Posts Tagged ‘College Loans’

Universities as businesses: students as cash cows

September 19, 2013

Thomas Frank wrote a great article in The Baffler of where American higher education is going.  He said a lot of things I’ve long said, but he said them better and more eloquently.

bors-youth-student-loan-debt-trophyYoung people today are told they have no possibility of ever getting a good job unless they have a college education.   But they know nothing about college, or what it has to offer.   Consequently they are helpless to prevent themselves from being cash cows for greedy college administrators, greedy textbook publishers and greedy lenders.  This isn’t true of everyone everywhere, but it is common and becoming more common.

The solution is obvious.   At least it is obvious to Thomas Frank, and to me.

College should become free or very cheap. It should be heavily subsidized by the states, and robust competition from excellent state U’s should in turn bring down the price of college across the board.  Pointless money-drains like a vast administration, a preening president, and a quasi-professional football team should all be plugged up.  Accrediting agencies should come down like a hammer on universities that use too many adjuncts and part-time teachers.  Student loan debt should be universally refinanced to carry little or no interest and should be discharge-able in bankruptcy, like any other form of debt.

But the obvious solution is highly unlikely to be adopted.

What actually will happen to higher ed, when the breaking point comes, will be an extension of what has already happened, what money wants to see happen. Another market-driven disaster will be understood as a disaster of socialism, requiring an ever deeper penetration of the university by market rationality.

Trustees and presidents will redouble their efforts to achieve some ineffable “excellence” they associate with tech and architecture and corporate sponsorships. There will be more standardized tests, and more desperate test-prep. The curriculum will be brought into a tighter orbit around the needs of business, just like Thomas Friedman wants it to be.

Professors will continue to plummet in status and power, replaced by adjuncts in more and more situations. An all-celebrity system, made possible by online courses or some other scheme, will finally bring about a mass faculty extinction—a cataclysm that will miraculously spare university administrations. And a quality education in the humanities will once again become a rich kid’s prerogative.

via The Baffler.

Student-Debt-CartoonPeople wonder why the U.S. economy is so slow to recover.  Young people have no money to spare because they are burdened with college debt.  Their parents have no money to spare because they are paying off underwater mortgages.  Their grandparents have no money to spare because they have no private pensions and they haven’t been able to save.   Again, this isn’t true of everyone, everywhere, but it is common and becoming more common.

People my age (I’m 76) who belittle today’s young people don’t remember how good we had it.  College tuition was affordable, working your way through college was feasible and nobody began life with a debt burden they might never pay off.

Click on Academy Fight Song for Thomas Frank’s full magnificent survey of the American higher education money machine.

Click on How the American University Was Killed, in Five Easy Steps, by the ‘Junct Rebellion for another splendid overview.

The profit motive is not an ethical principle

May 15, 2013

Here are links to articles I found interesting about what happens when the profit motive overrides professionalism, social responsibility or obedience to law.

Coming Corporate Control of Medicine Throws Patients Under the Bus

Yves Smith describes the corporate model for medical care, which is to set a limit on how much time a physician can see an individual patient, so as to maximize the number of patients seen in a day.  This means weeding out patients with complicated problems or without good insurance.

Who’s Getting Rich Off Student Loans?  College Endowments

Daniel Luzer of the Washington Monthly tells how college endowment funds invest in student loan servicing and collection companies such as Sallie Mae.   The perverse incentives are that the higher the college tuition, the greater the interest payments and the more profitable the investment.   Sallie Mae is the nickname for a government lender that was privatized in 2004 and became SLM Corp.

When Your Boss Steals Your Wages: The Invisible Epidemic That’s Sweeping America.

Lynn Stuart Parramore of AlterNet reports on the practice of wage theft, which includes not paying for all hours worked, not paying overtime, not paying minimum wage and confiscation of tips.   A survey of 4,000 low-wage workers in New York, Chicago and Los Angeles found that 26 percent were paid below minimum wage and 76 percent were denied overtime pay for working more than 40 hours a week.

The Vicious New Bank Shakedown That Could Seriously Ruin Your Life.

Lynn Stuart Parramore reports on how banks such as Chase JP Morgan are committing the same kinds of abuses in collecting credit card debt that they used in collecting mortgage debt.  What they do is “robo-sign” lawsuit claims without checking records to make sure the information is correct, and give “sewer service” (throw the legal papers in the sewer)  of the claim to the debtor.  The result is that debtors’ wages are garnished even though, in some cases, they may be paid up, and lots of fees and charges are added to their debt without their knowledge.

The explosion in student loan debt

April 26, 2012

Speaking in North Carolina yesterday, President Barack Obama had this to say about student loan debt.

For the first eight years of our marriage, [Michelle and I] were paying more in student loans than what we were paying for our mortgage.  So we know what this is about.

And we were lucky to land good jobs with a steady income.  But we only finished paying off our student loans—check this out, all right, I’m the President of the United States—we only finished paying off our student loans about eight years ago.

via Obama for America 

Click to view.

That’s really something.  I never had to think about student debt when I sent to college in the 1950s.  In that era, public universities provided an affordable college education for everybody who was capable of doing college work.

President Obama, and also Governor Mitt Romney, favor extension of a 2007 law which freezes interest rates on subsidized Stafford student loans.  If the law is not extended, interest rates will rise from 3.4 percent to 6.8 percent a year, with an added annual debt burden of nearly $1,o00 for the average new college graduate.

This will subtract $6 billion a year from federal revenues.  Romney said there needs to be an offset by cutting federal spending, but he didn’t say where.  Obama hasn’t said anything about the budget impact.

The real problem, as I see it, is that it doesn’t get at the real problem, which is the high cost of college tuition.  So long as college and university administrators are guided by economic incentives alone, making more money available to students will simply result in increases in tuition.

Nor does it address the debt burden of existing college graduates.  Note that the College Cost Reduction and Access Act was phased in slowly, so only a minority even of those who graduated after 2007 got the full benefit of the interest rate reduction.

Click on Student loan debt is growing at an accelerating rate for more facts and figures on student loan debt.

Click on Student Loan Debt Exceeds One Trillion Dollars for background from National Public Radio on extension of the College Cost Reduction and Access Act.  The charts I’ve found indicate that student loan debt actually is less than $1 trillion, but it is on track to reach that level.

Click on The next act in the student loan fight: Offsetting the cost of lower rates for background from the Washington Post on the budget impact of extending the law.

Click on Dissecting the Fight Over Student Loans for Talking Point Memo’s report on Democratic and Republican differences over how to handle the budget impact.

Why no youth revolt?

May 2, 2011

A friend of mine noted that 20th century political revolutions of the left and right were led by young unemployed college graduates, as were the recent protests in Egypt.  Since unemployment among recent U.S. college graduates is the highest on record, he wonders if and when there will be a similar explosion in the United States.

One reason for the lack of an American youth revolt, in my opinion, is that so many recent graduates are too busy paying off their college loans.  They spend too much time looking for jobs or working multiple jobs to have time for political activity.  And they are aware that, in today’s labor market, getting a reputation as a troublemaker or dissident will make you unemployable.


Is higher education turning into a ripoff?

April 28, 2011

Higher education is increasingly becoming a ripoff, writes Malcolm Harris on the web log of n + 1 literary magazine.  College tuition has increased sevenfold (adjusted for inflation) since 1978, but the average quality of education has gone in the other direction.  The salaries of administrators continually increase; those who do the teaching are being asked to do more for less pay and job security.

Students are continually being told that they have no economic future if they don’t go to college, so they take on crushing loads of debt.  American college graduates owe more than $800 billion in college loans.  American college loan debt now exceeds American credit card debt, while unemployment among recent college graduates is the highest on record.

If tuition has increased astronomically and the portion of money spent on instruction and student services has fallen, if the (at very least comparative) market value of a degree has dipped and most students can no longer afford to enjoy college as a period of intellectual adventure, then at least one more thing is clear: higher education, for-profit or not, has increasingly become a scam.

via n+1.

I’ve written about this previously, but Harris told me things I hadn’t known.  Student loan debt is securitized and repackaged into something called Student Loan Asset-Backed Securities, aka SLABS, just like the subprime mortgage loans.  So you have the potential for the same kind of crash.

Another thing I hadn’t known is that, under the  Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, no education loan, even money borrowed on a credit card, cannot be discharged through bankruptcy.  Before 2005, this only applied to federal government loans.

That means a college graduate with an outstanding college loan is in a form of indentured servitude.  If the graduate defaults, he or she is in the position of a debtor’s prison inmate on a work release program.

Unless something changes, college loans are headed for the same kind of financial crash as mortgage loans.  And colleges and universities seem to be following the failed pattern of U.S. manufacturing industry, and setting themselves up for the same kind of failure.  What happens to the higher education industry when their potential students come to realize they are not getting value for money?  Will they reform, or fall into the same cycle of cutting costs and quality of product?  This is a familiar script.


Subprime college loans

May 4, 2010

Millions of Americans took out home mortgages in the expectation that house prices would always go up, only to find that the market value of their homes is less than what they owe on them.

There are others in the same situation with regard to college loans.  They went into debt expecting that the investment in improved educational credentials would pay off in the job market, only to find that the value of their marketable skills is less than what they owe.  [Update 8/3/10: More than one in five student loans in repayment since 1995 are in default.]

I have a good friend in that position.  He went back to school in mid-life to get an advanced degree in his professional field, partly because he loves what he is doing but also in the expectation of a payoff. He graduated in the middle of the current recession, and has been living hand-to-mouth, eking out a living through a patchwork of temporary and part-time jobs. Even if he gets a full-time job, it is unlikely to be in the field he studied for.  He finds that what employers want are not highly-qualified experts with specialized knowledge, but jacks-of-all-trades who are willing to work cheap.

He has had to temporarily suspend payments on his loan, and gets dunning telephone calls from bill collectors based in India.

His situation is not unique, or even unusual.  People with home mortgages and underwater home prices can discharge their obligation by forfeiting their homes.  People with student loans and underwater careers cannot use the bankruptcy process.  Some of them will be in a form of indentured servitude for the rest of their careers.

I am not the first person to compare unpayable student loans to subprime mortgage loans.

Click on this for a recent college graduate’s lament.
Click on this for a report on the plight of law school graduates.
Click on this for a report on how disadvantaged students are being exploited by for-profit schools.

I think our system of ever-rising tuition financed by college loans is one reason why the United States as a nation pays more that other advanced countries for medical services and legal services. Someone who comes out of medical school or law school with a huge debt burden needs a high income to pay it off. Human nature being what it is, they don’t willingly relinquish the high income once the debt is paid.

I think the for-profit business model harms higher education.  If the goal of a college is to maximize revenue, then (1) it will maximize enrollment regardless of whether students get any benefit from it and (2) it will give preference to students who are stupid and rich over those who are smart and poor.

The ideal would be free or cheap higher education for everybody who is capable of doing college work, and a job market in which people are judged based on what they can do rather than what credential they have.

But I don’t have a good answer as to how you would achieve that ideal. Nor do I have a good idea of what to do about my friend’s plight.  All I can do is engage in old-guy nostalgia about the golden age of state universities and the GI Bill, when any middle-class family could easily save up for college tuition and any poor person, with some effort, could work his or her way through. Of course in those days a college education was an option, not a requirement for a middle-class standard of living.

[Update 8/9/10]   Actually there is no real-world reason why we can’t have affordable higher education open to all who qualify, or decent jobs for anyone with a good work ethic.  I must have been overly discouraged about our dysfunctional politics and economy when I wrote the original post.

[Update 9/5/10]  Click on this for a report on the government’s role in exploiting student loan debtors.