The student loan system is propping up weak real estate markets in college towns by using guaranteed student funds from student loans to pay for outrageous rents. Many of these communities would not be able to afford their lifestyles (see. Davis, California vs. Woodland, California rental rates) if it was not for the fact they the student loan money is being laundered through attending students, and funneled directly into the local economy through increased rents and cost of services.
At this level it's a scam.
As anecdotal evidence, my father went to Berkeley when there was no student loan structure, and the community was considered a poor real estate investment, since it was commonly known as a 'Student Ghetto'. A term which has since disappeared as rents in Berkeley are among the highest in the East Bay. All on the back of the students financing their housing costs on student loans.
Again, it's a scam.
The students don't get a better education than my father, and while the housing might be nicer, it's debt that they have to pay well into their later years, as opposed to being able to graduate debt free.
My father thinks this is directly attributable to the death of the student free speech movement and other student political enterprises, since being forced to accommodate ones debt takes priority over trying to change the world, or fix the system. In short it becomes a type of indentured servitude, where lower and middle class people are unqualified for good paying jobs without the debt, and with the debt, they are forced into high level debt maintenance, and can't have any other discussions about where society is going, or how it is getting there.
You are right. Partially it's emotional language for me, and the other part is that I do feel that the money is being laundered through the students. But you are right.
Is this a scam or a trap? Do landlords really collude with student loan institutions, or are landlords simply leveraging 1. the necessity of their resource and 2. the lack of rent control? There's no basic regulation on what fraction of income landlords can charge tenants, and landlords get critical financial information on tenants. If loans are so easy to obtain, there's zero incentive for landlords not to gouge tenants (by progressively raising rents).
I don't see how any explicit fraud is happening. I also don't see how things will ever get better without tighter regulation of rents. Well I guess we could turn down loans and kill the demand ...
It's certainly not explicit fraud, but it is a type of social scam, which becomes a trap, and yes, I think the solution is to turn down the loans, and force the landlords to deal with lower rents, because, as you say, now they have tremendous price gouging incentives. And while it's bad in Berkeley, it's really bad in Westwood, where the UCLAers live.
One of the difficulties with reducing student loans (in volume) is that fewer people will then have access to education.
Besides rent control, one option could be for the Fed to cut debt issuance slightly and to explicitly fund school-owned student housing. This would cut out the greedy landlords without having an especially negative impact on local economies-- the schools would still pay to maintain the properties. Doesn't help private schools much, but a lot of for-profit private schools are abusing student loan availability too.
I just googled. College towns are often seem as insulated from larger market conditions because of the constant supply of student loan support students.
"A report issued late last month by the Consumer Financial Protection Bureau supports this view. Even though the economy and labor market have improved, student loan borrowers are experiencing high distress levels compared with borrowers with other types of consumer debt, the government report found. More than one in four student loan borrowers are delinquent or in default on their obligations."
1 in 4 are delinquent or in default. Read that again.
This situation is a failure mode, and is only fail-safe for the lenders who forced it there. This means that on some level, the lenders knew their interest rates were impossible to keep up with, yet knowingly went forward anyway because they knew they could get away with it. The USA's system is utterly bought out against the common good. At this point, I think we'd be better off with a widespread boycott of student loan payments in order to bankrupt the lenders. They can't call collections on all of us, and there would be riots if they tried.
I know that a lot of people are jaded as a result of societal failure to address the student loan crisis. These intentional failures for the sake of profit have long term consequences, as nearly everyone can blatantly see.
"Some 41 million Americans owe $1.2 trillion in student loan debt. The median debt burden among borrowers was $20,000 in 2014, up from $13,000 in 2007."
This is an entire generation worth of people that have been cursed to start their adult lives with an anchor around their neck. As though the brutally competitive ultra-hostile economic depression they graduated into wasn't enough to weigh them down to begin with.
To top it off, the boomers find a way to hold us in contempt.
This is dangerous. Just as dangerous as, say, the government taking over a bunch of uncollectable housing loans. Or the United States federal government renouncing all its public debt.
If there has been illegal acts, they should be rectified. But saying "I really don't want to follow through on what I agreed to" just because minds changed is not justifiable, and sets a an ill-advised precedent.
> "I really don't want to follow through on what I agreed to"
See that's funny. That mentality _is_ part of the scam. When banks break the law and get a fines as a slap on the wrist, that seem like a joke, and those fines seem to just be a caclulated risk they expected to handle, vis-a-vis the profits that operation made then it's "just business".
If a person desides, fuck it, this doesn't make sense, the downside of defaulting on (house, student loan, other contract) seems to be better than keep paying, then it is "moral outrage", "serious character flaw issue", the label "criminal" is thrown around and so on.
_This_ is one of the fundamental elements of the scam -- to apply moral blame and personal character flaws to less empowered individuals but to selectively choose to not apply those to large business entities.
I remember during the housing crisis, there were a few cautionary articles in high brow economics journals, about how the real shit will hit the fan when high income people, who are not showing distress signs on being able to pay their mortage, will nevertheless, put the keys in an envelope, mail it to the bank and walk away from their million dollar mansions. Simply because they'll see they are under water, and numbers simply don't add up business-wise to keep paying that interest rate on that property. So there was this fear that some of these more "rational" actors will well ... start acting.
Anyway to make long story short, it seems to me your comment that is "dangerous" is coming from the same propaganda mentality.
> "I really don't want to follow through on what I agreed to"
Another commenter points out that this is a business contract, not a morally codified vow.
However, even if you want to assess the moral implications of the agreement, and the matter of whether to renege is justifiable, remember that the students who took these loans weren't fully informed of the circumstances that lead to their issue.
A college education was presented as a smart choice whose free market value had risen as the result of insatiable demand. However, we now know that public colleges - arms of the governments of which these students are constituents, colluded with private lenders to increase fund availability and force tuition prices up.
If the entirety of the deliberations between these groups had been known, as is proper in matters of public policy, students might well have made a different choice.
Illegal activity takes place on the side of the originators and the services, and you still argue that the loan recipient hold the moral weight of compliance?
No. As this article clearly shows, and as was the case with the subprime lenders, many of the originators and the servicers acted illegally, it's not a simple argument about 'what I agreed to'. There are two parties to that agreement, and if anyone acts contrary to the contract, the other party has a right to respond, and not be morally required to follow through on their end of the agreement. In fact, they are morally required to respond to those changes by the people on the other side of the negotiating table.
Lastly, these loans were not just provided for fun. They were provided to the students with the promise of higher income. If that doesn't happen, and the jobs and income are not there to support it, that promise becomes false, and both parties to the agreement have to face the consequences, not just the student.
They were provided to the students with the plausibly deniable implication of higher income. I think you'll find, should you actually look at any printed material, that nowhere is there any promise of higher income. (That's how you know it's a long con.)
I love that people understand the long con. It's almost one of the defining characteristics of the current system. Sure everywhere you look, we promised you greater success, but not at the moment when you signed, then it was up to you to believe it. A classic long con move.
Nope. No promise or guarantee of any job/income level is ever included in loan documents. Both parties are only bound to whatever is included in the contract.
"It brought a case against Discover Bank last summer, saying it inflated the amounts it said borrowers owed on their loans.
Discover Bank paid $18.5 million without admitting or denying wrongdoing."
These fines are just a calculated cost of doing business for companies like Discover, Sallie Mae, etc. They take the likelihood of getting caught breaking the law, multiply it by how much they'll have to dish out when they get caught, and subtract that from what they'll make by extorting their "customers."
In this case, Discover made a good financial decision on their part. Hooray for creating value for the shareholders.
I literally took a course in Finance while in business school in which we were taught how to run these calculations (obviously the 'governance' week of the course). Pretty scary to think people actually sit down at their desk and knowingly run the numbers and decide from there. But that's what you get when hardly anyone who commits a blatant crime like that generally is held accountable (i.e. individual culpability, e.g. individual fines or jail time), and the only negative (a fine) is already priced into the model, and the individual's rewards are a promotion. That's a system that, essentially, delivers incentives for crime and it's insane.
I'm in arrears on my student loans. I'm one of the millions that is.
The first few lines of this article sums it up completely as to why.
"Between misdirected payments by one of the companies servicing his loan and the abusive collection tactics he encountered when he fell behind ..."
These companies that bought the loans on cheap from the secondary market, make more money from penalties they they do from loan servicing. And they have as many tricks up their sleeves as they can discover to help make that fact true.
They are the true sharks in the whole equation, with guaranteed support from the government and the tax payers.
I recommend that every last student default as things are now. If I were in charge of writing new laws for new student loans, which I am definitely not, I would allow them with three additional conditions. 1. They qualify for personal bankruptcy like any other consumer or investment loan, 2. they could NOT be sold off but would be held in a public trust fund, initially funded by public money, and topped up as needed, and 3. (Scandinavia does this) make repayment a modest surcharge in one's income tax. Make a lot, pay a lot and pay off fast. Make a little, pay a little and maybe never pay it off.
Good. The market would quickly self-correct. It's pretty good at doing that. No more 6 figure loans for english degrees. No more automatic 80k loans for shitty technical colleges where most graduates can't even get a job. The whole thing would sort itself out overnight.
And remember, who is getting the money for those 6 figure English degrees? It's not the students. They are liable for the funds, and they do get the degree, but if you follow the money it goes to the universities, and within the universities, it goes increasingly to high paid administrators, who pad their work with increasing capital expenditures on building construction and the necessitated salaries that goes with so many projects on the table, and not the faculty.
This is partly true. What I've seen personally is that with each increase in the tuition I experienced they were busy throwing that money at facilities and whatever else they could think up. Some of it was decent like actual improvements to aging buildings, but most of it was BS facilities like completely redoing the student center which had no real issues and been renovated barely two years earlier. It seems like the universities are following the same pattern that many hospitals have done: if they have money they must spend it even if it's not to the benefit of its consumers or its shareholders. It's like these institutions have replicated the Stalinist "make every thing big" mentality.
It's the easiest way to justify the accelerating administrators incomes. And they say they have to do it to maintain the competitive advantage, over other schools that are doing the exact same thing.
See UC Davis, where they are building a huge new Art Museum, to compete with the one being built right now in Berkeley. Here's the thing, UC Davis is NOT an art school. It's an ag school and should be focusing its resources on that. But no, building an art museum justifies the salaries of all the people that are involved.
I don't think you understand. Even if they don't do this, people will default. There is over $1 trillion in outstanding student loan debt. The people who are defaulting have no assets, and don't have enough income worth garnishing. They are, for the most part, judgement proof.
Then don't give them the loans. That's how the system works. And if they don't get the loans, force the colleges, and the college towns to compete for the lesser funds.
Why should student loan originators get a free ride, when other consumer or investment loan providers don't?
Because the thinking was that by allowing access to higher education to less well-off students, you could end or reduce the classism and perpetuation of same.
A loan for which no collateral can ever be repossessed necessarily has a different economic profile than a personal loan and even moreso than a real property loan.
Absent those protections, you would see a very different (read: people who need loans won't qualify) student lending market.
Whether that's good or bad is a matter of which there will be a variety of opinions.
Does the fact that you can't get rid of your student loans via bankruptcy mean that students should get the lowest rate possible? Since the creditors will get paid? It seems ridiculous that not only can you not get rid of the loands through bankruptcy, but also that you're not charged lowest-interest-rate deals for them.
Student loans are at below-market interest rates and are guaranteed to be available in quantity. The market does not generally offer non-secured signature loans for $20k to $140k to people with no credit history or limited credit history and no income. When it does, it charges literally 10+% more.
They are unsecured in that there's no collateral that can be "quickly" (<1 year) repossessed to recover most of the loan, just as any other unsecured debt - credit cards and other consumer lending.
The differences in bankruptcy are not relevant; for student loans the lender can easily be unable to pay for the rest of their lives, thus it's classified as unsecured loan.
I only care at what the banks' interest percentage is. Student loans should be at that. And that's 0.25%
Student loans are 8%. And that's bullshit. Theyre making 8% on us for absolutely nothing. And they get guaranteed repayment, since default risk is 0 due to garnishments.
This doesn't sound right. The markets are populated with people who will invest hundreds of millions of dollars to outcompete other firms for sub-penny advantages on trades, and, contrary to popular belief, the largest and most successful of those firms are not making so much money that they're upending the finance industry.
So if somebody is making 8% for doing "absolutely nothing", can you explain why somebody else isn't taking them to the cleaners by offering to do the same nothing for 7.9%?
I would reckon that this is because default is not the same as bankruptcy: it is entirely possible for someone to be late or stop making payments altogether and not go through the formal process of bankruptcy. I would further guess that buyers are primarily concerned with stability of these cash flows, with prices being determined upon that basis.
There are probably many people making their living attempting to estimate the relative likelihoods of student loan defaults, distilling this paper into tranches and repackaging them into bundles to be resold to investors.
This is a pretty basic financial distinction. A credit card is an unsecured loan. A car loan is a secured loan, with the car itself as the asset backing the loan.
A college education is unlike all the other kinds of assets that individual humans tend to "own". The only thing they could meaningfully repossess is the sheepskin.
Not being able to discharge a loan through bankruptcy doesn't mean the borrower will pay. If that rule is changed expect to see people complaining not long after that no one will give them a student loan.
Not getting the lowest rate is a direct function of propensity to pay. Getting a college degree in anything does not always mean more money for the borrower. The rates reflect that reality.
These are government-backed loans. If they go into default, the government pays the loan in full, automatically. And the lender can still go after the borrower!
After being fully reimbursed for the loan, they keep going after the student who defaulted, who can't get that loan discharged in any but the most extreme circumstances (i.e. can't work and will never be able to again).
> These are government-backed loans. If they go into default, the government pays the loan in full, automatically. And the lender can still go after the borrower!
Please cite something that explains this fully. The government does back and will pay the loan on default, but then it is the government that attempts to collect. The lender is not getting paid twice.
My problem with all the complainers of student debt is that everyone who took that loan knew what they were signing. I'm tired of hearing the sob stories of people who go to an out of state school, do not work, live completely on loans in order to have the 'college experience' and end up 100k in debt. No private lender would ever lend an 18 year old money for that and it is only possible because of government backing to start with. The government wants to recover at least of portion of that money, hence the rules.
The government sells the loans out of the gate. Once the loan is complete, and consolidated, they sell them to second and third party loan servicers. Please see the article about the number of times his loan has been sold. And people willingly buy them because they can make a boat load of money of late fees and other penalties, and because they are 'backed' by the government. But to maintain the liquidity of the market, the loans are sold immediately. The government doesn't hold the loans for a day longer than they need to. And from what I understand, the school of the loan, the degree of the loan, the race of the borrower, the home address of the borrower, every available data point all impact the income from the secondary sale of the loan. So it's all already in the marketplace as it is.
Pretty common to sell loans to others to service them. At no point is the company getting paid twice though.
>Please see the article about the number of times his loan has been sold.
Shouldn't impact the borrower at all.
> And people willingly buy them because they can make a boat load of money of late fees and other penalties, and because they are 'backed' by the government.
Late fees and penalties only come into play if people are not paying. Backed by the government is most likely the only reason the loan was written at a certain rate to begin with.
The point, no one who writes the loan is getting paid by the government in full and then going after the borrower and getting paid again in full. It is the government going after the borrower through some intermediary.
I was extremely annoyed after graduating and consolidating my loans. After a lot of pressure from the financial aid department about consolidating being a good idea, once it was all said and done they just picked the highest interest rate of all the consolidated loans and applied it to the new one. I guess I should have seen that coming but it was a surprise after it felt like the financial aid dept touting it as a good thing.
However, I never had trouble regarding the loans being sold to different services. I had mine switch three times and got multiple emails and physical letters. It was a little shocking the first time I logged into my account and my loan was "paid off", but it quickly became apparent what had happened.
Consolidation should write a new loan from the total of the originals. The rate given would be the current rate. For example, when I consolidated years ago I cut my rate by over half because the rates had simply gone down since I had taken the original loans.
Do you know of any specific implications around consolidation itself? Or is it just the simple fact that it's easier to resell one big thing versus four small things?
Easier to sell, borrower is, to the best of their knowledge, complete and not taking on any new loans.
Plus, as mentioned above, it sets the interest rate for all the loans. I'm not sure how often at a more or less favorable rate, and if that's part of the incentive, to consolidate lower interest loans into a large higher interest one. I could definitely see them pushing this at different times, which was also something that came up in the article, that available repayment options were withheld when they were favorable to the banks and servicers.
I don't have a citation, but I think they might be referring to the fact that the government sometimes outsources this collection of students loans.
E.g., the government backs a Sallie Mae loan, you default, the government pays Sallie Mae, the government wants to collect, the government sells the debt to Sallie Mae to collect it.
It's this that gives at least the perception that the originator of the loan has it in their best interest to have at least a portion of their loans go into default, as they can then purchase the debt from the government.
Edit: I think some of this has changed post Sallie Mae's split into Naviant and Sallie Mae, but perhaps this perception still exists?
The government always outsources collection. Further, collection is distinct from origination. Underwriting a loan is also distinct from guaranteeing a loan, but none of this speaks to servicing a loan.
And even with all that jargon, we still haven't covered what it actually means to own debt.
the problem with discharging such loans is that people will game the system. so what do you do if suddenly they come into money or have the means to pay them?
I can see putting them off without interest for a set period of years but it is debt they willingly took on.
Why is the face of these stories always someone who majored in something like "media arts"? Can the reporters not do better? Are they just mining their social circle? Does making it intentionally representative of the kind of person who makes poor life choices to begin with generate extra hate-links?
Says a person on a technology forum. Without the media arts people who do you think does your UI, and your UX, and all your graphic design work, and makes those snappy Apple commercials. Or works for all those ad companies that you love so much. If anything, he is part of your ecosystem.
The existence of people who do jobs like that does not imply that $50K sunk into an academic degree on a related subject is a good investment, unless Temple somehow has much better outcomes than other art / design related programs.
Regardless of the payoff, the weird thing is that stories in this genre really disproportionately mention people with degrees in some art / design field, like MFA-in-puppetry guy.
Actually, I've found that there's more MBAs and law students that have been pinched by the student loan bug (myself included as a compsci major). So I don't know why they focus on media-based degrees when there's other people with different majors they could compare against. I think I read somewhere last year was the first year where a certain percentage of graduating law students couldn't find any sort of work in their field (even just doing paralegal stuff). So, there's more interesting stories than those of the young reporter/journalist to be sure.
Yeah, but it was his fault that he or she is only second-tier. Right? It's always his or her fault, regardless.
In which case, the solution is still the same one, don't let to the second-tie schools get loans, and force them to become more affordable, competing on price with first-tier programs, or if there are not enough students interested in low cost second tier programs, force them to shut down.
The companies I have to deal with for my loan for the most part are absolutely disgusting. Two out of three do not allow me to setup recurring payments and do not send email reminders before payment is due. They only let me set up scheduled payments two months in an advance. To keep a rhythm I try to pay every month at the same time, however the worst company does not count those monthly payments against what is owed every 3 months on a random day. Theres no email reminders but if I'm a day late I immediately get an email saying how much I owe and how much extra I have to pay now.
And if you dispute it, you still have to pay the penalty first before you can pay any of the outstanding loan amount, allowing them to hold the funds and determine, with your funds in their hands, whether or now the dispute is valid. Imagine 9 out of 10 times what that will result in.
Once you've lost control of the money, you've lost the dispute. The money is the only leverage you have in the dispute.
Government assistance for the borrowers in what form?
And stacked against the borrowers due to the rapacious secondary market servicers. More money can be made off late fee and penalties than off simply servicing the loans, so they do everything in their power to make that the case, including misdirecting funds, misstating loan amounts, requiring burdensome documentation, while at the same time setting penalties on accounts.
It's why I won't refinance my student debt since all of it comes under an income based repayment. At worse, I will get dinged in 25 years for the remaining as a tax bracket jump, but I hope by then Congress will be forced to even drop that provision since it would literally sink quite a few people's fortunes who would be eligible and active voters.
I guess I'm thinking mainly of the government loans which require little or no credit, rates in the single digits, 25 years to pay and I'm not really sure much happens after that.
At this level it's a scam.
As anecdotal evidence, my father went to Berkeley when there was no student loan structure, and the community was considered a poor real estate investment, since it was commonly known as a 'Student Ghetto'. A term which has since disappeared as rents in Berkeley are among the highest in the East Bay. All on the back of the students financing their housing costs on student loans.
Again, it's a scam.
The students don't get a better education than my father, and while the housing might be nicer, it's debt that they have to pay well into their later years, as opposed to being able to graduate debt free.
My father thinks this is directly attributable to the death of the student free speech movement and other student political enterprises, since being forced to accommodate ones debt takes priority over trying to change the world, or fix the system. In short it becomes a type of indentured servitude, where lower and middle class people are unqualified for good paying jobs without the debt, and with the debt, they are forced into high level debt maintenance, and can't have any other discussions about where society is going, or how it is getting there.