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This is a simplified version of a previous diary.  All claims made in this piece are well supported by research described at Studentloanjustice.org.

We have been claiming for years- and recent data supports our controversial claim- that the student loan default rate is well over 30%.  This is due directly to the dynamics described in this diary.

I do hope that people will finally begin to understand the point of this diary, and why consumer protections for student loans...or any lending system for that matter...are so critically important. If you understand and agree with this diary, please help us spread the word.  It has been largely suppressed by the mainstream media thus far, so the grassroots really have to get going on this.

To support our work, please visit our website donation area:  

http://www.studentloanjustice.org/...

College prices have skyrocketed because the loans used to pay the cost have become predatory...meaning the primary lenders, guarantors, and even the Federal Government are making, not losing money when loans default.

When the lenders and guarantors prefer defaults, this is inexcusably bad...but it is intolerable when this financial incentive goes up to and includes government oversight entities (ie the Department of Education in this case). "Unnamed" Department officials, and a small army of lending system cronies are bending over backwards trying to make the public believe that they are losing money on defaults, but a 122% return is simply too high to be able to make this claim...collection costs, and the "cost of money" just don't eat up that much profit, despite the wave of disingenuous claims to the contrary.

Making, not losing money on defaults makes the Department turn a blind eye to the true default rate, the quality and costs of the colleges, etc. So When Congress is pushed to raise the loan limits and asks the Department of Education how everything is going...ED says "Great...defaults aren't too bad, we don't see any problems". With no skin in the game, or even perverted financial incentives tilted against, instead of with the students, this is the result, along with a cascade of other systemic defects (ie horrible customer service, major conflicts of interest, etc, etc.).  They are, in the interest of brevity, too numerous to mention here.

It is hugely unwise to remove bankruptcy and other fundamental consumer protections from any loan instrument. This pits the lender against the borrower- an arrangement doomed to fail ultimately in the ways we are seeing now with the federal student lending system. The actual student loan default rate, skyrocketing tuition and fees, and heinously bad oversight history of the Department of Education prove this.

Only when these protections are returned will the financial incentives of the Department of Education be reoriented to where they should be...cracking the whip on the schools to keep quality high, and costs, down....and meaning it...

This is a fundamental defect that any free market economist would agree must absolutely be corrected...corrected immediately, and in a bipartisan fashion.

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Comment Preferences

  •  Tip Jar (9+ / 0-)

    Please support the StudentLoanJustice.Org PAC

    by studentloanjustice on Mon Mar 21, 2011 at 04:54:08 PM PDT

  •  I Went To College At A Major (7+ / 0-)

    state school in the late 80s. I paid $4,300/year. That number isn't a typo. I looked at going back to get my MBA, and I have a MA, and it was $47,500/year.

    When opportunity calls pick up the phone and give it directions to your house.

    by webranding on Mon Mar 21, 2011 at 05:01:25 PM PDT

    •  Yep (2+ / 0-)
      Recommended by:
      kyril, akeitz

      That pretty much says it all.  The lending system has been broken for years.

      Please support the StudentLoanJustice.Org PAC

      by studentloanjustice on Mon Mar 21, 2011 at 05:14:57 PM PDT

      [ Parent ]

      •  It isn't all about the lenders, though. (2+ / 0-)
        Recommended by:
        sebastianguy99, Cynic in seattle

        Note that I'm not denying their role; I'm just saying they are not the sole cause.

        For the moment, consider only private schools, that don't depend on state governments for the majority of their funding.

        As someone pointed out in an article I read somewhere (it was years ago, and I forget the source), tuition money represents one of the few unregulated sources of funding universities and colleges have: most of the money from endowments and grants are tied to specific purposes (you can't take, say, $50,000 from an NIH grant to fund dorm renovations).

        And, as the law of supply and demand goes: as long as schools get students to fill the seats, and they can get the money they need/want, they have no incentive to stop raising tuitions.

        On a related note, we should applaud schools like the New University of the South, which actually is lowering tuition (yes, it's still insanely high, but they dropped it by 10%), and schools that are decreasing family costs and the amount that students have to borrow.

        We don't want our country back, we want our country FORWARD. --Eclectablog

        by Samer on Mon Mar 21, 2011 at 05:59:24 PM PDT

        [ Parent ]

    •  Late 1970s - I went to a highly-rated state school (13+ / 0-)

      I couldn't tell you how much it cost because my Dad and Mom paid the whole cost.

      And that's the point - my Dad was a postal clerk and my Mom an administrative assistant in the office of a small factory, yet on those modest salaries they could afford to pay tuition, room, and board for me for four years, the last year of community college for my sister, and rewarded me upon graduation with a $5K new car (bare bones compact of the time - the major accessory was that it had FM [mono] on the radio).

      Now, I'm doing the same thing for my two sons. Our family income is well north of $100K and it's a stretch having two sons in college at the same time.  We're fortunate to be able to do it, though. I really feel for students who have to go so deeply into debt to get an education.

      •  Late 1960s (0+ / 0-)

        when I started, tuition was $162.50 a semester - not for some fly by night school, but for the University of Wisconsin - Madison.

        That's a little more than my gross pay for one 40 hour week at the time, or less than two weeks take home pay. That was straight out of high school, although it was a union job.

        Didn't the University of California system used to be free for residents?

        We choose to go to the Moon in this decade and do the other things, not because they are easy, but because they are hard. - John F Kennedy

        by badger on Mon Mar 21, 2011 at 07:30:46 PM PDT

        [ Parent ]

      •  You guys are good parents (1+ / 0-)
        Recommended by:
        tmo

        I know some parents whose attitude is "When my kids turn 18, that's their problem, they're on their own", which is really tough in an economic system that not only makes college unaffordable for most families, but isn't creating enough opportunities for people fresh out of school with degrees.

        "Sisters, brothers and the whities, Blacks and the crackers, Police and their backers, They're all political actors"--Curtis Mayfield

        by Cynic in seattle on Mon Mar 21, 2011 at 08:21:14 PM PDT

        [ Parent ]

        •  That's horrific in this day and age (0+ / 0-)

          That's exactly why societies like India and China are going to eat our lunch if we don't turn that attitude around. They help their kids out way into adulthood.

          Thinking that 18-year-olds are on their own is horrific when college is this expensive. Geez, if people hate their kids that much, I wonder why they had them in the first place.

          The goal is not to bring your adversaries to their knees but to their senses. -- Mahatma Gandhi

          by tmo on Mon Mar 21, 2011 at 08:51:33 PM PDT

          [ Parent ]

    •  MBAs are usually more expensive. That said, (0+ / 0-)

      47k/year is Harvard or Stanford price. State school, even a good one, shouldn't be more than 25k/year.

    •  1988, UC Berkeley, $1600/yr undergrad tuition (0+ / 0-)

      Now granted that was just tuition, not books or room and board or supplies or any of that other crap. But looking back it was so cheap I can hardly believe it was in this lifetime. By the time I left in 1994 it had more than doubled to $4000/yr for tuition, but still an incredible bargain. My parents had set aside about $30K or so, which turned out to be enough money to get me through junior year; at that point I'd been working part-time for years paying my own room and board and was making enough money to pay my own tuition for the senior year. I get so sad when I hear how expensive it is now. I can't help feel that I (and millions of other Californians) were given an incredible educational gift that's been withdrawn for the present kids.

      The goal is not to bring your adversaries to their knees but to their senses. -- Mahatma Gandhi

      by tmo on Mon Mar 21, 2011 at 08:49:06 PM PDT

      [ Parent ]

  •  There are other reasons too though (9+ / 0-)

    I agree that the incentives vis. the student loan system are aligned in the wrong direction, but the problem of the cost of college is much deeper, IMO:

    1) Decline of state support of public Us
    2) Administrator salaries are out of control
    but the biggest reason is:
    3) They are charging what the market can bear.  We as a society have gotten rid of all of the 'good' jobs that used to not require an advanced degree, all of those manufacturing, construction, and service sector jobs that paid decently and had benefits.  So now the only hope of a middle class life is college and most likely a degree or two beyond that.  So people will pay a huge premium for the chance at competing for the diminishing pool of good jobs.

    •  College athletics costs have soared. (2+ / 0-)
      Recommended by:
      akeitz, RLF

      Not to mention colleges and universities do what they didn't do in the 1960s... state of the art funding for programs that really aren't historically part of university education.

      The proliferation of arts programs that require heavy technology certainly didn't help either.

      You're choosing to pick on the obvious bads, but there are plenty of extremely significant costs that are politically, fucking ugly to address.

    •  Having sat on budget and planning committees (3+ / 0-)
      Recommended by:
      fizziks, RLF, MrJersey

      I can agree with all of these, but don't forget to factor in a couple of huge infrastructure costs.  

      Anyone who went to college in the 70s and 80s wouldn't believe the student life amentities--glamorous dorm rooms,  with cable TV and wifi, fitness centers. Most of these qualities of student life are priced separately from tuition.  The wifi is part of an IT infrastructure that has driven academic budgets sky high and would have done it even without the upgraded dorm spaces and fitness centers.  And the IT costs are showing no sign of leveling off.  Bigger and faster servers and the personnel to maintain them are demanding more and more funds.  

      The costs of the technology boom are concentrated in institutions that must have cutting edge technology or run the risk of being perceived as not up to date.  

    •  Yes, but I think it is a (0+ / 0-)

      bubble, even given the diminishing pool of good jobs...the fact is, a degree doesn't really get you very much any more if it's in certain fields, and there are plenty of grads with a mountain of debt working low paying/no benefits service jobs.  That can't go on long.

      There will probably be some point soon where most of the colleges will have drastic reductions in enrollment and close, and only the amount of colleges needed to serve the rich will remain.

  •  What oversight responsibility lies in the DoE? (0+ / 0-)

    Aren't there 2 overlapping but still very different issues here?
    1. why is the price of college so high and increasing so much higher than inflation (screams for cost controls and Board oversight)
    2. why is the cost of student loans so high (screams for consumer protections)

    The Obama admin is frequently credited with reducing the cost of student loans and ending predatory loan practices to go into effect in 2014.

    Tucked inside the Health Care and Education Reconciliation Act...are provisions that will change the way students can pay for higher education.
    ...
    The legislation makes substantial changes in the way students get money for college, but those provisions might not necessarily be tangible for students in the immediate future.

    That’s because the biggest change is in who administers student loans. Instead of private banks issuing loans guaranteed by the government, the government will now become the originator of the loan.

    “That’s very important for students, but it isn’t going to be very visible for them,” says Sandy Baum, an independent policy analyst for the College Board, a New York-based nonprofit that tracks and promotes college attendance.

    The change will eliminate private banks as “middlemen” in the loan process and will save the US government about $68 billion dollars over 11 years, according to the White House.

    But for students, the loans will look largely the same – same terms, same fees, same interest rates.

    Thoughts?
    •  i thought it was also going to (1+ / 0-)
      Recommended by:
      kck

      limit what graduates have to pay on their loans to a certain percentage of the adjusted gross income each year...that is a very good piece of legislation, but I have less confidence that it will ever really go into effect since the 2010 elections.  Obama probably has about a 50/50 chance of holding the WH, and with repubs taking the senate, we could see a lot of that stuff overturned before it even starts.

      The hcr bill has powerful interests protecting it (pharma, hospitals, ama, med device manufacturers, insurance industry), but the student loan reform has pretty much NO established players who want it to happen.  Even the colleges/universities don't like it much because they like their "established relationships" with the banks they use.

  •  Very important topic. Thanks. (1+ / 0-)
    Recommended by:
    Nulwee

    Deserves more coverage here generally and with more details on the problem and metrics. Name names.

  •  The problem is the lavck of jobs and low wages (0+ / 0-)

    With each graduating class, it seems that the value of a degree becomes less. I think there would be far less flak if people had work and were paid the wages that allow them to live a descent life.

    Listening to Bill gates and others, more math and science degrees are whats needed. Of course this also means that should people take heed of this advice, the salaries of degree holder are going to decline.

    Still the message is the same. Get that degree!

    It's good for the nation and the student alike to chase the hot degree(s) of the time. Sadly, no degree seems to remains hot.

    "Most people would sooner die than think; in fact, they do so." ...Bertrand Russell

    by sebastianguy99 on Mon Mar 21, 2011 at 06:33:46 PM PDT

  •  But they ARE cracking the whip on schools (0+ / 0-)

    Didn't the Obama administration announce they were no longer providing student loans to those for-profit trade schools that put out false jobs promises?

  •  Loans play some role but not a huge one. (0+ / 0-)

    State support for colleges is dropping and costs are climbing. Colleges are non-profit (most of them at least) so a lot of increase in costs is due to tech upgrades etc. Faculty and stuff salaries have not been increasing much and in fact were cut in the last few years.
    It could be that loans allow some people to 'buy more college than they should'. Predatory interest rates you're referring to are certainly a problem though.

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