Tag Archives: Student Loans

Millions of students will see the interest rate double on their student loans this Summer costing them an extra $1,000 a year and pushing graduation debt over $30,000

Millions of students will see the interest rate double on their student loans this Summer costing them an extra $1,000 a year and pushing graduation debt over $30,000

By Katie Davies

More than seven million students are facing the prospect of doubled student loan interest from this Summer – costing them an extra $1,000 in interest on every yearly loan they go on to take.

After being reduced from 2008 to 2011 to a record low level of 3.4% interest, the rate on government subsidized Stafford loans is due to double back up to 6.8% on July 1

For new students taking out yearly loans it will add at least $4,000 to the average $26,600 debt they owe to the government after graduating – a startling realization many students make too late before trying to find out how how debt consolidation works, at which point it’s already much too late.

The increase was due to go ahead last Summer but was delayed by Congress because of widespread opposition from hard-up families and students paying for a college education .

Without the impetus of an election, many now fear the increase will be approved to go ahead this summer as planned, and shouldn’t be allowed.

Student groups protested today claiming the government will make a profit of 12.5 cents in every dollar of subsidized Stafford loans they make as a result.

‘The argument against it is the same as it was last year: The interest rate is way too high,’ Ethan Senack, U.S. PIRG’s higher education associate told NBC News.

‘At a time when students and their families are already facing massive debt, this is a cost increase they simply cannot afford.’
Students using subsidized federal loans are some of the poorest in American universities, according to the New York Times.

Students receive the loans at more favorable conditions to non-subsidized Stafford loans if they can demonstrate financial need.

They don’t need to pay them back until after graduation.

Borrowers make up more than a third of those using federal student aid and more than two-thirds are from families with an annual income under $50,000, according to the Times.

Many say the extra burden of increased interest rates will cripple those students once they graduate.

‘Rates on educational loans are excessively high compared to those on mortgages and other consumer loans,’ Tiffany Dena Loftin, president of the United States Student Association, said.

‘Higher education should be more affordable than it is and we need our political leaders to respond.’

‘It’s scaring everyone on campus,’ 19-year old Tori Uyehara, a freshman at Southern Oregon University told NBC.

‘We can’t afford the amount of interest we’re paying right now. Doubling the interest rate is just too much.’

U.S. PIRG claims that student loans across the board will generate $36 billion in revenue for the government in 2013.
SOURCE

More retirees are falling behind on student debt, and Uncle Sam is coming after their benefits.


More retirees are falling behind on student debt, and Uncle Sam is coming after their benefits.

By ANNAMARIA ANDRIOTIS

It’s no secret that falling behind on student loan payments can squash a borrower’s hopes of building savings, buying a home or even finding work. Now, thousands of retirees are learning that defaulting on student-debt can threaten something that used to be untouchable: their Social Security benefits.

According to government data, compiled by the Treasury Department at the request of SmartMoney.com, the federal government is withholding money from a rapidly growing number of Social Security recipients who have fallen behind on federal student loans. From January through August 6, the government reduced the size of roughly 115,000 retirees’ Social Security checks on those grounds. That’s nearly double the pace of the department’s enforcement in 2011; it’s up from around 60,000 cases in all of 2007 and just 6 cases in 2000.

The amount that the government withholds varies widely, though it runs up to 15%. Assuming the average monthly Social Security benefit for a retired worker of $1,234, that could mean a monthly haircut of almost $190. “This is going to catch an awful lot of people off guard and wreak havoc on their financial lives,” says Sheryl Garrett, a financial planner in Eureka Springs, Ark.

Many of these retirees aren’t even in hock for their own educations. Consumer advocates say that in the majority of the cases they’ve seen, the borrowers went into debt later in life to help defray education costs for their children or other dependents. Harold Grodberg, an elder law attorney in Bayonne, N.J., says he’s worked with at least six clients in the past two years whose problems started with loans they signed up for to help pay for their grandchildren’s tuition. Other attorneys say they’re working with older borrowers who had signed up for the federal PLUS loan — a loan for parents of undergraduates — to cover tuition costs. Other retirees took out federal loans when they returned to college in midlife, and a few are carrying debt from their own undergraduate or graduate-school years. (No statistics track exactly how many of the defaulting loans fall into which category.)

Most consumer advocates and attorneys who work with seniors in this predicament told SmartMoney.com that their clients were unwilling to speak on the record, because of shame or fear. But they all stress that stakes involved can become very high for older people on a budget. Deanne Loonin, a staff attorney at the National Consumer Law Center in Boston, says she’s been working with an 83-year-old veteran whose Social Security benefits have been reduced for the past five years. The client fell behind on a federal loan that he signed up for in the ’90s to help with his son’s tuition costs; Loonin says the government’s cuts have left the client without enough cash to pay for medications for heart problems and other ailments.

Roughly 2.2 million student-loan debtors were 60 and older during the first quarter of 2012, and nearly 10% of their loans were 90 days or more past due, up from 6% during the first quarter of 2005, according to the Federal Reserve Bank of New York. “It’s really a unique problem we haven’t had to face before, and it’s only going to grow,” says Robert Applebaum, founder of Student Debt Crisis, a nonprofit advocacy group in Staten Island, N.Y.

The threat of Social Security cuts adds to the overall financial woes faced by the aging baby boomer generation. Almost 45% of people aged 48 to 64 won’t save enough money to cover basic needs and uninsured health care costs in retirement, according to the Employee Benefit Research Institute. Experts say reducing Social Security benefits could set them back even more.

That same generation has been slammed by the soaring cost of college, whether for their kids or themselves. As SmartMoney.com reported this spring, tuition and fees have almost tripled in the last twenty years, growing far faster than wages. Of the more than $1 trillion in outstanding student-loan debt, federal student loans account for about 85%, according to the Consumer Financial Protection Bureau. (Private student loans account for the rest; private lenders can garnish a borrower’s wages, but can’t touch Social Security.)

Unlike other consumer debts, student loans typically can’t be wiped out in bankruptcy. And changes in the law over the last couple of decades have given Uncle Sam more power to pursue defaulters, says William Brewer, president of the National Association of Consumer Bankruptcy Attorneys. The Debt Collection Improvement Act of 1996 empowered the federal government to offset Social Security payments of defaulted student-loan borrowers. An earlier law, the Higher Education Technical Amendments Act, essentially removed any time limits on the government’s ability to collect from the defaulters. The Supreme Court upheld both provisions in a 2005 ruling.

The government’s withholding power also extends to Social Security disability benefits. Tammy Brown of Redding, Calif. says that the government has been taking $179 out of her Social Security disability check each month for the past five years. Brown, 52, became disabled in 1986 after being involved in a car accident. Unable to work, she fell behind on her student loan payments. She says the Social Security check is now too small to cover her food and medical bills, so she quit taking prescription pain pills. “It’s kind of hard to live on this amount of money,” she says.

Attorneys who specialize in defending debtors have seen a sea change as the government has stepped up its enforcement. For most of the last four years, Joshua Cohen, an attorney in Rocky Hill, Conn., has represented clients in their dealings with banks and collection agencies. It was only in the past year, Cohen says, that he started getting a growing number of calls from retirees. Now, Cohen says, “I’m getting calls from all over the country from people desperate for help.”

The Department of Education, which provides federal student loans to borrowers, say it tries to work out payment plans with people who fall behind on their loans. Justin Hamilton, a spokesman for the department, says that accounts aren’t sent off to collections until almost two years of non-payment; if collection doesn’t yield results, the loan balance goes to the Treasury Department, which can reduce Social Security checks. “It’s when people aren’t making any attempt whatsoever [to pay] that they start heading down that road,” Hamilton says.

For its part, the Treasury Department says it reaches out to borrowers twice to set up a payment plan or otherwise resolve their debt before offsetting money from their Social Security check. And the Treasury won’t withhold money from monthly checks that total $750 or less, says Ronda Kent, deputy assistant commissioner for debt management services at the Treasury Department’s Financial Management Service.

Advocates of the borrowers say many of them have extenuating circumstances. In many cases, they say, family agreements unravel for instance, adult children who tell their parents they’ll repay the loan end up dropping the ball without informing them. There can also be breakdowns in bureaucratic paper shuffling, says Mark Kantrowitz, publisher of FinAid.org, a student-loan tracker. In some cases the Department of Education loses track of the borrower, sending debt notices to the wrong addresses; sometimes, says Kantrowitz, the government can’t track down the borrowers until they begin receiving Social Security.

Student-loan experts say that changes in payment plans are partly to blame for why an aging population is still dealing with college loans. The repayment period on federal student loans can be extended to 30 years, Kantrowitz notes, if borrowers owe $60,000 or more. Another eight years can be added on for borrowers facing unemployment or other economic hardship; during those years, payments aren’t required but interest accrues.

Compared to present-day retirees, younger generations are in deeper debt, which means stories of Social Security garnishment could become more commonplace when they enter retirement. Borrowers in their 20s and 30s owe roughly $600 billion, according to the New York Fed. They’re also leaving college with more debt than their predecessors: Sixty-six percent graduated this spring with debt, and their student loans averaging $28,720, up from $9,320 in 1993, according to FinAid.org. “It’s entirely possible that the way student loan debt is growing, this could get worse,” says Rich Williams, higher education advocate at the U.S. Public Interest Research Group, a nonprofit consumer group.
SOURCE

The Ones We’ve Lost: The Student Loan Debt Suicides

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The Ones We’ve Lost: The Student Loan Debt Suicides

C. Cryn Johannsen

The College Conspiracy

This story was produced by the independent Economic Hardship Reporting Project, co-edited by Barbara Ehrenreich and Gary Rivlin.

One evening in 2007, Jan Yoder of Normal, Illinois noticed that her son Jason seemed more despondent than usual. Yoder had been a graduate student in organic chemistry at Illinois State University but after incurring $100,000 in student loan debt, he struggled to find a job in his field. Later that night, Jason, 35, left the family’s mobile home. Concerned about her son’s mood, Jan Yoder decided in the early morning hours to go look for him on campus, where a professor she ran into joined her in the search. The two of them discovered his body in one of the labs on campus and called campus police at 8:30AM. 32 minutes later, Jason was declared dead due to nitrogen asphyxiation.

When the story was posted on several different sites in 2007 and 2008, the Internet chatter was not always kind to the dead man. While many expressed great sympathy for Yoder and ranted against the student lending system, others were quick to invoke the “personal responsibility” argument — “it was his fault;” “why did he take out that amount of loans?;” “Mr. Yoder took out those loans . . . he had an obligation to pay them back.” — and denigrate him.

His mother, of course, saw it differently. While she was preparing for Jason’s funeral, student debt collectors were still phoning her about the money her son owed. As reporter David Newbart wrote in a 2007 article for Chicago Sun Times, she was gruff when confronted by these calls. “You are part of the reason he took his own life,” she told them and then hung up the phone.

Suicide is the dark side of the student lending crisis and, despite all the media attention to the issue of student loans, it’s been severely under-reported. I can’t ignore it though, because I’m an advocate for people who are struggling to pay their student loans, and I’ve been receiving suicidal comments for over two years and occasionally hearing reports of actual suicides. More people are being forced into untenable financial circumstances as outstanding student loan debt has surpassed $1 trillion. And people simply aren’t able to pay all the money they owe. In the past few years, the rate of defaults for federal loans has increased at an alarming rate. According to the Department of Education, those recent graduates who began repayments in 2009, 8.8 percent had already defaulted on their federal loans. That compares to 7 percent in 2008. Currently, 36 million Americans have outstanding federal loans. I can’t help but wonder how many of those millions are feeling distressed or suicidal, or how many have attempted suicide because of all that debt hanging over their heads.

I first started appreciating the depth of the problem of suicidal debtors a few years ago, with a post on my blog, All Education Matters, entitled, “Suicide Among Student Debtors: Who’s Thought About It?” I was stunned by the responses. In comment after comment, people confessed to feeling suicidal. One person wrote, “I was very actively looking into suicide until I got on anti-depressants. Now I have to take happy pills every day to keep the suicidal urges at a minimum level. You are correct to ask the question. Many of the folks who are incredibly deep in law school debt will end up killing themselves. I think, in the next 1-3 years, we are going to see absolutely massive numbers of law school graduate suicides.” Said another: “Yes, I thought about suicide a lot over the past few years. I take anti-depressants and I had been smoking cigarettes for months but I did end up quitting. The big issue with that is I want to be an opera singer so [smoking] was my way of giving up. I’m trying to do what I can to get through this… and praying for an answer.”

Some of the people who write to me are quite specific about how they plan to kill themselves. One person said, “I think about jumping from the 27th floor window of my office every day.” For suicide prevention experts, this is a dangerous sign, as it means that the person has actually devised a plan to carry out the act. In recent months, the notes have increased, and if anything they are even more desperate. One individual admitted that he thought about killing himself all the time. Another even claimed — which was beyond disturbing — that prior to writing his comment, he had been sitting in his car, with the garage door shut.

There have been no epidemiological studies attempting to find a correlation between student loan indebtedness and suicide or suicide attempts, but experts would not be surprised if one exists. A statement published on the website by the American Association of Suicidology (APS) notes, “There is a clear and direct relationship between rates of unemployment and suicide. The peak rate of suicide in 1933 occurred one year after the total US unemployment rate reached 25% of the labor force. Similar findings have been documented internationally. At the individual level, unemployed individuals have between two and four times the suicide rate of those employed.” The document adds, “Economic strain and personal financial crises have been well documented as precipitating events in individual deaths by suicide.”

I spoke to Dr. Peter Kinderman, a clinical psychologist at the University of Liverpool, who has written about the disastrous mental health effects of recent austerity measures in Greece. When I told him about the suicidal notes that I’d been receiving from desperate debtors, he said this is to be expected. Kinderman had served on the Department of Health’s Ministerial Advisory Group in Great Britain, from 2010 to 2011, which issued a report predicting that the European economic crisis would have a significant impact on mental health. Suicides and suicide attempts have increased dramatically in several European countries. Not surprisingly, the problem seems particularly acute in Greece and Italy, two countries that have been hit hardest by austerity measures, and have seen a jump in suicides. In 2011, Andreas Loverdos, the Minister of Health in Greece, announced that suicides had likely increased by 40% in the first five months of that year when compared to 2010. The numbers are equally as grim in Italy. A taxpayer rights group in Rome called Federcontribuenti insists that suicides have become an increasing problem in the country. In April of 2012, the group asked prosecutors in Rome to investigate 18 suicides in Northern Italy. The president of the organization, Carmelo Finocchiaro, called for an investigation to see whether those who should be preventing this “social massacre” are doing their part.

Suicide, Kinderman insists, is not the result of “a brain malfunction.” He added, “There are psychological consequences when economies fall into decay.” Under circumstances of severe economic stress, he told me, “Feeling suicidal is understandable. It is not a disease, it’s a problem.”

It turns out I’m not the only one who receives suicidal notes from student loan debtors. There is a loosely connected group of bloggers who call themselves the scambloggers to underscore their perception that U.S. legal education system is a scam, churning out many more graduates than the economy can possibly employ. The “scamblogs” receive heavy traffic and each post elicits hundreds of responses from morose, depressed, and increasingly hopeless law grads.

The majority of law grads now wind up deeply in debt and jobless. As Brian Tamanaha, a law professor at Washington University Law in St. Louis, says, “My book vindicates the basic view of the scambloggers that attending law school is a highly risky proposition that turns out badly for many students, who end up with a huge debt and no law job” — or any job, for that matter, that generates enough income to manage the debt.” A surprising number of law grads post suicidal remarks publicly on scambloggers’ sites each month. One example: in August of 2011, a man who identified himself as Jordan posted his plan to light himself on fire outside of the Capitol:

I plan to douse myself and light myself aflame on the

Capitol steps, to draw attention to the dire situation of the millions

of indentured educated citizens who, like me, have no options, plus a

predatory banking system coming after us.

There is no political solution to this problem . . . I will be

setting myself on fire, and the student debt debacle will hopefully

come to the forefront of public consciousness.

Fortunately, there have been no reports of self-immolation outside the Capitol building.

Like me, individual scambloggers must deal with private emails from suicidal people. Nando, a scamblogger popular for his sharp tongue and scatological contempt for law schools, tells me he has also received numerous suicidal notes. He talked about how hard it is to receive these notes, especially if you’re not a trained therapist or counselor. “I’ve talked to a couple of guys on the phone, and you try to deal with the positive, and I say, ‘You don’t want to do anything rash.” He recalls one particular conversation with a suicidal man, and sighed, “I mean, I am not a drinker, but one guy made me want to go out and drink a beer.” In some cases, Nando has suggested leaving the country in search of work.

It isn’t hard to find student debtors who feel like they’ve been crushed by the system. At 47, John Koch is still living with his elderly parents in Oyster Bay, Long Island. Although he has a law degree, Koch has earned a living as a house painter for many years. When I ask about his living arrangement, Koch explains that he has in own space, “I’m downstairs. They are upstairs.” He pauses, however, adding wearily, “But I mean, I am 47-years-old. I suppose in one sense, in your parents’ eyes, you’re always going to be a child.” John laughs, and continues after clearing his throat, “Of course, I can come and go and do whatever I please. But you’re still there, it’s um… it’s little things, you know… you have something, like, I have my hobbies and I leave some things in my apartment, and my mother comes down and says,” he imitates her in a high-pitched tone, “‘Oh, you can’t do that. You’re makin’ a mess.'”

John breathes heavily, “I mean, I am there for my parents. My father will be 80, and my mother is 73, and they are having health problems, and I am there if there is a trip to the ER. So that’s good for them.” There’s silence on the phone. John breathes in deeply and laughs again when I ask, “So, it’s good for them, but what about you?”

With a strong Long Island accent he exclaims, “It’s… you know… it’s your independence you’re talkin’ about! And from where I came from — ” His voice trails off and after a pause, he adds, “I was married, living in a home, with my wife, and living… I guess that’s the American dream — to have your own home, a family, children possibly.”

Koch originally borrowed $69,000 in 1997. The majority of that money was loans for law school, seemingly, he says, to “better myself.” After he graduated from Touro Law School, Koch struggled to find steady employment and eventually he defaulted on his loans. He was immediately slapped with $50,000 in penalties. For years, he had been filling out deferment forms every six months to buy himself more time but in 2009, Sallie Mae declared him in default. At the time of this writing, Koch owes over $320,000. That sounds staggering but it’s hardly unusual. Once a person defaults on a student loan, the balance grows exponentially, with interest compounding on interest, penalties and fees. By the time he “retires,” in 23 years, Koch figures he will owe close to $1.9 million. He can’t get even subprime credit, he tells me, and it’s not like there’s any way out of his trap: student loan debt cannot be absolved through bankruptcy.

Koch struggles with suicidal thoughts and admits to self-destructive behavior, such as heavy drinking and cigarettes. Eventually he channeled those feelings into a blog that draws more readers each month. In January of 2012, though, the Suffolk County police paid his parents an unpleasant visit to inquire about their son’s suicidal comments and posts

I spoke to Koch a day or two after the police showed up at his home. He was still rattled. “My parents discovered my blog, and so did my sister,” he said after the police visited his home. Koch surmises that the police were former Touro law students who were tipped off about the suicidal posts. The log that upset his sister the most, Koch told me, included a “series of 5 poems about 5 fanciful kids that go to law school and all end up killing themselves 5 years later.”

Koch launched a new site (Esqpainting) after the police visit but disbanded his online writing projects in early June. He decided that blogging is no longer a good outlet for him. Yet for Koch the agony continues. Parroting the voices of the people who have created this situation for millions of student loan debtors, Koch snarled, “‘You know, you have this debt, and we’re gonna make it bigger, and we’re never gonna let you out, and… and… the rest of society is going to cover it for you. And we’re never going to let them out either.'”

I spoke to Koch a few months ago while he walked his dog and smoked a cigarette. He described his life as pretty much over, and he echoed that sentiment a few weeks ago. “So much for achieving the American Dream.” These days, Koch watches as the interest piles up. He sighs when we hang up, and says, “I mean, why punish the debtor with greater debt?”

Need help? In the U.S., call 1-800-273-8255 for the National Suicide Prevention Lifeline.SOURCE

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

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

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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The Commencement Address That Won’t Be Given

The Commencement Address That Won’t Be Given

The College Conspiracy

Members of the Class of 2012,

As a former secretary of labor and current professor, I feel I owe it to you to tell you the truth about the pieces of parchment you’re picking up today.

You’re f*cked.

Well, not exactly. But you won’t have it easy.

First, you’re going to have a hell of a hard time finding a job. The job market you’re heading into is still bad. Fewer than half of the graduates from last year’s class have as yet found full-time jobs. Most are still looking.

That’s been the pattern over the last three graduating classes: It’s been taking them more than a year to land the first job. And those who still haven’t found a job will be competing with you, making your job search even harder.

Contrast this with the class of 2008, whose members were lucky enough to get out of here and into the job market before the Great Recession really hit. Almost three-quarters of them found jobs within the year.

You’re still better off than your friends who didn’t graduate. Overall, the unemployment rate among young people (21 to 24 years old) with four-year college degrees is now 6.4 percent. With just a high school degree, the rate is double that.

But even when you get a job, it’s likely to pay peanuts.

Last year’s young college graduates lucky enough to land jobs had an average hourly wage of only $16.81, according to a new study by the Economic Policy Institute. That’s about $35,000 a year — lower than the yearly earnings of young college graduates in 2007, before the Great Recession. The typical wage of young college graduates dropped 4.6 percent between 2007 and 2011, adjusted for inflation.

Presumably this means that when we come out of the gravitational pull of the recession your wages will improve. But there’s a longer-term trend that should concern you.

The decline in the earnings of college grads really began more than a decade ago. Young college grads with jobs are earnings 5.4 percent less than they did in the year 2000, adjusted for inflation.

Don’t get me wrong. A four-year college degree is still valuable. Over your lifetimes, you’ll earn about 70 percent more than people who don’t have the pieces of parchment you’re picking up today.

But this parchment isn’t as valuable as it once was. So much of what was once considered “knowledge work” — the kind that college graduates specialize in — can now be done more cheaply by software. Or by workers with college degrees in India or East Asia, linked up by Internet.

For many of you, your immediate problem is that pile of debt on your shoulders. In a few moments, when you march out of here, those of you who have taken out college loans will owe more than $25,000 on average. Last year, ten percent of college grads with loans owed more than $54,000. Your parents have also taken out loans to help you. Loans to parents for the college educations of their children have soared 75 percent since the academic year 2005-2006.

Outstanding student debt now totals over $1 trillion. That’s more than the nation’s total credit-card debt.

The extraordinary rise in student debt is due to two related facts: the cost of a college education continues to increase faster than inflation, and state and local spending per college student continues to drop — this year reaching a 25-year low.

But this can’t go on. If unemployment stays high for many years, if the wages of young college grads continue to fall, if the costs of college continue to rise and state and local spending per college student continues to drop, and if the college debt burden therefore continues to explode — well, you do the math.

At some point in the not-too-distant future these lines cross. College is no longer a good investment.

That’s a problem for you and for those who will follow you into these hallowed halls, but it’s also a problem for America as a whole.

You see, a college education isn’t just a private investment. It’s also a public good. This nation can’t be competitive globally, nor can we have a vibrant and responsible democracy, without a large number of well-educated people.

So it’s not just you who are burdened by these trends. If they continue, we’re all f*cked.

Robert Reich is the author of Aftershock: The Next Economy and America’s Future, now in bookstores. This post originally appeared at RobertReich.org.

SOURCE

Who Is Left To Bribe?

Obama Taps Taxpayers For Student Stimulus

By Chris Stirewalt

Obama Looks to Wring Stimulus From Saturated Student Loan Market

“$1 Trillion”

Estimated amount of student loan debt owed by Americans.

In keeping with his new campaign theme of “we can’t wait,” President Obama today will roll out a plan to put more money in the pockets of some of the nation’s 36 million student loan recipients.

Obama has broad latitude in this area – certainly broader than the first two parts of his western campaign trip, underwater mortgages and subsidies for hiring veterans – because one of his early legislative initiatives was to have the federal government take over the student lending business in America.

Obama argued for the measure in 2009 as a cost-savings initiative, saying that the old system of privately issued, government secured loans reduced the amount of available money for needy students and also prevented the feds from making the system more efficient.

But Obama is now seeking to use that new power to obtain a taxpayer-financed stimulus that Congress won’t approve. The idea is to cap student loan repayment rates at 10 percent of a debtor’s income that goes above the poverty line, and then limiting the life of a loan to 20 years.

Take this example: If Suzy Creamcheese gets into George Washington University and borrows from the government the requisite $212,000 to obtain an undergraduate degree, her repayment schedule will be based on what she earns. If Suzy opts to heed the president’s call for public service, and takes a job as a city social worker earning $25,000, her payments would be limited to $1,411 a year after the $10,890 of poverty-level income is subtracted from her total exposure.

Twenty years at that rate would have taxpayers recoup only $28,220 of their $212,000 loan to Suzy.

The president will also allow student debtors to refinance and consolidate loans on more favorable terms, further decreasing the payoff for taxpayers.

Obama’s move comes at a moment when many economists are warning of a college debt bubble that is distorting college tuition rates and threatening to further damage credit markets. The president’s move is intended to make college more affordable for more people, which will, in turn allow universities to jack up their rates.

As in the housing bubble, cheap credit on easy terms increases the amount of money chasing the product (in this case a diploma) allowing schools to increase prices. This inflation makes it harder for middle-class families to afford paying their own tuitions, driving them into the government financing program, which, you guessed it, drives up costs further still.

Obama’s goals, aside from continuing to encourage young people to spurn the private sector in favor of service jobs, is to try to juice the economy. Those who participate in the program could see their monthly incomes rise by hundreds of dollars, thereby increasing the money they have to buy stuff and try to juice the economy.

A more modest program already in place has been a bit of a bust with only 1.25 percent of debtors signing up, likely because of the unpleasant notion of additional paperwork and government reporting hassles. But by sweetening the deal and putting a big PR push behind it, Obama is betting that he can get people spending in time to help shore up his re-election chances.

The best part for Obama is that he can obligate the Treasury without Congressional approval thanks to the passage of what he described as a cost-saving measure in 2009.

Risk-Averse Romney Frustrates Hill GOPers

“I am not speaking about the particular ballot issues. Those are up to the people of Ohio. But I certainly support the efforts of the governor to reign in the scale of government. I am not terribly familiar with the two ballot initiatives. But I am certainly supportive of the Republican Party’s efforts here.”

— Former Massachusetts Gov. Mitt Romney walking back his prior support of a new Ohio law that restricts the collective bargaining power of state worker unions.

While former Massachusetts Gov. Mitt Romney has done a better job of wooing Capitol Hill Republicans than his fellow GOP 2012 contenders, there’s still a resistance to the man who has been the party’s frontrunner for most of the past three years.

Romney heads to the Hill today to try to corral supporters from two groups – more moderate members who are natural fits for Romney and a few conservatives to vouch for a nominee they can accept as the inevitable choice.

It’s been a hard sell.

“If he’s inevitable, I don’t know why he needs my help,” one swing-state Republican House member told Power Play. “I’ll endorse the nominee, whoever that is.”

Members and staffers agree that while Romney looks increasingly unbeatable since the party’s conservative base remains divided, there’s little to be gained from jumping on board early.

“If you endorse [Romney], you upset the base at home and don’t really get anything in return,” a former senior Senate staffer who now works as a GOP campaign consultant told Power Play. “This is not one where you want to be seen as ahead of the curve.”

A closet Romney backer in Congress who said she is soon to announce her support publicly told Power Play that the frontrunner would continue to roll out a series of high-profile endorsements in the days and weeks to come.

“We respect results and we respect experience,” he said. “We also know that it will take practical solutions to do the job.”

Romney made his task more complicated on Tuesday when he flinched when questioned about a pair of state ballot initiatives while visiting a Republican campaign office where they were working hard to pull out wins on the referenda.

Romney issued a statement this summer in support of the law pushed by Gov. John Kasich to roll back the collective bargaining powers of state worker unions, but when asked in person about the union-led effort to repeal the law through a plebiscite, Romney was agnostic on the subject deferring to the will of the voters.

Many have attributed this to Romney’s unwillingness to be attached to the losing side of the issue since polls show lopsided support for the union-backed repeal measure. Others have speculated that Romney was looking to avoid connection to the anti-government union movement inside the GOP, an association that could be damaging to a candidate whom Democrats are already painting as a plutocrat uninterested in the plight of blue-collar workers.

More likely, though, it was the other issue on the ballot: A constitutional amendment that would shield Ohioans from the key provision of President Obama’s health law that requires all Americans to either purchase private insurance or be enrolled in a government program.

Romney, who pioneered the concept of mandatory insurance in Massachusetts, can hardly speak in favor of the Ohio amendment, which looks likely to pass. He has held that states should be allowed to compel citizens to buy insurance, but not the federal government and that each state should do as it wishes on the subject.

If Romney expressed an opinion on the union rule, he would be hard pressed to then express agnosticism on the mandatory insurance provision. By ducking the question, Romney protected himself from having to talk about his health law and, perhaps, avoided an even bigger embarrassment than what followed.

Romney’s answer was therefore technically the politically correct one since it traded a small embarrassment for a larger gaffe, but it is exactly that kind of calculation that continues to leave GOP activists cold. Romney avoids the gaffes that have plagued Herman Cain, Rick Perry and even occasionally Newt Gingrich.

By giving such careful answers, Romney has been able to maintain his quarter of the GOP electorate, but hasn’t been able to rebut the central critique of his candidacy: ideological inconstancy.

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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.

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