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Who's Profiting from $1.2T of Federal Student Loans?
- siliconc0w 11y agoStudent loans are also some of the only debts that can't be discharged through bankruptcy.
- branchless 11y agoBecause they are serfdom. Hand over a chunk of your labour or you can't play. Get past this gate and next I'll introduce you to the land usurers. 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
- zackmorris 11y agoThe simplest answer tends to be the right one. Allow student loan debt to be discharged in bankruptcy and that will create pressure to not loan as much, and to keep interest rates low to prevent default. That will in turn put pressure on tuition to be low. The cognitive dissonance of idolizing the power of the free market, while special casing student loan debt, is somehow lost on a lot of otherwise rational people.
- vmateixeira 11y agoHow about if students stopped going to colleges? Clearly students are being fooled into a slavery model. College + car + house and you're done for life. 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.
- bradleyjg 11y agoI don't understand why the Department of Education hires these servicers. Why can't they service the loans in house?
- ceejayoz 11y agoBecause the servicers buy members of Congress.
- HiLo 11y agoThis is an intellectually lazy response. Why does our government always use contractors? You won't let them spend more internally to grow their departments, but you also want them to be able to handle an ever-growing mountain of job functions? You can't have your cake and eat it, too.
- ceejayoz 11y agoWe should spend more internally in this sort of situation. There's no reason to inject a middleman for the sole purpose of diverting profits to the private sector. Same thing with healthcare.
- HiLo 11y agoI actually personally agree with you, I was just trying to note the inconsistencies in that argument.
- johnnyb9 11y agoBecause a private company could to it more cheaply and efficiently?
- ceejayoz 11y agoProbably not. http://healthaffairs.org/blog/2011/09/20/medicare-is-more-efficient-than-private-insurance/ http://healthaffairs.org/blog/2011/09/20/medicare-is-more-ef...
- padobson 11y agoTake notes. There'll be money to be made shorting some of these public companies when the student loan bubble bursts and/or everyone starts to realize a university education isn't the only path to prosperity.
- deleted 11y ago[deleted]
- HiLo 11y agoCan you provide evidence that it is a bubble? Can you provide evidence that it will burst, or a potential catalyst?
- codingbeer 11y agoIf one could do that, it wouldn't be a bubble.
- HiLo 11y agoMore intellectual laziness in this thread. To start, what definition of bubble are you using? Where no plausible scenario can justify forward valuations? Where there is evidence people are doing transactions for the sole reason to flip the assets at a higher price? 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://papers.ssrn.com/sol3/papers.cfm?abstract_id=2700179
- SCAQTony 11y agoI am not debating this rather this is merely a contribution regarding tuition, room & board fees, from 1975-76 to 2014-15 adjusted for inflation: I averaged the cost out to 12.5% a year on average. http://trends.collegeboard.org/college-pricing/figures-tables/tuition-and-fees-and-room-and-board-over-time-1975-76-2015-16-selected-years http://trends.collegeboard.org/college-pricing/figures-table...
- bsbechtel 11y agoThe article doesn't mention the Federal takeover of the student loan system as part of the ACA passage in 2010. I don't know how it affected others, but I lost a number of incentives for making regular and early payments when this happened. The service from Nelnet was also considerably worse than my previous lender.
- jcfrei 11y agoSo, help me out here. Who is profiting from this? The companies who service the debt? Were costs for higher education in the US inflated under this program or is this a false impression?
- paulpauper 11y agofor-profit colleges profit
- dexterdog 11y agoYou think all colleges don't profit? The fact that a place like Princeton can be considered anything but for-profit is criminal.
- cinquemb 11y agoI agree with your sentiments, if any college is taking any form of payment from Federal loans, I would say they are profiting. I think the focus on explicit "For profit" colleges is a fake out, as if no other actors are capable of questionable behavior. My parents ~$2k per semester at a 4 year uni in the early-mid 80's makes this all look like a scam… but I dropped out from a ivy and maintain a comparatively little in debt than avg so that's my position… I see it as cutting my losses, and four years since, I think I came out ahead… many ways to pursue knowledge and I rather leave out servicing interest on debt from my life. I'm ok with others having different opinions on this, after all it's their life to live.
- Roboprog 11y agoCSU (not UC) was quite a bit cheaper than that in the mid 80s. I believe I paid $210 for fall '83. 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.
- johndevor 11y agoAren't the students profiting (i.e. education) as well? Trade is supposed to be mutually beneficial.
- lynndylanhurley 11y agoNot sure if joking...
- bhickey 11y agoIt is supposed to be mutually beneficial, but it isn't. 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.
- srtjstjsj 11y agoThis needs to be split up into cases. For-profit schools are certainly a cesspool. Students should not attend. they attend because they are desperate and can't get into public or non-profit schools (because public schools are underfunded by govt, and non-profit schools are... too few? why aren't more non-profit schools appearing, with reasonable tuition?) Is there still a loan problem at public schools and expensive non-profit schools like GWU? Why?
- nickpsecurity 11y agoLast number I looked at was something like half of people getting Bachelor's degree are unemployed or underemployed. Don't know if it's inflated but job discussion forums are full of people with degrees in IT and Business that can't get jobs outside minimum or low wage. For for-profit, minimum payments can be around $2000 a month. So, a job offering $20k a year entry-level is a net loss. 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.
- cdnsteve 11y ago$45 annual tuition? The average American family income in 2014 was $53,657 according to CNN money. 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.
- chestervonwinch 11y ago> I'm very curious to see what free learning and degrees online can do to change this. Khan academy, edx, udacity, coursera etc. 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).
- taurath 11y agoThere are many industries which require degrees to get into in the first place, especially Biology/Chemistry/Physchics and many other hard sciences. Some of those especially those that require labs and materials have a huge capital cost that keeps them within existing institutions. The rubber stamp at the end is just an agreed upon way to say "they have this basis of knowledge". If there was a way to get that basis of knowledge in other settings and a standardized way of testing whether you fit the professional criteria (such as the Bar exam for lawyers) there's no reason you couldn't go into it. Prestige matters SOME, but its more about the connections you get or are perceived to have after coming out of a big school. The info should be generally the same.
- branchless 11y agoYou need to pay tribute to the big unis or you can't apply for the big jobs. Pledge your labour.
- ryanackley 11y agoYou have it backwards. It's in everyone's reach because of Federal guaranteed student loans. Therefore, the demand is higher. Therefore, tuition is higher.
- dexterdog 11y agoI don't get their hand-picking of a woman who went to law school and ran up a 100K+ debt and then never even tried to pass the bar or worked with what she learned. I get that the tuition was inflated because of the increased demand created by easy loans that have the ironic intention of making education more affordable, but this doesn't sound like a case that warrants a lot of pity.
- graeme 11y agoThis is pretty common in the law school domain. People take the degree, realize that they'd be miserable as a lawyer, decide to finish the degree because of sunk costs, and then don't practice. Common to end up with 200K+ debt. It's a real mess.
- graeme 11y agoEdit: forgot one major element. A lot of schools have such poor placement that their unemployment rate is significantly worse than the national average. 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.
- otterley 11y agoAs a law-school graduate who did pass the California State Bar but is not in active practice, I sympathize with her. Our culture portrays law school as a path to an interesting job with great pay and fine suits, but in practice, law practice can be a dull, soul-crushing career with a high drug and alcohol abuse rate. One of the clerks at a Prestigious Court at which I interned one semester even said to me once, "you're really good at technology. Why are you here?" 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.
- Scirra_Tom 11y agoWhere does the money go? If you got someone paying $50k a year tuition presumably in a class with say 20 people total that's $1,000,000 per year. I mean, where's that money going?
- atlih 11y agoto the shredder, read up on fractional reserve lending.
- branchless 11y agoNo the money is simply created an enters the "economy". http://bankunderground.co.uk/2015/06/30/banks-are-not-intermediaries-of-loanable-funds-and-why-this-matters/ http://bankunderground.co.uk/2015/06/30/banks-are-not-interm...
- sdrothrock 11y agoI think the thought experiment kind of falls apart at a class of 20 people taking different courses; there's nowhere near enough money in there to pay for various professor salaries, physical plant, equipment, etc. > 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...
- inthewoods 11y agoThis is always my question - also, remember that colleges and universities are moving more and more classes to adjunct professors (i.e. contractors without any tenure track), further reducing their costs. 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.
- jostmey 11y agoThe high prices of education are still worth the lifetime earning potential, or so I've read many times. 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.
- superuser2 11y ago>The cost of Knowledge is trending to zero because of the Internet. So why is the cost of education skyrocketing out of control? 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.
- jkestner 11y agoGreat, so what are those things? Let's break them out so we can discuss whether they're a good deal and whether there are more affordable alternatives. Some people do just want a good education.
- srtjstjsj 11y agoCommunity College. Half the cost of State College, half again the cost of Private College. The problem is (a) talented students don't choose community college, so they don't get the economy of scale of filling a classroom with likeminded students, so you don't get advanced classes. 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.
- jostmey 11y ago
- alkonaut 11y agoSeems like the federal student loan idea misses the point of putting degrees "within reach" of everyone. First of all, why are interest rates 5%!? A properly state-subsidized loan would have an interest rate that makes it a net zero affair for the government. The current Swedish central bank interest rate of zero (actually slightly less) means my student loan interest rate for 2016 is 0.6%. Also, student loans don't count as debt in the sense of credit scores.
- davnicwil 11y agoYes indeed, particularly considering that such a subsidy should in net (though with significant latency) lead to higher tax revenues, more investment in the economy, more innovation in the economy, all that good stuff which a Government with a long-term view should be very interested in. In fact an effectively zero-interest loan is the very bottom end of what should be offered by the government by that line of reasoning, the top end being completely free tuition. 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.
- golergka 11y agoOn one hand, there's an emotional and personal story of an individual graduate who got in debt and then didn't even try to pass the bar. 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?
- aczerepinski 11y agoThat $750k fact sounds fishy to me. People who self-select into advanced degrees generally possess qualities that are correlated with earnings (intelligence, ambition, rich parents, etc). Does the $750k figure compare that group against similarly ambitious and intelligent people who went another route in life? I have no idea how you'd create a fair control group to make such a comparison.
- karzeem 11y agoA well-paid lawyer makes several hundred thousand dollars more per year than the comparison group they're referring to (which as you suggest, is probably deliberately defined to be low-earning). Those are tough jobs to get, especially coming from an uncompetitive law school, but for those who manage to do it, their lifetime earnings could plausibly be $10 MM higher. It only takes a few of those to pull the average up by $750k.
- golergka 11y agoAgreed. But why didn't journalist investigate this further? That's what I find most disturbing about the article.
- jimrandomh 11y ago> "As for Sofia, she says she’d like to meet with someone to work out a repayment plan rather than field as many as 20 phone calls some days dunning her for money." 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.
- ceejayoz 11y agoUnless she's racking up that many new debts daily, she could put a stop to it. https://en.wikipedia.org/wiki/Fair_Debt_Collection_Practices_Act https://en.wikipedia.org/wiki/Fair_Debt_Collection_Practices... > 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.
- finance-geek 11y agoNot legal, especially to mobile phones, but sadly it happens. I have superb credit, but one of my tenants did not. Since their address had my phone number on it (city records), robocalls started coming to me, from multiple companies. They were relentless.
- johnnymonster 11y agoIt seems like one of those out of sight out of mind kind of things that happens to a lot of students. You don't really sit down and calculate just how much money it will cost monthly to pay for your shooling. The 144k comes out to over 650 a month for 30 years depending on interest rates. That's the payment on a nice car, for the majority of your lifetime! 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.