Tag Archives: student loan scam

America’s Student Loan Racket

America’s Student Loan Racket

By Stephen Lendman

The College Conspiracy

This writer’s recent book titled “How Wall Street Fleeces America: Privatized Banking, Government Collusion and Class War” includes a chapter on America’s student loan racket. It discusses the issue in detail.

It explains a disturbing government/corporate partnership. Students are exploited for profit. Providers are enriched. For many, rising tuition and fees make higher education unaffordable. Others need large loans to attend. As a result, they become debt entrapped.

Some face burdens up to $100,000 or higher. If unpaid after 30 years, it’s a $500,000 obligation. If default or declare bankruptcy, it’s unforgiven. Bondage is permanent.

Lenders thrive from defaults. Wages can be garnished. So can portions of Social Security and other retirement benefits. A conspiratorial alliance of lenders, guarantors, servicers, and collection companies derive income from debt service and inflated collection fees.

Education today grows more unaffordable. Many students are priced out and can’t attend. Others become debt entrapped. Growing numbers remain there for life. A predatory system fleeces them.

Principle, accrued interest, late payment and collection agency penalties create enormous burdens to repay.

Once entrapped, escape is impossible. Unless repaid, future lives and careers are impaired. Today’s economic crisis exacerbates conditions. Job opportunities are scarce. Ones for higher education grads are even fewer.

Around yearend 2011, student debt exceeded $1 trillion. It’s staggering. It increases nearly $3,000 per second. It exceeds credit card and auto loan obligations. It’s second only to outstanding mortgage debt. It’s rising exponentially. A lost generation threatens.

It’s part of the grand scheme to transfer maximum wealth to America’s super-rich. It’s been ongoing for decades. Under Obama, it accelerated.

On May 12, The New York Times addressed the issue. Titled “A Generation Hobbled by the Soaring Cost of College,” writers Andrew Martin and Andrew Lehren overall did a credible job worth reading.

Ohio Northern University’s Kelsey Griffith was mentioned. “To start paying off her $120,000 in student debt, she is already working two restaurant jobs and will soon give up her apartment here to live with her parents. Her mother, who co-signed on the loans, is taking out a life insurance policy on her daughter.”

Griffith knew college costs were high. She never imagined owing $900 a month after graduating. “No one told me that,” she said.

Nearly every baccalaureate candidate borrows to attend. Most can’t imagine a future “unprecedented financial burden.”

“Ninety-four percent of students who earn a bachelor’s degree borrow to pay for higher education — up from 45 percent in 1993.”

According to Consumer Financial Protection Bureau deputy director Rajeev Date:

“If one is not thinking about where this is headed over the next two or three years, you are just completely missing the warning signs.”

He compares student loans to risky mortgages. Its extraordinary growth surprised many. Its roots, in fact, are deep. Its “cast of characters” includes college marketing officers, state and federal lawmakers, administration officials, and predatory lenders, guarantors, servicers, and collection companies.

Loans are easy to get. They’re tough to service. They’re not forgiven. For many in today’s job market, they’re impossible. Onerous debt escalates to greater amounts. A vicious circle entraps graduates and dropouts, many for life. It is better to be prepared and do research on these situations before jumping in, looking at websites like https://www.purplepayday.loan/  or the likes is a good place to start, but its always better to deal with your financial institution directly when in doubt.

Since crisis conditions erupted, states and cities nationwide slashed budgets. Education paid heavily. Adjusted for inflation, spending per college student reached a 25-year low.

At the same time, tuition and fees keep rising exponentially. If current trends continue “through 2016, the average cost of a public college (education) will have more than doubled” in the last 15 years.

Students and parents are unprepared. So-called experts claim not attending college is worse than graduating with debt. They, of course, have none to repay, and feel secure in well-paid jobs in an unfriendly environment for new grads.

Obama let a bad situation fester. Last October, he offered pathetic relief. Repayment schedules were relaxed slightly. Only federal loans are affected. Students in default don’t qualify. Moreover, for everyone who does, two or more fall behind in payments. A bad situation grows worse.

At most for the few qualifiers, savings are miniscule. At most, they’re about one-half of 1% on interest.

Nearly 10% of borrowers who began repayments in 2009 defaulted in two years. It’s double the 2005 rate. Some worry about the student loan system replicating the housing crisis. Doing so would have enormous economic implications.

Economists say the issue “hangs over the (economy) like a dark cloud for a generation of college graduates and indebted dropouts.”

Major purchases are delayed or abandoned. At issue is repaying student debt forever, according Bowling Green State University dropout Chelsea Grove. She owes $70,000. She’s working three part-time jobs. She’s not going back. She can’t afford it.

Twenty-three-year old Chistina Hagan is an Ohio lawmaker. She also attends Malone University. She’ll graduate shortly with over $65,000 in debt. Despite earning $60,000 a year, she’ll take a waitress job to service her $1,000 a month obligation. For her, it includes credit card debt.

Nationwide from 2001 – 2011, state and local per student financing dropped 24%. Over the same period, state school tuition and fees rose 72%.

Ohio State University gets 7% of its budget from Columbus. A decade ago it was 15%. In 1990, it was 25%. Decades earlier at some state universities, students attended free.

Today’s financial reality creates enormous burdens. At issue is handling costs and repayment obligations. Then it’s about finding decent jobs too few in number.

Few understand what they’ll face. Colleges recruit students aggressively. Financial aid is touted. Fine print language is a “minefield” to understand.

“Some are written in a manner that suggests the student is getting a great deal, by blurring the line between grants and loans or not making clear how much the student may have to pay or borrow.”

What’s portrayed as “doable” and “normal,” in fact, becomes onerous and unmanageable. Annual tuition increases aren’t factored in. Neither is inflation and high interest rates.

College admissions staff don’t explain. “While there are standardized disclosure forms for buying a car or a house or even signing up for a credit card, no such thing exists for colleges.”

College costs are complex. Besides rising tuitions and fees, “a vast array of grants and loans and a financial-aid system that discounts tuition for most students (use hard to understand) opaque formulas.”

Moreover, colleges avoid discussing affordability issues and possible future debt obligations. Growing numbers are like Wanda McGill. She “stopped opening her student loan bills.”

She’s not sure how much she owes but thinks it’s about $100,000. She can’t service it. After exhausting her funds, she dropped out of DeVry University’s Columbus branch. Now she earns $8.50 an hour.

“I was promised the world and was given a garbage dump to clean up,” she said. “Like my life was not already screwed up with welfare and all.”

She’s not alone. Epidemic conditions rage across America. An Occupy Student Debt protest joined other OWS campaigns.

Its web site “What You Need To Know” section says:

“We did what we were told to do and ‘followed our dreams,’ but we are now trapped by what was meant to be an investment in our futures, not a noose.”

“Obama’s recent student loan ‘reform’ has done nothing for those in default, or those of us with private (bank-backed) loans through Sallie Mae, Citibank, and so on.”

“If we default, we cannot rent or buy homes, or even find jobs with the 60% of employers that check credit. Our professional licenses (i.e. nursing/teaching) can be revoked. And with the fees assigned to defaulted loans that double the amount owed, getting back on one’s feet is nearly impossible.”

“Not only would voluntarily defaulting do nothing to solve the underlying problem of out-of-control student loan debt, but defaulting can result in any number of detrimental outcomes, including, but not limited to the consequences listed above.”

Today’s crisis spread from for-profit institutions to others. However, former ones represent the worst problem. Students complain they’re mislead. Lawsuits charge fraud, deception, doctoring attendance records, or offering near-worthless degrees.

As a result, their students are twice as likely to default. Among baccalaureate candidates, only 22% succeed in six years. At non-profit private schools, it’s 65%, and at public ones it’s 55%.

According to American Association of Collegiate Registrars and Admissions Officers associate executive director Barmak Nassirian:

“Mainstream higher ed can really self-righteously look at the big problem out there and say, ‘The problem lies with the other guy.”

“But there are all kinds of unfortunate practices in traditional higher education that are equally as problematic that are reaching the crisis point.”

Political Washington largely ignores the problem. It’s done little to curb abuses. Action belies lip service. A sinkhole of trouble deepens. A lost generation threatens.

Higher education today involves crushing debt burdens too onerous to repay. Rising poverty, unemployment, few job prospects, and a system sucking wealth to America’s super-rich makes today’s crisis unmanageable.

Education beyond secondary school once meant brighter futures. Today it ensures debt entrapment too demanding to repay. Neoliberal harshness polarized American society along class lines. It also affects Europe.

In modern times, it’s harder than ever to cope. For growing numbers of deeply indebted students it’s impossible. Their dreams became no-escape nightmares.

Stephen Lendman lives in Chicago and can be reached at [email protected]

His new book is titled “How Wall Street Fleeces America: Privatized Banking, Government Collusion and Class War”

http://www.claritypress.com/Lendman.html

SOURCE

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.

SOURCE