
Who's Profiting from $1.2T of Federal Student Loans? - Futurebot
http://www.bloomberg.com/news/articles/2015-12-11/a-144-000-student-default-shows-who-profits-at-taxpayer-expense
======
dexterdog
I don't get their hand-picking of a woman who went to law school and ran up a
100K+ debt and then never even tried to pass the bar or worked with what she
learned. I get that the tuition was inflated because of the increased demand
created by easy loans that have the ironic intention of making education more
affordable, but this doesn't sound like a case that warrants a lot of pity.

~~~
graeme
This is pretty common in the law school domain. People take the degree,
realize that they'd be miserable as a lawyer, decide to finish the degree
because of sunk costs, and then don't practice.

Common to end up with 200K+ debt. It's a real mess.

~~~
graeme
Edit: forgot one major element. A lot of schools have such poor placement that
their unemployment rate is significantly worse than the national average.

This is all hidden on the front end by school marketing and the age old idea
that law school is the ticket to the upper middle class (used to be, isn't
now).

There are great tools _now_ to see how a school performs, but they've only
been around a couple years. A lot of graduates who enrolled about 4-5 years
ago found out they're more or less unemployable as lawyers, and it's not even
worth taking the bar.

------
alkonaut
Seems like the federal student loan idea misses the point of putting degrees
"within reach" of everyone. First of all, why are interest rates 5%!? A
properly state-subsidized loan would have an interest rate that makes it a net
zero affair for the government. The current Swedish central bank interest rate
of zero (actually slightly less) means my student loan interest rate for 2016
is 0.6%. Also, student loans don't count as debt in the sense of credit
scores.

~~~
davnicwil
Yes indeed, particularly considering that such a subsidy should in net (though
with significant latency) lead to higher tax revenues, more investment in the
economy, more innovation in the economy, all that good stuff which a
Government with a long-term view should be very interested in. In fact an
effectively zero-interest loan is the very _bottom_ end of what should be
offered by the government by that line of reasoning, the top end being
completely free tuition.

Having a student loan with 'real' interest seems to be a policy drawn from
looking at the investment->return (financial and otherwise) of a university
education from the perspective of each individual (you want the gains, you
shoulder the pain), rather than from the perspective of the society at large
(all boats are eventually raised, therefore it's advantageous to invest our
common resources in this).

My impression is that sadly, over the past 50 years in most western countries,
this has been the trend for higher-education funding policy. I'm from the UK,
and that is certainly the case there.

A side-effect of this focus on the purely personal financial investment aspect
of higher education seems to be the newer Peter-Theil style attitude that in
fact, university might not be as good an 'investment' as simply going out on
one's own as an entrepreneur, once school is over. Whether this is right or
wrong for any given individual is not an answerable question, but it seems
very sad that this functional, financial aspect of things seems to be treated
with more importance than the other benefits of a university education and
experience, to the extent that it's now more and more being discussed as the
primary (the only?) factor in the value equation of the whole endeavour.

I find this line of thinking sad both on the level of individual, and society
as a whole. But I'm not saying it's a irrational way to begin thinking about
it, given the way policy is going and given the way society is adapting its
attitude towards the value of university education.

------
cdnsteve
$45 annual tuition? The average American family income in 2014 was $53,657
according to CNN money.

Education is sadly out of reach at these rates. I'm very curious to see what
free learning and degrees online can do to change this. Khan academy, edx,
udacity, coursera etc.

Traditional education is literally pricing itself out of the market.

~~~
chestervonwinch
> I'm very curious to see what free learning and degrees online can do to
> change this. Khan academy, edx, udacity, coursera etc.

The mechanisms are there. It's the cultural perception of alternative
education that needs to change. It's the same thing going on with academic
publishing. Everybody seems to agree there's a problem with the standard
systems, but nobody is going to jump ship to the new system so long as the new
is perceived as less prestigious (and this perception has a direct effect on
your career).

~~~
taurath
There are many industries which require degrees to get into in the first
place, especially Biology/Chemistry/Physchics and many other hard sciences.
Some of those especially those that require labs and materials have a huge
capital cost that keeps them within existing institutions. The rubber stamp at
the end is just an agreed upon way to say "they have this basis of knowledge".
If there was a way to get that basis of knowledge in other settings and a
standardized way of testing whether you fit the professional criteria (such as
the Bar exam for lawyers) there's no reason you couldn't go into it. Prestige
matters SOME, but its more about the connections you get or are perceived to
have after coming out of a big school. The info should be generally the same.

------
golergka
On one hand, there's an emotional and personal story of an individual graduate
who got in debt and then didn't even try to pass the bar.

On the other hand, we have this citation: "On average, our graduates earn
$750,000 more in their lifetime than if they hadn’t received their law degree
from Coastal Law."

I find it curious, how the article author decided to treat such a critical
piece of information. Statistics gives a better view on a situation concerning
millions of people than one emotional story. Yet, this citation is given
without any analysis or proof. There's no attempt to understand, if this is
true or not; instead, it's only present in the article as citation of a
clearly interested party (the college administration), so that the reader
who's already involved on one side of the debate, is ready to disregard it as
excuses and advertisement.

May be it is excuses and advertisement indeed. But the article doesn't stop to
think about it. The most important question you could ask yourself: is it
worth it, for median student, to spend all this money? — is not addressed.
What is it, if not bad journalism?

~~~
aczerepinski
That $750k fact sounds fishy to me. People who self-select into advanced
degrees generally possess qualities that are correlated with earnings
(intelligence, ambition, rich parents, etc). Does the $750k figure compare
that group against similarly ambitious and intelligent people who went another
route in life? I have no idea how you'd create a fair control group to make
such a comparison.

~~~
karzeem
A well-paid lawyer makes several hundred thousand dollars more per year than
the comparison group they're referring to (which as you suggest, is probably
deliberately defined to be low-earning). Those are tough jobs to get,
especially coming from an uncompetitive law school, but for those who manage
to do it, their lifetime earnings could plausibly be $10 MM higher. It only
takes a few of those to pull the average up by $750k.

------
jostmey
The high prices of education are still worth the lifetime earning potential,
or so I've read many times.

But that doesn't mean it is a good deal. The cost of Knowledge is trending to
zero because of the Internet. So why is the cost of Education skyrocketing out
of control? There is a growing disconnect between the actual expenses of
education, and the shady accounting practices used to justify the exorbitant
prices. I'm a graduate student paid below minimum wage to grade papers and
carry out research, and yet the University rewards itself with huge sums of
grant money from taxpayers to "educate me".

> Correction: I used to grade papers, now I just do research.

~~~
superuser2
>The cost of Knowledge is trending to zero because of the Internet. So why is
the cost of education skyrocketing out of control?

Because the purpose of higher education is not (just) knowledge transfer.
Colleges that are expensive and worth it consist of a a great deal more than
doing the readings and sitting in the lectures.

~~~
jostmey
Very True! But are Universities today orders of magnitude better at educating
people? Because it certainly cost a lot more today than it used to [1].

1\. [https://qzprod.files.wordpress.com/2013/07/college-cost-
infl...](https://qzprod.files.wordpress.com/2013/07/college-cost-inflation-us-
consumer-price-index_chart.png?w=1024&h=577)

~~~
cinquemb
> _But are Universities today orders of magnitude better at educating people?_

And this is where people start to see the clothes on the emperor for what they
are.

------
Scirra_Tom
Where does the money go? If you got someone paying $50k a year tuition
presumably in a class with say 20 people total that's $1,000,000 per year. I
mean, where's that money going?

~~~
inthewoods
This is always my question - also, remember that colleges and universities are
moving more and more classes to adjunct professors (i.e. contractors without
any tenure track), further reducing their costs.

Why is it that education has been able to steadily increase their costs 7-8%
per year forever? I get it when people say that the loans enable this - but my
question is, like yours, "where is the money going?"

I'd love to see a reporter do a complete audit of 10-20 educational
institutions over a period of, say 5 years, to understand what the money is
covering.

~~~
ethanbond
The most expensive schools are research universities. That's where the money
is going: research is getting more and more expensive. By definition, the only
problems remaining are the most difficult ones.

You used to be able to make great progress against a problem with a pen,
paper, and a good mind. Now, to do anything notable, you'll need an
observatory, a particle collider, a supercomputer, a top-tier bio lab, a
chemical synthesis plant, etc.

Also, good pamphlet material like beautiful dorms costs a lot, but I find this
argument to be weak considering most of the really expensive schools don't
have very amazing-looking facilities.

~~~
inthewoods
Great points - any data you can point to on it?

~~~
ethanbond
Fair point, and no. Someone might be able to find some, and I'd be glad to see
anything you might find!

------
siliconc0w
Student loans are also some of the only debts that can't be discharged through
bankruptcy.

~~~
zackmorris
The simplest answer tends to be the right one. Allow student loan debt to be
discharged in bankruptcy and that will create pressure to not loan as much,
and to keep interest rates low to prevent default. That will in turn put
pressure on tuition to be low. The cognitive dissonance of idolizing the power
of the free market, while special casing student loan debt, is somehow lost on
a lot of otherwise rational people.

~~~
vmateixeira
How about if students stopped going to colleges? Clearly students are being
fooled into a slavery model. College + car + house and you're done for life.

At first, I think there is not point on going to college if companies/market
are not willing to hire/demanding the skills you want to improve. Also,
companies co-op with colleges by promoting higher salaries for certain college
degree ... which the end up not paying anyways. Hence, there is no point on
going to college. If you don't go, you won't have a loan to pay and colleges
will be short on students. The education cost will have to come down in such
situation if colleges want to survive.

------
jcfrei
So, help me out here. Who is profiting from this? The companies who service
the debt? Were costs for higher education in the US inflated under this
program or is this a false impression?

~~~
ycosynot
I would say it is a way to boost the dollar. The alternative is everyone
paying the education year by year, as taxes, during their lives as citizens.
But here there are people who are forced to pay it all in one go. So this
boosts the short-term demand for dollar, more than if it was spread out as a
life-long tax. So it seems to me, all well-off Americans benefit, and it is at
the expense of the poor, and the competing currencies. It doesn't matter if
some default, as long as most pay it off. But I'm not an expert. It's just a
thought.

~~~
branchless
It pushes higher money creation at the point of inception. Debt can be created
instantly and enters the system and becomes "dollars" as another account is
credited to balance.

Then over the lifetime of the ex-student they pay back this "money" plus
interest which destroys the principal and consumes existing "money".

It should be noted that the creation of the debt benefits "growth" in the
present electoral cycle whilst the repayment occurs mostly in other electoral
cycles.

------
jimrandomh
> "As for Sofia, she says she’d like to meet with someone to work out a
> repayment plan rather than field as many as 20 phone calls some days dunning
> her for money."

Twenty phone calls per day is absolutely insane, and should not be legal. For
that matter, _is_ it legal? If enough of these are coming from the same party
or from closely related parties, then it's crossed the line into harrassment.

~~~
ceejayoz
Unless she's racking up that many new debts daily, she could put a stop to it.
[https://en.wikipedia.org/wiki/Fair_Debt_Collection_Practices...](https://en.wikipedia.org/wiki/Fair_Debt_Collection_Practices_Act)

> The Act prohibits certain types of "abusive and deceptive" conduct when
> attempting to collect debts, including the following:

> Failure to cease communication upon request: communicating with consumers in
> any way (other than litigation) after receiving written notice that said
> consumer wishes no further communication or refuses to pay the alleged debt,
> with certain exceptions, including advising that collection efforts are
> being terminated or that the collector intends to file a lawsuit or pursue
> other remedies where permitted.

A collections agency that continues to contact you after you demand they cease
contact starts to owe you money very quickly.

~~~
srtjstjsj
> A collections agency that continues to contact you after you demand they
> cease contact starts to owe you money very quickly.

How do you collect that money? Do you have to hire an agency?

~~~
ceejayoz
You can sue in small claims court, which doesn't require a lawyer.

------
padobson
Take notes. There'll be money to be made shorting some of these public
companies when the student loan bubble bursts and/or everyone starts to
realize a university education isn't the only path to prosperity.

~~~
HiLo
Can you provide evidence that it is a bubble? Can you provide evidence that it
will burst, or a potential catalyst?

~~~
randomname2
Seven million people haven't made a single student loan payment in at least a
year [1] and the overall delinquency rate of loans in repayment is about 30%
[2].

With the figure of student loans held by the Federal government going up
exponentially as of 2008 [3] (and with tuitions soaring by 6% a year) the
chart certainly looks "bubbly".

Investor Bill Ackman believes there will likely be some form of forgiveness as
there is "no way students are going to pay it back":

 _When asked if he was concerned about bubbles forming in debt markets as
central banks around the world continue to keep interest rates near zero,
Ackman cited student loans as his biggest concern.

“If you think about the trillion dollars of student loans we have outstanding,
there’s no way students are going to pay it back,” Ackman said. He foresees a
future where debt-laden students protest government officials, leading to some
form of forgiveness._ [4]

[1] [http://www.wsj.com/articles/about-7-million-americans-
havent...](http://www.wsj.com/articles/about-7-million-americans-havent-paid-
federal-student-loans-in-at-least-a-year-1440175645)

[2] [https://www.stlouisfed.org/on-the-
economy/2015/april/delinqu...](https://www.stlouisfed.org/on-the-
economy/2015/april/delinquent-student-loan-borrowers-are-getting-further-
behind)

[3]
[http://www.bloombergview.com/articles/2015-04-17/washington-...](http://www.bloombergview.com/articles/2015-04-17/washington-
may-not-want-to-get-out-of-student-debt)

[4] [http://www.forbes.com/sites/antoinegara/2015/04/13/bill-
ackm...](http://www.forbes.com/sites/antoinegara/2015/04/13/bill-ackman-
herbalife-criminal-lawyers-student-loans-bubble/)

~~~
cryoshon
TBH we're well past the point where people should be in the streets protesting
student loan payments. The entire economy is experiencing a lack of demand,
partially as a result of young people being impoverished from a sycophantic
education system.

A repayment boycott would ruin a lot of credit scores, but bring the problem
into focus... consider that a huge proportion of people are already in
default.

------
bsbechtel
The article doesn't mention the Federal takeover of the student loan system as
part of the ACA passage in 2010. I don't know how it affected others, but I
lost a number of incentives for making regular and early payments when this
happened. The service from Nelnet was also considerably worse than my previous
lender.

------
johndevor
Aren't the students profiting (i.e. education) as well? Trade is supposed to
be mutually beneficial.

~~~
nickpsecurity
Last number I looked at was something like half of people getting Bachelor's
degree are unemployed or underemployed. Don't know if it's inflated but job
discussion forums are full of people with degrees in IT and Business that
can't get jobs outside minimum or low wage. For for-profit, minimum payments
can be around $2000 a month. So, a job offering $20k a year entry-level is a
net loss.

What's happening is pretty obvious. People are told they need a degree to get
a decent job with many companies even including that in job listings. Colleges
and high schools show charts about how much extra people with degrees make.
Then, people get degrees with student loans from colleges that often don't
care about job placement or coaching on the major. Then, they get out into
real world to find businesses all lied, don't care about them, expect more
than the degree, and try to underpay them. Result is all kinds of people that
can't pay their student loan bills.

Looks like a giant scam benefiting politicians, colleges, and student loan
industry to me. Taxpayers and graduates are left with the burdens without
rewards. A chunk of them make it, though, so it's not all losses.

~~~
vmateixeira
I agree. And this is just one of the few recipes on how to enslave population.
Let's just buy a car and a house next and we're granted for life.

------
johnnymonster
It seems like one of those out of sight out of mind kind of things that
happens to a lot of students. You don't really sit down and calculate just how
much money it will cost monthly to pay for your shooling. The 144k comes out
to over 650 a month for 30 years depending on interest rates. That's the
payment on a nice car, for the majority of your lifetime!

There are some holes in this story, but I still think the general point is
there. For one, if you want to get a law or medical degree, you really need to
be driven! otherwise don't do it!! Debt it terrible and can really ruin your
life.

------
bradleyjg
I don't understand why the Department of Education hires these servicers. Why
can't they service the loans in house?

~~~
HiLo
For the same reason the government hires construction firms to build roads,
for the same reason the government hires contractors to build bases, the same
reason the Federal Reserve uses primary banks as intermediaries, the same
reason the military gets their fuel from tender offers and not their own
refineries...

Plus, I can only imagine what would happen to the GOP/austerity/small
government types if you started suggesting they move all those (necessary)
function in house. Oh man that would be a fun debate to watch.

~~~
bradleyjg
There's a couple of different categories there.

One is surge capacity for occasional needs. While the federal government is
paying for some road building somewhere all the time, they might not want to
hire permanent civil servants in a particular place for a project that's only
going to last a few years. There's some sense to that.

Another category is where the government is buying goods or services off the
shelf that lots of other entities buy too. That's your fuel example. Here
again, there's sense to not duplicating effort.

But the last category is where the government is the only buyer and it's a
permanent need. And that's where I don't see any sense to it.

~~~
HiLo
Good points, actually, but can you clarify on what you mean with the
government being the only buyer of student loans? All those other needs are
permanent, too. "Roads" will permanently be under constructions somewhere,
just as "loans" will always be outstanding somewhere. Fuel will always be
needed, just in different grades, locations, and quantities.

Just to be clear on my point, it's not very hard to go and buy a portfolio of
student loans for yourself (assuming you'd want them...)

~~~
bradleyjg
The private student loan industry is pretty small as compared to the public
market and the rules and considerations when servicing them are very
different. So it is unsurprising that the big servicers for federal student
loans are only in that business and not loan servicing generally. That's
different in important ways from a refinery that sells fuel to all commers.

As for the road example, road building is an inherently local activity. If the
federal government hired someone to hold a flag in Topeka it's be pretty
unreasonable to expect him to start holding a flag in Phoenix next. So in that
sense the need is temporary. But loan servicing can be done anywhere. My
servicer is in NH for example. So the government could hire a bunch of people
anywhere and bring it in house.

