<p>Well one way to explore potential trends is obviously to look at like events in the past. In that regard, we seem to be hauntingly close to like events of the late 20’s and early 30’s. What’s kept our current speculation imbalance from completely folding up is because some responsible governments have yet kept balances in place from lessons learned as a result of the depression era.
But there are some essential differences, such as digital trading and an enhanced and much more diverse international economy are the most obvious.
However there are other differences which are less obvious, and likely unprecedented. One is that, especially in the United States, education has become very influenced by a speculative form of heretofore profitable financing (for the company’s who control it). And as such is already becoming subject to the cycles inherent to speculative financing.
That’s a major change which could bring trouble simply because the shear numbers of people involved are much greater than those tied to the mortgage collapse. Another issue is that historically when the US and some European systems fall into economic instability, education is often used as a social stabilizing element. Early examples would be John Ruskin’s symposiums, the 30’s opportunity schools, and the immediate post WW-2 GI bill. And beyond the direct effects these did have a psychological effect of helping people subjected to economic downturns perceive that they could make it in a troubled system.
Problem is, because of the costs, education for many no longer works in that manner. And for some could actually be considered a substantial liability. For example, the projected incomes of certain trades have become so unstable as to make education a gamble rather than an investment. Many within academia would tend to belie this, for example on a faculty visit I heard a dean tell visiting students that high paying professorships were just waiting for them to pick up. That in a field where the placement rate is about 15% and many work as adjuncts.
So because of these conditions, unless there are reforms education, especially higher education may no longer be a factor in our ability to rebound from major downturns.<br>
As far as the horror quality of loans, gods yes and especially since the abrogation of social responsibility or outright collusion which resulted in the inadequate regulation of the SL industry. Many who obtained degrees in the mid 90’s and 00’s are struggling to pay their tolls, and some may never do so. For many of the current students I have spoken with; their perceptions are often haplessly split, they wish desperately to improve themselves and their status but also literally fear the potential consequences of their education. For either group not a tenable situation. And a very bad forecast for our immediate economic future. With the former group these are the people who should be buying consumer durable goods, houses or etc, and that obviously has fallen. With the latter group, well if they lose faith trouble there also.
Concerning the picture being better for the next generation, I would hope so…but looking at what seems to be developing perhaps not. I wish it were otherwise, because as an prof (for now) one of my obligations is to try to give to students the ability and perception that yes, their future can be better. In academia its becoming increasingly difficult for many profs to do this, because in all their status has declined (often due to edudebt) and so their future wasn’t better.</p>
<p>Perhaps it will get better for the next generation insofar as some appear to be organizing seriously about the debt and college issue..
Could be an interesting dialog between these embryonic student organizations, their colleges and the educational finance industry. And also interesting that this issue (in some places) seems to have engaged students who are of a generation which which has done much boat rocking about most issues. Not a criticism of that generation because they have been under very different pressures than other years, but it does appear this issue has scared enough of them that they are now overtly concerned.
Granted this selection is from the February issue of “The American Prospect” which tends to run to the left. But in informal conversations with students at my institution those on the right are equally concerned about the issue of college and attendant debt. They just express their worries using different terms and having slightly different opinions as to who to blame for the current mess
Theres a certain irony insofar as many academics who were the forlorn hope of generation debt, usually cannot comment because of institutional pressures, professional venue, or simply being scared out of their financial wits…</p>
<p>Kay Steiger | February 25, 2008</p>
<p>Democracy Versus Debt </p>
<p>Anthony Daniels is the chairperson of the National Education Association’s student program but is saddled with nearly $58,000 of debt in student loans from his undergraduate and master’s programs. He’s considering getting out of teaching. With payments of roughly $600 a month and an interest rate of 11.71 percent, he just can’ t afford the payments on a teacher’s salary, typically starting at less than $30,000. “The passion is here,” Daniels said, “but I just can’t afford it.”</p>
<p>Daniels, in a way, is lucky. At least he managed to get a degree. About one in five students at a four-year college or university end up dropping out, and financial stress is a prime cause. At community colleges, that number is one in four. The drop-out rate among white students at 43 percent is high, but the rate is even higher among Hispanics (56 percent) and blacks (61 percent). Debt burdens hit hardest at those with the steepest climbs into the middle class. Without a degree, there’s little hope of earning enough income to pay back loans.</p>
<p>Debt levels have been increasing over the last several years. Once, student loans were labeled by financial advisers as “good debt” incurred in service of increased earning capacity. But today the average student graduates with a debt load of more than $19,000, more than double the average debt in 1993 of $9,250. In 2005, the average student took 10 years to pay off college loans. Debt has become economically crippling – a drag on the disposable incomes of young adults and a deterrent to the enrollment or completion of college educations for students from non-affluent families.</p>
<p>Federal grant and direct loan aid is a much better deal than commercial loans, but the process of applying for federal aid is byzantine. The multipage application is daunting in comparison to seemingly friendly “sign here” private loans.</p>
<p>The private, for-profit student loan industry was created by The Higher Education Act of 1965, which Congress has been working to renew since 2004. The act set up a system of subsidies for the banking industry. Even if students defaulted on their loans, banks were virtually guaranteed repayment from the government. At the time, state universities were close to tuition-free, and student loans were a niche product used by a small number of students attending private universities. Excluding loans from parents, only about a third, 34.3 percent, of students in 2004 graduated without some kind of debt.</p>
<p>The private lending industry represents a needless middleman, extracting profits from federal funds that should be helping students. The industry has been afflicted by scandal, with some lending companies giving kickbacks and stock options to financial-aid offices employed by colleges and universities.</p>
<p>Because of the political power of the lending industry, the conservative Republican presidency, and the reluctance of fiscally cautious Democrats to increase net spending, reform has been largely blocked.</p>
<p>The College Cost Reduction and Access Act of 2007 produced meager and disappointing results. The maximum Pell grant award, the best shot at help for low-income students, will only increase by an average of $218 per year over the next five, when the maximum award will be worth $5,400. What’s more, only about 22 percent of students who apply for the Pell grant ever receive the maximum. The act did cut the interest rate of federally subsidized loans, like Stanford loans, in half – from 6.8 percent to 3.4 percent. Furthermore, the law caps loan payments at 15 percent of discretionary income. The act also expanded loan forgiveness programs for those who spend 10 years or more in a public service profession, like teachers or soldiers. But what the legislation didn’t do was make the Pell grant worth what it was in 1965, when it covered nearly all higher education costs. What the act didn’t do was increase the amount of direct loans; it relies instead on an inefficient private loan system that saddles students with large debt burdens. Nor did the act curb double-digit tuition hikes. Of applicants to colleges and universities around the country, about 400,000 never go because they can’ t afford it and about 600,000 qualified young people don’ t even apply to higher education.</p>
<p>Major student organizations, including U.S. PIRG, Campus Progress, and United States Student Association, endorsed the College Cost Reduction Act as better than nothing but far from adequate. Ideally, student groups want free or near-free tuition and housing for any student who is qualified for college and can’t afford it. USSA would also like to see the elimination of predatory private lenders altogether, but recognizes that that’s not an entirely feasible scenario, especially given conservative Republicans’ control of the executive branch. PIRG, on the other hand, advocates a more moderate position of simply increasing funding to grants and direct loans but leaving private lenders more or less alone. State-level groups tend to work more on curbing tuition-cost increases by lobbying for an increase in state funding.</p>
<p>“The student debt crisis is getting worse every year,” says Rebecca Thompson, the legislative director at USSA. Thompson held three jobs on and off campus during her time at North Michigan University, often working more than 40 hours a week while going to school full time. She still managed to graduate – but with more than $35,000 in student debt. “The economic ladder from below the middle class and the middle class is education,” Thompson said. She adds that sometimes we forget that colleges are often where young people become activists. “Without a college education I would not be doing the work that I do today,” she said.</p>
<hr>
<p>NEA’s take on the debt issue. They’ve got very legitimate concerns as to whether this problem could cause teacher shortages. Within academia it is already beginning to cause problems, and profs are often paid better than teachers. Excepting of course the adjuncts.
There’s a certain irony about the whole mess insofar as inadequate funding, and the attendant loan/debt issue may indirectly kill the educational system upon which financiers have made such incredible profits. Simply put, under current conditions its quickly becoming economically stupid or even suicidal to enter the teaching field. People who intend to serve, are getting served up…
From the January issue of the neatoday </p>
<p>By Cynthia Kopkowski</p>
<p>Read what our members are saying about this story and join the discussion.
Funny thing about educators, they’re good at math. Some of them even teach it. So they know that if they make $28,000 a year and owe $15,000 on student loans, they’re in big trouble.</p>
<p>CoverStory04.jpg Woodrow Price
25
Fifth-grade teacher
Port Gibson, Mississippi
$28,000 in Student Loan Debt
I enrolled in grad school to defer my student loans. When you first enroll and fill out the forms, you really just care about getting your tuition and fees paid for. But once you start realizing how much you’re going to have to pay back, it doesn’t feel the same anymore. There was a time when I thought about changing my major, but I decided to stick it out. Still, when I think about these loans, I think about the burden on my family. I’m borrowing my mother’s car; she’s sacrificing her vehicle. I’m living somewhere I don’t really want to live. There are a lot of things I really want to do but can’t. I’d like to travel.
That’s the kind of arithmetic that a growing number of them, especially new teachers and current education majors, are agonizing over as college costs balloon and salaries stagnate. Many young people, increasingly savvy about their future income-to-debt ratio, are making decisions about careers based on the reality of having to repay loans. So at a time when there is a great need for qualified teachers, young people are discouraged from entering the profession.</p>
<p>Today, two-thirds of four-year college graduates leave with student loan debt, compared with less than a third just 10 years ago, according to the State Public Interest Research Group’s Higher Education Project. And they carry twice as much debt as they did 10 years ago, too.</p>
<p>“We absolutely see a chilling effect,” on public service professions, says Robert Shireman, director of the Project on Student Debt. “Students are setting their sights on the future and saying, ‘I can’t afford to be a teacher or a social worker.’”</p>
<p>Estimates by the research group found that 23 percent of public college graduates leave school with too much debt to manageably repay their loans on a starting teacher’s salary. It jumps even higher for students leaving private colleges. Because of the cost of living and teacher salaries, graduates are in the worst shape with unmanageable debt in New Hampshire, Wisconsin, North Dakota, Vermont, Utah, Maine, South Dakota, Montana, Connecticut, and Minnesota.</p>
<p>After completing his undergraduate career at Alabama A&M University, Anthony Daniels owed more in loans than he would make as a starting teacher. In part to defer the loans, and hoping to improve his salary prospects, he went to graduate school. Now he’s $58,000 in debt and considering walking away from teaching in favor of law school. “Unfortunately my situation is not unique,” says Daniels, the chair of NEA’s Student Program. “In fact, it is becoming the norm. We are losing too many qualified teachers because of student loans. It’s not just a burden, it’s a barrier.”</p>
<p>ow Did We Get Here?</p>
<p>There is no “in my day, we walked five miles uphill in the snow to get to school” corollary for what’s happening to today’s college graduates. “Things are different for this generation compared to the last,” says Shireman. “People say, ‘Oh, I got through college and managed to pay,’ but that’s just not the case anymore because the costs are growing so significantly.”</p>
<p>Since 1994, debt levels for graduating seniors more than doubled to $19,200, according to the Public Interest Research Group. (For 8 percent of graduates, their loans top a whopping $40,000.) Factoring in inflation, the average student debt burden in 2004 was almost 60 percent higher than in 1994.</p>
<p>CoverStory04.jpg Ashley Davis
26
Student Member
University of Alabama - Birmingham
$15,000 in Student Loan Debt
My education is valuable to me; it will help me become the type of teacher I’d want teaching my daughter. But I’m a single mother and have to finance my education somehow. I started taking out loans about a year and a half ago. Knowing that I’m going into a profession that pays so little is very overwhelming. I want a new home but it doesn’t look like it’s in my future. The debt is taking away from money I could be spending on my daughter. I need a new car. Mine has 206,000 miles on it and I don’t know how much longer it will last. But I have a love for children and education, and I knew from the very beginning I’m not doing this for the pay. At the same time, it’s very scary knowing that I’m going to owe a lot more than I can make.
Black and Hispanic college graduates are hit even harder than their White counterparts, according to the Project on Student Debt. Black graduates have a higher amount of student loan debt and more of them have debt than White graduates. The number of Hispanic students with debt is on par with Whites, but they carry more debt.</p>
<p>Among NEA members specifically, a majority of those who have been teaching less than four years have student loan debt, according to a 2006 NEA Member Benefits poll. For half of that group, the bill totals more than $15,000.</p>
<p>Why did this become, as one author dubbed it, “Generation Debt”?</p>
<p>For starters, tuition costs are rising faster than inflation—they’ve ballooned 42 percent in the past five years (and inflation is outpacing teacher salaries, too). That’s been the trend for nearly two decades. And wages have stalled. In 2006, the median U.S. household income dropped 2 percent. Consider that families are increasingly squeezed by health care and housing costs. Then factor in that the previous Congress hiked interest rates on student loans and cut $12 billion from the Federal Student Aid program. At the same time, today’s economy dictates that one needs more than a high school diploma to join the middle class. College graduates earn $1 million more during their lifetime than those without a degree, according to the U.S. Census Bureau. “So it’s becoming increasingly important and increasingly expensive,” to pursue higher education, says Shireman.</p>
<p>When it’s time to find the money, students are more and more often turning to private lenders who loan money freely but often on less-favorable terms than government loans. A decade ago, private lenders were responsible for only 5 percent of the education loan dollars in use. Now they comprise 20 percent and it’s become a $17.3 billion market. Sallie Mae, the largest private lender in operation, reported $1 billion in profits last year. At one online retailer, 20 bucks buys a T-shirt that states in bold, black letters, “Property of Sallie Mae.”</p>
<p>wo Generations of Debt</p>
<p>CoverStory04.jpg Zoua Xiong
28
Student Member
University of Wisconsin - Milwaukee
$28,000 in Student Loan Debt
$75,000 in Household Student Loan Debt
My husband and I are both students. He’s been taking a loan out every year. He only qualified for financial aid after we got married and had our son. Seventy-five thousand dollarsthis is how much we’re going to owe. We’re hoping that if we suffer a little now, we’ll be better off down the line. When we get done with school we want to buy a house, but I think we’re going to have problems. With our student loans out and credit card bills, we might not have that chance.
Some households would need two of those T-shirts. As career-changers enter the profession from other fields and current teachers go back to school for master’s degrees in the hopes of eking out a better salary, their bills are mounting, too.</p>
<p>Susan Knable, a 46-year-old special education teacher in Collins, Ohio, has $51,000 in student loan debt. She accrued it between 1990 and 2000 while working to get her undergraduate and master’s degrees. Living in a rental apartment, Knablea divorced mother of foursays she would probably be able to own a home by now if it weren’t for her loans, which she likens to a 20-year mortgage. Each month, one of her paychecks goes to rent and bills. The second paycheck goes to the student loan. “I have a personal goal to get rid of that debt by 50, but I don’t know if I’ll make it,” she says. “I might extend it to 52.” Her children have now graduated and they, too, have loans. But, she points out, when her son finished college and went into the Air Force, his starting salary as a second lieutenant was a figure she didn’t see until her eighth year of teaching.</p>
<p>Fellow Ohioan Terri Crothers, a 44-year-old art teacher in Gallipolis, carries $50,000 in student loan debt, which she started accumulating in 1996 after switching careers. That was the amount that she came up short even after investing $20,000 of her own savings in her schooling. Like many teachers who have debt but have been working for a number of years, Crothers is left out of legislation that offers loan forgiveness. Provisions that allow for cancellation of Perkins and Stafford loans for teachers working in low-income schools are limited and available only to those who got the government loans on or after October 1, 1998. Many people don’t understand that “a lot of the legislation is focused on people about to come out of school,” Crothers says. “But I’m in a situation where my kid has braces, we’ve got a mortgage, and I’ve got student loan debt.”</p>
<p>CoverStory07.jpgAnthony Daniels
25
Student Member
Alabama A&M University
$58,000 in Student Loan Debt
I’m having second thoughts about going into teaching. How am I going to afford to have a family? Buy a house? My federal loan payment is $326 a month. My private loan payment, after I consolidated, is $300. Had I not consolidated, it would have been $600 or $700 a month. That’s on a $34,000 salary. I would be living on the street at that amount. Along with my car payment and auto insurance, I was dropped from my parents’ health insurance. It all adds up. It’s forcing me to want to go to law school more and more.
On her salary, something has to give, and it’s the student loans. Crothers admits that she is six months behind in her payments, a delinquency that keeps her awake some nights, wondering how she will ever catch up. “We’re teachers and we’re providing a public service,” she says. “Since our pay certainly isn’t keeping up, we could use help on this.”</p>
<p>Even members who aren’t personally hampered by student load debt will feel its effects. Lobbying strength at the bargaining table and in legislative halls is sapped when young members aren’t involved because they’re overwhelmed by student loans. Worse, their debt makes them susceptible to viewing union membership as a non-essential expense. Mike Langyel, a high school teacher in Waukesha, Wisconsin, and a veteran member of the Milwaukee Teachers Education Association bargaining team, sees the corrosive effect on union advocacy in his area.</p>
<p>“These young people are really getting killed on student loans,” says Langyel, who points out that many of his young colleagues work second jobs to stay afloat. “To try to get them involved in union activities when they are struggling with student loan debt isn’t going to work.” Teachers are also pressured to go back to school for advanced degrees to get more money, Langyel says, meaning higher turnover on school staffs and deepening debt for them. Everyone wants their schools packed with highly qualified teachers, but when it comes to financing those advanced degrees, educators are on their own.</p>
<p>Observing the bind his younger colleagues are in, he thinks, “this is going to be a tough life for them.”</p>
<p>I think that we pay starting teachers in the low to mid 20s in our district.</p>
<p>We hired a college professor a few years ago as an engineer and we’ve had many talks about academia. I was interested as I had kids approaching the ages of interest.</p>
<p>He left academia because he saw a lot of things that didn’t make sense and he had the feeling that the number of institutions of higher learning was going to drop in the coming years.</p>
<p>He was amazed at how optimistic Americans are (he’s from another country) and his evidence of this is that they will borrow huge amounts of money to go into fields where they can’t hope to pay back their loans in any reasonable period of time. He concluded that students don’t understand one of the most powerful forces in the universe: interest rates.</p>
<p>He believes that American students will figure out that the value equation is broken and that enrollments will decline and private schools will close. It is an interesting theory. BTW, this was before the housing bubble became public knowledge, around 2005 when the housing bubble peaked. So we could add credit market distress to the reasons for declining enrollment.</p>
<p>Like the housing bubble, the student loan (or college cost) bubble is driven by the belief that borrowing and buying into the bubble is a way to do well successfully. Many were using the housing bubble and mortgage equity withdrawal for short-term pleasures whereas student loans are for benefits down the road. But I think that access to credit for attending college has been part of the reason for college price inflation. If borrowing costs were higher or if borrowing itself was more difficult, then colleges would have to lower their sticker prices. The housing bubble wouldn’t have gone on as long as it did without the addition of financial wizardry (which turned out to be smoke and mirrors) that allowed people to borrow ridiculous amounts of money relative to their incomes (or non-incomes in some cases). Would we have the same effect of lower prices if access to credit were reduced? I think that Federal monies directed to loans should go to a better balance of grants and loans or maybe just grants based on some combination of merit and need in a way to also encourage parents to save for college instead of expecting better financial aid for not saving.</p>
<p>Public school teachers are paid mostly from local and state taxes. In our state, it’s mostly from property taxes. General wages have been stagnant for quite some time so passing through big property tax hikes for salary increases for teachers can be very hard. This results in teachers moving to better districts if they have the ability to do so.</p>
<p>But other industries have the same problem too. If you work in an industry that has seen a lot of outsourcing, then your income may be flat as well even though you also have student loans to pay off. So I don’t see the problem as being limited to teachers. But it may mean a declining level of education for the country as a whole which affects the whole country.</p>
<p>The engineering prof who came in from overseas may have had an advantage of interpreting trends because he could perhaps look at it all from a slightly removed perspective. And his contention that, “He believes that American students will figure out that the value equation is broken and that enrollments will decline and private schools will close. It is an interesting theory. BTW, this was before the housing bubble became public knowledge, around 2005 when the housing bubble peaked. So we could add credit market distress to the reasons for declining enrollment” was almost prophetic.
What he expressed several years ago has begun to happen. Although students are not quite literally opting out of education they have become quite aware of the massive imbalance between school costs and attendant debt. And are becoming very concerned. At gateway schools what will happen is their incoming students won’t come. They are often part of the economic classes which are hit hardest by the credit industry, especially when relative income is considered, and so they will be the first group to be driven from educational opportunity.
One of the disturbing aspects of the education systems incestuous relations with the finance/loan industry is that eventually this becomes an issue of social freedom and equity. For much of the last century, groups which had the desire to improve their status, or to right social wrongs, partially achieved this end by learning the theories and practices by which power is controlled or reformed. That is exactly what was advocated by WEB Du Bois, and put into practice be such men as Dr. King. But with the higher education system in this country being pressed in the vise of the financiers, it may soon be impossible for such groups and such men, to attain the education needed to eloquently voice justifiable concerns. And although the current situation benefits the financiers who have preyed on higher education, and in a reverse irony made higher education reliant on that very predation, it is a ultimately a malicious condition. Because in part, it contributes to the perception that those who are marginalized cannot succeed in our culture. And will eventually be a seminal part of making that perception a stated reality.
And that is indeed a issue of social freedom and equity. If the route to social expression or elevation is closed for no other reason than some elite groups undeserved profits; than the people who are affected will find other means of addressing their rights. And that could lead us into the shadowy memories of conditions we thought we’d left behind generations ago.
And the solution as BC Eagle noted is to redirect the monies and resources so generously handed to the financiers into direct grants or other forms of non loans aid which would directly and appropriately benefit students and higher education. To do this would obviously raise a hue and cry, but that noise would mainly arise from those who have the most money to lose, but actually contribute the least to the mission of higher education. Of course that is the loan financiers, and unfortunately the slick whispers of their lobbyists seem to carry further with our representatives than the increasing demands of the common people to reform this system. But that cannot continue for many reasons, including the ones mentioned above.
As necessary and admirable it would be to drive the financiers away from the next generation of students would be… other remedies are needed for the generation who’d already been fed to this social carnivore. How that could be done I do not know. But if something isn’t done, well more than a slight loss of the overvalued stocks of gargantuan finance companies will be at jeopardy.
In my field of education for example, many cannot remain as teachers because of the demands of the edudebt industry. And in academia there is a form of brain drain already beginning at the gateway schools. Unless they are profoundly dedicated (or haplessly trapped) many profs are now having major trouble paying the edudebt industry, and normal living expenses. And eventually many who would be professorial stars, who’d serve the next generations well, would have to leave. Whether that would be leaving teaching or completely leaving our country, the end result is the same unfortunate consequence.
Which brings two disturbing questions. If higher education in this country is to be a agent of social justice and equity, how can it do so if the people who teach these concepts cannot afford to do so?. And if our higher education system is to be little more than a financiers poisoned, albeit profitable well, how can they continue to draw from that source if the common people cannot, or dare not, enter academia?</p>
<p>The problem with current loans is a deep one as an article on MA foreclosures revealed today. Governor Patrick wants to encourage banks to renegotiate loans with those threatened by foreclosure. The response from the mortgage companies that securitization has made this difficult because the bankers don’t necessarily know who owns the mortgages as they’ve been sliced and diced into other securities.</p>
<p>Sallie Mae does securitization too (I saw an example from a google search). So pieces of student loans could be in pension funds, university endowments, hedge funds, sovereign wealth funds or your 401K fund. Breaking bond agreements could kill bond insurers too (PMI Group and Radian, two mortgage insurance companies have declined by 80 to 90 percent in the last year) which could cause additional problems in credit markets.</p>
<p>The Fed’s approach in our housing problems is to let banks borrow as much as they want to with bad collateral as if it weren’t bad and then write off the bad stuff over time hoping that profits in other areas offset losses in mortgages. And of course a few companies may have to be sacrificed for the good of the overall system along with their bondholders and shareholders. I have no idea how student loans could be restructured without breaking contracts.</p>
<p>I don’t perceive a lot of political pressure to fix this problem and I only became aware of it on this board. So it seems to me that it’s up to parents, students, college administrators and those with current loans to bring the issue to their elected officials.</p>
<p>I wish I understood where the money for education goes. It doesn’t go to the professors. Two students of hundreds pay any given professor’s salary over a year. All the college offers is space for the transfer of knowledge. Why is it so expensive?</p>
<p>I think that costs at public universities are fairly reasonable. Typical K12 schooling runs about $9K per student. Public universities typically provide more than K12 schools.</p>
<p>On private schools, I think that there’s a lot of redistribution of wealth. Average tuition amounts are probably more useful than the sticker price.</p>
<p>As far as restructuring the SL industry, as BCEagle has stated its quite a dilemma especially in regards to already existing loans. And as noted the upcoming readjustment in the SL market, which has over pressured its client</p>
<p>Yes, I noticed the building binge with the kids’ private school. In the 10 years they have been there, they’ve built a belltower, a new building for classrooms, a state of the art library and computer lab, jogging track, an 800 seat theater that also contains a full photography lab, dance studio, a dressing room/make-up studio, a gallery, a band/music room, a black box theater, etc. They’re now about to build a new gym. They already had a jogging track, football field, olympic sized swimming pool when we got there. It looks more ike a college campus than a K-12…</p>
<p>Well it seems your kids private school is financially well endowed. But whether or not they should build these trophy edifices at least the money isn’t likely to have been redirected from public funds.
At the collegiate level they build trophy buildings due to marketing needs and the unhealthy union of alumni and administration egos. In the meantime profs at many state schools are not exactly paid well, and at some schools the equipment they teach with is either outdated or absent.
But these problems relate to a unfortunate moral paradigm which has been developing over the last decade. Money has always been a factor in American higher education, but in the last generation there has been a substantial shift to the profit motivation which has been very detrimental to the status and missions of colleges be these state and private. Once financial companies began to use and view academia as a stream for easy and protected profits, the moral dam was broken.
It could be argued that this change was the result the establishment of what are effectively trusts (in the unfortunate 19th century sense of the word) which have co-opted American higher education for their own very profitable ends. And as the gold rolled in the colleges lost their moral bearings and so have themselves played along. Not quite comprehending that by doing so, they are increasingly losing their essential good reputation with the public.
Government and business have done these incestuous unions before, but the current situation involving academia, student loan corporations and government could arguably be perceived as much more socially detrimental than any past example of such conduct. And its very, very difficult in US history to find beneficial examples of such unions. Perhaps the last time such a deal did actually benefit the country reached its fruition at Promontory Summit back in 1869. And arguably that was the last time a union of trusts and government did actually benefit the country.
It would be very, very difficult to claim that the trusts of the student loan industry have really operated with any intent to serve students or benefit the common good of this country. Yes the 15 million per day that some of these corporations make on students and their families is invested into other speculative ventures. Some of which was directed into very questionable arenas of the sub prime mortgage debacle. And like that disaster, ultimately the student loan bubble will burst and ruin the lives of millions.
From an pragmatic assessment the resources with which they played these games, are resultant from what is likely the ultimate expression of corporate welfare in the United States. And one of the largest transfers of wealth in US history.
Which begs the moral question, since these trusts and their wealth is literally built on the backs of students, their families and their futures, how could it ever have been justified or be allowed to continue?</p>
<p>Student Loans Start to Bypass 2-Year Colleges</p>
<p>By JONATHAN D. GLATER
Published: June 2, 2008</p>
<p>Some of the nations biggest banks have closed their doors to students at community colleges, for-profit universities and other less competitive institutions, even as they continue to extend federally backed loans to students at the nations top universities.</p>
<p>Citibank has been among the most aggressive in paring the list of colleges it serves. JPMorgan Chase, PNC and SunTrust say they have not dropped whole categories, but are cutting colleges as well. Some less-selective four-year colleges, like Eastern Oregon University and William Jessup University in Rocklin, Calif., say they have been summarily dropped by some lenders.</p>
<p>…</p>
<p>Some loan companies have exited the student loan business entirely, viewing it as unprofitable in the current environment. By splitting out community colleges and less-selective four-year institutions, some remaining lenders seem to be breaking the marketplace into tiers. Students attending elite, expensive, public and private four-year universities can expect loans to remain plentiful. The banks generally say these loans are bigger, more profitable and less risky, in part perhaps because the banks expect the universities graduates to earn more.</p>
<p>…</p>
<p>The banks that are pulling out say their decisions are based on an analysis of which colleges have higher default rates, low numbers of borrowers and small loan amounts that make the business less profitable. (The average amount borrowed by community college students is about $3,200 a year, according to the College Board.) Still, the cherry-picking strikes some as peculiar; after all, the government is guaranteeing 95 percent of the value of these loans.</p>
<p><a href=“http://www.nytimes.com/2008/06/02/business/02loans.html?_r=2&ref=business&oref=slogin&oref=slogin[/url]”>http://www.nytimes.com/2008/06/02/business/02loans.html?_r=2&ref=business&oref=slogin&oref=slogin</a></p>
<p>A development which was coming, and it does directly correlate to the attitude of financiers literally viewing colleges as a revenue stream. And very indicative that they have come close to breaking the financial back of the client</p>
<p>BC Eagle and company.
It appears we may be watching the collapse of a major speculators bubble. As noted some companies are trying to move out of the market, or restrict their involvement.
Others seem to have managed their affairs with either stunning incompetence or unprecedented cavalier recklessness that its evident a potential collapse is looming. How exactly does one manage to lose a billion dollars in assets? Roulette? It is very evident that the assets attained via what could be arguably considered the very profitable exploitation of academia, students and families, may not have been applied in anything resembling a fiscally responsible manner. And unfortunately despite the recent inflow of government funds for liquidity, the SL speculators bubble is too massive for the Bear Stearns approach to work. And given the economic troubles currently experienced by an increasing proportion of our population that well has run dry. No matter how many threats are which may soon be yelled down the hole too many of the common may soon have nothing left to give.
Granted TERI claims to be a non-profit, however like similar entities they largely function to transfer funds to for profit entities in the form of bonds.
And incredibly ironic that back in April TERI was able to file for bankruptcy protections whilst the thousands of common people caught in an economic quicksand caused by this same situation have had that option effectively denied.
Economically what is happening is incredibly dangerous, and may ripple through an already troubled financial system. It’s already been a tsunami through the finances of many individuals. But it seems they will have to hang twisting throughout the summer, as their troubles aren’t easily conveyed in marble halls filled with sotto voce lobbyists.
And how in all the various divinities did our system and its representatives ever allow education to become subject to such influences, and what will they do when it becomes a contributory factor to a increasingly evident economic disaster? </p>
<p>By Signal Staff
And Wire Services
Posted: April 19, 2008 1:18 a.m.
Updated: April 19, 2008 4:50 a.m.</p>
<p>The Education Resources Institute, the oldest and largest nonprofit guarantor of private education loans in the country has filed for bankruptcy protection in Boston while it reorganizes, listing debt of as much as $1 billion and assets of more than $1 billion in its Chapter 11 petition.</p>
<p>This action was necessary as the nation’s ongoing credit woes continue to cause unprecedented volatility in the student loan market and immense hardships on loan-related companies. Difficulties in financing the securitization of private education loans, along with a rise in borrower defaults and delinquencies brought on by a slow economy, have adversely impacted TERI’s liquidity.</p>
<p>“Because of the recent turmoil in the financial markets, demand for bonds backed by student loans has evaporated,” the company’s chief executive, Willis J. Hulings III, said in court papers.</p>
<p>The lack of investor demand had made it harder for student lenders to raise money to finance their operations. CIT Group Inc. and NorthStar Education Finance Inc. last week said they will stop making new loans to U.S. students because lending costs have soared. Only two student loan companies sold debt in the asset-backed securities market last month, and no new private-loan bonds of the type that TERI specializes in have been bought this year.</p>
<p>Based in Boston, TERI is the largest nonprofit, private guarantor of student loans in the country, providing financial guarantees for First Marblehead Corp. The company helps students fill the funding gap when government-backed loans are not enough to cover the costs of college.</p>
<p>First Marblehead Chief Executive and President Jack Kopnisky said in an April 8 news release that since 2001, TERI “has been the exclusive third-party provider of borrower default guarantees for our clients’ private student loans.”</p>
<p>The nonprofit institute guarantees about 20 percent of private student loans, including $4 billion in new loans last year, Hulings said.</p>
<p>Colleges and universities have begun to see a tightening in access to private student loans, according to two recent reports, as a number of lenders have curtailed or stopped making some types of loans in both the private and federally backed loan markets. At the urging of Congress, The U.S. Education Department has taken a number of steps recently in case emergency measures become necessary to assure the availability of student loans.</p>
<p>“TERI believes that the filing of the Chapter 11 case will enable it to avoid a near-term liquidity crunch that, without the protections afford by Chapter 11, would threaten its viability,” Hulings said, adding that the company hopes to develop a long-term business plan to continue its loan guarantee programs.</p>
<p>I had a look at the company and it appears that they are still processing grants and aid from foundations. It doesn’t appear that they are processing loans though it is hard to tell from their website.</p>
<p>The article that you posted indicates that they have about a billion in debt and over a billion in assets so it’s not clear to me that they’ve lost a billion. It appears that there isn’t a bond market to sell debt into which means that they can’t originate.</p>
<p>A bubble is typically based on some kind of asset whose price gets bid up by speculators. Typical examples are real estate, art, stocks and tulips. I don’t know that student loans would be considered a bubble because the value of the bonds wouldn’t rise spectacularly in almost all circumstances.</p>
<p>Over the years, I’ve found that the Credit Bubble Bulletin by Doug Noland provides a nice weekly summary of the debt markets with explanations so that ordinary people can understand the terms (once in a while).</p>
<p>accm205, if you are still out there…</p>
<p>There is a “thing” with regards to debt which is very important. That “thing” is called a debt to income ratio. </p>
<p>For example, if you graduate University with an undergrad degree with this $40,000.00 debt, and if you first job or graduate assistantship is for well under or just a mite bit over $40,000.00, then you are going to go through heck for a really fair amount of things.</p>
<p>Be careful.</p>
<p>BCEagle quite right that concept of speculators bubbles are usually associated with commodities. And quite obvious at times that economics theory is very definitely not my particular discipline. But I couldn’t find a better word to describe what seems to be going on with the SL industry. We seem to be watching the economic indigestion resultant from a decade long feeding frenzy.
And with TERI, something bizarre does seem to be happening. The problem is that not unlike the mortgage mess, tracing out exactly who owns what, and how many times notes have been resold, is probably close to impossible. Especially without inside information or overt assistance from those involved. On an individual basis for many who are in good faith trying to pay student loans just finding out who to pay is difficult, and worse is trying to find out whom to try to negotiate with or actually owns the note.
In a overall sense, that economic spiderweb will probably make accountability difficult when there is the drive for badly needed reforms. It seems what we have here is a complex and ambiguously legal form of money laundering of which the LCN would be envious.
The potential consequences of the whole situation are beginning to worry influential people, although few are speaking directly. Elizabeth Warren of Harvard Law School is one who is speaking up. And she notes that the SL industry is a seminal part of very disturbing trends regarding loss of status for the middle classes, and a transfer to a non productive credit economy. The excerpt below is from the report she’d submitted to the Senate…(apologies for the improper text wrapping, but oh well its a busy day) </p>
<p>Elizabeth Warren, Harvard Law School, Senate Report May 2007 </p>
<p>"Americans see a college degree as the single most important determinant of a
young person’s chances of future success, their ticket to the future. But it is becoming harder than ever for families to pay for that ticket. Costs are rising and family savings are falling, and that leaves many middle class families deeply worried. And as students increasingly try to shoulder the burden, many are graduating deep in debt—tempering the good news of higher earning potential with the higher risks associated with debt. Many others, including almost 20 percent of low-income high school graduates with high test
scores, do not manage to enroll in college at all within two years of graduation. The high costs of college have hit middle class families especially hard. As a group, these students are unable to rely on family income or savings to pay for college, so they shoulder large debt loads. Every cut in the federally funded student loan program is a cut felt directly by middle class families. Policy tradeoffs pit low-income students, eligible for grants, against moderate-income students who must rely on loans, leaving both groups scrambling to try to find a way to pay for the college educations they need.
Underfunding grant programs for low-income students is a mistake, but making
middle class students pay for increases in grant programs by cutting their access to loan programs is a bigger mistake. College is the ticket to security and success. A new financing mechanism is essential, one that lets students take responsibility for the cost of their own educations without burdening their families unduly, forcing them to make career choices that push them out of public service, or taking on so much debt that theireconomic futures look bleak.
Any person—regardless of income—who is willing to work hard should have a
realistic chance to get a college education and to pay for it without mortgaging the future. Adequate federal loans should be made available to every student in the country, with enough money to cover four years of room, board, tuition and books (pegged to state university costs). After graduation, repayment options should include public service, as
well as dollar repayment. A year of college expenses could be forgiven for each year the graduate works in public service. With such a program, typical students could begin adult life debt-free at age 26, with a college diploma and four years of work experience already in hand. Those who go to college later in life would also have the opportunity to participate in the loan forgiveness program. Equally important, giving college students an opportunity to repay loans through public service would provide an opportunity for young Americans to contribute vital services to their nation and their communities…</p>
<p>The rules of the game have changed. For today’s middle class families, hard
work and good intentions are no longer enough. Go to school, get a good job, do your work, don’t go crazy with spending, and everything will work out. That formula may have worked in their parents’ day, but today families fac tough, new world. There areopportunities to be sure, but there are also new costs and hidden dangers…
America was once a world of three economic groups that shaded each unto the other—a bottom, a middle, and a top—and economic security was the birthright of all those who could make it to the middle. Today the lines dividing Americans are changing. No longer is the division on economic security between the poor and everyone else. The division is between those who are prospering and those who are struggling, and much of the middle class is now on the struggling side.
The economy has changed, and middle class families are struggling to change
with it. Laws like social security, Medicare, FHA, consumer product safety, fair credit reporting and a host of other statutes were designed to help middle class Americans cope with the risks in the economy of the mid-Twentieth Century. With a strong safety net to
back them up, Americans innovated at a rate unparalleled in world history. Today’s families face new costs and new risks, and they need help so that they too can achieve security and prosperity for themselves and a stronger, healthier economy for everyone".</p>
<p>1 The lower 20% of income cuts off at $19,000, while the top 20% starts at about $92,000. The 60 percent
in the middle are solidly middle class, although many of those with higher and lower incomes would also
call themselves middle class. [HINC-05–Part</a> 1](<a href=“http://pubdb3.census.gov/macro/032006/hhinc/new05_000.htm]HINC-05--Part”>http://pubdb3.census.gov/macro/032006/hhinc/new05_000.htm)
2 [US</a> Census Press Releases](<a href=“http://www.census.gov/Press-Release/www/releases/archives/income_wealth/007419.html]US”>http://www.census.gov/Press-Release/www/releases/archives/income_wealth/007419.html)
3 Today, the two-parent family right in the middle is earning about $66,000. Bureau of the Census, 2005
American Community Survey, S. 1901 Income in the Past 12 Months (in 2005 Inflation Adjusted Dollars),
[United</a> States - Income in the Past 12 Months (In 2005 Inflation-Adjusted Dollars)](<a href=“http://factfinder.census.gov/servlet/STTable?_bm=y&-qr_name=ACS_2005_EST_G00_S1901&-]United”>http://factfinder.census.gov/servlet/STTable?_bm=y&-qr_name=ACS_2005_EST_G00_S1901&-)
geo<em>id=01000US&-context=st&-ds</em>name=ACS<em>2005</em>EST<em>G00</em>&-tree<em>id=305 Because all households
include one-adult and two-adult households, any statistic confined only to two-parent families will show
considerably higher earnings.
4 Bureau of the Census, Historical Income Tables—Families, Table F-13.
[Historical</a> Income Tables - Families](<a href=“http://www.census.gov/hhes/www/income/histinc/f13ar.html]Historical”>http://www.census.gov/hhes/www/income/histinc/f13ar.html)
5 <a href=“http://www.bea.gov/bea/dn/nipaweb/TableView.asp#Mid[/url]”>http://www.bea.gov/bea/dn/nipaweb/TableView.asp#Mid</a> (savings rates reported by quarter)
6 Computed from data on debt, both revolving and total, from the Federal Reserve (available at
[Federal Reserve Board: Error Page](<a href=“http://www.federalreserve.gov/releases/g19/hist/cc”>http://www.federalreserve.gov/releases/g19/hist/cc</a></em>hist<em>sa.html)), number of households and data on
household income, from the Bureau of the Census (available at
[American FactFinder](<a href=“http://factfinder.census.gov/servlet/ADPTable”>http://factfinder.census.gov/servlet/ADPTable</a>?</em>bm=y&-geo<em>id=01000US&-ds</em>name) and
[American</a> FactFinder](<a href=“http://factfinder.census.gov/servlet/STTable?_bm=y&-qr_name=ACS_2005_EST_G00]American”>http://factfinder.census.gov/servlet/STTable?_bm=y&-qr_name=ACS_2005_EST_G00)
7 2006 savings rate was –0.7%. Bureau of Economic Analysis, National Economic Accounts, Table 2.1,
Personal Income and Its Disposition.
<a href=“http://www.bea.gov/bea/dn/nipaweb/TableView.asp?SelectedTable=58&FirstYear=2004&LastYear=2006[/url]”>http://www.bea.gov/bea/dn/nipaweb/TableView.asp?SelectedTable=58&FirstYear=2004&LastYear=2006</a>
&Freq=Qtr
8 See data cited in note 8 supra.
9 Juliet B. Schor, The Overspent American: Upscaling, Downshifting, and the New Consumer (New York:
Basic Books, 1998), p. 20, 11.
10 Robert H. Frank, Luxury Fever: Why Money Fails to Satisfy in an Era of Excess (New York: Free Press,
1999), p. 45.
11 John de Graaf, David Waan, and Thomas H. Naylor, Affluenza: The All-Consuming Epidemic (San
Francisco: Barrett-Koehler, 2001), p. 13.
12 The Bureau of Labor Statistics maintains the Consumer Expenditure Survey (CES), a periodic set of
interviews and diary entries, to analyze the spending behavior of over 20,000 consumer units. Much of the
analysis compares the results of the 1972–1973 CES with those of the 2004 CES. In some instances,
prepublished tables from the 1980 or the 2000 survey are used in order to use the most comparable data
available. In both time periods, the data used are for four-person families.</p>
<p>Unfortunately reputable sources are now beginning to refer to the problems in the SL situation as a bubble. The following excerpt if from the May 2nd edition of Inside Higher Education. What’s unsettling beyond the obvious and distressing economic implications are the moral ones. By running to the SL industry when non loan aid and funding were cut, academia seemed to be cuddling with a postmodern Simon Legree. And as with any relation of convenience soon enough the moral compromises became accepted as normal.
Perhaps that’s why the first tier schools such as Stanford are trying to move away from the whole paradigm, at least for those of their students and families below a certain income. Most of the state schools, alas, currently are too bound to, or actually enamored of the whole system to divorce themselves.
Increasingly as this crises escalates, the unease which many faculty have kept subliminally contained seems to be creeping out. Many of us consider teaching as a calling, or are bound to it by professional necessity. But it’s getting increasingly difficult to be the smiling face or the tweed jacket veneer for a system which has lost its moral structure along with its economic balance. And that moral dichotomy could be yet another consequence of higher education going astray, a profound doubt with those who serve in it, as to whether they should be within it. </p>
<p>The Next Market Bubble: Student Loans?
By Andrew Gillen and Richard Vedder ,Inside Higher Education, May 2nd </p>
<p>“It seems that each new day brings more bad news about Americas housing crisis. Sales have plummeted, prices are dropping with no end in sight, and millions of desperate homeowners now face the very real prospect of losing their homes to foreclosure. Banks that bought shaky mortgages are also feeling the pain, ensuring that the financial burden hits both Main Street and Wall Street
While everyone is focused on housing right now, financial history tells us that another bubble lurks beneath the surface. Indeed, it was only eight years ago that we stood panicked at the prospect of dot.com companies going out of business and the chance to buy a house through innovative loan products seemed like a prudent decision. Predicting exactly where the next bubble lies is difficult, if not impossible. But given our research, we believe that a persuasive case can be made that higher education and the student loan industry are inflating a massive bubble. Trying to reform this bubble before it explodes should become a priority for lawmakers.
Here are the facts. In an effort to increase access to higher education, the government has been lavishing financial aid on students. The largest of these subsidies are the loan programs (primarily the federal direct and guaranteed loan programs, Perkins and PLUS), which accounted for just under 70 percent of all federal financial aid last year, according to the College Board. But there is reason to believe that these subsidies do not achieve their goal due to an unintended consequence, specifically, the incentive the subsidies give to colleges to increase their tuition.
Most government subsidies lead to lower prices for consumers, as profit-maximizing businesses expand production to satisfy the higher demand that subsidies bring about. This is not the case with student loans in higher education, however, because the field is dominated by public and nonprofit institutions that seek to maximize the prestige of their institutions, not their profitability. Admitting more students (expanding production) will, other things equal, lower the quality of students admitted, and therefore reduce the prestige of the institution, which is precisely why many schools are willing to forgo the business of many potential customers. The best schools turned away more than 90 percent of applicants this year. Raising the demand for higher education through more student financial aid does not increase enrollments a lot.
To make matters worse, there is very little information available about the actual output of colleges (what and how much students learn). Without this information, it is difficult to conduct a cost benefit analysis of going to college, let alone compare various schools. Without a measure of output to prove otherwise, high tuition charges are sometimes seen by students and their parents as indicating high quality of a school, meaning that outrageous prices do not necessarily scare students away.
So what does increasing loans for students accomplish? Just put yourself in the shoes of a college administrator to find out. The 61 percent increase in inflation-adjusted federal loans over the last decade leaves virtually all their students capable of paying more in tuition. The schools can either raise tuition, using the additional money to help build a better (more prestigious) college , or could leave tuition unchanged in an inflation-adjusted sense. The decision they made is obvious from U.S. Department of Education data. Over the last 10 years, after adjusting for inflation, tuition is up 48% at public schools and 24% at private schools.
Giving schools more money to build better institutions may not seem like a bad idea, but keep in mind that their goal is to increase prestige. This means that they will not necessarily use the money to improve the education their students receive. For example, Inside Higher Ed recently reported that less than half of employees at Americas institutions of higher education are faculty, information reinforced by a new study released this week. Todays universities are congested with vast bureaucracies that stifle innovation and waste resources. Princeton University recently constructed a fancy dorm that cost $70,000 more per bed than the median home price. This unnecessary largess should show that what increases prestige may have very little effect on the education of students. Moreover, much of the extra money for schools ultimately comes from the students, who have seen the average debt upon graduation steadily increase to over $20,000 last year.
The analogy to the housing bubble is nearly perfect. Low interest rates arising from expansionary Federal Reserve policies led to rising housing demand, rising home prices, and excessive lending to individuals with dubious credit worthiness. Similar things have happened with student loans. The federal government has provided subsidized, low interest credit, often to students whose prospects for graduating from college are marginal and whose credit histories are non-existent. Student loan defaults are rising along with tuition fees. Already, some private lenders are exiting the market and federal officials are starting to become increasingly worried about the availability of student loans. The government-induced housing bubble is paralleled by what could be thought of as a tuition-loan bubble.
Even if the bubble is beginning to peak, we think that it has a long ways to go before it reaches crisis stage. Remember, it took us almost three years from the apex of the housing boom to todays sad state of affairs. And its entirely possible that we may never hit that point in the student loan-tuition bubble.
Nevertheless, we think it would be wise for policy makers to seriously examine the dysfunctional system of student loans and tuition now and start recommending broad, fundamental reforms to solve this problem before it gets worse possibly a lot worse. The underlying long-run solution, of course, involves reining in the excessive rise in college costs.”</p>