The sharp attention being pointed toward higher education is important for a variety of reasons including the grim reality that we are facing another extraordinary bubble. Instead of blindly following into another credit fueled bubble we should probably pause as we cross the $1 trillion student loan threshold. The cost of education is becoming onerous and student loans are littered with financial landmines. Many are given to students to attend for-profit schools that will yield very little return on investment in the market aside from stockholders and corporate leaders. The uglier side also includes the inability to discharge student loans in bankruptcy. Americans have the ability to discharge mortgage debt if they are unable to pay their home payment. Businesses have the power to renegotiate contracts and loans with banks. Yet we somehow have managed to recreate debtor’s prison except it comes in the form of a student loan. Another dirty secret comes from the financial institutions gouging students with additional fees on top of the original loan balance. The higher education bubble is popping and the long-term implications loom large for our struggling economy.
One of the implicit tenets we live by in America is the ability to fail and comeback from setbacks. Currently this idea has been usurped by the giant financial organizations and has excluded virtually every other American. You have luxury hotels imploding and banks simply dishing billion dollar bad bets to the American taxpayer. At the core of the too big to fail bailouts is the notion that banks made horribly bad bets and needed to walk away. So they did by saddling the American taxpayer with the bill. Yet with student loans banks are lending to anyone and everyone willing to attend any questionable institution. The due diligence is comical and the corruption that is occurring is similar to the mortgage boiler rooms that were dishing out subprime loans to any person that walked in through the front door. The stories of student loan purgatory are starting to fill the internet. Take a look at this post from “Frank” over at Student Loan Justice:
“I graduated from law school in December of 97. I have paid on my student loans off and on over the past 9+ years and have paid back an estimated $75,000 on a loan that when I graduated was a little of $100,000. When I last checked the pay off amount it was over $135,000 and thats with paying $75,000 + over the past 9 years. I owe more on it now than when I took them out !! One of my loans is in default, they claim I owe them $23,000+ (which somehow jumped from $17,000 in a span of about 30 days) My two other lenders are close to defaulting and I am unsure if I should just let them default…”
This is one of the darker sides of student loans that are kept hidden by the banks and the government. Many lenders gouge students when they encounter problems. Unlike a credit card for example, when you have really extraordinary problems you have an exit hatch with bankruptcy. Ideally lenders are doing enough due diligence to learn their lesson. Yet with student loans the market keeps increasing as for-profit schools and other institutions increase tuition and saddle students like Frank above with insane amounts of loans. First, they have this person stuck in a modern day debtor’s prison. No way out. Next, they compound the misery by tacking on fee after fee. If Frank was unable to pay the initial amount what use is it adding more and more on top of it? The ugly side of the industry is they realize that they will have to milk the student as much as possible on the front-end. The government guarantees most loans so many lenders care not if a student really has any ability to pay the loan back in the future. These lenders quickly say, “well Frank shouldn’t have signed.” This cynical attitude is what is expected especially when the lender isn’t using his money. How about we ask the same lender to use their own money if they really feel many of these students warrant the current amount of loans being issued?
Link:
http://www.mybudget360.com/serfdom-via-student-loans-lenders-go-for-social-security-modern-debt-college-degree-student-loans/
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