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A tale of easy student Loans, for-profit schools & private equity
August 15, 2014 9:13 AM   Subscribe

The most striking feature of the Direct PLUS Loan program is that it limits neither the amount that a school can charge for attendance nor the amount that can be borrowed in federal loans. "This is, for a private-equity firm, a remarkably attractive arrangement: the investors get their money up front, in the form of the tuition paid for by student loans. Meanwhile, any subsequent default on those loans is somebody else’s problem—in this case, the federal government’s."

For context and background:

"A higher education is the single best investment you can make in your future and college has never been more expensive", Obama said

In the past nine years, the average student loan balance has exponentially grown from $10,649 to $20,326. Outstanding student debt totals $1.2tn in the US.

Total US educational debts are now second only to mortgage loans.

Most of the proposals being debated in Washington wouldn’t reduce students’ debt loads; they’d just make loans cheaper or easier to repay. Republicans in the U.S. Senate last month filibustered a proposal by Senator Elizabeth Warren, a Democrat sometimes mentioned as a possible presidential nominee, to let about 25 million holders of student loans refinance their debt at a lower interest rate. A House Republican bill would make defaults on student loans less likely by automatically withholding a percentage of earnings from paychecks.


Previously [1], [2], [3]
posted by TheLittlePrince (66 comments total) 25 users marked this as a favorite

 
[facepalm]
posted by Wild_Eep at 9:16 AM on August 15


Just popping in to say: went to a state school, graduated in 2010, paying $464 a month, $37,000 left to go.

Thank fuck I didn't get into Swarthmore like I wanted.
posted by showbiz_liz at 9:22 AM on August 15 [7 favorites]


A House Republican bill would make defaults on student loans less likely by automatically withholding a percentage of earnings from paychecks.

Student loans aren't dischargeable in bankruptcy. One might as well rename them "wage garnishments" at that point.

I have pretty much resigned myself to the fact that I will never finish repaying my student loans. 15% of my income for life, since I don't expect any of the principal forgiveness programs to ever actually be allowed to work. There's too much money to be lost.
posted by jedicus at 9:32 AM on August 15 [10 favorites]


I wonder how many economists predicted at the time that a federally guaranteed student loan program would effectively remove any restraint on the price of education?
posted by George_Spiggott at 9:38 AM on August 15 [8 favorites]


my cost to buy the house i'm in is less than the total of my consolidated student loans. i mean i got a great deal on my house, but still.

if i one day have a salary equivalent to my student loan debt, i think i might stand a chance of paying them off before i die.
posted by sio42 at 9:47 AM on August 15 [1 favorite]


I wonder how many economists predicted at the time that a federally guaranteed student loan program would effectively remove any restraint on the price of education?

who would have predicted that one libertarian falsehood which sounds better than saying than "a market with inelastic supply and inelastic and increasing demand is going to have price volatility and thus requires careful management if it involves a public utility" would get repeated over and over again?
posted by ennui.bz at 9:47 AM on August 15 [16 favorites]


Thank fuck I didn't get into Swarthmore like I wanted.

Swarthmore now has no-loan financial aid. (They probably didn't when you applied, and obviously, you would have to take out loans to cover expenses above and beyond their student budget.)
posted by one more dead town's last parade at 9:48 AM on August 15


I'm studying to become a librarian. I intend to use the Public Service Loan Forgiveness program to forgive my student loan debts after working for nonprofits (namely, libraries) for ten years. The program was started in 2007, so nobody's had a chance to qualify for it yet.

I'm so afraid that as soon as the first wave of loan forgivenesses happen the program will be promptly ended or gutted, and I'll be stuck holding onto a huge pile of debt I've been letting grow in anticipation of forgiveness. It really burns me up that even this program, which takes TEN YEARS and is only useful for those who work in non-profits, making on average much less income, is still difficult to keep track of and totally unpredictable in its eventual result.
posted by One Second Before Awakening at 9:49 AM on August 15 [2 favorites]


The private college (where I trained) hired a former government student loan administrator to run their admissions office. That expertise was used to fine-tune their tuition to be exactly as much as the typical student would get for a loan. She'd help applicants fill out the form, too, so as to achieve that target for each one.
posted by Mogur at 9:49 AM on August 15 [1 favorite]


The for-profit education system seems to exist largely to steal money from taxpayers, either GI Bill money or, as here, Direct Loan money. I don't know what the solution is--other than forbidding profit-taking, which I'm totally okay with, but probably won't fly--but it can't go on like this.

I was lucky, in a sense: being broke-ass poor let me attend an elite private school for something like $20k all-told, interest-included. I can't imagine having taken on significant debt for college.
posted by uncleozzy at 9:49 AM on August 15 [1 favorite]


also, PLUS was turned into a way for Wall Street to loot and pillage the children of the former upper middle/professional classes:

how much do you want to bet that PLUS debts will get bailed out before Stafford?
posted by ennui.bz at 9:52 AM on August 15


who would have predicted that one libertarian falsehood which sounds better than saying than "a market with inelastic supply and inelastic and increasing demand is going to have price volatility and thus requires careful management if it involves a public utility" would get repeated over and over again?

Not sure what you're getting at here -- the exploding proliferation of for-profit schools in every strip mall and on every undeveloped piece of land seems to weigh against the "inelastic supply" assertion.

In any event I wasn't aware that I was repeating a libertarian falsehood... I'm just observing that colleges and universities charge whatever the fuck they want irrespective of supply because people have the technical ability to pay and think they have to, even if it means burdening themselves for the rest of their lives.
posted by George_Spiggott at 9:54 AM on August 15 [1 favorite]


The problem with federal student loans is that all of the risk is rested solely on the shoulders of the student, while others are allowed to profit. This might not sound like a problem, but it creates a perverse incentive for colleges to oversell themselves. The bank and the school suffer little if the student isn't successful in converting their education into a career.

This could be fixed it by simply requiring that, say, 10% of each federal student loan be matched by a normal unsecured bank loan at typical interest rates. Ideally, the school itself would finance such loans, but the effect would be the same if other investors did so.
Sure, colleges could just jack up tuition by 10% to offset this new requirement, but they'd be leaving money on the table if they didn't strive to ensure that their graduates are successful enough to pay off that unsecured loan.
posted by droro at 9:57 AM on August 15 [3 favorites]


The most striking feature of the Direct PLUS Loan program is that it limits neither the amount that a school can charge for attendance nor the amount that can be borrowed in federal loans.

This isn't really true. You can't borrow more than the cost of education. Which is a limit.
posted by MisantropicPainforest at 9:59 AM on August 15


charge whatever the fuck they want irrespective of supply because people have the technical ability to pay and think they have to, even if it means burdening themselves for the rest of their lives

See also: housing bubbles. (But at least mortgage debt is dischargeable in bankruptcy.)
posted by one more dead town's last parade at 10:03 AM on August 15 [1 favorite]


In any event I wasn't aware that I was repeating a libertarian falsehood... I'm just observing that colleges and universities charge whatever the fuck they want irrespective of supply because people have the technical ability to pay and think they have to, even if it means burdening themselves for the rest of their lives.

the implication is that government intervention (in the form of loans) into the market for higher education led to the current price spike so things would be better if the government stayed out of the education market, right?

but education is a public utility, like electricity and heat and water. Demand can never changed quickly enough to effectively control the price. It *has* to be a regulated market as long as education is requirement for full participation in society.
posted by ennui.bz at 10:06 AM on August 15 [2 favorites]


Whenever my alma mater hits me up for a donation I look at the way they've doubled the number of buildings since I graduated -- most of them ludicrously plush and wasteful of land compared to the ones that predate my attendance -- engulfing the neighborhood I grew up in and the rate at which they've been swallowing money and I'm tempted to write back "are you fucking kidding me? Go on a diet you money-bloated monstrosity."
posted by George_Spiggott at 10:06 AM on August 15 [2 favorites]


ennui.bz -- I'm actually a socialist and would rather see real government intervention in the form of European-style student grants for the needy and qualified; not this public backstopping of an insane plunder of the students' futures.
posted by George_Spiggott at 10:08 AM on August 15 [3 favorites]


but education is a public utility, like electricity and heat and water. Demand can never changed quickly enough to effectively control the price. It *has* to be a regulated market as long as education is requirement for full participation in society.

I don't think you could legally regulate education as a utility in the US. Regardless of your views on it. About the only thing you could do would be end the federal guarantees and ramp up spending on state schools so that the tuition was low enough that it made little sense to go to private schools.

I'm actually a socialist and would rather see real government intervention in the form of European-style student grants for the needy and qualified

Europe doesn't really do that. There just isn't a culture of private post-secondary ed.
posted by JPD at 10:12 AM on August 15 [1 favorite]


Following up on George_Spiggot: my father got a request for a donation from his old alma mater. Because of 25 years' inflation (especially of tuition) the "suggested donation" was quite large, and by a weird coincidence was exactly as much as his full-tuition scholarship his senior year. He took one look at the letter, handed it to me, and said "I guess they want their money back."
posted by Mogur at 10:12 AM on August 15 [1 favorite]


This isn't really true. You can't borrow more than the cost of education. Which is a limit.

Not in any meaningful sense, since schools can jack up the cost of education simply by raising tuition. It's a limit in that no particular student can get unlimited funds per year, but not a limit in how much an education can cost, or what amount of loans are allowed in total.
posted by skewed at 10:13 AM on August 15 [3 favorites]


One Second Before Awakening, not to be too much of a downer, but be warned that the forgiveness program may not be as generous as it sounds. I have a friend who is a public librarian, and he was recently saying that the payments required by that program would effectively mean he pays down his loans to zero by the time the "forgiveness" at ten years hits. I'm a librarian in a for-profit business, and made some bad financial decisions in my twenties (forbearance was a bad call, even when I had no money), so I'm basically resigned to paying my student loans until I die. On good days when I think about it, I call it my tax for having a job I like. On bad days.... let's just say that student loan payments and the cost of daycare mean that we can't have a second kid. I wish I'd known before taking on the debt just how much it would control the rest of my life.
posted by banjo_and_the_pork at 10:18 AM on August 15 [6 favorites]


Europe doesn't really do that. There just isn't a culture of private post-secondary ed.

Perhaps I'm just thinking of the UK. A lot of my British friends and colleagues lived on grants when they went to University, and their tuition was capped at a (to Americans) very manageable level. And it was in response to cuts in public subsidies for tuition by the Tory-led government that the 2010 protests occurred.
posted by George_Spiggott at 10:19 AM on August 15 [1 favorite]


Not in any meaningful sense, since schools can jack up the cost of education simply by raising tuition

Well its meaningful in the sense that you can't raise tuition faster than your peer group, and if you raise it to the point where its impossible for too large a portion of you alumni to repay their loans, then you'll lose access to the programs. Look at the stock prices of ESI and COCO - two entities that lost access.
posted by JPD at 10:20 AM on August 15


{insert law school grar here}
posted by snuffleupagus at 10:24 AM on August 15 [5 favorites]


Perhaps I'm just thinking of the UK. A lot of my British friends and colleagues lived on grants when they went to University, and their tuition was capped at a (to Americans) very manageable level. And it was in response to cuts in public subsidies for tuition by the Tory-led government that the 2010 protests occurred.

Yeah, but while the living grants are means tested, tuition is not. If you went to a state school thirty years ago in the US the math would have looked much the same.

Where we see these crazy distortions in the US is in the private sector, and then that allows people to not riot in the street when state funding for public schools is reduced.
posted by JPD at 10:28 AM on August 15


One Second Before Awakening, not to be too much of a downer, but be warned that the forgiveness program may not be as generous as it sounds. I have a friend who is a public librarian, and he was recently saying that the payments required by that program would effectively mean he pays down his loans to zero by the time the "forgiveness" at ten years hits.

It's true that the normal loan repayment schedule takes ten years, so without any additional programs your loan would be forgiven exactly the moment you paid it off normally. However, what makes PSLF useful is that you can combine it with alternate repayment plans. If you use income based repayment, or the newer, even better Pay As You Earn program, your loan payments are made substantially lower. This way, you could pay less than half of your regular loan payments but still pay off the loan at the same time, saving a good deal of money.

This took me a great deal of digging around to figure out, and years after I'd resolved to make use of the program, I'm still learning about a lot of little details to it that aren't really publicized. When I was in Americorps, they barely even brought up PSLF because even the people training us on how to handle our loans didn't know anything about it. There needs to be more education about these programs, and they should probably be a good deal less arcane and fiddly too.
posted by One Second Before Awakening at 10:30 AM on August 15 [1 favorite]


Yeah, with income based repayment it is effectively a 9 year payment plan for PSLF, since they use the previous years income as the judge for what you can contribute, and if you were in school and thus have no income your payments for a year are 0
posted by MisantropicPainforest at 10:31 AM on August 15 [1 favorite]


I'm also shocked at degree inflation -- recently we opened an entry-level software developer position. My manager insisted on only interviewing candidates with doctorates. After a lot of pushback from the rest of the team we got some B.S.es in there as well, and we ended up hiring one of them because the PhDs were the worst of the lot... extraordinarily uninspiring candidates with no ability to think on their feet... my hypothesis is that the reason they had doctorates is because they hadn't been able to get jobs and just kept re-upping their student loans and going back.
posted by George_Spiggott at 10:32 AM on August 15 [1 favorite]


people don't just waltz into doctoral programs
posted by MisantropicPainforest at 10:33 AM on August 15 [4 favorites]


This isn't really true. You can't borrow more than the cost of education.

I know more than one person that has bought a car with student loan money. Theoretically you can't borrow more than the cost of education. In reality - no one is actually checking in to the cost of education, and you can borrow pretty much as much as you ask for.
posted by stoneweaver at 10:33 AM on August 15 [1 favorite]


we are not talking about 'student loan money', we are talking about Direct PLUS loans, which are a subset of 'student loan money'.
posted by MisantropicPainforest at 10:36 AM on August 15


I wish I'd known before taking on the debt just how much it would control the rest of my life.

That's one of the biggest tragedies of a situation full of tragedy. People just out of high school don't know the significance of gambling $100,000 in wages. When the game is rigged so that the investors have a sure win, that's criminal.
posted by Twang at 10:36 AM on August 15 [9 favorites]


I'm studying to become a librarian. I intend to use the Public Service Loan Forgiveness program to forgive my student loan debts after working for nonprofits (namely, libraries) for ten years.

I hope all of your loans are Direct Loans or that you promptly consolidate as soon as you graduate. I only just realized (like this week) that the past 6 years I spent working for a university have been completely useless for the PSLF because I only have FFEL loans. I thought I was 4 years away from forgiveness. Now I find out I have to consolidate, reset the clock on the whole thing, and start from scratch. It was one of the most depressing things I've ever learned in my life. Easily on par with the death of a close relative.
posted by jedicus at 10:36 AM on August 15 [2 favorites]


This isn't really true. You can't borrow more than the cost of education.
The masters program I'm about to start offered me a fellowship that paid for my tuition. Even then, I was signed up for a student loan without even realizing it. When I looked at my bill for the semester, it was something like negative ten thousand. So weird things do happen. (I was able to opt out of that loan luckily)
posted by One Second Before Awakening at 10:37 AM on August 15


I know more than one person that has bought a car with student loan money. Theoretically you can't borrow more than the cost of education. In reality - no one is actually checking in to the cost of education, and you can borrow pretty much as much as you ask for.

No, that's not how it works. The cost of living is built into the loan package (aka your 'award,' although I have no idea why that term is used for a loan with interest) and you can elect to take the full amount authorized, or less.

They don't stop you from borrowing the cost of living money even if you don't need it, and spending it on something else. Like a car. But you can't take more than the school's specified cost of living, so as to fund other purchases.
posted by snuffleupagus at 10:37 AM on August 15 [2 favorites]


I'm tabbing back and forth between MeFi and Khan Acadamy and I wonder whether the debt incurred by an education is starting to outweigh the advantages.

It's easy to say that 'it can't go on like this', but frankly people have been saying that since I got my first of two useless art degrees back in the early 90's. It can go on because you get the serious sideeye from any employer who sees that you haven't completed a degree, even if it's not even vaguely related to your field.

I'd like to say we're at the tipping point, but I don't think we are.
posted by lumpenprole at 10:37 AM on August 15


I'd like to say we're at the tipping point, but I don't think we are.

We are getting there for some fields of study, at least. Law school application rates have been falling steadily for 4 years in a row (those charts only show the last 3 years, but it started the year before that). A handful of schools have even reduced tuition, although law school tuition is such a smoke-and-mirrors game that it's hard to say whether that represents a real reduction or just a change from the "sticker price" to the "highest price anyone actually pays."

There's a long way go, though. There will be about 38,000 law students starting this fall, and the vast majority will graduate. There will only be jobs for about 20,000 of them.
posted by jedicus at 10:47 AM on August 15 [2 favorites]


people don't just waltz into doctoral programs

Okay, I could have skipped that last line. The main point I wanted to make is that with a huge candidate pool of people with degrees, employers looking to reduce the size of the stack can be tempted to believe that if some education is good, more is better. The candidates with doctorates might have been superbly insightful information theorists, but they weren't the codin' fools we needed and we weren't interviewing for the kind of thing they had. Entry-level programming is a trade or a craft, and it is a mismeasure to treat a doctorate as a more advanced trade school certificate than a BS. They are different things.
posted by George_Spiggott at 11:04 AM on August 15 [3 favorites]


The Brookings Institute did an interesting study on the impact of student loan debt in the US recently which came to some very surprising conclusions. It's certainly an interesting counterpoint to read in regard to the general "we're all going to die!" narrative out there.
posted by yoink at 11:04 AM on August 15


Whenever my alma mater hits me up for a donation I look at the way they've doubled the number of buildings since I graduated -- most of them ludicrously plush and wasteful of land compared to the ones that predate my attendance -- engulfing the neighborhood I grew up in and the rate at which they've been swallowing money and I'm tempted to write back "are you fucking kidding me? Go on a diet you money-bloated monstrosity."

Same here. Thanks to poverty in my 20s and 30s, I will pay my little BA in English off next June. More than 20 years after graduation.

A great deal of the fault is in me, I took shitty jobs because I had trouble figuring out what I wanted to do and let payments lapse so I could have health insurance and a car, and got further and further behind until I finally got in control of it. I married a musician even poorer than me. I was the youngest so my parents had already given all the help they could to my older siblings. Stupid me.

I had a good education. Was it worth what I paid? No. I could have done just as well with a state school education and had less debt, though that option isn't as good a deal anymore. Would have been back then, though.

Will I ever give a dime to my ridiculously overpriced alma mater? No. I've given all I'm ever going to.They keep building new buildings to justify their tuition raises, but anybody graduating from there without a full ride or a rich family is going to be hurting for a long time.
posted by emjaybee at 11:06 AM on August 15 [3 favorites]


Yep- just keep on fleecing young people. See where that gets you in 20 years when you still need to have a functional domestic economy.
posted by TheWhiteSkull at 11:10 AM on August 15 [2 favorites]


The candidates with doctorates might have been superbly insightful information theorists, but they weren't the codin' fools we needed and we weren't interviewing for the kind of thing they had.

Can confirm, when I went to grad school I met many who could out-math and out-theory me by far but couldn't program worth shit.
posted by save alive nothing that breatheth at 11:11 AM on August 15


I don't think you could legally regulate education as a utility in the US. Regardless of your views on it. About the only thing you could do would be end the federal guarantees and ramp up spending on state schools so that the tuition was low enough that it made little sense to go to private schools.

well, in terms of utility regulation it wouldn't make much sense since that's largely about managing capital investment in supply. but supply of education is largely inelastic, strip-mall diploma mills aside... which is really a consumer fraud issue, and we know how well the US deals with consumer fraud (see mortgages, 2007.) but, economically, education is in the service sector, and like medical care it is absolutely essential for the functioning of society. and, like medical care it functions like a monopoly through various cartels.

there's no reason why the federal government couldn't manage the education market. on the other hand, like you said, it's a lot simpler to just nationalize it.
posted by ennui.bz at 11:22 AM on August 15


In the past nine years, the average student loan balance has exponentially grown from $10,649 to $20,326.

I'm not sure that word means what you think it means. Unless you mean 106491.07.
posted by blue_beetle at 11:31 AM on August 15 [9 favorites]


There's going to be a fun economic restructuring when the generation that treated their houses as their primary investments meets the upcoming generation that won't ever be able to buy homes due to student loan debt and underemployment.
posted by Mitrovarr at 11:39 AM on August 15 [26 favorites]


You don't need to regulate education at all. You simply need to set a limit loans to an amount the repayment of which is some reasonable fraction (say half) of the expected after-tax improvement in earnings from the education being financed. This means that limits are going to vary based upon school, degree and major/field.

If someone typically enters Towson's State's mass communication BA program earning $18,000 and leaves earning $30,000, that's a $12,000 gain. $9,000 after tax. $4,500 allocated to loan service, and figure that loan service is typically 10% of principal -- so $45,000 loan limit for Towson State mass comm BA.

If someone typically enters Harvard School of Business typically earning $75,000 and leaves earning $225,000, that's a $150,000 gain. $85,000 after tax (higher tax rate after all). Allocate 50% of that to loan service, or $42,500. -- so $425,000 loan limit for Harvard MBA.

Schools that want to charge more than the loan limit need to provide their own funds to the students, or persuade parents to put up the money out of pocket.
posted by MattD at 11:44 AM on August 15 [2 favorites]


So how can I, as a (very) small-scale investor, make bank off the upcoming eruption of the student-loan bubble?
posted by gottabefunky at 11:46 AM on August 15


Or, you know, businesses could actually have entry-level jobs and train their employees...
posted by Wild_Eep at 11:51 AM on August 15 [3 favorites]


This means that limits are going to vary based upon school, degree and major/field.


Fuck that. I will not abdicate the centuries long mission of the university system.
posted by MisantropicPainforest at 11:52 AM on August 15 [8 favorites]


Yeah, this notion that education is a set of levers you pull to increase your earning power is pretty much at the core of the problem. While there is a statistical correlation between higher education and income it's certainly not dependable for any given individual, and it's so overbroad that you need to examine assumptions about the personality traits and initial advantages of the people who achieve higher education and the extent to which their earning success might be due to those properties rather than the education.

On the other hand, if it meant that the University pays you to study things that advance human knowledge but don't pay shit, then maybe you've got something. There's some little of that in the form of research fellowships and the like but the number of slots is tiny.
posted by George_Spiggott at 12:23 PM on August 15 [1 favorite]


See where that gets you in 20 years when you still need to have a functional domestic economy.

Only the next quarter's results on Wall Street matter.

Now if college was like that, you'd never have to worry about anything but this term's papers.
posted by infini at 12:44 PM on August 15


Fuck that. I will not abdicate the centuries long mission of the university system.

Then go pay for it. No one is stopping you; you can independently fund as many tuition scholarships for low-income-generating majors as you want.

Otherwise, if the amount of money to fund higher education is fixed (as it is), and the amount of money it costs to fund higher education as a function of major is not fixed (as it isn't), it is entirely appropriate to consider rearranging funding to maximize the public good. That might mean some people don't get to do what they want to do.

It's not obvious to me why the taxpayer should fund one arts student who is not able to pay their loan over many engineering students that are able to pay their loans. Opportunity costs are real; infinite funding for higher education is not.
posted by saeculorum at 12:59 PM on August 15


Then go pay for it.

I do. Its called taxes.

I'd rather have the state pay for it. That's how it should be. The goal of the university is not to train employees, its to educate people.
posted by MisantropicPainforest at 1:06 PM on August 15 [10 favorites]


I'd rather have the state pay for it.

It turns out that states can't pay for anything without taxpayers paying. The voting population in the USA has rather strongly indicated they are not willing to pay more money then they already are, which means that either colleges need to become magically cheaper or loan amounts need to be decreased. I'm not sure how to do the former without the latter.

You may have your own opinion of what the state should do, but I believe that a large portion of the US populace disagrees with you. Given that, I'd rather maximize global utility than attempt to fulfill an arcane view of education, especially when a significant part of the rest of the world is taking advantage of the US's lack of support of science and technology.
posted by saeculorum at 1:13 PM on August 15


It's not obvious to me why the taxpayer should fund one arts student who is not able to pay their loan over many engineering students that are able to pay their loans.

This assumes facts that aren't necessarily the case. It's true that right now the market is kind to engineers, but that is just as subject to supply and demand as anything else. It's also true that many arts students would, in fact, be terrible engineers and would drag down the average earnings of engineering majors. It's further the case that you can get an arts education much, much more cheaply than an engineering education, so in some cases at least your arts students are subsidizing, directly or indirectly, the education of engineering students.

Also, and this isn't strictly relevant but I think it's an interesting fact: JP Morgan was an art history major, and I imagine he skews the average earnings somewhat.
posted by gauche at 1:17 PM on August 15 [4 favorites]


I was 23 when I made the decision to take out private loans. At 42, a guy dumped me because he found out my net worth is negative 300k. Not exactly what I anticipated at age 23.
posted by angrycat at 1:29 PM on August 15 [5 favorites]


The voting population in the USA has rather strongly indicated they are not willing to pay more money then they already are

That's mind-bogglingly ahistorical. We USED to pay for education. Through taxes. That was systematically dismantled by the GOP. Not because the population "indicated" that they weren't willing to pay for education, but because it scored political points. If you ask the American public what they're willing to pay for there is overwhelming support for funding education. In the late 90s when much of this dismantling was taking impact, 55% of Americans said they would pay an extra $500 a year in taxes to support education (cite). Last year, 50% of Americans favored tax increases to pay for tuition (cite).

It's plain misleading and false to attribute the interests of Big Business (including For Profit colleges) to the American public. We're NOT the ones who wanted to cut education, and the polling has never suggested that we did. It happened through slight-of-hand and promises that the money would be made up elsewhere.
posted by stoneweaver at 1:36 PM on August 15 [12 favorites]


See also: housing bubbles. (But at least mortgage debt is dischargeable in bankruptcy.)

What? No, mortgage debt is not dischargeable in bankruptcy. It might have helped a lot of people keep their homes following the crash if it were (since the threat of that -- "cramdown" -- would have forced banks to negotiate with homeowners to change the terms of the deal).

Mortgage debt is discharged via foreclosure, which may or may not be part of a bankruptcy.
posted by notyou at 1:52 PM on August 15


No, mortgage debt is not dischargeable in bankruptcy.

Generally speaking, this is incorrect. Mortgage debt is usually dischargeable in bankruptcy. Many bankrupt petitioners wish to keep their homes and, in the hope of doing so, "re-affirm" the mortgage obligation while in bankruptcy, but that is not the same thing.

Also, a "cramdown," at least as I've heard the term, refers to causing a court to declare the debt secured by a second mortgage to be unsecured due to the value of the home being less than the amount owed by the first mortgage. Only a subset of mortgages (i.e., those which have second or later priority) can even be subject to cramdown, and a cramdown doesn't happen without an evidentiary showing that it is warranted.

Note that this is not legal advice, and do not rely on the above for any course of action you plan to take without consulting a competent attorney licensed in your jurisdiction.
posted by gauche at 2:05 PM on August 15 [2 favorites]


In retrospect, notyou, I see the distinction you're making and I think we're ultimately in agreement. I hadn't caught your last line.
posted by gauche at 2:44 PM on August 15


I only just realized (like this week) that the past 6 years I spent working for a university have been completely useless for the PSLF because I only have FFEL loans.

Oh fuck. I just leaned over to look at my unpaid Sallie Mae bills that are sitting right next to my PSLF employment verification. If you'll excuse me, I'm going to go have a good cry.
posted by librarylis at 4:25 PM on August 15


Wealthy people enable other wealthy people. There's a suprise.
posted by vapidave at 8:46 PM on August 15


One of the best ideas I've ever heard about student loans is to make colleges and universities financially responsible for (all or part of) the loan balances their students can't pay back. Imagine a system that combines universal income-based payments (e.g., any student with loans pays 10% of all income above the poverty line) with long-term loan forgiveness (e.g., if you've made payments for 10 years and you still have a balance on your loans, the balance gets forgiven, tax-free, by the government). But the catch is that whatever school you borrowed the money to attend has to sign a paper at the time you borrow the money stating that if you get a balance forgiven under this program, the school will owe the government 50% of whatever that balance was.

That means first of all that schools have an incentive to keep student expenses and borrowing low, so that kids can actually pay back their loans within 10 years on the salaries they expect to earn. But it also means that colleges understand that there is a cost to them to offering an underwater basket weaving degree at $50k a year, because the low salaries for students with degrees in those fields means they're more likely to need the forgiveness. The program effectively puts for-profit universities out of business unless they're actually offering a degree program that gives their students reasonable earning potential. And if it applies both to students who graduate and to those who drop out, it means that schools have a financial incentive to make sure people aren't racking up $100k in debt and then dropping out, since without the degree, their expected earnings are even lower.

So, that's the system I'd propose. You, the university, can charge whatever you want, for whatever services you want to provide for students. But if you charge too much and don't provide enough value to your students over the course of their careers, and we as a society have to bail those students out after you've failed them, it's gonna cost ya.
posted by decathecting at 1:36 PM on August 18


There's going to be a fun economic restructuring when the generation that treated their houses as their primary investments meets the upcoming generation that won't ever be able to buy homes due to student loan debt and underemployment.
posted by Mitrovarr at 2:39 PM on August 15


well, the student loan money is going somewhere. Probably into funding property-management corporations that will buy homes (and land) at pennies on the dollar, and then rent those properties out to the next generation.

Remember when it was only people who owned land that were allowed to vote?
posted by rebent at 8:53 AM on August 25


Mortgage debt is definitely dischargable in bankruptcy.

A cramdown is when a bankruptcy plan is approved against the vote of a certain class of creditors.
posted by ushoteladvisors at 8:37 AM on September 7


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