Thursday, February 14, 2013

Spare Change News: The Student Lending Crisis

I am a regular contributor at Spare Change News. Here's a snippet fro my latest piece about the student lending crisis:

On September 17th, 2011, people took to the streets in lower Manhattan as Occupiers to denounce the financial and banking institutions that, as they saw it, caused suffering, economic disaster, and unnecessary harm during and after the financial crisis of 2008. Many of the protesters, Occupiers, asserted — and with solid arguments — that the financial industry acted recklessly and had not faced the necessary consequences for their behavior and collective destructive actions. This sentiment, that the banking and financial institutions had and continues to dominate the economic, political, and cultural, landscapes across the world, is not just held by so-called young protesters on the streets. In fact, leading economists, such as Joseph Stiglitz and Paul Krugman, had and continue to make similar assertions. We're speaking, of course, about the big picture. What struck me as significant, being an advocate for student loan debtors, and a researcher on the student loan debt crisis in the United States, were the scores of placards, carefully created by student loan debtors, denouncing their debt. Most striking about these signs was the audacity to publicly stand with debt figures scrawled in huge, bold numbers. Indeed, it is particularly gutsy, since this country not only has little sympathy for student loan debtors, but treats them with outright contempt and disdain. The debtors are frequently accused of being "entitled," and many people (not all) seem to relish the fact that these "young"Americans were foolish when they decided to pursue a "useless" degree in, for instance, the humanities. (Incidentally, not all the student debtors had or have so-called gratuitous degrees. Many of them had degrees in the sciences and so forth). This sort of sentiment has a long history in the United States, a place in which, paradoxically, higher education is revered and also scorned. Contempt has a long history in this country, especially when it overlaps with strong currents of anti-intellectualism.
 You can read this piece in its entirety here


Anonymous said...

It is not contempt and disdain. It is public fear, there are no second acts in the USA.

Anonymous said...

It is indeed contempt and disdain. What the commenter before me fails to recognize is that everyone else in this country is allowed a second chance: gamblers, shopping addicts, failed entrepreneurs, people who made mistakes when buying their houses. Heck, even CRIMINALS do their time and start over. Students, however, are not afforded this Constitutional right. How are we worse than criminals?

Cryn, my graduate research focused on self-entitlement so I consider myself somewhat of an expert on the topic. I have never in my life seen the kinds of entitled attitudes that I am witnessing from the banks, the schools and even the government.

They expect a student's very soul in exchange for an opportunity to earn a diploma that, while intrinsically valuable, is worth peanuts in this economy. They know damn well what they're doing. They're destroying the futures of entire generations. They're destroying our national and world economies, and all with the blessings of the people (general American public) who don't understand what is really happening. They simply do not care because they believe it does not affect them (although it does). How is THAT not entitled?

They do not understand that truth-in-lending was removed from student loans. My brother-in-law said to me yesterday, "Well, when you signed for your private loans, you KNEW that you could not bankrupt out of them" to which I replied, "NO, I did NOT know that I couldn't bankrupt. Although I read the documentation, I never once was told that I could not bankrupt in the event of a personal financial crisis. This is because truth-in-lending was removed from student loans."

People don't realize that while usury (abusive interest practices) is illegal and unconstitutional with any other loan, it IS legal when it comes to student loans. They do not know that our refinancing rights have been revoked, so we can't even shop around for a better interest rate. People do not understand that DEFAULT is actually PROFITABLE to the lender (yes, they make money when students default) so they have no reason to work with us (so the "call your lenders and negotiate" argument is irrelevant). They do not realize that their fellow Americans have been stripped of their Constitutional rights because they chose to go to college, and if they're willing to do it to us, it's only a matter of time before it happens to them, too.

What I think would be the most shocking to the naysayers is the knowledge that these banks BORROWED this lent money from the taxpayer. They intentionally inflated the balances to 2, 3, 4 and even 5 times the amount lent (through interest, fees, default fees, etc.) THEN THEY SENT THE BILLS BACK TO THE TAXPAYER. That's right. They borrowed the money from us for free, increased it, then sent us the bill.

And then there are still people who blame the 18-year-old college student who trusted the adults who promised him that the loans were "safe" and that he was making an "investment in his future." They don't blame the 45-year-old loan officers who KNEW the kid could never repay. What imbecile lends astronomical amounts of money without consumer protections to a teenager who has a proven inability to repay? They don't blame the universities who made empty promises of prosperity, the parents, high schools and families who pressured him into going, or the parents who bought big houses, boats and cars rather than saving for the kid's college fund. They don't see the social problem of an economy that is flooded with degrees, creating a situation in which an applicant without a degree is no longer qualified to mop a floor because his competitors all have 2 master's degrees.

I'm sorry, but anyone who knows all of this and then places their stamp of approval on this system is... well, I can't say it here, or you probably wouldn't publish my comment, Cryn.

Anonymous said...


Wow, you blame so many people but not yourself.

College is free or virtually free to people who are willing to shop around. There's the GI Bill, states (like Georgia) that subsidize the ENTIRE cost of college tuition, scholarships, etc.

If you are really interested in getting out of debt, do this:

1. Get on IBR and get the payments as low and long-term as possible, then

2. Get a job that qualifies for PSLF.

3. Work at that job for 10 years (or 20, if you want a pension) and put at least 2/3 of your salary toward whatever loans DON'T qualify for PSLF.

You're welcome.

Sorry to break it to you, but 3.4 or 6.8 percent are not "usury."

Anonymous said...

3.4% and 6.8% CAN be usury when it compounds. The interest is added to the balance, then the new balance is charged with the same interest. This results in paying interest on... interest. Over time, this can double and triple the balance of a loan. Please remember that we aren't just talking about federal loans. Private loans are much worse and their interest rates can be in the 20% range. They are also variable. These balances actually INCREASE as a debtor is repaying them because the interest is so high. It isn't until after the 15 year repayment mark that the payments actually begin to pay down the balance.

IBR is dangerous and it makes me angry that our government is making people think that it's a good idea. Interest continues to compound for 20+ years during the program, inflating some balances to 6 figures and sometimes even beyond. The debtor then owes taxes on the "forgiven amount," ultimately transferring the debt from the DOE to the IRS. A loan that makes it to $1 million would actually cost the person $350,000.00 in taxes. It would not be a stretch to say that some balances would reach that level. If a person can't pay their taxes, they go to jail, creating de facto debtor's prisons. Furthermore, private student loans do not qualify for this program.

Not everyone is physically able to join the military. Not everyone lives in Georgia. Anyone can obtain a "free" education online, but employers will not accept "mad Googling skills" in place of a college diploma. Try getting a job in a society where EVERYONE has a degree. In case you haven't noticed, all jobs are difficult to come by these days, ESPECIALLY non-profit and governmental jobs that allow for forgiveness after 10 years (same tax dangers apply). I would argue that if my generation were able to find such employment, we probably wouldn't be quite as deep into this predicament, and we may not be making this much noise over it.

Individuals have responsibility, yes. But we cannot, with straight faces, blame only the teenagers for this societal problem. Blame the Congress members who were bribed with campaign money from Sallie Mae to remove Constitutional rights from people. Blame the public schools whose presidents (a.k.a. Michael Crow from Arizona State) who earn nearly $1 million per year on the backs of its students. Blame the financial aid officers who promised kids that they were making "investments" in their futures with "safe" loans. Blame the people like yourself who don't do their homework and let this injustice continue in this country with your blessing.

If you are comfortable with a select group of people in this country losing their Constitutional rights (so long as it does not affect you, or so you think), then you can't really call yourself a Republican. Wait, let me guess, "You aren't a Republican or a Democrat," right? You just subscribe to the "Well, I got mine so I don't care if you get yours" mantra.

Anonymous said...

@ 3:50

P.S. Did you even read my comment?

Anonymous said...

Yep. Everyone on Earth's fault but yours. Got it.

Anonymous said...

My reply to you was not posted and I don't have the energy to re-type everything. In short, the options you explained apply to only a fraction of borrowers and are dangerous because balances continue to increase until they are "forgiven," at which time the debtors pay income tax in the final amount. This can be tens if not hundreds of thousands of dollars then owed to the IRS. There is no such thing as loan forgiveness, private loans do not qualify, mad Googling skills are not a substitute for a degree, not everyone is physically capable of joining the military and not everyone lives in Georgia.

I never said the individual shouldn't take responsibility I said that the society that set up this scam before the teenager was born was at greater fault.

Anyway, it doesn't matter what I say. You have already made up your mind. I am very sorry that you do not have more compassion for your fellow citizens who have been stripped of their Constitutional rights. Perhaps if these same stipulations were placed on your mortgage (without you knowing, since te removal of truth in lending is part of this scam) you would understand.

Anonymous said...

How surprising, more excuses.

You are grossly misinformed. There is NO income tax bill for PSLF at the 10-year mark (unlike 25-year IBR, which DOES carry a tax bill).

I know PSLF doesn't apply to private loans. That's why 2/3 of your monthly salary should go to paying those off, remember?

Just keep denying. Heaven forbid you take advice from someone who has actually paid his loans off. What do I know?

Given your predicament, you should be willing to take advice from anyone. You think you know it all, but somehow you keep making one bonehead move after another.

What "constitutional rights" have YOU been stripped of? That's what I thought.

P.S. I don't have a mortgage. Why would I want one of those?

Anonymous said...

Yeah, I know what compound interest is. So which jurisdiction defines a 6.8 percent annualized compound interest rate as "usury?" Cuba, perhaps?

I didn't "get" mine. I earned it by holding down a job and making good financial decisions. Not making just the minimum payment on a huge loan, or staying in college for decades, for example.

What are these "constitutional rights" you keep referring to, exactly? Please be specific. Is it the "constitutional right" to a trillion-dollar platinum Obamapenny? Or what??

stone said...

Hmm, good job! This is really something!