The Student-Loan Poor
Attorney Adam B. Wolf writes for the LA Times about the college grads defaulting on their loans in record numbers. As the subhead of the article says, "The $1.1 trillion in debt is consigning jobless borrowers to an underclass and rivals the housing bubble."
It turns out part of this comes from students who don't do the math on their loans or the research on the possibilities for employment and the money they'd make, as per Wolf's piece:
After a for-profit culinary college in California settled a lawsuit brought by former students, I was hired by a fund created through the settlement to provide assistance to those who took out loans to attend the school. The job has put me on the front lines of the student debt crisis.The students who enrolled at the culinary school were hoping to become the next Tom Colicchio, and they routinely took out $40,000 loans to finance their educations.
The federal government issued some of the loans to the students, but those covered only a portion of the school's tuition and costs. Sallie Mae, the now-private lender, made up the difference, dispensing loans to students like Halloween candy. But there was a catch: Whereas the federal government's loans had interest rates of about 6%, the interest rates on the private loans often hovered between 13% and 18%.
The financial consequences of financing a culinary education with credit card interest rates are devastating -- and predictable. The school's graduates who find work in their field typically earn about $9 per hour. And those are the lucky ones who are employed.
But repaying a $20,000 loan at 6% interest and an additional $20,000 loan at 15% interest is simply unsustainable for someone who earns an hourly wage of $9. The take-home pay does not come close to covering interest payments, and paring down the principal is not an option. Obviously, repayment is even less feasible for the unemployed.
Under the terms of the private loans, the missed interest payments are added back to the principal. Loan balances balloon. More payments are missed. The $40,000 loans quickly pass six figures.
One student I worked with illustrates the despair. Believing that education was the path to financial security, he financed his culinary education by taking out a $42,116 private loan -- at 17.375% interest. Upon graduation, he could not find a culinary job in California, so he moved to Oklahoma. Unable to find employment there, he moved to Florida. Still, no jobs. He finally found work in Missouri, where he earns $11 per hour, 20 hours per week. But with two children, he isn't making enough to live on, much less to begin paying back loan debt that, with interest, has increased to $110,000 (and continues to grow).
Not much sympathy from me. If you can't do basic math, then a higher education should not be your priority.
Patrick at June 22, 2013 11:19 PM
Funny, most of these people had high school diplomas which claimed they understood trigonometry.
And I learned compound interest in algebra as a freshman, so what the fuck is thier excuse?
lujlp at June 23, 2013 1:28 AM
One of the problems is everyone is deluded into thinking going to school equals a good job and high income immediately upon finishing school so they don't care what the loan is going to cost them. They think they'll have no problem paying for them.
BunnyGirl at June 23, 2013 2:31 AM
Part of me agrees with Patrick - no sympathy from me.
However, I do realize that many of these students are young and naive and it is up to the "adults" around them to help guide them. So, where are the guidance counselors, the teachers, the parents, etc. who should know better?
Why aren't they telling these students that everything isn't rosy with that college or tech school degree; or is that things in this New Obamanation are so out of sync with past decades that educators haven't caught up with the real world and don't know that a college education doesn't guarantee success today?
Charles at June 23, 2013 3:32 AM
See, it only took 4 posts for someone to blame Obama.
He is definitely the reason no one has jobs. Thanks for clearing that up!
DrCos at June 23, 2013 4:43 AM
"Life is hard. It's harder if you're stupid".
-- John Wayne
Jim Simon at June 23, 2013 4:45 AM
I tend to agree with the unsympathetic here on one level.
But don't any of you people remember being that age?
How fucking smart and worldly were you?
Ok sure the math isn't hard, but goddamn it at that age thinking beyond the next kegger is to much to ask. Why aren't college students thinking about the long term consequences of their actions?
What, were none of you college students? I seriously doubt most of you were all that responsible.
And parents have some responsibility here too, the previous generation spent 18 years or more imparting long dead truths about education and employment opportunities to their children, and it was the children themselves who found out the hard way that none of that shit holds water anymore, frequently finding it out way to late.
Worst of the lot, are the lenders themselves and their university compatriots.
How the fuck do they think kids are going to pay this shit back? Yeah some of them are dumber than others, the engineer, scientist, chemist, and a few other fields, can find ready employment that pays well enough to pay down those debts. Most others, why aren't they asking, "So kid, how are you going to pay this back?"
And worse, none of that debt can be cleared by bankruptcy. And I very much doubt most of those students know that.
Why should that be a special category of loan that you are stuck with for life? I promise that if we changed that loop hole, we'd change this situation and lenders would start lending only to those with the possibility of a return.
Yeah, stupid of the college kids, but a stupid irresponsible college kid with big dreams, high hopes, and an outdated idea of what the real world is like, is nothing new.
And who should we really be pissed at? The stupid college kid for being exactly what every single goddamn college kid almost certainly is (No I don't really mean that as an insult, except for the rarest of the rare, we're really dealing with the immaturity of a sheltered youth and a lack of regard for long term consequences, the hallmark of that age)...or should we be pissed at the predatory lenders who know damn good and well that the kid going to harvard to be a drama student is never going to pay off his student loan, but ruins his future anyway with a bankrolled education knowing he'll never get out from under it?
Robert at June 23, 2013 5:17 AM
Amy Alkon
http://www.advicegoddess.com/archives/2013/06/23/the_student-loa.html#comment-3763788">comment from RobertThese aren't necessarily children.
It generally takes a while to have two kids. I feel bad for the guy being under this much debt, but either he had two kids most irresponsibly, before he had money to pay for them, or he went back to school at a later age.
Amy Alkon at June 23, 2013 5:30 AM
Remember that the only reason they can get the loans is the special treatment even private student loans have under the law. If student loans were bankruptable, these scam operations (and Sallie Mae) would be out of business overnight.
Peter H at June 23, 2013 6:07 AM
Part of the problem is so many hear "You need a college degree to go anywhere." repeated ad infinitum.
Then these diploma mills sit there and take advantage of the ignorance that the training will jump the person to the top of the heap. Really these skills can be learned on the job.
If banks ran it, instead of bureaucrats the questions might be asked, instead of money handed out.
Jim P. at June 23, 2013 6:16 AM
This guy is an adult, but how many High School Guidance Counselors are pushing higher education to those who are unlikely to succeed? My knowledge is slightly dated, but I saw a lot of "how to pay for it" and no "will it pay?"
MarkD at June 23, 2013 6:34 AM
MarkD, you are exactly right. The focus is on" how to pay for it" - not "will it pay?' They show us all the charts that show us that the average person makes much more over a lifetime if they complete college. Each day, a mantra is repeated over the loudspeakers to which students are supposed to chime, "After high school comes college!"
I have very mixed feelings about this. First, yes, I would like students to take school seriously so that college is an option for them. I would like them to be prepared to study medicine, law, or engineering if they have that desire and ability.
On the other hand, I work with special education students, mostly Hispanic children. Studies have shown that Hispanic students often do well without a college education. Why? Well, many families have a trade. They can train and apprentice their own children into successful skilled labor. This doesn't make them less than those who go on to college.
It's all about individual choices and abilities.
I picture my best students taking the bait and working hard enough to get into higher education only to hit the wall and be Things are sounding more positive. He is talking unable to meet the rigorous demands of school or to be able to compete in the job market with people who don't have the same challenges. They are the ones most likely to be saddled with dbt that they cannot repay.
Jen at June 23, 2013 7:35 AM
I apologize for the last paragraph. My phone evidently has a glitch and right now my head hurts too much to try to fix it.
Jen at June 23, 2013 7:38 AM
For your entire public school life the system and your parents both see it as a way to get into college. EVERYTHING around you has been saying for the past sixty years that if you go to college you *will* get a good job. It's not just a way for a person to get a good job, it's what their families have emigrated for, saved for, pushed for, and sacrificed for. Then this is coupled with dumbass advice like "do what you're passionate about and money will follow."
In the face of nearly two decades of this, bucking it just because the numbers don't crunch is a very difficult thing.
It's only been the past ten years that people have started saying "you know, maybe college isn't such a bargain." Only for the past five have I been hearing "I'm getting screwed over by this college experience."
Yeah they got themselves into this mess. Yeah, they should have to pay back what they promised. But have a little sympathy.
Elle at June 23, 2013 9:45 AM
But don't any of you people remember being that age?
How fucking smart and worldly were you?
Well, I could do math. I eventually parlayed that into physics. In fact, I was smart enough to quit after the MS degree. But even as a gradual student, I made enough to cover tuition and living expenses without external support.
However, one needn't be a genius or even a math major to realize that a 13 to 18 percent interest rate is outrageous.
I R A Darth Aggie at June 23, 2013 9:53 AM
"Life is hard. It's harder if you're stupid".
-- John Wayne
Even better if you imagine him saying it.
DrCos at June 23, 2013 10:00 AM
I got a free Bachelors Degree in Nursing from my employer 5 years ago. I couldn't believe only 3 of us in the entire hospital took them up on the deal. Free education? I'm IN! That said, they wanted me to continue on to my MSN. I declined. I'm doing what I want to do in my career and will retire in about 10 years, so see no need to go into student loan debt.
One of my co-workers is paying off a two HUGE student loans for her kids. They both dropped out of their programs and are working at menial jobs. She's saddled with their debt because she took out a "parent" type loan.
Nursey at June 23, 2013 1:00 PM
I don't see how to resolve it. The only possible way is for companies to voluntarily stop requiring a degree when one is really not necessary.
The banks know many of these are bad loans...that is why the gov had to give these loans special perks so the banks would consider them. Cut off the perks, very few more loans.
Trades are already overfilled with the housing burst. My brother's friend is an electrician and told us that on the day before there was over 600 people on the Unions list for work that day -- only about 200 calls for work. Many don't even bother to put there name on the list -- he says there is about 2000 members. He went on that the plumbing situation is worse. Almost all the work was new construction and a little remodeling. Emergency work was only a few % of the work and was almost entirely done by a few chain companies. As he put it "I make good money when I work...but only working 6 hours a week aint cutting it."
From talking to people I know who work at work at colleges it doesn't appear like there is much fat to cut there. A family friend who is the director of a culinary program at a CC/voctech school only makes around 50k (+ state retirement). As one president (no, I don't know him) remarked to the media...they had managed to cut costs that last few years, but tuition had gone up because the state was cutting how much they paid even more.
The Former Banker at June 23, 2013 2:20 PM
Yes, every adult, of any age, should be held accountable for stupid decisions made out of pure ignorance and laziness. That they should be given a pass because they are more interested in drinking beer is absurd.
But the bigger question is why are they given loans when they clearly have no ability to ever repay them? This is a repeat of the housing bubble, where govt intervention dictated that banks had to give $600k mortgages to people with $40k in income.
So the lending institutions will go bust, the stock market will plunge, the economy will tank, and Colleges will go out of business in droves. Then we'll sit and wait for the next round of govt sponsored insanity.
And yes, I blame Obama ... and Bush, and the other 10 presidents since FDR who have been buying votes with the Federal treasury.
AllenS at June 23, 2013 7:47 PM
In the old days, to buy a house, people went to bankers who told them what income and resources they needed to buy a house with a loan. They didn't like being turned down, but they also relied on the fact that if a banker approved the loan, then they weren't going to get into great trouble taking the loan. After all, the banker wanted to be repaid without too much fuss. Bankers did not want to forclose; they just wanted to be paid back quietly.
Then, the government decided to support home ownership. The government created the original version of Fannie Mae to insure "conforming" (good quality) loans from the banks, to encourage banks to make every loan possible. The government would repay the bank if the borrower defaulted on an insured loan.
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A side note. At the time, hard to believe, the government did not want to lose money. So, it decided to not insure loans made in particularly risky areas. Mostly, these were the areas African Americans lived in, and these were outlined in red on government suppplied maps. This was "redlining". This was not a construction of racist bankers, but a shortcut for an ignorant government agency.
Speculators, Politicians, and Financial Disasters
11/10/08 - WSJ.com from Commentary by John Steele Gordon
How Washington created a financial panic in 1836 and 2008.
( search for Community Reinvestment Act )
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The government lowered the requirements over time for a conforming loan. So, millions of borrowers were approved for loans which they couldn't pay back. Note that the government insurance paid back the banks; it didn't stop forclosures or let the borrower off the hook.
Millions of bewildered people said, "Why did the bank loan me money that they knew I might not be able to pay back?" This created the theme of "predatory lending". The banks had lowered their standards, and it seemed that they were trying to steal from their borrowers. Actually, the government did it.
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In the old days, student loans were small and hard to get. Students mostly had to work summers and go to inexpensive schools, unless their family had the money. Most parents scrimped to save the money for their children's college.
The government wanted to support more college educations. It began to insure student loans made through banks. Hard to believe, the government did not want to lose money, so it legislated that student loans (unlike all others) would not be dismissible in bankruptcy.
That was mostly reasonable. No bank would be paid back if a student could borrow $40,000, graduate, then declare bankruptcy.
Then, the government decided to support college loans in a big way. The government insured loans to a much larger range of schools for much higher tuitions. Like mortgages, the government insurance paid back the banks; it didn't let the student or his co-signing parents off the hook.
Millions of bewildered students now say "Why did the bank loan me money to get a useless degree at very high costs, that they knew I would probably not be able to pay back?" Students trusted that the banks and the government would not lend them money to buy an education not worth the price. The government, and certainly the stingy bankers, would not make it so easy to become indentured and garnished without seriously analyzing the situation.
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The government will promote any number of schemes to buy votes. Politicians advertize that they are going further than the stingy free-market companies to help the common man. But, they don't want to lose money, because money is what allows them to buy votes. So, one way or another, the people getting loans are going to be made to pay those loans back. To the extent they do not, then everyone else will pay higher taxes or lose opportunities as the government becomes the only source of credit.
Andrew_M_Garland at June 23, 2013 9:33 PM
@ the former Banker There is plenty to cut in college. Most are adding unneeded things. Departments of diversity, which has entire staffs. Instead of one student union, you have several, and the amenities are often amazing. When you don't have to wory about price you gold plate everything. Then just take a glance at endowments, and the fun tax advantages they have. Poor Harvard with 30 billion in endowments. Basic interest on the endowment say 3% is just short of a billion. Current tuition is 40 k. So they could give free rides to 25,000 students, and not touch the principal of the endowment.
And as for companies requiring degrees, that has a lot more to do with protecting themselves from lawsuits. Remember they effectively can't test you on things needed for the job, that is racist according to many courts, (though sometimes the gov't can get away with it).
Joe J at June 23, 2013 10:09 PM
Only the military seems to be able to have non-discriminatory aptitude tests. Or maybe it's just that they cannot be sued (IANAL.) Thank you, courts, for Griggs vs Duke Power, which means that millions now need a college degree for jobs that could be done, and were done, without one. I don't regret any of my long and meandering education, (OK, except for a sociology class) but statistics and accounting were the only subjects that were directly applicable throughout my career.
MarkD at June 24, 2013 5:51 AM
Remember that the only reason they can get the loans is the special treatment even private student loans have under the law.
Yep, we just got a mortgage at 2.75% but my sister is still paying 7.5% on her student loans--set by the feds, not the market.
Astra at June 24, 2013 7:14 AM
"the previous generation spent 18 years or more imparting long dead truths about education and employment opportunities to their children."
That's true. In their defense, the devaluation of the higher education system was something that snuck up on them. In their day, college catalogs weren't top-heavy with worthless degrees. They remember that some of the classes they took mystified their own parents ("FORTRAN? What's that?"), and they try not to do the same to their children ("Gender studies? What's that?") Of course, taking a FORTRAN class in 1965 was indeed a valuable undertaking that would give you a leg up if you were going into the computer field, whereas taking a Gender Studies class leaves you with less actual knowledge than you had before. That's what the older generation hasn't come to grips with.
Cousin Dave at June 24, 2013 7:43 AM
Students are taking a gamble. You need a college degree to even be considered for most professional jobs. So they get the degree in hopes that they can eventually pay it off, because without the degree, they can't even get the job.
It's fun to call young adults stupid and to tell them to go be plumbers, but the college students I've spoken with are well aware of how screwed they are, and there are a finite number of trade jobs in the country. We don't need more plumbers. We need education to be affordable again.
MonicaP at June 24, 2013 7:51 AM
Student loans were originally intended to help cover tuition, books, and living expenses.
Then, like profiteers at a disaster site, proprietary trade schools popped up.
Their per-semester tuition just happens to be the maximum amount one could get for a student loan and the application process includes a student loan application with the disbursement going directly to the school.
That way, even if you drop out before taking a single class, they get to keep a "processing fee" and return only a portion of the disbursement.
And the "education" that most of these schools provide is sub-standard at best.
I cringe every time I hear someone talk about "going to college" when they mean one of these places. I worked in student loans for five years and these types of schools were the bulk of our default issues.
I try to warn them and their parents, but the lure of "going to college" is strong.
Conan the Grammarian at June 24, 2013 8:27 AM
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