Tag Archives: Student Loan Debt

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. ?

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.


Student-Loan Debt Tops $1 Trillion

Student-Loan Debt Tops $1 Trillion

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The amount Americans owe on student loans is far higher than earlier estimates and could lead some consumers to postpone buying homes, potentially slowing the housing recovery, U.S. officials said Wednesday.

Total student debt outstanding appears to have surpassed $1 trillion late last year, said officials at the Consumer Financial Protection Bureau, a federal agency created in the wake of the financial crisis. That would be roughly 16% higher than an estimate earlier this year by the Federal Reserve Bank of New York.

Total student debt outstanding appears to have surpassed $1 trillion late last year, roughly 16% higher than an estimate earlier this year by the Federal Reserve Bank of New York. Joshua Mitchell has details on Markets Hub. (Photo: AP/Reed Saxon)

The new figure—released Wednesday at a banking conference in Austin, Texas—is a preliminary finding from a study of student debt that the bureau plans to release this summer. Bureau officials said the estimate is based on a survey of private lenders, as opposed to other estimates that rely on a sampling of consumer credit reports.

CFPB officials say student debt is rising for several reasons, including a surge in Americans going to college in recent years to escape the weak labor market. Also, tuition increases—which many colleges say are needed to offset big cuts in state funding—have many students taking out bigger loans.

In addition, the interest costs on older loans are climbing as borrowers fall behind on payments, reflecting mounting financial strains, bureau officials said. New York Fed data show that as many as one in four student borrowers who have begun repaying their education debts are behind on payments.

Law School Wins in Graduate Suit

Economists say college is an increasingly good investment because of the widening pay gap between jobs that require a degree and those that don’t. Ultimately, the educational degrees and added skills are meant to help workers earn higher incomes that, in time, will more than offset the student debt.

But as more people go to college and assume bigger loans for education, they may take longer than previous generations to hit key milestones such as buying a house or getting married, U.S. officials and economists say. It could take longer for heavily indebted graduates to save money for a down payment on a home, or it could be harder for them to qualify for mortgages.

Rohit Chopra, student-loan ombudsman for the Consumer Financial Protection Bureau, said student debt could ultimately slow the recovery of the housing market. “First-time home-buyers are a substantial part of the housing market,” Mr. Chopra said in a speech at the banking conference in Austin. “Instead of saving for a down payment, these borrowers are sending big payments every month.”

Student debt is a burden not just for recent college graduates in their 20s but also parents, who often co-sign their children’s student loans, as well as midcareer professionals who opted to go back to school during the sluggish recovery.

David Johnson, a 58-year-old groundskeeper from Milton, Wash., decided to leave gardening after more than two decades to become a nurse. Two years ago, he took out about $18,000 in private and federal loans to attend a local community college that had a nursing program. After completing prerequisite classes, he learned that the program had a waiting list. With no guarantee of getting into the nursing program, he is wondering whether to take out more debt to continue in school.

“It’s an awkward place to be. I’m not yet a nurse but I’ve got all this debt and interest compounding on me,” he said. “I don’t have a lot of working years left and I’m saddled with this debt.”

A version of this article appeared Mar. 22, 2012, on page A5 in some U.S. editions of The Wall Street Journal, with the headline: Student-Loan Debt Tops $1 Trillion.


Student-Loan Delinquencies Rise Sharply! Welcome to Bankruptcy 101

While the job market remains sluggish, student loan debt continues to rise, fueling fears that a higher-education spending bubble may be underway.

Outstanding student debt has climbed 25 percent since the start of the financial crisis in 2008, according to the Federal Reserve Bank of New York — an increase from $440 billion then to $550 billion now. By contrast, every other major category of consumer debt, including mortgage debt, credit card debt, auto loans and home equity loans, is lower today than it was in the fall of 2008.

Not only has student debt risen precipitously, but more and more of those loans aren’t getting paid off on time. In the second quarter of 2011, the rate of student loans that were more than 90 days past due rose from 10.6 percent to 11.2 percent, according to the New York Fed.

Looking at other major types of debt — again, including home loans, auto loans and mortgage and credit card debt — those delinquency rates either declined or stayed flat for the quarter. But delinquency rates for student loans rose and continue to rise.

Experts have warned for years that a bubble may be developing in higher education, as students take out loans to pay for tuition and then find themselves hamstrung by debt and unable to find a job once out of school.

The problems of student-loan delinquency and default are only expected to get worse. Salaries and employment rates for recent college graduates have dropped: The median starting salary for a member of the class of 2009 or 2010 is only $27,000, down from $30,000 a couple of years ago. A recent report from Moody’s Analytics predicted that over the next few years, “many students will be unable to service their loans as income growth falls short of borrowers’ expectations.”

And the debt-ceiling deal that lawmakers reached in Washington earlier this month contains additional provisions that will make life harder for students taking out loans. One section of the deal changes the way interest is collected on a certain kind of federal loan for graduate students, meaning that those borrowers will start accruing interest on their loans before they’ve finished school.

The Moody’s report found that student lending grew by at least 10 percent each year between 2000 and 2010, including during the financial crisis and the Great Recession.

Over the past several decades the expense in the cost of education has grown dramatically along with an upsurge in attendance. Some have referred to this as the College Conspiracy

“Fears of a bubble in educational spending are not without merit,” the report warned.

Last month, the Chronicle of Higher Education reported that one out of every five government student loans that entered repayment in 1995 has since gone into default.

Yet a college degree still appears to be a significant advantage when it comes to the job market. A recent report from the Labor Department shows that for workers 25 and over with at least a bachelor’s degree, the unemployment rate in July was 4.3 percent — compared with 8.3 percent for workers with “some college,” and 9.3 percent for workers with just a high school diploma.

In other words, while unemployment for high school graduates slightly exceeds the national rate of 9.1 percent, the jobless rate for college graduates is less than half that.


Don’t Count on Settling Those Student Loans

The Atlantic Home
Saturday, June 11, 2011

Don’t Count on Settling Those Student Loans
By Megan McArdle

Jun 10 2011, 10:23 AM ET 319

Elie Mystal at Above the Law has a piece on what it’s like to live as a student loan defaulter. There’s a lot of back and forth in the comments as to whether Elie is a terrible human being or a terrible victim of rapacious banks, about which I will not comment except to make two points:

1) Law schools are a huge profit center for universities (high fees, low costs) so if you want to pin the blame for student loans on someone, this is a more appropriate place to look.

2) As someone who graduated from business school with nearly $100,000 in student loans, and whose first permanent full-time position paid $40,000 a year in New York City, I feel entitled to say that for anyone with a professional degree, defaulting on your loans is a choice, not something that just happens to you.

But that debate is not what interested me about the post. This is what I found interesting:

Here is the question from a reader:

I want to stop paying my loans, force them into default, and once they have been sold to a collection agency (probably at less than face value), pay an agreed lump sum to discharge all my loans. Have you heard of anyone doing something similar? If so, what did the collection agency agree to in order to discharge the loan (50 cents on the dollar?).What are the repercussions besides the low credit score? Do legal employers look at credit score when making hiring decisions? Your advice would be appreciated.

To be clear, I did not force my student loans into default as part of some self-directed plan. I’m not that smart. And if I had it to do over again, I probably would have found some way to make minimum payments on everything. Some people, especially landlords, treat people with low credit scores worse than ex-convicts. I am not advocating a plan to send your debt into default.

But 50 cents on the dollar? Don’t give them that much, bro’. If I had the money, I could get out from under my debts for about a third of the principal that I still owe. Easy.

It’s interesting because this is basically the exact opposite of what I’ve always been told about student loans.

You will be unsurprised to hear that Mystal’s correspondent is not the first person to think of doing this. In fact, the default rate on student loans during the first two years out of school is almost 7%. Once they’ve consumed the education, a large number of students seem to decide that it wasn’t worth it, and that therefore someone other than them should have to eat the cost.

Because it’s such a common idea, Congress has made it very difficult to shed student loan debt. No student loans, not even the private ones, can be discharged in bankruptcy. As a result, all the personal finance experts I’ve ever listened or talked to say that they’re incredibly hard to get rid of.

From what I hear, your federally guaranteed student loans (for me, about 40% of my debt IIRC) simply will not settle for less than the principal of your loan. The bank has no incentive to settle at all, because the loans are guaranteed, and the government has no interest in settling. Why should they? If you don’t pay, they can (and will) seize your income tax refunds, even your Social Security checks, to pay off the loans. Unlike private creditors, they do not even need to go to court in order to get a garnishment order–and because federal laws trump state law, they can garnish up to 15% of your wages even in states where it’s not allowed. And they’ve got an income-based repayment plan that makes these loans affordable for the genuinely strapped.

Private lenders have more incentive to settle, but not a great deal more. Most unsecured debt, like credit card balances, personal loans, and medical bills, can and will be settled for pennies on the dollar–as low as ten cents in some cases (though this usually means that they don’t have any verification of the debt, so I wouldn’t take a settlement this low.) It’s not unheard of for a credit card collector to take 25 cents on the dollar on a valid debt, and 50 cents on the dollar is eminently achievable for many people.

But my understanding is that student loans are the great exception to this rule. Why? Student loans are not bankruptable, not even private ones. A collector for normal sorts of unsecured debt is always working with the threat of bankruptcy in the background; if you try to hold out for full repayment, the debtor can always file Chapter 7. In most cases, that means that unsecured creditors get nothing.

But that’s not the case with student loans. There are only two ways to erase the debt: prove you’re permanently disabled and will never again earn more than a pittance; or die.

Moreover, student loans are large, which means they’re worth suing over. Creditors can correctly assume that most people with a college diploma, or a law degree, are eventually going to have something worth taking: a bank account they can seize, a salary they can garnish. Everything I have ever heard indicates that there is little chance of settling a student loan for less than the principal, and that even that is far from a slam dunk. If the interest has been accruing for a decade or so and is now multiples of the original value of the loan, the lender may waive some of it, but not necessarily all of it. Moreover, most of the amount forgiven counts as taxable income, including a lot of the back interest (any amount in excess of $2500–or all of it if you make more than $75,000 a year.)

And of course getting a principal-only settlement requires you to amass a sum equal to the original principal of your student loan–without the creditor finding and seizing it.

In other words, my understanding is that most people who default and eventually “settle” their loans do so for . . . at least as much as they would have paid if they hadn’t defaulted. Attempting to walk away thus seems like an incredibly risky financial strategy compared to making your minimum payments every month and slowly working down the debt.

Now, I don’t know what Mystal’s situation is. Maybe his debt has been sold to a collector who’s offered him a fabulous settlement, or maybe his law degree is going to help him wrangle some deal that’s not available to normal people.

But unless everything I’ve ever been told about settling student loans is wrong, Mystal is giving people a dangerous misimpression that they can default and get their debt burden substantially reduced. I’ve seen some cheering for his post on various blogs that link it, presumably because they think this is a way to really stick it to the banks. But I would hate to see a lot of people follow his lead, and then find out that they’ve trashed their credit score–and in some cases, their employment prospects–in order to get a “deal” that’s no better than what they could have achieved by just making their payments. Can any readers comment? Anyone have success settling student loans for pennies on the dollar?

Update: Commenter SPQR9, who IIRC is a bankruptcy attorney, says

Like you, I think Mystal is completely wrong. For that matter, last time I checked, student loans had no statute of limitations in addition to being largely non-dischargeable. And the “hardship” provision through the DOE is largely “so you are a quadraplegic? Well, maybe we’ll give you a hardship discharge …”

In other words: it’s a very, very bad idea. And trying to stay judgement-proof for 60 years is likely to be more miserable than repaying your loans.

Megan McArdle

Megan McArdle – Megan McArdle is the business and economics editor for The Atlantic. She has worked at three start-ups, a consulting firm, an investment bank, a disaster recovery firm at Ground Zero, and the Economist. More


The Student Loan Lie: 21 Statistics that will make you reconsider going to college

Student Loan Debt Hell: 21 Statistics That Will Make You Think Twice About Going To College

Is going to college a worthwhile investment? Is the education that our young people are receiving at our colleges and universities really worth all of the time, money and effort that is required? Decades ago, a college education was quite inexpensive and it was almost an automatic ticket to the middle class. But today all of that has changed. At this point, college education is a big business. There are currently more than 18 million students enrolled at the nearly 5,000 colleges and universities currently in operation throughout the United States. There are quite a few “institutions of higher learning” that now charge $40,000 or even $50,000 a year for tuition. That does not count room and board or living expenses. Meanwhile, as you will see from the statistics below, the quality of education at our colleges and universities has deteriorated. When graduation finally arrives many of our college students have actually learned very little. Tthey find themselves unable to get good jobs and end up trapped in student loan debt hell for essentially the rest of their lives.

Across America today, “guidance counselors” are pushing millions of high school students to go to the very best colleges that they can get into, but rarely do they caution them about how much it is going to cost or about the sad reality that they could end up being burdened by massive debt for decades.

Yes, college is a fun and it is a really unique experience. If you can get someone else to pay for it then you should definitely consider going!

There are also careers which absolutely require a college degree. Depending on your career goals, you may not have much of a choice of whether to go to college or not.

But that doesn’t mean that you have to go to student loan debt hell!

You don’t have to go to the most expensive school that you can get into.

You don’t have to take out huge student loans.

There is no shame in picking a school based on affordability.

The sad truth is that pretty much wherever you go to school the quality of the education is going to be rather pathetic. A highly trained cat could pass most college courses in the United States today.

Personally, I have had the chance to spend quite a number of years on college campuses. I enjoyed my time and I have some pretty pieces of parchment to put up on the wall. I have seen with my own eyes what goes on at our institutions of higher learning.

The vast majority of college students in America spend two to four hours a day in the classroom and maybe an hour or two outside the classroom studying. The remainder of the time these “students” are out drinking beer, partying, chasing after sex partners, going to sporting events, playing video games, hanging out with friends, chatting on Facebook or getting into trouble. When they say that college is the most fun that most people will ever have in their lives they mean it. It is basically one huge party.

If you are a parent and you are shelling out tens of thousands of dollars every year to pay for college you need to know the truth.

You are being ripped off.

Sadly, a college education just is not that good of an investment anymore. Tuition costs have absolutely skyrocketed even as the quality of education has plummeted.

A college education is not worth getting locked into crippling student loan payments for the next 30 years.

Even many university professors are now acknowledging that student loan debt has become a horrific societal problem. Just check out what one professor was quoted as saying in a recent article in The Huffington Post….

“Thirty years ago, college was a wise, modest investment
,” says Fabio Rojas, a professor of sociology at Indiana University. He studies the politics of higher education. “Now, it’s a lifetime lock-in, an albatross you can’t escape.”

Anyone that is thinking of going to college needs to do a cost/benefit analysis.

Is it really going to be worth it?

For some people the answer will be “yes” and for some people the answer will be “no”.

But sadly, hardly anyone that goes to college these days gets a “good” education.

There’s Nothing Average About An Average Student Loan Debt

No human being is average. An average is a mathematical abstraction. You are no abstraction. You are a real soul with a desire to live and fulfill some purpose in life, for which you need to be free, so that you can meet this purposeful destiny.

To the great apostles of political freedom the word ‘freedom’ meant freedom from coercion, freedom from the arbitrary power of other men, release from the ties which left the individual no choice but obedience to the order of a superior to whom he was attached.

These are the words of Nobel laureate F.A. Hayek in his superb book The Road To Serfdom.

If you review your life, my friend, I doubt that you could argue that you’ve lived it under repression, where you’ve been coerced by an arbitrary power to break your ties with your beloved family and friends to be forced to obey without any other choice a superior to whom you were now dependent.

If you are or have been, on the contrary, like any typical student who has wished to join the ranks of the collegiate, by attending some university campus somewhere, then you voluntarily took on debt. With it you bought into the propaganda that a college degree was the best investment that you could make in your young life.

We really do need to rethink our approach to higher education in this country.

Posted below are 21 statistics about college tuition, student loan debt and the quality of college education in the United States….

#1 Since 1978, the cost of college tuition in the United States has gone up by over 900 percent.

#2 In 2010, the average college graduate had accumulated approximately $25,000 in student loan debt by graduation day.

#3 Approximately two-thirds of all college students graduate with student loans.

#4 Americans have accumulated well over $900 billion in student loan debt. That figure is higher than the total amount of credit card debt in the United States.

#5 The typical U.S. college student spends less than 30 hours a week on academics.

#6 According to very extensive research detailed in a new book entitled “Academically Adrift: Limited Learning on College Campuses”, 45 percent of U.S. college students exhibit “no significant gains in learning” after two years in college.

#7 Today, college students spend approximately 50% less time studying than U.S. college students did just a few decades ago.

#8 35% of U.S. college students spend 5 hours or less studying per week.

#9 50% of U.S. college students have never taken a class where they had to write more than 20 pages.

#10 32% of U.S. college students have never taken a class where they had to read more than 40 pages in a week.

#11 U.S. college students spend 24% of their time sleeping, 51% of their time socializing and 7% of their time studying.

#12 Federal statistics reveal that only 36 percent of the full-time students who began college in 2001 received a bachelor’s degree within four years.

#13 Nearly half of all the graduate science students enrolled at colleges and universities in the United States are foreigners.

#14 According to the Economic Policy Institute, the unemployment rate for college graduates younger than 25 years old was 9.3 percent in 2010.

#15 One-third of all college graduates end up taking jobs that don’t even require college degrees.

#16 In the United States today, over 18,000 parking lot attendants have college degrees.

#17 In the United States today, 317,000 waiters and waitresses have college degrees.

#18 In the United States today, approximately 365,000 cashiers have college degrees.

#19 In the United States today, 24.5 percent of all retail salespersons have a college degree.

#20 Once they get out into the “real world”, 70% of college graduates wish that they had spent more time preparing for the “real world” while they were still in school.

#21 Approximately 14 percent of all students that graduate with student loan debt end up defaulting within 3 years of making their first student loan payment.

There are millions of young college graduates running around out there that are wondering where all of the “good jobs” are. All of their lives they were promised that if they worked really hard and got good grades that the system would reward them.

Sometimes when you do everything right you still can’t get a job. A while back The Huffington Post featured the story of Kyle Daley – a highly qualified UCLA graduate who had been unemployed for 19 months at the time….

I spent my time at UCLA preparing for the outside world. I had internships in congressional offices, political action committees, non-profits and even as a personal intern to a successful venture capitalist. These weren’t the run-of-the-mill office internships; I worked in marketing, press relations, research and analysis. Additionally, the mayor and city council of my hometown appointed me to serve on two citywide governing bodies, the planning commission and the open government commission. I used to think that given my experience, finding work after graduation would be easy.

At this point, however, looking for a job is my job. I recently counted the number of job applications I have sent out over the past year — it amounts to several hundred. I have tried to find part-time work at local stores or restaurants, only to be turned away. Apparently, having a college degree implies that I might bail out quickly when a better opportunity comes along.

The sad truth is that a college degree is not an automatic ticket to the middle class any longer.

But for millions of young Americans a college degree is an automatic ticket to student loan debt hell.

Student loan debt is one of the most insidious forms of debt. You can’t get away from student loan debt no matter what you do! Federal bankruptcy law makes it nearly impossible to discharge student loan debts, and many recent grads end up with loan payments that absolutely devastate them financially at a time when they are struggling to get on their feet and make something of themselves.

So are you still sure that you want to go to college?

Another open secret is that most of our colleges and universities are little more than indoctrination centers. Most people would be absolutely shocked at how much unfiltered propaganda is being pounded into the heads of our young people.

At most colleges and universities, when it comes to the “big questions” there is a “right answer” and there is virtually no discussion of any other alternatives.

In most fields there is an “orthodoxy” that you had better adhere to if you want to get good grades.

Let’s just say that “independent thought” and “critical thinking” are not encouraged at most of our institutions of higher learning.

Am I bitter because I didn’t do well? No, I actually did extremely well in school. I have seen the system from the inside. I know how it works.

It is a giant fraud.

If you want to go to college because you want to have a good time or because it will help you get your career started then by all means go for it.

Just realize what you are signing up for…..

If you have a degree, you may have bought into the belief that an average student loan debt was no big deal since, being average, most students were assuming it to be “the thing to do for anyone going to college.”

The new freedom promised, however, was to freedom from necessity, release from the compulsion of the circumstances which inevitably limit the range of choice of all of us. Freedom in this sense is, of course merely another name for power or wealth.

Doesn’t this sound more like you, nevertheless? Isn’t this what you really wanted? Wasn’t it a desire for freedom from necessity and from having to confront the simple fact that you live in a world where you cannot do everything that your heart desires, that encouraged that voice to whisper in your ear: “With a college degree in my hands I will have the power to become wealthy”?

So, you went ahead and fell for an ancient trick. You had the expectation that you would succeed in showing off to others how free you truly could become, merely by postponing the inevitable – having to pay that average student loan debt.

Yet this trick chained you to a rail along the long road to serfdom. For you will have to pay off those loans. And you will give up far more than they’re worth for it. And who cares if others are now slaves along with you?

Is it not always better to be an insignificant freeman than an average slave?

The Average Student Loan Debt Is More Than What You Owe A Bank!

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 makes it virtually impossible for you to discharge student loan debt through bankruptcy. For as long as you can make money in any way, you will be required by those in real power – your masters, the lenders – to pay what you owe them.

If this “investment” that you made doesn’t pay off, if this average student loan debt proves unweilding, then you literally won’t be able to pay off your loan as you’ve anticipated; that is, you won’t be able to pay it off according to your time line or even your liking. But pay it you shall for as long as you’re alive making traceable money somewhere, somehow.

You will be a slave fettered with electronic chains to your lender’s collections agency. An agency can garnish your wages if your disposable earnings per week exceed thirty times the federal minimum hourly wage.
average student loan debt shakedown.

Put another way, this means that if you make $154.50 or more per week your wages will be garnished.

Your disposable income, which is whatever money you have left after paying all required taxes and national insurances, will not be yours but will belong to the lender by federal law.

What’s the likelihood of this happening to you? Well, you do the math.

Let’s see what should have been the most that you should have paid for your college education. If you’ve paid more than you should have, then you’re screwed.

To estimate this valuation we must calculate what’s known as your capitalization rate or the cap rate of this college “investment” that you’re the proud owner of. Of course, this is a calculation that you should have made way before taking on any student loans. But this exercise should prove valuable to you in many other ways.

Let’s start.

The cap rate is a very useful tool because it helps you figure out whether you should buy an income-producing asset by borrowing for it. Do you think your college education is an asset that can generate income for you? Then let’s determine its cap rate.

To begin this calculation we’re going to use an example to make things easy to understand. We’re going to estimate first the cap rate for an actual business. Then we will use your average student loan debt to estimate your own cap rate for college.

Let’s say that there is an in-home seniors care provider business that you want to buy. It’s going for $25,000. This business produces $2,500 per month after taxes and insurance. Annual net income therefore is $30,000. Let’s say the bank charges 5.25% fixed interest for your loan, and you want to pay the loan in 15 years.

How much of the loan are you paying per year? Dividing 100% by 15 tells you that you’re paying 6.67% of the loan every year. This is your repayment rate. You also already know that you have to pay interest of 5.25% per year for 15 years. So now add the 6.67% repayment rate to your 5.25% interest rate. You end up with 11.92%. This is your cap rate or 0.1192 in decimal form.

Here’s how to use your cap rate to determine whether buying this senior care business makes sense.

Take the $30,000 worth of annual income and divide it by your cap rate of 0.1192, which will give you $201,342. This is the maximum amount of money that you should pay for this business. If you buy it by borrowing $25,000 at 6.67% for 15 years to make $30,000 per year, then you are buying it at a bargain price.

Now let’s estimate a cap rate for an undergraduate in the social sciences going into an entry level job and see how he fairs having embraced an average student loan debt of $24,000.

Should You Have Sought Even For An Average Student Loan Debt?

Junior has consolidated his loans at a rate of 6.75%. His average student loan debt repayment plan calls for paying $24,000 over 20 years. He believes that he will average a gross salary of $50,000 per year. His cap rate is 11.75% which, when divided into $50,000 yields $425,532 as the maximum that he should have paid for his college education. Pretty nifty, huh? Seems like junior made a great decision, except for a few intrusive points.

What if junior can’t get work, can’t break into his career field and ends up working at a job that doesn’t require a degree, making half of what he expected?

What if junior doesn’t have the average student loan debt but more like $35,000, $50,000, $80,000 even $125,000 or more in loans? What then should his education have cost him?

What if junior, being a wage earner rather than a business owner, gets stuck in a tax bracket that doesn’t allow him to net out more than $40,000? After all the median household income in the United States is $46,326.

So half of American households live on less than this income amount gross every year. Only 34% of all U.S. households make more than $65,000. Only 17.8% make more than $118,200 a year and just 2.67% make more than $200,000. College doesn’t guarantee you an individual income in any particular income bracket.

More importantly, we must apply the cap rate to junior’s net income, which is the money from his wages that he has left after paying all his interests, taxes and insurance expenses. That’s called junior’s disposable income.

How much of a personal disposable income would junior have if he had to pay a big student loan, a ton of credit card debt, FICA, unemployment and all kinds of other taxes, plus his insurance premiums for his car, property and health?

The U.S. Census indicates that per capita disposable income in this country is around $35,000. But that’s just the nation’s total disposable income divided by the total population. What if your personal disposable income is only one-third of this?

Do you think it farfetched?

What if I told you that 1 in 5 people filing for bankruptcy right now are college students and that this is just a point along a trend going back for 2 decades?

Here’s what the Networks Financial Institute at Indiana State University had to say about young adults of college age and beyond. Does it sound like people who have lots of personal disposable income?

Americans aged 25-34 have the second highest rate of bankruptcy (just after those aged 35 to 44). The bankruptcy rate among 25-34 year olds increased between 1991 and 2001, indicating the GenXers were more likely to file bankruptcy than were young baby Boomers at the same age.

average student loan debt forgiveness And what if you owed $80,000 more than the average student loan debt and you had to pay it at 6.75% for 15 years because of minimum monthly payment requirements by your lender?

Now we’re talking!

Do the math. Your cap rate would be 13.42% and your disposable income $11,655, which means that the most that you should have paid for college should have been $86,848.

Yet you paid $104,000 for it. That’s a 20% premium beyond what you should have paid for your education. Now, how smart of an investment was that for an educated person?

Can you say “I’m broke but can’t go bankrupted.” Say then, “I’m a serf of my lender.”

You might think that you’re safe so long as your average student loan debt stays, well, average. But even if you had loaded yourself with just an average student loan debt, in conclusion this burden leaves you at a disadvantage because, had you spent the money in building a business, you would have benefitted, in this example, from a net income of $30,000 rather than a personal disposable income of only $11,655, since businesses face tax deductions that wage earner do not. So as a business owner you end up ahead of an employee.

In the end, debt proves to be a terrible deterrent to entrepreneurship and risk-taking, despite the promise of riches that a college degree might have lured you to believe would be within you reach if you borrowed for it.

But if you cannot get a job to pay your loan back, and you can neither get out of debt nor escape it through loan forgiveness, then you need to look at entrepreneurship in a different light, because this may be the only way that you could achieve deliverance from the life of serfdom that even an average student loan debt burden will force you to serve out.

The infographic also lists the most expensive colleges based on total cost (tuition + room and board) for the 2008-2009 school year. Here are the 25 most expensive colleges in 2008-2009:

1. Sarah Lawrence College | $53,166
2. George Washington University | $50,312
3. New York University | $50,182
4. Georgetown University | $49,689
5. Connecticut College | $49,385
6. Bates College | $49,350
7. Johns Hopkins University | $49,278
8. Skidmore College | $49,266
9. Scripps College | $49,236
10. Middlebury College | $49,210
11. Carnegie Mellon University | $49,200
12. Boston College | $49,020
13. Wesleyan University | $49,000
14. Colgate University | $48,900
15. Claremont McKenna College | $48,755
16. Vassar College | $48,675
17. Haverford College | $48,625
18. University of Chicago | $48,588
19. Union College (NY) | $48,552
20. Colby College | $48,520
21. Mount Holyoke College | $48,500
22. Tufts University | $48,470
23. Bard College at Simon’s Rock | $48,460
24. Franklin & Marshall College | $48,450
25. Bard College | $48,438