Ripping off America - the college loan scandal

Parents Forum
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<p>[Matt</a> Taibbi: U.S. Student Loan Bubble Saddles a Generation With Debt and Threatens the Economy | Democracy Now!](<a href=“http://www.democracynow.org/2013/8/20/matt_taibbi_us_student_loan_bubble]Matt”>Matt Taibbi: U.S. Student Loan Bubble Saddles a Generation With Debt and Threatens the Economy | Democracy Now!)</p>

<p>THIS THIS THIS.</p>

<p>Matt Taibbi absolutely nails it. This is the entire reason, and exactly the reason, that tuition is so high.</p>

<p>REQUIRED READING.</p>

<p>This is the first major news outlet article on the topic that actually gets it completely right, to my knowledge.</p>

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<p>Simple Econ 101: Increase demand, and prices will go up. Increase demand a lot, and prices will go up a lot. Student loans helps to artificially increase demand.</p>

<p>Same analysis for health care. When the consumer is insensitive to cost (paid by 3rd party), demand will go up. Increase demand, and prices will go up. If government controls prices, then there will be a gap between supply and demand (rationing).</p>

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<p>Uhh, no.</p>

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<p>There are plenty of disagreements over these numbers, particularly how they are calculated. </p>

<p>[No</a>, the federal government does not profit off student loans (in some years ? see update)](<a href=“http://www.washingtonpost.com/blogs/wonkblog/wp/2013/05/20/no-the-federal-government-does-not-profit-off-student-loans/]No”>http://www.washingtonpost.com/blogs/wonkblog/wp/2013/05/20/no-the-federal-government-does-not-profit-off-student-loans/)</p>

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<p>I am concerned about the system-wide effects for the economy, but I have a little trouble feeling sympathy for individual borrowers who made the voluntary choice to borrow whatever money they have borrowed. And you cannot convince me that the tuition at most public institutions is so high that students must borrow massive amounts of money just to get a college degree.</p>

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<p>OP, This is not new. The very reason colleges can raise their tuitions and pay great salaries with perks, apartments and homes for professors is because the government gives money to students and parents with little credit check and no means to pay it back.
The colleges are getting their money and government has to worry about collecting from families.</p>

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<p>OP:</p>

<p>you raised this issue last month. What are your thoughts?</p>

<p><a href=“http://talk.collegeconfidential.com/parents-forum/1545668-real-reason-college-costs-so-much.html#post16314361[/url]”>http://talk.collegeconfidential.com/parents-forum/1545668-real-reason-college-costs-so-much.html#post16314361&lt;/a&gt;&lt;/p&gt;

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<p>I echo what everyone else has said, when the government guarantees ANY industry customers, the business’s in said industry can and WILL raise prices. This is the exact same reason that guaranteeing customers to insurance companies with ACA will raise prices for MOST people.</p>

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<p>As much as I think that repayment programs like IBR and PAYE are good ideas for CURRENT lenders, I also dislike them because I think they provide bad incentives. I’m a graduate student and have been on several graduate student boards where people are like “Well, I’m not worried about taking out $120,000 in loans for this MSW program after which I’ll only make $50,000 a year if I’m lucky, because I’ll just do IBR for ten years and then have the rest of my loans forgiven.” It’s creating a culture of students who deliberately borrow more than they can afford!</p>

<p>Part of the blame rests on making the federal monies too accessible, of course, which also drives tuition up. But part of the blame rests on the American public who borrowed. Simple mathematics and economics education tells you that you shouldn’t borrow $200,000 when you only expect to make $50,000. There are plenty of loan calculators out there that will tell you the same thing.</p>

<p>I will say in response to milkandsugar, though, that the vast majority of professors don’t have any significant perks - especially not apartments and homes - given to them or even subsidized. My urban university is in the most expensive real estate market in the country and the professors here do get subsidized housing, but they’re an anomaly. The average salary for an assistant professor is about $58,000, and for associate professors about $70,000, and most of them just get normal benefits (healthcare, retirement savings) plus maybe an equipment allowance and a small research fund (which is required to do their jobs). The only extra benefit that SOME professors get over other workers is free or reduced tuition at their university for their children, but that’s like getting an employee discount if you work for a retailer.</p>

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<p>Let me fix that for you:</p>

<p>Simple mathematics and economics education tells you that you shouldn’t LEND $200,000 when you only expect to the payor to earn $50,000. (Hint: Mr. President and Congress.)</p>

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<p>I guess that depends on how you define “major” and “news outlet”. Seriously, I doubt that anyone would define “Democracy Now” as a “major news outlet”. And, of course, whether it gets this “completely right” may be up for serious debate.</p>

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<p>The true facts are most students probably don’t even know what IBR is. What they do know is that Universities have raised their price of admission far more than justified by inflation and thus they have no choice but to take out loans to do what they are told to do, especially by many on CC, which is to attend the best schools possible.</p>

<p>And if you research it, you will find many schools touting IBR to their students as a way of telling them NOT TO WORRY ABOUT THEIR LOANS. In fact, this is a big part of the Law School Scam these days. Law School students are incurring hundreds of thousands in debt to go to law school when there are no jobs in the law for 50% of them and for most of the others, incomes way less than the amount of their loans. Students are starting to get it and Law school applications are down, so many of these schools are now promoting IBR as a way to convince their students that their loans are irrelevant.</p>

<p>In a way they are right. If your loan is capped at say 10% of your income that exceeds 150% of the poverty line, then whether you borrowed half a million or 100K, your loan payment will be the same for kids earning the same incomes. So the amount of the loan does not matter . . so say the law schools.</p>

<p>Still they ignore the tax implications of eventual forgiveness and the drag on the economy and creditworthiness of these kids who have these huge loans.</p>

<p>The point is that students are being targeted by the Schools and scammed into taking these huge loans. So blame those who deserve being blamed. Who is more sophisticated about these matters, those institutions who have raised their tuition levels beyond all reason, or the student barely old enough to vote?</p>

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Haha! I was thinking of NYU, MY D alma mater. Of which, those students are strapped with one of the highest debts.</p>

<p>The American public of which you refer to shouldn’t borrow if they can’t afford is true, but that is being idealistic. Reality is, the money is toted as being available to them and that they should take advantage of the loans. The average family may not be sophisticated enough to really understand the financial implications. High Schools should do a better job of educating families about tuitions, the reality of affording a college education and resources available to them to help responsibly finance an education, and that should start when the children are in the early years.</p>

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<p>Yes. High schools should do a better job. </p>

<p>But allegedly non profit organizations should not be paying administrations so highly that they need to overcharge the students. </p>

<p>There is a new trend moving away from offering aid to impoverished students, even at state schools. It’s sad we have not provided the educational opportunities to the next generation that was provided to ours. </p>

<p>We are generation theft.</p>

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<p>This Rolling Stone article was posted here last month as I remember.</p>

<p>I think we should all stop the stampede to college for every kid. Rich, poor or in between. Some jobs should go back to having reasonable requirements that suit the work. Alternative paths should be honored by everyone. People should avoid debt, period, unless you can pay it back right after graduating. Everyone benefits from the current system except the students and families- and, eventually, the economy.</p>

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<p>So why is tuition going up so fast? Availability of credit for loans has been cited. I suspect exploding health care costs over the decades is a factor. Research? What percent of research funds come through grants and what percent through tuition? </p>

<p>One other factor is our expectations. People expect quality schools to be expensive. A NYT article
“In Twist on Tuition Game, Popularity Rises With Price”- Dec 12, 2006…, revealed that many boards of trustees at colleges raised tuition in order to increase the competetiveness of the college. The article documented several examples where, when tuition was increased for no other reason than to match other schools’ increasing rates, applications went up! It’s as if as consumers we think a school can’t be good or may have less prestige if they are charging less than other schools in its class. This is an old article, but I do think this factor is still in play. We are our own problem.</p>

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<p>Bluebayou: of course there are numbers disputing that the government is making money off of defaults.</p>

<p>Someone is lying. I’ll bet the farm it’s the ones saying they aren’t making money. I know too much about what happens with a defaulted loan to buy the story that it’s those horrible deadbeat students awash with money but who won’t pay anyway, dragging all of us down as the government is sucked dry. (the fingerwagging story that you so often get when broaching this subject. sigh.)</p>

<p>Also ~ by major news media I actually meant the Rolling Stone interview with Taibbi. He was on Bill Maher this week though, and this story is getting rebroadcast and boosted. Finally. </p>

<p>This unlimited credit to anyone, for anything even if it’s not worth the cost, is the problem. It IS the problem. Although there are always people who just get so furious at the idea anyone might get something for “free” that they themselves didn’t get (ie people who supposedly go to school taking loans on purpose, knowingly and intentionally planning to discharge them in bankrupcty later - which, is a big urban myth, as the actual numbers of people who ever did that was statistically insignficant and the big stories about it that precipitated the law changes were found to be in error) ~ the problem is that this formula, a big part of which is the inability to discharge these loans in bankrupcty, is breaking the system for EVERYONE.</p>

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<p>Stillwater - read the Rolling Stone article. It tells you quite clearly why college prices are going up. Actually read the article.</p>

<p>"Because the underlying cause of all that later-life distress and heartache – the reason they carry such crushing, life-alteringly huge college debt – is that our university-tuition system really is exploitative and unfair, designed primarily to benefit two major actors.</p>

<p>First in line are the colleges and universities, and the contractors who build their extravagant athletic complexes, hotel-like dormitories and God knows what other campus embellishments. For these little regional economic empires, the federal student-loan system is essentially a massive and ongoing government subsidy, once funded mostly by emotionally vulnerable parents, but now increasingly paid for in the form of federally backed loans to a political constituency – low- and middle-income students – that has virtually no lobby in Washington.</p>

<p>Next up is the government itself. While it’s not commonly discussed on the Hill, the government actually stands to make an enormous profit on the president’s new federal student-loan system, an estimated $184 billion over 10 years, a boondoggle paid for by hyperinflated tuition costs and fueled by a government-sponsored predatory-lending program that makes even the most ruthless private credit-card company seem like a “Save the Panda” charity. Why is this happening? The answer lies in a sociopathic marriage of private-sector greed and government force that will make you shake your head in wonder at the way modern America sucks blood out of its young."</p>

<p>Read more: [The</a> College-Loan Scandal: Matt Taibbi on the Ripping Off of Young America | Politics News | Rolling Stone](<a href=“The College-Loan Scandal: Matt Taibbi on the Ripping Off of Young America – Rolling Stone”>The College-Loan Scandal: Matt Taibbi on the Ripping Off of Young America – Rolling Stone)
Follow us: @rollingstone on Twitter | RollingStone on Facebook</p>

<p>For those of you who have no experience with this thing, if you lose (or can’t get) a job and miss payments on your loan, this is a whole nother world than not paying a credit card, a house payment, or a car payment. If you haven’t been through it or know someone who is going through it, you cannot imagine the usurious and oppressive ramifications, which it cannot be doubted are designed to prevent someone from ever actually being able to pay them back. You realize that all the consumer protections from unfair debt collection that apply to every other debt, even gambling losses, don’t apply to these? So there is NO incentive for anyone, neither the government nor the scummy, bottom of the bottom feeder collections agencies they use, to work anything out with a defaulter? They will simply take any future income from them without having to go to court to do it. The collections powers they have are horrifying and eighteen year old kids DO NOT understand this. And why would they? NOBODY tells anyone this stuff when they go in to sign on the paper.</p>

<p>This sanctimonious attitude that somehow kids should know better and too damn bad, is exactly what the ones benefitting from all this are hoping everyone will have, so that instead of changing this system that is hurting EVERYONE because of the unchecked inflation, we just squabble amongst ourselves and blame each other. </p>

<p>These costs did not start this insane spiral until after the legislations about loans, specifically the ones taking away <em>standard</em> consumer protections from student loans, were enacted.</p>

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<p>I know that when we were touring schools for my daughter, and we went to at least a dozen in person, every damn one of them was building as fast as they can. Exactly like the article says. LUXURY dorms, far nicer than anything I bet any of us lived in the first ten years out of the home. State of the art fitness centers. Stephen F Austin, in Nacogdoches, (a public school) built a multi acre WATER PARK folks. Not a pool. A water park with a lazy river. ***? They are all doing this, exactly as the article describes. No, it’ isn’t health care making college costs go up at triple inflation. That is stupid, frankly, because college isn’t operating in it’s own private economy realities (other than the special ones created for it by congress which is the point of my discussion) Every other entity has the same healthcare costs so that cannot be what is making college costs uniquely MORE inflated than everyone else. Nor are any of the other costs that every other business has too, such as computers, etc. I’ve heard these suggested and they are pretty weak arguments. There has to be a unique combination of factors to create a bubble in just one industry, that is not affecting the rest. From what I’ve seen, this screwed up credit which combines the worst aspects of free market with the worst aspects of socialization (rather than the best) and the resulting unchecked spending spree, divorced from any real market consequences, is what it is. As I said - this article (The Rolling Stone one and the offshoots) gets it more thoroughly than any other I’ve seen. Most of them completely skip absolutely essential information.</p>

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<p>Sorry Snap,
When an article starts out describing the President covered in slime and ooze it is clear that anything that follows is not meant for reasonable people. Even if you disagree with the president, if your hope is to persuade reasonable thinking adults, you need to be able to stick to the facts not spout hateful venom from the get-go. I cannot trust anything after that first paragraph so I won’t read it. You summarized the arguments, and I am willing to have a civil dialogue about these contentions, although are many in the cc world with more expertise to address Taibbi’s claims than I. I hope they post.</p>

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<p>Do you know what “the demand” is, for those fancy dorms with perks, and how the sports complexes and new academic buildings are funded?</p>

<p>And, have you imagined what happens if there are no loans?</p>

<p>Families shouldn’t shift the responsibility for financial education to high schools. They should open their eyes and be willing to think rationally. There is no magic. Pointing fingers? They should also be pointed at consumers, who assume. We should all take some personal responsibility for these decisions.</p>