Student Loans Called ‘Federal Debacle’

from Newsmax –

With two-thirds of college graduates owing at least $25,000 on student loans and 53 percent of recent grads unemployed or underemployed, taxpayers could be responsible for tens of billions of dollars for loans that won’t be repaid.

That’s the warning from the Foundation for Economic Education. FEE’s publication The Freeman, in an article headlined “Student Loans: Another Federal Debacle,” observes: “The same cast of characters that brought you the housing crisis, a post office hemorrhaging billions, and a school system that gets more expensive as it gets worse has now brought us a student loan crisis.”

President Barack Obama has set a goal of boosting college enrollment, and total student loans have increased by 75 percent since 2007. The value of student loans outstanding is now close to $1 trillion, making it the largest share of non-mortgage consumer borrowing.

“The federal government has pushed relentlessly to expand access to college by cutting out the private sector in loan programs and by altering repayment terms for borrowers via executive order,” The Freeman states.

“It bears an eerie resemblance to the obsession with home ownership that got us into our current straits — like potential homeowners, students have been encouraged to borrow with impunity.”

It is increasingly likely, The Freeman adds, that the federal government “and thus the taxpayer will eventually be on the hook for tens of billions of dollars of loans that will never be repaid.”

The loan problem will put a drag on the economy as graduates with hefty debt will be forced to put off the purchase of a home or other expensive items.

Federal policy has also led to an inflationary spiral in tuition costs: Since 2000, tuition at public four-year colleges has risen by an inflation-adjusted 72 percent, and when costs rise, government loans rise along with them.

The Freeman concludes: “The government must exit the lending arena and be replaced by an active and innovative private market.”

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9 years ago

Taxpayers won’t be on the hook.
Unlike all other debt, including thousands of dollars of income tax debt, one cannot get out from under a school debt. I am still paying on loans (plural) 20+ years after graduation (postgraduate). My original loans were $17,000. Due to interest, penalties and deferments because of the many times I was either unemployed or underemployed, and the practice of capitalizing those penalties and interest, my loan balance reached $60,000 by 2001. (In those years any tax refunds were immediately swallowed by the government who guaranteed the loan, since I had no other assets they could take.) I am down to $32,000 now, but my loan has been rehabilitated (not my choice) at the cost of another 18.5% penalty.
Thus I expect to die still owing on this loan, which is not dis-chargeable in bankruptcy. In fact, I currently have no debt other than this loan. So I have given the lenders, government, etc., more than $30,000 thus far on a $17K debt and still owe twice as much as I borrowed, not counting the additional interest due on that amount. 6 years ago a relative of mine offered to buy the loan at a discount, but Oklahoma refused, I guess because they stood make more money in the long run.
Welcome to the new slavery of the century created by the government. If they had been more restrictive in the loans, I wouldn’t have borrowed as much, would have taken longer to finish school, or may have found a job instead of school which would have benefited me more. My advice is don’t borrow, or get the government out of guaranteeing loans. The only losers are the students. It will force tuition prices down, save long term debt and you’ll be ahead sooner. By the way, after graduation, I went to work for the University, I had borrowed the money for, in an administration position in 1989 at $16,000 per year, a lot less that a beginning school teacher with less education. I make enough money now, that I am out of education, but spend more per month on the loan than I spent on my rent for my family’s home then.

9 years ago

When Obamacare hits the economy head on, even fewer jobs will be available.

Right now only 60% of the population is working. If Obama continues his reckless policies, it may drop as low as 57%.

If this trend continues, these young highly educated, but yet currently poor unemployed loan carriers, may eventually wake up. No one ever told them that the unemployment rate of people under 30 living in socialist countries like France is well over 25%. In this country it may very well hit 30%.

9 years ago
Reply to  Chip

All the young people needed to do to understand where socialism would lead them was to either turn on the nightly news on FOX or read the Wall Street Journal. They could have also read the Financial Times on-line or any one of a number of European papers on-line to see how well socialism destroys countries. All have been running stories for years about what the same socialistic policies that Obama now wants to enshrine in our country.

People need to stop relying on the mainstream media for information and a use the many tools at hand to educate themselves about what all these destructive socialistic policies will do. Log off Facebook for a few minutes each day and read something useful is the best advice I could give most young people today. It’s their future that is being flushed down the toilet in the name of “social justice”, “economic fairness”, and “equality”. All well worn phrases used by every socialist regime over the last 100 years.

Gerry Hafer
9 years ago

In my opinion, the academic institutions themselves share a major portion of the blame for this problem. First, as a result of the uncontrolled growth in tuition rates (did I just read about a 72% inflation adjusted increase rate since 2000?) which, I believe, is fueled by a total lack of accountability for economic cost control within academia. Second, as a result of the manner in which educational institutions and governmental oversight agencies turn their backs on their graduates as soon as they’re out the door. I am in the midst of trying to help my son’s fiance navigate the process of arranging loan consolidations and repayment schedules, and have been unsuccessful in getting any substantive guidance from the schools who ultimately benefited from the loan process. From a lack of standardized terms, to websites that are difficult at best to fathom, to personnel who are generally lacking in customer service skills (and patience), it has been a frustrating experience so far…especially in a situation where she recognizes her accountability and is interested in repaying the debt.

Emory Riley
9 years ago

The government needs to keep the colleges full to turn out more progressive ideologues. How else can they continue to brainwash people into thinking that big government is the answer to everything? So what if you and I who actually work for what we have end up footing the bill? It just shows how foolish we are for not buying into their way of thinking!

Liz S.
9 years ago

Hey! Someone tell me how they are getting out of paying for their loans!!!! My mom (who is in her 70’s) is paying for a school loan my niece defaulted on three years ago. $30,000 for a liberal arts degree she isn’t using! (…okay maybe for her stylized tattoos that cover 60% of her body!) I would love to be able to help my mom “default” on this loan that she “CO-SIGNED” for. She is the one paying $300 a month on a fixed income (all interest) and cannot even claim the interest! My new student loan requires me to make payments for ten years and then I’m done 120 payments….done. We have looked into reducing the payments but those sharks will reduce it but then you have to make 300 payments!!!! Really??!! The loan would not be paid of until she was 95!!!!!!

Joe Sexton
9 years ago

From a purely historical perspective, we need to question the value of wide-spread higher education. Prior to World War II, about 10% of the people who graduated high school went on to get a college degree. Most of the degrees awarded were in law, medicine, engineering, etc. All good things.

But, post WWII, it rapidly became the accepted view that a college degree would put the graduate ahead of his peers and he would end up with a better job as a result. The GI Bill became a huge boost to this movement. University and college systems responded and swung into gear. We built community colleges like baking cookies. And, devised reciprocating agreements that gave full credit at state-sponsored universities for credits earned in the community colleges. Pell grants became routine from the 1960’s. Student loans and Sallie Mae became institutions.

What was the result? There were several. Job requirements inflation was one. Jobs that once wouldn’t even have required a high school diploma began to require a college degree. Jobs like auto accident insurance adjuster, for example. And, the employers imposed the new requirements in the belief that they were getting better candidates.

Another piece of the evolution was in the dumbing down of requirements. ACT and SAT scores are nationally “normed” and, when you add many thousands of additional test takers to the mix, you get a different (and lower) norm.

Another piece of the evolution was a shift in the topics in which graduates chose to major. I can tell you, chapter and verse, of the graduates in mathematics, science, engineering, etc. who went on to work in, and contribute to, their fields, teach, further research, etc. But, I can also list a litany of people over the past 40+ years who were not academically minded or prepared but who were forced by their parents to go to college because it was the thing to do. Their parents spent good money and the colleges channeled them into majors like psychology and political science. Many/most of those people never worked a day in the field for which they studied.

Another piece of the evolution was in the educational institutions themselves. One evolution was in vocational education. The education “industry” understood their shift toward academics and felt a need to shift back to some degree. As a result, a lot of high schools developed a vocational program teaching auto mechanics, machine shop, and other manual skills. Ditto for two year post-secondary programs in diesel mechanics and the like.

And, then there were the diploma mills. Vocational, community, two-year, and even four year institutions that were formed primarily to graduate people who had paid with student loans. And, the government student loan industry readily accepted their validity in spite of having no academic underpinnings.

Bottom line: we have a wide-spread “system” in this country that closes its doors to anyone who wants a meaningful (and often not meaningful) job who doesn’t have a degree in something. But, that degree can be pretty much in anything, And, you can easily graduate and owe $100K in student loans for it.

If you’re astute, you can find on the internet lists (short) of degrees that can earn you more over your lifetime than they cost, and much longer lists of those that do not.

When I get to this point in the discussion, I always get assailed by the liberal arts argument that one shouldn’t even go to college to enhance one’s employment opportunities but instead to learn to appreciate things like art, music, literature, concepts, history, etc.

A couple of final thoiughts. I lived and worked at a major scientific institution in Europe for several years. The average European (e.g. German, Austrian, Belgian, French) high school graduate comes out with the academic equivalent of a two year community college degree in the States. They come here for post-secondary education and graduate from or universities (e.g. Stanford) in a cakewalk.

It’s all bullshit. More than 50 years of bullshit. What made this country great was people with great ideas doing things, creating things, making things with their hands, etc. But, for the past 50+ years, we’ve been shipping manufacturing (and, more recently, design and engineering jobs) out of the country and patting ourselves on the back about our successes in innovation and academics (ala the above house of cards).

I’m not sour grapes. I’m trying to be realistic. I have three serious academic degrees myself and I’ve had a relatively illustrious career of my own. But, I grew up on a diary farm and my father owned a big truck stop so I came up doing things with my hands. We need to be teaching our children more of this and less bullshit psychology and political science.

John Dilsaver
9 years ago
Reply to  Joe Sexton

I agree. I am a soon to retire high school math teacher who has seen secondary education dumbed-down to an extent I find hard to believe. In K-12 eduction we’ve essentially quit having anyone fail, or hold anyone back. We teach the students that no matter how bad their performance, they will advance to the next grade or next class. Then when these students get to college they expect the same system to continue. They fail the same class over and over and the student loan system is happy to loan them (or their parents) the money to pay for this.

Sean Murphy
9 years ago

College costs too much for several reasons; Overpaid administrators & faculty, many of whom do no useful work; extravagant facilities, outright boondoggles. Students need to bear some of the costs by working: When does 12 hours of class time and maybe another 12 of study equal a full week.
When I was in school I worked anywhere from 20 to 50 hours per week. And I graduated twice (one undergrad degree and one doctoral degree ) with no debt.
Some of the students have no business in college anyway. And some of the programs are useless.
What does a person do with a degree in “Gender studies” do ??
If you have to go to college to determine your gender you have a bigger problem than a degree can fix.

Joyce D.
9 years ago

No one should be responsible for the unpaid student loans except the student themselves. No money…. no college. That’s that.

Michael E. Banyacki
9 years ago

I don’t see American taxpayers being on the hook for unpaid student loans, since my understanding is that these loans will be collected by the Government later in life either by collection agencies garnishing wages, payback thru Social Security, being devoid of receive tax returns or liens placed on assets that can be sold for repayment. Therefore I don’t understand how Mr. Freeman can make such a claim. Perhaps he can clarify what he means?

Jeffrey Schaub
9 years ago

What better strategy than for a POTUS or any other vote-seeking politico to forgive student loans? “Vote for me and I’ll get your obligation reduced!” I can hear it now.

9 years ago
Reply to  Jeffrey Schaub

Exactly! It’s our tax dollars at risk up front in the issuance of these loans and then when the student or graduate later defaults, we are again on the hook, in the form of even more tax dollars, to bail them out. In short, we end up eating the cost one way or another.

No politician is going to turn around and tell potential voters that he’s going to garnish their wages or ding their Social Security benefits later on to recoup money for this program. As Jeffrey says, the politicians will merely “forgive” the loans, which means we eat the costs in the form of higher taxes to fund the loan program going forward.

9 years ago

Decades ago, my orthopedist boss gave his oldest daughter a choice between her parents paying her tuition at an out-of-town college or giving her rent/food money, with the proviso for either choice that her grades never fell lower than a B. She chose the rent/food money and got a job at the university as a janitor, sweeping the gym floors, etc. She graduated at the head of her nursing class and was the main speaker at the graduation ceremony. I believe that by physically participating in the cost of her education and not borrowing money to make life easier as a student, she valued her education more and was a more serious, successful student. I realize that having the parental help she had is not available to many students but the self-help principle still applies – if you work and save for something you need/want, it means more.

9 years ago
Reply to  Janet

So very true. It also helps build character and a work ethic. Two things lacking in far too many kids today. They expect it will all be simply handed to them on a silver platter and get upset when they have to work or save for it.

9 years ago

How is this any different from what government involvement has done, and will continue to do, to the health industry with its push for single payer?

Kenneth Byrd
9 years ago

This is no different than any other government progam that has no controls or cost measures in place.
These people don’t care it is not their personal money they have thier government pensions and their government health care hell they don’t even have to pay into social security. Goverment regualation is always great for the government but not great for the person being governed. They don’t care because the working class will pay for everything. How do we control any government through our local government and that takes time from people who don’t work for a living. This country has changed to people who do not want to work for a living. They want a free hand out and someone to take care of them. Free money to go to school on is just something else the government owes them. The government has it figured out there is no retirment anymore unless you work for the government you work till you die.

Truth Seeker
9 years ago

Chicago Politics 101. Buy votes with taxpayers money. The taxpayer is the cosigner.
Also,people of a certain stereotype borrow (or steal) and do not intend to give back or pay for the items.
The only shame in stealing is if you get caught.
It is the Chicago way.

9 years ago

Students loans will end up rivaling the sub-prime crash in a few years time. Students are being saddled with loans they have no realistic means of ever paying off and we’ll all be on the hook to bail them out. After that, they’ll be the FHA loan scandal as millions of unqualified mortgages, formerly being backed by Frannie and Freddie, are now being backed by the FHA. All, once again, to promote home ownership by those that are not financially qualified to own a home. We’re in for a very bumpy ride folks. Hold on to what’s left of your wallet.

B. Holly
9 years ago

How about the poor retired cosigners?

9 years ago
Reply to  B. Holly

Anyone foollish enough to co-sign anything get what they deserve. Far too many parents believe that making a kid work his way through college while living at home for a while is a terrible thing. So what if it takes a few extra years to complete higher education? So what if the little darlings have to go to a community college for the first two years? My three did exactly that, finished with zero debt and are raising their kids to do the same. All are now successful and very glad we did what we did.

9 years ago
Reply to  DrJCA1

You are absolutely right. I belong to an organization who gives out scholarships and I’m on the committee to decide. I can’t believe how many parents are setting their children up for large debts. The students don’t seem to get direction from their parents. Student loans are not forgiven, at least not right now.

9 years ago
Reply to  DrJCA1

I agree completely.

B. Holly
9 years ago

How about the affects on retired cosigners? That can be a real personal disaster financially.

Ralph Hinrichs
9 years ago

Totally agree, government must get out of the business of finance. We are already hearing rumors of guaranteed job placement by institutions of higher learning. Government continues to expand into sectors it has no business in and, as stated here, creates a crisis and then blames the private sector as it has done with the housing market and financial crisis. Where will it stop? Looks like the government has an eye on charity, as if it were not already doling out millions, but it wants to be the charity of choice for eveything and everyone. What a nanny state we are headed for!

Diana Erbio
9 years ago

Access to federal grants for lower income students allows colleges and universities to raise their tuitions because supply and demand is not in play. Tuitions since 1980 have increased at a pace that if a gallon of milk had been at that trajectory it would cost $15. No one would accept that. We must let the principle of supply and demand work. That will bring tuition to a reasonable cost.

Jack Peterson
9 years ago
Reply to  Diana Erbio

Supply and demand sounds great, but there is a plethora of foreign students that will be allowed to come here. They have the resources to pay out of state tuition and fees. This is what the Boards of Regents count on to supplement their retirement funds. The institutes all know this. Plus the fact you can’t even get a job without some kind of “degree” – even auto mechanics, force more kids into college. Jobs of labor are being farmed out to lower cost centers outside of the USA forcing people to get college degrees. Where does a person who does not WANT to go to college go for training? The military? They are cutting back also.

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