
A Student Loan System Stacked Against the Borrower - guiseroom
http://www.nytimes.com/2015/10/11/business/a-student-loan-system-stacked-against-the-borrower.html
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ChuckFrank
The student loan system is propping up weak real estate markets in college
towns by using guaranteed student funds from student loans to pay for
outrageous rents. Many of these communities would not be able to afford their
lifestyles (see. Davis, California vs. Woodland, California rental rates) if
it was not for the fact they the student loan money is being laundered through
attending students, and funneled directly into the local economy through
increased rents and cost of services.

At this level it's a scam.

As anecdotal evidence, my father went to Berkeley when there was no student
loan structure, and the community was considered a poor real estate
investment, since it was commonly known as a 'Student Ghetto'. A term which
has since disappeared as rents in Berkeley are among the highest in the East
Bay. All on the back of the students financing their housing costs on student
loans.

Again, it's a scam.

The students don't get a better education than my father, and while the
housing might be nicer, it's debt that they have to pay well into their later
years, as opposed to being able to graduate debt free.

My father thinks this is directly attributable to the death of the student
free speech movement and other student political enterprises, since being
forced to accommodate ones debt takes priority over trying to change the
world, or fix the system. In short it becomes a type of indentured servitude,
where lower and middle class people are unqualified for good paying jobs
without the debt, and with the debt, they are forced into high level debt
maintenance, and can't have any other discussions about where society is
going, or how it is getting there.

~~~
pbreit
You're throwing around the term "scam" a little too easily. Berkeley rents
obviously have a lot to do with Bay Area rents for the past 20+ years.

~~~
ChuckFrank
You are right. Partially it's emotional language for me, and the other part is
that I do feel that the money is being laundered through the students. But you
are right.

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cryoshon
"A report issued late last month by the Consumer Financial Protection Bureau
supports this view. Even though the economy and labor market have improved,
student loan borrowers are experiencing high distress levels compared with
borrowers with other types of consumer debt, the government report found. More
than one in four student loan borrowers are delinquent or in default on their
obligations."

1 in 4 are delinquent or in default. Read that again.

This situation is a failure mode, and is only fail-safe for the lenders who
forced it there. This means that on some level, the lenders knew their
interest rates were impossible to keep up with, yet knowingly went forward
anyway because they knew they could get away with it. The USA's system is
utterly bought out against the common good. At this point, I think we'd be
better off with a widespread boycott of student loan payments in order to
bankrupt the lenders. They can't call collections on all of us, and there
would be riots if they tried.

I know that a lot of people are jaded as a result of societal failure to
address the student loan crisis. These intentional failures for the sake of
profit have long term consequences, as nearly everyone can blatantly see.

"Some 41 million Americans owe $1.2 trillion in student loan debt. The median
debt burden among borrowers was $20,000 in 2014, up from $13,000 in 2007."

This is an entire generation worth of people that have been cursed to start
their adult lives with an anchor around their neck. As though the brutally
competitive ultra-hostile economic depression they graduated into wasn't
enough to weigh them down to begin with.

To top it off, the boomers find a way to hold us in contempt.

~~~
paulddraper
This is dangerous. Just as dangerous as, say, the government taking over a
bunch of uncollectable housing loans. Or the United States federal government
renouncing all its public debt.

If there has been illegal acts, they should be rectified. But saying "I really
don't want to follow through on what I agreed to" just because minds changed
is not justifiable, and sets a an ill-advised precedent.

~~~
toomuchtodo
> But saying "I really don't want to follow through on what I agreed to" just
> because minds changed is not justifiable

Great attempt at a moral hazard. It's a business contract. Default on the
contract, face the consequences. There is no "right" or "wrong" about it.

If at anytime you can default on a debt without consequence, or minimal
consequence, it behooves you to do so.

~~~
tsotha
>Great attempt at a moral hazard. It's a business contract. Default on the
contract, face the consequences. There is no "right" or "wrong" about it.

You can't default on student loans, right? So we're all good.

~~~
toomuchtodo
You can actually! It's just a bit harder than traditional debt. I just helped
a friend walk away from ~$120K in student loan debt.

~~~
ChuckFrank
Any link? This is news to me.

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DDickson
"It brought a case against Discover Bank last summer, saying it inflated the
amounts it said borrowers owed on their loans.

Discover Bank paid $18.5 million without admitting or denying wrongdoing."

These fines are just a calculated cost of doing business for companies like
Discover, Sallie Mae, etc. They take the likelihood of getting caught breaking
the law, multiply it by how much they'll have to dish out when they get
caught, and subtract that from what they'll make by extorting their
"customers."

In this case, Discover made a good financial decision on their part. Hooray
for creating value for the shareholders.

~~~
IkmoIkmo
I literally took a course in Finance while in business school in which we were
taught how to run these calculations (obviously the 'governance' week of the
course). Pretty scary to think people actually sit down at their desk and
knowingly run the numbers and decide from there. But that's what you get when
hardly anyone who commits a blatant crime like that generally is held
accountable (i.e. individual culpability, e.g. individual fines or jail time),
and the only negative (a fine) is already priced into the model, and the
individual's rewards are a promotion. That's a system that, essentially,
delivers incentives for crime and it's insane.

~~~
grendelt
...Literally? Not just the figurative "course in finance" we all hear so much
about?

~~~
jsprogrammer
No, they actually picked up that course and moved it somewhere else.

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ChuckFrank
I'm in arrears on my student loans. I'm one of the millions that is.

The first few lines of this article sums it up completely as to why.

"Between misdirected payments by one of the companies servicing his loan and
the abusive collection tactics he encountered when he fell behind ..."

These companies that bought the loans on cheap from the secondary market, make
more money from penalties they they do from loan servicing. And they have as
many tricks up their sleeves as they can discover to help make that fact true.

They are the true sharks in the whole equation, with guaranteed support from
the government and the tax payers.

I recommend that every last student default as things are now. If I were in
charge of writing new laws for new student loans, which I am definitely not, I
would allow them with three additional conditions. 1. They qualify for
personal bankruptcy like any other consumer or investment loan, 2. they could
NOT be sold off but would be held in a public trust fund, initially funded by
public money, and topped up as needed, and 3. (Scandinavia does this) make
repayment a modest surcharge in one's income tax. Make a lot, pay a lot and
pay off fast. Make a little, pay a little and maybe never pay it off.

~~~
aianus
> They qualify for personal bankruptcy like any other consumer or investment
> loan

You can't do this, nobody will pay them back. I'll take 7 years of shit credit
for 200k cash, thank you very much.

~~~
ChuckFrank
Then don't give them the loans. That's how the system works. And if they don't
get the loans, force the colleges, and the college towns to compete for the
lesser funds.

Why should student loan originators get a free ride, when other consumer or
investment loan providers don't?

~~~
sokoloff
Because the thinking was that by allowing access to higher education to less
well-off students, you could end or reduce the classism and perpetuation of
same.

A loan for which no collateral can ever be repossessed necessarily has a
different economic profile than a personal loan and even moreso than a real
property loan.

Absent those protections, you would see a very different (read: people who
need loans won't qualify) student lending market.

Whether that's good or bad is a matter of which there will be a variety of
opinions.

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steven2012
Does the fact that you can't get rid of your student loans via bankruptcy mean
that students should get the lowest rate possible? Since the creditors will
get paid? It seems ridiculous that not only can you not get rid of the loands
through bankruptcy, but also that you're not charged lowest-interest-rate
deals for them.

~~~
patio11
Student loans are at below-market interest rates and are guaranteed to be
available in quantity. The market does not generally offer non-secured
signature loans for $20k to $140k to people with no credit history or limited
credit history and no income. When it does, it charges literally 10+% more.

~~~
kefka
I only care at what the banks' interest percentage is. Student loans should be
at that. And that's 0.25%

Student loans are 8%. And that's bullshit. Theyre making 8% on us for
absolutely nothing. And they get guaranteed repayment, since default risk is 0
due to garnishments.

~~~
tptacek
This doesn't sound right. The markets are populated with people who will
invest hundreds of millions of dollars to outcompete other firms for sub-penny
advantages on trades, and, contrary to popular belief, the largest and most
successful of those firms are not making so much money that they're upending
the finance industry.

So if somebody is making 8% for doing "absolutely nothing", can you explain
why somebody else isn't taking them to the cleaners by offering to do the same
nothing for 7.9%?

~~~
kefka
That's because the interest rate is set by Congress. Captive audience.

In essence, there's no reason to.

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fiatmoney
Why is the face of these stories always someone who majored in something like
"media arts"? Can the reporters not do better? Are they just mining their
social circle? Does making it intentionally representative of the kind of
person who makes poor life choices to begin with generate extra hate-links?

~~~
ChuckFrank
Says a person on a technology forum. Without the media arts people who do you
think does your UI, and your UX, and all your graphic design work, and makes
those snappy Apple commercials. Or works for all those ad companies that you
love so much. If anything, he is part of your ecosystem.

~~~
fiatmoney
The existence of people who do jobs like that does not imply that $50K sunk
into an academic degree on a related subject is a good investment, unless
Temple somehow has much better outcomes than other art / design related
programs.

Regardless of the payoff, the weird thing is that stories in this genre really
disproportionately mention people with degrees in some art / design field,
like MFA-in-puppetry guy.

[http://www.thenation.com/article/audacity-occupy-wall-
street...](http://www.thenation.com/article/audacity-occupy-wall-street/)

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heapcity
Laws preventing bankruptcy on student loans is tantamount to indentured
servitude imho; ergo a violation of Thirteenth Amendment. See Debt Bondage.

~~~
ChuckFrank
You are correct.

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Larrikin
The companies I have to deal with for my loan for the most part are absolutely
disgusting. Two out of three do not allow me to setup recurring payments and
do not send email reminders before payment is due. They only let me set up
scheduled payments two months in an advance. To keep a rhythm I try to pay
every month at the same time, however the worst company does not count those
monthly payments against what is owed every 3 months on a random day. Theres
no email reminders but if I'm a day late I immediately get an email saying how
much I owe and how much extra I have to pay now.

~~~
ChuckFrank
And if you dispute it, you still have to pay the penalty first before you can
pay any of the outstanding loan amount, allowing them to hold the funds and
determine, with your funds in their hands, whether or now the dispute is
valid. Imagine 9 out of 10 times what that will result in.

Once you've lost control of the money, you've lost the dispute. The money is
the only leverage you have in the dispute.

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pbreit
Student loans have low rates, slow payback lengths, lenient default terms and
government assistance. How are they stacked against the borrower again?

~~~
ChuckFrank
Low rates compared to what? Wall Street banks?

Lenient default terms compared to what?

Government assistance for the borrowers in what form?

And stacked against the borrowers due to the rapacious secondary market
servicers. More money can be made off late fee and penalties than off simply
servicing the loans, so they do everything in their power to make that the
case, including misdirecting funds, misstating loan amounts, requiring
burdensome documentation, while at the same time setting penalties on
accounts.

~~~
norea-armozel
It's why I won't refinance my student debt since all of it comes under an
income based repayment. At worse, I will get dinged in 25 years for the
remaining as a tax bracket jump, but I hope by then Congress will be forced to
even drop that provision since it would literally sink quite a few people's
fortunes who would be eligible and active voters.

~~~
ChuckFrank
You are smart. Good thinking. The best solutions, like this, should be
available to us all.

