
Students refuse to pay back loans to failed for-profit college - wcbeard10
http://www.newyorker.com/business/currency/student-debt-revolt-begins
======
jobu
It's odd that they don't mention the reason Corinthian is shutting down so
many colleges - [http://www.npr.org/blogs/ed/2014/07/08/329550897/the-
collaps...](http://www.npr.org/blogs/ed/2014/07/08/329550897/the-collapse-of-
corinthian-colleges)

A relative of mine works there and said they were about to be sued by the
Department of Education over fraud in their student loan department. The
settlement forced the company to sell or close all of it's colleges and no
senior management or administrative staff is allowed to stay with any of the
colleges.

It seems pretty clear that Corinthian did some bad things, and it's likely the
clause the article mentions in federal loans might give _some_ students an way
out of debt:

 _“In some cases, you may assert, as a defense against collection of your
loan, that the school did something wrong or failed to do something that it
should have done.”_

IANAL, but I think it's pretty unlikely the government would let all of the
students off the hook. (For a billion dollars!)

~~~
jessaustin
_...pretty unlikely..._

Eh, it's not "real" money. Students will have debts forgiven when it's
politically expedient to do so.

~~~
crazy1van
> Eh, it's not "real" money

Why not? It was real to the tax payers who paid it to the government and real
to the Corinthian employees who were paid by the school and it will be real to
the students as they struggle to pay it back over many years.

~~~
jeffdavis
If something is "real", you can't have less than zero.

(For some definitions of " real".)

Right now, the consequences of forgiving a billion dollars of student debt are
immeasurable. It's a small amount to spread over so many people, and ultra
easy/cheap borrowing by the federal government can delay the consequences for
a long time.

~~~
jessaustin
This is really all I meant. Everybody wants to get all philosophical, when I
was only referring to how our political system works.

------
ChainsawSurgery
> student-debt problem is so severe that it seems to be reducing the formation
> of new households

Perfect! Housing bubble averted.

In all seriousness, this + an influx of foreign investment into american real
estate + a future generational aversion to debt (from experiencing first or
secondhand how crippling student loan debt can be) will make for some
interesting times in the upcoming decades.

~~~
Shivetya
the aversion to debt isn't occurring very fast considering that outstanding
auto load debt is around 886 billion dollars. Credit card debt in 2014 was
very similar, with an average of 7k per household.

when it comes to school debt the Federal government would be best served by
limiting what it loans based on the education desired, as they set limits on
what they pay out for medical services there is little reason to not do the
same for education. It might even help reign in the ever increasing costs that
colleges charge which in itself a property of easy loans

~~~
mikeash
$886 billion in auto loans doesn't seem like very much to me. There are about
254 million passenger vehicles in the US, so that's an average of $3,500 in
debt per car (of course there will be huge variation there).

You pretty much _need_ a car to live in many places in this country, and in
many more places you need a car to have a decent job. Most people can't afford
to buy one outright, and in a case like that, it's sensible to take out a loan
in order to purchase an asset that allows you to immediately start making
money to pay it off. Taking out a loan for a low-end car so you can drive to
work is pretty different from taking out $50,000 in loans for a degree that
you _hope_ will let you find better work years in the future.

~~~
awesome_work_
I agree with mikeash, and wanted to just add my own personal experience.

Most people I know, and what I also do personally, is buy a used car for less
than $10k, and pay it off within 3 years. Then you live with it until it no
longer becomes economically viable to keep it.

So my wife and I own our cars at this point, which frees $400+ a month we can
put towards something else with the understanding in 2-3 years we will need to
budget for cars again.

The basic cycle is 3 years of car debt, 3 years without.

(I don't live in an area which has public transportation)

------
sheepdestroyer
A lot of countries have a free post secondary education system :
[https://en.wikipedia.org/wiki/Free_education#Partial_list_of...](https://en.wikipedia.org/wiki/Free_education#Partial_list_of_countries_with_free_post-
secondary_education)

It always astonish me to think it can be seen as normal, even more equitable,
to require people to get so huge debts before even being trained to work.

~~~
bkeroack
A sensible system would be one like Brazil's (and possibly other countries):
free education at public universities for those who qualify on the stringent
entrance exams along with a system of private universities for those who don't
make it and can pay for it.

This would allow all deserving students a high quality, free education while
limiting the amount of waste and degree inflation that would result from a
completely free university system.

~~~
bdcravens
The political culture in the United States would attack that system as being
unfair to the poor and minorities that ostensibly received a lesser education
than their middle- and upper-class cohorts.

~~~
dragonwriter
When something like that existed in California, that wasn't the thing that
destroyed it, rather, it was funding pressure from anti-tax crusaders.

The kind of people who advocate for fairness for the poor and minorities are
more likely to advocate for moves back _toward_ that system rather than away
from it.

------
VLM
“In some cases, you may assert, as a defense against collection of your loan,
that the school did something wrong or failed to do something that it should
have done.”

Wait till the law students and education students figure out that their
schools intentionally overproduced about twice as many grads as the market can
bear. And the PHD students and the ... well, basically every program in every
school in the country except the ivy league CS programs.

Its either debt jubilee time or admit the "higher ed magically provides a
great job" was all a scam. When it comes to deciding between saving face and
saving a buck, usually we save a buck, so I almost guarantee the proposed
strategy will fail. So culturally we will momentarily see the death of "higher
ed at all costs" as a gateway to a great job and all that propaganda.

------
AndrewKemendo
Is this the start of the student-loan bubble bursting?

From what I have read student loan debt, despite it's size, doesn't threaten
the rest of the economy in the same way that housing loans did. Hopefully that
is the case.

~~~
ChainsawSurgery
> doesn't threaten the rest of the economy in the same way that housing loans
> did

I dunno about that - it's probably just a lot more insidious and less panic-y.

Adults repaying student loans aren't spending that money on other things. If
you're paying $300 a month to Sallie Mae, that's $300 you're not spending on:

1) Savings/retirement/etc

2) Goods and services

3) Capital investment

4) Etc.

Given the compounding nature of some of these things, and the fact that these
payments constitute a higher % of your income early on (assuming steady career
progression), it's a problem that may just slowly unravel as time goes on.

Don't forget we live in a service economy - adults not spending money on a
diverse set of services (as opposed to say, just student loan services) will
hurt us in the long run.

~~~
cjslep
$300 a month seems low. I went to North Carolina State University, generally
regarded as a cheaper school (compared to neighboring UNC Chapel Hill or Duke)
for a solid quality engineering education as an in-state student. I graduated
after four years in 2013 and my monthly payment to Navient (formerly Sallie
Mae) is easily triple that.

~~~
GabrielF00
Average student loan debt is about $30,000. A 10-year loan at 5% interest
works out to about $318 or $345 at 6.8%.

The 5% choice is a bit debatable. I figured most people have some combination
of loans at 6.8%, 5% and 3.4%.

Of course there's so much variation between schools that the average might not
be too useful, but it seems like $300-$350 is a pretty reasonable figure.

------
eat
I always hear people say things like "we don't have debtors prisons in the
U.S.". If enough people start doing this, I have a very strong feeling that
that will change. As student loans become more of a crisis, we're sure to see
more people simply deciding not to pay. What recourse to lenders have if this
happens on a large scale?

~~~
krschultz
They can start garnishing your wages, so unless you never want to hold a job
again, creditors will get their money.

~~~
Zigurd
You can leave the country. Most of the people deeply in debt with degrees or
training that won't pay the debt would find, for example, teaching English in
China a relatively comfortable living. If you have the imagination to look
beyond Europe, finding a gig that's better than debt slavery isn't too
difficult.

~~~
lttlrck
The future repercussions may not be worth it.

As a US citizen (or Green Card holder) you must a file an annual tax return
wherever you live in the world, plus disclose foreign bank accounts. Failure
to do so can have very harsh penalties.

[https://americansabroad.org/issues/taxation/us-taxes-
while-l...](https://americansabroad.org/issues/taxation/us-taxes-while-living-
abroad-faq/)

~~~
toomuchtodo
[http://www.irs.gov/Individuals/International-
Taxpayers/Forei...](http://www.irs.gov/Individuals/International-
Taxpayers/Foreign-Tax-Credit)

So, you're paying taxes to the local government, and getting a credit towards
your US taxes. You'd still file your informational return with the IRS, but
they don't touch a dime of your foreign income.

------
remarkEon
I really can't stress enough how these for-profit institutions seek to avoid
any kind of responsibility otherwise assumed of an institution of higher
learning. They consistently take advantage of veterans. Close to home, these
companies actively and willfully take advantage of veterans benefits to reap
in billions [0]. These schools actively recruit soldiers at military bases,
who end up using up a good portion (or all) of their benefit without being
able to get a job or before they can transfer it to their children or spouse.
They're left with no education benefit, a degree that isn't transferable and,
perhaps worst of all, a feeling of failure and embarrassment. PBS did an
excellent show on the situation not long ago [1]. The standard argument I hear
in favor of these schools is that the situation in the military is different,
and a lot of veterans leaving the force already have families so going to a
traditional college or university would be difficult or unmanageable. This is
true, but distance learning has to become better.

[0] [http://fortune.com/2014/11/11/gi-bill-for-profit-
colleges/](http://fortune.com/2014/11/11/gi-bill-for-profit-colleges/) [1]
[http://www.pbs.org/newshour/bb/gi-bill-benefitting-profit-
co...](http://www.pbs.org/newshour/bb/gi-bill-benefitting-profit-colleges-
instead-helping-veterans/)

------
bko
I think the reason many students put up with increased costs is because they
have access to subsidized loans, mainly from the government. The Consumer
Financial Protection Bureau estimates that out of the $1.2 trillion in debt,
$1 trillion are estimated to be guaranteed or held by the federal government
[0]

I may be in the minority opinion, but I think college is still pretty
affordable.

> In 2014-15, average published tuition and fee prices for in-state students
> at public four-year institutions range from $4,646 in Wyoming and $6,138 in
> Alaska to $14,419 in Vermont and $14,712 in New Hampshire. [1]

CUNY for instance is $6,030 a year [2]

The tuition is higher than it has been in the past but attending college is a
lot more profitable as well. I know the state school I had attended has raised
tuition over the years, but I can't help but look around and think that all
the money went into a new stadium ($33 MM), new athletic gym and new (very
impressive) dorms.

The average student attending an expensive for-profit (less credible) college
isn't the same person as someone attending a good state school. A lot of time
these colleges attract more marginal students. The payoff for most colleges is
still very high and worth the cost. But there should be some cost as to
discourage less productive ventures and to have some skin in the game for the
student.

[0] [http://www.consumerfinance.gov/newsroom/student-debt-
swells-...](http://www.consumerfinance.gov/newsroom/student-debt-swells-
federal-loans-now-top-a-trillion/) [1]
[http://trends.collegeboard.org/college-pricing/figures-
table...](http://trends.collegeboard.org/college-pricing/figures-
tables/tuition-fees-sector-state-time) [2]
[http://www.cuny.edu/admissions/tuition-
fees.html](http://www.cuny.edu/admissions/tuition-fees.html)

------
TeMPOraL
Isn't this the same college John Oliver criticized recently for their "quality
education"?

[https://www.youtube.com/watch?v=P8pjd1QEA0c#t=562](https://www.youtube.com/watch?v=P8pjd1QEA0c#t=562)

"We went to the museum of Scientology for our psychiatric rotation"...

------
littletimmy
Good.

This bubble has to burst. The college education system in this country has
gone completely insane. The cost of a year's worth of education is now $60000,
when the cost for comparable universities in the UK is $10000 and in Germany
is $0. Just make community college + state universities free for everyone to
attend, and we should have no more problem with this debt nonsense anymore.

~~~
maratd
> Just make community college + state universities free for everyone to
> attend, and we should have no more problem with this debt nonsense anymore.

Public colleges are already substantially less than private institutions. I
doubt subsidizing them further will have a substantial impact on private
tuition.

If we stop lending money to pay for education, the colleges will see
substantially reduced demand at their inflated price levels and will quickly
cut prices to adjust.

Then again, they might not.

They currently segregate their customers into groups by way of "scholarships"
and essentially extract the maximum amount of money they can possibly get. I
can't think of another industry where such disgusting behavior is tolerated or
even celebrated as generosity.

------
awesome_work_
I think the most important piece of information to come out of this article is
"More than a fifth of borrowers of federal student loans go into default, but
people who default tend not to announce their status publicly."

This, to me, seems extremely high. Does anyone know what the default rate is
on other types of loans?

------
discardorama
"Most Corinthian students cover their tuition by taking out federal and
private loans. That debt, it turns out, is far more resilient than Corinthian
itself."

This here is the problem. If Corinthian can get out from paying its debts, why
can't the students?

------
rcarrigan87
Mark Cuban wrote a great post about when colleges start going out of business.

As a college grad with a lot of debt I advise everyone to avoid student loans
at all costs. It's not worth it and there are always alternatives.

[http://blogmaverick.com/2013/01/26/will-your-college-go-
out-...](http://blogmaverick.com/2013/01/26/will-your-college-go-out-of-
business-before-you-graduate/)

------
skizm
Did the students get a loan from the college or a bank? Did the bank fail? Can
I refuse to pay back my mortgage if my house burns down?

~~~
bdcravens
There's insurance on your house. Perhaps the same should happen with eduction.

~~~
skizm
My point is just because the thing you bought with your loan money is now
useless/worthless doesn't relieve you of your obligation to the bank.

~~~
bdcravens
In principle, I agree: when I see kids take out tens or hundreds of thousands
in loans, and not get a productive career out of it (say the guy who couldn't
pass the bar after going to law school), I don't have sympathy when they claim
they shouldn't have to pay the loans back.

In this situation, however, I believe those not paying are claiming they were
deceived (and there are lawsuits as such). This isn't a matter of not paying
your loans because your house burned down, as much as not paying your loans
because the builder deceived you on the quality.

Additionally, these aren't typical bank loans usually, but guaranteed by a
quasi-government entity. To a certain degree, this means the government is
guaranteeing some set of standards (I can't get a government-backed loan to do
a code bootcamp, for example), and these students are banking on the idea that
the loans will be forgiven without recourse, or at the very least, shining a
light on this school with they are contacted, en masse, for failure to repay.

------
vinceguidry
It's a bit disingenuous to claim that you shouldn't pay back any of the debt
incurred in earning your degree because the educational program was worthless
when you're still seeking a career in the field requiring that degree.

I agree she shouldn't have to pay all of the debt, but surely the degree isn't
totally worthless.

~~~
Zigurd
> _"...because the educational program was worthless when you're still seeking
> a career in the field requiring that degree"_

That doesn't follow at all. The program could have been deficient. The
placement program could have been fraudulent. And yet the student could make
up the deficiency with other training and compete, as hopeless as that might
be, against others in the same boat.

It isn't unusual for schools to defraud students by gaming placement by, for
example, providing a pitiful amount of seed money for business majors to set
off in a leaky lifeboat, or by forcing law students in lower-tier law schools
to drop out before graduating.

You also have to consider that debt repayment in constant payments pays down
very little principle at first. A student may have paid a lot of interest, but
their debt remains high.

~~~
vinceguidry
So what is the solution here? Make taxpayers foot the bill for the social
costs incurred by awful colleges? Once you make that decision, then the line
drawn in the sand about what an 'awful college' is and which costs the
colleges and students alike can expect taxpayers to be liable for is going to
shift over time. You're trading one enormous problem for another one.

She should have known that for-profit colleges are bullshit before signing her
life away to one. Now she wants to have her cake and eat it too by refusing to
pay her loans, while still deriving benefit from the supposedly worthless
degree she got.

We need a better solution to higher education. But this isn't it. I'm glad
she's raising awareness of this issue, but she and everyone else involved
needs to pay back at least some of her loan. You can't just expect the
government to absolve you of your bad decisions.

~~~
Zigurd
The other parties to the deal, namely the banks and schools, are far more
culpable than the students. Let the banks and schools sue each other over the
money owed. They are the ones that bought the laws and regulations than enable
them to sell duff diplomas and finance those duff diplomas.

~~~
vinceguidry
The school does not exist anymore. There is no one to sue and the money is
gone, regardless. And if you pin it on the banks then either loans will get
more expensive to account for the added risk of potentially having to foot the
bill for bad schools or will stop lending altogether, making it harder for
students to go to school.

~~~
Zigurd
Why should school loans be made by investor-owned banks? Don't tell me it's
because the private sector is better suited at selecting against investor-
owned schools. So, yeah, let the creditors take it in the pants.

------
Alex3917
So basically students enroll in a scam college to trick people into thinking
they are well educated, and then complain when the scam is revealed.

What's next, people who scam money from the elderly by pretending to be their
grandchildren sue after only getting 25 cents with their birthday cards?

I realize these colleges are also using high pressure sales tactics to trick
vulnerable populations into enrolling and then extorting them for money, but
at some point people still need to take responsibility for their actions.

~~~
TomGullen
You said it yourself, they were preying on the vulnerable. To what extent
exactly should these vulnerable people take personal responsibility?

Why didn't you mention that these colleges need to take some responsibility as
well?

~~~
Alex3917
> To what extent exactly should these vulnerable people take personal
> responsibility?

I mean once they showed up and realized it wasn't a real college and they
weren't being taught anything, that would have been the appropriate time to
protest and try to get their money back, rather than staying for another 2-4
years to get the degree and hoping that no one notices that they didn't
actually learn anything.

> Why didn't you mention that these colleges need to take some responsibility
> as well?

They should, but in this case they already got shut down. My feelings about
for-profit colleges are basically the same as my feelings on the military.
I.e. the military shouldn't be tricking kids into enlisting, but that that
still doesn't give soldiers a free pass for going over to the middle east and
killing innocent people.

~~~
cafard
> I mean once they showed up and realized it wasn't a real college and they
> weren't being taught anything, that would have been the appropriate time to
> protest [etc]

The people signing up were probably not those best prepared to evaluate the
quality of schooling. It might have seemed a continuation what they saw in
high school

