This 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.
We 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.
You're the one who responded to a question about education loans with the example of medicare. How are those more similar to each other than either of them is to mortgages?
Because the goal is efficiency, not having the government do everything.
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.
Because the government fund these loans but doesn't care about the quality. Private supermarkets aren't funded by the government.
Student loan industry is a moral hazard.
Because the government fund these loans but doesn't care about the quality. Private supermarkets aren't funded by the government.
Student loan industry is a moral hazard.
For the same reason the government hires construction firms to build roads, for the same reason the government hires contractors to build bases, the same reason the Federal Reserve uses primary banks as intermediaries, the same reason the military gets their fuel from tender offers and not their own refineries...
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.
Good points, actually, but can you clarify on what you mean with the government being the only buyer of student loans? All those other needs are permanent, too. "Roads" will permanently be under constructions somewhere, just as "loans" will always be outstanding somewhere. Fuel will always be needed, just in different grades, locations, and quantities.
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...)
The private student loan industry is pretty small as compared to the public market and the rules and considerations when servicing them are very different. So it is unsurprising that the big servicers for federal student loans are only in that business and not loan servicing generally. That's different in important ways from a refinery that sells fuel to all commers.
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.
Why wouldn't the government hire shortist-term employees for road projects, same as the contractors do? contractors aren't out building private highways for the rest of the time everywhere.
The functions are necessary, it isn't necessary that government performs them. By definition, if there is necessity there is a demand, and where there is a demand...
Take 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.
More 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
I 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.
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?
No, you haven't really shown me how it's predatory, although I do know that does happen (as it does in all large lending markets).
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.
2. If none, what channel or mechanism is perpetuating something that everybody knows is a bad deal?
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.
The whole thing is predatory. It's the classic monopoly system where you loose out if you play and if you don't. Think degrees are overpriced? Go live life as a labourer with no access to the top paying jobs. Or suck it up and hand over a large part of your labour to the gate-keeper.
Available credit sets the price. Ramp it up and watch the tribute flow in.
Seven million people haven't made a single student loan payment in at least a year [1] and the overall delinquency rate of loans in repayment is about 30% [2].
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]
TBH we're well past the point where people should be in the streets protesting student loan payments. The entire economy is experiencing a lack of demand, partially as a result of young people being impoverished from a sycophantic education system.
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.
I have read this is not possible, because most of the loans are guaranteed by the federal government. For-profit colleges could make good shorts, but those stocks have already been hammered a lot.
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.
They can't be discharged in personal bankruptcy either - perhaps the most one-sided, offensive, corporate-written, f*^%#d up law I've ever seen passed.
I know a few people that can't afford college but who are relatively well motivated and have at least average intelligence. What path should they take? (They're currently making minimum wage, part-time, and I haven't been able to figure out what advice to give them.)
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?
The challenge with community college is that you really need to push ahead of the average student, skip intro classes to accelerate yourself, etc. community college, due to the population that attends, has two sets of courses: (1) specific courses that feed into specific jobs, like dental hygenish, and (2) remedial gen ed space-filling courses to round out the degree.
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.
The 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.
So, 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?
I 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.
CSU (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.
I just don't see how people want to deal with this, I mean I can understand if they think if they need $x in order to do $y (but for most, usually having that $x isn't the only thing people will consider in order for one to do $y, and increasingly acts as a negative signal, not to mention all the bs people complain about which gets annoying to listen to when they keep doing the same thing…), but I think we've long passed the Rubicon as far as this is concerned. I perceive it as insanity, and I almost don't feel bad anymore if people keep playing this game with their lives, makes it easier for people who opt out.
"She spends her days fielding calls from government-contracted debt collectors.
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.
I would say it is a way to boost the dollar. The alternative is everyone paying the education year by year, as taxes, during their lives as citizens. But here there are people who are forced to pay it all in one go. So this boosts the short-term demand for dollar, more than if it was spread out as a life-long tax. So it seems to me, all well-off Americans benefit, and it is at the expense of the poor, and the competing currencies. It doesn't matter if some default, as long as most pay it off. But I'm not an expert. It's just a thought.
It pushes higher money creation at the point of inception. Debt can be created instantly and enters the system and becomes "dollars" as another account is credited to balance.
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.
The question is silly. It's common knowledge that the degree inflation masters of the University of Phoenix, APUS, Liberty, DeVry, Capella, Kaplan U, etc., are all the ones cashing in on this.
Because 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
The 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.
How 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.
It 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.
This 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?
Last 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.
$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.
> 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).
There 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.
You have it backwards. It's in everyone's reach because of Federal guaranteed student loans. Therefore, the demand is higher. Therefore, tuition is higher.
I 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.
This 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.
Edit: 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.
As 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.
You act like it's carelessness on her part. The bar exam is usually paid for by an employer (exam and study materials are very expensive), and she couldn't find any employer who would be willing to accommodate her illness and her desire to help with her parents' illnesses. So, even if she self-financed it, there aren't great prospects of being hired anyway.
OTOH, creating large lifetime financial obligations on the basis of poor decision-making by people who are by definition immature, seems like a set-up for indentured servitude.
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.
Where 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?
I 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...
This 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.
The most expensive schools are research universities. That's where the money is going: research is getting more and more expensive. By definition, the only problems remaining are the most difficult ones.
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 answer is: into the economy. It's a mechanism for printing money. They set it as high as possible to push as much money as possible into the economy to get "growth".
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.
The 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.
>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.
Great, 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.
Community 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.
We have a usury system. The cost of education is set by available credit with the upper ceiling at the expected total earnings less existing costs.
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.
Seems 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.
Yes 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.
On 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?
That $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.
A 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.
It shouldn't be a question of the median student. If it's worth it in aggregate, the loan company should have at least as much liability as the student does for loans that don't pay off. The loan company is the one that has the resources to manage risk, the student has no resources.
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.
So then they simply start pulling the stats over which demographic group does worse after going to a big school. I'll bet you on average its the lower income people.
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.
> "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.
> 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.
Not 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.
It 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.
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[ 4.6 ms ] story [ 174 ms ] threadSame thing with healthcare.
http://healthaffairs.org/blog/2011/09/20/medicare-is-more-ef...
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.
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.
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.
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.
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.
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).
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.
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.
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.
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.
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.
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?
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.