The Definition Of Insanity (America's Student Loan Bubble)

<Be Seeing You....>

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"Insanity: doing the same thing
over and over again and expecting different results."

<Albert Einstein>

Here's how it worked, once upon a time, for yours truly. I spent seven years between two different colleges -- starting at a small rural school often derided as "three buildings in a cornfield." To which I invariably responded: "It's a dozen buildings in a cornfield, actually." That experience took two years of my time. 

I then transferred to a Big Ten perched in my state's capital city (population: 130,000-plus then, 100,000 now). Alas, the new institution only took half my credits, essentially forcing me to start over academically....silly me, eh? Why hadn't I taken that issue into account? (On the plus side, it gave me a handy one-liner -- "Hey, there, I'm a second-year junior" -- depending on which friend I wanted to make, or woman I'd try to chat up.)

When I graduated, Communism was on its last legs. The Berlin Wall's future looked dicey, so the mainstream media plumped up the rosy glow of capitalism accordingly; the "giant sucking sound" of all that globalist outsourcing (as Ross Perot  would label it during the 1992 campaign), hardly merited a tinny whoosh in any headline writer's ear. With 40-plus years of Cold War paranoia fading into history, nobody wanted to hear such alarmist talk.

I graduated with $1,850 in student loan debt to my name. No, that's not a typo: that's $1,850, not $18,500. Though I hadn't lined up a job, and the thunder clouds of recession were gathering, I felt reasonably confident about the future.

Exhibit A: National Direct Student Loan papers for College #1, including (from left to right) the amount that I borrowed, when I borrowed it, and the dates of their credit to my account ($1,100 in all).

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Student loan issuers are notorious bird dogs: if you don't believe me, just scan the Internet. You'll find any number of outrageous stories about shadowing people at some relative's funeral, or phoning up a delinquent borrower's friends before a high school reunion, telling them that they're associating a deadbeat (nice one, eh?)...to name two examples that I've read myself.

I got a minor taste of this phenomenon when I decided to skip the whole post-graduate paper chase (as in, job, mortgage, massive debt load). Instead, I ventured overseas, and spent six months in the UK. During my tenure, my family indicated those bird dogs had come knocking: imagine their disappointment to find out I wasn't anywhere near their firing range.

Of course, this is the U.S. government we're talking about, and they don't stay upset for long. Eventually, as my sister told me (during our weekly transatlantic phone chat), she wrote on my behalf, and succeeded in scoring a deferment until I came back to the States -- a small favor that, in today's feverish bubble climate, is distressingly common, as the Wall Street Journal suggests.

According to the Journal, 43% of Americans borrowing from the federal government's main student loan program are either missing payments, or falling behind. The U.S. Department of Education reckons the total amount owed at $200 billion (and climbing) on its $1.2 trillion portfolio. 

One in six borrowers (3.6 million) have defaulted on $56 billion (missed a year or more of payments), while three million are running a month or more behind ($66 billion). An additional 110 million have cut a forbearance/deferment deal that allows them to temporarily stop paying due to an emergency (such as unemployment, notes the Journal -- always the master of understatement, right?).

Exhibit B: National Direct Student Loan papers that I signed for College #2, the high-profile state school ($750 in all). Apologies for the quality, but the paper has gotten a bit faded over the years (though not the memory, obviously!).

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By any measure, those are scary numbers. However, the dialogue on this issue gets downright surrealistic, as the Boston Globe noted of a 65-year-old man, Robert E. Murphy, who's challenging the undue hardship test that remains the sole legally sanctioned escape from student loan debt. Murphy, a former manufacturing company president, is trying to shed himself of a $246,000 debt incurred to fund college tutition for his three children.

As the Globe reports, Murphy considers the debt an "undue hardship" since a) his job evaporated after his employer moved overseas 14 years ago (where've we heard that one before?), which b) depleted his retirement savings, leaving him c) in foreclosure. He and his wife are surviving on her $13,200  teacher's aide salary. What's that saying? Stick a fork in him, he's done.

A federal appellate judge sided with Murphy, saying, "If this [situation] doesn't constitute undue hardship, what would?" However, the U.S. Bankruptcy Court ruled against Murphy, saying he's healthy and well-educated enough to find a job. How a person past the wrong side of 50 re-enters the job market isn't clear. Even if he managed it, however, the meter will keep running on fees and interest, making it difficult -- if not impossible -- to catch up.

That's how a bankrupt, bedridden social worker saw their '80s-era loan balance balloon from $13,000 to $70,000 (to name one of several examples from the Reuters article). How defensible is it to shove people down these rabbit holes, especially when the "undue hardship" definition has remained largely unchanged for decades? That's like your local hospital basing its cardiac arrest treatment on '70s-era reruns of "Emergency," down to the suitcase-sized devices that its heroic paramedics lugged everywhere. (Suffice to say, we'd probably go elsewhere if confronted with such absurdities in real life.)

Apparently, these big questions don't bother the appellate justices, who are suggesting that Murphy settle with the Educational Management Corporation, the entity that the feds hired to fight him (presumably, all on the taxpayers' dime, though the article doesn't explain how much that little endeavor has cost).

Maybe he can bargain them down to $245,000, or $244,000, or -- if they're in a really generous mood -- $243,000.Why, that's a steal, right? You never know, I suppose. I just thank my lucky stars that my own educational habit never grew quite this large....but then again, it was a different era. 

A letter from College #1, acknowledging my clean slate (as of 8/29/91). Ironically, the more expensive institution, College #2, signed off five months earlier (3/22/91).

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The saddest part of this whole mess, of course, is that it's not a mystery how we got here. As Reuters' article notes, college tuition has risen more than 900 percent since 1978, when Congress began making it harder (and then, nearly impossible) to discharge student loans through bankruptcy. By contrast, median male income has risen 165 percent, yet the percentage of Americans who hold bachelor's degrees has gone from 20 percent to nearly a third. Those statistics reflect how the mission changed from the post-war affluence of the '50s, when returning GIs looked for ways to make themselves more marketable, to a simple way of keeping young people off the unemployment rolls (as some of my professors stated, during an unguarded moment or two, back in the day ).

Even so, common sense alternatives do exist. We don't have to keep doing the same damn thing over and over (and thus, making the same mistakes over and over). Re-evaluating the hardship standard, and how it's determined -- as I've already suggested -- would be a start. With so many millions patching together part-time jobs just to survive, it's the least that we can do. How about capping interest rates, or at least tying the loan repayments to the type of job that you get -- as Australia does, for instance? (See the link below for an extended look at how the student loan system works Down Under.)

If nothing else, it's also high time to tell America's colleges and universities that they can't have it both ways anymore. For example, just 25 percent of U.S. professors are full-time employees. That leaves the remaining 75 percent work as adjuncts, with no benefits, no health insurance, no retirement, and (as the Sex Pistols said): "No future....No future....No future....for youuuuu!" In short, we need to tell them, quite forcefully -- and empathically -- that you cannot preach 21st century ideals of diversity, inclusion and openness, yet leave most of your workforce languishing in the 19th century.

And for those who trust the donor classes to take care of our business, I leave you with this quote, attributed to the British Prime Minister, Winston Churchill: "Americans can always be counted to do the right thing....after they have exhausted all other possibilities." While it's doubtful that Churchill actually, "then he should have," as Senator Mark Warner (D-VA) jokes. At any rate, you get the picture....it doesn't have to be this way. --The Reckoner


Links To Go (By The Time You Read This,
Your Interest Rate Will Have Gone Up)

Boston Globe:
Bankrupt Duxbury Dad Battles To Get Student Loan Forgiven:
https://www.bostonglobe.com/metro/2016/03/13/bankrupt-dad-battles-get-student-loan-debt-forgiven/cYGo9MeCZ5hj1oPdCqezbO/story.html

Reuters.com:
Column: The Student Loan Crisis That Can't Be Gotten Rid Of:
http://www.reuters.com/article/us-student-loan-crisis-idUSBRE87E13L20120815

Slate:

How Australia Gets Student Loans Right:
http://www.slate.com/articles/business/the_bills/2015/11/australia_s_student_loan_system_should_make_americans_jealous.html

Wall Street Journal:
More Than 40% Of Student Borrowers
Aren't Making Payments:

http://www.wsj.com/articles/more-than-40-of-student-borrowers-arent-making-payments-1459971348

(As always....cut 'n' paste into your browser if the links themselves don't work.)

Notes From The College Industrial Complex: Edu-Debt Springs Eternal

High wire fencing on the playground
High rise housing all around
High rise prices on the high street

High time to pull it all down

White boys kicking in a window

Straight girls watching where they gone

Never trust a copper in a crime car

Just whose side are you on?
--Tom Robinson Band, "Up Against The Wall"

Whilst looking up some other potential posting topics, I came across this whopper from the Campaign For America's Future, which focuses on a little-advertised fact about our glorious federal government -- if you borrowed their money to finance your college education, you'll be paying into your elder years...and pursued into them, as well, if you haven't managed to pay off the loan. According to the report, which I've helpfully posted below, an estimated 760,000 households headed by someone 65 or older are paying off student loans. That's worth roughly $18.2 billion in debt.

Unfortunately, one in four of these households (191,000) are in default, which allows Uncle Sam to grab up to 15 percent of your Social Security check (as long as it doesn't fall below $750 a month). As Senator Claire McCaskill (D-Mo.) observes, "Garnishing Social Security benefits defeats the entire point of the program -- that's why we don't allow banks or credit card companies to do it." Well, Congress didn't allow any garnishments to happen until 1996 -- when the Republican-led Congress carved out an exemption for student loan debt, as part of its "Contract On America." Oh, wait, you mean the "Contract With America?" No, I think the other preposition fits better.

Imagine the sticker shock awaiting millions of retirees -- who shouldn't have to worry about being hunted down for decades-old debt in their golden years (theoretical or otherwise). Of course, America is virtually the only industrialized nation that insists on clinging to this Rube Goldberg for-profit model of education (although Britain is doing its damnedest to catch up with our example). Still, other nations seem to get by just fine without all the malignancies clotting our college and university system -- such as the bloated administrations who see no problem with condemning future generations of instructors to permanet adjuncthood...but I digress.

Of course, the other problem is that, while edu-debt is exploding, along with cost of living, wages and salaries haven't remotely kept pace. As a June 2014 article on Yahoo Finance indicates, the cost of tuition and fees has soared by 1,120% since the government started keeping track of these matters in 1978. And, as Dan Hurley, a policy expert for the American Association of Colleges and Universities suggests -- such figures often obscure the bigger problem: "Instead of young adults purchasing homes and goods and services, they're paying [for college], which doesn't generate any income for the country."


The grind of working pay off edu-debt and other cost of living expenses also chips away at the one of the most important -- and rarely mentioned -- aspects of the college experience, namely, exposure to people and ideas that could change your life. I met four of my closest friends in college: one has since died, but the others remain part of my life.  I wouldn't have met them anywhere else: need I say more? Still, I'll own up and admit -- hand on heart -- I wasn't necessarily motivated by whatever sheepskin I was aiming to get. I imagined college being something like the British art school scene of 1964-65...with the Kinks, the Pretty Things and Yardbirds rubbing suitably inebriated shoulders...or the '76-'77 punk explosion, where you just might bump into Paul Simonon toting art supplies and canvases, looking for another abandoned ice cream factory or junkyard to turn into a mural. I thought it'd all be a lot like Carnaby Street, with myself and my co-conspirators plotting how to take the world by storm between rounds of some imported beer or other -- even, though, at times, I felt more like Catwoman's hapless victim, Carnaby Katz, during Batman's final soggy season on TV. Good, bad or indifferent, though, I wouldn't trade those times for anything.

Then again, I didn't have to work nearly the hours that grads face down these days...back then, jobs were basically excuses to pay the odd bill, or (better yet) buy silly punk records. If you didn't have enough money for those silly punk records, you'd hope to hustle some by cashing in your textbooks...or, as I eventually did...start can collecting, and turn it into a good side income. Some way or another, you found ways to get by, and get what you wanted -- I bought my first bass for $120, which I saved by dedicating one day of my weekly can collecting take to the cause. What students do now...or whether they could pull off similar scenarios...I can't imagine.

Given the one-sided nature of the present situation, it's not surprising that more and more grads are choosing to default (see the essay below)...though the bubble will likely have to swell quite a bit larger before all those greenbacks come bursting out of our undergraduate equivalent of Mount Vesuvius (or is it more like Krakatoa?). And that's before we even get to the other big questions that the Campaign's report raises: with fewer and fewer jobs requiring a four-year degree, should college be the automatic choice for everyone? More to the point, how do we force a greater degree of accountability from institutions that fight their workers as hard as a ninteenth century robber baron? Who knows -- the "Free University" idea of the 1960s looks better and better all the time. Giving such concepts a bigger stage could only improve the present system...even if our friendly neighborhood banker is dead set against the idea. --The Reckoner

And I said,
Look out, listen, can you hear it:
Panic in the County Hall?
And I said,
Look out, listen, can you hear it:
Whitehall (got us) up against a wall
They got us up against the wall...

Links 'N' More (Click 'Em Before
They Jack Up Your Tuition):

Tom Robinson Band: Up Against The Wall:
https://www.youtube.com/watch?v=yQ9qR7CMCvo

Campaign For America's Future:
Haunted By Student Debt To The Grave:
http://ourfuture.org/20150728/haunted-by-student-debt-to-the-grave

Salon.com:
College Is Ripping You Off: http://www.salon.com/2014/10/01/college_is_ripping_you_off_students_are_cash_cows_and_schools_the_predators/?utm_source=facebook&utm_medium=socialflow

The New York Times:
Why I Defaulted
On My Student Loans:
http://www.nytimes.com/2015/06/07/opinion/sunday/why-i-defaulted-on-my-student-loans.html?_r=0

The Wall Street Journal:
$555,000 Student Loan Burden:
http://www.wsj.com/articles/SB10001424052748703389004575033063806327030

Yahoo Finance: The Daily Ticker:
College Costs Unaffordable For Students:
https://finance.yahoo.com/blogs/daily-ticker/college-costs-unaffordable-for-students-174357548.html

Ever Wonder Why Your Banker's Laughing So Hard? Look At Your Interest Rate

If you want to get a real handle on what keeps the financial industry afloat in greenback gravy, while millions of people remain mired in economic misery, the following example should serve as an illustration, and also, a warning.

In this case, the source material comes from a financial management course that the U.S. Bankruptcy Court requires of its petitioners, passed on by someone who's undergone the process.  The reader is asked to ponder two hypothetical case studies, affected by different credit histories:

Kelly

Credit Score: 750

Interest Rate: 4.5%

Loan Amount: $175,000

Insurance: $500 annually

Property Taxes: $4,000 annually

Monthly Payment : $1,262

Total amount to be repaid: $319,211 

Lisa:

Credit Score :620

Interest Rate: 7.75%

Loan Amount: $175,000

Insurance: $500 annually

Property Taxes: $4,000 annually

Monthly Payment: $1,629

Total amount to be repaid: $451,341

Although Kelly's credit score will give her a hypothetically less bumpy ride in life, the reader should notice the repayment amounts, which are highlighted in bold, for your convenience. In Kelly's case, she's still going to pay back almost twice the loan, while poor Lisa will cough up slightly more than three times the original amount. Ever wonder why your banker's laughing so hard?

The impact of interest also plays a role in the debate about the impending student loan debt bubble, which -- amid all the ink being expended on the current Fiscal Cliff Debate -- has received precious little attention, but certainly should. Ever wonder why your banker's laughing so hard?

Last year, the Consumer Financial Protection Bureau (CFPB) put out a call for student loan horror stories on its website. This example, courtesy of Yahoo News, is an example of rapacious laissez-faire capitalism at its most harrowing:

Socialworkmary: Paid $350+ per month on her loans for 14 years to no avail

"I admit I did not understand capitalized interest until recently. I consolidated my loans in 1997 when the interest rate was 8 percent. My student loan office at Tulane University led me to believe that I 'had' to consolidate and Sallie Mae was the only option offered to me.

I have repaid them over $61,000 (over 14 years). I think I should be done now, but according to Sallie Mae I still owe $25,000. A Sallie Mae employee directed me to write the legal department and ask to have my loan written off and to appeal if they denied. They denied, stating that federal government regulation prevents them from writing off the balance of the loan.

When I talked to the Sallie Mae employee and said I was confused about why on most months more of my payment goes to interest than principal... she chuckled and said 'We certainly don't go out of our way to put that in big bright red letters across the front page'." 

You can read the original CFPB press release on the subject here:

http://www.consumerfinance.gov/pressreleases/consumer-financial-protection-bureau-aims-to-shed-light-on-the-private-student-loan-industry/

And, if you want to take a truly depressive bath during this most difficult of holidays for folks living on the margins, this "Business Insider" story should do the trick:
http://www.businessinsider.com/depressing-student-loan-stories-2012-9?op=1

Just cut, paste and then...shake your head.

Ever wonder why your banker's laughing so hard?  It's safe to say that 99 percent of us know all toll well, but sometimes, we need a healthy reminder (or two) of why the picture doesn't look so pretty for those of us caught in the grip of such schemes...and, also, why those who continue to champion the status quo need to be held accountable for promoting them.  --The Reckoner

All Grown Up and Dependent on Parents

Why Are So Many Adults Moving Back in With Their Parents?
When I was 21, I had to move back home for a year, unable to make ends meet, doing student teaching which took up seven to eight hours of my day and didn't pay a dime...plus my side job, which actually gave me a day that went from 7:00 a.m. to 11:00 p.m. [an insane schedule, by any standard] just didn't pay enough. I ended up moving home, I had to have some spending money, so the insane schedule had no letup, but I got to eat and had a room to sleep in. I think about young people today, and wonder, "How on earth are they going to make it? "

My health was not helped via lack of medical insurance -- not to mention hours and hours of part-time, pieced-together jobs -- but I managed (even with my college degree) to pick up a few jobs that paid in the $10-14 dollar per hour range...keep in mind, this was the early 90s...and at least I wasn't just stuck with minimum wage. I could get the rented room, plus stacks of milk crates and keep an old car going most of the time. What are today's young people to do now, when prices are higher, and wages really have not gone up much?

I have relatives in their mid-20s who still live at home and stuck with a life that hasn't really begun, due to lack of meaningful employment.  In their case this situation has meant no dating, few hobbies and being stuck in a small room with other unemployed twentysomething siblings.  One has a college degree but has not found a job to go with it. The article is right, in that the education system does not prepare them for the real world. I wasn't told how hard it was to make a living and majored in education -- right before a wave of layoffs that began happening, just as I came out of college in the 1990s.  As they say..."Timing is everything." --The Squawker

Peanut butter, anyone? Surely that graphic makes you hungry. Never could stand the stuff, myself, because it seemed like such a College Student Cliche 101-type of thing...but I digress.

Reading the Squawker's entry on this subject reminds me of a saying that my father often brought up whenever anything college-related crossed the TV screen: "The trouble with this place here is that everybody graduates." 

I'd crack up, because a) it meant that I wouldn't be on the receiving end of dear old Dad's trademark sarcasm, and b) it wasn't hard to see the truth of that expression, even during the '90s, when all those nasty old bubble markets seemed eons way.

Ironically, my problem differed from most of my peers -- I found a job in my degreed field (journalism) without a lot of difficulty, but it didn't pay enough to support my own place, let alone all the other expenses that I was carrying at the time (car payment, college loans, credit cards).

Even then, however, it wasn't hard to see the storm clouds gathering.  Eventually, I quit my newspaper job and moved to Chicago, where I wasn't able to find any journalism-related day gigs...so I worked in an office, and wrote at night. 

However, I was too poor to afford a computer -- that wouldn't become a given until the late '90s, when I made it back to Michigan -- so I'd have to trek over from Rogers Park to a friend's house in the middle of the city.  We'd graduated from the same college, so it was OK to use his computer, as long as I wrapped up by 10 or 11 p.m.

My friend lived with four or five other people, who were all either recent graduates or future graduate school customers. None of them owned a car, nor other presumed symbols of the hipster good life that were already being touted on such megahit sitcoms as "Friends."

Sure, my friend and his pals were skinny, white and wisecracking, but that's as far as the similarities to the world of "Friends" went. I don't remember any designer hairdos or clothes among this crowd.  As far as I could tell, nobody ate out, and 90 percent of the meals were vegetarian...as much out of budget, I suspect, as conviction.

Sometimes, you only need to look around, and your eyes will latch onto a symbol that confirms your true status in a flash.  At my first paper, I only had to glance across the parking lot, where the general manager -- who often lectured the rest of us lot on the gospel of businesses operating "lean and mean" -- drove an enormous, battleship-sized SUV that dwarfed just about everybody else's ride.

For my friend and his housemates, you could sum up their status through the stacks and stacks of used books and CDs they'd acquired during their travels -- the symbols of a media consumer's life that became positively quaint once the Internet era took hold for good.

I'm still in touch with my friend, but have no idea what happened to anybody else in that house, or if they found anything resembling their chosen career specialty. But nobody was paying much attention, anyhow.  And if you doubted what your gut told you, well, there was always the big screen for some temporary relief, sending up the twentysomething "slacker" stereotype in movies like Reality Bites...

...so nobody felt particularly compelled to pay any attention.  These days, however, the joke doesn't seem so funny anywhere, when an estimated one in three jobs doesn't need a college degree (see the link below)...only nobody's making a movie about that deal. --The Reckoner

Links To Go:
The Wall Street Journal: Do Too Many Young People Go To College?