Tag Archives: college conspiracy

Sucked Under by That College Degree


Sucked Under by That College Degree

Swamped in debt and jobless, more and more graduates say college is the worst money they ever spent. This is a problem with clear causes—and at least one possible solution.

Imagine: minimum-wage job, or no job. Tens of thousands in debt. Debt collectors garnishing your wages—and your parents’ wages. Yet you seem to get no closer to paying it off. This is the situation that millions of university students find themselves in danger of.

Total student loan debt in America is now $1 trillion. About two thirds of students graduate with debt. The average student owes more than $25,000. Parents who took out loans to pay for their children’s education owe an average of $34,000.

For the first time ever, American students owe more in student loans than the country owes in credit card debt.

William Brewer, president of the National Association of Consumer Bankruptcy Attorneys, calls this situation “a debt bomb that could cripple our society.” He isn’t exaggerating. Outside of owing that 25 grand to Big Vinny-with-the-brass-knuckles, student loan debt is the most dangerous kind of debt you can have.

If you take out a student loan, you owe it until you pay it back or until you die. There is virtually no other way out. It is a debtor’s prison that sometimes comes with a life sentence. For unsuspecting teenagers and their parents who often co-sign the loans, it has become a painful lesson in indentured servitude.

Besides debts to the Internal Revenue Service, student loans are the only type of debt where lenders can garnish your wages without a court order. And student loans are the only type of debt that cannot be wiped out in bankruptcy.

Yet even this arrangement often produces a lose-lose situation. Lenders can’t garnish wages when students graduate and go ninja—No Income, No Job or Assets. According to the most recent Bureau of Labor Statistics survey, the youth workforce participation rate is the lowest on record. The unemployment rate for white youth is 15.8 percent; for Hispanic youth, 20 percent; among black youth, 31 percent.

Following graduation, a graduate has six months to find a job and start making loan payments. If he doesn’t, the penalties and interest start piling up—and they never stop. As in never, ever.

The student debt problem is enormous, says Ike Shulman, a bankruptcy attorney in California. It’s “basically setting us up for having a large number of fellow citizens become economically non-functional for the rest of their adult lives,” he says.

If you think that’s bad, think about this: What are all these college grads going to do when they can’t get a job? Will they sit quietly unemployed while their debts grow bigger and bigger?

Everardo Gonzalez is a 23-year-old criminal justice graduate of San Francisco State University. As a student, he received federal grants and worked at ikea. But he still graduated owing $26,490 in federal loans and $10,000 in credit card debt. His debt levels are pretty typical.

After graduating, he landed a paid internship and is planning to go back to school to get a master’s degree in political theory. Then he wants to become a teacher. By the time he is done, he will owe thousands more.

Gonzalez is angry. To protest the debt, he and some other angry students staged an “Occupy Graduation” demonstration. Over their graduation robes, they all wore inflatable balls and chains—emblazoned with their student debt amounts.

With so much debt, it is easy to understand his frustration. If, instead of attending college, he got a job and saved up that $36,490 and invested it at a conservative 6 percent (most pension funds assume a long-term average return of 8 percent)—and continued to invest the $400 per month in interest and principle that he would spend paying down his debt over 10 years—he would have $132,000 in his bank account. At that point he wouldn’t have to contribute another dollar, and he would have $800,000 in his investment account by the time he retired.

Granted, once students graduate, they often get better-paying, more-fulfilling jobs. But even this is changing in recession-riddled America.

The idea that college should be “free” for everyone seems to be gaining traction. But as they used to teach at colleges, there is no such thing as a free lunch. If it is free for you, it is costing someone else. However, you can also empathize with people in this predicament. Students just don’t realize what they’re dealing with: an entire system that is built on greed.

Greedy Government

A couple of generations ago, if a high school student wanted to go to college, he first had to plan, work, scrimp and save up the money. Sometimes he had to work for a few years after high school graduation before he could save up enough to attend college. Senate Majority Leader Harry Reid was born to a miner and laundress and grew up in poverty. Reid’s boyhood home was built out of old railroad ties, it had no indoor toilet, no hot water and no telephone. He had to work hard to pay his way through college. John Boehner, speaker of the House, was one of 12 children born to a working class family. It took him seven years to work and pay his way through college.

Having to pay for college resulted in students who really valued the college experience, who really wanted to be there for what they could learn, and who were mature enough for it.

Now, the government aggressively encourages all students to attend college. But many students shouldn’t go: Some simply are not academically suited for college; others do not have the work ethic necessary to succeed; others never use what they studied in college for their careers. Yet instead of promoting other types of career development, the government has fixated on colleges, coercing them to lower their academic standards to allow more students in.

The government has also forced colleges to adopt racial profiling in their admission policies. Colleges now admit racial minorities simply to meet federally mandated racial quotas, regardless of the students’ ability to succeed.

The result of the “everybody deserves a degree” policy erodes the value of a college diploma. This forces students to stay even longer in school to get post-graduate degrees in order to make them stand out. These cost additional time and money.

It wasn’t always this way. There was a time when a college education actually became cheaper each year. As recently as the early 1970s, the cost of a degree was falling annually by 17 percent. Then something changed, and the price tag for college hasn’t stopped rising since.

In 1978, the government started giving out taxpayer-funded student loans to people regardless of their income. From 1978 to 1981, government aid shot up by a whopping 70 percent. As any economics major worth his salt will tell you, the result was inevitable. Tuition started to rise.

The Reagan administration responded by providing even more government aid, including Pell grants and Perkins loans. By the end of the 1980s, tuition had risen a pocket-busting 47 percent. Successive governments continued the policy, and a cycle ensued. More students went to college, costs rose, students complained, the government provided more student loans, grants, subsidies to colleges, and so on.

None of it worked; it just made things worse. Students and the government have played a big part in making this mess, but they are only half the cast in this tragedy.

Greedy Banks

Monica Johnson is a 35-year-old college graduate who helped organize the “Occupy Graduation” protest at Hunter College in New York. Fifteen years ago, she borrowed $15,000 to pay for college. In 2007, she decided to go back to school for a fine arts degree and took out an additional $60,000 in loans, which shot up to $88,000—after she dropped out of the program.

Johnson is currently working at a non-profit and is struggling under her huge debt burden. “What really [makes me angry] is I should never have been given those loans,” Johnson says. “It honestly was the worst money I ever spent.”

Although Johnson deserves her share of the blame for borrowing ridiculous sums of money and then dropping out of college, she also brings up a great point. Normally it wouldn’t be in a bank’s self-interest to lend such serious money to such students. But thanks to politicians, it is in their self-interest.

In the past, student loans were much harder to come by. They were given out more like mortgages—or how mortgages used to be. If you wanted a loan for a home, you had to have a good job and good credit history, and you had to put down good collateral (the property). Without these things, the bank simply wouldn’t give you a loan. It knew you were more likely to default, and it would not get its money back, much less make a profit off you.

Yet all a student has to do today is get accepted to a college, and he can get hundreds of thousands of dollars in low-interest-rate student loans simply handed to him. Why?

To induce banks to give ever greater loans to virtually all students who go to college, Congress has passed a law saying that students simply can never default. A struggling student can even declare bankruptcy and still not have his debt wiped clean. Another law says that when a student does stop making his payments, his wages can be garnished without even appearing before a judge and justifying a court order.

Of course, banks are happy to lend under that sweetheart deal.

Lenders should be free to give loans to any student, but they should not be able to pin people up against a law that makes it illegal for a judge to wipe out that debt.

Doesn’t it make more sense for banks to lend based upon real-world factors? Things like: what grades did the student get in high school; did the student work a job in high school; does the student have good references; and what degree program does the student want this money to pay for? If a student wants a loan to take courses in Philosophy of Star Trek (no joke), that should be his or her choice. But it is also the bank’s prerogative to charge a higher interest rate, or decline to give that student a loan at all, since the odds of him finding a job afterward and paying back his loan are virtually nil.

This would fix several problems, such as weeding out those students who shouldn’t—or don’t really want to—be there. It would bring accountability and consequences back into the system.

Pandering Schools

Over the past decade, the cost to go to college has soared an inflation-adjusted 164 percent! Why? Because colleges and universities have found a great way to help themselves to the government’s money and the student’s money—or the bank’s money and the student’s debt. It’s called “tuition adjustment.” Instead of keeping tuition and other charges relatively steady so that the student pays less and the government pays the rest, college administrators have simply raised their prices.

If the government stopped taking ever growing billions of taxpayers’ dollars and loaning or granting them to students, universities would no longer be able to raise tuition prices indiscriminately. Meanwhile, students would have to take degree programs that are worthwhile. Thus universities would have to find cost savings and cut useless and wasteful programs. If universities wanted to offer programs for occupations that paid less, they would have to reduce tuition costs to attract students. In short, universities would have to go back to trying to attract students, as opposed to having an endless supply of students to milk each year.

Thousands of students go to college just because government and university propaganda convinces them to, and give little thought to the realities of finding a job after graduation. They take classes based not on what will prepare them for a career, but on what happens to interest them at the time, or what is easiest. Colleges teeming with these students have broadly responded by dumbing down their curricula to appeal to more students, and so more students can pass.

This system has produced a generation of students taking degree programs that are, essentially, worthless. Some students at Harvard spend $62,000 per year working toward degrees in Folklore and Mythology. Courses include Witchcraft and Charm Magic, Continuing Oral Traditions in Indigenous Communities, Hero and Trickster, and African Women Storytellers. Four-year total cost: $248,000. Job prospect: zero. Probability of debt slavery: Close to 100 percent.

Thousands of students are borrowing bundles to pay for these types of degrees. In 2010, 89,000 students graduated with Fashion Design degrees. Did they know that only 22,000 people in the country actually work in that field? Each year approximately 89,000 students graduate with theater degrees, even though only 155,000 people in the U.S. actually work as actors, directors or producers. About 50,000 American students per year graduate with Art History degrees. But how many art museums are there in America? Approximately 92,000 graduate with Visual and Performing Arts degrees; 55,000 graduate with Literature degrees, while 97,000 graduate with a degree in Psychology.

Then there are all the students who graduate with majors that end in “studies”: Gay and Lesbian Studies, African American Studies, Women’s Studies, Medieval Studies. These degrees should be marketed, “Studies in how to make yourself obnoxious to a potential employer and never get a job.”

Students then spend much of the rest of their lives paying for these degrees on salaries not much better than minimum wage.

And sometimes they don’t even get the degree. Each year around 2.3 million hopefuls enroll in college. Over half of them drop out before finishing.

In all of these cases, their debt still needs to be paid.

The End Result

Even the many students who take worthwhile subjects are not getting a quality education. The fruits of this education system gone wrong are becoming increasingly evident. To take one shocking example, in 2005, over 100 applicants were caught hacking into a website that stored Harvard’s admissions information. When the breach was revealed, the school administration retracted acceptance offers made to students involved in what Harvard labeled a “serious breach of trust.” This seems like a reasonable and just course of action—but an astounding 75 percent of Harvard’s “corporate accountability” class sided with the hackers. These were students in a class on corporate ethics—at Harvard, one of America’s most prestigious universities! They saw nothing wrong with breaking into the school’s website.

The problem is that so many students are graduating without a moral compass. Although this is not an entirely new trend, like student debt, the effects of generational compounding are now being felt.

More than half a century ago, a popular magazine asked, “Is honesty the best policy?” The question was put to 103 top business executives. An overwhelming majority doubted whether a strictly honest policy would enable a man to rise to the top in the business world. Only two answered “yes,” and one of these said he knew he was being naive. One executive surveyed said: “People who don’t get dirty don’t make it.” Another said, “In 30 years I’ve known of only three men who’ve reached executive positions cleanly, and I admit I’m not one of them.” A third responded: “The higher the executive is in the management ladder, the more likely he is to do some dirty work.”

These were the leaders of America’s most prestigious businesses. They were the products of America’s most prestigious colleges. And that was more than 50 years ago.

They are the ones who taught the people teaching our college students today.

An appraisal of modern society reveals selfish motivation, disregard for public good, mean practices, dishonesty, dog-eat-dog competition and unbridled greed! This world is increasingly lacking the true values and the outgoing concern for others that would bring happiness.

If colleges required an exit exam upon graduation, it should ask: Can any society that values money and power over honesty and morals continue to prosper? This is the crux of the problem: moral breakdown.

There has always been greed and selfishness. But it is hard to deny that the bad fruits are multiplying: Enron, Arthur Andersen, Global Crossing, WorldCom, Long-Term Capital Management, Countrywide Financial, Bear Stearns, General Motors, aig, Fannie Mae, Freddie Mac, Lehman Brothers, Bernie Madoff, Jerome Kerviel, Medicare, Medicaid, Social Security, and the list goes on.

It’s simply a case of cause and effect. The numerous failed and fraudulent financiers, brokers, bankers and politicians of the day are simply the products of their education.

Most of society’s greatest problems—in leadership, government, economics, science, international relations, and education itself—trace back to the fundamental failure of our education system.

An Example for the Future

This broad failure is part of the reason Herbert W. Armstrong College was founded.

Herbert W. Armstrong College is partially sponsored by the Trumpet’s publisher, the Philadelphia Church of God. It is based on a different model. It is free from the system of greed. This college cares about its students and wants them to be prepared for the future when they graduate—not dreading it. This world needs a living example of the college’s motto: “Education with vision.” It needs people who graduate knowing how to live, and how to be a true success—not just having textbook recipes to give them a better shot at making money.

At Herbert W. Armstrong College, students pay about $6,000 per year. They enroll with $4,000 up front, which offsets much of the cost for freshman year. Thereafter, all students pay for the rest of their room, board, supplies and tuition through a 20-hour-per-week student work program. About half of their student salary is withheld to pay for ongoing college expenses—enabling all of them to graduate from college debt-free.

Besides helping to pay off college fees, the student work program offers valuable on-the-job training that prepares students for their careers and teaches work ethic, integrity, dependability, responsibility, creativity, resourcefulness, ingenuity, and other valuable life skills.

But Armstrong College offers much more than job training for our students. Here, students learn about the real purpose for human life; they learn true values.

Armstrong College takes its name from Herbert W. Armstrong, who raised up three liberal arts colleges. The philosophy of this college is based, as Mr. Armstrong wrote, on the recognition that “true education is not of the intellect alone, but of the whole personality—not alone of technologies, sciences and arts, but an understanding of the purpose of life, a knowledge of the spiritual laws which govern our lives, our God-relationship and human relationships; not a memorizing of knowledge alone but a thorough training in self-discipline, self-expression, cultural and character development; not book learning only, but broadening travel and experience; not only hearing and learning, but doing.”

At Armstrong College, the emphasis is on building character, developing a sound mind, becoming emotionally mature and socially balanced, cultivating a well-rounded and service-oriented personality, and learning to appreciate the finer things in life. Here students learn how to apply the more specific, job-oriented, specialized skills that they will obtain throughout a lifetime of ongoing education. ?
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Student Debt as a Moral Issue

Student Debt as a Moral Issue

By Noam Shpancer

A few months ago I took several of my students to a conference in Chicago. Many of my students come from small towns in Ohio. Many have never been to a big city. Many have never left Ohio, never been on a plane before. It was thus particularly rewarding to chaperone them and witness their excitement and joy as they experienced the Second City.

One evening, strolling down Michigan Ave, the conversation turned to money. I casually asked my students about their loan burden. One of them, a perky senior psychology major planning to get her Masters and become a social worker, said she had $80,000 in student loan debt. I was shocked.

Now, I am not entirely naïve about the problem of student loan debt. Until this year, I had one myself. A university degree is still—and perhaps more than before—the passport to the American middle class life.

Demand for education is high, classroom seats in good schools are in limited supply, and so prices tend to go up. Tuition rate hikes routinely outpace inflation. Thus, students are pushed into larger debts. According to the NY Times, the average student loan debt in the US topped $23,000 last year. Much has been written recently about the attendant economic and social hazards. A debt of $23,000 is a troubling burden, for students and parents.

But a debt of $80,000 is something else entirely.

You can perhaps make a case that debt of this magnitude is justified in some unique cases—such as in the process of obtaining a highly valuable degree from a top notch institution. Some professions pay very well. And Ivy League degrees practically guarantee higher starting salaries. But in this particular context—in my reality and that of my students—such a debt is simply not justifiable.

The difference between 23k and 80k debt is a bit like the difference between drinking and driving drunk. If I see a student of mine drinking beer, I may feel uneasy, or worried. I may even say something about responsibility. But if I see a drunken student get behind the wheel, I’m obligated to intervene. An $80,000 debt, for my students, is akin to getting behind the wheel while plastered. it is a recipe for disaster.

Like most private liberal arts institutions, my university prides itself on nurturing students. Many formal systems and procedures are in place to identify and address potential problems and pitfalls students may encounter as they pursue their degrees. We track student attendance, we track their grades, we advise them on which courses to take so as to stay on track toward graduation; we make sure they take the right load—that they don’t over-burden themselves.

There is a medical clinic on campus, as well as career counselors at the ready and free psychotherapy sessions. There are writing labs and tutors and study groups and remedial classes for those who are academically behind, or unprepared. There are assorted advocacy and support group and myriad religious activities.

There are social clubs and Greek organizations and many opportunities set up to help students find company, identity, a sense of belonging; we’re trying to take care of them while they learn the tools that will facilitate their ascent in the world.

Yet nobody, it seems, is looking out for their financial well-being. Nobody is there to monitor their debt load, throw up red flags and email notifications, set up consults, supports, or interventions.

One would be hard pressed to name three issues more critical to a young person’s chances of success in America than financial solvency, know-how, and responsibility. Yet we do little to help our students achieve these goals. In fact, we systematically undermine them.

You can probably guess why that is. Private liberal arts universities like mine are tuition-driven. We need that money to survive. Moreover, money matters in the US are private and personal. Adult Americans such as our students are entitled to act however they want with regard to their money. Americans, it is a well established fact, are entitled to do dumb things with their money. And they often take spectacular advantage of that entitlement.

But universities are not just businesses. They play a unique role in the life of young people and the life of the culture. A university in this regard is like a church—it requires money to exist well, but money should not be the goal of its existence. If a church is in financial trouble, it still should not sell its soul to the devil for an endowment. If it did, it might become wealthy, but it would cease to be a church.

The goal of university is to facilitate the future success of its students. A university that lets a would-be social worker (around 30k average starting salary, after graduate school, if they find a job) take on $80,000 in debt is negligent in terms of that goal.

The university may become solvent by taking this money, but in doing so it ceases to be a university.

Now, it’s true that professors and administrators in liberal arts institutions all around the country have not been in a very good mood of late. The business model that has sustained many small, private, non-Ivy League colleges around Ohio and the nation is dying. Online education is about to take many such institutions out of business. Soon enough, students will be able to receive great lectures, study materials, and help online; they will be able to take tests and earn diplomas and certificates matching their performance. They will be able to earn reputable degrees and acquire real knowledge and skills at home through the digital college, on their own time, for a fraction of the cost of traditional college.

First rate research institutions that don’t depend on tuition money will survive, as will private Ivies that cater to rich clientele and offer the benefits of national brand identifications and connections. But places such as the one that employs me are feeling the financial squeeze, and may go out of business in the not-too-distant future. And so it is no surprise that faculty and administrators are reluctant to do anything that might reduce enrollment and undermine further their already shaky financial stability. Little wonder the issue of student debt doesn’t get much attention on campus right now.

However it should. If we decide to fight to sustain the old classroom model of college education, it should not be on the backs of our students. If small liberal arts colleges are destined to fade out, we should not go out in a bitter, clueless and self pitying cloud of shame, dragging our students down with us.

The academic life—in particular the small liberal arts college tenured professor life—has been for a long time the best life America could offer. And for a while yet, that remains true. The quality of life in academia emerges from a unique blend of intellectual challenge, personal autonomy, and financial security. But in no small part, the quality of life in academia hinges on the palpable sense that you are doing good; that you are providing young people with real benefits, both tangible and intangible, that will help them—and if they don’t help, at least they won’t hurt. This sense of being on the side of goodness is what’s being undermined by letting a psychology undergrad take on $80,000 in student loan debt.

Universities, and faculty, should honor core commitments even—perhaps particularly—when under great duress. Our biggest commitment is to our students. Our biggest commitment to our students is to try to tell them the truth. The truth is that, for most people, taking on $80,000 in debt in the service of a social work degree is not a move that makes any sense these days. Universities should explicate their commitment to student solvency. They should establish effective formal mechanisms to supervise student debt, dispense sound, timely advice and guidance to students and their parents in this regard, and insist on first doing no financial harm. Failing to do so means that we are complicit—by fatigue, by willful ignorance, by lazy habit, by self-deception, or by wickedness; in other words by all those things we try to teach our students to shed and reject—in betraying our charges, and therefore also ourselves.

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The Fed Balance Sheet: What is Uncle Sam’s Largest Asset?

The Fed Balance Sheet:
What is Uncle Sam’s Largest Asset?

Custom Search

By Doug Short

Note from dshort: I’ve updated the quiz based on yesterday’s Q1 Flow of Funds release. Hint: The correct answer is the same, just more incredible.

Pop Quiz! Without recourse to your text, your notes or a Google search, what line item is the largest asset on Uncle Sam’s balance sheet?

A) U.S. Official Reserve Assets
B) Total Mortgages
C) Taxes Receivable
D) Student Loans

The correct answer, as of the latest Flow of Funds report for Q1 2012, is … Student Loans.

The College Conspiracy

The rapid growth in student debt has been a frequent topic in the financial press. One stunning chart that caught my attention illustrated the rapid growth in federal loans to students since the onset of the great recession. Here is a chart based on data from the Flow of Funds Table L.105, which shows the Federal Government’s assets and liabilities.


As I point out on the chart, the two callouts are for Q4 2007, the quarter in which the Great Recession began (December 2007) the most recent quarter on record, Q1 2012. The loan balance has risen and astonishing 332% over that timeframe, most of which dates from after the recession.

This chart only includes federal loans to students. Private loans make up an even larger amount. Earlier this year the Consumer Financial Protection Bureau (CFPB) posted an article with the attention-grabbing title: Too Big to Fail: Student debt hits a trillion. The details of the private student loan market are not readily available, but CFPB plans to publish its study results on the topic this summer.

Again. What line item is the largest asset on Uncle Sam’s balance sheet?

A) U.S. Official Reserve Assets
B) Total Mortgages
C) Taxes Receivable
D) Student Loans

But back to our quiz. Student loans may be a liability on the consumer balance sheet, but they constitute an asset for Uncle Sam. Just how big? Nearly 35% of the total federal assets, over four times the 8.6% percent for the total mortgages outstanding.

Of course, assets are, sadly, the trivial side of Uncle Sam’s Flow of Funds balance sheet — about 1.36 Trillion. The liability side totaled 12.65 Trillion at the end of Q1 (details here).

Student loan debt is something we’ll want to continue watching, especially when more details of the private loan market becomes available.

Footnote: For those who wonder how much the pie chart above differs from the Q4 2011 version, here’s the previous version, based on the data reported in the March 8, 2012 release.

Remember, if you have a question or comment, send it to [email protected]
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© Copyright 2012, Advisor Perspectives, Inc. All rights reserved.

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Transcript Wars

Colleges Withhold Transcripts From Grads in Loan Default

Dave Lindorff

More than ten years ago, Pedro Rodriguez, a talented keyboard musician, came from his colonial homeland of Puerto Rico to go to Temple University. From a low-income family, he depended heavily on student loans to finance his four-year undergraduate study. Graduating summa cum laude with a bachelor’s of music, he went on to earn a master’s degree in music from Temple and then was hired for three years to teach there as an adjunct. By the end of college, he was $62,000 in debt but was making payments regularly until Temple laid him off, allegedly because of budget cuts. That’s when his problems began. (Pedro Rodriguez is a pseudonym to protect his identity.)

Unable to find a job as a music teacher in the current economic crisis, he eventually went into default on his loans, which included Stafford, Perkins and private bank loans. Then this year, he decided to go on to earn a PhD, which would make it possible for him to get hired in his field. He applied to a top-rated university in the Northeast, but when it was time to send his school transcripts, Temple froze him out. “They said as long as I was in default on my loans, they would not issue a transcript!” says Rodriguez.

A spokesman from Temple confirms that it is school policy to withhold official transcripts from graduates who are in default on their student loans. As it turns out, the school is not alone; this is the position taken by most colleges and universities, though there is no law requiring such an extortionate position. They do this despite the fact the colleges themselves are not out the money. They have received the students’ tuition payments in full and are in effect simply acting as collection agencies for the federal government.

The US Department of Education says only that it “encourages” colleges to withhold transcripts, a tactic which the department, in a letter to colleges, claims coldly “has resulted in numerous loan repayments.” But particularly in a time when the real unemployment rate is stuck at over 15 percent, or, if long term unemployed who have given up looking for work are included, at 22 percent, it seems not just heartless, but counter-productive for schools to block their own graduates from obtaining a document they need to move on to a higher degree or to get hired in their chosen field.

“It’s worse than indentured servitude,” says NYU Professor Andrew Ross, who helped organize the Occupy Student Debt movement last fall. “With indentured servitude, you had to pay in order to work, but then at least you got to work. When universities withhold these transcripts, students who have been indentured by loans are being denied even the ability to work or to finish their education so they can repay their indenture.”

The growing tsunami of student loan defaults is more than a series of personal tragedies. It is killing the dream of many low-income students who saw college as the best chance to rise out of poverty, only to find that after borrowing heavily to pay for school, they cannot get the paper needed to document their accomplishments, cannot get a job and cannot even declare bankruptcy to escape their plight. Congress, after pocketing wads of bank lobbying cash, made it all but impossible to use bankruptcy to escape student loans, requiring a court finding of “undue hardship”—an almost impossibly high legal hurdle.

As Rodriguez says, “Temple likes to boast that they are the most diverse campus in the country, but the reason is that they have a lot of poor students from Philadelphia and from other parts of Pennsylvania. But with these policies, they aren’t really helping these students. They are helping to crush them, because they will graduate and then end up with debt that they can never repay.”

Student loans pose a crisis for the economy too. Outstanding student loan debt last October topped the $1 trillion mark, easily surpassing total credit card debt. Last year alone, as tuitions have soared and scholarship aid has plunged, college students borrowed a record $100 billion for tuition and expenses. The default rate on that all that student debt is just under 9 percent, meaning nearly one in eleven student borrowers has fallen more than nine months behind on monthly payments. Many more students are chronically months behind in their payments but haven’t hit the default point yet. (Some schools, like Hunter College in New York City, which is part of the City University of New York, withhold transcripts even from students who are four months late in their payments on certain loans and not in default yet.)

Students who are struggling with their debt payments or who are in default are not spending money on houses, cars or consumer goods. “If the federal government wanted to stimulate this economy,” suggests Rodriguez, “an easy way to do it would be to cancel some or all of the student debt.”

He’s right, and it’s a demand being made by students in the Occupy Movement. Last October, activists with Occupy Wall Street proposed a mass refusal by former and current students to make their loan payments.

Student debt has long been a racket. With the government guaranteeing 80 percent of the outstanding loans (and 90 percent of the loans taken out in 2011), the interest rate on these risk-free loans should be 1 percent or even 0 percent, but instead the rates are set at 3.4-6.8 percent and in the case of bank loans, as high as 12.75 percent. Forgiving some or all of those loans would immediately inject hundreds of billions of dollars into the economy and would increase tax revenues as students unable to get good jobs suddenly get their transcripts released and are able to apply for the jobs they trained for.

Most students have no idea when they take out loans to attend college that they will be held hostage by their own schools if they fall behind later in their repayments. Loan documents typically say nothing about a policy of withholding transcripts, which after all is a policy set by the school, not by the federal government that issues and guarantees the loan.

Meanwhile colleges across the country continue to extort their own graduates. A spokesman from Temple explained that it receives a certain allocation of funds each year to lend to its students and that if it doesn’t aggressively pursue repayment by graduates and students who withdraw from school, it could lose some of that money for lending to new students. But whether that is a real or imagined threat, it leaves unanswered the question of how denying transcripts to students during an unprecedented economic crisis is going to help encourage loan repayment.

“If I cannot get my transcript, how can I get a job and pay back my loans?” asks Rodrguez. “If I cannot obtain an official transcript, how can I apply for and earn a PhD so I can eventually get a job and earn enough to repay my student debt? The answer is I cannot. I will have to spend my life working for minimum wage and I’ll never get out of debt.”

“It’s a vicious cycle,” says Stephen Dunne, an attorney in Philadelphia who handles a lot of student loan default cases for former students being hounded by their alma maters. “They get wages garnished, get bank accounts attached, and have their credit records ruined so that they cannot get hired anywhere, cannot buy a car, and if they wanted to start a company, cannot even do that. And they can never escape because the banks have lobbied to have all these loans exempted from the bankruptcy laws!”

As Dunne points out, the consequence of this bank-funded corruption of the bankruptcy laws is perverse. “If you have a deadbeat who runs up $100,000 in credit card debt buying expensive cars, fancy clothes and vacation trips, he can just declare bankruptcy and discharge all that debt. But if a diligent student borrows $100,000 to get an education, and then can’t get a job because there are no jobs, that debt cannot be forgiven or reduced.”

Dunne says students and indebted graduates need to band together to let elected officials know that what is being done is unfair. “If we don’t go back to the way it was, so students can escape these crushing loans, we’re on the way to developing a caste system in America,” he warns.

At least someone in Congress is listening. Informed about the Department of Education’s ongoing encouragement of a policy of transcript extortion, Representative Hansen Clarke of Michigan, told the Nation, “The practice of withholding transcripts because of a graduate’s default on student loans is yet another example of a system that is rigged against student borrowers. It is time for Congress to take action in their defense. I am investigating this practice of withholding transcripts and will take action.”

On March 12 Clarke introduced a student loan forgiveness bill that, if passed, would declare that if a student makes loan payments of 10 percent of discretionary income each year for ten years, all remaining debt would be cancelled. The bill would also cap interest rates on student loans at 3.4 percent. The congressman also plans to introduce soon a companion student loan borrower bill of rights that would restore students’ ability to escape student debt through bankruptcy and prohibits colleges from withholding transcripts to students who fall behind in their payments.

While the fate of those bills is uncertain, Rodriguez, at least, may have dodged Temple’s draconian policy and escaped his own debtor’s hell. The graduate school he applied to relied upon his unofficial transcript and recently admitted him to its music PhD program with full funding.

Hundreds of thousands of other students are not so lucky. Public universities, faced with cutbacks in support from state legislatures, are particularly aggressive in extorting graduates over defaulted loans and are also more bureaucratic about only accepting official transcripts from applicants to their programs.

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Student loan scam


student loan scam

By Andrew Leonard

Earlier this year, the U.S. House of Representatives voted to pass a bill with the impressive, everybody-can-get-behind-this title “Protecting Academic Freedom in Higher Education Act.” Sponsored by the ultra-conservative North Carolina Republican Virginia Foxx, the bill ostensibly took aim at an issue close to small-government-loving hearts: intrusive federal regulation of for-profit colleges — fast growing, highly profitable outfits like DeVry University or the online-only University of Phoenix.

Like so many of the bills passed by the House since Republicans gained the majority in the 2010 midterm elections, the bill was designed to repeal specific actions taken by the Obama administration. In this case, the issue at hand was the Obama administration’s efforts to ensure greater “program integrity” in the for-profit educational sector. Specifically, a new federal definition of what constitutes a legitimate academic “credit hour” and a new requirement that all online providers of post-secondary education be accredited in each and every state in which they do business.

Foxx’s bill repealed both measures. (The Senate has yet to address the measure.) According to Foxx, the new federal regulations threatened “innovation” in the educational sector. As reported by InsideHigherEducation, Foxx is on record as declaring that for-profit colleges do a “a better job of being mindful about efficiency and effectiveness than their nonprofit peers.” By, for example, flexibly providing online education when and where low-income working Americans want it, the for-profit free market delivers the kind of quality higher education that Americans so desperately need. The government should just stay out of their business. The College Conspiracy.

I stumbled upon this story while researching the student loan crisis and at first I was perplexed. I didn’t understand why Republicans were opposed to higher academic standards for the for-profit sector, and I didn’t get the connection to student loans. But it didn’t take much research to discover what was really going on: an example of blatant hypocrisy sufficient to outrage even the most jaded observer of American politics.

The for-profit educational sector is an industry almost entirely subsidized by the federal government. Around 70-80 percent of for-profit revenues are generated by federal student loans. At the same time, judging by sky-high dropout rates, the for-profit schools do a terrible job of educating students. The Obama administration’s efforts to define a credit hour and require state accreditation were motivated by a very understandable desire: to ensure that taxpayers are getting their money’s worth when federal cash pays for a student’s education. In contrast, Foxx’s legislation is designed to remove that taxpayer protection. So here’s a more accurate title for her bill: “The Protecting the Freedom of For-Profit Schools to Suck off the Government Teat Without Any Accountability Whatsoever Act.”

The for-profit educational sector has been growing extraordinarily rapidly for the past decade: 12 percent of all post-secondary students are now enrolled in for-profit schools, up from 3 percent 10 years ago. But the main beneficiaries of the growth appear to be the shareholders and executives of the largest publicly traded for-profit schools, not the students.

In 2008, for-profit schools registered a a graduation rate of 22 percent. (Public and private non-profits registered 55 percent and 65 percent respectively.)

54 percent of the students who enrolled in 2008-2009 in 14 publicly traded for-profit schools had withdrawn without a degree by 2010.

The biggest player in the for-profit sector, the University of Phoenix, graduated only 9 percent of its B.A. candidates within six years.

The pathetic performance of the for-profit sector in delivering actual degrees becomes all the more alarming when you realize that most of the students who are dropping out paid for their educations with student loans that have to be paid back: According to a report released in the summer of 2010 by Sen. Tom Harkin, D-Iowa, “Emerging Risk?: An Overview of Growth, Spending, Student Debt and Unanswered Questions in For-Profit Higher Education,” in 2009, the five largest for-profit schools reported that government grants and loans accounted for 77.4 percent of their revenue.

The Harkin reports comes to a stark conclusion:

The Federal government and taxpayers are making a large and rapidly growing investment in financial aid to for-profit schools, with few tools in place to gauge how well that money is being spent. Available data show that very few students enroll in for-profit schools without taking on debt, while a staggering number of students are leaving the schools, presumably many without completing a degree or certificate.

It is precisely this situation that the Obama administration’s efforts to ensure “program integrity” were designed to address. Student loans are tied to credit hours: By requiring a more rigorous definition of credit hour, the administration was attempting to make sure that government money was paying for actual education. Similarly, the requirement that all for-profit schools must be accredited by the individual states in which they do business was a measure designed to keep fly-by-night online schools operating out of states with weak accreditation requirements from enrolling out-of-state students and ripping them off. The issue is not “innovation.” The issue is basic consumer protection.

One would imagine that Republicans, who theoretically oppose government involvement in the private sector, and are always looking for ways to cut government spending, would approve of efforts to seek greater accountability for taxpayer funds. Virginia Foxx, after all, was notorious for being one of only 11 members of Congress to vote against a federal relief package for victims of Hurricane Katrina, citing the “high potential for the waste, fraud and abuse of federal tax dollars.”

But as it turns out, Foxx herself is benefiting from the waste and abuse of federal tax dollars. Among the top 20 financial contributors to Foxx in the 2011-2012 cycle are the Association of Private Sector Colleges/Universities, the Apollo Group (owner of the University of Phoenix), and Corinthian Colleges. Since federal student loans comprise the vast majority of the revenues of those for-profit schools, it follows that their campaign contributions to Foxx are also made possible by U.S. taxpayers.

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Biden Admits Government Subsidies Have Increased College Tuition

Biden Admits Government Subsidies Have Increased College Tuition

Vice President Joe Biden admits that the government intervening with the free market and providing subsidies for students to attend college have contributed to the increase in college tuition.

“By the way, government subsidies have impacted upon rising tuition costs. It’s a conundrum here,” Biden said to a student who asked about the government’s intervention in the free market system.

Biden was talking about the importance of tackling rising college costs at Florida State University in Tallahassee Monday morning.

Student: Good morning Mr. Vice President. I was wondering how do you feel about the idea that government subsidies and interference with the free market, for example, by artificially increasing availability of student loans is at least partially responsible for rising tuition costs. And now we’re facing a possible student loan bubble and subsequent collapse just as we’re coming out of the housing crisis.

Vice President Joe Biden: Well, say the first part of your question again about how we’re artificially creating what?

Student: By manipulating variables in the free market and giving out government subsidies that maybe is partially responsible for rising tuition costs.

Biden: By the way, government subsidies have impacted upon rising tuition costs. It’s a conundrum here. But if we went the rate your view of the free market route what we would have done is we would have not of done that. We would not have increased pell grants, for example. And there would be 9 million fewer students in college today.

And there would be hundreds of thousands and millions of students who would not be in college who don’t get Pell grants because there was no ability for them to borrow money through Perkins loans and/or have the tax deduction.

So you are right, in a pure free-market the college tuition would have to be lower because there would be fewer people going to school, they wouldn’t have as much coming in. But the end result is we would probably have — we go for the better part, half a generation, of going 16th in the world maybe down to 20th in the world.

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