The University-Corporate-Financial Complex is going to squeal.
This is the transcript from my podcast last Sunday, THE WOLF STREET REPORT:
OK, I’m going to wade into this debate. And I’m going to do it with my boots on.
The student loan fiasco – the pile of debt that has ballooned to $1.6 trillion – and what to do about it – particularly how much of that student debt to forgive at the expense of taxpayers – has now entered the list of presidential campaign promises.
These promises of student-loan forgiveness are efforts to buy votes at the expense of the rest of the taxpayers, whose money this is, on the principle that whoever proposes the biggest debt-forgiveness will get the most votes from those graduates and their parents.
I can’t blame them. It’s just too juicy a low-hanging fruit. If I were a politician running for office, I’d promise the same damn thing, and that’s why I’m not running for office.
But this $1.6 trillion is an asset on the government’s books. It was funded by tax receipts and debt that the government issued. If hypothetically, all students paid off their federal student loans today, the gross national debt would drop by 7%, from $22.5 trillion to $20.9 trillion.
Forgiving these student loans wipes out that asset, but the national debt that funded these student loans remains. That’s how that would work. There are no freebies, when it comes to debt.
But ultimately, any proposal of student-loan forgiveness is merely another massive giveaway by taxpayers to what I’ve come to call the University-Corporate-Financial Complex. Because students – who’re not yet aware of the financial shenanigans they’re being drawn into – are merely a pass-through conduit for that money from taxpayers to the ultimate recipients.
How much money are we even talking about here?
A lot more than meets the eye. Currently there are $1.6 trillion in student loans outstanding. That is only the debt that has not yet been paid off or been written off.
But most graduates work hard to pay off their student loans, and they’re making progress. Each time one of these graduates makes a payment, it reduces the pile of student loans outstanding. And when that graduate has finally paid off all their student loans, those loans are no longer part of the outstanding balance.
The thing is, there is a lot more new loans being taken out than old loans are being paid off.
So that $1.6 trillion in outstanding student loans is just what is currently owed. It’s not the total amount in money that students borrowed and turned over to the University-Corporate-Financial Complex. That total is trillions of dollars over the years. It’s a huge flow of money.
It’s debt-financed consumption pure and simple. But this branch of debt-financed consumption is guaranteed by the taxpayer, no questions asked.
You don’t have to have good credit to get a student loan, and you don’t have to have income, you don’t even have to prove that you will have income that will allow you to pay back the loan. You just need to be a student – and you don’t even need to be preparing for a profession that would earn you enough to where you could pay back the loan.
And then you spend every penny of this borrowed money. Some of it goes to the school for tuition, and perhaps room and board, and fees. Other students use it for off-campus housing, and these rent payments go to private landlords.
Everyone is forced to buy textbooks – and that is one of the worst rip-offs out there with a monopolistic structure. Often, textbooks are “updated” and changed in such a way that used textbooks become hard to deal with or useless. Electronic textbooks are designed so that they cannot be transferred to others. They’re ridiculously expensive. The textbook publishers are getting rich and fat. And the student pays for them with student-loan money.
Everyone needs a computer these days because a lot of work is done on a computer and submitted electronically. And they need software. And everyone needs a smartphone. Etc. And all these things are paid for with student-loan money. Apple is better at sucking up this moolah than any other company in America.
Then there are the fast-food chains on and around campus, and you have to eat, and so more student loan money goes to corporate America.
And the grocery stores, the ticket vendors, the apparel vendors, the airlines when you go back home, or when you go on spring break. And you may need a car and gasoline, and so on.
Then there are the universities themselves. They’re now vast properties with expensive buildings, enormous parking lots and parking garages, huge athletic complexes, and astonishingly beautiful administrative buildings.
Lower-level instructors and associate professors don’t get paid a lot, but top administrators, university hospital doctors, and coaches do get paid a lot – often well over $1 million a year, going up into the multiple millions of dollars.
Campuses are constantly expanding as universities buy new properties. And new buildings are being built, and the whole real-estate and construction industry is profiting from this.
And Wall Street has its fingers in this pie because these places need to be funded and the loans for the properties need to be securitized. And the companies that supply the students need to issue bonds and stocks and so on. And the whole educational system needs to be financialized.
Everyone is trying to get their slice of this pie – this being government money that is being handed out to students, no questions asked, so that they can pass it on to the enormous University-Corporate-Financial Complex.
The students are just the pass-through conduit. Much of the time, they don’t even understand what’s going on here. They’re just trying to obtain an education and pursue their dreams of becoming the greatest scientist or the best history teacher in the world or the most glorious dweller in a cubicle farm out to change how we live.
But they have become essential cogs in the profit machine of Corporate America.
Federal student loan money is sent to the financial aid office at the university, which uses this money to cover tuition that other financial aid does not cover. And for students who live on campus, the student loan money is applied to room and board. The rest of the money is handed to the student to pay rent if they live off campus, and to buy what they need, such as text books or laptops or that sandwich or concert ticket.
Every dime in student-loan money that gets spent is a transfer of taxpayer money to the University-Corporate-Financial Complex. This has three consequences:
- Corporate America took the money and the profits;
- Students are stuck with the debt;
- And taxpayers are left twisting in the wind, praying that students will eventually pay them back.
Those prayers will come to naught if student loan forgiveness becomes the law of the land. It will rip off taxpayers, whose money this is. And it will further enrich corporate America because now these debt-free graduates can spend more money on Apple products, rent, and other stuff.
In addition, student-loan forgiveness is patently unfair, in two ways:
One, it’s unfair to former students that are now taxpayers that sacrificed other pleasures in life to pay off their student loans and now have to pay off the student loans of others;
And two, more importantly, it’s unfair to a subgroup of students: Kids that took out the biggest loans to go to the most expensive schools, rather than a junior college, and that partied the most and spent the most and worked the least, if at all, to cover part of their expenses, will get the royal treatment because their debts from all this will be forgiven, and they got this stuff for free.
But kids who decided that they couldn’t afford to go to university and didn’t get a higher education, or went to a junior college for a couple of years instead, and who worked their butts off with side jobs during that time to minimize their reliance on student loans, or to avoid them altogether, well, they’re going to get shafted.
Sure, student loans can put a lot of pressure on college graduates. After the student graduates and finds a job, loan payments start. If the student has $50,000 in debt, with payments spread over 10 years, as student loan payments typically are, at the current interest rate of 4.5%, the monthly payment is around $520.
But the median asking rent of a one-bedroom apartment in the US is about $1,200. In San Francisco it’s over $3,000. So that $520 loan payment is not huge, compared to the other cold showers of reality that await our college graduates, in a world where central banks have seen to it that nearly everything is overpriced for them.
If the government really wants to do something about the soaring costs of education, it should reduce the amount students can borrow. This will force universities to offer better deals, or run out of students.
Undergraduate enrollment is already down 7% from the peak in 2010, according to government data. Universities are not in a position of strength here.
Now imagine what the threat of a 10% or 20% drop would do to the industry. Instead of jacking up tuition from year to year, and charging ever more for room and board and fees, and for textbooks, and the like, universities would have to go back to the drawing board, perhaps sell some land and buildings and stadiums, and focus on offering the best education at the lowest price, because student loans just won’t be big enough.
Universities, Corporate America, student housing landlords, and Wall Street are going to squeal, because they’re the recipients of this student loan money, and it’s their revenues and profits we’re talking about here. They will squeal because they want that gravy train to continue. And any reductions in student-loan limits will cut into their revenues and profits.
But heck, proposing anything that takes a bite out of corporate revenues and profits, even if they’re funded by taxpayers, is too tough a sale in America, and no candidate has had the balls to even bring it up.
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As someone who paid off his loans 20 years ago, I demand my fair share. With interest. Everyone should demand the same, and we should be first in line. An injustice like this cannot only be addressed in the current generation. It must be redressed in a way to right the past wrongs.
Sound familiar? I expect a lot more votes by proposing this. And wait till you see what I have in mind for auto loans.
Sarcasm mode off
Heh heh, not deliberately calling you names or anything, but NoName, do you even know how to read? Which college did they graduate you from? I think you might qualify for a refund.
You are obviously extremely ignorant of the student loan situation. They did not become riddled with fraud until after 1995 – after YOU paid off YOUR loans – when Biden was so helpful in making them impossible to discharge thru bankruptcy. So the loans you took were much less fraudulated than those taken now.
So, let’s ask this question, do you think the concept of fraud only started in the late 90s?
What I’m talking about is responsibility. I am all for the societal good, that’s why we pay taxes. What I’m against is people using ignorance as a defense for literally everything. My sarcasm aside, how does bailing out the ones who are falling behind with a freebie make anyone who paid off the loans by themselves, the ones who are responsible feel?
It is the same token with immigration or a host of other topics. If someone played by the rules, and succeeded in spite of it, then the rules just changed dramatically to favor those who didn’t work as hard, then why bother following the rules in the first place. The fundamental question is, do the rules even matter afterwards?
What was it that Winston (from John Wick, not Churchill) said? “Rules… without them we live with the animals.” I’m all for reasonable reforms of the law, what I’m not for is giveaways to buy votes. Although these days the media would spin these forms of instant gratification as the social good.
Just consider the latest example of buying votes.
https://www.nytimes.com/2019/09/12/us/politics/elizabeth-warren-social-security.html
Which oddly is an offset to this student debt forgiveness, but it just piles more burden on future generations. Think about that.
I paid my loans off too, and I’m all for a loan Jubilee. Declare a date, after X day, all student loans are dischargeable through bankruptcy again. Watch college costs go ‘way down, while those who matter – the football coach, the administrators, etc. – don’t experience any drop in pay. Watch loans being pushed at kids generally stop. People will see it again as the gamble it is – either a degree is a good bet, like something in the medical field* or it’s something you’ve saved up for and just plain want, like a fine arts degree, etc.
*The pharmacist or was it just a pharmacy tech I talked to not long ago, told me he was about a third of a million in debt to get to dispense generics to broke-ass characters like me out of a Safeway pharmacy.
More information from Sept 2018 on student loans
https://www.marketwatch.com/story/one-company-will-now-handle-close-to-half-of-all-student-loan-payments-2018-02-09
In general, Americans carry a lot of debt and save very little, so a debt jubilee (all debt not just student debt) could be very popular and might win a lot of votes.
The Fed along with the government can cancel all debts with helicopter money or otherwise inflating away the dollar and starting again with a new dollar.
Debt cancellation will arrive with savings cancellation. The debt of the irresponsible will be wiped out and the savings of the responsible will be wiped out in kind. This is how the world works. When matter finds antimatter the end result is zero.
Savers are hapless suckers – borrow all you can, have a good time and walk away, that’s what the president did (several times – just like Argentina)
Nice sarcasm there Look at the situation in Argentina Its not a pretty picture I very much doubt the bankers will allow any debt foregiveness in my lifetime
“… the savings of the responsible will be wiped out in kind.”
Not if they are physical pm, or in a form independent of money, such as land.
“or in a form independent of money, such as land”
Wouldn’t count on it. Wait till land value & property tax start ramping up. The collectivists will leave no stone unturned.
Even stocks are decent long-term inflation hedges. After all, inflation shows up in company revenues. It’s mainly bond issuers and creditors of any sort that get screwed the most. When inflation really gets going, it’s just anyone who holds onto cash too long. They could try mmt, but since most of the money supply gets profit skimmed, don’t expect general inflation if wages don’t rise. Otherwise only the price of assets rise.
Some clarification, helicopter money never worked the way Ben defined it, because the helicopter landed on top of the penthouse, so in addition to jubilee are we getting the Green New Deal as well? They have been inflating away the dollar and the value of that penthouse just goes higher, meaning the helicopter needs to gain altitude to land. Now you allow people to pay off their onerous debts, which brought all this about, and who benefits, again?
No no, your ideas don’t sound that bad.
I just propose that we start reparation payments for those who fell prey to this predatory lending indentured servitude scheme in reverse order.
So we’ll zero the balance of anyone holding Federal loans now, then go backwards through the rolls a corresponding amount of time as we go into the future and reverse those payments. Since you’ve been able to use your education for 20 years, and it’s hard to calculate that value, we’ll just keep the reimbursements 1:1 for your original payments.
So you’ll have to wait another 20 years until you start seeing your payments go in reverse, but at least you can rest assured you’ll be included.
Either rest assured or rest in peace. Whichever phrasing is more appropriate.
Open up the gates of Competition! – Online Universities, Online and Physical locational hybrids etc.. Put a muzzle on the control that universities hold – the granting of degrees! – Let competition and innovation and technology advance freely. I would bet that costs would come down fast!! – Imagine the squeeeeeeling that would emanate from Campus Admin groups and Teacher Unions…
What competition? For profit colleges gave out easy A’s. They left students unprepared for the real world. Paying back is not easy.
No one is holding back online universities. There are a few thriving programs. The problem is, they’re not taken seriously as there are still serious flaws with how well-delivered these programs are, and how high (or not high) the quality is.
I think you made some very good points, but I also think laws have changed too much in favor of the lenders in some cases. If a lender can loan tons of money to a broke student with poor grades studying art history and not fear defaults or loans getting wiped out by bankruptcy then they will be encouraged to make ridiculous loans.
The lender is the government.
You CAN NOT forgive these debts with giving every other citicen current, and past an equal handout.
To do otherwise would create a social conflict that would make Americas race issues look like a Sunday school picnic.
This means for starters the debt forgiveness would be reduced to X per debt instead of total debt forgiven for all.
If however EVERY citicen was given X as debt relief or future tax relief it would be a covert helicopter money program. Which has some merit as most of it would go to peopel who need student loan relief or have need of that money so would SPEND IT.
The lender was irresponsible just the same. The government (aka the American people – we are purported to be a democracy after all) chose to guarantee loans with very high probability of default. There is a price to be paid for making bad choices and printing money to cancel these debts is a price the country must now pay. As the saying goes: you can’t squeeze blood from a stone.
Believing this money will be paid back through hard work and austerity is a pipe dream, much easier to vote for someone who will cancel the debt. Consider it a done deal and move on.
It’s easy to believe in the status quo when it has never failed you. Some of us have already seen how this movie ends (failure of the currency). I sense you still cling to some hope that the shit won’t hit the fan, but as they say, hope is a lousy strategy.
I agree. People want to believe that they’re are far more hard working “moralistic” student loan borrowers out there that won’t vote to remove the shackles. However, money morals are on a spectrum that is directly proportionate to ones wealth. According to an article I read Over 50% of these student borrowers are part of a family that has over a 80% debt to asset ratio (D/A), unlike the remaining 50%”wealthier”kids on a decreasing debt/asset ratio of about 17%D/A , This 50 % is skewed by the wealthiest 10%: down to less than 7%D/A for the wealthiest 9%, and under 2%D/A for the infamous 1%. Point being when your under financial stress, survival instincts become your number one moralistic choice. Most of these people are probably good ethical citizens who wouldn’t kill or rob somebody outright. Morals regarding money are seen through the eyes of the beholder whether your the president, a skid row orphan, or a Trust fund kid. There are a large group of people that are going to vote to unburden their debt shackles; it’s easier than getting the pitch forks sharpened,
Remember there is a second kind (and perhaps unintentional) debt forgiveness that involves hyperinflation. We have to face the facts that only two outcomes are really possible. With the corporate, public , and personal debt loads now facing america ( and most of the industrial world ) there are only two economic paths left. Outcome one, where we go in to a slow grinding deflation where the debts ( of all kinds) go bad and are written off along with the assets associated with them dragging down everything. Or things are kept afloat with printed money which eventually causes inflation running away in to hyperinflation in which case fixed debts such as student loans will be paid back with devalued money and an average university education will be paid off with the money from selling a loaf of bread.
what are the pros and cons of each of these paths? Which is more likely? I really want to know what will happen — can we assume the latter if the central banks do another QE?
The latter wipes out savers and responsible citicens who live within their means.
so if the latter becomes reality, many borrower and spenders, will need to be ten foot tall and bulletproof. As savers and responsible people are sick of being wiped out, so corporates and deadbeat borrower’s can live high on the hog.
Thats before you consider what such inflation will do to pension
fund’s, then pension fund payouts. Then the aggressive anarchy that goes with that.
Think where hyperinflation took Wiemar, then the world.
Ultimately various governments chose to blow bubbles with QE, rather than have their corporate and speculator cronies suffer the consequences of their actions, hence those same governments have to manage the deflation of those bubbles whilst harming only those that benefited from them, or serious, VIOLENT chaos will ensue.
Look at the Knife crime on the streets of London. having all the guns will not protect the thieves from their angry victims.
“(Hyperinflation) wipes out savers and responsible citizens who live within their means.”
Not if the savings are in PM and/or “hard goods”, valuable independently of money, such as land.
RD Blakeslee
In a serious Hyperinflation situation the little people’s land will be taken from them with taxation.
Modern taxation methods makes land beyond non appreciating undeveloped rural land, a liability.
The issue with PM is what price you purchased it at.
Motor homes still have potential as in a constrained economy/society they can still be towed with horses.
When hyperinflation occurs your mortgage is paid off with one hours worth of work, But, unfortunately, it comes at the cost of total, economic collapse.
When people work to earn money that loses it’s value before they can spend it, they are essentially working for free. What Brazil learned is people don’t generally work without financial motivation and when people stop working food, and other necessities disappear. Hungry people are desperate people and looting and violence breaks out. Your house will be paid off but it’s a Faustian bargain, your life will be much worse.
On the bright side you won’t have to worry about dandelions and other weeds growing on your lawn – people will eat them as soon as they pop up.
Of course all of this is common sense but, none the less, this is an outcome central bankers are clearly willing to risk.
That’s not how inflation works, and besides it’s the federal reserve’s jobs to manage inflation.
I’m sure they can pull it off.
We could have both. First deflation where the dollar is the last fiat currency standing until it stops inflating after a period of time during the the early recession, and then hyperinflation happens quickly, and the dollar bites the dust with the world Fiat family.
Perhaps, this would give the dollar time to finish building the right shoulder on an ugly head and shoulder chart as seen on a 5-10 year chart before taking a nose dive.
tax the endowments.
debt forgiveness is just selling out two stakeholders: lenders (and their stakeholders such as bank stock and bondholders) and those who paid back their loans.
It depends on who should “pay”.
Remember, those with student loans were adults who freely signed a contract.
That is very important.
wkevinw
As Wolf has stated about 27 time over the past 3-4 threads on this topic BANKS DO NOT MAKE STUDENT LOANS – THE US GOVERNMENT (TAXPAYER) DOES. BANKS HAVE NOTHING TO DO WITH STUDENT LOANS.
This is big government at its best.
True. I keep forgetting things have changed since the dinosaur age when I had a very small student loan (barely needed it because of the really over-subsidized university education I received). I paid too little for mine vs. what people pay today.
However, I did understand that I was responsible for paying the loan back- yes, even when I was a teenager.
I don’t know what the answer is to this difficult question. But, I do not think these “blanket” forgiveness plans are healthy. It raises the moral hazard risk for parties in future agreements, and also robs people of a piece of their humanity by showing that average joes are not capable of living responsible lives. They really are.
“Remember, those with student loans were adults who freely signed a contract.”
Agree completely. And if these teenagers were stupid enough to hire an attorney without the requisite expertise to thoroughly negotiate a well-balanced contract that assumes each party shares the appropriate levels of risk, then they were the idiots and should pay dearly and for life!
Carefully consider your statement. A child, say age 17-18, that does not have the cognitive ability of an adult until the age of 25, is attempting to negotiate a contract that potentially impacts their entirety of their life?
This is absurd. Most cannot adequately understand a cell phone or vehicle purchase contract, why automatically presume that they should be thrown to the wolves?
Why not answer the best question- why should higher education be predatory? Why should it not be extremely low cost (as in cheaper than community college) or free? It’s a societal good that improves the lives of many- why keep it expensive to ruination of many?
The absurdity was my point. I actually completely agree with your position.
Locking people out of job opportunities and better education by forcing a contract for insanely high education prices. Seems like a contract everyone would turn down, because every 18 year old has the leverage to counter the contract and find a better price except they can’t.
Not a fan of debt forgiveness but also not a fan of saying the contracts signed are of fair value and should be honored. There is a scale out of balance, it shows in the wealth gap around the globe.
Didn’t the people vote in a leader that tore up contracts and filed bankruptcy for a living, of course they want the same luxury.
What ever happened to rights and responsibilities? Consequences?
It seems these days all we ever hear about is rights.
Surprise surprise, there are consequences for not planning ahead. Why any student needs to borrow vast sums of money for post secondary should be thought about carefully. A degree in medicine? Maybe. A PhD in philosophy or anthropology? mmmmm maybe not a good idea.
There is universal education to grade 12 with taxpayers footing the bill. There are also many many state colleges where the first two years of uni can be obtained very very cheaply. My question is why are so many high school students wasting their time up to grade 12, and then deciding to get serious after they ‘get accepted’ to post secondary? (And don’t blame the teachers or school system. Goals and planning should start at home. Teachers don’t raise their students, that’s supposed to be up to parents). Parents like Felicity Huffman, who tried to bribe their kids into placement.
I currently spend Sunday afternoons in ‘school’ working on an Advanced amateur radio ticket. This allows access to all amateur radio bands, plus the right to build equipment and operate up to 1,000 watts. Imagine my surprise to see sitting beside me 2 high school students doing the same thing. They are trying to obtain every certification possible before starting their technical careers. They have a Plan, and I’ll bet big bucks their plans don’t include student loans.
It’s time people grew up and accepted their responsibilities. If you borrow money the lender expects to be paid. What a concept. Don’t pay? There are consequences. Drink and drive? Consequences. Unprotected sex? Sleep in and miss work? Smoke? Punch the boss? How hard is this?
Quit moralizing debt, it’s a business. Lender bares the risk if debtor can’t pay and a bankruptcy proceeding is in order.
Rarely do you hear the moral responsiblity brigade apply their wisdom to legal entities that use the laws to their maximum advantage. But this is a national past time when it comes to people walking from housing during gfc, student debtors, and the poor in general. At least most people can agree that hospital debt is legal abuse.
That being said, I don’t support debt forgiveness because I am almost done payinf mine off. There other ways to provide relief that is equitable like option to refi to a reasonable rate that matches CPI, for example. Many borrowers are in positions where the interest charge makes it pointless to pay anything but the minimum because the payment does not cover the interest.
I don’t see anything in Paulo’s post implying no lack of moral turpitude
by lenders.
He talks about what we as citizens control: our own lives.
Lender behavior is another matter.
No he is telling other people that they have a moral duty to pay back debts. There is no such duty. There is merely a legal obligation to pay if you are able to do so, otherwise the lender eat the loss.
Moralizing a business transaction to shame poor people is in poor taste.
@ Paulo,
I think the poor state of financial education in the 6th to 12th grade years has a lot to do with the issues that we see revolving around debt. Yet, our education system does not seem to want to equip the future generation with even the barest of capabilities or knowledge.
As for responsibilities, I am concerned that is rapidly becoming a dirty word in US society today. Certain parents like Huffman simply don’t believe it, and I think society as a whole should take the time to make an example out of them, not only because they stole someone else’s place, but as a reminder to everyone that vanity has a price to it. Besides, a single year in a minimum security prison is probably nothing, if good ol’ Martha can go through it, well… think of it as rehabilitation.
As good ol Al said once: “Vanity, definitely my favorite sin.”
@Paulo – To be fair a lot of people took this path because they were told to. Educators told everyone for many many years “you have to go to college and get a degree, a degree in anything, in order to be successful”. Imagine being told that by people who are teaching you these things for most of your life and the influence is undeniable. Then there’s parents and others outside the school system saying the same stuff. Certainly the buck stops with the individual, but these other people need to admit they’ve screwed up Millennials big time and be held accountable for their role.
You are right illuminid. Teachers are people who were comfortable in school and excelled in that setting. They remained. The folks running the system are the same. To disagree is like telling an evangelical there is no God. They just don’t get it. That is where parents need to start parenting.
I guess I’m old fashioned but I do distinctly remember my Dad telling me to go pick the money tree in the backyard if I wanted _________. My daughter took on a student loan when she didn’t really need to. I warned and warned her, but all the kids were doing it. I think it took about ten years to pay it off. She paid it off, though…fair and square.
Paulo,
I am afraid that the concept of NECCESSARILY taking personal control of one’s life will not return (if ever – that’s if humankind survives) until there’s been a hard “teaching spell” – real hard times again.
I remember the 1930s through 1945 and the renaissance that followed – what I fear was the height of U.S. civilization; The third quarter of the 20th century, when our citizenry was culturally united, helping Europe recover with the Marshall plan, etc.
@ RD Blakeslee
If you mean another trial by fire like WWII, or something equally traumatic, it will eventually happen. The only question is what will be the outcome, and the form of that trial. Sometimes, a systematic shock like the depression is what the country needs to reset. It isn’t pretty at all, but that’s evolution for you.
How to make University affordable again:
1. Stop government from guaranteeing any student loans.
2. Stop government from giving any kind of grants or scholarships.
3. Make all college loans a private business transaction between the college/bank and the student.
4. Allow college loans to be discharged in bankruptcy court.
5. Enforce GAAP and fraud laws. Throw bankers in jail for violations.
2banana
Absolutely agreed that we need a new model for financing college education.
A logical place to anchor accountability would seem to be the colleges & universities who derive the benefits (increased cash to spend on themselves). However, I cannot imagine a more unqualified & incompetent cadre of managers than coddled, overpaid, entitled education administrators (these are the very adults running around finding “safe spaces” for our photo-adults).
Holding colleges/universities accountable for student loan success rates would only ensure 3 million new & highly unqualified college graduates a year with dual PhD’s in particle physics and brain surgery.
I wonder what to make of Purdue U’s plan to make kids pay a part of their income for X years post graduation if they make a certain amount. It sounds like a reasonable idea, but I’m sure there are pitfalls.
Works down under:
http://www.studyassist.gov.au/paying-back-your-loan/loan-repayment
So, college professors and administrators convince these snot-nosed punks to attend college so they can guarantee their unearned 6 figure incomes. Hogwash, these indoctrination camps have opened their doors to every flunky moron whose motivation is to avoid work and party for another 4 years. Upon graduation, most are ill-equipped to work, unless of course you consider civil unrest an occupation. If you want free college, join the military and attend under the GI Bill.
You mean like the esteemed Native American University professor Elizabeth Warren receiving a $400,000+ per year salary for teaching a single class?
Just took my kid to Stanford…hear me out. He attended community college for two years and worked. He was accepted to Stanford as a senior but deferred due to lack of funds. Now, I am a trauma surgeon and my wife is a pulmonologist. Combined we make a good income (well not so much after taxes and the bills i pay each month to maintain my medical licenses). But here’s the deal, we each spent 4 years in medical school, 3 years in regular residency, then went off to do our specialities, which was another 4 and 6 years, respectively, to receive $45k and support our family of five on $90k per year. But we couldn’t pay off our student loans for 7 years aside from some interest. A lot more interest piled on our $700,000 medical schools bill. That’s our fault and we didn’t realize we couldn’t pay it back for those years. I’m only 6 years into my career and aside from the licenses, testing, insurance I pay out of pocket to be a doctor, we don’t make that much. Our $700k has turned into a wild monster. I am forbidding my kids from going into medicine for this very reason. Yes, we have job security, but the hospitals we work for often without some of our paychecks because hospitals are struggling. We work damn hard to pay back the loan on the dotted line we signed for. I will work until I’m 84…but we need to honor our obligations.
Most people we student loans can’t afford marriage or family at all.
$45K/yr/ea for doctors with specialties???!!!
Does not compute.
In residency, you get $35-$50k for three years. You do medical school, then residency, then you specialize. You pay for medics school, obviously, but for a minimum of three years, as a RESiDENT, you get a low salary. Basically you are a slave. We barely had decent health coverage and had to pay $20-$25k for the birth of our children. Then, if you specialize (surgery, orthopedics…), you get at $50k salary. Specialties go on from 2 to 10 years. That’s the math. For my wife and I, the opportunity cost was a big one. 9 headache later of working and making real salaries, we are about to break even.
The answer is to make the loans interest free with the government as the provider…….and keep the penalties for not repaying the loan
Bob Bee
The average $30,000 student loan, amortized over 10 years (120 months), requires these monthly payoff amounts for selected interest rates:
o $311/month @ 4.53% (current student loan interest rate)
o $250/month @ 0% interest rate
Depending upon post-graduation salary, either of these are reasonably significant, but not crippling, monthly payments . By comparison, A $5 Starbucks every week day of the month is about $150.
I contend it’s not necessarily the inability to payoff the student loan, but it’s the entitled feeling the loan should not have to be paid off, even after having signing a contract stating it wold be paid back.
Frankly, the vast majority (98.6%) of 18 year old kids, who look sort of like adults, have absolutely no experience or appreciation for accruing & managing a $30,000 debt (neither do many adults). It is foolish for them to be put in this situation without required parental oversight & guidance.
“Parental oversight”? Given the massive lack of financial knowledge in all age groups and most financial levels parents are hardly equipped. “Oh let’s buy that 60k truck and finance for 8 years and what is our minimum payment? Interest rate oh what is that?”
Agreed, especially considering the number of parents who take these loans out for their kids. While I admire their sacrifice, it’s not always financial prudence that guides them.
The ‘average’ student loan might be $30,000, but what is the average amount for loans in default?
Good question and a tough answer to find.
Best I can do is $100B (of total $1.6T) is delinquent (which seems to be defined as >360 days delinquent).
source: https://www.forbes.com/sites/zackfriedman/2019/02/25/student-loan-debt-statistics-2019/#24de6124133f
I can see some limited student loan forgiveness. But only for those with extremely low prospects of paying back– older or poorer folks, and only for loans below a certain limit.
Then remove all federal educational loans, guarantees and subsidies, and make the new loans dischargeable in bankruptcy court. Then people who need and deserve loans will get them, and higher education costs can settle back down to where they should be.
Perhaps if a carrot was put in front of students, e.g., some type of balloon-type structure might allow them to pay off the loan at one easy interest rate and then, the more they pay over time, the rate goes down, or some debt is forgiven. It keeps them honest, but doesn’t trap them.
In addition, this isn’t a quick bail out where “they” get off the hook easily and this type of solution needs to be part of a not for profit effort, or a way in which loan sharks can’t steal from kids that are trapped in debt.
Furthermore, you can’t make it easy for anyone to go to school and end up with a stupid useless degree, which is engineered as an inducement to lure stupid people into worthless training, which essentially enriches a school. Community colleges have tons of idiot programs which are stepping stones into debt and most schools do lure people into programs where there is no real useful outcome. If you modify loans then modify the criminal liability of the Industrial Education Complex which profits from handing out useless degrees and then sending stupid people out into a world that has no use for what they just trained for … etc/
im replacing ‘student loan’ w/some promises from the past.. ill have an ans in a sec.
Maybe someone can identify that portion of the Constitution that authorizes the federal government to have anything to do with the student loan business.
Where since 1933 has the federal government referred to the Constitution to decide whether to take any of its actions?
I worked 2 jobs while in college, and 3rd shift at a slaughterhouse during the summers so I wouldn’t have debt.
My roommate never cashed a paycheck during that period, did a 2 month “learning tour” in Europe, and lived the high life all on student loans.
So now I’m supposed to help pay off his Kardashian lifestyle? I guess the biggest fools are those of us who didn’t borrow recklessly.
A lot of comments are missing the point and dissmiing valid points by saying the government makes the loan. Yes the Fed gaurrantees student loans but the schools and banks sell them and since 1995 their use of fraud to sell them has greatly increased. And that is tried & true text book reason to consider loan forgiveness. The schools sell/push the debt sometimes quite fraudulently and the Dept of Education under both parties won’t even enforce it’s lame anti fraud and other rules and the Fed action takes away reason for lender caution and makes it risk free to lenders. Yah the Fed gaurrantees the loan but you’re missing many points by repeating the Fed funds the loans. So what?
As Wolf has said over and over and over, THE BANKS ARE NO LONGER INVOLVED IN FEDERAL STUDENT LOANS.
You (actually, your authorized governmental agent) make the loan & you (the taxpayer) get stuck with the default.
What bank fraud are you talking about?
You know what i find interesting? That people can’t accept someone else
getting a break. They can’t stand to see someone get something that they can’t get. It’s a human thing. Other species don’t even give it a thought , but humans are like: You got something that i didn’t get! That’s not fair!
I am pissed! Some hearts these humanoises have hehehhee.
People can’t stand having their stuff stolen by someone else.
Student loan forgiveness is a form of theft from taxpayers, whose assets just disappear. Remember: One person’s debt is another person’s asset. That money that was handed to students was taxpayer money, and it was borrowed, and the bonds are still outstanding and need to be paid back and interest needs to be paid on them. Taxpayers are counting on getting their money back from those students so that they can deal with the debt they incurred to fund those student loans.
The real beneficiaries of these student loans are the participants in the University-Corporate-Financial Complex. They ended up with all this money.
I want mortgage forgiveness. The government bought and guaranteed the mortgage, so why not? There are only about $10 trillion in mortgage loans outstanding, so it’s no biggie.
My neighbor, who is struggling, wants auto-loan forgiveness and credit card debt forgiveness….
Yeah and I want a refund on all the taxes I paid that were gifted to military contractors and all the other subsidiaries that profited from the obscene and immoral incursions in the Middle East over the past 18 years. About $6 Trillion and counting. That isn’t theft? Raiding social security and cutting meaningful programs that ensure safety and the well being of the citizenry to give to the war profiteers and con men? You know why you can’t discharge student loans in bankruptcy? Because banks and the universities and whoever the hell else issued these loans knew a significant portion could not be reasonably repaid.
So some students paid their student loans. They should be grateful they were able to excel in the tough world we live in. They got degrees from reputable universities, come from good families and earn a good living.
But a lot of this debt was issued to desperate young people maybe lacking in inherent talent from poor or impoverished back rounds who ended up getting scammed by these fake universities like Phoenix and whatever. So they need to spend the rest of their lives in misery?
After WW 1 Germany was forced to repay war debts that bankrupted the country, creating soul crushing inflation and led to the despair of a nation that allowed the menace of Nazi Germany to take control of power. That analogy to the student debt crises may not appear relevant but the firm mindset that refuses to understand what debt really represents cannot even understand the concept of forgiveness.
At the very least allow these loans, like any other debt, to be
discharged in bankruptcy.
PS: I had student loans and paid them off and I don’t give a damn if others pay theirs or not.
BTW, people have this notion that consumer debts, such as credit card debts, get “discharged” in a personal bankruptcy filing and just disappear.
But after the reform of the bankruptcy law, this is no longer automatically the case. These debts get “restructured” under supervision of the court. Maybe some get discharged, but the rest gets put on a payment schedule that the court thinks the borrower can handle. After the borrower emerges from bankruptcy, at least part, if not all, of the debts are still there, and now there are court-required payments to make.
I’m not totally opposed to allowing student loans to be involved in this bankruptcy process, but there are HUGE issues with it, namely that a student premeditates bankruptcy from the outset, then spends 10 years borrowing the dickens out of the taxpayer to get a series of degrees, and then, once the graduate finally starts working, they file for bankruptcy, which they planned to do from get-go.
That’s the risk. So the rules for dragging student loans into a bankruptcy filing would have to be adjusted to deal with that — namely, you cannot get rid of the debt, but you can restructure it, and it will cost you, and your credit rating (FICO score) will be destroyed for years, and there is hell to pay, if you want to borrow money to buy a car or house.
There needs to be a STRONG disincentive to do this, so that only the really desperate cases try this route – and not the millions of graduates that can make the payments.
There are already many leniencies built into student loans, such as deferments, that are routinely applied.
yes. century later, same system, same ‘merchants of death’, politicians respond, mic’s retool..
I disagree with the fundamental premises of this. You say “Student loan forgiveness is a form of theft from taxpayers”. But so is NIRP. As long as we remain stuck in the old paradigm of “debtors have to pay back their debt”, we will never come out of NIRP. The deflation this causes is by far the bigger pain for the taxpayers you advocate for.
The world needs to deleverage and there are only 4 ways to do this: 1) Austerity, 2) Defaults, 3) Higher taxes (on the rich), and 4) Printing money to enable increasing fiscal spending. The first two lead to more deflation, making the problem worse. The third is not big enough.
Short of a big crash or a war (which still can happen), deleveraging can take place by balancing fiscal spending (which has to cause inflation), with monetary policy (increasing interest rates to control inflation). This is not Venezuela. The entire world will end up doing this in unison. It will take the next decade or two. A new paradigm replacing the old.
This will end badly unless we reach political consensus to increase fiscal spending and we stop wining about ‘stealing taxpayer’s money’. Will see what the ECB does today, but pressure on Germany is mounting to increase fiscal spending.
” “Student loan forgiveness is a form of theft from taxpayers”. But so is NIRP. ”
Garbage.
Don’t like NIRP don’t put your many in their nirp bank.
NIRP is theft from everybody as it screws economies.
Student loan debt jubilee, is simply another handout to a privileged few, believe me the backlash from such a misguided act will be massive.
Similar unfair tax benefits started that little Boston tea-party, remember where that lead???
Thats the sort of backlash that comes from grossly unfair policy’s like a student loan debt jubilee.
Basic rule of life, unless you want big problems, do not feast one puppy and fast another, in the same kennel.
A student loan jubilee dose that blatantly in public.
Even scrapping the current SL sytem and allowing the existing loans to be discharged in bankruptcy would cause huge problems, as the original lending criteria was to weak.
It was based in future possible potential to repay not ability to do so at time of application.
One world government and the end of military spending seems to be the only answer. They have to stack each country with various races of people so there can never be another war.
You must jest I wonder how you would feel if you broke your back in construction working in 100 degree heat and zero degree cold to pay for ones childs education and the guy who didn’t do a darn thing gets a free pass and debt foregiveness It’s Insane to even consider any kind of debt foregiveness
“eness It’s Insane to even consider any kind of debt foregiveness”
No it is in the interests of the country to do so. if the current system is radically overhauled to prevent degrees in knitting and golf course design, Humanities, ETC being eligible for student loans from the state.
But to do so EVERYBODY in the country has to get a piece not just those with Student loans.
Nah. Forgive their loans in exchange for 6 months infantry deployments in Afghanistan or Iran. (Like we did with the bankers in 2008.) Every 6 months wipes off 100k from the loan.
I had everything figured out at 18. The next generation, bah, who needs ’em.
They need to put them all in the front line of every upcoming ground battle war.
peasant43
I am not a fan of war or the military for the way we use it, but I continue to watch the youth in the Silicon Valley, where I reside, and I think this might be a solution. We are a society of sloth, constant seekers of momentary pleasure and something needs to bring them back. If we didn’t teach it to our kids, they will have to learn or the world will suffer.
The US Military has a student loan repayment program. Most of todays age eligible population couldn’t meet the requirements to be in the military. And “drafting” is completely out of the question. You can’t have a military as good as we have with draftees even if the system was set up to handle them (which it isn’t).
I’m all for the Federal Gov’t using “service” as a means to pay off student loans. You have student debt? Get a job (any job) and Uncle Sam will give you a tax break that’s used to pay down your loan. Join the Peace Corps, Doctors without Boarders, or any other beneficial organization, and we’ll subsidize your loan repayment as long as you’re actively employed and paying your taxes.
But flat out giving fiscally irresponsible people more money? That’s insane. That’s Italy, Argentina, Greece, and the US Congress all rolled into the same ball of wax.
I agree – the current system is deeply flawed, pushed by society and a financial complex – and should be stopped. Also, note – in 1970 maybe 10% of the population had a college degree. Nowadays, it is closer to 30-40% of young adults.
That said – we would be wise to address the situation – least there be bad repercussions down the line – personally I would love my interest rate frozen at 0% and my payments to be made pre-tax like or lieu of a 401k.
Of my $1280 a month payment, about 33% of it goes to servicing interest. We factor in the tax benefit of 25% – this would nearly DOUBLE my debt payment progress. It would not be a get out of jail free card, but go a long way towards stopping the overwhelming debt, that you literally cannot get rid of. You cannot sell a degree (beyond your labor) and you cannot be bankrupt of it. Your choices are default or a slave to the loan.
Let’s flip that equation around buddy. How about I get free shit and you pay for it, eh? Don’t like it so much now?
TheDreamer,
“Of my $1280 a month payment, about 33% of it goes to servicing interest.”
So here is a basic lesson in finance: When you take out a 30-year mortgage of $400,000, at 4.5%, your payment will be about $2,030 a month. Of that amount, about 75% will go to servicing interest in the early phases of the mortgage.
As you very gradually pay down the principal over the next many years, your interest portion decreases, and the principal portion increases. But it will take you many years to get the interest portion of your payment down to 33%.
So you’re getting a deal in your current situation!
Why does it have to be total debt forgiveness or nothing?
It might be more palatable if they structured it as a deferment, rather than a forgiveness. For example, the running of interest and repayments could cease for 10 years, which would give people time to get jobs and some financial stability. Taxpayers wouldn’t get the shaft.
If the banks complain about the deferment, the government can pay some market interest (i.e., 1-2%) during the deferment period.
Why does this group of debtors get special treatment? Why do debtors get better treatment than savers? So I can run up my card and get you to pay for it? Or have the taxpayers/government pay the interest for a deferment period?
I feel like I’m living in the twilight zone with the kind of lack of moral compass that is apparently commonplace.
Agree 100% nobody forced these people to take on that debt Let them pay or debtors prison They can be used to build the wall to work off the debt
Work camps and changing the bankruptcy laws so they can never declare bankruptcy due to school loans is the only viable solution. These people are criminals who abused the system.
This essay is based on the (false) premise that our accumulated debt will have to be paid pack, especially including government debt. That will never happen. Austerity creates even more deflation, so do accelerating defaults, including students defaulting on their debt.
On an about $5t federal budget with an annual deficit of about $1t, we would have to cut $2t per year (40%) out of the budget to pay back our debt over the next 20 years of austerity. But the real liabilities of the government, including pensions, healthcare, state are closer to $125t.
There is only one way out of this and that is accelerating fiscal spending as central bank monetary policy is increasingly ineffective. Inflation will have to raise, so do interest rates. Balancing fiscal spending with monetary policy will be the trick tried next. And no, this is not Venezuela. That is just another political football.
The indirect tax taxpayers (and especially retirees) currently pay with NIRP is far greater than whatever costs emerge out of debt relief for students or other fiscal initiatives. Principal pales in comparison to compounded interest over a long period of time.
I want the government to forgive all mortgages that it owns and guarantees, which are many trillions of dollars — same as student loans, only bigger. Think how happy these homeowners will be, to be suddenly debt-free.
OK, that was bad joke. All discussions about broad debt forgiveness are a bad joke. People need to realize that one person’s debt is another person’s asset, and debt forgiveness means the wholesale destruction of that asset, and the collapse of the financial system, which is based on these assets.
Government guaranteed and owned student loans are no different than government guaranteed and owned mortgages.
Actually, we can look back to the financial crisis to see what happens when bad loans go bang. The government bailed the creditors and let the debtors lose their homes. The consequences of that move are still shaking society today.
Student loan forgiveness is the flip side of the same process, only the debtors get bailed, and the creditors lose their asset.
Both of these actions are completely unfair to the taxpayer, but I think the second option can’t possibly be any worse than the first. Loans that can’t be paid won’t be paid.
Spagmess,
“…and let the debtors lose their homes.”
The debtors also got rid of their debt (the mortgage) that was far higher than the value of the house since house prices had plunged, but debt remains the same. Walking away from a deeply underwater house and getting rid of the debt is a DEAL!
It goes like this — just an example:
Value of the house after price drop: $200,000
Amount of mortgage outstanding: $280,000
Amount under water: -$80,000
By walking away from the house and the debt, these people made $80,000 (assuming that the lender didn’t sue them). In fact, this $80,000 in debt forgiveness is taxable income to them, and they would normally have to pay taxes on this income.
I believe that most UK student loan debts are (or at least were) not required to be paid back until a certain level of income has been reached, at which point they can be deducted from salary payments via the PAYE deduction system that takes care of tax/national insurance contributions.
Of course, this would mean that some student loans will never be repaid if the student never attains the required level of income, but if the student becomes a Doctor etc. this won’t be a problem. Of course loans for subjects that will not lead to well paid jobs should be avoided, unless there is some reason why these jobs are beneficial to society in other ways.
A good friend of mine became a Doctor and had the choice of slowly paying of his student debts via these small automatic deductions for many years, possibly most of his career, or choosing to pay them off much quicker by opting to pay larger sums. In the end he chose the standard smaller automatic payments for a quicker easy life.
I don’t think that interest is/was applied to these debts either, but I may be mistaken.
Anyone remember the gasoline ‘credit card’. It was the ONLY credit a lot of people could get. The oil companies figured a college age kid with no real job or income was good for a tankful of gas and it got them to buy gas from your companies gas station. It was a ‘starter’ credit card.
You had to manage that gasoline credit card and generate some real income before a bank would offer you a ‘real’ credit card. No responsible financial institution was going to loan serious money to a teenager. It was up to the school and the student to work out tuition etc. I was lucky and my parents picked up the tab but I remember ( better students than I ) laboring over scholarship applications to pick up $500 here and there and going to work instead of drinking beer to finance their education. If you were uncertain you could join the military and get the GI Bill. The money was yours so if you dropped out, no foul. no debt.
Tuition was lower too and you could buy text books from the “USED BOOK STORE”. They may not have had the latest deconstructionist or transgender studies professors scribblings in them but they covered the material you really needed to know or should be expected to know.
As I have said before I like Dave Ramsey’s solution toward debt. He has been bankrupt before and nearly lost his marriage over it.
It’s basically to forget living for a year, two or three and just get the sucker paid off. Make a budget and earmark where every dollar is going at beginning of the month. The natural response is to pay minimum payments on debt hoping that it will be easier to pay in the future. Life happens, income isn’t guaranteed, recessions happen. The sooner the debt is gone, the sooner you have control of your life.
Hey you really are old school I agree with you Guess in this crazy world that makes me olde school as well
Me, too.
Promising kids to let them off their debt is a hoax, to win votes, and make worthless promises.
Edooocation only means something if you get into the ‘A’ school, all else is meaningless. Besides the real problem is that good jobs are so hard to find. All my friends that went to Harvard became rich, because of their contacts they made in college.
In my days most of those who went to college, didn’t belong there, I certainly didn’t, it was way to slow for me, and I found it boring, just wanted to go out and start my own company’s, I was a millionaire long before most of my similar aged had graduated.
The problem with USA edoocation, just like USA medical is that its TOO EXPENSIVE, debt is just a symptom of the real problem. People in the future will die cuz they can’t afford a doctor, they’ll be in debt peonage until they die thanks to edoocation loans.
Let’s remember, all is GOV orchestrated, debt is slavery, and GOV wants everyone to be a dis-armed slave.
Smartest thing you can do is never get into any debt, and that includes college debt.
Election pandering, two posts in a week on this subject; TS-Eliot voters come&go speaking of Michelangelo.
My rich friends pay off their kids college debt, so who holds this debt? Only the poor, just another means to keep the poor permanently poor. Why make false promises to the poor & dumb? Because they are the majority of the USA population. Keep them busy, just like TV, and all of USA culture debt is just another mechanism of control.
This is precisely why Biden, despite being a corporate shill, an empty suit, and more than a little soft in the head, will be the nominee. Most Americans won’t vote for Sanders or Warren who are proposing ridiculous giveaways. If they’d stopped at Medicare for all, and specified limitations on that sort of system, that would have worked, but they both had to go off the deep end. They both lack judgement and don’t have a grasp of the values of most Americans. And Warren’s a solid supporter of the MIC so she really has nothing good to offer.
It comes down to how Warren is packaged and sold to the sheeple. She is a particularly odious hypocrite who used a fake minority status to advance her career. But is this any worse than any “real minority” using these programs? She was busted for being an undocumented Indian, but no documentation is required to claim to be an Indian from south of the border.
I don’t think Biden will be on the ticket. He has a habit of flaming out. He will come across like Hillary, not genuine. Plus his two children are trainwrecks from what I understand.
For all of Trumps faults, he doesn’t smoke or drink and his children all seem to have turned out pretty well. He probably has the best intuition of any politician. In a way, he defeated a whole system aligned against him by connecting with people. It is clear he likes throwing himself pretty unscripted into a crowd. The people that like him cheer for him just like they did for a great boxer. You want him to be the undefeated heavyweight champion by knocking off all challengers.
People’s intuitions are being confirmed. There is a deep syate. There is a two tiered justice system. You can’t truthfully say he is a dictator as he has abided by all court decisions. It’s the way it is supposed to work.
No matter what the lefties promise, they won’t deliver. It’s all posturing for them.
I believe that’s true of pols of all stripes, Petunia.
Trump has an ability to brand people with one word early in the fight. ‘Sleepy Joe. Once Warren lied about her ancestry Trump put a stake through her with ‘Pocahantus’ and it was over.
Trump has the intuition that people are just Fed up with political correctness so he tries to violate the correctness all the time.
Trump is so good, you have to catch yourself to make sure his policies are good. The economy was rolling over when he came in and his policies bought us at least 2 more years of expansion. It took debt to do it, so it’s a close call if it was worth it.
I used to go back & teach ( volunteer only ) an upper level natural resources class. These were typically college seniors who would be graduating. I was the private business owner brought in to go over
the private sector, and self employment.
I started with a survey of the students. “How much do you think you need to charge on a hourly basis for your services?” I never had a student go above $50/hr. It’s not surprising that they pile up debt. Parents & the education system have done poor job.
Nothing new here: the government “insured” the casino banking system in 2008. They’ve insured the banks again with the student loans. Let the banks take the losses. Repay the taxpayers from the military budget – isn’t the F-35 going to cost us a trillion dollars? Or put a special tax on the profiteering banks to repay the public. We have to get out of the business of insuring the banks and enabling their bad behavior, you know, “moral hazard” and all…
Bailing out banks was an enormous moral hazard – thing that steepened the slippery slope. Now, every time someone calls out any wasteful spending, people just go “but the banks got fat bailouts”.
We can either course-correct and move towards sanity or just go wild west and be fine with plunder.
I work in higher ed and your comments are spot on. I think your analysis could also be taken to American agriculture, which would absolutely collapse if it were not for government subsidies around things like ethanol, crop insurance, and diverted acres programs. These subsidies also fuel other industries, such as machinery(like John Deere) and seed development(like DeKalb Pfizer Genetics and Syngenta, which is a non-US company). I am telling you American Agriculture is walking zombie, and nobody realizes it! The ironic thing is that farmers are Republican Trump supporters who hate “socialist Democrats”, when the reality is that it socialistic ideas that are keeping American Agriculture afloat!
Why is a choice only between debt forgiveness and keep paying the loans? In the real world, a loan is restructured, or payments reduced, or interest lowered, etc. as a compromise. Some people out there do have loans at 6%, which is a very high rate these days, especially considering the asset securing the loan is you for life, even your SS benefits. I noticed when I try to make a principle payment, the government sometimes choses to reduce the term, and sometime choses to reduce the monthly payment. Just like all the government agencies, they are maximizing the loan benefit for them, not me. They want my regular payments only on a high interest loan to fund their spending, but I am not going along with it. There is a middle ground to this problem, but neither the government, nor the borrowers would like it: adjust rates lower on loans now, automatically optimize principle payments to be in the best interest of the borrower, not the government.
Send them all to work camps like the days of the chain gangs to pay off their debts. The bankruptcy laws need to be changed so none of them could ever declare personal bankruptcy due to school loans. Other countries would just imprison them but in America there’s far too many deadbeats.
Student loans already ARE NOT dismissed in a personal bankruptcy.
Shhh… Don’t ruin his online tough guy moment. He is really sticking it to deadbeats while demonstrating his moral superiority.
Facts and laws are irrelevant to this discussion.
You nailed it Wolf. The key to solving the problem is slowing or stopping the GROWTH in new loans. Taxpayers paying off old debts is absolutely no skin off the noses of the UCF complex, they’ve already gotten that money. BUT throttling the pipeline of new money would be a meaningful change, and the UCF will squeal.
A partial solution to slowing the growth in student loans is to make the universities and colleges (U&Cs) hold and collect their institutions student loans. The present system allow the U&Cs to profit without having any skin in the game. U&Cs charge students crazy prices for nearly everything and are happy when students spend years getting a degree that will never lead to a salary that can sustain them. The U&Cs pocket the money, say “Good luck out there,” and move on to their next year’s incoming victims.
So I propose that the Federal government loan the student loan funds at low rates to the U&Cs, who in turn are allowed to mark up the interest rates maybe 100-200 basis points for expenses and losses. The U&Cs are responsible for paying back the federal government. The students make their payments to the U&Cs.
In this system, U&Cs will start caring about their costs because they now have skin in the game. All the frills at campuses will be examined. U&Cs will care about making sure students are preparing for and getting help finding decent paying jobs. While this isn’t a perfect solution, it’s at least the start of a policy conversation to make U&Cs more accountable.
Preston,
Totally agree with “…make the universities and colleges (U&Cs) hold and collect their institutions student loans.” This would give them a real stake in the outcome of the education they’re selling for so much money.
Wouldn’t that mean college overheads would increase as they’d have to employ accountants, or whatever, to handle the loans. They’d effectively become more like businesses and so, like any other business, can go bust. What happens to students, maybe near the end of their 3/4 year course, if their college goes to the wall (taking what’s left of loan with them)?
Think of it like a capitalist, it is a capitalist society anyway. If the schools find the income from students doesn’t reach the peak expenses, cut expenses! The schools make a fortune off sports programs anyway and every player is paying the school to be there, any business with that model should be self-sustaining.
If the product they put out doesn’t produce results and people quit going that isn’t the fault of the public. In the end we would likely see trade schools and STEM turn out the best results once students start taking courses with guaranteed work waiting in the outside world.
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Great idea! Simple and straight forward…
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If we forgive the current debt, where does that leave us going forward? Does college become free for everyone? Including living expenses? Or is there just a lucky group in the middle who got it for free? I can’t see how this can be done without a comprehensive new model going forward.
Higher ed has become a huge source of influence peddling. One of the major tax consulting firms in Dallas just dropped a cool $30 million at UNT, which now boasts the G. Brint Ryan College of Business. There will of course be some new money for taxation and tax research LOL!
As I note in this rather lengthy dive down the rabbit hole, that’s a bit like having Hannibal Lecter run your Meals on Wheels program.
http://aaronlayman.com/denton-county-texas-property-tax-scam/
The world has levered debt from about 1 times income to 3 times income in the last 30 years. That’s a one and done on the credit card. Got to lug the debt around from here on out.
Probably going to be games like in Europe when you are broke all you can do is lower the interest and extend the terms to keep payments manageable or let the defaults begin.
The worst cases are those people who go into debt over their ears and study someting next to useless but pk and then they wonder why it is so difficult to find employment with their degrees. And when they manage to find employment, their earnings are such they can not both live and pay off their mountain of student debt.
What is the split between student loan debt owed by students who matriculated at private universities vs. public universities? How about those that graduated vs. those that did not?
The issue isn’t private (such as Harvard) v. public (such as University of California). The issue is nonprofit v. for profit (goggle: for profit university scandal)
Unpayable debt will not be paid.
That said, college these days is a mega fraud.
A giant money extraction by the college administration class. A useless parasite that feeds on the students and the faculty.
I won’t mention the fake diplomas of online and community college.
I won’t mention the useless diplomas of art, psychology etc…
Even the technical diplomas in Medicine, engineering etc. are grossly overpriced for a profit.
That doesn’t even include the ultra leftist endoctrination that is violently rampant on campus.
The whole thing needs to be broken up and started again.
Here’s an example of how analysts and the Fed commit their Inflation Fraud:
“Healthcare is important; medical care services surged 0.9% in CPI but that won’t happen in PCE,” wrote Neil Dutta, head of U.S. economics at Renaissance Macro Research, in a note to clients following the CPI’s release. “CPI covers out of pocket expenses only while PCE covers payments made on behalf of you.”
See? No inflation, because there is inflation.
Great topic and discussion. Not an echo chamber here at wolfstreet. I appreciate that and thank most for their contributions.
I am evolving on the issue….
The education industry needs less ready cash from ‘suckers’….
$1280 a month for student loans or are you talking about a mortgage? Your post seems to indicate the former since you college degrees in your first paragraph and I see no mention of housing ng or mortgages elsewhere. Just wanted to confirm.
Abomb,
TheDreamer was talking about his student loan payment. He doesn’t have a mortgage.
Quid pro quo. If student loan debt forgiveness should come to be and a person desires debt forgiveness, then that person must relinquish and forfeit any and all credit hours and degrees received during the time that person was drawing student loans.
Oh puh-leeze.
If this one issue doesn’t convince people that they are well and truly buggered, there are hundreds more in the archives and hundreds more in the pipeline.
Learn to love your chains, people. You forged them yourselves and you got paid for it, figuring they were meant for somebody else and not for you. It’s not like you have a choice.
I don’t think we’re going to see any meaningful reform, so I say turn off the spigot completely. No more taxpayer funded student loans. Let the parasitic UCF complex collapse.
I finished college in the mid-seventies and finances were tight; to this day I still make open-faced PB&J sandwiches just to save a piece of bread. The idea of taking out a loan for school never even crossed my mind.
Just another old fart weighing in.
Yes, let’s take a radical step that causes our leadership standing in the university/research area to collapse. That will do wonders for maintaining competitiveness in the world.
Your “old fart” out of touch mindset is showing big time.
The answer is a gradual phasing out, let the institutions adapt, but trying to collapse the system out of anger is a good way to cut our nose to spite our face.
sc7, I wasn’t aware of any anger in my post, but there certainly seems to be some in yours.
Yes, let’s do what we always do and kick the can down the road.
Brilliant.
Why didn’t I think of that?
There’s something called a middle ground. I agree this can can’t be kicked down the road forever, but destroying the education system in the process won’t help in a world where AI and robotics will continue to eliminate unskilled work.
We need to maintain our ability to compete in the global tech-centric economy through whatever reformation process we take.
OK, gradually phase the subsidies out. But if you continue loans, you must enforce repayment. You can’t “loan” money while demonstrating it does not need to be paid back.
One problem with phaseout is: are you going to also phaseout staff pension obligations incurred during the fat years? Otherwise how do you fund then as tuition returns to a level of sanity?
Agree. Stop the govt subsidized loans. If they want to borrow in the open market – commercial unsecured personal loans or collateralized loans just like everybody else – fine.
BTW, I paid off my loans which, adjusted for inflation, seem about typical now.
I went to univ on GI Bill, in the 80’s, a few hundred a month, and tuition was 1500 a year. GI bill is no free ride, and compulsory service in exchange for debt forgiveness is one option. It’s too easy to sign a paper that you feel deep down you aren’t beholding too, and certainly when I took the military oath I thought I wasn’t theirs completely, but of course I was. My time in military made me an antiwar advocate, so I despise both political parties. Debt forgiveness will work they just need to figure out another way to get their pound of flesh.
Well, I would not advocate throwing all the student deadbeats in the infantry or even in community service. I’ve done community service and it was a bunch of losers hanging around killing time. How do you motivate anyone when the deal is hours on a clock.
Debt forgiveness is NOT the answer – the #1 reason I oppose Elizabeth Warren and others who espouse this idea.
Forget the “I paid off my student debt, you should too” argument (yes, I paid off my student debt). The most important reason is that debt forgiveness does NOTHING about the far higher than CPI rate of inflation of education in this country. Forgive this current trillion dollar plus debt and we will quickly accumulate another trillion dollars of student debt within just a few years. Shouldn’t that be obvious to anybody who is not a huckster politician?
And the underlying problem behind that high rate of inflation is that the Fed has been fueling this inflation by adhering to an inflation index that no longer reflects reality, and keeping interest rates far too low.
Automation and globalization has succeeded in causing massive wage suppression, and so the current generation of Americans have not kept up in their wages against this constant high inflation rate of three key parts of our economy and our daily lives: education, healthcare, and housing.
Yes, there are routes to cheaper education. But, the competition for slots in the cheaper state schools is intense. As state budgets have suffered, the costs at those schools have also risen to make them unaffordable for low income students.
The flip side of the arguments being made that people shouldn’t choose schools that they can’t afford is that sometimes an expensive school is that only place that they can get into to get that all-important degree or certificate that will guarantee them a career pathway and success in life.
The biggest problem with the student debt fiasco are the laws restricting the ability of students to declare bankruptcy, a series of which were passed in the 1990s and early 2000s (Joe Biden voted for those laws).
Bankruptcy used to be one way out for students overwhelmed by debt, too easy, in the eyes of the private student loan industry, which lobbied for the restrictive laws. It is now virtually impossible for students to escape their crushing debt burdens. And that is the problem here.
Bankruptcy is still relatively easy for corporations, for home mortgage debt. Bankruptcy has a consequence, a lesson if you will. If you declare bankruptcy, nobody in America will loan money to you ever again. Ordinary Americans who walked away from their homes in the GFC still are unable to get loans and home mortgages – they have had to learn how to live far more frugally, like they should have done in the first place.
My solution would return our student loan bankruptcy laws to what they were before, on a par with the bankruptcy laws for Corporate America. Those who can continue to pay off their loans should do so. Those who simply can’t should be allowed relief through bankruptcy, which carries with it a fair penalty and learning lesson that restricts future profligacy.
P.S. Donald Trump had to go to Russian oligarchs via Deutsche Bank to finance his rise from the ashes of a $900 million bankruptcy in the 1990s. He had became radioactive to American banks. He learned a somewhat different lesson from that bankruptcy, but that’s another story.
Just to play devil’s advocate – twice –
Just as Demand causes Supply, Supply causes Demand. An infinite supply of govt. money causes a demand by the colleges for that money in the form of fees increasing at 3-4-5 times the rate of everything else for the last 30 years. If a kid went to college in say 2015 they probably paid twice what college cost in year 2000 , 4x what it cost in the 90s , 8x what it cost in the 80s. These high fees are not in any way the kid’s fault; the great majority of a recent student’s debt is caused by the govt. loans inflating the price of college. Reducing a kids debt by say 75% just undoes the inflation the Feds themselves caused by giving loans.
Its also a fact that a govt. school’s high school degree is worthless for getting a job one can live on, so an attempt at college, and doing it with debt, is the only viable path to becoming an adult for a person damaged by govt. schools. Its actually defective high schools that cause an excessive demand for college and the buildup of debt from it.
The Feds created the original problem, bad schools, and made an even bigger problem, college debt, to solve it.
Consequences of this ill thought out and ill fated policy/decision by multiple parties, some innocent, some with outright fraud in their schemes has to be felt by the greater society. So that this kind should never to be repeated in any form!
So should be the coming housing bubble bust 2.0! The DEBT has been used as a panacea for all the financial problems out there!
Wow!
Lots of comments!
To me the more in debt the college graduates are the less they will be able to sustain the (some) useless consumer society system.
I’m not for debt jubilee but it makes sense to be able to “refi” loans just like any other.
I also feel too many commenters sell the “next generation” of graduates short. They are really not “stupid” or irresponsible. Most want to pay their debts and will.
I have (I’ve probably mentioned more than once on this site) a large family; adult children; many grandchildren 5 who have either graduated from college (with their wives) or are currently in college.
About half have come out with no debt due to parents being able to afford the stiff tuition and have good hard working jobs.
And as far as some graduates carrying degrees in the “humanities” it seems too many feel they are losers. What would society be without the anthropologists; the music majors; artists; stage players, writers; yes, just outright dreamers?
We have our priorities bass ackwards.
The MIC devours more trillions over decades than all the college tuition that probably would/will default. Where is the outrage there??
Look at the disaster in Flint Michigan. Where are the degreed experts that probably got “solid” job related educations??
Our system is too much about fraud. It’s about time most realize that fact.
It’s a “bazaar” run by a club that most aren’t invited to belong.
Lastly, nothing is “free”. The money has to come from “revenue” from the people at large. It’s all about priorities which I’ve written ad nauseam here (and other sites).
Those people who talk about free college in other countries…have they ever been to one?
In France the top schools look like prisons. No stadiums. No sports teams. No gyms. The buildings are from the 70s (or earlier). Most don’t even have any student housing.
The foreigners I know come to the US and are amazed that our schools look like luxury resorts.
Crazy idea….but maybe it’s time to end that?
Student loan forgiveness is unfair? What’s unfair is the economy was gutted out and given to China. Those who have paid off their loans actually got a job where they could. You should leave San Francisco and go live in Topeka, KS or St Joseph MO or Portage, WI. Lots of great jobs there for grads…not
Wolf, You are to commended for posting transcripts of your podcasts. Most podcasters don’t bother.