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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."
Universities have no real incentive to lower prices. Why should they? They can foist costs onto a third party.
Also, their costs keep going up - healthcare, salaries, maintenance. Their cost structure is basically fixed. The only way they can cover those is by raising tuition.
This isn't a new problem. This is a structural problem that's been pointed out many times. Why is this news?
Any union shop has the same issues.
They scales won't tip, but I sure will.
Her name is Candy.... please welcome her to the main stage and show her that you care guys. She really IS trying to pay her way through college!
The more they try to make college "affordable" via loans, scholarships, etc. the more the colleges and universities will raise their prices until it is just barely affordable by all participants. They want to maximize their income -- as any business does. On the other hand, if we were to cut off student loans and scholarships you can bet that the prices would plummet and they'd stop building fancy buildings named after themselves. (Some universities have exercise areas that are reminiscent of spas and exclusive health resorts than a university.) It is amazing that our parents and grandparents were able to do things like send men to the moon without plush padded seating and nicely carpeted hallways at their universities. Even so, they could still afford to get an education.
The states have been cutting funding to higher education for years. Costs for running a university are only getting higher. Either the university cuts programs and services or raise tuition.
"They called me at work, sometimes two to three times a day, doing all the stuff they aren't supposed to do: threats, et cetera," says 41-year-old Shawn FitzGerald, who owes $300 a month and says he expects to be paying off education loans into his sixties. "They told the receptionist at my job that I was in legal trouble...."
"I have been told I made the wrong decision going to college, as well as being told I was a failure, an idiot and a mooch," says Larissa, a young woman from a blue-collar town outside Chicago. "I've had ex-boyfriends that I never even lived with contacted by collection agents, my childhood friend's distant relatives contacted by them, as well as distant relatives of my own...."
See here:
Fair Debt Collections Practices Act.
When a collector breaks the law, seek legal representation. Yes, people have sued collectors and won for this kind of abusive behavior.
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!
I read about this all the time and wonder to myself, "Who is their right mind goes 100k in debt for school?".
Students need to take some responsibility here. You may:
* Have to go to community college for the first two years
* Have to live with mommy and daddy for a few years
* Have 6 roommates
* Have a job (yes I am aware that isn't as easy as it sounds)
* Wait a few years to attend college so you can save money
* Join the military so you can get the GI Bill
* GO TO A CHEAPER IN STATE SCHOOL!
Yes college is expensive but a lot of the time what I see is students wanting their cake and eat it too.
Get your PostgreSQL here: http://www.commandprompt.com/
Education in Japan, Work in USA, and wife from France.
I'm not sure if that is sarcasm nor not. The education system in Japan is largely based upon rote memorization and is known be counter productive in terms of creativity. The United States are up there on the list of countries with the most working hours and least amount of vacation time taken.
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.
Its already tipping as defaults are at an all time high but thanks to the changes Bush passed in 06 you can't even get out of debt with bankruptcy and that REALLY needs to change. Living in a small college town I hear of at least a couple a year committing suicide because of student loans, last year one in my own building hanged himself because they wouldn't stop hounding him over it.
That said after the student loan bubble bursts they'll be one major bubble left to pop and that's the stock bubble and when that one pops colleges will be ghost towns as it'll make the depression look like a flash crash, VERY nasty and only a matter of time now, the bubble is too massive to slowly deflate.
ACs don't waste your time replying, your posts are never seen by me.
Cars don't cost that much. Teenagers don't buy houses. The decision-makers here are people who aren't even old (or mature) enough to drink - are completely impulsive - have no life-experience and less of a tangible "long-term" outlook - and they're actually *pressured* (by society, parents, high-school guidance counselors, etc) to go with the BEST school they can [at any cost].
What can possibly go wrong??
To be really happy, it should be" Educated in USA, Work in France and Wife from Japan".
Linux O Muerte!
The reason it isn't free is that both parties pray at the alter of free market capitalism. There is a part of the Democratic party that realizes the problems but they aren't the 2-3% of the electorate that decides elections and so the party can safely ignore them (just like the true fiscal conservatives on the right). Free markets only work when there is meaningful competition and true substitute goods, in the education market neither of these things exists, cheaper schools are not seen as substitutes and price competition is minimal to non-existant.
There are 4 boxes to use in the defense of liberty: soap, ballot, jury, ammo. Use in that order. Starting now.
Here's a reality check:
40 years ago you could reasonably go to school and pay for your tuition and fees by working a manual summer job. There are no jobs out there which pay a year's tuition in 3 months for untrained labor, or anything close to it today. Heck, the average starting ANNUAL salary is less than tuition/room/board for a year at practically any private university today.
Is it just my observation, or are there way too many stupid people in the world?
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
What year was this?
They have debt because tuition costs more than the jobs they can get pay. If you are paying $25k a year in tuition and are making 17k a year you will end up with debt.
State universities are being increasingly defunded by states who are facing budget difficulties. State universities are a nice to have for states but you can bet they'll try to defund them any chance they get. Worst of all states can dictate how much tuition state universities charge if they want state money and put a strangle hold on their staff and abilitiy to hire good professors and services for the university. The push has been towards privatization and eventual elimination of state schools thanks to state budget problems.
~~ Behold the flying cow with a rail gun! ~~
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!"
Get real. Just look at other nations and how they handle their education systems. It is precisely because there is so much profit motive involved that things are the worst anywhere in the [first] world. And the patterns are plain for all to see. It's not a "free market" compatible situation. What do I mean by that?
Simple. We talk about supply and demand as key factors in the free market. But in cases where there is unlimited demand there is massive exploitation by business unless regulation is present. Take power for example. Most states understand that power has unlimited demand and that utilities must be regulated. California and Texas went with deregulation ostensibly to increase competition and lower prices while increasing quality -- free market thought. What happened? The highest energy prices in the nation. And medical costs are another example. The system grew from a pay the provider system where multiple providers can compete for your business into one where consumers pay using "someone else's money." (The insurance system) Once medical insurance became a virtual requirement for having access to healthcare, competition all but disapepared and prices went crazy. And consumers didn't care because they paid seemingly reasonable monthy costs for something only a small percentage of people were using. (Paying for something they MIGHT need under terms which they don't understand instead of simply paying for something in exchange for something.)
The problem is that free market capitalism can never exist in its purest form because human corruption will always creep in with every form of bait and switch imaginable. They are actively redefining words, terms and expressions so people don't get what they think they are paying for. ("Unlimited"? Really?) And the same free-market people are lobbying and standing in line for their government subsidies all day long while complaining they want government out of their lives.
So you can go on trolling with your right-wing nonsense because it doesn't work any better than left-wing nonsense. Everything has practical limits in one direction or another and those limits should be defined at the point where peoples' worst natures are activated and massive exploitation begins to occur. And it's precisely the goal of preventing massive harm and exploitation which government should exist for. Obviously, this means business lobbies should be forbidden but that can't happen without a massive revolution so I wouldn't look for it to happen. But the next best thing is for people to wake up and start caring about what goes on in government at all levels. These days, most corruption is done in plain sight. People just have to look and care about it.
Most football programs lose money. The schools you are talking about are extreme outliers.
Even in schools where the football programs make money the athletics programs normally lose money.
http://collegefootballtalk.nbcsports.com/2010/08/25/ncaa-report-shows-many-college-programs-in-the-red/
http://www.forbes.com/sites/stevensalzberg/2011/11/26/football-is-corrupting-americas-universities-it-needs-to-go/
C'mon if you're going to bitch at least the get facts right.
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?
Having an educated society is not free, we all benefit from it.
You're dating yourself with this comment. If you're paying full fair at most state universities, there's no way you can pay tuition and living expenses on a part-time job (even with full time in the summer). Perhaps this is possible at a community college if you work maximum hours (20/week), full-time in the summer, don't buy any new books/clothes/anything for 5.5 years.
For example - look at the University of California system, once considered the best public university system in the world, and one of the best bargains (not true anymore). They're estimating $30k / year for in-state students (including living expenses). Please tell me how you managed to make $30k/year working part time?
http://admission.universityofcalifornia.edu/paying-for-uc/cost/
It was 2002 to 2007. And as a young white American male also with no family money, I worked multiple jobs and figured it out. No loans at all, no scholarships either until my senior year when I managed to land a research scholarship that required 15 hours/week of research with a professor. I missed out on a lot as a consequence, all those "college experiences" that others talked about like parties and such. It was the lifestyle I couldn't afford, not the tuition.
In the case of student loans, it's because their first experience with debt wasn't an $800 credit card that caused them trouble but a $300,000 school loan that cost them $1.5M to pay off. They're young, naive, and ripe for the taking.
To put it into perspective: Legal college loans are morally equivalent to legalizing sex with anyone 10 years and older. Especially that sweet spot around 12-14 where they have none of the suspicion and all of the romanticism, and you can sweet talk them into anything--love 'em and leave 'em, give them tons of STDs, knock 'em up, pass them around to your friends to pay off your debts, the works. The whole while they're thinking, this is great. Until it isn't, then they're like, my life is horrible and I'm left with a broken vag and ass and fucking strange diseases and somebody's kid I don't know who....
That's basically what student loans do.
Regular bankruptcy is more an economics thing: there's no way this person is ever going to meaningfully pay this off, inflation is going to marginalize the damage his non-payment does, so it's less damaging to society to give him a pass and mark that he's an idiot and you don't want to let him borrow money ever.
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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.
In much of europe, college is payed for by government issue 0% interest student loans to universities with tuition caps. The repayment of these loans is based on the persons income after graduation. If they never find a sufficiently good job after a certain number of years the loans are forgiven. It generally works out very well.
I think your suggestions are good, but I think it's wrong-headed to blame the students for 'not taking responsibility.
This is a systemic problem. We have a bunch of 18 year-olds with relatively little life experience, and we keep telling them that going to a good college will make them rich someday. We give them the impression that taking out massive amounts of student loan is a wise move. This message comes from parents and teachers and politicians and the media, and you can't blame a bunch of kids for believing it.
We need to take a good hard look at how we're treating education. Is college a place where kids can receive a good general education, or are they vocational schools? Are we promoting education for the good of our society, or do we think it's a privilege for rich people that should be denied to the poor because they haven't earned it? Is the purpose of college to educate our young adults, or to entertain them with frat parties and amateur minor-league sports teams?
Yes, it's all tax money. The difference is that, in Europe, taxes pay for public education, healthcare, infrastructure, and so on. In the US&A, taxes pay for a bloated military and a massive espionage apparatus.
Circumcision is child abuse.
I read about this all the time and wonder to myself, "Who is their right mind goes 100k in debt for school?".
From Collegedata.com:
In its most recent survey of college pricing, the College Board reports that a "moderate" college budget for an in-state public college for the 2012–2013 academic year averaged $22,261. A moderate budget at a private college averaged $43,289.
OK. A little math here: A "moderate" cost for 4 years at a state school (not counting inflation, which makes this a joke really): $89,000. "Moderate" cost for 4 years at a private college: $173,000. So who goes into 100K kind of debt for school? It looks like pretty much everyone who doesn't have family resources to fall back on.
And since college-educated people earn more money and thus pay more taxes, you're entirely right: tax-funded education is not free, it's a net earner.
European countries are democratic. If their governments pay for college out of tax money it's because the citizens who pay said taxes are okay with it.
Forget magic. Any technology distinguishable from divine power is insufficiently advanced.
Everyone here does seem quick to say "Oh just do an ROI calculation on college and don't take it for granted you should go" without recalling that for decades now we've pretty much shoved the idea that "if you don't go to college you're a complete shit and failure of a human being (what are you gonna do, flip burgers? Because people who flip burgers are subhuman shit after all)" down everyone's throats, and most people don't want to be thought of as complete shit.
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.
I did something similar: worked 30 hours a week, lived in cheap housing, took 6 years to graduate, but did so debt free. Having said that, I have mixed feelings about it. Yes I worked hard and sacrificed to make it work. I was lucky too though and had opportunities other people don't necessarily have:
1) I had a good quality state school I could attend.
2) My parents let me live at home until I could find a good/cheap housing solution.
3) My parents helped me out with classes my first year until I got established.
4) I had good jobs in high school and was able to build a savings.
5) I managed to get a civil service position at the University that provided me with some free credits every semester.
It seems to me that in today's world it may not be enough to be responsible and diligent. I'm not sure I could have done it had I not had the opportunities I had.
What state, and what was the tuition? Here in NYS (SUNY) 10 years ago the state paid 75% of the tuition and you paid 25%, now it's the other way around. My wife is looking at upgrading from her associate's to her bachelor's and it's $14k/yr for nursing.
At min wage of $7.25 (minus 6.2% FICA and 1.34% Medicare) you would have to work 2090 hours/year (40.2 hrs/wk w/ no vacation, holidays or sick time) just to pay the tuition. Then there are books, either a place to live or a way to get back and forth to school, etc. Working your way through school ain't what it used to be.
Completely true. I don't really care so much about the choice between "low taxes, few services" and "high taxes, many services", but what we have now is "moderate taxes, low services, giant military". That's far worse than the other two.
"It's teh free marketz!!! herp!"
You show me a bubble growing by 5-8-10% a year and I'll show you a mass of government involvement; subsidies, tax breaks, guaranteed debt, etc.
Housing bubble? Fannie, Freddie, Ginnie Mae, Home Mortgage Interest Deductions, capital gains exclusion, etc. When the music stopped the GSE's held $0.5E12 of subprime, alt-a, no-doc, stated income garbage loans. Government was the Market Maker.
Healthcare bubble? Medicaid, Medicare, VHA, CHIP, TRICARE, untaxed employer health care benefits, etc. Obamacare is going to subsidize tens of millions of exchange policies. 46% of all US health care spending is via government and the costs are spiraling out of control.
Education bubble? Pell grants, Sallie Mae's government backed tuition debt, huge state subsidies to public universities, Student Loan Interest Deduction, etc.
There is nothing "free market" about any of this. It's all government policy and government money.
Maw! Fire up the karma burner!
Did you go in the 1960's or 1970's? What a bunch of freeloaders that generation was. Tuition was paltry, jobs plentiful.
I didn't realize that the 21st century definition of freeloader included people who studied and then got a job. If you believe that then you're suffering from Stockholm syndrome.
The problem is not that my generation were freeloaders, but that your generation is getting screwed. If my sympathies aren't sufficient, take heart in the fact that I'll also probably be getting screwed when my daughter goes to college. Actually before that - my wife needs to upgrade from her associate's to her bachelor's.
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.
You show me a bubble growing by 5-8-10% a year and I'll show you a mass of government involvement; subsidies, tax breaks, guaranteed debt, etc.
Alright. Explain the Rhodium bubble of 2008, the Great Stock Market Crash of 1929, Australia's Poseidon bubble of 1970, the Florida Land Boom of the 1920s, and the .Com Bubble of 2000 as "all government policy and government money."
I'd also strongly dispute that the healthcare crisis is all government's fault. Even a 100% private healthcare system is not a free market due to the lack of voluntary participation in the system and general lack of price-competition. (No one chooses the "cheapest" over the "best" unless they are simply priced out of the best.)
If it's for-profit but free, you're not the customer -- you're the product (e.g., the Slashdot Beta's "audience").
Why can't others do the same?
Long story short, because ceteris paribus is utter bullshit. There's a fair chance you got lucky, or live in a state that controls tuition better than others, or are leaving out part of the story (like any scholarships, grants, preferential treatment due to legacy/social/racial status, free credit hours due to employment, etc).
Point being, not all people/situations/opportunities are created equally.
Side note, your exceptional circumstances do not change the absolute fact that the tuition system is seriously gamed against most people.
An enigma, wrapped in a riddle, shrouded in bacon and cheese
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".
If the US is doing such a bad job compared to all these countries, why are they still coming here to study and work?
I think you're asking the wrong question.
If the US is doing such a great job, why are so many of your colleagues not Americans?
The issue at hand is not the quality of education, but the outrageous, crippling expense of it.
An enigma, wrapped in a riddle, shrouded in bacon and cheese