tells me that they're afraid. They've been exposed and it's only a matter of time before something happens. My husband and I were talking about how corporate banks have practically become the government (they bought it, didn't they?). People are so afraid of "socialism," yet they fail to realize that we're actually living in a state of CORPORATE socialism, where we aren't reaping any of the benefits of paying into the system. My point is that a system has been developed where people must live off of credit and it begins with young students. People should not have to sell their souls to go to school.

It is a problem. It is a HUGE problem and for those of use whose lives are affected, we have to face that problem every single day. Every time I think about my loans, I feel like I'm in the twilight zone... I must be dreaming. How does the free world allow this? I'm literally a modern-day slave. Slavery was never abolished, it just took a different form. Change will happen. I have to believe this, or there will be no reason for me to continue to live.

Anonymous said...

Mortgage debt is over 13x larger than the 1 Trillion in student loans outstanding, of which $850 billion is federal.

Student loans are focused on about 30-40 million students/graduates (10-13% of the US population) that are feeling the pinch in a down sloping economy.

Some of the commentators mentioned are in the "let them eat cake" view of the situation, and unable to relate to the poor kid overly in debt right now.

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