Students refuse to pay back loans to failed for-profit college
newyorker.com
newyorker.com
A relative of mine works there and said they were about to be sued by the Department of Education over fraud in their student loan department. The settlement forced the company to sell or close all of it's colleges and no senior management or administrative staff is allowed to stay with any of the colleges.
It seems pretty clear that Corinthian did some bad things, and it's likely the clause the article mentions in federal loans might give _some_ students an way out of debt:
“In some cases, you may assert, as a defense against collection of your loan, that the school did something wrong or failed to do something that it should have done.”
IANAL, but I think it's pretty unlikely the government would let all of the students off the hook. (For a billion dollars!)
Eh, it's not "real" money. Students will have debts forgiven when it's politically expedient to do so.
Why not? It was real to the tax payers who paid it to the government and real to the Corinthian employees who were paid by the school and it will be real to the students as they struggle to pay it back over many years.
Think about it. We exchange dollars, euros, bits, whatever all day long. Do you ever stop to think, "Why does this hold any value to me?" Its because someone else will accept it in exchange for goods or services.
The Onion, as always, captures this perfectly: http://www.theonion.com/articles/us-economy-grinds-to-halt-a...
Now ask yourself: what do central banks hoard? Whatever they hoard must be, at the very least, a more "real" kind of money than the money they print. Do they hoard diamonds? No. Do they hoard platinum? No. Do they hoard fine art? No. Do they hoard expensive wine? No. What do they hoard? Gold. And why do they hoard gold while publicly stating it's a useless and worthless metal? "Tradition", according to Ben Bernanke.
So if you believe our rulers, you can sleep sound in knowing nothing is real money, and the worthless stuff central banks hoard, they're doing it just because it's tradition. All this work of moving this stuff around the globe in armored planes and escorted ships, it's all for tradition, you see.
In a nod to Accelerando (http://en.wikipedia.org/wiki/Accelerando), the only value store I could see being useful in the future is perhaps reputation.
Why do central banks hoard it?
Two questions, one answer.
(For some definitions of " real".)
Right now, the consequences of forgiving a billion dollars of student debt are immeasurable. It's a small amount to spread over so many people, and ultra easy/cheap borrowing by the federal government can delay the consequences for a long time.
Yes, I know that means the taxpayer footing the bill. The government was responsible for accrediting, regulating and auditing the colleges. The government, and collectively the people, are responsible for any failures in that duty and any individual citizens harmed as a result deserve compensation.
Note I'm not a US citizen, so my comments are meant in general.
Perfect! Housing bubble averted.
In all seriousness, this + an influx of foreign investment into american real estate + a future generational aversion to debt (from experiencing first or secondhand how crippling student loan debt can be) will make for some interesting times in the upcoming decades.
when it comes to school debt the Federal government would be best served by limiting what it loans based on the education desired, as they set limits on what they pay out for medical services there is little reason to not do the same for education. It might even help reign in the ever increasing costs that colleges charge which in itself a property of easy loans
I can't pull up that data right now, but I remember reading (on here, no less) that most of that auto debt could be attributed to non-millenials.
Credit card debt is an excellent point, though I'm not sure how meaningful per household is in this context (part of the article is pointing out that a decent portion of millenials aren't forming their own households).
Remember that the oldest millenials are still in their early-mid thirties.
> Federal government would be best served
Ah, but there's the rub - a decent amount of this debt is private.
You pretty much need a car to live in many places in this country, and in many more places you need a car to have a decent job. Most people can't afford to buy one outright, and in a case like that, it's sensible to take out a loan in order to purchase an asset that allows you to immediately start making money to pay it off. Taking out a loan for a low-end car so you can drive to work is pretty different from taking out $50,000 in loans for a degree that you hope will let you find better work years in the future.
Most people I know, and what I also do personally, is buy a used car for less than $10k, and pay it off within 3 years. Then you live with it until it no longer becomes economically viable to keep it.
So my wife and I own our cars at this point, which frees $400+ a month we can put towards something else with the understanding in 2-3 years we will need to budget for cars again.
The basic cycle is 3 years of car debt, 3 years without.
(I don't live in an area which has public transportation)
It always astonish me to think it can be seen as normal, even more equitable, to require people to get so huge debts before even being trained to work.
Apart from that I feel much more comfortable going to a doctor, knowing that she has gained that position by skill and not because her parents could afford it.
Does that still sound good to you?
This would allow all deserving students a high quality, free education while limiting the amount of waste and degree inflation that would result from a completely free university system.
The kind of people who advocate for fairness for the poor and minorities are more likely to advocate for moves back toward that system rather than away from it.
California used to have a multitier system of tuition-free higher-education (two tiers of tuition-free public university, both selective but one moreso than the other, plus the community college system) along with private universities, so it worked somewhat like that, but that eroded over time.
So in essence, it's a system that's geared towards keeping the rich educated and the poor uneducated, by using a slight Catch-22.
Of course YMMV, and it often does, Brazil is huge and there are exceptions, but what I've laid out is what most commonly happens.
In the past few years though, the Government has built programs whose goal is to increase the amount of poor people who get educated, either by subsidizing the cost with tax money in private universities (Gasp! Socialism! :P) or by affirmative action with a quota system in public universities.
This brings about worries of its own, such as "Will people who are granted access to well-ranked Universities based primarily on their low income be able to actually follow through with the course?", for example, but overall the situation is an improvement.
This holds for previous years as well.
[1] http://en.wikipedia.org/wiki/2013_United_States_federal_budg...
I think your interpretation was that I meant that the biggest percentage of the budget is spent on the military as compared to other government departments or military, which is not what I was trying to say.
http://en.wikipedia.org/wiki/Military_budget_of_the_United_S...
1. I waited until I was 24. This meant that my parents income did not affect my federal assistance so that I could get the maximum amount.
2. I went to a dirt cheap community college my first two years. It was so cheap that the federal grants covered my tuition, books, plus a little extra for living expenses.
3. I did really well at community college and was able to get a few scholarships at a bigger university.
4. In my state there is a block transfer program so that all of my credits at community college counted at the larger university.
5. I was able to live at home for the entire duration so I did not have to pay a huge sum for campus housing.
I was able to get a computer science degree from a state university with somewhere around $1000 in debt which I paid off entirely with my first paycheck.
I was only in $1000 in debt because I foolishly bought a $2400 gaming laptop.
> To meet the qualifying child test, your child must be younger than you and as of the end of the calendar year, either be younger than 19 years old or be a student and younger than 24 years old. There is no age limit on claiming your child as a dependent if the child meets the qualifying relative test.
http://www.irs.gov/Help-&-Resources/Tools-&-FAQs/FAQs-for-In...
Getting married has a similar effect, or at least it used to. You could get married, live with one or the other's well-off parents or otherwise be supported by them, but go to school for free or nearly so. Obviously, that's not for everyone :-)
While this might make financial sense at first, living in the dorms was one of (if not THE) best social experiences of my life, and in my opinion, worth the cost. I still have numerous friends and acquaintances I made via the dorms, going on 20 years later. In a few cases they have paid off socially and business-wise.
I would not recommend cutting out the singular "dorm experience" for the sake of saving a few bucks you can make back later anyway.
Wait till the law students and education students figure out that their schools intentionally overproduced about twice as many grads as the market can bear. And the PHD students and the ... well, basically every program in every school in the country except the ivy league CS programs.
Its either debt jubilee time or admit the "higher ed magically provides a great job" was all a scam. When it comes to deciding between saving face and saving a buck, usually we save a buck, so I almost guarantee the proposed strategy will fail. So culturally we will momentarily see the death of "higher ed at all costs" as a gateway to a great job and all that propaganda.
From what I have read student loan debt, despite it's size, doesn't threaten the rest of the economy in the same way that housing loans did. Hopefully that is the case.
Mass defaults (which you could argue we're already seeing at ~20%) would be terrible for lenders (private and public), and probably the schools involved, so there'd be an impact, but you wouldn't have the massive loss of aggregate wealth we saw impacting the middle class five to ten years ago.
For-profit colleges aren't typically known for their deep alumni networks or stellar name recognition, so either way, the degree is basically valued by the education you managed to obtain while you were there.
I dunno about that - it's probably just a lot more insidious and less panic-y.
Adults repaying student loans aren't spending that money on other things. If you're paying $300 a month to Sallie Mae, that's $300 you're not spending on:
1) Savings/retirement/etc
2) Goods and services
3) Capital investment
4) Etc.
Given the compounding nature of some of these things, and the fact that these payments constitute a higher % of your income early on (assuming steady career progression), it's a problem that may just slowly unravel as time goes on.
Don't forget we live in a service economy - adults not spending money on a diverse set of services (as opposed to say, just student loan services) will hurt us in the long run.
(if not you're totally getting screwed on interest rates)
The 5% choice is a bit debatable. I figured most people have some combination of loans at 6.8%, 5% and 3.4%.
Of course there's so much variation between schools that the average might not be too useful, but it seems like $300-$350 is a pretty reasonable figure.
Ehh, it's stimulating the higher education economy.
And even that's debatable depending on how that influx of money gets spent: Paying 100 extra student workers $10/hr isn't really stimulating the economy since most of that money's going right back to the college.
Plus, it's not smart to put all of your stimulus eggs in one market basket, ya know?
Most professors don't earn that much money[1], unfortunately.
> college employees, construction workers,
Why do you think it's going to them? For reference, the average salary of a construction worker hasn't changed that much in the past decade [2].
I posit that the majority of that money is going to higher education administrative costs, and so the "stimulus" is occurring entirely in higher education. Stimulus entirely in one class and market of employment worries me for the inevitable market correction (for what seems like an unsustainable path, i.e. the current state of higher education costs). It also comes at the expense of a diverse service economy: It would be extremely shortsighted to support living in a world where higher ed and student loan companies are the thriving sources of the economy.
[EDIT] I removed an argument about "trickle-down" because it felt forced.
1: http://www.salon.com/2014/09/21/professors_on_food_stamps_th... 2: http://money.usnews.com/careers/best-jobs/construction-worke...
However, the extra financial discipline has been very beneficial. We've learned to coupon a lot of stuff for next to nothing, redid our retirement savings, set up savings for the babies, and have put together a financial roadmap for the next few years. I'm sure having the kids had a lot to do with it, but cutting your net income in almost half makes you reconsider a lot of things.
Doing things this way will save over $150,000 in interest over the next 30 years. The government will gladly hand you a 30-year refinancing of your loans, with an attractive monthly rate, but the amount of interest that you end up paying is staggering. I know most people graduating aren't in the same position we were in to aggressively pay down the debt and those who can't are starting out life in a financial pit.
Seeing that type of amortization and interest on anything other than a house (and even then...) is pretty eye opening, especially when the amortization schedule has your name on it!
That being said, frugality is also not necessarily great for the economy =). It's obviously a fantastic idea for individuals, and you're much better off the way you are - on the whole though, we want people to be spending money on goods and services.
Sorta like how college is a great idea for the individual, but if everyone goes to college then value of those degrees goes down as a whole.
However, even if someone saves, (especially if they save via wealth growers like investments to counter inflation) that money doesn't just go into the ground with them when they die. I'd assume the majority of it does go to pay out goods and services in the future, probably nearer to the end of life. As such I'd assume that rather than having everyone buying all the things all the time, you could provide an equivalent effect to the market with only those in the end of life spending at a much higher rate than they would have if they stayed uniform across their lives.
Is there any reason this wouldn't be sufficient to provide the same effect, as well as providing individual benefit? (In blunter words, someone tear a hole in my argument please :) )
> I'd assume the majority of it does go to pay out goods and services in the future, probably nearer to the end of life
Most of those expenses involve healthcare, which is probably not a sector of the economy that needs to see more money right now. You typically want to encourage diverse spending to avoid concentrating money in just one segment of the economy (the ol "dont put all your eggs in one basket" rule).
> that money doesn't just go into the ground with them when they die.
No, it doesn't need to - much of it can go onto next of kin, though, which encourages generational wealth that you typically dont want to encourage too much (which to our benefit, we do somewhat through things like estate taxes).
Additionally, and I have absolutely no reasoning behind this one at all, but spending in such a way lends itself to be extremely susceptible to age demographics: if you have a glut of older people (like we do now with baby boomers) then your economy might do fantastic if everyone spends money at the end of their life.
Conversely, when a low-population generation reaches old age, you're sorta doomed to suffer at that point.
I don't know the answer to your question, but my guess it's that people want to make profit now and not in the future.
Digressing a little bit, I made myself the same reflexion concerning fracking. There's a lot of pressure on my country's government to authorize fracking. Supposedly, it would be very beneficial for the economy. However, since this gas isn't going anywhere, i'm not sure why there's such a hurry to get it. Especially considering that it may be cheaper to extract it in the future.
Seems like based on your point, everyone would be better off because PPP would go up slightly. I'm not sure I agree, but only because I am not sure of the impact massive student loan default would have on capital markets for debt holders.
Basically would mean that Sallie Mae could tank significantly.
My mistake, I thought your question was more about the impact of student loan debt as a whole on the economy going forward.
My point was that there's probably no bubble (unless at some future point the govt decides student loan debt is dischargeable in bankruptcy), but that doesn't mean it won't be detrimental nonetheless.
> Seems like based on your point, everyone would be better off because PPP would go up slightly.
How do you figure? I haven't seen the data myself but it would be shocking if total accrued student loan debt (adjusting for inflation of course) doesn't skew heavily towards the 18-30 age range.
That leaves the older generation with significantly more purchasing power, and if the younger generations avoid student loan debt it benefits them as well.
> Basically would mean that Sallie Mae could tank significantly.
I think that's a very real scenario that will play out in another decade or two. I very much doubt today's toddlers will accrue as much student loan debt as millenials have.
As a US citizen (or Green Card holder) you must a file an annual tax return wherever you live in the world, plus disclose foreign bank accounts. Failure to do so can have very harsh penalties.
https://americansabroad.org/issues/taxation/us-taxes-while-l...
So, you're paying taxes to the local government, and getting a credit towards your US taxes. You'd still file your informational return with the IRS, but they don't touch a dime of your foreign income.
> Florida law does provide an exemption which is specific to wage garnishments. This exemption is not automatic and must be claimed by filing an affidavit with the Court when you are notified that the creditor intends to request a wage garnishment. If you properly claim the exemption, your wages cannot be garnished by a judgment creditor if you are head of the family and your wages are $750 per week or less. If you are a head of family and your wages exceed $750 per week, they can only be garnished by a judgment creditor if you have agreed in writing that the creditor can garnish your wages. To qualify as head of family, you must provide more than one half of the support for a child or other dependant.
If debtors stop paying, lendors will stop lending.
[0] http://fortune.com/2014/11/11/gi-bill-for-profit-colleges/ [1] http://www.pbs.org/newshour/bb/gi-bill-benefitting-profit-co...
I may be in the minority opinion, but I think college is still pretty affordable.
> In 2014-15, average published tuition and fee prices for in-state students at public four-year institutions range from $4,646 in Wyoming and $6,138 in Alaska to $14,419 in Vermont and $14,712 in New Hampshire. [1]
CUNY for instance is $6,030 a year [2]
The tuition is higher than it has been in the past but attending college is a lot more profitable as well. I know the state school I had attended has raised tuition over the years, but I can't help but look around and think that all the money went into a new stadium ($33 MM), new athletic gym and new (very impressive) dorms.
The average student attending an expensive for-profit (less credible) college isn't the same person as someone attending a good state school. A lot of time these colleges attract more marginal students. The payoff for most colleges is still very high and worth the cost. But there should be some cost as to discourage less productive ventures and to have some skin in the game for the student.
[0] http://www.consumerfinance.gov/newsroom/student-debt-swells-... [1] http://trends.collegeboard.org/college-pricing/figures-table... [2] http://www.cuny.edu/admissions/tuition-fees.html
https://www.youtube.com/watch?v=P8pjd1QEA0c#t=562
"We went to the museum of Scientology for our psychiatric rotation"...
This bubble has to burst. The college education system in this country has gone completely insane. The cost of a year's worth of education is now $60000, when the cost for comparable universities in the UK is $10000 and in Germany is $0. Just make community college + state universities free for everyone to attend, and we should have no more problem with this debt nonsense anymore.
Public colleges are already substantially less than private institutions. I doubt subsidizing them further will have a substantial impact on private tuition.
If we stop lending money to pay for education, the colleges will see substantially reduced demand at their inflated price levels and will quickly cut prices to adjust.
Then again, they might not.
They currently segregate their customers into groups by way of "scholarships" and essentially extract the maximum amount of money they can possibly get. I can't think of another industry where such disgusting behavior is tolerated or even celebrated as generosity.
This, to me, seems extremely high. Does anyone know what the default rate is on other types of loans?
This here is the problem. If Corinthian can get out from paying its debts, why can't the students?
As a college grad with a lot of debt I advise everyone to avoid student loans at all costs. It's not worth it and there are always alternatives.
http://blogmaverick.com/2013/01/26/will-your-college-go-out-...
In this situation, however, I believe those not paying are claiming they were deceived (and there are lawsuits as such). This isn't a matter of not paying your loans because your house burned down, as much as not paying your loans because the builder deceived you on the quality.
Additionally, these aren't typical bank loans usually, but guaranteed by a quasi-government entity. To a certain degree, this means the government is guaranteeing some set of standards (I can't get a government-backed loan to do a code bootcamp, for example), and these students are banking on the idea that the loans will be forgiven without recourse, or at the very least, shining a light on this school with they are contacted, en masse, for failure to repay.
I agree she shouldn't have to pay all of the debt, but surely the degree isn't totally worthless.
Great argument.
If that's the case, I can send you a degree from WhafroU via PDF for a tidy sum within an hour. Get in touch, folks!
I don't think people really understand what they're saying when they say that people shouldn't have to pay back these loans. The loans are going to get repayed, it's just a question of who. You can't take it out of the defunct college, those people, and that money, are gone. Basically you're saying that taxpayers should foot the bill. You want to pay the government back out of your own pocket? Because that's what this means.
And anyways, we shouldn't even be debating this. University should be free, period. And yes, I know "free" = "we" = "our pockets". That's perfectly fine. Or we should start funding plane tickets and visas to send low income people to these countries[1] for study; requiring them to maintain a quality GPA or something. The world would be a better place for all of us if the "haves" weren't so adverse to paying for the "have-nots".
1. http://www.washingtonpost.com/blogs/worldviews/wp/2014/10/29...
Altruism's great and all, but you need to think very hard about what it means to provide a benefit to everyone. It's not just the people who were legitimately scammed.
That doesn't follow at all. The program could have been deficient. The placement program could have been fraudulent. And yet the student could make up the deficiency with other training and compete, as hopeless as that might be, against others in the same boat.
It isn't unusual for schools to defraud students by gaming placement by, for example, providing a pitiful amount of seed money for business majors to set off in a leaky lifeboat, or by forcing law students in lower-tier law schools to drop out before graduating.
You also have to consider that debt repayment in constant payments pays down very little principle at first. A student may have paid a lot of interest, but their debt remains high.
She should have known that for-profit colleges are bullshit before signing her life away to one. Now she wants to have her cake and eat it too by refusing to pay her loans, while still deriving benefit from the supposedly worthless degree she got.
We need a better solution to higher education. But this isn't it. I'm glad she's raising awareness of this issue, but she and everyone else involved needs to pay back at least some of her loan. You can't just expect the government to absolve you of your bad decisions.
What's next, people who scam money from the elderly by pretending to be their grandchildren sue after only getting 25 cents with their birthday cards?
I realize these colleges are also using high pressure sales tactics to trick vulnerable populations into enrolling and then extorting them for money, but at some point people still need to take responsibility for their actions.
Why didn't you mention that these colleges need to take some responsibility as well?
I mean once they showed up and realized it wasn't a real college and they weren't being taught anything, that would have been the appropriate time to protest and try to get their money back, rather than staying for another 2-4 years to get the degree and hoping that no one notices that they didn't actually learn anything.
> Why didn't you mention that these colleges need to take some responsibility as well?
They should, but in this case they already got shut down. My feelings about for-profit colleges are basically the same as my feelings on the military. I.e. the military shouldn't be tricking kids into enlisting, but that that still doesn't give soldiers a free pass for going over to the middle east and killing innocent people.
The people signing up were probably not those best prepared to evaluate the quality of schooling. It might have seemed a continuation what they saw in high school
I don't think so. There are colleges (mostly online and often postgraduate only) where the 'student' is in on the scam. They mostly serve markets where promotion or pay prospects are tied to box ticking possession of a masters or PhD with no real consideration of the academic rank of the programs. Those really are about trying to trick people into thinking they are well educated - although you could argue that if no-one cares about the quality of the 'degrees' they're not really scamming anyone.
What Corinthian was doing was charging large sums of money to students for nearly worthless, marginally accredited or unaccredited education while telling them that they were receiving valuable, career enhancing education and recognised credentials. They were the marks and not in on the con.
Of course I absolutely agree that people need to take responsibility for their actions but we need to consider the context and determine what is a reasonable amount of due diligence to undertake.
First of all, our society relentlessly pounds the message into people's heads that they need to go to college to succeed in life. Think of how often an 18 year old will have been told of the importance of going to college by teachers, counsellors, and other authority figures in their lives (all of whom have themselves been to college). How often their parents (who usually will not have been) will tell them that this is what they need to do to succeed. How often the media portrays going to college as the right thing to do. In every sitcom set in a high school or with high school aged main characters, applying to and getting into college is eventually a major plot point.
Now compare that with how often those same sources mention the difference between applying to a community college, a state college, a private non-profit, and a private for-profit college. If they even know the difference (which parents who haven't been will almost certainly not).
Think about the government services which poor people tend to interact with, and the American attitude towards public provision and realise that the educational superiority of publicly owned community colleges over privately owned colleges is actually anomalous. (and in fact the most prestigious American colleges are private, just a different kind of private). How on Earth is a teenager supposed to figure that out.
Should we expect an 18 year old to understand that regional accreditation is better than national accreditation? I mean, does that actually even make sense?
So while I agree that there is a case for people taking responsibility for their actions, I think that young people doing what society told them to do and making some poor decisions after being lied to have met the test for contextually reasonable due diligence.