Quick Post: Raising Important Questions

I'm going to begin a series of quick posts each week that pose important questions, and I hope that those in power will be open to responding. Here are a few that I have about the consolidation issue and problems I suspect are related to the Department of Education's refusal to help current borrowers:

-Why isn't the Department of Education doing anything about consolidation? There is strong evidence that suggests that it would save borrowers money and it would also save taxpayers money. Here's a great opportunity to help both parties, so why isn't the Dept. of Education moving on it? I am not aware of the scoring, but think it's safe to say that the savings could be enormous.

-We're not sure about the potential savings for borrowers and taxpayers, and that's why I ask this next question: how many old loans are out there, and how much could we be saving? (People in Washington only seem to care about saving money when it comes to their elections, so I'd like an answer to this question).

-Why does the Department of Education appear to be siding with lenders still? Is that because it is an institution that is just as broken and ineffectual as the S.E.C. (i.e., is it yet another case of the fox guarding the hen house, because that's how things seem to look these days in D.C. That at least would explains the callousness of people on the Hill)? That's really to say, is the Department of Education still filled to the brim with people that Bush put in there for the past 8 years? If that's the case, why hasn't the Obama Administration made an effort to clean it up? 

Notable Remarks - 7/8/10

Noteworthy remarks posted to my recent piece "Destroying The Educated Family, One Member At A Time:"

- Demosthenes of America said... The fact that there are so many stories like this is unconscionable to me. Once again, we are overflowing with "attorneys" but what can an attorney do? Represent them as an advocate against loan companies and debt collectors?

These are systemic, structural problems that can't be addressed on a case by case basis--what's needed is leadership and compassion from policymakers and our elected political leaders...but they have nothing but public scorn and spite for those on the receiving end of this "recession."

- Demosthenes of America (again wins a place this evening for exemplary comments): Absolutely. Every moment is a conscious choice. These problems are made by people, they can be solved by people.

My grandfather and his entire family were "okies," the people who had to flee the dust bowl and search for work. There have been several fascinating books written by environmental historians that detail how the Dust Bowl was not an Act of God--but the eventual outcome of specific policies and cultural practices in farming and land use that led to the severity of the conditions in the Dust Bowl.

The situation with the economy and the debt burden is no different. For anyone in a decision-making capacity to attribute the current situation solely to moral failings or bad personal decisions on the part of borrowers is out of their mind.

Every social justice movement in history has started somewhere. Just because improvements have been made in a society's laws and/or habits does not mean the underlying causes of discrimination, racism, etc. vanish.

These problems CAN be solved for the better. All it takes is political will. Or as Teddy Roosevelt said, "Blood, toil, sweat and tears."

-Anonymous wrote: You’re doing great work here. Don’t give in to that “multi-decade” “marathon” mentality. We’re the “on-demand” generation and can achieve results much sooner. Look how fast we can communicate around the world.

You’ve made the argument, and the emotional stories will create sympathy. However, if we expect to make any real progress, we have to come up with solutions. Here are my suggestions: (1) make student loan repayments contingent on income with the schools (not the taxpayers) taking the loss (this will create an incentive for schools to find reasonable employment for their graduates and/or limit enrollment in "worthless" programs), (2) start suing and revoking licenses/aid for schools that mislead or can't place graduates in suitable employment, (3) allow student loans to be discharged in bankruptcy after a specified time (e.g. 5 years after graduation) or number of unsuccessful legitimate attempts to gain suitable employment (why should you have to pay for something that you can't use and is thus defective?), (4) pass legislation prohibiting employment discrimination based on being educated or “overqualified,” (5) get organized and threaten to flee the country if some form of relief isn’t provided (if significant numbers leave, how many workers will be left to pay into Medicare and SS?) and (6) update the “Brother, can you spare a dime?” song for the Great Recession (e.g., “Obama, can you spare some change?”)

- Frank The Underemployed Professional said: These stories are just more anecdotal evidence that our nation needs real socialized medicine. Every other first world nation has it.

Our health care system is the most expensive and inefficient in the world, consuming a whopping 17% of GDP while leaving tens of millions of Americans uninsured or under-insured with tens of millions more living in sheer terror of losing their jobs and/or health coverage. We also have hundreds of thousands of medical bankruptcies every year. Also, our current system places a tremendous burden on businesses.

In contrast, nations with socialized medicine spend a far smaller percentage of their GDP on health care, have 100% coverage, have a more content populace, have almost no medical bankruptcies, and often have the same or more doctors per capita. Their businesses don't have to worry about health insurance benefit concerns. (However, they have far fewer wealthy insurance and for-profit hospital executives. I know, it's tragic.)

All of my personal experiences over the past decade have transformed me from an advocate of laissez-faire capitalism into an advocate of a mixed economy. Sadly, free market dogma and fear of socialism is so deeply-ingrained in this country that market forces will have to impoverish tens of millions more Americans first before the masses have the political will and desire to overhaul the structure of the nation's economy.

Destroying The Educated American Family, One Member At A Time

This testimonial from a mother of two daughters illustrates the way in which medical problems can be devastating when people owe student loan debt. This particular family owes multiple debts (the mother has an BA and an MA, the daughters have degrees, as does the father), and further substantiates my argument that the student lending crisis is an inter-generational problem. Her words are a quiet protest of how this crisis is destroying the lives of good, hard-working, educated American families. I read this note shortly before I left for work and tried to stop crying on the way to school on the bus (I get stared at enough - tears would've made me more of a spectacle). I have included most of our correspondence below (names have been changed to protect the family's privacy).


So, this morning, I opening this email from Mrs. Q explaining her family's predicament:

Dear Cryn,

I admire you for all that you're doing regarding student debt.


Our story is probably not too different from most, but there are a couple of unique things I can tell you.

I have 2 daughters, Angela, 27 & Maria, 24. When Angie was 16 (after 4 other heart surgeries) she had a heart transplant .  .  . more unrelated surgeries for medical problems & last year a kidney transplant; Maria was the donor.


Now, after Angie had the heart transplant & gallbladder out, she went to community college with [her sister.] Because she missed so much time at school she was behind. She had her heart set on going to DePaul in Chicago & Maria went too. We had no reason to believe they would have difficulty getting jobs. Both majored in business & did well. They graduated in 2008 & had no job prospects. . . no calls on resumes. Then came the news that Angie was in end-stage renal failure. She was literally dying. . . again . . . in front of our eyes. Finally, April/2009, she received the much-needed kidney. As they recovered, they began looking for jobs again. Angie finally got a job in the fall of  '09, at a facility for mentally/physically disabled people, but not doing anything related to business & making very little money. Maria borrowed $2,000, got a nail tech license, & got a job almost immediately upon getting her license.


Problem is that they were out of work for so long & my husband lost his job due to illness & was also out of work for a year . . . I was supporting all of us. I filed bankruptcy due to medical bills & we went into foreclosure, which I got us out of . . . though not sure that was a great idea. Oh, yeah . . . I am a breast cancer survivor of 4 years . . . in the middle of everything, I had to go through chemo, radiation, & other treatments (lumpectomy was first).


I've tried negotiating with Direct Loans & they are of very little help. I can barely keep up with everything. We shouldn't have cell phones, but I need to be reachable for medical issues. There are so many things we've cut back on & it makes little or no difference.


It is so exhausting and frustrating because we are responsible people and want to meet our obligations. It has destroyed my faith in the educational system because they will take money from anyone & have no responsibility in guiding students into majors where they can find jobs.


I support you in your efforts and will do anything I can to help out.


Thanks for your time,


Mrs. Q

While I wouldn't say I'm hardened because of the thousands of stories I read from all the student loan debtors who've reached to me by now, I am certainly beyond the stage of crying in the way I used to last summer. But in this case, my sadness for this family got the best of me, and I was already in tears after reading the second paragraph. On top of that, I was angry as hell. For those individuals who accuse student loan debtors of being lazy or buying extravagant things, this woman is suggesting she shouldn't have a cell phone and justifying it because of her medical problems. For God sake's is owning a cell phone really such a luxury? I dare someone to tell me it is. Moreover, how is it people like this are struggling to make ends meet, and why isn't the Administration doing anything to help them? I'm really at a loss. I mean, are they just callous or too aloof from being enclosed by the friggin' beltway? Although I was running late to school (on my own schedule) and had to tend to a new pup, I wrote Mrs. Q back immediately. Here's what I said:

Dear Mrs. Q,


Many thanks for writing to me and sharing such personal things. I have to admit, I'm having a hard time responding right now, because your email stirred so many emotions within me. It saddens me to read that you and your family have been through such hardship, and it makes me more determined than ever to fight even harder for change.


It is understandable that you have lost faith in the education system in the U.S. As you know firsthand, it's caused your family nothing but heartache. But it's also disheartening that you have - I hold higher education in high regard, and do not think that obtaining degrees should come with such a heavy cost.


I won't give up fighting. You and your family deserve better, and it's a shame that the way in which higher education must be financed in the U.S. forces people like you to suffer.


Let me know if I may post your story.


Thanks.


Kind regards,
Cryn

Mrs. Q responded immediately:

Cryn, 


Thank you for taking time to read our story. I would love for you to post it . . . It is hard for me to reconcile my feelings about higher education, as I have both a bachelors & masters in speech/language pathology & have always thought that a college education was very important. Interestingly, though not at the time, we had a huge fight on our hands with the hospital, last year, because Angela was under-insured & they kept waffling about whether or not they would perform the transplant. Now she fights with the insurance to pay for the anti-rejection meds. We've gotten so many breaks, with her health, yet it is a constant fight to keep on top of jobs & still make ends meet.


If you need, I would love to help you fight for this very worthwhile cause. Please let me know anything I can do to help.


Sincerely,

Mrs. Q

After reading this message and thinking about it during my breaks this evening (ironically, I am teaching a literature class and we're reading Grapes of Wrath), I kept asking myself over and over this evening: is this a fair and just America? Why are people like this being punished, and why is it nobody on the Hill or in the White House gives a damned? The questions returned again and again, and the intensity of their rhythm in my mind increased after viewing this great song clip with a montage of images from the 1920s and 1930s in class. It's the famous song, "Brother, can you spare me a dime?" (I encourage you to listen to it while reading this post, and then go back and watch it with the images)

I wish we could convince policy makers to help these people immediately. Drastic changes are needed. But I fear that I will fight this battle until the day I die, and I'm not sure how much progress I'll be able to make for people like Mrs. Q and her family. As one reader aptly stated, on my post entitled, "Can we get anything right for hard-working Americans? Anything?"

Ms. Johannsen, you are on the start of a multi-decade movement. Significant education reform will take at least one generation's efforts to achieve. It is on the scale of achieving womens' sufferage [sic].


Even the recent health care and student loan reform took decades to achieve. Just remember that you are running a marathon, not a dash.


For those who don't remember, student loans have been non-dischargeable debt since the 1970s.


http://www.finaid.org/questions/bankruptcyexception.phtml 

Luckily, I am healthy and young, so I'm more than prepared to fight this battle for the rest of my life. People like Mrs. Q and her family remind me of why we must not give up.

Disagreeing With A Knowledgeable Reader

[The following post is the first of many in a series of responses to a knowledgeable reader.]

Readers' responses are meaningful to me, and I often like to post them more publicly when they are  noteworthy. The topic of the student lending crisis is heating up. My readers are also quite aware that this issue sparks all sorts of emotional reactions. I have Friedmanites who let me know why I'm in the wrong, liberals who disagree with some of my solutions, and an array of conservatives who either disparage my work or admire my critiques of the present Administration.

Naturally, I receive a lot of despicable comments quite frequently, and some of these remarks are just downright nasty. Recently I decided to post a negative remark with one that was insightful (see "Readers' Responses: Good Point/Wretched Point"). Something different, however, is happening on Education Matters. Something that's good. I'm noticing a distinct change in most of the comments. The inane, as well as (quite sadly) misogynistic insults are at a soft murmur, and the readers' response have suddenly become sophisticated, fair (if they disagree), and - best of all -  insightful.

One recent reader's comments deserves to be mentioned. There were several remarks made by this particular person, or at least I'm presuming it's the same individual. I may be incorrect in assuming that, however, the tone and style of each response is quite similar. Since this reader took the time to rebut my comments and, most importantly, my suggestions on how to solve the student lending crisis, I think they deserve a sound follow-up. Several, in fact. I'd also like to respond to their remarks and let them know why I think they're incorrect, or at least partially so. In my paper, "The Plight of Current Borrowers: An Appeal For Immediate Relief," that was presented at the Rev. Jesse Jackson's convention in Chicago, IL in mid-June (it was sponsored by the Rainbow PUSH Coalition, and the paper can be read in its entirety here), this particular reader took issue with the way in which I likened student loans to the subprime mortgage crisis. Here's what they wrote: 


There is no relation or comparison of federally-guaranteed student loans to subprime mortgages. Most subprime mortgages were backed only by the faith of those who originated them. (A minority of them were backed by Fannie/Freddie, which were not federal agencies and which had, at best, only a vaguely-implied taxpayer backstop.)


The federally-guaranteed student loans (FFELPs), made by banks, nonbank lenders, state lending agencies and nonprofit foundations, however, were guaranteed 99% against default by guaranty agencies' federal government funds, which, in turn, had those loans guaranteed 95% by the actual U.S. Education Dept. After 6/30/10, there will not be any more of these loans issued, at least, and all newly-originated loans starting July 1 will be federal direct loans.


FFELPs were/are among the safest investments in the world. Defaults are very low, and, if the borrower defaults, sure the investor doesn't get the 20 years of future interest, but at least principal (including capitalized interest) is protected. In addition, the quarterly return is guaranteed by the taxpayer to be at a certain level, and U.S. Ed Dept covers it with quarterly payments to the loan holder. For the certain types of loans ("subs") where the borrower doesn't owe interest during school, the U.S. Ed Dept reimburses the loan holder for that interest.


The problem with U.S. and international "sophisticated" investors is that apparently they aren't so sophisticated. Three years ago they thought any type of loan imaginable was as safe as Fort Knox. By spring 2008, they thought all types of loans were as risky as an unsecured payday loan. Stupid. They missed the boat. While the investment "masters of the universe" can definitely do something about unfreezing the secondary and securitization markets of FFELPs issued prior to 7/1/10, there will be no new FFELPs issued.

These are great points, but I firmly disagree on several. (Incidentally, it's my hunch that this person is either writing from inside the Beltway or works at a higher education think tank somewhere in the U.S. Regardless, this individual is definitely informed about the issue).

For starters, Steve Eisman (who was the main character in Michael Lewis's The Big Short) last week testified before Sen. Harkin's committee. During his testimony Eisman argued that the student loan situation is comparable if not worse than the subprime mortgage fiasco. Moreover, if anyone is interested in revisiting or reading my own analysis of Mr. Eisman's initial remarks about for-profit colleges, please see, "Steve Eisman Blasts For-Profits, Arguing 'Subprime Goes To College.'"

It would be ludicrous to suggest that student loans are the same as mortgage loans. They are, naturally, two different things. The point that I'm trying to make is that the Administration and Congress have been falling over themselves trying to assist current mortgagees, but have done (with exception of IBR) nothing for current student loans borrowers.

As for the writer's last paragraph - it's great. I agree. A lot of these individuals in finance have no clue what they are doing. 

Stay tuned for more responses to this reader's comments. On that note, thanks to those of you who are providing such substantive remarks. I am greatly appreciative.

Can we get anything right for hard-working Americans? Anything?

I read these articles far away from home. The most recent one is about double-dip fears and the fact that layoffs are climbing with the deepening housing slump.

These days abroad are unsettling, and it's got me really worrying about the state of our nation. What will it be like in a year? 2 years? A decade? Who else will lose out on opportunities because of the role big money plays in D.C. and on Wall Street? 
 
Just the other day Krugman is claiming that we're in a third Depression. Funny. I thought he was claiming recently that we were in a recovery. I don't get him. That's to say, he's fed all sorts of things by the White House or something. His remarks about this Depression remind me of his writings about the health care bill. At first, he was absolutely against it and went on rants about how bad it was, how it had been essentially watered down (I even heard him in an interview on NPR saying as much), and then in a flash, he's backing the thing. Strange one, that Krugman.

I'm frankly glad as hell to be out of the Beltway. I'm sorry, none of these people get it. You have people who've been out of work for over a year, their unemployment benefits are at risked of being slashed (thanks to an idiotic Congress. I'm sorry. I'm just calling it what it is - friggin' idiotic). On top of that, many of these people are struggling to make ends meet with their loan shark lenders, and everyone here knows by now that the Department of Education could give two hoots about the indentured educated class.  I dare say, this country is runnin' on empty, and it sure as hell doesn't appear that anyone who could make a difference gives a damned. It's a hard thing to watch your country continue to crumble. I was naive in thinking that Pres. Obama meant the things he promised during the election. I've thought quite recently that I'd like to become a politician, because I believe that it means being a good public servant and helping fellow Americans, but I'm so livid at the way in which things are going, I'm not so sure I'll even vote again. It's a damned shame. I still remember the day in which Pres. Obama waved to me before being sworn in. I recall the millions of people in D.C. who showed up, stood in the frigid air, to listen to his inspiring words. It was astonishing to be a part of such a huge group, and only be listening to that man's voice. All of us were silent. Not even a baby cried. And for what? More of the same? It appears to be the case.