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The College-Loan Scandal
Matt Taibbi writes in Rolling Stone about the economics behind college tuition. Interest rates get the headlines and the attention of politicians, but Taibbi says the real culprit is "appallingly high tuition costs that have been soaring at two to three times the rate of inflation, an irrational upward trajectory eerily reminiscent of skyrocketing housing prices in the years before 2008." He writes,
"For this story, I interviewed people who developed crippling mental and physical conditions, who considered suicide, who had to give up hope of having children, who were forced to leave the country, or who even entered a life of crime because of their student debts. ... Because the underlying cause of all that later-life distress and heartache – the reason they carry such crushing, life-alteringly huge college debt – is that our university-tuition system really is exploitative and unfair, designed primarily to benefit two major actors. First in line are the colleges and universities, and the contractors who build their extravagant athletic complexes, hotel-like dormitories and God knows what other campus embellishments. For these little regional economic empires, the federal student-loan system is essentially a massive and ongoing government subsidy, once funded mostly by emotionally vulnerable parents, but now increasingly paid for in the form of federally backed loans to a political constituency – low- and middle-income students – that has virtually no lobby in Washington. Next up is the government itself. While it's not commonly discussed on the Hill, the government actually stands to make an enormous profit on the president's new federal student-loan system, an estimated $184 billion over 10 years, a boondoggle paid for by hyperinflated tuition costs and fueled by a government-sponsored predatory-lending program that makes even the most ruthless private credit-card company seem like a "Save the Panda" charity. Why is this happening? The answer lies in a sociopathic marriage of private-sector greed and government force that will make you shake your head in wonder at the way modern America sucks blood out of its young."
Aren't health care costs a closer comparison? Both cases of vulnerable people being taken advantage of on a large scale.
Meanwhile, unless I'm mistaken, kids in Europe go to college for free. Meanwhile, some are calling for that here as well.
Free Martian Whores!
This article, like many others, misses an important point. Even if colleges hold their total expenditures to the rate of inflation, state support has been declining dramatically over the past decades. As a consequences students are picking up a greater share of the total expenditures through tuition. Clearly that will result in tuition rising at a rate faster than inflation.
If you want to attack wasteful college expenditures, which is a worthwhile topic, you must focus on total expenditures per unit of size (student, degree, credit hour, whatever). Looking at only the part of the expenditure financed by tuition is highly misleading. Unless we're talking about for-profit colleges. Those are sucking the lifeblood out of college-bound youth. Just look at the per degree debt levels of college loans that go to for-profits. "Among all bachelor's degree recipients, median debt was about $7,960 at public four-year institutions, $17,040 at private not-for-profit four-year institutions, and $31,190 at for-profit institutions." [http://www.asa.org/policy/resources/stats/]
I had a solid 6 years worth of state school tuition/costs in the bank by the time my daughter was 6. Now that I've still got 7 years to go, we're hovering between 4 and 5 years worth. I feel like there should be some way to invest in colleges, 'cause I'm certainly not getting that kind of ROI in the market!
*Yes - you can pre-pay for college in some states. As crazy as all get out - if you want to pre-buy 4 years of State school in Virginia for a 12 year old it will cost you MORE than if you buy it for a 16 year old. Even they know that the system is fucked.
Is it just my observation, or are there way too many stupid people in the world?
Part of this has to do with the subsidies they add to tuition. I remember when I was in school, tuition was about $2000 per semester. One semester, they decided to jack up tuition by $400. Most of that $400 was earmarked for subsidies for lower-income students. I found out during a meeting where the chancellor announced the change that 40% of our overall tuition went to subsidies. 40%! At which point I asked:
"So you're increasing tuition to help students who can't afford tuition, because we keep raising tuition to help students who can't afford tuition?"
They just kind of shrugged that question off.
More proof the government is always harmful. So the idea started out, hey lets make student loans so people without financial resources can go to college! The private sector does not make such loans because lets face people with no assets and mostly no credit history are no credit worthy. You need at least one of those things nominally. The private sector is right about this default rate on such loans would be so high as to make rates unfordable; there is no market.
So along comes government which can make it impossible to discharge the debt to offer loans. Sounds okay, but now you got all kinds of money running around being directed in terms of spending by people ( the young students ) who don't appreciate how hard $20K really is to come by for most us and is likely to be in their future. What they know is they don't have to think about it right now; so what does another few hundred dollars a semester matter they will likely decide.
So the schools start competing on well anything because more students is more dollars. If you are a for profit the motive is obvious, if you are non profit you reinvest get bigger and more prestigious. Ego wins every time. Rooms get bigger, mess halls get Michelin ratings, etc. The system evolves to suck up all the money.
Because college is "Accessible", though still not really "affordable" to everyone a degree becomes a requirement to sweep the floors or sell cars, so everyone must get one or be forever marginalized.
Leaving students to spend their entire young lives, and most productive periods in debt services rather than grown their personal wealth, and be forever marginalized. Why? because dear old Uncle Sam decided to muck around where he does not belong.
Its almost like someone *wants* everyone in debt...
Repeal the 17th Amendment TODAY! Also Please Read http://www.gnu.org/philosophy/right-to-read.html
This is why when I hear people like Elizabeth Warren talk about reducing interest rates it makes me want to puke. This woman was a professor at Harvard and got paid six figures for teaching one or two classes a semester. And these sorts of things are not restricted to private Ivy League. There are professors like this at every major university.
So the university increases tuition because it needs more professors to teach fewer courses. Parents (or the students themselves as borrowers) end up subsidizing the non-academic pursuits of these professors by paying them a full salary for part-time work. And we're supposed to cheer for one of these professors wanting drive down the interest rate so that the same premiums will cover higher principles?
Yes. It makes me want to vomit.
this has been well known for nearly 3 years but it doesnt really get much coverege because, well, yeah its the same on a number of levels but disasterously worse.
School loans cant be absolved through bankruptcy, they'll take them from any form of income you earn. this 'perpetuity' makes them attractive to investors because its "foolproof" and acceptable by the plutocracy because it ensures that even if you get a good education, your position results in nothing more than endentured servitude to the state in the hopes of one day living the american dream after those loans get paid off. politicians like the idea because it boosts school enrollment and kids think the whole thing is swell until they realize no ones hiring.
the most telling sign is the recent snafu about the student loan rate, which was tossed about without much bickering at all despite the fact that both sides of the house mortally detest the other. a deal was reached quickly for a number of reasons, not the least of which include another round of occupy protests but this time perhaps with violence and property damage that isnt fabricated by the news. We are by all indications keeping the ship afloat and trying not to draw too much attention to the flaming lido deck. Im not sure when its going to happen, but expect some serious shit to hit the fan when investors realize how dangerous it is to insist millions of people shuffle around with thousands in permanent debt. the fear isnt that some day the markets will crash, its that some day the kid with the biology masters working at dennys is going to pick up a molotov.
Good people go to bed earlier.
We should put the onus on the universities, to certify that if the student completes the degree he/she is seeking, there is at least some reasonable chance the loan will be paid back. They universities should disclose the mean and median starting salaries of the majors they are offering. Like the home loans used to have some basic rules like, "not more than 27% of gross for mortgage, not more than 34% for all loan payments, 20% down". Similar easy to grasp metrics should be made available.
But in a free market economy, if some people want to shoot themselves in their foot, there is nothing to stop them. But at least we someone should be telling them, they have a gun in their hand pointing to their feet and if they squeeze the trigger they will get hurt. Instead we are incentivising the bullet peddlers .
sed -e 's/Chuck Norris/Rajnikant/g' joke > fact
Now, that's for private, non-profit schools. Public schools it has jumped substantially, but not for any nefarious reason: it's what happens when the state legislature looks for easy cuts in the budget and axes higher ed first. When I went to William and Mary back in the mid-80s, 34.7% of the budget was covered by the state. It's 12.8% now, but they're still expected to offer everything they did before (and more) as well as give discounts to in-state students. That money can come only from two places: tuition and endowment.
Endowment is an entire 'nother subject. You might have noticed a serious drop in the stock market a few years back? We (and many other schools) run a three year trailing average on endowment draw, so that's still hurting badly. Oh, and you can't get bonds or other securities with yields higher than a percent or two these days.. Couple the two and your endowment income has cratered as well.
Can we cut budgets? Sure: I started here six years ago in IT and my budget is 20% less than was when I joined. Software vendors don't care: my SPSS licensing costs have tripled in those 3 years for example, and everyone else wants their 5% a year bump. And I'm at a healthy school: I've been at ones that aren't and it's worse.
The real abuse IMHO is the loan industry. We've somehow gotten this idea that it's ok to put yourself into debt for the rest of your life for a degree. (And that debt, unlike every other kind can't ever be vacated by bankruptcy) Nobody should take out $100k of debt for any degree, and the feds shouldn't back it, much like they shouldn't back flood insurance for people who want to live on barrier islands. That may mean you don't get your dream school. Maybe it means 2 years of community college before residential. There are plenty of ways to get an education- shop for them just like you would for an phone
"Seven Deadly Sins? I thought it was a to-do list!"
Yep. Here in Sweden there is no tuition. Paid for through taxes. Like the health care.
Exorbitant taxes? Nope. Most people pay something like 30%. While this is more than most pay in USA, when you add tuitions and health insurance it turns out we pay less.
Why? Because there is no billionaire middle man taking his arbitrary cut.
Yeah, socialism stinks, right?
The college I graduated with over 10 years ago posted annual 2014 tuition of $3333 x 4 years that is only 13,333. This doesn't include room and board. Yes, that is a reasonable amount of money(I lost more than this amount on paper with the 2008 housing value crash). But it isn't the life of being in the poor house that the media makes it out to be. I worked my way through school and didn't have much help from relatives. It isn't quite the party as having a free ride is, but it is still entirely doable in this day in age. I know there are a lot of universities out there that are charging 50k+ for a 4 year education. The school I went to was ranked in the top 50 of engineering schools in the US. I know I know not the top 10 but I'll live. Today's teens need to buck up, make wise decisions and be told that absolutely nothing is the end of the world until you die. If you are of sound mind and have the work ethic you have a solid chance to do whatever you want to do in life.
There is or can be built a machine that can simulate any physical object. -Church-Turing principle
The only schools where athletics are self-funding with excess going to education are the big sports schools. Stanford, UCLA, UM, Ohio State, Florida State, and the other big sports names.
If a school isn't in the top 16, they aren't making their investment back in athletics. It's just a loss leader to stay relevant because their academics are irrelevant. And by staying relevant in athletics they're hoping they get applicants interested in attending there.
Really, though, it's really only indicative of warped USA priorities. Higher education is supposed to be about education, not school spirit, not meatheads throwing balls around, not ticket sales, not full-sail scholarships for those who will wind up contributing nothing to society except getting into professional sports and making a bunch of Gatoraide commercials.
It's a little bit like glorifying the British monarchy. Sure, castles and stuff bring tourism dollars, but at the expense of massive losses of waived inheritance tax by nobles.
Actually, it does make sense. Burdening people with lifetime debt they'll never repay hurts the entire economy, which hurts everyone. These people will never be customers of any business, never contribute fully to the economy, and never have successful lives unless they can start over. It hurts society much more to "punish" them by making them tough it out and keep trying to service debt. If you want to hold them totally accountable, at least admit that you're cutting off your nose to spite your face just to exact some ideological, punitive, justice.
If you build it, nerds will come. Soylentnews.org
If you are paying $25k a year in tuition and are making $40k a year, you will also end up with debt. Federal and state taxes will eat up 33% of that $40, so you're talking $26k left. Then you've got rent, and even a slumlord will charge $300/mo so you've got $22k left (and if you want to stay at a university dorm, that'd be $10K/yr). Then you've got food, and even an anorexic will have to pay $40/week for food, so that's another $2k a year gone and you've got $20k left. You better be walking to college because there's no way you've got money for a car, car insurance, or gasoline. So, living in a slum, walking to college, eating like an anorexic, not buying any new clothes or any new anything, and "making" a $40k salary, you've got $20k to pay off your $25k a year tuition. That still puts you in $5k debt a year. By contrast, if you took your $20k over four years ($80k) and invested it piss-poor bonds of 3% interest a year, you'd have $260 thousand dollars by the time you retire (40yrs from now) with that money alone. If you're actually smart, the kind of smart that lets you get into college to begin with, you can be making 10% growth a year and have $3.6 million in 40 years. That's just with the $80k.
My local university has been buying up highrises downtown and building huge complexes for their different departments. The Engineering department has moved 3x in the 15 years I've lived here. Each building an architectural wonder. I can understand their desire to show off their engineering prowess but to the tune of 100 million a pop it's getting a bit ridiculous. My niece is going to school for engineering and her tuition is $30k/year. When I went in the 90s it was less than $5k. $30k a year is just unfathomable. There's no way she's getting that kind of value out of that school.
All the responsibility is being shuffled onto the students. That's the problem.
Someone who wants to go to a good law school, and double that for medical. Your unspoken implication is that only the well off have any business going into such high-end professions, thus starting a veritable caste system.
Is that a bug, or a feature for you? Don't bother with the "I put myself through school working part time in the 90's" that some helpful person posts in any of these discussions, when costs have doubled a few times since then.
Anyone who's been exposed to universities at the faculty or administrative level, as an outsider, can see that the system is a nightmare of waste. I was brought on during a supposed hiring freeze to teach a non-essential course at a university in my area; I was taking over for a friend who was no longer free. By the end of that same semester they had begun major construction on campus. At about the same time one of the professors approached me about buying new computers for the class. It blew my mind that this guy was suggesting top of the line Mac Pros and an all new suite of software to replace what we had been using. What we already had was more than adequate and fairly current, and that's not to mention that the school already gave most, if not all students a Macbook of their own. T
Money is no object at these universities. It reminds me of the healthcare system where the solution to every financial problem is to simply raise rates. They've got to have the latest and greatest of everything regardless of whether it provides any real value. Unfortunately, there's budgetary control is nonexistent; it's literally a free-for-all.
If the university administration gets it in their heads to focus on athletics then you're really screwed. They'll hire some high profile individual, at massive expense, to bolster their athletic program. That entails further spending all with the goal of having one good year to get the university on the map. The hope there is obviously to attract more students, even if it comes at the expense of academic quality.
The problem here also is that no one is identifying and addressing the problem. Americans are far too comfortable with getting into debt. So they'll take out these massive loans, and the money the parents "save" by not paying for school goes to spoiling the student with a shiny new car and generous housing. Most people seem to believe that the solution to the problem is to make getting loans even easier.
The stat I heard several years ago is if the price of milk had risen at the same rate as college tuition we'd be paying $40 for a gallon. The economics are seriously screwed up but I see no evidence that the bubble is going to burst. The same school I taught at has seen a continued construction boom. I have no idea what's going on anymore, but new buildings are going up all over campus.
But the really screwed up thing here is that they do nothing at all for the community they reside in. It's a giant money sink that skips right over the surrounding communities. Unfortunately, because these schools grease the right pockets they get to operate with impunity. It's those neighboring communities who suffer the consequences.
I have friends graduating with engineering degrees that have 30k in debt from a STATE SCHOOL. This isn't an Ivy League school, but a state university. How does that compute?
It "computes" BECAUSE they went to a state school. If they had gone to an Ivy League school, they would probably have much less debt, if any.
For most students, a good state school is more expensive than Harvard, Princeton, Yale, and so on. That's because the Ivy League schools (and non-Ivy top private schools like Stanford, Chicago, MIT, Caltech and such) have large endowments per student that generate lots of income that they use to provide generous need-based non-loan aid. At Stanford, for instance, if your family makes under $100k, tuition is waived. Under $60k, and Stanford also waives room and board.
State schools, on the other hand, do not have large endowments per student. If their state has budget problems, one of the first things to go is need-based non-loan aid.
This is probably the oddest thing about American higher education. It is actually possible for someone to legitimately say "I could not afford to send my kids to Cal State Fresno, so I sent them Harvard".
A couple of quick points..
- Tuition has gone up a LOT even since 2007.
- There are far fewer jobs to get, and those jobs are less flexible (since the employment situation means that employers can be pickier about people they take).
- There are fewer student jobs, because research funding is tighter (thanks, sequester!)
- Not all students have the ability to manage both a job and study. Just because you did it doesn't mean everyone can, and just because a student isn't brilliant doesn't mean they don't deserve an education.
- "Young white American male" has all sorts of implied privilege that not everyone has.
- Do we really want this to be the challenge?
There was a day when a College education was affordable, and an enterprising student could work their way through college on a part time job. Then the government got involved providing federally guaranteed student loans. This enabled colleges to start raising tuition, because now students could finance their way through college. Today, any college that doesn't raise their tuition is simply leaving money on the table - they'd be fools not to raise rates. The horse has left the barn, and the race is on. There is no upper limit now to what colleges can charge for tuition because the loans are guaranteed.
Now, the political side of this is that conservatives never wanted the government involved in the first place, because government involvement always distorts the market (which is exactly what has happened). Progressives called the conservatives heartless because they wanted to deny education to the poor and underprivileged. Somehow this argument always seems to work - we want life easier today and never think about the consequences. (Progressives and conservatives exist in both parties, don't let anyone fool you into thinking this is a democrat/republican thing.)
Now we have the consequences: Tuition rates that are skyrocketing and it is now near impossible to go through college without taking on obscene levels of debt. Those who decried government involvement in the first place, would like to see government get out of the student loan business. The reaction is obvious: "You are anti-education! You are not for the poor and underprivileged!"
And so here we are, the way to stop it is to collapse the 'Government-Educational-Complex' - shouldn't be hard. The actual value of a college education is rapidly approaching nil, yet people are paying more and more for it. Government is always happy to enslave you to the debt, because then you'll always vote for the party who promises keeping rates low and/or forgiving your student loan debt. If that isn't slavery, I don't know what is.
Good security is based upon reality and common sense. Common sense is a function of having common knowledge.
Who said anything about a deficit? If we cut the US military in half, we still have the largest military in the world over the next two largest countries COMBINED. Put that money towards 0% college loans, or grants, or gasp, free state-run universities like the rest of Western Civilization. Who knows? Maybe a well educated society will lead to more income tax revenue through higher paying careers?
Not only is all the responsibility put on the students, but they're the ones least able to be responsible. After all, they're freaking 18-25 years old. These are the stupidest years of life. And absolutely everyone they're supposed to trust, their parents, their teachers, their guidance counselor, their government, their future employers tell them "YOU MUST GO TO COLLEGE OR YOU WILL BE A FAILURE FOREVER." What the hell do people expect them to do?
And for so many necessary and supposedly "good" careers, a degree is mandatory. Good luck getting a job as a civil engineer without a civil engineering degree. Want to be a doctor? You kind of have to have that medical degree. "Life experience" doesn't count on an application to the hospital.
And even then, with the never-ending recession, even those with the degrees can't get full time work. I have a friend who finished dental school 2 years ago. Has her DDS, is good at what she does, $330,000 in debt, and can't get full-time work AS A DENTIST. When dentists can't get work, there is some shit seriously fucked up.
I thank my lucky stars I graduated in 2002 before this stuff got insane. But I honestly don't know what advice I'd give to a 17 year old today. Unless they can code. Otherwise? Probably trade school. Be a plumber. Trim carpentry is good, too.
But damn if that doesn't suck. I thought we were gonna be in the future now. Everybody would be building skyscrapers and curing cancer and designing space shuttles. But nope. Your options are join the military and go shoot brown people for oil, be a laborer, or saddle yourself with $100,000 in debt and be a barista. The future blows.
We don't have a state-run media we have a media-run state.
Don't you also pay a 25% VAT on most goods and services? And even the lower rate for food is 12%? According to the Wikipedia, roughly 45-50% of your GDP goes into taxes and output government services. Total effective tax rates in the US are under 30%, even with our utterly ridiculous levels of military spending. We pay a *lot* less than you do.
I'm from Norway, not Sweden but I think your description is pretty accurate, on the other hand:
0-18: The state pays my parents for having me + free education.
19-24: Got a master's degree for free, just cost of living
25-62: Work, get taxed the shit out of but don't need health insurance, saving for my kids' college fund etc.
62-67: Potential forms of early pension, but will affect later pension
67-: Public pension, which is quite good if you've worked and paid taxes.
If you take the lifespan view you're probably not that bad off, you pay in a lot of taxes in the middle but overall the government pays for many years before and after that. Not everything goes into public services, a lot is also simply redistribution taxed one place and paid (or given tax breaks) another place. Cue the obvious commie comments, but it seems to be working rather well.
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