College: The worst investment in history

Parents Forum
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<p>This is a very narrow and simplistic view of the current situation and does not address the fundamental issue at the root of the problem–rising tuition costs. The underlying dynamics behind student loans and the rise in tuitions are much more complicated than most people on here realize.<br>
Everyone makes money off of student loans because they are backed by the government.<br>
1.) A student goes to a bank, like Sallie Mae the largest student loan lender out there, and asks for a loan.
2.) Sallie Mae takes that loan, as well as a whole bunch of other loans and packages them into instruments called student loan asset backed securities (SLABS) for investors to buy. Investors then get returns based off of payments on the principal and interest.<br>
3.) The capital raised by selling such instruments gives Sallie Mae more room on the books to lendout more money and repeat the same process.
The result is a Ponzi scheme like structure that has put the pedal to the floor on tuition prices. After all, if investors have to face no risk when buying up SLABS since they are completely backed by the government, what will stop lending companies from issuing more debt if they can easily raise capital? The never ending supply of loans then allows colleges to continue to raise tuition prices almost every year by as much as they want.<br>
Malcom Harris does an excellent job in a short amount of time explaning everything here so no need for me to rewrite and re-explain. Here’s a tidbit:
[n+1:</a> Bad Education](<a href=“http://nplusonemag.com/bad-education]n+1:”>Bad Education | Online Only | n+1)

We’ve setup a system for unlimited borrowing which is hyperinflating tuition costs. Everyone is guaranteed to make money, heck even the government makes money, off loans even if they default. The only ones screwed are the student. Students can not get rid of debt in bankruptcy court, are not protected under state usury laws, and have no statute of limitations on their debt. The no-risk, unlimited loan culture with all the laws skewed in favor of banks means that they can even make more money when loans go into default(more than if a student pays on time) because of the merciless collection laws and almost unlimited penalty fees that can be attached to defaulted loans. Combine all of that together and you have a spiral of tuition inflation towards infinity.<br>
We’re all told that we need a college education in order to advance and that debt for a college education is “good”. The game is currently rigged, however, against the student. Hyperinflationary pressure has pushed college tuitions beyond affordability for the majority of middle class families. Greed is the underlying cause because banks know that every parent out there wants the best education money can buy for their little Timmy and they’re stupid enough to lineup at the door to ask for ridiculous loans to go to these schools. Hey, if Wall Street can make a buck off of gambling on your child’s future, they’re going to do it and oh man how they have. The working man is a sucker and can be soaked for billions. It’s amazing how ignorant and stupid people are when it comes to an industry like this. They’re soaking our kids and their futures for billions.</p>

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<p>ALL loans. Before 2005 students could get rid of debt in bankruptcy court that weren’t affiliated w/ the govt. The Bankruptcy Abuse Prevention and Consumer Protection Act went further to extend non-dischargeability to all loans, private or through the government. Heck, even debt placed on credit cards for educational purposes can now not be discharged under that act.</p>

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<p>yes, the system of loans is “rigged” as you put it. i agree. however, education is still the best choice for large amounts of people. i won’t be convinced otherwise.</p>

<p>what’s interesting is that we spend more time as a society raging against affirmative action; need versus merit-based aid and the supposed inequity of it all; how the ‘middle class’ (whoever they are) is being squeezed out etc. etc., that there’s no real pushback against the real problem. the public conversation, at present, is focused on a bunch of red herrings. another form of divide and rule.</p>

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<p>And?</p>

<p>Doesn’t purchase of all those things stimulate the economy? Doesn’t consumer spending account for 66% of our entire economy?</p>

<p>What’s worrisome is the fact that our kids are leaving with more and more debt and are delaying things like purchasing homes and starting families because they are in financial dire straights. How many jobs are lost when more people don’t buy homes? There’s another side you aren’t seeing.</p>

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<p>We need to separate the value of “education” from the value of “college” Yes the two are intimately intertwined, and almost no one would argue that the value of education is worthless. The value of college, however, is currently exceeding it’s sticker price when wages for recent grads have been stagnant, unemployment for recent grads is up, and default rates are soaring. Beginning in 2012, The Deparment of Education will begin calculating default rates on student loans out to 3 years (it is currently based on 2 years which is why the numbers don’t look to bad). It is projected that once this is done, default rate statistics are going to soar from around 8 percent up to almost 14 percent. What happens when you go out further? What about 5 years, 8 years, 10 years? I bet the default rates are even higher. As far as I know, no one is tabulating the info on that. I bet it’s because they would be scared of what they would find.</p>

<p>Read the n+1 article I posted. Exactly what are colleges doing with all of the extra money they are getting these days? They aren’t hiring more professors to teach our kids, they are spending it on administrators and investment consultants. By 2014 The Department of Education expects that there will be more administrators than faculty at so called non-profit 4 year universities! Where’s the educational value in that?</p>

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<p>Well, the other problem is that ever since banks were deregulated in 1999 and 2000 under the Gramm Leach Bliley and Commodities Modernization Futures Act of 2000, investment banks and commercial banks have been allowed to merge together which has led to VERY questionable conflicts of interest. The whole world has gone to hell ever since they killed off Glass Steagall. The whole reason the subprime mortgage crisis happened in the first place was because investment banks had their hands deep into commercial lending. The same now applies to the student loan industry. Sallie Mae <em>used</em> to only be a quasi-government owned lending institution that was supposed to be not for profit. Right before and after they killed Glass Steagall, Sallie Mae began privatizing through it’s subsidiaries and delved head on into the derivatives market and began selling SLABS after the death of Glass Steagall through the GLB Act. Can you understand the extreme conflict of interest here? A commercial lending bank lets their standards slip because they know they can reap profits big time through their investment subsidiary. Ever since bank deregulation, college tuitions have EXPLODED because you have investment and commercial banks all merged together that have clear conflicts of interest handing out easy money, with no risk, and universities eager to take it. It’s amazing how we haven’t done anything about this since the meltdown in 2008 and didn’t learn from our grandparent’s mistakes during The Great Depression. Glass Steagall was enacted to prevent things like this from happening. All it took was $300 million in lobbying efforts over 30 years by Wall St. to kill it and run away with the derivatives market to insanity. No one here sees the big picture. High gas prices, subprime mortgage crisis, high college tuition prices, etc. etc.—these can all be traced back to the banking industry and the deregulation we enacted during 1999 and 2000. Amazing how blind the general public is and how much we are all being gouged.</p>

<p><em>edit</em> ahh looks like the post I responded to with this post got deleted</p>

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<p>S1, thanks to parents, gradutes debt free and has a very well paying and interesting job doing exactly what he wants to do. His liberal arts education was beyond expectations, he is conversant on most every topic, and brought important analytical skills to the job. Every time we talk I remind him how fortunate he is.</p>

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<p>Gravendworld, i don’t know of many,if any, families that have taken out loans of significance for college.i think the doomsday scenario you point out in loans is overstated,though does exist…the problem would NOT exist if parents/students don’t partake in the so-called game…pick a school you can afford,not unlike buying a house…predatory lending can only happen if you choose to sign the loans</p>

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<p>If people didn’t borrow and spend like crazy, the economy wouldn’t expand so fast and we wouldn’t be so dependent on luxury consumer spending with borrowed dollars.</p>

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<p><a href=“http://research.stlouisfed.org/fred2/data/TOTALGOV_Max_630_378.png[/url]”>http://research.stlouisfed.org/fred2/data/TOTALGOV_Max_630_378.png&lt;/a&gt;&lt;/p&gt;

<p>LOL that’s exponential growth and doesn’t even factor in all of the private loans. You or anyone else can come up with anecdotal stories all you guys want to “show” us how going to college can be cheap, but the data doesn’t support all your claims. Families are taking out an exploding amount of loans to meet costs. And just because you may be a responsible borrower doesn’t mean that everyone is, in fact there’s probably many more irresponsible borrowers than responsible ones. They’re the ones, along with Wall St. greed, driving the insane rates of inflation for tuitions. Wall St. isn’t stupid, they know there are big bucks that can be made off of gambling off our children’s futures because every parent out there wants the best for their child. They’ve sold as a dream–when that dream is in fact a nightmare. </p>

<p>Wall St. makes billions while the general public is too stupid to figure out and see what is really going on and is sinking under a tsunami of debt that’s rising at exponential rates.</p>

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<p>The data likley doesn’t support my belief college is affordable because people decide to choose schools they can’t afford…Perhaps if tax dollars were better spent at the local (elemenatary/high school levels),improving education there,college wouldn’t be seen as a ‘must’ for every student in the country…i would love to have my kids attend a great private school for elementary/high school, but guess what, i can’t afford that atop college costs…so i choose not to borrow to do so…people that get themselves into serious debt have nobody to blame but themeselves</p>

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<p>gravenewworld – one can only control their own family’s behavior. Just because something is offered in the marketplace does not mean you have to buy it. I for one firmly believe strict underwriting guidelines should be used by lenders for all loans – mortgages and student loans included. Also agree students should be encouraged to go to the college they can afford not some dream school they need to hock their future to attend. And for those who know they are going to want to attend college; it is affordable by beginning saving for college at child’s birth, one can save a fair amount of money slowly over 18 years.</p>

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<p>You aren’t seeing the bigger picture though. WHY have tuitions sky rocketed in the first place? Tuitions were around $3500 (real dollars) in 1980 and today they are over $20000. What accounts for a 500% markup? Inflation of tuitions never accelerated this fast until after bank deregulation. Look at all the biggest private lenders for student loans–sallie mae, wells fargo, jp morgan…they all happen to invest a huge amount into student loan securities because they can reap in incredible profits at literally no risk. They were the ones also that spent insane amounts of money to lobby in order to get student loans nondischargeable through bankruptcy. This is what happens when you deregulate everything and allow investment banks to have commercial lending arms. Ever wonder how banks got “too big to fail”? Death of Glass Steagal. But hey, this wouldn’t be America if you couldn’t gamble on our children’s debt on Wall St.through SLABS.</p>

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<p>Just because you don’t know many whose children have big student debt doesn’t mean that there are not many students who do. Consider yourself and the people you know lucky. My children are also very fortunate to have middle class parents who value education above all else and made sacrifices their entire lives to see that their children would have the educational opportunities they deserve. My son will graduate in December with nominal debt, that he chose to accept rather than work part-time when he was in the thick of his most demanding courses. He plans to repay most of his debt with his paid summer internship. My daughter has chosen to attend a pricey private university, but with academic and athletic scholarships, our out of pocket is in line with our state flagship. She will also have a small amount of student debt, but nothing that she cannot manage. Again, my children are lucky! </p>

<p>But many kids are not so lucky. My son’s freshman roommate graduated from a 2nd tier state university with more than $40,000 worth of debt. His parents retired and moved to Florida the summer after he graduated. He was not eligible for in state tuition as a freshman, which contributed to his high debt. He is now two years out of college, working as a manager of a mall store where he worked during college. He is underemployed and drowning in his student debt. He lives with his wife’s parents and both of them are trying very hard to chip away at their combined debt of nearly $70,000. His wife works two jobs and sells handmade items on the side. They do not feel that their education was a wise investment. </p>

<p>Another recent college grad, the daughter of public school teachers, recently graduated from our state flagship. A good student, she earned a partial state scholarship, and her parents had a prepaid tuition plan for her. She still has $20,000 in student loans and is working as a preschool aid.</p>

<p>My husband has a guy who works with him, 40 something, married with children, got his degree in electrical engineering a couple of years ago, huge debt. He is working at a low level tech job for $12, no benefits. His wife also works two jobs, but they are getting further and further behind, with his student debt ballooning because of missed payments and deferments.</p>

<p>The problem, in my opinion, is not necessarily reasonable debt. An investment in education is worth every penny to me. The problem is underemployment and the inability to repay that debt. And large debt for unmarketable degrees. This also puts a huge burden on parents, many of whom have adult children living with them long past college graduation. At a time when many are facing the stresses of helping with elderly parents, they also have to help their adult children. How are these parents supposed to retire!</p>

<p>I think that the amount of debt a student is eligible for should be indexed with future earning potential for their major. It is ridiculous to have students with 6 figure debt with earning potential of $30,000. While the stories sensationalized in the news are extreme examples, there are plenty of kids out there with unreasonable debt, compared to their earning potential. And they were all advised that education debt is good debt! The schools themselves share much of the blame in this mess. Student debt is a win-win for them. They get paid their ridiculous tuition and fees, convincing kids it is worth it in the end. I’d like to see reports on default rates 3 years out for different schools. It would be an eye opener for many kids and parents.</p>

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<p>poetgirl – the cost of college costs and the cost of health care have both increased far above the rate of inflation every year for 20 or 30 years. Both are heavily subsidized – directly or indirectly – by the federal government and other third party payers. I only got “Cs” in econonomics when I was in college, but I did learn that things that get subsidized tend to increase in price over time, more than things that don’t get subsidized.</p>

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<p>I, too, have always felt that deregulation (of any industry) spells eventual doom for the average citizen (or maybe ‘subject’ would be more fitting). Let’s face it, the overwhelming majority of those in power/wealth/influence (and, most probably, those who are NOT in that realm – as this is a human trait) are out for themselves and the rest can be damned. Deregulation simply opens the door for the excesses of greed and highly dubious – if not outright illegal – business ‘practices’ that have run rampant in the last few decades.</p>

<p>If, as it sounds, colleges are reaping profits (in all but name) as a result of these outrageous, yearly tuition increases, does that in some way account for the amazing growth (until the crash of 2008) of their endowments? It’s hard to believe that they have all suddenly found the secret to tapping the pockets of wealthy alumni/donors. Once upon a time, having a couple of hundred million in endowment was limited to the better colleges and indicated a solid financial position. Now, colleges of very pedestrian quality can boast such numbers and more!</p>

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<p>Also another point I forgot to mention was that a HUGE portion of those who invest in SLABS come from European countries. In otherwords people who are 6000 miles away, who don’t even care at all about our country or our children, have heavily vested interests in driving up tuition costs as much as possible and want to see our kids loaded up with tons of debt. There’s a whole different ball game out there being played that most parents don’t realize. Like I said, the working man and their kids are suckers for a dream and can be exploited to make billions.</p>

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<p>Aw I was trying to edit my post and it got deleted.</p>

<p>Yes I think college is probably the most overrated product in America. The student loan bankruptcy rules causing abnormally high enrollment and rising tuition, declining standards, and a general dilution of the value of a degree…college is a scam and a sinking ship. But hey, leave it to the suckers who pay for it to figure it out. There are enough middle class parents who pay for their children to go off and party for four years, go on vacations, drink, date, and fool around that there should be a wake up call.</p>

<p>It’s a shame the college and finance industry are making off with so much money, though. Maybe I should have invested in some SLABS’s</p>

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<p>Sithra, sounds like sour grapes to me…try being moderately successful without a college degree,sure there are a people who do such, but the odds are overwhelming against you…so,don 't be a ‘sucker’ as you call it, and try to carve out a living without the degree…</p>

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<p>The question you should be asking is not how you make it without a degree but how do you make it with a worthless degree? </p>

<p>But yes I do turn bitter when I feel scammed.</p>