Who's Profiting from $1.2T of Federal Student Loans?
bloomberg.com
bloomberg.com
Common to end up with 200K+ debt. It's a real mess.
This is all hidden on the front end by school marketing and the age old idea that law school is the ticket to the upper middle class (used to be, isn't now).
There are great tools now to see how a school performs, but they've only been around a couple years. A lot of graduates who enrolled about 4-5 years ago found out they're more or less unemployable as lawyers, and it's not even worth taking the bar.
And most attorneys, despite paying over $90k just in tuition for private law schools (which make up the majority of law schools), don't even make a six-figure salary. Sure, if you graduate from a top-tier university or in the top 10% of your class at a second-tier university, you might get a job at a Big Firm making $165k/year in exchange for 100-hour work weeks, but the rest of us don't even cross the 6-figure mark. The salary curve looks like a rollercoaster elevation with a big bump on the left and a little bump on the right. A camel's back, if you will.
Florida Coastal, BTW, isn't even on the map in terms of law school ratings. It might as well be the University of Phoenix. If the subject in this story is going to make it, she's basically going to have to run her own practice and hustle for clients -- that is, if they even educated her well enough to pass the state Bar. And that's rather difficult to do if you're ill and possibly taking care of children.
In short: I returned to my technology career after an expensive sabbatical in law school. I am still mired in debt almost 9 years later, but I probably earn more now than at least half my graduating class does today. I cannot declare bankruptcy and rid myself of student loans like I would have been able to 20 years ago (which, BTW, helped keep tuition in check and abusive loans relatively rare). But at least I'm lucky enough to be able to pay them off.
Part of the point of using debt to fund education is to improve economic efficiency - ideally courses that students can't follow through to profitable conclusion wouldn't be taken. However, young people aren't necessarily sufficiently rational actors, and impairing young people's lives with debt they can't repay is probably not in the greater social interest.
Having a student loan with 'real' interest seems to be a policy drawn from looking at the investment->return (financial and otherwise) of a university education from the perspective of each individual (you want the gains, you shoulder the pain), rather than from the perspective of the society at large (all boats are eventually raised, therefore it's advantageous to invest our common resources in this).
My impression is that sadly, over the past 50 years in most western countries, this has been the trend for higher-education funding policy. I'm from the UK, and that is certainly the case there.
A side-effect of this focus on the purely personal financial investment aspect of higher education seems to be the newer Peter-Theil style attitude that in fact, university might not be as good an 'investment' as simply going out on one's own as an entrepreneur, once school is over. Whether this is right or wrong for any given individual is not an answerable question, but it seems very sad that this functional, financial aspect of things seems to be treated with more importance than the other benefits of a university education and experience, to the extent that it's now more and more being discussed as the primary (the only?) factor in the value equation of the whole endeavour.
I find this line of thinking sad both on the level of individual, and society as a whole. But I'm not saying it's a irrational way to begin thinking about it, given the way policy is going and given the way society is adapting its attitude towards the value of university education.
Education is sadly out of reach at these rates. I'm very curious to see what free learning and degrees online can do to change this. Khan academy, edx, udacity, coursera etc.
Traditional education is literally pricing itself out of the market.
The mechanisms are there. It's the cultural perception of alternative education that needs to change. It's the same thing going on with academic publishing. Everybody seems to agree there's a problem with the standard systems, but nobody is going to jump ship to the new system so long as the new is perceived as less prestigious (and this perception has a direct effect on your career).
On the other hand, we have this citation: "On average, our graduates earn $750,000 more in their lifetime than if they hadn’t received their law degree from Coastal Law."
I find it curious, how the article author decided to treat such a critical piece of information. Statistics gives a better view on a situation concerning millions of people than one emotional story. Yet, this citation is given without any analysis or proof. There's no attempt to understand, if this is true or not; instead, it's only present in the article as citation of a clearly interested party (the college administration), so that the reader who's already involved on one side of the debate, is ready to disregard it as excuses and advertisement.
May be it is excuses and advertisement indeed. But the article doesn't stop to think about it. The most important question you could ask yourself: is it worth it, for median student, to spend all this money? — is not addressed. What is it, if not bad journalism?
But why didn't journalist investigate this further? That's what I find most disturbing about the article.
The problem right now is that all of the liability sits on the student, and the loan company actually stands to make more money off "bad" loans than "good" ones because of interest and deferred payments. The incentives for the loan companies are totally backwards.
The perspective from an eastern european friend of mine: "everything in the US is a business, and every business has a thousand middlemen making money". Education should be a service provided by the government of the people, so that accountability is the responsibility of the people.
But that doesn't mean it is a good deal. The cost of Knowledge is trending to zero because of the Internet. So why is the cost of Education skyrocketing out of control? There is a growing disconnect between the actual expenses of education, and the shady accounting practices used to justify the exorbitant prices. I'm a graduate student paid below minimum wage to grade papers and carry out research, and yet the University rewards itself with huge sums of grant money from taxpayers to "educate me".
> Correction: I used to grade papers, now I just do research.
Because the purpose of higher education is not (just) knowledge transfer. Colleges that are expensive and worth it consist of a a great deal more than doing the readings and sitting in the lectures.
It's still an amazingly great solution for students to do 2 years at Community College and then 2 years at a State College, especially at prestigious state colleges like Washington and Michigan. But it takes a thick skin and a lot of initiative to overcome cultural biases and pressures.
1. https://qzprod.files.wordpress.com/2013/07/college-cost-infl...
And this is where people start to see the clothes on the emperor for what they are.
Creating the credit consumes zero resources. The state/banks don't care if you don't pay it back. If you can pay it back they get a share of your labour.
http://bankunderground.co.uk/2015/06/30/banks-are-not-interm...
> I mean, where's that money going?
* Professor salary
* Related support salary (secretaries, IT, administration)
* Physical plant, upkeep, support salary for those
* Advertising, student support (health, scholarships, extracurriculars)
But if you think about a student body of 5,000 paying $50,000 a year (for a total of $250 million_yr), then it starts to seem more exorbitant, even after paying for salaries and buildings...
Why is it that education has been able to steadily increase their costs 7-8% per year forever? I get it when people say that the loans enable this - but my question is, like yours, "where is the money going?"
I'd love to see a reporter do a complete audit of 10-20 educational institutions over a period of, say 5 years, to understand what the money is covering.
You used to be able to make great progress against a problem with a pen, paper, and a good mind. Now, to do anything notable, you'll need an observatory, a particle collider, a supercomputer, a top-tier bio lab, a chemical synthesis plant, etc.
Also, good pamphlet material like beautiful dorms costs a lot, but I find this argument to be weak considering most of the really expensive schools don't have very amazing-looking facilities.
The biggest problem with particle colliders is not the experiments themselves but paying researchers money to slough through the data.
Also why are people asking "where does the money go". Are you suggesting that there is one-to-one between money creation and expended effort / energy? It's fiat money. There is no such link.
It amazes me on this page the number of people who are wrestling with various ideas whilst labouring under the axiom that money creation mirrors expended effort. That's exactly how you don't get rich. Here's a recipe for getting rich:
1. get a privileged position of money creation
2. get the state to underwrite your losses
3. issue as much of it as you can
4. do not spend money on doing actual shit if you can help it
At first, I think there is not point on going to college if companies/market are not willing to hire/demanding the skills you want to improve. Also, companies co-op with colleges by promoting higher salaries for certain college degree ... which the end up not paying anyways. Hence, there is no point on going to college. If you don't go, you won't have a loan to pay and colleges will be short on students. The education cost will have to come down in such situation if colleges want to survive.
Of course, that was before we were far into (sarcasm) The Golden Age of Reaganism - schools were more funded by tax money than loans, so the budgeting wasn't left up to the credit whims of 18 year olds. Tuition/fees went up quite a bit by '88, though still nothing like what we are paying for my daughter now.
The companies making those calls are just one part of an ecosystem feeding on federal student loans. There are also debt servicers, refinance lenders, firms that help former students stay out of default and for-profit schools that make money as borrowers try to repay more than $1.2 trillion in government-backed education debt."
It's literally the first and second paragraph of the article.
Then over the lifetime of the ex-student they pay back this "money" plus interest which destroys the principal and consumes existing "money".
It should be noted that the creation of the debt benefits "growth" in the present electoral cycle whilst the repayment occurs mostly in other electoral cycles.
http://biz.yahoo.com/e/151022/apol10-k.html
Which still fits in under cashing in, but there must be more to the story than for profits.
Twenty phone calls per day is absolutely insane, and should not be legal. For that matter, is it legal? If enough of these are coming from the same party or from closely related parties, then it's crossed the line into harrassment.
> The Act prohibits certain types of "abusive and deceptive" conduct when attempting to collect debts, including the following:
> Failure to cease communication upon request: communicating with consumers in any way (other than litigation) after receiving written notice that said consumer wishes no further communication or refuses to pay the alleged debt, with certain exceptions, including advising that collection efforts are being terminated or that the collector intends to file a lawsuit or pursue other remedies where permitted.
A collections agency that continues to contact you after you demand they cease contact starts to owe you money very quickly.
How do you collect that money? Do you have to hire an agency?
Because even if you don't think it's "likely," I can think of plenty of cases where student loan data makes "sense" or is "logical," and you've provided no evidence (of which there is usually at least online anecdotal evidence, see: Dotcom Crash, Bitcoin) that people are making these loans solely to flip them. If you try to argue that the Loan-to-Originate model leads to this behavior, you may have to reconcile a lot of things in this paper: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2700179
http://trends.collegeboard.org/college-pricing/figures-table...
Sofia is one of 7 million former students in default on a record $115 billion of federal loans
Education Management settled with the government in November for almost $100 million over alleged illegal student-recruitment practices without admitting wrongdoing.
Predatory lending. Sound familiar?
FMS Investment Corp., a unit of Ceannate Corp. that tried to collect from Sofia, was paid $227 million by the Education Department from October 2011 through September of this year, the most of any debt-collection company under contract in that period, according to the agency.
The biggest debt collector works for the Department of Education.
The government has disbursed about $100 billion in education loans annually since the 2009-2010 school year, according to data compiled by the College Board. Just six years before that, the amount was almost half. The total has doubled since 2007 and is expected to double again in the next decade, as students and their parents borrow for college and graduate school.
Despite the fact that defaults are on the rise, predatory lending is on the rise, lots of students who are unable to complete an education are taking out loans[1], AND a lot of people getting their degree aren't sure it's worth it[2], despite all of this, lending is going to double again.
Bubbles aren't always clear, but this one is as clear as it gets.
The only question is, who is the government going to bail out when the bubble bursts?
[1]http://fivethirtyeight.com/features/half-of-people-who-went-... [2]http://www.gallup.com/opinion/gallup/185942/gallup-purdue-in...
I'm not sure what your point is about the largest debt collector having contracts with the DOE. Of course they do, that's almost a definitional thing. Pretty much the largest of anything has some kind of government contract.
Defaults are on the rise from a low base, and the securitized portfolios of these loans haven't really taken much of a hit, so it doesn't "sound familiar" because I don't see the same balance sheet risk as 2008 subprime, even though there are undoubtedly subprime elements to this. (For the sake of clarity, I'm referring to the subprime credit ratings and category, not the 2008 era).
I guess what I'm asking is, from what base is all this happening? Predatory lending is on the rise... from .5% of loans to 1%? 1% to 5%? 5% to 10%? Same with the others.
I guess what I'm trying to get out of this thread, is:
1. What novel insight is being presented here that invalidates huge amounts of sophisticated due diligence by incentivized, professional firms?
2. If none, what channel or mechanism is perpetuating something that everybody knows is a bad deal?
3. If everybody knows it's a bad deal, but there is something simply keeping it prodding along, this would not pass even the first level of risk management at these institutions, which really stresses the idea of #2.
This. As I said in another reply to my OP, the government is backing these loans, which makes everyone think they're golden - and that might be true. Perhaps the government will allow the bubble to inflate forever, but the government stepped in in 2008, and there were still plenty of short opportunities available.
But it's unquestionably a bubble if hundreds of billions of dollars (and rising) of loans are being made to people to buy something that A) has no collateral (making it worse than the subprime crisis) and B) the value of the service they're purchasing is, by all perceptions, dropping over time.
Available credit sets the price. Ramp it up and watch the tribute flow in.
With the figure of student loans held by the Federal government going up exponentially as of 2008 [3] (and with tuitions soaring by 6% a year) the chart certainly looks "bubbly".
Investor Bill Ackman believes there will likely be some form of forgiveness as there is "no way students are going to pay it back":
When asked if he was concerned about bubbles forming in debt markets as central banks around the world continue to keep interest rates near zero, Ackman cited student loans as his biggest concern.
“If you think about the trillion dollars of student loans we have outstanding, there’s no way students are going to pay it back,” Ackman said. He foresees a future where debt-laden students protest government officials, leading to some form of forgiveness. [4]
[1] http://www.wsj.com/articles/about-7-million-americans-havent...
[2] https://www.stlouisfed.org/on-the-economy/2015/april/delinqu...
[3] http://www.bloombergview.com/articles/2015-04-17/washington-...
[4] http://www.forbes.com/sites/antoinegara/2015/04/13/bill-ackm...
A repayment boycott would ruin a lot of credit scores, but bring the problem into focus... consider that a huge proportion of people are already in default.
Yes it's a sham, yes there is a huge opportunity cost but that's because our current system is mad.
https://www.google.com/finance?q=NASDAQ%3AAPOL&fstype=ii&ei=... (lost half of it's revenues in just 2 years)
https://www.google.com/finance?q=NYSE%3ADV&fstype=ii&ei=9Llt... (stagnate, revenues declining)
That said, it's possible we end up with a timing problem. What happens if Medicare, Social Security, and the Department of Education all become insolvent at the same time?
The political pressure will almost certainly leave the DOE out in the cold, meaning those loans might not be guaranteed.
One is taking classes at the community college, but the classes are apparently very poor quality and still around $3500 a semester (her annual income is ~$9000 / year). I told her to take Computer Science classes, but is that even good advice, anymore?
If you are looking for the equivalent of reputable liberal-arts degree (the closest you can get to a "liberal sciences" or engineering degree), you need to find the most advanced gen ed classes and skip over the remedial/basics... and then after 2-3 years transfer to another college for your BA/BS; hopefully with an academic scholarship backed by your poverty and stellar grades so far.
A lot of this is getting driven by for-profit schools. The loan burden at for-profit colleges tends to be higher than non-profit colleges. Their share of DoE loans is about 25%. The default rate of for-profit students is three times that of non-profit students. Tuition for an associate degree program at a for-profit school will run you about $35,000/year versus $8,000/year at a non-profit school.
On top of this, they tend to mislead students about employment prospects. You might argue that we shouldn't behave paternalistically, but keep in mind that the Dept. of Education is party here. The feds have a strong interest in not supporting bad debt.
Is there still a loan problem at public schools and expensive non-profit schools like GWU? Why?
What's happening is pretty obvious. People are told they need a degree to get a decent job with many companies even including that in job listings. Colleges and high schools show charts about how much extra people with degrees make. Then, people get degrees with student loans from colleges that often don't care about job placement or coaching on the major. Then, they get out into real world to find businesses all lied, don't care about them, expect more than the degree, and try to underpay them. Result is all kinds of people that can't pay their student loan bills.
Looks like a giant scam benefiting politicians, colleges, and student loan industry to me. Taxpayers and graduates are left with the burdens without rewards. A chunk of them make it, though, so it's not all losses.
There are some holes in this story, but I still think the general point is there. For one, if you want to get a law or medical degree, you really need to be driven! otherwise don't do it!! Debt it terrible and can really ruin your life.
Same thing with healthcare.
In mortgages, student loans, and healthcare, the government is already heavily involved on all aspects of the transaction. They might be providing insurance for a mortgage via FHA, student loan guarantees for a federal loan, or paying via Medicare. Private servicers/insurance are, in these cases, usually an unnecessary middleman that exists mainly to make a profit. In much of the rest of the developed world, the government acts as a single-payer for education and healthcare, and is more involved in housing than in the US.
Having the government take over supermarkets would be less efficient - it'd be adding complexity to the system, not reducing it.
Plus, I can only imagine what would happen to the GOP/austerity/small government types if you started suggesting they move all those (necessary) function in house. Oh man that would be a fun debate to watch.
One is surge capacity for occasional needs. While the federal government is paying for some road building somewhere all the time, they might not want to hire permanent civil servants in a particular place for a project that's only going to last a few years. There's some sense to that.
Another category is where the government is buying goods or services off the shelf that lots of other entities buy too. That's your fuel example. Here again, there's sense to not duplicating effort.
But the last category is where the government is the only buyer and it's a permanent need. And that's where I don't see any sense to it.
Just to be clear on my point, it's not very hard to go and buy a portfolio of student loans for yourself (assuming you'd want them...)
As for the road example, road building is an inherently local activity. If the federal government hired someone to hold a flag in Topeka it's be pretty unreasonable to expect him to start holding a flag in Phoenix next. So in that sense the need is temporary. But loan servicing can be done anywhere. My servicer is in NH for example. So the government could hire a bunch of people anywhere and bring it in house.