
The Great College Loan Swindle - wolfgke
http://www.rollingstone.com/politics/features/taibbi-the-great-college-loan-swindle-w510880
======
Maarten88
I am always amazed at the level of acceptance for these types of injustice
there is in the US. Even here, most discussion is about the economics of
college degrees, and how to deal with it on an individual level.

While the problem, it seems to me, is entirely one of political choice and
justice, and the current situation seems very unfair. Young people from poorer
backgrounds seem to be destined for slavery for a large part of their lives,
unless they get extremely lucky.

People argue: but his degree is not worth it. On a meta-level that is simply
impossible: the guy is a teacher, by definition in his lifetime he will
produce much more to society than his education cost. If he can't reasonably
pay of his loans the system cannot be fair. He was shortchanged and then
punished for it.

Also it seems strange that 10 years after default he still has to pay
rehabilitation and his debt is still growing. Is nobody in the US protecting
people like him? I know in a situation like that where I live (NL)
municipality instances will be all over you and your live will suck for 3
years, but after that your debt will be gone and you can start over.

~~~
Clubber
My question is why hasn't he been able to land a full time teaching job in ~14
years? It seems like a full time teaching job would alleviate a lot of that
pressure, but the article doesn't seem to mention it.

I understand teachers probably make the lowest salaries in any degree required
field, but they can keep their heads above water if they are fully employed.
Many family members are teachers, and it's noble but thankless work.

~~~
RhysU
Or, teaching not panning out for him, another job of comparable pay to public
school teachers.

------
Overtonwindow
Most scorn of universities and loan programs never seem to address a serious
problem: Students taking on debt to fund degrees with little market value, or
few job prospects. Racking up $100k to get an interdisciplinary degree in
women and gender studies might sound awesome, but not at the cost of a school
like NYU.[0] I think schools should be required to press upon students prior
to taking out these loans honest and factual statistics about their future job
prospects, needs for advanced education, and the average graduates ability to
pay back the loan.

[0]. [https://mobile.nytimes.com/2010/05/29/your-money/student-
loa...](https://mobile.nytimes.com/2010/05/29/your-money/student-
loans/29money.html)

~~~
empath75
I think the colleges should have some skin in the game and be at least
partially on the hook if the loan defaults. That should prevent some of the
completely egregious price gouging.

~~~
imsofuture
This is really the only path forward: make student debt dischargable. Yes, it
will make less people go to college, but too many people going to college is
clearly one of the root causes of cyclical skyrocketing costs and increased
borrowing.

~~~
wskinner
How would reducing the costs of going to college drive down the number of
people going to college?

To clarify what I mean: If student loan debt is dischargeable, that means that
taking out a loan for college is actually less risky. We should expect more
people to do it, not fewer.

~~~
scryder
Companies comfortable offering loans to risky candidates will feel far less
comfortable doing so.

There is because there is some point where the ratio between amount of money
requested, and expected postgraduate earnings for the chosen degree, would
make for a bad deal due to the likelihood of default.

It’s less risky for students, but loan providers won’t want to overextend
themselves to accomodate institutions who promise students the moon and demand
sums they won’t be able to repay to “give” it to them.

~~~
wskinner
Most student loans come from the federal government, and the rates are fixed
regardless of risk. So what you and parent are really suggesting is increasing
interest rates on student loans, which I totally support. Getting the
government out of the student loan business so that the rates can be
determined by markets would seem a good first step.

------
rayiner
It’s interesting that the real perpetrators don’t get much of Taibbi’s scorn.
The loan industry are just opportunists, and for the most part students loans
have been taken over by the government anyway.

The real criminals here are teachers, parents, and employers, who have created
a culture where people are compelled to get completely unnecessary higher
education. Here, you need a college degree to be an administrative assistant
in an office. In Germany, in contrast, young people can get many white collar
jobs after age 16, plus three years of apprenticeships during which they get
paid.

~~~
watwut
Quoting the article: "Going to college doesn't guarantee a good job, far from
it, but the data show that not going dooms most young people to an
increasingly shallow pool of the very crappiest, lowest-paying jobs. There's a
lot of stick, but not much carrot, in the education game. [...] the squeeze on
the un-degreed grows tighter, increasing further that original negative
incentive: Don't go to college, and you'll be standing on soup lines by age
25. "

The article itself explains why teachers and parents and students themselves
still seek degree - because alternative is nothing good either.

It is competitions and if you dont compete, you loose for sure.

~~~
wolfgke
> It is competitions and if you dont compete, you loose for sure.

The wrong move in the game was in my opinion rather to give birth to children
if you cannot afford their education.

~~~
watwut
The problem will he solved once there are no more young people. We already
have less then two children per couple on average, so it is getting there.

Then again, if your logic makes you claim that majority of population is wrong
for having children (including lower middle class and employed honest workers)
then maybe the problem is elsewhere.

~~~
Clubber
Agree. If an economy is structured where the population can't even sustain
itself, that's a sign of a huge systemic problem. People sure like to parrot
that though.

------
rbcgerard
The article doesn’t seem to address a few things:

First is that all colleges are not the same,with some colleges offering next
to no marginal benefit vs. a high school diploma. Which means there are huge
price discrepancies based on quality (DeVry ~$16k/year online vs Ucal @
~14k/year on campus (instate)).

Also not addressed is mean salary of entry level jobs in your area of study -
is it worth spending 100k to get a an accounting degree from a decent program
where you can probably get an entry level job that pays $50k? Probably. Same
$100k on a degree in social work where the entry level job is $30k? Maybe not?

------
Clubber
For kids preparing for college lucky enough to read these comments, and
parents with kids preparing to go to college, consider this advice:

1\. Always go in-state public funded college and university, it's much, much
cheaper. In-state meaning the state the student is currently a resident.

2\. If you must go out of state, make sure the student registers as a state
resident after their first year (most states require a year waiting period).
This way, you only pay out-of-state tuition for a year. Generally out of state
tuitions are 4x or so higher than in-state (it's been a while since I've
examined this, so it might be higher or lower).

3\. The cheapest path is to get your AA degree at in-state public community
college, then your remaining 2 years at university. Not only is this cheaper,
but this allows the student two years to decide their major after some
realistic exposure to the various fields and what they pay.

4\. Never attend private colleges without a scholarship, unless you are
wealthy. There are two types of private colleges: old and new. The older
colleges like Harvard, etc are expensive but bona fide, then new private
colleges like ITT Tech, Trump university, etc are generally scammy schools
that spend way more on marketing than education. Stay away from these at all
costs, they are traps.

5\. Make no mistake, a college education is a huge leg up in the marketplace
for jobs. It's no guarantee, but not having one is much, much worse, and will
be more so in the future. We live in a service economy, and service jobs
require degrees for the most part.

6\. If your field requires a Master's or Ph.D to be employed, that is a big
red flag, and you should consider another field. This requirement generally
means the field is supersaturated with applicants so much that employers can
require an advanced degree for hiring and it's very difficult to not only land
the first job, but also move to different employers. Remember, you have 40
years of work in your lifetime.

7\. Outside of perhaps Ivy League, the college you attend doesn't matter.
Employers generally want to check a box that says you've earned a degree in
your relevant field and that's it.

~~~
YaxelPerez
UC still counts you as "out-of-state" even if you stay a year and become a
California resident.

[http://ucop.edu/residency/index.html](http://ucop.edu/residency/index.html)

~~~
jogjayr
You can combine it with point 3: attend community college the first 2 years
then transfer. I know at least some CA community colleges let you become an
instate student after your first year and even out-of-state tuition at a
community college isn't that expensive. In the Bay Area you're likely to pay
more in rent than tuition at a community college.

------
touchofevil
It seems like the root problem is that students cannot declare bankruptcy on
student loans. If they could do that then lenders would adjust for risk
accordingly which would lower the availability of loans, which would in turn
drive tuition down. I know there's an argument that students will just declare
bankruptcy after graduating, but if that's the case then the solution would be
to make bankruptcy less appealing via disincentives (more penalties for
declaring bankruptcy).

Making student loans exempt from bankruptcy is distorting the loan markets
and, in turn, tuition. If restricting the availability of loans creates a
situation in which the higher education is unavailable to students without
financial means, then the state should make free or very low cost higher
education available to offset this. The solutions are so obvious that it's
pretty clear that the financing of student loans is a giant con at this point.

~~~
leetcrew
if students could declare bankruptcy there would probably be no student loans.
there are already very few private loans available to students without
substantial credit history or a cosigner. how could the numbers possibly work
out?

to graduate in four years from a state university (paying in-state tuition)
costs about $44k. a typical college freshman has close to zero assets and no
credit. if they have any income, it's probably a part-time minimum wage job.
assuming they don't qualify for any aid, these people need to borrow about
$10k each year and likely won't pay any of it back until they get a degree.

now let's pause for a moment. how many ways can you get an unsecured $10k loan
with limited to no credit history? they basically don't exist. you would need
to build credit for a long time before you got a limit anywhere near that on a
credit card, and their whole business model revolves around loaning people
more money than they should.

now consider that in the US, about 40% of students fail to get their bachelors
in 6 years. obviously these people will not be able to use the degree to
obtain employment, and probably will not ever pay down the debt in full unless
they enter a lucrative trade that didn't require the degree in the first
place. if we assume that the students who graduate are able to repay the loan,
they have to pay a significant amount of interest before the lender breaks
even on the group of loans. and keep in mind that there's no guarantee that a
student who graduates has acquired a degree that actually improves their
earning potential.

so tl;dr: it is really hard to offer a reasonable loan of that size to an 18yo
with no skills/assets who stands a substantial chance of either not finishing
or finishing with a valueless (to the market) degree.

~~~
ejnulls
You used to be able to discharge student loans through bankruptcy and guess
what?? The sky didn't fall down.

However, that was also when a year of college could be paid for by a minimum-
wage summer job. Now it's egregiously expensive AND they've got you by the
balls.

~~~
leetcrew
the last time you could discharge student loans in bankruptcy without
satisfying special conditions was 1976 in the US. but that was a time where an
undergrad degree was relatively cheap, and not many people took out loans in
the first place.

I don't disagree that something is seriously messed up in this country's
higher education system, but the discharge exemption for student loans is
probably one of the few things that keeps the system even slightly economic.
like I said above, you cannot just lend huge chunks of money to kids without
making any risk assessment and also allow them to default whenever. at least,
you can't do this unless your intention is to lose money.

if I had to have a guess, I would say that the main contributor to our
outrageous education costs is the government making all these uneconomic loans
in the first place.

------
readams
Because of government loan guarantees, the cost of tuition will eventually
rise to match the entire net present value of the expected lifetime earnings
premium. This could easily be in the millions.

Also, we can expect income-based repayment to become the norm, since most will
not be able to afford the payments

~~~
KGIII
I'm kind of fond of the idea of people paying a percentage of their income
after they get their degree and for X number of years.

I think that's a fantastic idea. For needed professions, it could be X - Y
number of years. Inexpensive and attainable education would be a good thing, I
should imagine.

~~~
pinot
The x-years and y-% could be based on their future earnings. A sort of tiered
system with “marginal” rates. I wonder if such a system could exist.

~~~
sordidasset
Is this a tongue-in-cheek discussion you guys are having about taxes?

------
jimhefferon
As the price of college he lists the sticker price, not the price after
whatever deal is worked out (it is often quite significantly less).

But that is a nit. It is a very real, very big, problem. A country needs an
educated work force. But the vultures have turned that need into pure profit,
at a great cost to people just trying to have a good life.

~~~
finaliteration
> As the price of college he lists the sticker price, not the price after
> whatever deal is worked out (it is often quite significantly less).

I’m not sure to which “deals” you are referring. When I went to college I paid
the sticker price for tuition and then some (for housing, books,
administrative fees, etc.). I feel like this is another harmful myth that
scholarships and grants significantly lower the cost of college when, in
reality, for most students they don’t.

~~~
rbcgerard
I think the OP’s point is that the money a college spends per student does not
equal the tuition sticker price (it may be higher or lower), and the average
price incurred (cash tuition + debt incurred) for the student is often less
then the sticker price...

~~~
jimhefferon
Yes, thanks. I know that the pricing situation is nuts, everyone knows it is
nuts (I'm a prof, but not at all involved in admissions or financial aid). The
model is to list a large sticker price and give a lot of that back.

My college's web site is an example.
[https://www.smcvt.edu/admissions/financial-aid-and-
tuition/t...](https://www.smcvt.edu/admissions/financial-aid-and-
tuition/tuition-resources.aspx) (I understand that all schools in the US have
to have such a page.) It lists the bottom-line summary of the sticker price
and then gives you a link to a calculator that you use to figure what it will
really cost you, which is typically much less. For example, overall we give
back more than half and I assume that our peer institutions do also.

(And, yes, a loan is different than a grant, which is different than work
study. My only point is that the end price is often much less than the sticker
price.)

All this is not to say that the point of the article is wrong. It is not
wrong. I said it was a nit, and I meant that.

~~~
protomyth
All accredited colleges in the US are required to provide tuition information
- we had to put a ‘Net Price Calculator’ on our website. There are actually a
bunch of student notices required by the government and accreditation groups.

------
indubitable
The lead of this article is very hyperbolic. Even if a person competely
defaults and allows default judgement against them, the maximum allowed
penalty is a garnishment of 15% of income after tax. On a salary of $18,000
that would be at most $2,700 or $225 a month. That will be a never ending
payment, but it's hardly time to go seppuku.

Aside from the hyperbole, I do think the article has a fair point. And there's
a very simple solution. Align the interests of lenders with borrowers. There
are a lot of ways to do this. One would be to enable borrowers to declare
bankruptcy meaning lenders would not be throwing money around like beads at
Mardis Gras.

Another option is to change the terms of students loans to be as special as
their permanence is. Require student loans be paid back in terms of x% of
income for the x% of years after graduation. This would heavily incentivize
loan agencies into ensuring a college education does actually lead to a good
job. The reduction in lending would also reduce the cost of education as a
whole. As the article mentions, the bloating in tuition and other rates is
mostly just a factor of greed. If you offer a product valued as practically
priceless, and a _consumer 's_ available income is _x_ then your price is
going to approach _x_. 'Mardi gras lenders' push _x_ higher and higher to no
end.

Ultimately there are lots of solutions. But I expect we'll do nothing. As the
15% I mentioned above gaurantees that even 'bad loans' are good, from the
perspective of a lender. Even if somebody gets stuck working in aggregate $30k
jobs (inflation adjusted) for the next 50 years, that's $1.5 million with 15%
there equaling out to $225k. That's an extremely healthy profit even on
defaults. To New Orleans we go!

~~~
Overtonwindow
Default would tank your credit score and possibly jepordize future job,
housing, and banking opportunities. Even if it's brutal, I think it's better
to avoid default if at all possible.

~~~
indubitable
Completely agreed which is why I think it's bizarre that the loans cannot be
dismissed. Bankruptcy has similar effects and lasts for 10 years! The reason I
mention it is he was talking about $471/month with 0 principal progress on a
salary of $18,000 was driving him to literal suicide. At that point taking the
15% and consequences is undoubtedly a better solution.

------
opticalflow
It's an interesting conundrum (for my family at least). My father was very
highly educated (Professor Emeritus of semiconductor physics/EE at a major
University, you've likely heard of it). I started out putting a couple of
years in toward a BSCE at that same University, but I abandoned it because I
already had work experience, and the BSCE was just a consolation prize -- the
only value it would have had is if I was going to pursue a doctorate/academic
career. That would have come with a prospect of a lot of student debt. As it
turned out, I ended up in a career making more than a trauma surgeon, but
without a mountain of $250K student loans. Today, I have 6 kids, and the two
oldest are at the ages where they need to contemplate college. One definitely
has their sights on University, the other is ambivalent. What I tell all of
them is that there is nothing wrong with wanting to become an Electrician,
Plumber, Pipefitter or any of the other work trades. All are worthy careers
and can be very lucrative.

------
QML
> Tuition for a halfway decent school now frequently surpasses $50,000 a year.

Where is the source for this statistic? The only universities which I know to
charge that high are small private liberal arts colleges or the Ivies.

------
johnnyb9
How is this the fault of banks? Isn't the federal government the largest
underwriter of loans these days?

------
chesimov
Why would it be in a university's interests to accumulate such a large amount
of cash?

~~~
baccredited
Because they are basically becoming hedge funds with an university attached.

'I was going to donate money to Yale. But maybe it makes more sense to mail a
check directly to the hedge fund of my choice' \- Malcolm Gladwell tweet

[https://www.thenation.com/article/universities-are-
becoming-...](https://www.thenation.com/article/universities-are-becoming-
billion-dollar-hedge-funds-with-schools-attached/)

~~~
QML
I think this statement only holds for private universities -- public ones are
struggling financially.

[https://www.theatlantic.com/business/archive/2017/10/midwest...](https://www.theatlantic.com/business/archive/2017/10/midwestern-
public-research-universities-funding/542889/)

~~~
baccredited
UVA - $5 Billion

[http://endowments.com/university-of-
virginia/](http://endowments.com/university-of-virginia/)

------
cbennett
[http://rollingjubilee.org](http://rollingjubilee.org)

------
cryoshon
as soon as we are angry enough to riot, they will find the money to forgive
our loans.

yes, it has come to this.

------
nnfy
How does anyone expect high school graduates to make responsible decisions
regarding loans and choice of major when the overwhelming majority of his
grads exit highschool financially illiterate, with the nonsensical idea that
any college degree is good enough?

How many times have you heard the expression "do what you love, and the money
will come?"

The culture in the U.S. is in dire need of a return to merit, as well as
drastic changes to our education system; and, no, the answer is not more
funding.

Also I believe that government aid should be restricted to degrees with a
minimum relative ROI. Education for the sake of culture is no longer useful
when you have an increasingly incompetent workforce.

