Government/Corporate Complicity to Rip Off College Students for Profit and Obama's Student Aid and Fiscal Responsibility Act of 2010

Mind-boggling Increase in Tuition Since 1960 Even as Students Learn Less and Less

May 25, 2011

OpenMarket.org - There has been a truly mind-boggling increase in college tuition since 1960. For example, law school tuition has risen nearly 1,000 percent after adjusting for inflation: around 1960, “median annual tuition and fees at private law schools was $475 … adjusted for inflation, that’s $3,419 in 2011 dollars. The median for public law schools was $204 … or $1,550 in 2011 dollars … in 2009 the private law school median was $36,000; the public (resident) median was $16,546.”

Due to market distortions like the proliferation of unnecessary state licensing requirements that require useless paper credentials, and financial aid that directly encourages colleges to raise tuition, colleges can raise tuition year after year, consuming a larger and larger fraction of the increased lifetime earnings students hope to obtain by going to college.

As George Leef notes, “long-term average earnings for individuals with BA degrees have not risen much and in the last few years have dipped.”

Meanwhile, college students learn less and less with each passing year.

“Thirty-six percent” of college students learned little in four years of college, and students now “50% less time studying compared with students a few decades ago, the research shows.” Thirty-two percent never take “a course in a typical semester where they read more than 40 pages per week.”

People thought college was too expensive back in 1960, when tuition was just a tiny fraction of what it is today. For example, they worried about the rising cost of a law school education, and the resulting increase in student loans and debt:

“The cost of attending law school at least doubled in the [past] 16 years,” “raising the question whether able, but impecunious, students are being directed away from law study … schools reported that students were reluctant to take out loans owing to ‘fear of debts, particularly during the low income years immediately after graduation.’”

They could never have imagined what a monumental rip-off college tuition would be today.

Cultural factors may also have contributed to students’ willingness to pay exploding law school tuitions. Too many people have gone to law school in recent years thanks to the romanticization of the legal profession in shows like “Ally McBeal” and “L.A. Law” that make law look sexy and exciting. (Legal shows also falsely suggest that most judges are wise and that the legal system is swift and just, rather than conveying the unpleasant reality: that our legal system is a slow, costly, inefficient mechanism for enforcing often-arbitrary legal norms that are invented by judges and lawyers or enacted by legislators who frequently do the bidding of special-interest groups.)

For a fascinating discussion of how the country has been harmed by legal norms invented by law professors who dislike free markets, and by massive lawsuits launched by law school litigation clinics, read Walter Olson’s book Schools for Misrule: Legal Academia and an Overlawyered America, which got good reviews from some law professors and the Wall Street Journal.

America’s Student Loan Racket: Soaring Default Rates

May 19, 2011

Veteran's Today - An earlier article discussed Permanent Debt Bondage from America’s Student Loan Racket:

It explained government/corporate complicity to rip off students for profit, a racket continuing under Obama. His July 2010 Student Aid and Fiscal Responsibility Act perpetuated the scam. It enriches providers, entrapping millions of students permanently in debt, because rising tuition and fee amounts — plus interest, service charges, and late payment or collection agency penalties — are too onerous to repay.

It’s part of the grand scheme, of course, to transfer maximum public wealth to America’s super-rich already with too much. Ongoing for over three decades, it accelerated under Obama, a corrupted Wall Street/war profiteer tool, destroying America for power and profit.

Millions of Students Permanently Entrapped in Debt

Many students, whether or not they graduate, have debt burdens approaching or exceeding $100,000. If repaid over 30 years, it’s a $500,000 obligation, and if default, much more because debts aren’t forgiven. As a result, once entrapped, escape is impossible. Bondage is permanent, and future lives and careers are impaired or ruined.

Congress ended bankruptcy protections, refinancing rights, statutes of limitations, truth in lending requirements, fair debt collection ones, and state usury laws when applied to federally guaranteed student loans. As a result, lenders may freely garnish wages, income tax refunds, earned income tax credits, as well as Social Security and disability income, to assure defaulted loan payments. In addition, defaulting may cause loss of professional licenses, making repayment even harder or impossible.

Moreover, under a congressionally-established default loan fee system, holders may keep 20% of all payments before any portion is applied to principle and interest due. A borrower’s only recourse is to request an onerous and expensive “loan rehabilitation” procedure, requiring extended payments (not applied to principle or interest), then arrange a new loan for which additional fees are incurred.

As a result, for many, permanent debt bondage is assured. In addition, no appeals process allows determinations of default challenges under a process letting lenders rip off borrowers, many in perpetuity.

At issue is a conspiratorial alliance of lenders, guarantors, servicers, and collection companies enriching themselves hugely at borrowers’ expense, thriving from extortionist fees and related schemes. It’s a congressionally-sanctioned racket, scamming millions of indebted victims.

Moreover, lenders thrive on bad debts, deriving income from inflated service charges and collection fees. They’re more than ever today as default rates soar, lifetime rates now nearly one-third of undergraduate loans, higher than for subprime mortgages. In fact, they’re higher than for any other lending instrument, and rising.

Soaring Defaults During Hard Times

Since America’s economic crisis began in late 2007, an April 21, 2009 Wall Street Journal (WSJ) Anne Marie Chaker article highlighted the burden on students headlined, “Student Loans: Default Rates are Soaring,” saying:

The combination of economic weakness, rising tuitions and poor job prospects caused defaults on student loans to skyrocket. According to Department of Education numbers for those federally guaranteed, estimated FY 2007 default rates reached 6.9%, up from 4.6% two years earlier.

Conditions are now far worse according to a February 4, 2011, Mary Pilon and Melissa Korn WSJ article headlined, “Student-Loan Default Rates Worsen,” saying:

They “rose to 13.8% from 11.8% for students beginning repayment in (FY) 2008 compared with those starting a year earlier,” according to new Department of Education data.

They measure defaults within the first three years of repayment. Over their lifetime, however, they approach two and a half times that level, perhaps heading for 50% if economic conditions keep deteriorating while tuition and fee rates rise.

Students at for-profit schools fare worst at 25%, but sharp tuition increases at public and private nonprofit universities place greater burdens on their graduates, assuring rising defaults, especially over their lifetime.

Moreover, rising levels may cause many colleges to become ineligible for government-backed Pell Grants and other student loans. To qualify, they formerly had to show less than 25% of students defaulting within a two year window. If they breached that threshold for three consecutive years, or hit 40% in a single year, they could lose out altogether.

Now, under the 2008 Higher Education Opportunity Act increasing the default window to three years, the ineligibility threshold rose to 30%, penalties not beginning until 2014.

On March 15, New York Times writer Tamar Lewin headlined, “Loan Study on Students Goes Beyond Default Rates,” saying:

For every student defaulting, “at least two more fall behind in payments,” according to a new study. Conducted for the Institute for Higher Education Policy by Alisa Cunningham and Gregory Kienzl, it can be accessed in full through the following link:

Delinquency: The Untold Story of Student Loan Borrowing.pdf

It explains that around 40% of borrowers were delinquent within a five year repayment window. Almost one-fourth of them postponed payments to avoid delinquency; however, doing so made their interest and overall debt burden more onerous because escape is impossible.

Data from five of the country’s largest student loan agencies showed only 37% of borrowers who began repayments in 2005 did so on time, a number now decreasing during hard times.

On April 11, Lewin headlined, “Burden of College Loans on Graduates Grows,” saying:

“Two-thirds of bachelor’s degree recipients graduated with debt in 2008, compared with less than half in 1993.”

However, rising debt burdens contribute to soaring default rates, especially for private for-profit universities. Moreover, given Pell Grant cuts and rising tuitions, students will be more than ever indebted and strapped to repay during hard times because Congress rigged the system against them.

As a result, education policy experts expect serious implications for future graduates. According to Lauren Asher, Institute for College Access and Success president:

“If you have a lot of people finishing or leaving school (entrapped in) debt, their choices may be very different than the generation before them. Things like buying a home, starting a family, starting a business, saving for their own kids’ education may not be an option if they’re trying to repay student debt.”

Moreover, “(t)here’s much more awareness about student borrowing than there was 10 years ago. People either are in debt or know someone in debt.”

Many of them have their own horror stories about how predatory lenders, servicers, guarantors, and collection companies rip them off under an escape-proof system.

The entire scheme amounts to legalized grand theft, the equivalent of what Wall Street banks do to investors with impunity.

According to Deanne Loonin, a National Consumer Law Center attorney:

“About two-thirds of the people I see attended for-profit (universities). Most did not complete their program, and no one I have worked with has ever gotten a job in the field they were supposedly trained for. For them, the negative (debt default) mark on their credit report is the No. 1 barrier to moving ahead in their lives. It doesn’t just delay their ability to buy a house, it gets in the way of their employment prospects, finding an apartment, almost anything they try to do.”

A Final Comment

America today is characterized by a combination of rising poverty, unemployment, home foreclosures, homelessness, hunger, student debt entrapment, and despair, mocking the notion of a fair and equitable society.

Not at all under a corrupted political duopoly, sucking public wealth to America’s super-rich, spurning popular needs, waging permanent war, and heading the nation for tyranny and ruin.

If that’s not just cause to resist, what is? If not now, when? If not us, who? If that future doesn’t arouse public anger, what will?