GENERATION DEBT -- HOBBLED BEFORE THEY START


. . "It's going to create a generation of wage slavery," says Nick Pardini, a Villanova University graduate student in finance who has warned on a blog for investors that student loans are the next credit bubble — with borrowers, rather than lenders, as the losers.

Full-time undergraduate students borrowed an average $4,963 in 2010, up 63% from a decade earlier after adjusting for inflation, the College Board reports. What's happening:

•Defaults. The portion of borrowers in default — more than nine months behind on payments — rose from 6.7% in 2007 to 8.8% in 2009, according to the most recent federal data.

•For profit-schools. The highest default rates are at for-profit schools that tend to serve lower-income students and offer courses online. The University of Phoenix, the nation's largest, got 88% of its revenue from federal programs last year, most of it from student loans.

"Federal student loans are like no other loans," says Alisa Cunningham, research chief at the Institute for Higher Education Policy. "The consequences are so high for making a mistake."

Forgive student loan debt?!  What kind of a cockamamie idea is that?  Why should we do that?  OK, since you asked:

1) There's no better way to immediately put a little more money in the hands of people who need it most, and will spend it immediately.

2) A huge portion of the student loan debt now crushing people was taken when student loans were able to be discharged in bankruptcy.  Then, years later, the companies that make these loans -- at virtually no risk, and with VERY high profit rates -- gave enough money to Congress to buy themselves a change in the law to prevent student loans from being discharged in bankruptcy.  In other words, the rules of the game changed in a crucial way AFTER people had taken these loans. 

3) Kneecapping young people with huge debts might feel good in a "you oughta pay your debts" way, but it's penny wise and pound-foolish.  One of the reasons our economy is struggling is that young people cannot afford to start new ventures, because they have huge loan payments to make.

We need a total rethink of our system for financing higher education, one that makes the colleges and universities have a lot more skin in the game.  Right now, the student loan business is a lot closer to loan sharking than it should be.  A jubilee (debt forgiveness) would not only help millions now, but it would also give us the opportunity to start over with a much more far

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Thank you for signing the petition to Forgive Student Loan Debt as a Means of Economic Stimulus!  Thanks to so many people sharing, posting, emailing and tweeting, as well as MoveOn.org's promotion of the petition, nearly 400,000 people have signed it!  There's absolutely no doubt that we're making waves and getting noticed, but this campaign is really just beginning.  There's more work to be done!

Today, I'm asking you to take a few moments of your time to remind those who purport to represent us in Washington that we truly care about this issue and that we're not going away!

Therefore, I'm asking everyone to please call your Senators and Representatives in Congress TODAY and ask them to support H.Res 365 and the efforts of Rep. Hansen Clarke with respect to student loan forgiveness. 

Signing a petition is one thing, but flooding the Congressional switchboard with calls from every state in the nation and from all political stripes and backgrounds is quite another.  It's extremely important to remind Congress that there's a human being behind every single one of the nearly 400,000 signatures we've obtained thus far, and that every single one of them is truly suffering under the weight of their student loan debts, preventing them from spending, starting businesses or families and buying homes - the very things we need middle-class and working-class Americans doing right now to help re-build the economy that was nearly destroyed 3 years ago.

To quickly and easily find out who your Senators and Representatives are and to obtain their D.C. office telephone numbers, please click here.

Then, simply type in your address and/or zip code and 3 names should immediately pop up - your state's two Senators, as well as your Member of Congress.  Call all three at their D.C. offices today and implore them to listen to the voices of the American people who are speaking up loudly on the issue of crushing student loan debt.

To whatever extent possible, please try to stick with calling their Washington, D.C. offices so as to make the greatest impact possible.  If we can jam up the Congressional phone lines - all the better!

Thanks again for all of your help in making this petition such a huge success!  Let's keep the momentum building!

Sincerely,
Rob Applebaum, Esq.
Founder, ForgiveStudentLoanDebt.com

Good concise article of warning from USAA Magazine.  Download this file  (short pdf)

Gary Liberson, Huffington Post - The PEW Research Center looked at the issue of college pricing in their report,"Is College Worth It?" Their findings validate the tensions caused by the high cost of a college education:

A majority of Americans (57 percent) say the higher education system in the United States fails to provide students with good value for the money they and their families spend.

A record share of students are leaving college with a substantial debt burden... a quarter say it has made it harder to buy a home (25 percent); and about a quarter say it has had an impact on their career choices (24 percent).

Nearly every parent surveyed (94 percent) says they expect their child to attend college... most young adults in this country still do not attend a four-year college. The main barrier is financial.

Over the last 18 years, every dollar added to the cost of a college degree has only put 14 cents of annual income in a graduate's pocket.

Bottom line:  No young person should be taking new student loans without being very well advised on the upside and downside risks, which are substantial, and having a well-researched "Plan B" for how to avoid a lifetime of crushing debt obligations if the typical young adult's version of Plan A ("Get in debt up to my eyeballs, graduate, get great job, get out of debt easily") doesn't turn out to work. 

Photo credit:  Student loan collection agency folks on the hunt.  Huffington Post piece:

Obama caves in to for-profit colleges on rules
     The Obama administration on Thursday issued a series of highly anticipated regulations aimed at cracking down on for-profit colleges and other career training programs that leave students saddled with unmanageable debts and contribute to an unequal share of federal student loan defaults.

     The final rules issued by the Department of Education, however, are significantly less stringent than a draft version released last year, giving college programs an additional three years to come in line before possibly losing access to lucrative federal student aid dollars.  The changes come after an unprecedented lobbying and campaign finance offensive over the past year by the for-profit college industry, which derives a vast majority of revenues from federal student loan and grant programs and has sought to protect that income by gaining influence in Washington.

My advice:  Do NOT take any student loans with anyone unless you speak with someone who can explain to you exactly what you are getting into and you have found the institution's current placement and payback history.  My nephew was just approached for an outrageous scam, a "sound tech" school -- you know, the guys who become roadies and set up the stages for traveling performers.  This "school" wants him to borrow OVER $80,000 (that's right EIGHTY THOUSAND DOLLARS) for a "career" that involves sporadic work and usually requires no real education to enter anyway.

Bottom line is that, until proven otherwise, you should treat all for-profit, private educational institutions like a time-bomb that someone is trying to strap to your back.  It's not even clear that student loans make sense anymore for public, nonprofit institutions, but at least their business model isn't 100% dependent on the flow of student loan monies.

    The for-profit "education" institutions are at least educated enough to be able to read the writing on the wall and know that the days of being able to bilk far too many people out of far too much money entirely unmolested are drawing to a close.
    Thus, the usual tactic of the wrongdoer caught with both hands in the cookie jar and crumbs all over his chin:  Propose a voluntary (read: meaningless) code of conduct.
    In other words, as soon as it will no longer fly to say that you weren't doing anything wrong, propose a toothless "code" of mush that says "and we won't do it any longer."  From the linked AP article:

The Coalition for Educational Success, a Washington, D.C.-based group that represents career colleges serving 350,000 students at nearly 500 campuses, announced the Standards of Responsible Conduct, but won't release the complete code until this summer. The industry group said it will cover areas ranging from standard disclosures of tuition costs and job placement rates to more transparent financial aid policies.

Managing director Penny Lee said the standards will provide a "new level of accountability."

"We know concerns have been raised and we take them very seriously," she said. "This is a significant step for the sector."

The announcement comes as another industry group battles the U.S. Department of Education in federal court in a bid to block new regulations of for-profit higher education institutions. The industry has lobbied heavily in Washington against a proposed "gainful employment" rule that could limit schools' access to federal financial aid if graduates' debt levels are too high or too few students repay loans.

AP story on debt includes this worrisome section:

    Despite the rising costs, 85 percent of students and recent grads say college is worth the time and money. In overwhelming numbers, they express satisfaction with the education they've received. And they have wide expectations for that education: Most say it's very or extremely important that colleges broaden students' knowledge and expand their minds, help them gain life skills, expose them to new experiences and train them for a career.

All true.  But now, the worrisome part:

     Nine out of 10 expect to find a job in their field. And for most, that's the bottom line. Fifty-five percent say an education that focuses on success in the working world is more valuable than one focused on general knowledge and critical thinking.  With that pragmatic attitude, many treat education like a commodity to be shaped to fit their needs and budgets.

The big problem with this attitude is that crystal balls are in short supply -- there are plenty of unemployed people who chased software jobs, thinking that focusing on the work world (that they hoped would still be there upon graduation) would assure them a place among the comfortably employed.  Oooooops, major blunder.  The bottom line is that the most necessary skill in any field of work is critical thinking: figuring out how to know when you're being lied to or asked to cooperate in a delusion, in both rhetoric and in numbers.  A working BS detector, in other words.

The huge need for this is best shown by the horrific levels of unmanageable student debt, young people who accept rosy promises about their future employment prospects uncritically and use that as motivation to take ever higher amounts of student debt.

The most encouraging sign:  the high number of students recognizing that the grossly underused later years in high school can be put to much better use:

    On the other hand, lots of students are racing to the finish in order to save money.  About 4 in 10 college students hope to graduate in less than four years. To get a jump start, 58 percent of students took college-credit courses in high school. And about half earned credits at a community college before moving on to a more expensive bachelor's degree program.
If you are a parent or an adult thinking about how to finance a college or continuing education for yourself, a child, or grandchild, niece, nephew, etc., I'd be happy to meet with you for an hour for 1/3 of my usual rate to lay out the options and the benefits and risks of student loans (federal and private).    

 Project on Student Debt's report .  Includes interactive map to compare the debt levels of individual states and institutions.