By ERIC WEDDLE
May 27, 2010
UPDATE: Purdue diploma removed from eBay
The sale of a Purdue University diploma on eBay was halted today.
The Internet auction site removed Nick Enlow's 2008 bachelor's degree in psychology because it violated its terms of use.
According an e-mail Enlow received from eBay, diplomas can not be listed for sale due to the sensitivity and nature of the item.
Enlow started the bidding on the diploma this week at $36,000 in an oddball attempt to pay off his student loans and also to strike up a conversation about debt and the worth of a college education.
The Indiana University-Purdue University Indianapolis graduate said his degree did not help him get a job that paid enough to cover his $470 monthly loan bill to Sallie Mae.
But the attempted sale prompted Sallie Mae to call Enlow Wednesday and discuss payment options.
Enlow said he would not contest eBay's decision.
"The dialogue has been started," he said. "What's done is done."
Editor's note: The following story appeared earlier today at jconline.com
Up for bid: 1 diploma for $36K
A Purdue University diploma can be yours for $36,000 -- plus shipping and handling.
But this bachelor's degree in psychology won't have your name inscribed on it. Instead, it will be Nick Enlow's.
The 2008 Indiana University-Purdue University Indianapolis graduate is trying to hawk his diploma on eBay this week in hopes of paying off a student loan debt -- and as a warning to would-be college students.
Check out the eBay listing for the diploma.
"Going to college made my life worse," Enlow said Wednesday from near Jacksonville, Fla., where he lives. "That is something that I don't keep to myself. I tell everyone."
His line of thinking isn't the kind that Purdue officials find amusing, nor are they too keen on the auction itself.
But Enlow, 29, said he considers himself stuck in indentured servitude to Sallie Mae, his lender, because he is unable to get a decent-paying job with his current degrees to start paying a $470 monthly student loan bill. In addition to the Purdue diploma, he obtained a philosophy degree from IU through IUPUI. That one is not for sale.
The eBay sale is part stunt and part hopeful act of desperation that an "eccentric millionaire" will pick up the tab. Either way, the Indianapolis native is serious about kick-starting conversations on the worth of a college education and how it can be paid off.
"The universities are handing out too many degrees that have zero real-world application," Enlow said. "It seems to me, almost any major in the humanities or liberal arts will not gain you employment with a bachelor's degree."
Enlow admits to not having a clear post-college career path. During school he fell in love with learning -- reading classics and learning history -- and he assumed that after earning a diploma a job would come easily.
"I think that some of us still believe that when we walk across the stage and get that diploma that we are going to have some type of social status and businesses are going to look at us differently," he said. "But that is not true."
Purdue officials somewhat agree with Enlow, but they emphasize that skills learned can help lead to success.
"A degree in the liberal arts is not an automatic ticket to a job, but then again, no degree is," said Irwin Weiser, interim dean of Purdue's College of Liberal Arts.
"However, studying any of the disciplines in the arts, humanities, or social sciences prepares students to be successful because they learn to think creatively, critically and ethically, and to communicate what they think effectively."
Purdue officials also noted that Enlow's degree was issued by Purdue's School of Science at IUPUI, not the College of Liberal Arts on the West Lafayette campus. Purdue's department of psychology will become part of the new College of Health and Human Sciences in July.
Enlow is unsure how he will pay off his debt. The $36,000 is considerably above the national average. Enlow said he would like the government to offer more opportunities for graduates to work in communities as a way to pay off higher education loans.
"I always expected that number," he said.
"The number itself does not surprise me. The inability for me to pay it off is surprising."
A report last year from Project on Student Debt found average debt levels for 2008 graduating seniors with student loans rose to $23,200 -- a 24 percent increase from $18,650 in 2004. Those who graduated from IUPUI in 2008 with student loans had an average balance of $25,253.
Edie Irons, a communication director with the organization, said students should begin planning for their future debt while in high school and through college. That includes figuring out how much they will need to borrow and whether that amount will be feasible to pay off with their job expectations.
If graduates can't pay the monthly amount, Irons said, they should research options such as deferment, forbearance or income-based payments before talking to their lender.
Enlow is working as a substitute teacher and living with his fiancé, who is working for Teach America. He is considering how to transition into a full-time teacher and how he would talk to students about college.
"My idealism is crushed," he said.
The eBay auction ends Saturday. Bids for the used "authentic" diploma start at $36,000, plus $3.50 shipping.
http://www.jconline.com/article/20100527/NEWS0501/5270341/Up-for-bid-1-diploma-for-36K
Thursday, June 3, 2010
Why Student Loan Debt is Soaring into the Five and Six Figures
Madeleine Kuhns
May 19th 2010 at 9:00AM
Melanie Bradshaw was determined to go to New York University, her dream school: so much so that when she was accepted, she ignored the more substantial aid packages at other schools to attend NYU, which offered her no aid. "For a while I was worried that I was making the wrong choice, because who can really afford this tuition? Obviously I went for it, despite the issue," she wrote in an e-mail.
NYU costs a staggering $49,190 year when tuition, housing, books and other fees are totaled; Bradshaw, a sophomore, will have around $30,000 in debt come graduation. Her parents -- who took out $23,000 in loans per semester to pay the rest of her tuition -- will also be in debt. That's right: Bradshaw and her parents will shoulder a whopping $209,600 in debt by the middle of 2012.
And she's not alone. In 2008, according to The Project on Student Debt, 72% of students from private non-profit universities graduated with an average debt of $27,650, an increase of 29% since 2004. That's $1,000-plus over the average yearly tuition at private institutions and almost four times the average cost of in-state public tuition. In other words: It will mean more than a decade of loan payments, interest charges and income drain for the average collegiate. And that's assuming the graduate lands a job in his or her chosen field. For those relegated to the ranks of barista gigs and dog-walking work in this Great Recession, the debt sentence will likely stretch even longer.
Why do private colleges cost so much more than public colleges? More importantly, where does all that money go?
"There is a culture in higher education that equates money and spending and growth in spending with a high quality product," says Jane Wellman, president of The Delta Project, whose 2009 report "Trends in College Spending" refers to institutional spending as the "black box" of education finance. The actual costs and spending at educational institutions is not that well understood, says Wellman. "The market's been telling [colleges that] people would rather pay more for what they believe is a higher quality product than to see costs cut at the risk of service."
According to a 2008 Delta Project report on the growing imbalance in higher education finances, private institutions spend more than twice what public institutions spend for student services, such as admissions, career counseling, student clubs and financial aid administration. Where private institutions spend $6,655 per student for instruction, they spend almost double that on all the other services: $10,598 per student. Non-educational costs make up $1,208 per student, with private colleges spending more than $18,000 per student, twice what public colleges pay, and forcing more private college students to take out private loans.
"A lot of students get set on their dream school and become very insistent. It's this school or nothing," says FinAid.org founder Mark Kantrowitz. However, "if you find yourself being forced to borrow from a private loan program, that's often a sign that you're over-borrowing and perhaps you'd be better off at a less expensive school."
More colleges, according to "Trends in College Spending" are shifting costs away from education and related services, and more toward student services, which are then used to attract students willing to pay full tuition or the "sticker price." These students' tuitions allow schools to subsidize the costs of need-based students who could not afford it otherwise. That leaves students in the middle (as in middle class) to pay the newly-inflated full freight.
"If [colleges] didn't raise their tuitions they wouldn't have to spend so much on student aid. They're sort of chasing their tail," says Wellman.
A professor's average salary is $80,368 a year, while administrative salaries are higher -- NYU's president John Sexton made $1,265,110 in 2007 according to the American Association of University Professors -- but even cutting those salaries a la Mayor Bloomberg of New York, who's annual salary is one dollar, wouldn't put a dent in tuition, says Kantrowitz. Schools should focus on cutting energy costs by closing campuses over breaks or transitioning to a four-day class schedule, he says.
A small percentage of students have found a solution, such as Jorge Alvarado. As a sophomore neuroscience major at Amherst College in Massachusetts, Alvarado attends one of the 71 schools in the country that is part of a no-loan commitment initiative, where colleges replace loans with grants in financial aid packages for low- income students. Students are still expected to pay an expected family contribution (EFC). Consequently, half of Amherst students graduate with an average debt of $12,603, according to College Board, far less than the national average, and paltry when considering that one year at Amherst costs $52,778.
Having only to take out federally-subsidized Stafford loans to cover his EFC, Alvarado will have less than $10,000 in debt at graduation. "The financial aid package, to me, it was integral to picking what college I would go to ... if Amherst didn't offer me a package I probably wouldn't have come here," Alvarado said.
"Those schools are sort of modeling a kind of transparency for consumers that it would be better if everybody had," says Lauren Asher, president of The College Institute for Access and Success. She says this initiative is the best way for private colleges to help low income students in not borrowing over their limit. Unfortunately, not all colleges have big endowments like Amherst's, which is valued at more than $1.3 billion, or about $770,000 per student. And even then, many colleges see endowments as an unstable revenue source.
Until they do, students will just have to keep paying. "If you look at the cream of the crop, there is a financial benefit in attending those schools in terms of getting better paying jobs, but it doesn't necessarily compensate for the higher cost of those institutions," says Kantrowitz.
For students like Bradshaw, it does; even if the Great Recession may dim her employment chances, it hasn't put a damper on her enthusiasm. The debt she accrues represents the future bet she's willing to make to attend the college of her choice. "I really feel like I spent more to get more," she said. "Hopefully I'll be qualified for a decent-paying job, so being in debt won't be the end of the world."
http://www.walletpop.com/blog/2010/05/19/why-student-debt-is-soaring-into-the-five-and-six-figures/
Student Debt Already a Crisis
Times Colonist May 30, 2010
There is increasing evidence that Canada's student loan program is a train wreck waiting to happen. We noted last Sunday that post-secondary students across the country owe more than $13 billion in outstanding loans.
Many are in over their heads. One out of five students who attend a public university cannot repay what he has borrowed.
The situation is even worse at private career colleges. There, 40 per cent of students will default on their debts. At some vocational schools in B.C., loan delinquencies exceed 75 per cent.
These are well beyond the default rates for business loans and residential mortgages. Part of the problem is easy money. Students with limited resources can borrow huge sums, virtually no questions asked.
For example, kids whose family income is $25,000 can borrow $40,000 for a four-year degree program. Pretty much all they need is proof of enrolment and a clean credit history.
Yet what chance do they have of paying it back? The Canada Student Loan program charges interest at the prime lending rate plus five per cent. A loan that size adds up to monthly payments of $360 for 15 years.
Of course, if the education that students receive is worth what they paid, perhaps they can make good on their debts. Yet is it?
The staggering default rates at private vocational schools would certainly suggest otherwise. But even at public colleges, there is room for serious doubt.
Tuition rates at Canadian universities have grown at double the cost of living for at least 30 years. In just the past decade, fees for a four-year arts or science degree in B.C. have more than doubled, from $8,800 to $20,000.
Add in room and board, books and other charges, and an undergraduate degree costs about $60,000. Professional colleges like law and medicine charge $90,000 or more.
It's possible these increases have been used to improve the quality of instruction. Yet there's limited evidence for that. Between 1987 and 2006, the number of full-time students at Canadian universities grew 57 per cent while the number of full-time professors grew only 20 per cent.
That's why so many courses nowadays are taught by graduate students or teaching assistants, rather than faculty. It's why class sizes have ballooned and multiple-choice exams have replaced written essays. Students are paying more but getting less.
Universities are able to charge the limit because they know kids can borrow the money -- not necessarily that they can repay it. The huge run-up in tuition rates has been matched, step for step, by burgeoning student debt.
The situation resembles what happened with mortgages in the U.S. There, for a while, house prices soared because buyers got easy credit.
The bubble eventually burst when mortgage holders could no longer afford the huge monthly payments. The housing market collapsed, taking with it a large chunk of the banking sector.
The only reason Canada's student loan program hasn't gone the same route is that the amounts are not as large and the federal government quietly writes off the losses. But the personal damage inflicted is just as severe. Young people begin their lives hopelessly in debt, or worse, effectively bankrupt. And high tuition rates are being propped up by reckless lending policies.
We need a student financial assistance program, recognizing that even with part-time work and family support, post-secondary education is beyond the reach of too many young people.
No one should be denied an education because his or her parents lack money. But student loans in their present form have made education less affordable, not more.
With tuition rates now in the stratosphere, it's time to rethink post-secondary financing. And the place to start is on campus. By one means or another, we need to ensure that students get value for their money.
http://www.timescolonist.com/business/Student+debt+already+crisis/3089485/story.html
There is increasing evidence that Canada's student loan program is a train wreck waiting to happen. We noted last Sunday that post-secondary students across the country owe more than $13 billion in outstanding loans.
Many are in over their heads. One out of five students who attend a public university cannot repay what he has borrowed.
The situation is even worse at private career colleges. There, 40 per cent of students will default on their debts. At some vocational schools in B.C., loan delinquencies exceed 75 per cent.
These are well beyond the default rates for business loans and residential mortgages. Part of the problem is easy money. Students with limited resources can borrow huge sums, virtually no questions asked.
For example, kids whose family income is $25,000 can borrow $40,000 for a four-year degree program. Pretty much all they need is proof of enrolment and a clean credit history.
Yet what chance do they have of paying it back? The Canada Student Loan program charges interest at the prime lending rate plus five per cent. A loan that size adds up to monthly payments of $360 for 15 years.
Of course, if the education that students receive is worth what they paid, perhaps they can make good on their debts. Yet is it?
The staggering default rates at private vocational schools would certainly suggest otherwise. But even at public colleges, there is room for serious doubt.
Tuition rates at Canadian universities have grown at double the cost of living for at least 30 years. In just the past decade, fees for a four-year arts or science degree in B.C. have more than doubled, from $8,800 to $20,000.
Add in room and board, books and other charges, and an undergraduate degree costs about $60,000. Professional colleges like law and medicine charge $90,000 or more.
It's possible these increases have been used to improve the quality of instruction. Yet there's limited evidence for that. Between 1987 and 2006, the number of full-time students at Canadian universities grew 57 per cent while the number of full-time professors grew only 20 per cent.
That's why so many courses nowadays are taught by graduate students or teaching assistants, rather than faculty. It's why class sizes have ballooned and multiple-choice exams have replaced written essays. Students are paying more but getting less.
Universities are able to charge the limit because they know kids can borrow the money -- not necessarily that they can repay it. The huge run-up in tuition rates has been matched, step for step, by burgeoning student debt.
The situation resembles what happened with mortgages in the U.S. There, for a while, house prices soared because buyers got easy credit.
The bubble eventually burst when mortgage holders could no longer afford the huge monthly payments. The housing market collapsed, taking with it a large chunk of the banking sector.
The only reason Canada's student loan program hasn't gone the same route is that the amounts are not as large and the federal government quietly writes off the losses. But the personal damage inflicted is just as severe. Young people begin their lives hopelessly in debt, or worse, effectively bankrupt. And high tuition rates are being propped up by reckless lending policies.
We need a student financial assistance program, recognizing that even with part-time work and family support, post-secondary education is beyond the reach of too many young people.
No one should be denied an education because his or her parents lack money. But student loans in their present form have made education less affordable, not more.
With tuition rates now in the stratosphere, it's time to rethink post-secondary financing. And the place to start is on campus. By one means or another, we need to ensure that students get value for their money.
http://www.timescolonist.com/business/Student+debt+already+crisis/3089485/story.html
Facing Subprime Student Loan Reality
By MARIE-THERES DiFILLIPPO
Posted on Wed, Jun. 2, 2010
BEFORE THE financial collapse in 2008, I lived in the most economically powerful country in the world, and that was all I really needed to know.
Now, as the nation struggles to rebuild and the job market still suffers, paying attention to the economy, and complaining about it, takes up much of my free time.
I received a bachelor of arts degree from an Ivy League university in 2007, and when I came home from teaching English abroad in the summer of 2008, my bubble burst. It now seems that the exact same problems caused by the subprime mortgages are waiting for the next round of defaulters - college graduates with mountains of student-loan debt.
To anyone without the privilege of having a college degree, I'm sure I sound like a spoiled brat.
They may claim that, despite the debt, I'm still better off for having a diploma.
But as my 25th birthday approaches, I, like most of my bachelor's-holding friends, still live at home. None of us can even begin to dream of buying a house, but our peers who can have been working at a specialized trade since high school. While we were amassing thousands of dollars of debt for four years, these people gained experience and managed to save enough to buy houses. Who is better off, a 25-year-old living at home with a $120,000 IOU, or one who owns some property, however modest?
For those from humble beginnings, the B.A. is more of a luxury item than a professional foundation.During one of the first days of my freshman orientation, our entire class was shown a giant graph detailing how much money we could expect to make after graduation.
We liberal-arts students had our doubts but were assured that our majors would not impede our future financial success. We were told that employers look for men and women with sophisticated analytical and problem-solving abilities.
Four years later, we emerged as hard-working, creative people, but quickly learned that to land a job that becomes a career, you need a practical skill. Being able to spout the details of the Norman conquest of England gets you nowhere. Geez.
We have thousands of dollars worth of education, but as far as the working world is concerned, we can't really do anything. On paper, I may look overqualified for my current office job, but in reality, I lack one big necessity: administrative training. I can whip out Word documents all day long, but if you need me to do a mail merge or create a database query, you're out of luck. (It's a shame Facebook mastery isn't part of the job.)
Once upon a time for the lower middle class, changing your station in life was inextricably tied to education. Graduates like me are just trying to get a piece of the pie that was promised us, but a college diploma no longer guarantees a lucrative job. Borrowed funds let me receive a college education, but that's based on the outdated assumption that your degree will secure the means to pay the money back. As a friend put it, it's "looked at as good debt because they know you'll get a good job after college and can pay them back."
We're now in a transitional period where this is no longer the case. You can spend $40,000 a year on tuition but come out making $30,000 - if you're lucky.
Now, lending money to those who couldn't afford college otherwise may be dangerous for the borrowers. Smothered by debt and not making enough to justify the loans, young adults are starting their lives unable to envision a time when they'll be able to save enough money to actually live them.
FOR LOWER-income students, working toward the American Dream is in reality keeping that dream at bay.
There are two options: Take your chances in an uncertain job market, or, as we've been taught, go for more schooling to make more money. Either way, it's risky.
Without knowing if I can ever repay it all, I'm now going to borrow more this fall to go to law school.
No one is telling me I can't, and maybe they should be.
http://www.philly.com/dailynews/opinion/20100602_Facing_subprime_reality.html#axzz0pnxZg2vF
Posted on Wed, Jun. 2, 2010
BEFORE THE financial collapse in 2008, I lived in the most economically powerful country in the world, and that was all I really needed to know.
Now, as the nation struggles to rebuild and the job market still suffers, paying attention to the economy, and complaining about it, takes up much of my free time.
I received a bachelor of arts degree from an Ivy League university in 2007, and when I came home from teaching English abroad in the summer of 2008, my bubble burst. It now seems that the exact same problems caused by the subprime mortgages are waiting for the next round of defaulters - college graduates with mountains of student-loan debt.
To anyone without the privilege of having a college degree, I'm sure I sound like a spoiled brat.
They may claim that, despite the debt, I'm still better off for having a diploma.
But as my 25th birthday approaches, I, like most of my bachelor's-holding friends, still live at home. None of us can even begin to dream of buying a house, but our peers who can have been working at a specialized trade since high school. While we were amassing thousands of dollars of debt for four years, these people gained experience and managed to save enough to buy houses. Who is better off, a 25-year-old living at home with a $120,000 IOU, or one who owns some property, however modest?
For those from humble beginnings, the B.A. is more of a luxury item than a professional foundation.During one of the first days of my freshman orientation, our entire class was shown a giant graph detailing how much money we could expect to make after graduation.
We liberal-arts students had our doubts but were assured that our majors would not impede our future financial success. We were told that employers look for men and women with sophisticated analytical and problem-solving abilities.
Four years later, we emerged as hard-working, creative people, but quickly learned that to land a job that becomes a career, you need a practical skill. Being able to spout the details of the Norman conquest of England gets you nowhere. Geez.
We have thousands of dollars worth of education, but as far as the working world is concerned, we can't really do anything. On paper, I may look overqualified for my current office job, but in reality, I lack one big necessity: administrative training. I can whip out Word documents all day long, but if you need me to do a mail merge or create a database query, you're out of luck. (It's a shame Facebook mastery isn't part of the job.)
Once upon a time for the lower middle class, changing your station in life was inextricably tied to education. Graduates like me are just trying to get a piece of the pie that was promised us, but a college diploma no longer guarantees a lucrative job. Borrowed funds let me receive a college education, but that's based on the outdated assumption that your degree will secure the means to pay the money back. As a friend put it, it's "looked at as good debt because they know you'll get a good job after college and can pay them back."
We're now in a transitional period where this is no longer the case. You can spend $40,000 a year on tuition but come out making $30,000 - if you're lucky.
Now, lending money to those who couldn't afford college otherwise may be dangerous for the borrowers. Smothered by debt and not making enough to justify the loans, young adults are starting their lives unable to envision a time when they'll be able to save enough money to actually live them.
FOR LOWER-income students, working toward the American Dream is in reality keeping that dream at bay.
There are two options: Take your chances in an uncertain job market, or, as we've been taught, go for more schooling to make more money. Either way, it's risky.
Without knowing if I can ever repay it all, I'm now going to borrow more this fall to go to law school.
No one is telling me I can't, and maybe they should be.
http://www.philly.com/dailynews/opinion/20100602_Facing_subprime_reality.html#axzz0pnxZg2vF
When Good Loans Go Bad
Daniel L. Bennett, 05.25.10, 11:00 AM ET
National credit bureau TransUnion revealed recently that the 90- and 30-day delinquency rates on private student loans were 6% and 7.5%, respectively, in the first quarter of 2010. That's up from 5.4% and 6.8% in the previous year. Meanwhile, the Department of Education recently released its fiscal year 2008 draft student loan cohort default rates, which showed that federal loan defaults rose from 6.7% in 2007 to 7.2% in 2008.
Rising delinquency and default rates indicate that borrowers are struggling to repay the loans that they took out for college, especially in the midst of the current economic environment. The fact that student loans are unable to be dismissed in bankruptcy has created a financial nightmare for some borrowers. They're drowning in a mountain of student debt and can't collect the dividends that a college education is supposed to pay.
For years students have been unable to seek protection from their student loan debts through filing bankruptcy. Bankruptcy protection of student loans was originally established in 1978, and was only applicable to government issued or guaranteed student loans, in an effort to "safeguard federal investments in higher education." In 2005 bankruptcy protection was extended to cover privately issued student loans.
But on April 8, 2010, Sens. Dick Durbin, D-Ill., Sheldon Whitehouse, D-R.I., and Al Franken, D-Minn., joined House Reps. Steve Cohen, D-Tenn., and Danny Davis, D-Ill., to introduce legislation that "would restore the bankruptcy law, as it pertains to private student loans, to the language that was in place before 2005, so that privately issued student loans will once again be dischargeable in bankruptcy." According to the congressmen, the legislation would "restore fairness in student lending by treating privately issued student loans in bankruptcy the same as other types of private debt."
Despite the rising rates of delinquency and default, I have mixed feelings about this policy proposal. On the one hand, student loans are a financial debt that consumers voluntarily shoulder, and there is responsibility that comes with choosing to borrow money--mainly to pay it back. But it's also clear that consumers sometimes run into circumstances in life that make it impossible for them to meet their obligations, and that there should be some form of reprieve when debts become too onerous.
Bankruptcy allows people the opportunity to get a fresh financial start in life, alleviating what can amount to suffocating financial oppression, the result of past unwise financial decisions. Unfortunately, going to college has become an unwise decision for a growing number of Americans who are being herded onto campuses across the country. Some people made the wrong decision at a very young age to attend college, and perhaps deserve a second chance, one which allows the student debt to be discharged in bankruptcy, the same way that credit card, mortgage and automobile debt is dismissible.
But that said, there are a number of troubling issues related to the proposed policy to make private student loans dismissible in bankruptcy.
First, the possibility of student loans being dismissed in bankruptcy increases the risk for lenders. After all, college degrees cannot be traded on the secondary market in the same manner as real estate, vehicles or other goods. Therefore, lenders take on a tremendous risk by making uncollateralized loans, as they are unable to repossess and resell the college degree from a borrower who fails to keep up with his payments. This will almost certainly lead to higher interest rates to reflect the heightened market risk of providing student loans without any collateral.
Next, it is damaging to students who rely on private students loans to pay for their education. It is very common for students who elect to pursue a private college education or a professional program to take on private loans because they don't qualify for the federal loan programs, are unable to borrow enough from them to cover the cost of their education, or simply prefer the services of the private lending market over the public one. As interest rates on private student loans rise, more students will be deterred from borrowing the money that they need to pursue their educational goals. This will likely lead to a worsening of the access problem for low- and moderate-income students wishing to pursue an education in medicine, law and business, as they will be deterred by the high cost of borrowing.
Finally, it targets private student loans while protecting taxpayer-backed loans. The government already has the advantage of leveraging the public's capital on the risky endeavor of student lending. This allows the government to offer more favorable loan terms than the private market, and puts taxpayers on the hook for burgeoning amounts of subprime student loans that were made at non-market rates to otherwise unqualified borrowers. This bears a remarkable resemblance to poor government policy that encouraged and subsidized subprime mortgage lending, and spurred the economic crisis that led to the massive Wall Street bailouts Americans are still fuming about.
So how do we avoid this looming fiscal crisis? A few ideas come immediately to mind.
The simplest is to get the government out of the student loan business altogether, and let the market handle it. There are ways to ensure that student loans will still be available at competitive interest rates by the private market, and to ensure that lenders take caution when extending uncollateralized loans, by analyzing the potential of students to repay and factoring default risk into the interest rates charged. This is similar to how the private market extends other forms of credit, and would take the taxpayers off the hook for potential losses that may result from student loans gone sour. These loans are a huge liability for the public that can easily be avoided by getting the government out of the student loan market.
Another option is to hold colleges accountable for providing a valuable education to their students, by transferring the losses from default and bankruptcy from the public to the colleges themselves, or at least sharing the risk. For too long colleges have received an infusion of taxpayer-provided money in exchange for very little accountability. Let's make all student loans dischargeable in bankruptcy, but instead of the taxpayers taking the hit when student loans go sour, colleges should absorb the loss, or at least a portion of it.
This would incentivize colleges to focus on providing educational value and help their students launch a career--knowing that if they fail in their mission, there are real consequences. Maybe then colleges would be more attentive to helping their students succeed.
http://www.forbes.com/2010/05/25/student-loans-bankruptcy-leadership-education-bennett_print.html
National credit bureau TransUnion revealed recently that the 90- and 30-day delinquency rates on private student loans were 6% and 7.5%, respectively, in the first quarter of 2010. That's up from 5.4% and 6.8% in the previous year. Meanwhile, the Department of Education recently released its fiscal year 2008 draft student loan cohort default rates, which showed that federal loan defaults rose from 6.7% in 2007 to 7.2% in 2008.
Rising delinquency and default rates indicate that borrowers are struggling to repay the loans that they took out for college, especially in the midst of the current economic environment. The fact that student loans are unable to be dismissed in bankruptcy has created a financial nightmare for some borrowers. They're drowning in a mountain of student debt and can't collect the dividends that a college education is supposed to pay.
For years students have been unable to seek protection from their student loan debts through filing bankruptcy. Bankruptcy protection of student loans was originally established in 1978, and was only applicable to government issued or guaranteed student loans, in an effort to "safeguard federal investments in higher education." In 2005 bankruptcy protection was extended to cover privately issued student loans.
But on April 8, 2010, Sens. Dick Durbin, D-Ill., Sheldon Whitehouse, D-R.I., and Al Franken, D-Minn., joined House Reps. Steve Cohen, D-Tenn., and Danny Davis, D-Ill., to introduce legislation that "would restore the bankruptcy law, as it pertains to private student loans, to the language that was in place before 2005, so that privately issued student loans will once again be dischargeable in bankruptcy." According to the congressmen, the legislation would "restore fairness in student lending by treating privately issued student loans in bankruptcy the same as other types of private debt."
Despite the rising rates of delinquency and default, I have mixed feelings about this policy proposal. On the one hand, student loans are a financial debt that consumers voluntarily shoulder, and there is responsibility that comes with choosing to borrow money--mainly to pay it back. But it's also clear that consumers sometimes run into circumstances in life that make it impossible for them to meet their obligations, and that there should be some form of reprieve when debts become too onerous.
Bankruptcy allows people the opportunity to get a fresh financial start in life, alleviating what can amount to suffocating financial oppression, the result of past unwise financial decisions. Unfortunately, going to college has become an unwise decision for a growing number of Americans who are being herded onto campuses across the country. Some people made the wrong decision at a very young age to attend college, and perhaps deserve a second chance, one which allows the student debt to be discharged in bankruptcy, the same way that credit card, mortgage and automobile debt is dismissible.
But that said, there are a number of troubling issues related to the proposed policy to make private student loans dismissible in bankruptcy.
First, the possibility of student loans being dismissed in bankruptcy increases the risk for lenders. After all, college degrees cannot be traded on the secondary market in the same manner as real estate, vehicles or other goods. Therefore, lenders take on a tremendous risk by making uncollateralized loans, as they are unable to repossess and resell the college degree from a borrower who fails to keep up with his payments. This will almost certainly lead to higher interest rates to reflect the heightened market risk of providing student loans without any collateral.
Next, it is damaging to students who rely on private students loans to pay for their education. It is very common for students who elect to pursue a private college education or a professional program to take on private loans because they don't qualify for the federal loan programs, are unable to borrow enough from them to cover the cost of their education, or simply prefer the services of the private lending market over the public one. As interest rates on private student loans rise, more students will be deterred from borrowing the money that they need to pursue their educational goals. This will likely lead to a worsening of the access problem for low- and moderate-income students wishing to pursue an education in medicine, law and business, as they will be deterred by the high cost of borrowing.
Finally, it targets private student loans while protecting taxpayer-backed loans. The government already has the advantage of leveraging the public's capital on the risky endeavor of student lending. This allows the government to offer more favorable loan terms than the private market, and puts taxpayers on the hook for burgeoning amounts of subprime student loans that were made at non-market rates to otherwise unqualified borrowers. This bears a remarkable resemblance to poor government policy that encouraged and subsidized subprime mortgage lending, and spurred the economic crisis that led to the massive Wall Street bailouts Americans are still fuming about.
So how do we avoid this looming fiscal crisis? A few ideas come immediately to mind.
The simplest is to get the government out of the student loan business altogether, and let the market handle it. There are ways to ensure that student loans will still be available at competitive interest rates by the private market, and to ensure that lenders take caution when extending uncollateralized loans, by analyzing the potential of students to repay and factoring default risk into the interest rates charged. This is similar to how the private market extends other forms of credit, and would take the taxpayers off the hook for potential losses that may result from student loans gone sour. These loans are a huge liability for the public that can easily be avoided by getting the government out of the student loan market.
Another option is to hold colleges accountable for providing a valuable education to their students, by transferring the losses from default and bankruptcy from the public to the colleges themselves, or at least sharing the risk. For too long colleges have received an infusion of taxpayer-provided money in exchange for very little accountability. Let's make all student loans dischargeable in bankruptcy, but instead of the taxpayers taking the hit when student loans go sour, colleges should absorb the loss, or at least a portion of it.
This would incentivize colleges to focus on providing educational value and help their students launch a career--knowing that if they fail in their mission, there are real consequences. Maybe then colleges would be more attentive to helping their students succeed.
http://www.forbes.com/2010/05/25/student-loans-bankruptcy-leadership-education-bennett_print.html
Placing the Blame as Students Are Buried in Debt
By RON LIEBER
Published: May 28, 2010
Like many middle-class families, Cortney Munna and her mother began the college selection process with a grim determination. They would do whatever they could to get Cortney into the best possible college, and they maintained a blind faith that the investment would be worth it.
Today, however, Ms. Munna, a 26-year-old graduate of New York University, has nearly $100,000 in student loan debt from her four years in college, and affording the full monthly payments would be a struggle. For much of the time since her 2005 graduation, she’s been enrolled in night school, which allows her to defer loan payments.
This is not a long-term solution, because the interest on the loans continues to pile up. So in an eerie echo of the mortgage crisis, tens of thousands of people like Ms. Munna are facing a reckoning. They and their families made borrowing decisions based more on emotion than reason, much as subprime borrowers assumed the value of their houses would always go up.
Meanwhile, universities like N.Y.U. enrolled students without asking many questions about whether they could afford a $50,000 annual tuition bill. Then the colleges introduced the students to lenders who underwrote big loans without any idea of what the students might earn someday — just like the mortgage lenders who didn’t ask borrowers to verify their incomes.
Ms. Munna does not want to walk away from her loans in the same way many mortgage holders are. It would be difficult in any event because federal bankruptcy law makes it nearly impossible to discharge student loan debts. But unless she manages to improve her income quickly, she doesn’t have a lot of good options for digging out.
It is utterly depressing that there are so many people like her facing decades of payments, limited capacity to buy a home and a debt burden that can repel potential life partners. For starters, it’s a shared failure of parenting and loan underwriting.
But perhaps the biggest share lies with colleges and universities because they have the most knowledge of the financial aid process. And I would argue that they had an obligation to counsel students like Ms. Munna, who got in too far over their heads.
How many people are like her? According to the College Board’s Trends in Student Aid study, 10 percent of people who graduated in 2007-8 with student loans had borrowed $40,000 or more. The median debt for bachelor’s degree recipients who borrowed while attending private, nonprofit colleges was $22,380.
The Project on Student Debt, a research and advocacy organization in Oakland, Calif., used federal data to estimate that 206,000 people graduated from college (including many from for-profit universities) with more than $40,000 in student loan debt in that same period. That’s a ninefold increase over the number of people in 1996, using 2008 dollars.
The Family
No one forces borrowers to take out these loans, and Ms. Munna and her mother, Cathryn, have spent the years since her graduation trying to understand where they went wrong. Ms. Munna’s father died when she was 13, after a series of illnesses.
She started college at age 17 and borrowed as much money as she could under the federal loan program. To make up the difference between her grants and work study money and the total cost of attending, her mother co-signed two private loans with Sallie Mae totaling about $20,000.
When they applied for a third loan, however, Sallie Mae rejected the application, citing Cathryn’s credit history. She had returned to college herself to finish her bachelor’s degree and was also borrowing money. N.Y.U. suggested a federal Plus loan for parents, but that would have required immediate payments, something the mother couldn’t afford. So before Cortney’s junior year, N.Y.U. recommended that she apply for a private student loan on her own with Citibank.
Over the course of the next two years, starting when she was still a teenager, she borrowed about $40,000 from Citibank without thinking much about how she would pay it back. How could her mother have let her run up that debt, and why didn’t she try to make her daughter transfer to, say, the best school in the much cheaper state university system in New York? “All I could see was college, and a good college and how proud I was of her,” Cathryn said. “All we needed to do was get this education and get the good job. This is the thing that eats away at me, the naïveté on my part.”
But Cortney resists the idea that this is a tale of bad parenting. “To me, it would be an uncharitable reading,” she said. “My mother has tried her best, and I don’t blame her for anything in this.”
The Lender
Sallie Mae gets a pass here, in my view. A responsible grownup co-signed for its loans to the Munnas, and the company eventually cut them off.
But what was Citi thinking, handing over $40,000 to an undergraduate who had already amassed debt well into the five figures? This was, in effect, a “no doc” or at least a “low doc” subprime mortgage loan.
A Citi spokesman declined to comment, even though Ms. Munna was willing to sign a waiver giving Citi permission to talk about her loans. Perhaps the bank worried that once it approved one loan, cutting her off would have led her to drop out or transfer and have trouble paying back the loan.
Today, someone like Ms. Munna might not qualify for the $40,000 she borrowed. But as the economy rebounds, there is little doubt that plenty of lenders will step forward to roll the dice on desperate students, especially because the students generally can’t get rid of the debt in bankruptcy court.
The University
The financial aid office often has the best picture of what students like Ms. Munna are up against, because they see their families’ financial situation splayed out on the federal financial aid form. So why didn’t N.Y.U. tell Ms. Munna that she simply did not belong there once she’d passed, say, $60,000 in total debt?
“Had somebody called me and said, ‘Do you have a clue where this is all headed?’, it would have been a slap in the face, but a slap in the face that I needed,” said Cathryn Munna. “When financial aid told her that they could get her $2,000 more in loans, they should have been saying ‘You are in deep doo-doo, little girl.’ ”
That’s not a role that the university wants to take on, though. “I think that would be completely inappropriate,” said Randall Deike, the vice president of enrollment management for N.Y.U., who oversees admissions and financial aid. “Some families will do whatever it takes for their son or daughter to be not just at N.Y.U., but any first-choice college. I’m not sure that’s always the best decision, but it’s one that they really have to make themselves.”
The complications here go well beyond the propriety of suggesting that a student enroll elsewhere. Colleges don’t always know how much debt its students are taking on, which makes it hard to offer good counsel. (N.Y.U. does appear to have known about all of Ms. Munna’s loans, though.)
Then there’s a branding problem. Urging students to attend a cheaper college or leave altogether suggests a lack of confidence about the earning potential of alumni. Nobody wants to admit that. And once a university starts encouraging middle-class students to go elsewhere, it must fill its classes with more children of the wealthy and a much smaller number of low-income students to whom it can afford to offer enormous scholarships. That’s hardly an ideal outcome either.
Finally, universities exist to enroll students, not turn them away. “Aid administrators want to keep their jobs,” said Joan H. Crissman, interim president and chief executive of the National Association of Student Financial Aid Administrators. “If the administration finds out that you’re encouraging students to go to a cheaper school just because you don’t think they can handle the debt load, I don’t think that’s going to mesh very well.”
That doesn’t change the fact, however, that the financial aid office is still in the best position to see trouble coming and do something to stop it. University officials should take on this obligation, even if they aren’t willing to advise students to attend another college.
Instead, they might deputize a gang of M.B.A. candidates or alumni in the financial services industry to offer free financial planning to admitted students and their families. Mr. Deike also noted that the bigger problem here is one of financial literacy. Fine. He and N.Y.U. are in a great position to solve for that by making every financial aid recipient take a financial planning class. The students could even use their families as the case study.
The Options
The balance on Cortney Munna’s loans is about $97,000, including all of her federal loans and her private debt from Sallie Mae and Citibank. What are her options for digging out?
Her mother can’t help without selling her bed and breakfast, and then she’d have no home. She could take her daughter in, but there aren’t good ways for her to earn a living in Alexandria Bay, in upstate New York.
Cortney could move someplace cheaper than her current home city of San Francisco, but she worries about her job prospects, even with her N.Y.U. diploma.
She recently received a raise and now makes $22 an hour working for a photographer. It’s the highest salary she’s earned since graduating with an interdisciplinary degree in religious and women’s studies. After taxes, she takes home about $2,300 a month. Rent runs $750, and the full monthly payments on her student loans would be about $700 if they weren’t being deferred, which would not leave a lot left over.
She may finally be earning enough to barely scrape by while still making the payments for the first time since she graduated, at least until interest rates rise and the payments on her loans with variable rates spiral up. And while her job requires her to work nights and weekends sometimes, she probably should find a flexible second job to try to bring in a few extra hundred dollars a month.
Ms. Munna understands this tough love, buck up, buckle-down advice. But she also badly wants to call a do-over on the last decade. “I don’t want to spend the rest of my life slaving away to pay for an education I got for four years and would happily give back,” she said. “It feels wrong to me.”
http://www.nytimes.com/2010/05/29/your-money/student-loans/29money.html?hp=&pagewanted=all
The Real Tragedy of Student Debt - A young, working-class woman shares the story of her subtle slide into unbearable debt.
By Myshele Goldberg, July 24, 2006
There's been a lot of talk lately about increasing levels of student debt. With all of the fuss, you'd expect that lucky high school seniors receive a sobering invoice with their college acceptance letters. But for many students, the plunge into debt is much more insidious. Like drug dealers, the lenders start small and cheap, lulling students into a false sense of security. By the time the full effects of debt creep in, it's too late.
I hope that my experience will shed light on similar stories unfolding across America, illuminating the impossible choices that meet working-class students. It's also a cautionary tale for countries seduced by the false promises of private college education financed by student loans and credit cards.
At my working-class high school in Connecticut, I was always a top student. The overwhelming message for high achievers was that brains, determination, and charisma would lead to success in any career, and I dutifully pursued volunteer work, leadership training, part-time jobs, and anything else that would 'look good on the resume.'
My hard work paid off when I was accepted for a prestigious early-entrance program at the University of Southern California. The Resident Honors Program (RHP) selects 'exceptional and highly motivated' students to begin college a year before graduating high school, recruiting from the top 4 percent of sophomores nationally. From a pool of 25,000, between 30 and 60 join the program each year.
I got a $6,000 scholarship, along with $19,500 in grants and work study. In order to make the required fees and expenses of $28,000, I took out a $2,500 student loan my first year -- a manageable amount, I thought.
Once I got to USC, I worked for a month at a grocery store, then got a work-study job for 20 hours a week, $6 an hour. An irregular schedule caused me to miss RHP activities, and I had to skip some classes. But keeping my debts under control seemed worth it. My first summer home, I worked on a farm and earned $1,000 -- enough to buy my plane tickets.
My second year, USC's tuition fees increased by $2,000, and my mother's income increased by $1,000. Ironically, this pushed our family out of the 'low-income' category, and I lost half of my grant money. I considered transferring to a less expensive school, but USC's general education classes were so obscure that I'd have to repeat my freshman year anywhere else. So I held my nose and took out a $9,500 loan, hoping to apply for scholarships later on.
I got another work-study job -- on top of running two student organizations, taking honors-level classes, and dealing with a roommate from hell. Getting to the library was becoming impossible, so I took out a $1,500 loan to buy a laptop. It was my first experience of a private student loan, and I was told it wasn't much different from a federal loan. The interest was slightly higher, and there were slightly different rules, but overall it all seemed the same.
After Christmas, the overload became too much, and I had to prioritize. I decided that leadership and education were more important than meaningless employment, so I quit my job and took out another $2,000 private loan. I navely hoped that my education would someday allow me to earn more than $6 an hour.
My third year, I attended Edinburgh University in Scotland, where tuition fees were half of USC's. That year, I needed only a $4,000 loan, and didn't have to worry about a job. But the next year brought hardly any grant money, and rather than give up in the 'home stretch,' I took out more loans than I ever expected I'd need.
When I graduated in the summer of 2002, I was $36,000 in debt. My only consolation was that my debts were equivalent to one year's cost of attendance -- a bargain, really.
A shift from grants to loans hurts working class students
I moved back to my mother's house and began looking for a job. But in the recession following 9-11, employers wanted practical, predictable degrees, not esoteric subjects like anthropology. From seeking meaningful employment, I slid into looking for any job. I had a few days of temporary office work, a few months in retail. I went to Scotland in search of a better job market, but couldn't even get an interview before my money evaporated.
Since my degree wasn't helping me find work, I decided I needed a skill. I started a multimedia course at a community college, paid for with wages from a salon. But I soon discovered that my little laptop couldn't handle graphics work, so I bought a new computer with a private loan for $2,000.
Six months later, I finally got what I really wanted -- a meaningful job. I put multimedia on hold and began working as a union organizer. In exchange for 'unlimited hours' -- sometimes 70 hours a week -- the salary was excellent: $2,000 a month. I paid off my credit cards and started on the loans. By this point, with capitalized interest, my total debt was $43,000.
Six months later, I was burnt out. I could deal with the impossible hours, but it was an upward battle just to maintain the status quo for the workers I was helping. An overwhelming sense of futility made me wonder if anything was ever going to change, and I retreated to school to reconsider my goals and tactics. My loans were in deferment, giving me a little breathing room.
Eventually I came to the conclusion that multimedia could earn me a living, but I still wanted a career that would help disadvantaged communities. I applied to an 'alternative' master's program in Edinburgh that was ideal -- studying social change. I couldn't get any scholarships for an obscure foreign school, but I could finish in half the time of an American master's degree. I took out a private student loan for $18,000 and worked as a 'Santa's Elf' at a shopping mall (among other jobs).
As of finishing my master's degree, my debt hovers around $70,000 -- it will grow to over $100,000 by the time I pay it off. My repayment schedule reaches into my late forties, at $650 a month. If I do the kind of low-paid, meaningful work I want to pursue -- teaching, writing, grassroots organizing -- I will likely struggle to make each payment.
To be fair, I made the choices that put me in this situation. I attended an expensive university 3,000 miles from home. I stayed at that school, even though I could get a cheaper education elsewhere. I studied an impractical subject that I loved, then continued my studies at an obscure foreign university. I wasn't always aware of financial consequences.
Yet I made my choices based on the values I had been taught -- that helping others is more important than making money for yourself, meaningful career is more important than net worth, and brains, determination, and charisma are the key ingredients of success. I realize now that I subscribed to the fantasy of an equal society, when in fact everyone's options arise from class, race, gender, and a thousand other subtle differences in our experiences, assumptions, and privileges.
There are alternative models
My experience with higher education exemplifies the conundrum of the working class. Universities guarantee financial aid to low-income students, but often shift from grants to loans after a year or two. Students are expected to make higher contributions each year, even though upper-level classes are more demanding than introductory ones. Students are encouraged to take leadership roles in extracurricular activities, but working-class students have to fill their summers with meaningless low-paid jobs instead of volunteer work or internships, and are put behind their upper class peers.
Adding insult to injury, education gives a tantalizing glimpse of the wider world. For many, college is where they realize that their experience of injustice is not isolated, and many gain a desire to work for social justice. But to pay back their debt, graduates must forget their ideals and go to work for the highest bidder.
To put it in perspective, the average debt at graduation in America is $19,300. In the United Kingdom, it's $16,000; in New Zealand, $9,600; in Germany, $7,000. Most countries require repayment only when a graduate earns a certain salary -- in the United Kingdom, it's $28,000. In Germany, it's $14,500 -- but students enjoy a five-year grace period, subsidies for good grades, and forgiveness on all loans above $12,500. Sweden's grace period is three years, Holland's is two, and most countries in Europe forgive student loans after 15-25 years.
These different arrangements allow students to 'get on their feet' after graduating. New graduates have the time and space to find a niche, rather than getting trapped in the first job that comes along. They are allowed to engage in useful work without worrying about excessive loan payments, making contributions that aren't measured by the GDP.
Grants rather than loans also limit the flow of educated, desperate young people into the semiskilled labor market, leaving service jobs open to those who have not pursued higher education. While this contributes to social stratification, it also makes jobs available to people who need them.
In America, with its tangled webs of overpriced private colleges, usurious credit cards and bankruptcy-proof student loans, it's unlikely that socialized education would be embraced. Still, it's heartening to know that our system is an excessive anomaly -- most other countries make much better investments in their young people regardless of their class and race.
In many ways, this pattern is one manifestation of a larger trend in America: sacrificing the opportunities and livelihoods of lower- and middle-class people for the profit of banks, corporations and the wealthy elites. But there's only so much sacrifice people can handle before they're bled dry, and only so long a country can prosper on credit cards and loans that can't be reasonably repaid.
What is writ large in corporate bankruptcies, withering federal programs and industrial outsourcing is writ small in stories of impossible choices and shattered educational dreams. The real tragedy is not that America's young people can't afford their college education -- the tragedy is that they are told their entire lives that education is their birthright and a chance to social mobility, and then are forced to watch that birthright crumble under the weight of unbearable debt.
http://www.wiretapmag.org/stories/39278/
The Education Bubble, Part 3: ‘Shared Responsibility’ To Shrink Student Debt
By Deborah Becker
Published May 26, 2010
BOSTON — In a recent interview, a Boston-based college and career consultant stressed the need for cooperation to ease the escalating student debt we’ve covered in this series.
“There’s got to be a push for some shared responsibility in informing students up front as to whether or not the decisions that they’re making make any economic sense,” said Craig Powell, CEO of ConnectEDU, a website that aids students in their collegiate and professional transitions.
On the students’ behalf, Powell says applicants and their families need to ask themselves a series of questions to make sure the math “makes sense at the outset.” He advises students to consider their target institution, the general career path they’re interested in, the starting salary of a person in that career, how well the institution places graduates in that career and whether a target degree correlates to target career opportunities.
He also pointed out two specific data points he says are rarely discussed when weighing financial needs: The cost of transferring credits for the 47 percent of students who switch colleges in their first two years; and that, on average, students take 5.4 years to graduate from four-year programs.
“Many parents and families are still operating under the notion that you graduate from college in four years when in fact, statistically, that is not the case,” Powell said.
Powell also took issue with the sometimes hands-off approach he sees colleges employing regarding their students’ debt loads. He says institutions shouldn’t wash their hands of responsibility “because we live in a free country” and noted that some industries levy penalties for not informing consumers of potential future pitfalls.
Part of the problem, in his view, is that it’s a worst-case scenario for an institution when a student cannot graduate, but it’s a different story upon graduation.
“That institution has no ownership once that student has left the institution as to whether or not that debt burden actually gets paid back or not,” Powell said. “That’s the sole responsibility of that student loan underwriter.”
While Powell has seen the upside of the student loan system — he says he never would have attended an Ivy League school without supplemental, private loans — he concedes that the high default rates are starting to resemble the busted housing market.
“I think the notion, in concept of ‘bubble,’ as defined by inflation off of debt, is absolutely alive and well in the education space,” he said. “I think you’re seeing particularly mid- and lower-tiered, higher-priced institutions sort of careening toward a course of not being able to make the hours add up.”
http://www.wbur.org/2010/05/26/student-loans-iii
Published May 26, 2010
BOSTON — In a recent interview, a Boston-based college and career consultant stressed the need for cooperation to ease the escalating student debt we’ve covered in this series.
“There’s got to be a push for some shared responsibility in informing students up front as to whether or not the decisions that they’re making make any economic sense,” said Craig Powell, CEO of ConnectEDU, a website that aids students in their collegiate and professional transitions.
On the students’ behalf, Powell says applicants and their families need to ask themselves a series of questions to make sure the math “makes sense at the outset.” He advises students to consider their target institution, the general career path they’re interested in, the starting salary of a person in that career, how well the institution places graduates in that career and whether a target degree correlates to target career opportunities.
He also pointed out two specific data points he says are rarely discussed when weighing financial needs: The cost of transferring credits for the 47 percent of students who switch colleges in their first two years; and that, on average, students take 5.4 years to graduate from four-year programs.
“Many parents and families are still operating under the notion that you graduate from college in four years when in fact, statistically, that is not the case,” Powell said.
Powell also took issue with the sometimes hands-off approach he sees colleges employing regarding their students’ debt loads. He says institutions shouldn’t wash their hands of responsibility “because we live in a free country” and noted that some industries levy penalties for not informing consumers of potential future pitfalls.
Part of the problem, in his view, is that it’s a worst-case scenario for an institution when a student cannot graduate, but it’s a different story upon graduation.
“That institution has no ownership once that student has left the institution as to whether or not that debt burden actually gets paid back or not,” Powell said. “That’s the sole responsibility of that student loan underwriter.”
While Powell has seen the upside of the student loan system — he says he never would have attended an Ivy League school without supplemental, private loans — he concedes that the high default rates are starting to resemble the busted housing market.
“I think the notion, in concept of ‘bubble,’ as defined by inflation off of debt, is absolutely alive and well in the education space,” he said. “I think you’re seeing particularly mid- and lower-tiered, higher-priced institutions sort of careening toward a course of not being able to make the hours add up.”
http://www.wbur.org/2010/05/26/student-loans-iii
The Education Bubble, Part 2: Stricter Guidance Could Keep Loans At Bay
By Monica Brady-Myerov and Sonari Glinton
Published May 25, 2010 Updated May 28
BOSTON — Worcester’s College of the Holy Cross and Simmons College, in Boston, are two private institutions in Massachusetts, but comparing them is like comparing apples to pears.
Holy Cross is the oldest Catholic college in New England. Simmons has an all-women’s undergraduate school, along with multiple graduate programs. Holy Cross has a $500 million endowment; Simmons an endowment of $140 million.
More notably for this series, however, is that while Holy Cross actually costs more — with a total price tag over $50,000 — 2008 graduates left Simmons with more than twice as much debt as their Holy Cross counterparts, approximately $42,000 to $17,000.
A Visits To Simmons…
Annie Dunbar and Alicia Lochard just graduated from Simmons. The women are from New England, were high achievers in high school and liberal arts majors in college. They had some interesting reasons — reasons representative of their age at the time — for why they chose Simmons.
“I picked Simmons primarily because of their application,” Dunbar says. “I know it’s lame, it’s lame. But the free application was a very big help.”
Adds Lochard: “That’s what brought me to Simmons. I wanted a free t-shirt, I didn’t have to write an essay and I didn’t have to pay for (the application).”
Their parents also had no experience with the American college system. Dunbar is Liberian. Lochard is the first in her family to go to college.
“When I was applying for college, I knew I had $15,000 that I did know where it was coming from,” Lochard says. “I didn’t really understand debt. I didn’t really understand interest rates. I had no one I could get assistance from. But when they approved me, I signed my name on the dotted line every semester for eight semesters, without any education about what the repercussions of that would be.”
Lochard got some academic and financial scholarships, but still racked up about $80,000 in student loans. Some are federally issued, but much of her debt is in high interest private loans.
…And To Holy Cross
In the Hogan Campus Center at Holy Cross before finals, students grabbed a late afternoon coffee or studied. Even though the school has a relatively low average student debt load, the students probably didn’t think about how much and for how long they would be paying for college when they decided on Holy Cross. It certainly didn’t occur to graduating senior Jill Caughlin.
“I didn’t really think about it that much when I was 18,” Caughlin says, “so I wasn’t really too concerned when I was graduating high school with the cost of college. It was something in the back of my mind that I knew I would eventually face coming down the road.
“I didn’t really look into the financial aid packages at the other schools,” she adds. “I applied early decision to Holy Cross. This was the only school that I really explored their financial aid options.”
Caughlin has $20,000 in debt, which she calls manageable. It means she can go to law school in the fall and not feel overburdened by debt.
The Institutional Role
So while students had similar misconceptions before heading to different colleges, the real question is who’s responsible when a student gets buried in debt? It’s the student’s, and the parents’, too, of course, but colleges play a role. Some wonder if they are constantly on a building frenzy, among other spending agendas, driving up costs. Some simply wonder about how they counsel students about debt.
Holy Cross tries to be different. Its philosophy includes making education affordable and it actively discourages students and families from taking out private loans because they charge higher interest rates with interest that starts accruing right away.
“We come right out and we say, ‘We do not view that as a viable option,’ ” says Lynn Myers, Holy Cross’ head of financial aid.
That means Holy Cross tells some prospective students to find another school they can afford. And if an enrolled student needs private loans, they are called to Myers’ office and counseled against it.
Simmons, on the other hand, takes a more hands-off approach.
“We’re not trying to encourage our students to take more debt than they should take,” says Simmons President Helen Drinan. “At the end of the day, though, our students are adults. And if they decide they are going to take a loan, we’re not going to tell them they can’t take a loan.”
Drinan says the school does not have a strict philosophy on student debt.
“Part of the reason for that is we don’t have the resources to say, ‘We don’t want you to have more than X number of dollars of debt,’ ” Drinan says. “But we would definitively like to be in that position. It’s the reason we’re doing a lot of the things that we’re doing.”
Drinan says the school doesn’t prohibit students from coming, though they can advise students that Simmons may not be the best fit. When pushed, though, she says they can just advise.
“This is a free country after all,” she says. “You don’t tell people what they can and cannot do.”
Father Michael McFarland, the president of Holy Cross, compares that line of thought to underage drinking.
“If they want to drink, we can’t stop them, so just lower the age to 18 and let them drink,” McFarland says. “I’m not in that school. I guess we are a little more paternalistic in that sense.”
Holy Cross grads like that paternalism, it seems, because it’s consistently ranked as having the happiest alumni and its alumni giving rate is among the top 10 in the country.
Students at Simmons say they wish they had some of that paternalism. Simmons says it does offer help every step of the way in the financial aid process. But Lochard says it wasn’t enough.
“Last week I went to exit loan counseling,” Lochard says. “I don’t recall going to entrance loan counseling. There is a disparity. No one sat me down and said, ‘This is what you’re getting yourself into.’ I wish someone had said to me, ‘You cannot afford this.’ ”
http://www.wbur.org/2010/05/25/student-loans-ii
The Education Bubble, Part 1: Sky-High Debt Is ‘Overwhelming’ Burden
By Monica Brady-Myerov
Published May 24, 2010
BEVERLY, Mass. — The chapel at Endicott College rings out cheery tunes like “Rainbow Connection” from “The Muppet Movie.” It’s an idyllic campus with sloping green lawns and man-made lakes with fountains. On a bench by a lake, graduate Nicole Benson sits, taking it all in.
“I honestly don’t really remember why I decided to come here,” Benson says. “I think location had a lot to do with it. My mother loved it. It’s a small and quiet campus.”
Benson graduated in 2007 and had major sticker shock: She found out she owed $90,000.
“And it was very, very devastating,” Benson says. “It was very shocking. I mean, just to look at a number like that at 22 years old is very overwhelming.”
She had taken out only $45,000 over the course of her four years of study. One of her eight loans is a federal loan but the rest are from private banks with interest rates as high as 15 percent. The interest on the private loans began accruing as soon as she got them.
Endicott is a small college which, when she attended, cost $31,000 a year. It doesn’t have a large endowment, so most students face a $7,000 gap in their financial aid packages. That means that after federal loans, grants and scholarships, students and families who don’t have the means turn to the private market to pay.
“My mother kind of pushed me to go to school,” Benson says. “I just never had anybody say to me, ‘Wait a minute, this is going to be expensive.’ I honestly just had absolutely no idea.”
Benson’s mother handled most of the federal and private loan paperwork; Nicole just signed. Benson’s parents didn’t go to college and didn’t understand the loan process. Her mother and her grandmother co-signed some of the loans and are also behind on payments.
They were all making the same calculation: It would pay off because she would get a job and be able to afford and pay off the loans.
Endicott told her that with her degree in hospitality management she could make $50,000 a year. And she did get a job after she graduated, but was laid off in 2009 when the economy went south.
“I’ve cried a lot,” Benson says. “It’s been very, very emotional. It’s definitely, it’s taken its toll on a lot of aspects of my life. I’m very stressed out, very overwhelmed and very unsure of what I should do.”
The harassment came in the form of phone calls — sometimes 20 to 30 a day — from her creditors.
“I tried to, I would beg them,” Benson says, “I’d say, ‘Look, I don’t have a job, I don’t know what you want me to do.’ ”
Now Benson has a bookkeeping job that pays by the hour. But her loans have grown to nearly $98,000 and her loan payments are more than $1,000 a month. She says to make a dent in what she owes, Benson figures she would have to pay $3,000 a month.
“It’s (an) unrealistic expectation of the payments that I should be able to make,” Benson says. “I’m like, ‘With what money?’ ” She chokes back tears.
Even though college graduates earn nearly two times more than those who just get a high school diploma, in her case that’s little consolation. She’s thought about bankruptcy, but it wouldn’t help because federal and private student loans cannot be dismissed in bankruptcy. She’s stuck with this debt for decades to come.
“I don’t know if I’ll ever be able to get a mortgage and buy a house,” Benson says. “It’s looking pretty doubtful right now.
“It’s very disappointing that, like, I worked so hard and I really have nothing to show for it, you know. I live in the cheapest place available to me. I drive a car that is barely running. I have absolutely nothing to show for absolutely busting my ass all the time.”
Recently, Benson, working with a pro-bono lawyer, was able to reach an agreement with two of the companies holding her loans to lower her payments. But the other private banks won’t accept a deal. So she’s about to join a growing trend and default on some of her debt. The U.S. Department of Education expects almost 7 percent of students to default on their loans for fiscal year 2007 — the highest rate since 1998.
To the people who say, “It’s all her fault, she should have known what she was getting herself into,” Benson agrees. And she makes it very clear she wants to repay her loans. But she wants others to understand the larger consequences in the hope that the private student loan system will be reformed.
“If such an enormous amount of the young adult population is in so much debt now it definitely will affect the economy for years and years to come,” she said.
A recent poll from Harvard University found that a majority of young adults is concerned about meeting their bills.
Benson doesn’t blame Endicott College for getting her into debt. The school says it tells parents to at least pay the interest on private loans and go on monthly payment plans with the school, which are interest free. But, the school says, the parents choose to stick their heads in the sand. That’s basically what Benson and her family did, and now, she’s paying the consequences.
http://www.wbur.org/2010/05/24/student-loans-i
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