Students are not political pawns
Partisan wrangling over student loan debts is intended to recruit young voters, but they may instead be repulsed.
Today’s scheduled vote in the House of Representatives on federal student loan rates is ostensibly a demonstration of concern for young Americans struggling to overcome a heavy load of debt and a weak job market. But that’s not really what the vote is about.
It’s (sort of) about how to pay for loan subsidies signed into law by President George W. Bush that will expire on July 1 unless Congress agrees to an extension.
April 27, 2012 - 6:13 AM
The dirty little secrete is that the expiration of low interest student loans was a political time bomb planted by a Dem controlled Congress in 2007 set to explode just before the 2012 elections in order to give the Dems an election year issue. Pure politics!
Total student loan debt now exceeds total credit card debt nationally. The Dems are creating another bubble just like the home mortgage bubble that broke and brought on the Obama recession.
Just like the home mortgage bubble created by cheap mortgages that were sold to folks that could not repay them, cheap student loans are creating a similar bubble.
In truth, many of these cheap student loans are made to folks that don’t really need them.
Look for Obama to propose a student loan writedown as an October surprise this election year. Anything to keep is behind on Air Force One, the economy be damned.
The US debt is now $15.5 trillion now and exceeds the total value of the US economy of $15.4 trillion. On top of that 3 straight years of an anemic GDP, today just a meer 2.2%. The worst recovery in history.
They are panicing in the WH! Can you say “Romney landslide”?
At what point do we quit fooling ourselves, and start realizing that the slowest/worst recovery in history is not actually a recovery at all?
“The shenanigans obscure larger and more important questions about whether subsidies are being used as an excuse by universities to raise tuition.”
Aye. This is most certainly true.
A related comment is this: The shenanigans obscure the fact that student loans are becoming a major money-losing operation for the government, thereby costing taxpayers money.
When student loans carried an interest rate of 6.8%, the government actually made a little bit of money in the process. The cost to taxpayers was zero. Cutting that rate to 3.4% turned it into a money-losing operating, as it didn’t generate enough income to cover losses from students who went into default. Now that we’ve expanded “income-based repayment” and “debt forgiveness” rules, the losses will be even more substantial in the future. [Has anyone in Congress or the administration even tried to estimate the cost?]
If Congress let the interest rate rise back to 6.8%, it would discourage students from borrowing as much money and would make it more difficult for universities to raise tuition rates without risking empty seats. This interest rate hike might be the right answer. Perhaps Congress should do nothing at all.
John, not only is Obama doing the pandering but so is Boehner. What they’re now arguing about is how to pay for it. Regressives want to take money away from the needy while the Dems. want to take it away from oil companies and with increased taxes.
Update: The House just voted in favor of the Republican bill that would pay for the subsidies out of the health care fund. Obama is threatening to veto.
And he should veto it. I heard it referred to as taking the money out of “one of the health care slush funds”. This is not acceptable and Obama should veto it for such blatant shenanigans. Making college loans have higher interest will not curb anything except the ability to pay and the number of people from working class and poor families who deserve an education. The problems in the college loan debacle are not ALL because students borrowed too much.
I am so sick and tired of the only solution being to take from those who cannot afford to lose any more, lock more of the working class and the poor out of opportunity and hurt the people already at the bottom rather than do the right thing. If this is the best this Congress can do, they should have the decency to resign. They are serving no one, fixing nothing and playing games.
John R, do you want to discuss the “dirty little secrete” about the “Bush tax cuts” and their “expiration”? I think you have the remarkable ability to only see Democrats in the wrong. Remarkable.
To #6 (Sandi): If there are additional problems with “the college loan debacle” beyond over-borrowing by students, would you please spell them out? Every article I’ve read about the student loan crisis describes how difficult it’s been for a great many students to repay their loans. By definition, this means they borrowed too much money. What else is there?
And in case you didn’t catch it, the Roanoke Times ran this excellent article by Michelle Singletary a couple of week ago: http://www.washingtonpost.com/student-loans-saddle-both-kinds-of-seniors-graduates-and-grandparents/2012/04/06/gIQAYZRi2S_story.html. She explicitly refutes the “the notion that student loans should be viewed as “good” debt.”
Keeping interest rates at an artificial low while providing unlimited funds for loans does nothing to prevent colleges from raising tuition year after year after year. Indeed, it will only exacerbate the situation she describes.
Additional problems feeding the college loan debacle:
The rates of college tuition increases relative to other costs.
The increase in “for profit” education to the point of having loan recruiters FGS to push getting the money from student loans at all costs from kids and the returning military who not stay in school, (no refunds), will never get a degree but be stuck with the debt and no benefit,
The push for an “attainable degree” with no prospects for real life applications. Do you think I dreamed those up? But again it feeds the machine.
The reality of the economy and jobs as a whole.
The lax and lame efforts in the loan industry which is also, “for profit” with government guaranteed payment…how can they lose?
ALL have as much impact on the issue as does simply loaning money on the prospect of a better future IMO.
Why do you think none of that has any bearing on the crisis?
We spent many years insuring that the educated, wealthy and politically connected in this nation were the top of the heap. Without wealth or political connections, education is the ONLY leg up many could attain, and for a long time, it was a respected foot in the door. Not it is just a damn business and whatever degree or intelligence you might have is disdained if it is not conservative. What a world.
8. Brian – “an artificial low” interest rate? Government making a profit off student loans? Interest rates in the US are at historic lows,the prime rate is 3.25%, the Fed discount rate is .25%, long-term AFR is 2.89%; yet you are calling the student loan rate artificially low? It would seem to me that if Congress allowed the rate to increase it would be gouging the students on interest rates. In relation to that, you want the government to make a profit off of the students? That is a strange take on government programs. Establish a program to entice a wanted social solution and then make it profit making by gouging those you want to participate. That sounds more like a banker’s credit card thinking to me.
Student loan debt cannot be bankrupted, is only forgiven when a student participates in programs that put students to work in areas the government has deemed needed such as teaching in high poverty inner city schools or practicing medicine in rural localities where the Doctors will be paid well under FMV. Student loans are there to encourage and help out youth to gain the needed education so they can contribute to society and not be a burden on society. Overall, it has been one of the great success stories of government. The problem lies not in educating our students, but in no longer providing affordable institutions for them to attend. If you are so interested in protecting from a student loan bubble, stop the tuition increases. Put more emphasis on controlling the costs and finding better ways to provide education. It is not the students that are the problem. Adding to their burden by increasing their costs is not an answer but only increases the problem and leaves us with an uneducated population.
The reason the cost of higher education has escalated is because of government backed cheap, easy, student loans.
That is why colleges and universities support these low interest government loans so they can continue to raise tuition at will. There are no market forces to keep tuition down as long as a 3rd party is paying. The same dynamic keeps health care cost over inflated.
Over 90% of student loans are now taxpayer backed government loans. Only about 7% are issue by private financial institutions. Government student loans are cheaper, easier to get, and more lenient about borrowers delaying payback and adjusting payments downward than the private financial sector. Conseqently 27% of these loans are classified as delinquent.
Only an idiot would go $150K into debt for an education. It is unfair for those that work as waitresses or 7-11 managers to have to pay for the education of doctors, lawyers, engineers or those that spent 6 years at university majoring in such as African-American studies, journalism, or environmetal sciences.
If I am responsible for paying for someone elses deliquent education loans, then I want to know about their life style, what kind of car they drive, cable TV and cell phone accounts, etc. If you say this is none of my business, then leave me and my tax money alone.
Going deep into debt defore even getting a job is stupid. Especially since 50% of college grads either cannot find employment or are under employed thanks to the prolonged Obama recession.
@#11, actually, the colleges and universities are charging more because the states’ contributions to such are diminishing while the cost of providing services continues to rise. Simple math. Your conspiracy theory-style explanation just doesn’t hold water. Oh, and by the way, nice dig at African-American studies etc. Get over yourself.
Forgive me as I’ve not followed these arguments closely but it seems to me most here are dancing around the real problem which is a system that doles out degrees, raises tuition, etc. based on a market.
Because markets distribute goods and services based on ability to pay, you have people with an incentive to get a good education and hence a better paying job. You have a system that’s arisen to make paying for that education possible, namely loans. You have a system that encourages many new amenities on campus as a way of pulling in those dollars which translates into increased tuition. You have a system whereby things like college tuition is costing more so you want to pay less in taxes which ironically, leads to increased tuition costs.
The problem is you’re trying to solve a social need based on a market. The only real way you’re going to change this is to remove higher education from the market system.
The chance to attend university should be based on ability and need. Once we understand what it is exactly we want from a university education, we can bring about effective change to the system.
We need to stop letting markets control our lives but must instead control our markets.
To #10 (Richard): I don’t expect the government to make money on students, but I don’t expect them to lose billions on students either. They need to charge enough interest to cover administrative expenses and losses from defaults and “loan forgiveness” write-offs. The 3.4% interest rate isn’t enough. Otherwise, why would Congress need to raid preventative care funds or to raise taxes to keep the system going? The need for subsidy money proves that it’s an artificially low rate.
And as a side note, mortgage rates are artificially low, too. If banks were required to keep all their loans in-house, rates would be higher. However, government-sponsored enterprises Fannie Mae and Freddie Mac continue to buy them, even though the interest rates aren’t high enough to cover losses. Otherwise, why would they continue to need bailout money? http://blogs.smartmoney.com/advice/2012/02/29/your-share-of-fannie-freddie-losses-1300/ And why has it been necessary for the Federal Reserve to purchase a bunch of money-losing mortgage-based securities? http://www.newyorkfed.org/markets/mbs_faq.html If interest rates were actually high enough to cover losses, none of this would be necessary.
To #9 (Sandi): If we applied your same logic to the housing market, we’d have blamed home builders, home sellers, and real-estate agents for the housing crash. After all, during the housing boom, these people routinely encouraged people to buy homes, and they tried to get as high a price as possible for those homes during the process.
Does this make them greedy and evil? No. This is the way real-estate markets have always worked. It’s never been the responsibility of the seller to ensure that a buyer wasn’t borrowing too much money. And in the years before the boom, this generally wasn’t a problem. Banks wouldn’t lend to people who couldn’t reasonably be expected to make their loan payments on time.
During the housing boom, though, lending standards went out the window and banks started lending to damn near anybody with a pulse. The expected ability to repay ceased to be a concern. A great many people over-borrowed as a result, but the banks didn’t care because they could fob off the risk onto Fannie Mae, Freddie Mac, and mortgage-based CDO investors. This was wrong, but it happened.
The same thing is happening today with student loans. The government will lend to basically any student with a pulse, regardless of their expected ability to repay. And all of the sellers that you list (“for-profit” schools, tuition-ratcheting universities, those pushing for “attainable degrees” with no prospects for real-life applications, etc.) are simply taking advantage of the freely-flowing federal loan money. Is it their job to ensure that students aren’t borrow too much? It never has been in the past.
And who bears the risk of the government over-lending, given that the government doesn’t re-sell student loans? The taxpayers, whose tax dollars will be wasted by the billions when millions of loans go bad or are eventually forgiven. [And the students, of course, whose credit ratings will be trashed and their lives unquestionably altered for the worse.]
During the housing crisis, we rightly blamed the lenders (the banks and mortgage companies) for over-lending. We didn’t blame real-estate agents and home sellers. And for the student loan crisis, we should again blame the lender. This time it’s the federal government, which makes over 90% of student loans.
LOL Brian, are you implying no one did? There is no problem that has only one issue feeding it and this is one of them.
If memory serves (and it does), it was not the lenders that were “blamed” at all by many, they still aren’t. It was the borrowers who were demonized, not the people taking advantage of them, legislating for an even easier and bigger advantage, and here, history is merely repeating itself.
To #17 (Sandi): “History is merely repeating itself.” Aye. It most certainly is. The parallels between the housing bubble/crash and the student loan crisis are too strong to ignore. And yet people continue to call for subsidies to keep interest rates at artificial lows and continue to oppose tightened lending standards that would keep students from over-borrowing.
These calls sound eerily like those issued during the housing boom. Housing prices were climbing too high, so the calls went out for “mortgage rate subsidies” and “relaxed lending standards”, so that everybody could still afford to buy a house. And history has shown us how poorly that strategy works out. [Sigh...] What word would serve as the student loan equivalent to “foreclosure”? Whatever it is, we’re going to be seeing a lot of them soon.
In 2005, Congress prohibited student debt from being discharged through bankruptcy.
So guess what, now liberal Dem Sen. Durbin plans to introduce a bill to make it easy for borrowers to get rid of student loan debt issued by private lenders through bankruptcy. Why am I not surprised!
While private lenders only make up less than 10% of all student loans, I have no doubt that the Dems will try to eventually include government backed student loans as well if they are left unchecked.
I fully expect Obama to propose some sort of government student loan forgiveness process before the election in order to buy the young vote which is largely disenchanted with “Hope and Change” which rings empty now since recent grads can’t find a job.
What better way to buy votes!
14. Brian – I did not cite mtg rates nor do I agree with you re subsidies. The House Budget is using earnings from student loans to balance their budget. If they remove the earnings then they want the same money somewhere else to balance their budget. It has nothing to do with subsidies.
11. John R – my original post must have gotten deleted, so I will tone this one down. There most certainly is a free market control over tuition, it is the students seeking an education that is affordable. As long as it takes a college education to statistically be successful in life, students will continue to apply. When the tuition becomes economically nonviable, tuition will drop as the students drop off. Today, the workforce demands an education and students suffer through the high cost to reach their goals. Your attempt to say government student loans cause tuition to rise in unproven, has no basis in fact, and is simply a GOP misinformation statement.
As for private bank loans, they were removed simply because the banks were taking advantage of students and parents with their loan fees, interest rates, and collection policies. Thankfully, Obama asked all loans to be handled by the government to make more funds available at a fair rate.
Your comments concerning forgiveness of student loans is conjecture on your part and again has no basis in fact. All loan forgiveness is done to entice students to teach in high poverty inner city schools or to practice medicine in rural locations. Both programs have been reasonably successful but there remains a need in both areas.
While some people are very talented at confusing the debate, both on the housing bubble and on the student loan issue, the truth for BOTH situation is that the “solution” of only stopping “subsidies to keep interest rates at artificial lows and continue to oppose tightened lending standards“, is no solution at all, and a punitive one at that.
Like the issue of a fair tax structure, the deficit reduction and most other problems we face, the solution is not just to punish the poor and working class. We are not going to accept the creation of a Plutocracy. Which is ALL your “solutions” offer IMO.
To #20 (Richard): You may disagree with me regarding whether or not federal student loans are subsidized, but this doesn’t mean you’re correct: http://www.nationalreview.com/agenda/293789/guest-post-jason-delisle-federal-student-loan-program-reihan-salam and http://edmoney.newamerica.net/node/64000.
And for a comparison, look at Sallie Mae: They charge interest rates between 6.8% and 9.875%, http://www.usatoday.com/money/perfi/college/2011-05-16-sallie-mae-rate-cut_n.htm, they experience a very low default rate of 3.5%, http://www.valuewalk.com/2012/04/sallie-mae-reports-loss-as-student-loan-issue-looms/, and yet they only make a tiny profit. $112 million in profits on approx $160 billion in student loans? They’re barely breaking even.
For US Dept of Education loans, the default rate was 8.9% in 2009 and has continued to climb: http://ifap.ed.gov/eannouncements/052011CDR2009announcement.html. The interest rate of said loans is only 3.4%. And as an added budget penalty, the feds are forgiving some portion of loans. Less than half the interest rate to cover a default rate that’s more than twice as high? Along with additional losses from loan forgiveness? There’s no way that the government’s student loan is breaking even.
[Sorry about the noise on mortgage rates. When I saw 3.25%, my mind went "mortgage rates!", and thus the second paragraph of comment #14.]
To #22 (Sandi): To help me understand your position on student loans, answer a couple of questions for me:
If you were a loan officer in charge of approving student loans, are there any circumstances under which you would DENY a student’s loan application?
If so, what would those circumstances be?
I wonder why John R never mentions in all his comments that Romney agrees with extending low-interest students loans? Gee, I just don’t know. Either Romney truly disagrees with right wingers on this one or he’s a lying panderer.
23. Brian, You cannot compare 2009 rates with today’s rates. The recession changed all of that. The old rates are locked in and have not been adjusted to fair value and accordingly the former students are now being grossly over charged. There are two things to keep in mind in relation to student loans, 1. We need an educated job force and we do not need unemployable citizens, and 2. students need jobs to pay their loans back. The recession has caused the students to not have jobs, but at the same time, the loans cannot be defaulted. The students continue to accrue interest until the loan is paid, there is no bankruptcy.
If you had audited a school’s financial aid department, you would find very strict rules on aid and how it is handled. The schools are limited in their aid based on collections, based on graduation rates, based on jobs for students. The rules are strict and make or brak the schools. The collection process by Direct Student Loans is also very efficient. They stay on each account and if an account is behind, they give monthly calls to collect and to get the loan back on track. All of this ruckus about student loans is strictly political and a ridiculous sham.
Brian, YOU are the one advocating that this can be “fixed” on the loan officer’s end of it, so why are you asking me how that would be accomplished?
Due to the government guarantees (business sure loves those), there is less diligence than should be applied, I will grant you that, but to ever say that, only means to repay is the criteria or collateral, is just going to make us a Plutocracy and no, I will never support that ideology.
The loan process should be as comprehensive as is possible without being punitive. And taking into account the red flags that are out there, should be part of it. Not being able to pay your own way, or prove ability to repay the school loan (stricter loan standards alone) is not the answer.
The government and educators should be doing more to oust the money changers from the temple IMO, as I have said, this is a debacle with many fathers, not some orphan loan crisis. Just like the housing crisis was.
I already outlined what I believe needs to be reformed here along with any loan standards in my post #9.
To #26 (Richard): You’re just about the only person out there who thinks that student loans aren’t a problem. See the following articles on how student loans are crushing students and even causing problems with the housing market:
http://www.philly.com/philly/news/special_packages/inquirer/147298675.html?viewAll=y [The RT ran a trimmed version of this article in Saturday's paper, BTW.]
http://www.doctorhousingbubble.com/canceling-out-a-generation-of-future-home-buyers-massive-college-debt-student-loan-debt-higher-education-aid-costs-uc-tuition-costs/
You seem to think that college tuition “markets” will self-regulate (per your comment #21), but too many students only discover AFTER graduation that they borrowed and spent far too much money. Not before. And by then, it’s too late.
Somehow, “let the buyer beware” when allowing students to borrow for college doesn’t seem like a good strategy to me. It’s quite clear that a great many students are borrowing too much money. Somebody should say “NO” before they borrow, not just “Tsk, tsk” and “Pay up” afterwards.
To #27 (Sandi): “The loan process should be as comprehensive as is possible without being punitive.“? What does it mean for the process to be “comprehensive”? How would a process be “punitive”? What that heck does this statement mean?
Your statement isn’t a real policy proposal. It’s a platitude. And when you listed problems in #9, all you did was say that they were problems. You offered zero suggestions on how they might be fixed.
When somebody complains about current policies or policy proposals without suggesting alternatives, I find myself wondering if they actually understand the problem at all.
Wonder as you like Brian, I do know how you feel, and I am sorry if you only want to converse with “movers and shakers” who control things and have all the answers. When someone offers a solution that is no solution at all, I wonder at their true motives and agenda. So what? If I can’t solve it, I cannot discuss it? If I can’t accept your solution, I have offered none?
Definition of COMPREHENSIVE
1: covering completely or broadly : inclusive
2: having or exhibiting wide mental grasp
http://www.merriam-webster.com/dictionary/comprehensive
Given that fairly well known definition, a comprehensive loan program would know about the bad loan shark schools, the market they serve and the parameters that have been successful and how to duplicate them as well as the failures it has seen and how to avoid them. They would know, as you want to deny, that there are reasons for failure to repay student loans that come into play. They would know that the economy, job market, shark schools, GI benefits and other influences all have an impact on the loan system and act accordingly. BUT THEY DON’T. And even if you regulate them and place all the burden on them, they are simply going to become punitive and not loan to any student without a proven ability to pay of a co-signer who will. That puts us right smack on the trajectory for a Plutocracy. Reform is on more than just the loan system.
Brian – Student loans are not the problem, they are a help. Better college preparation and planning is an answer as well. Parents and high school guidance need to stop pushing going off to prestigious 4 year schools right out of high school. Students today are 1. often not mature enough to head straight to college, 2. have not prepared academically to be a success in a 4 year school, 3. do not need a 4 year college for the first two years of standard courses, 4. need to not waste time once they choose a school but rather pick a curriculum and get through it and 5. do not go to a prestigious school unless you are going into politics – the price isn’t worth it. College used to be a place to go to grow up in a protected environment, it has now become too expensive for that. State schools are the best deal for 4 year colleges, but the student has to excel in high school to attend. Community colleges offer the most for the least cost plus give the student a chance to mature and know what they want to do and their GPA does not transfer only the credits. These are solutions for the student. Tuition costs will certainly change because of supply and demand – you certainly should believe this as you discuss this often. It is not the only factor, but it will affect costs. Also, technology is affecting the costs quickly. One professor can now develop an online course and teach thousands. Electronic books are reducing the book costs. Lack of the need for bricks and mortor are changing the way colleges operate. There are solutions to the high cost of tuition, student loans are not part of them. Raising student loan costs only causes more problems and fixes nothing.
To #31 (Sandi): Gee, Sandi. In your second paragraph, when you list these various things to be considered in a “comprehensive loan program”, you’re listing many of the things that would be considered in an effective actuarial analysis that would serve as the core of tightened lending standards. And yet you oppose tightened lending standards.
Look at what Sallie Mae (the government-sponsored enterprise established by Congress to provide student loans) does. They use a set of lending standards/actuarial guidelines (that consider many of the things you include in your post) to make lending decisions. As a result, they have only a 3.5% default rate, which means that only 3.5% of their loan recipients have damaged their credit scores and suffer the risk of being handed over to a collection agency. This is in spite of a crappy economy and the fact that Sallie Mae charges interest rates of 6.8% and higher.
Compare that with Department of Education loans, which have essentially zero lending standards/actuarial guidelines and consider none of the things you list. As a result, they have a default rate of 8.9% even though they charge merely 3.4% interest. Over 2.5 times as many of their loan recipients end up in financial trouble because of the lack of lending standards. I fail entirely to see the benefits of this as a “Plutocracy-avoidance” scheme. So many students are getting hurt by Department of Education lending practices that I’m having trouble seeing any benefit at all.
To #31 (Richard): You list five relevant facts about many students today. I agree with every single one of them. I also agree with the statement that “college used to be a place to go to grow up in a protected environment; it has now become too expensive for that.”
I’ve met students who were mature and academically-prepared, who completed early classes in community college, transferred to a reasonably-priced 4-year college, and worked hard on a targeted job-applicable major. Minimal student loans were taken out to cover what summer jobs wouldn’t meet, and everything went fine. This is exactly how we want students loans to be used. I have no issue with such loans. They are indeed a true help.
The problem is the immature and unprepared students who sign up for a highly expensive college to “find themselves” while pursuing a generic liberal arts degree. It’s clearly not a good idea for students to obtain an education in such a costly manner, but the Department of Education will loan them the money ANYWAY!! No questions asked. This is the big problem with federal student loans. They’re being given out much too freely, and too many inexperienced young people are getting in “over their heads” as a result.
As for the 6.8% interest rate, I only support that because I desire for the student loan program to be self-sufficient. If it’s not, then you can expect to see a debate in Congress about it every year as our various representatives look about for potential deficit-reduction measures. Make it self-sufficient, and the issue goes away. [Note that if the Department of Education implemented meaningful lending standards and successfully lowered their default rate, they could afford to cut their interest rate and remain self-sufficient.]
Brian, answering your question, using your parameters does not mean I agree that is the solution. It will be punitive and it will lead to fewer working class and poor students, no matter how bright and full of promise, being denied loans. The problem with the loan industry is their tone deafness and that is also the reason they are not the solution, just another goon to be regulated and watched. Something this big and complicated does not have an easy fix, no matter how hard you try to say it does.