Over 40 percent of those in student loan programs have stopped making payments. Many borrowers have never made any payments.
The department of education (a useless body that I would eliminate in one second if given the chance), cannot figure out why this is happening.
“We obviously have not cracked that nut but we want to keep working on it,” said Ted Mitchell, the Education Department’s under secretary.
The Wall Street Journal reports More Than 40% of Student Borrowers Aren’t Making Payments.
More than 40% of Americans who borrowed from the government’s main student-loan program aren’t making payments or are behind on more than $200 billion owed, raising worries that millions of them may never repay.
While most have since left school and joined the workforce, 43% of the roughly 22 million Americans with federal student loans weren’t making payments as of Jan. 1, according to a quarterly snapshot of the Education Department’s $1.2 trillion student-loan portfolio.
About 1 in 6 borrowers, or 3.6 million, were in default on $56 billion in student debt, meaning they had gone at least a year without making a payment. Three million more owing roughly $66 billion were at least a month behind.
Meantime, another three million owing almost $110 billion were in “forbearance” or “deferment,” meaning they had received permission to temporarily halt payments due to a financial emergency, such as unemployment. The figures exclude borrowers still in school and those with government-guaranteed private loans.
Navient Corp. , which services student loans and offers payment plans tied to income, says it attempts to reach each borrower on average 230 to 300 times—through letters, emails, calls and text messages—in the year leading up to his or her default. Ninety percent of those borrowers, which include federal borrowers as well as those who hold private loans, never respond and more than half never make a single payment before they default, the company says.
Crisis Easy to Explain
Carlo Salerno, an economist who studies higher education and has consulted for the private student-lending industry, noted that the government imposes virtually no credit checks on borrowers, requires no cosigners and doesn’t screen people for their preparedness for college-level course work. “On what planet does a financing vehicle with those kinds of terms and those kinds of performance metrics make sense,” he said.
I could easily come up with numerous reasons off the top of my head.
- Being in the workforce and having a job are two different things.
- Having a job and making enough money to pay back hundreds of thousands of dollars is yet another thing.
- Some feel cheated by the system, as well they should.
- Many have figured out the consequences of default are small. The worst that can happen is wage garnishment. Should that happen, one can always find another low-paying job, buying time until they are discovered again.
- Some never intended to pay back the loans in the first place. To those borrowers, it’s all free money for a few years. They will stay in school as long as they can. If by some miracle they actually graduate (or are kicked out), they never make a payment.
Blame Bush!
A large portion of the blame for this mess goes to George W. Bush. Seriously.
The Bankruptcy Abuse Prevention and Consumer Protection Act enacted April 20, 2005 made it much more difficult to discharge debts in bankruptcy.
Among other things, “BAPCPA amended the law to broaden the types of educational (“student”) loans that cannot be discharged in bankruptcy absent proof of “undue hardship.” The nature of the lender became irrelevant. Even loans from “for-profit” or “non-governmental” entities are not dischargeable.
The Deflation Guarantee Act of 2005
I predicted this mess when Bush signed the bill. As proof, I offer The Deflation Guarantee Act of 2005.
Here are my lead paragraphs as I wrote them at the time.
Today Congress passed the “The Deflation Guarantee Act of 2005” currently known as the “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005”. Twenty years from now economists are going to be studying legislation from this Congress and signed by this administration and be wondering: “What the * were they thinking?”.
Consumer Protection Act? LMAO
Anytime this administration passes a law with the “protection” in it, assume it will do just the opposite.
Student Debt Highly Deflationary
I have wanted to refer back to that post on numerous occasions.
I had not done so previously because I strongly dislike my writing style in those days. I frequently used chat room talk like “LMAO” (laughing my ass off), in those early posts.
There are other aspects of my 2005 post that I dislike as well. However, I nailed the idea correctly. Student debt is a hugely deflationary force.
In the wake of that act (albeit with a bit of a delay), we saw massive amounts of seemingly reckless lending to students. Because of government guarantees, lenders did not give a damn who they lent to.
For profit universities flourished. Abuses at the University of Phoenix became rampant. And because of various lending programs that followed, education costs soared as well.
Those debts cannot be paid back, and household formation has gone into reverse. Students moved back home after graduation, and attitudes on debt have changed.
These are all debt deflation forces.
Modest Fee Request
The Department of Education will no doubt waste millions of taxpayer dollars studying this issue, only to come up with the wrong answers because students will lie.
Will anyone realistically admit “I never intended to pay back these loans”?
My modest fee for this analysis is a mere $250,000. Of that amount, I pledge $249,999.99 to the Khan Academy.
All I ask is a penny for my thoughts, saving taxpayers countless millions in useless department of education studies.
For more on the Khan Academy please see Teaching Revolution: Online, Accredited, Free; Start Learning Now!
Obama’s Role
President Obama does not escape criticism for his efforts to fuel the problem.
Here’s my blast at Obama: For Profit Schools Turn Students Into Debt Zombies; It’s Time To Kill The Entire Pell Grant Program.
There is plenty of blame to go around, but I have not seen a single person take this crisis back to the logical origin, the “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005” making student debt non-dischargeable in bankruptcy.
Mike “Mish” Shedlock
Bush signed the bill so he is guilty but all the dems voted for it and enough “repubs,” too.
Both parties are shamefully owned and operated by corporations and Americans are too ethically challenged themselves to care.
I have mixed feelings about this but, in general, if you borrowed it you need to pay it back. Not being literate with money is not an excuse.
1) Long long ago (I’m about as old as Mish), I owed $2500 for my college education. I struggled to make the $35 month payments but paid it off early. So did my wife.
2) College is a racket. It won’t improve until it’s hit in the pocketbook. If people get smart about not going because it not a good investment for many, colleges will become a better investment and worth borrowing money for. Entitled college teachers need to be managed better. ‘Academic freedom’ is not an excuse to be lazy and / or a bully if you’re a teacher. Math doesn’t change, why do text books change every year (see point 4).
3) Adults who sent their kids to college, aka ‘parents’, need to be the brains of the group and consider cheaper community colleges for at lease 2 of the years. Most kids are too inexperienced to understand debt and the lack of freedom it creates. Holding one’s breath until they turn blue is entertainment, not a negotiation technique.
4) Later in life I earned a CPA license. I took on line courses from community colleges to learn new things and refresh what I learned much earlier. I took CPA review on my own with books from Amazon. I passed all 4 exams on the first try. About 50% fail each exam each time it’s offered. A very small percentage pass it on the first try. Prior experience covered the experience requirement. Kids need to be more self reliant. Parents need to make them so. I passed the economics and general business exam (BEC) using old references (with a 93, yes I studied 18 points too hard) because these concepts never change.
5) An old econ teacher long ago would rant ‘People Are Smart’. By this he meant consumer preferences and behavior would change if it hurt too much not to change. Financial illiterates need to be examples of bad behavior so a new generation won’t repeat what they did (I’m an optimist.) Sorry you screwed up. Don’t expect me to subsidize you with my taxes. Make the schools pay for providing a bad education if you can. Or learn something from your mistakes.
Much more reasonable and effective than medieval debtors prisons, built along some assumed “moral” dimension to a third party business transaction like a loan, is the equally catchy phrase that “before lending to someone, you need to make sure they’ll pay you back.”
Lending without standards, just to circle back to your Government lackeys to have them throw those you didn’t bother doing a proper credit analysis on into slavery, is no different than support for any other form of slavery. Corollarily, those who choose not to you back, are morally no different than those who once hopped the fence on the plantation they were supposed to toil on. In the process breaking the almighty “Law” and all.
http://www.macrobusiness.com.au/2016/04/education-rort-chicken-comes-home-to-roost/
Same issues currently being debated in Australia. Billions of dollars of student debt that will never be paid.
Government is thinking of lowering the threshold to $40k a year wage, down from $50k a year when wages are garnished to re pay your student loan.
The only way the goal seekers know to get all the unemployed out of the workforce is put them on disability or stuff them into education camps via no doc student loans. Voila,,,4.9% unemployment stat. Political goal achieved.
Payback? Not to worry. It gets passed on to the next watch. Besides, the government guaranteed portion is public money, and what belongs to everybody belongs to no one specifically, so nobody gives a shit.
Brave new world here. Brings up reflections of the French Revolution. I wonder who will play the part of Robespierre? Marie Antoinette’s part is already spoken for by Janet Yellen.
You bring up a very good point Professor. Add to that, universities are the largest employers in many if not most states.
Picking up the tab for higher education is just another way to subsidize and massage the factual employment statistics.
The Monstrous Power Grab continues and every step is in plain sight. Consider: The Trillion+ Debt cannot and will not be repaid. The response to Safe Space Harvard Day Care Centers will be a reaction to defund the endowment programs (In other news, Larry Summers, call your office…). The outraged Alums will cut back on contributions, to which the beleaguered facuty and other suits will beg the Congress and Prez for relief. Will they ever get it – “I wanted relief but with me keeping my JOB!” Nope. Dismissal of Debt at the cost of the Central State controlling higher education.
While I’m on a Rant, notice one other thing: Notice this Effect in Wymyns’s Work. The Central State is promoting all sorts of Wymyn’s Problems as a Federal Problem that can only be solved by the Feds. How often have you heard “A woman and her Doctor”? Who controls the doctors? Not the woman! The Central State does now, baby!
Control of education. Control of women. What’s next?
Thanx Mish,
CW
It may soon become apparent to all the mamas and papas that you cannot screw the young.
They have nothing to lose (anyone with teenage children knows this).
It is time we co-operated with them for our own and our nations future good and give them a free education (Note to all the scrooges out there – for our own benefit as part of a social contract with our children)
Acting abusively and incarcerating intelligent youngsters will have a payback – so get ready for it.
They do get a “free” education up to 12th grade (well, somebody pays for it but it’s free to them). So Eric apparently you think that those for whom a college education is a complete waste of time should get a free ride for 4 more years? I assume that you are aware of how many VERY successful people do not have a college degree, and how many failures do have degrees? I also assume you are a fan of The Bern.
I agree with you CJ not everyone should get a free education after college. Only those that can benefit from it. If you don’t qualify it should be possible to find another way if you are determined. So libraries are free and correspondence paid for weekly whilst working are also an option. Corporates should help too as they can benefit from proper directed training for whatever business they run. Drawing ignorant or unworldly teens into lifetime debt slavery via false advertising and for profit failure is not a good system – many students fail with no prospects after being fooled into taking on easy debt. Just another banking scam with the Government (all of us) picking up the pieces – again.
I have been working in the Students loan program in the Finnish Pension Fund ( KELA ). As bureaucratic, slow and frozen the whole thingy is, one thing is sure – you always have to pay the loan back and if you can’t your credit score will be eternally eliminated , meaning no credit cars , no car loans , no home loans and even difficulties opening a simple bank account… at least not here in Scandinavia and nor even probably in the whole EU area …
The system works so that the banks evaluate the credit risks of the students and on the 3rd unpaid disbursement the bank sends the loan data to the Tax Administration and the whole thingy becomes an affair of the Tax Collections administration …
Pretty funny there is an ad here to lower your student loan interest rate.
Is that like the “lower your credit card interest rate” call that I get every other day? I have begun suggesting to the person making that call that they should perform an impossible sex act, but it makes no difference, they still keep calling.
“… Ask not what your country can do for you, ask what you can do for your country”
Really? After our government sold us down the river 40 years ago? Remember that BS? Yeah, where did it get us?
“Over 40 percent of those in student loan programs have stopped making payments. Many borrowers have never made any payments.
“We obviously have not cracked that nut but we want to keep working on it,” said Ted Mitchell, the Education Department’s under secretary.”
I am guessing Ted is an education major. The educated are prohibited from working in the field of education. Droolers only may apply.
$110 billion here, $200 billion there!
Who cares when debt is at $20 trillion and add another zero to include unfunded liabilities.
You just gotta laugh when the Fed carries this as an asset on their balance sheet! We just cannot make this stuff up anymore. College is expensive for one reason only the people cannot discharge their student loan debt and college is not for everyone.
Eighty percent of the students need remedial training (of course using student loans) before they can actually enter college and do college level work! Come one come all to debt slavery!
IMHO, DOEd exists to add many jobs to the Plum Book. There’s a moat between the Fed Ed and the loyals who try to get it done at the district level.
” noted that the government imposes virtually no credit checks on borrowers, requires no cosigners and doesn’t screen people for their preparedness for college-level course work”
They also don’t look at the earning potential of the degree. They will finance $100k for a history or sociology degree without considering that the student might not make more than $30k or $40k a year. That student may have to live with their parents until he or she is 40 to pay back that much money.
People do no realize just how bad a president we had with Bush. Obama is terrible but Bush was actually just as bad or worse. His neo conservative government destroyed the Middle East equilibrium for years to come. Obama at least removed most of our troops, that is one of the few things he has done correctly. When the bankruptcy bill was passed I knew it was a game changer just like when Nafta was passed and the Berlin Wall came down. I know others can see this too but they are bought and owned by banks, big pharma, the oil industry and the military industrial complex to name a few.
I am no fan of Bush but I prefer the truth. Bush left office with the troop removal plan in place. Obama let it happen and took credit for it. Taking credit for something someone else did is a very old trick, but obviously it still works. Another fact: the quietest most stable period in Iraq between the US invasion and now was when Bush left office.
None of that excuses Bush for the huge and dumb mistake of invading Iraq in the first place, but why does Obama want to repeat the same mistake in Syria?
Pingback: Shocking Statistic: Over 40% Of Student Borrowers Don’t Make Payments | DailyDeceit
Blame Bush because 40% aren’t making payments? So, if they could declare bankruptcy the 40% would then make payments? Huh? Seems to me the only difference had discharge through bankruptcy been allowed is that even more people would have taken long-shot gambles with MY money — heads they win, tails I lose. The entire system is the problem and the loans have driven the cost of college through the roof — but it was mostly the Democrats who created this monster.
I blame Bush for a bill that without a doubt gave piranhas an unfair opportunity to prey on students. I never said the students had no share of the blame. And I certainly cited Obama many times. But many of those loans would not have been possible without that bill.
Period
Piranhas preying on students – Please give me a break. After a good article, you are really polluting the waters. Piranhas only prey on home buyers taking out mortgages or induce credit card users to binge on debt. Everyone knows that. Students are smart enough to make the piranhas into their prey.
I think there is some provision where if you cannot pay back the loans in 20 years, all is forgiven. So, smart strategy is to borrow as much as possible and then take a low wage job for 20 years and wait it out until forgiveness day. Of course, better to make a ton of money, claim individual responsibility (or temporary insanity and loss of victimhood) and pay it all off and retire rich. But defaulting is definitely the second best strategy.
Since you blame the profit-making schools, Mish, perhaps the solution is to use the force of law to make all the schools non-profits or government-supported (and thereby presumably immune or insulated from the evils of the profit-seeking piranhas). The Khan Academy sounds great; but if they are allowed to start charging for courses and make a profit, will not they not too eventually become part of the problem? Might not these free gambits just be a prelude to gaining users and then later charging fees (necessitating student debt)? Also, Khan Academy will not be an alternative to medical, dental, and other professional schools; which even if state-owned or non-profit are charging high tuitions. The only way out seems free education, which I think was Bismarck’s original idea with public schools; which USA copied from Germany; and the system does a good job of providing individuals for certain tasks, such as soldiering.
It would be helpful if you could think
The solution is to get government out of this mess – period
That is what the Khan academy and others want to do.
It is government intervention and unions that drove up the price
Everything government touches goes to hell – and I never said anything contrary
Pell grants, bankruptcy revisions, government sponsored student loans, loan guarantees etc etc etc etc etc
Places like the University of Phoenix would never have gotten as big and corrupt without govt intervention
I am not against for profit schools per se, I am against government intervention that made a mess, essentially sponsoring for profit schools.
Sheeesh
Mish
Just for the record, Mish: I agree with all your points about government intervention.
Even though I never learned to think during my years in public schools, I do not blame my teachers, who tried their best and were handicapped by the top-heavy weight of administrators and mandates from all levels of government. I suspect that if Chicago is typical, you will find that the bulk of the pensions and problems are at levels above the teachers (who are the more visible scapegoats). It is not uncommon for teachers to be outnumbered by school administrators (most of the six-figure pensions and perks flow to the top, in public and private organizations; no surprise there). One does not have to think to come to this conclusion, as it can be learned from experience with people involved in the systems.
Public schools at all levels tend to be top-heavy in administrators; at least 7 levels in most public universities, versus half that at a private school (for obvious financial reasons). From personal experience I came to unthinkingly believe that private schools like Caltech are often better than public schools. At 90% of education, public schools (i.e. government-owned schools) have a near monopoly on education; and I believe the GOP Senators behind funding for private schools wanted to remedy that. We can debate that some other time.
I may never have been learned in thinking in the public schools, which stressed rote memorization of facts and obedience to authority, but I learned math from ex-military officers and how to add percentages to get to 100% without counting on my fingers. Even without thinking, I can intuit that abolishing government loans to private schools (10% of the total schools) still leaves the 90% of government public schools needing money from students to service their top-heavy administrative infrastructures. Now if you got rid of government intervention to the 90% of schools that are government owned and run, you would be on to something. Someone with real thinking abilities might be able to figure that one out. It seems like a contradiction to me.
University of Phoenix is now dead, and when the Obama Education Dept. abruptly abolished the school by regulatory action, it accomplished absolutely nothing of value beyond providing a “Remember the Maine” or “Gulf of Tonkin” rallying cry in the Marxist war on private schools (promoters of inequality and class distinctions). Mostly the students were unhappy that they were not allowed to finish the classes that they had paid for; and their plight was made worse, in terms of having the debt but being denied the class credits and educational completion (surprisingly, half the students were happy with the school; maybe they could have just closed the bad half of the school, but that is not how government interventions work). No doubt a great victory for Obama’s Marxist vision of equality with everyone getting the same public school education (with the exception of the elites, like the Obama daughters who go to private schools). I think the Khan Academy on the Internet is a great idea, but it will take time. Perhaps robotic professors with artificial intelligence or androids not needing salaries or pensions or health care benefits? I witnessed a surgery where over a dozen students using a computer display followed a real patient surgery and duplicated every action in real time on a soft material with their own hands; but even that costs money.
Meanwhile, the private school problem post-University of Phoenix is now worse than ever: We are still left with high tuitions at Caltech, Notre Dame, Stanford, Yale, Harvard, Duke, MIT, Columbia, Univ of Pennsylvania, Univ of Chicago, Rice, Swathmore, Vanderbilt, Dartmouth, Wellesley, Washington & Lee, Georgetown, Emory, Brandeis, Loyola Marymount, Northwestern, Brown, Cornell, John Hopkins, Colgate, Wake Forest, Washington Univ in St Louis, USC, IT&T Tech, to name but a few. Even if the 10% of education that is private schools were abolished or nationalized and absorbed into the public school system, the 90% or 100% of public schools would still want or need similar funding. I would be all for abolishing the Dept. of Education and federal aid to all schools, public and private; but odds are long on that, and legislation to do so would no doubt be circumvented as much as possible.
SOURCE: U.S. Department of Education, National Center for Education Statistics, Private School Universe Survey (PSS), 1995–96 through 2011–12. See Digest of Education Statistics 2013, table 205.20. The percentage of all students in private schools decreased from 12 percent in 1995–96 to 10 percent in 2011–12.
Private School Enrollment – National Center for Education …
nces.ed.gov/…/coe/indicator_cgc.aspNational Center for Education Statistics
With quick, easy, cheap bankruptcy dischargability, comes more responsible lending practices.
And regardless, You’re much better off wasting your money on having it pissed down the drain at some college bar, than on supporting the creation and sustainment of the kind of police state spying and enforcing organizations, required to “drive in” the debt from a few million newly minted plantation niggers.
Pingback: Shocking Statistic: Over 40% Of Student Borrowers Don't Make Payments - U Do News
I’m sorry but so-called traditional “nonprofits” are just as bad as the University of Phoenix. The faculty is kept wealthy, and they indoctrinate, rather than educate their victims, the administration staffs are bloated and arbitrary and graduates are surprised that four years of hooking up, and becoming politically correct prairie dogs isn’t all that valuable to employers other than Starbucks.
This is how stupid our students having become.
http://www.breitbart.com/tech/2016/04/06/indiana-university-students-mistake-priest-for-kkk-member/
Good article, Mish. The education loan racket is a “conduit scheme,” as brilliantly explained by Steve Ludlum at the Economic Undertow blog. Conduit schemes are a more prevalent form of our “eCONomy” than Ponzi schemes. It is in everyone’s interest to learn to recognize them as a matter of self-defense against debt servitude. http://www.economic-undertow.com/2011/10/18/enter-mr-conduit/
All debts should be honored, BUT, before I am attacked too harshly, many of these debts should never have been created, ever, in the first place. That is where this starts.
All borrowers must be credit worthy for the amount they are borrowing. All borrowers must have collateral, theirs or those who must co-sign.
Funds should only be dispersed “as needed” and directly to the College AFTER the loan officer has current transcripts of attendance and grades.
Furthermore, some degrees should never be funded on borrowed money. I suggest only “STEM” (Science, Technology, Engineering and Math) be funded, to student enrolled with at least a 3.5 GPA, etc. etc.
Non-educational hobby Degrees, such as Languages, History, ANY Ethnic of Gender Studies, Psychology, Sociology, Physical Education, Education, etc. must never be financed by debt. In these “careers”, the student can easily work a job while attending these “classes”.
IN addition, college should be no more than 3 years. Basically, it only takes 2 to 3 years for a real degree (STEM) but one is forced to take the above hobby courses and waste the money and over a year. The “hobby” topics can be enjoyed ON YOUR OWN time and money after you have a real job.
And then, with the loans granted, the payback must be AUTOMATIC from what ever job the students gets, or from the co-signer.
The above isn’t harsh or mean. It is reality. It is life and it is correct.
Just bundle them up in collateralized debt obligations, that’ll fix it
|
Martin Armstrong says that Clinton made college loans non dischargeable in bankruptcy.
I saw the “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005” as a Red Flag indicating that the housing bubble was going to burst and the bankers were getting themselves protected from the fallout of the then coming burst bubble. The changing of rules for depositors and legislated tax payer protection of Citi and JP Morgan in relation to derivatives, are Red Flags indicating the next financial crisis is approaching.
I recently read that as of December 2015, Citi and JP Morgan had about 50 trillion each in derivatives.
These students signed for the loans. They owe the money. That’s the way it works for the rest of us. Why should they be exempt from that responsibility? It was all done voluntarily. I don’t want to get stuck with the debt that financed their educations. If they can’t find work with the education they chose then that was an error in judgment and they must pay the price. You can blame Bush for a lot of things. But you can’t blame him for everything.
Where did I ever say the kids were not responsible?
I never assumed that you said the kids were not responsible for missing their loan payments. That was my opinion.
I agree that student loans should be subject to the same bankruptcy laws as most other debts. The fact that they aren’t sucks.
But those who sign for a loan should know the rules of the loan before they voluntarily accept the conditions or terms . If not, shame on them.
If I accept an ARM vs. a traditional fixed rate mortgage I have no right to complain if interest rates increased to 10% and my house payment doubled. Those were the terms I accepted.
Again, I don’t want to get stuck with other people’s debts in my tax bill.
If a student accepted a student loan – they make the payments as you promised. Sorry you can’t discharge the debt in bankruptcy court. But those are the terms you accepted.
The whole point of bankruptcy laws, is that it does NOT work that way for the rest of us. If The Donald was still stuck in some debtors prison over previous bankruptcies, he wouldn’t be running for office.
When you take out a loan, you generally have to pledge some collateral. If you don’t pay, the creditor gets your collateral. If you have none, the lender gets nothing. What he specifically does not get, is your indentured servitude for the rest of your life.
Of course, with the Government and “elites” having circled the wagons by the mid 00s, that probably kind of sucked from their POW. So, they figured, why not get these indoctrinated suckers’ indentured servitude?
Quick, cheap, easy, few if any questions asked, bankruptcy of all assets, is exactly what America, and The World, needs right now. For municipalities, students, and anyone else. up to AND specifically including the Federal Government. It will make lenders pay more attention to what and whom they lend to. Reintroducing the quaint notion of lending standards, if you will. Leading to less overall, and sounder founded, debt. Given the current state of rampant, out of control over indebtedness; how anyone can think that is a bad thing, is utterly unfathomable.
Making student loans ineligible to be discharged in bankruptcy is a separate issue from the government guaranteeing student loans. The government guarantees of student debt is the culprit which led to widespread, reckless lending to students, which then contributed to massive college cost inflation, which then led to even more student indebtedness. This is a similar dynamic to the housing bubble/crisis. Inability to discharge student loans in bankruptcy is not the issue, the government guarantees are the issue. Whenever the government steps in to guarantee loans (such a seemingly harmless little law to pass-no cash out the door today, nothing on the balance sheet today), expect huge inflation of the asset class for which the loan is made, and eventually a crash when the mountain of bad debts comes tumbling down.
I came to this country to attend college and get a good education. It was then I became friends with a “yuppy” couple who had graduated from college many years before I met them. They both had good jobs but were paying just the minimum on their student loans. At that time, I asked them, “When will you ever pay back the full amount of your student loans, if you’re just paying the minimum each month.” They didn’t have a clue neither were they motivated to pay it off early. They did what was convenient at that time.
It was at that time I realized that I did not want to be in the same situation like them. Therefore I worked and paid my way through college. I went to community colleges, took one or two courses at a time, and when I worked for a big company, even there I took advantage of tuition reimbursement. When times were tough, I got a tuition deferment from the college and paid it back in full slowly without interest.
It took me 15 years to complete and graduate with my four year college degree from the Univ. of Maryland. And I graduated debt free. It seemed like forever, but taking one course at a time, allowed me to be selective in the courses I took. I also enjoyed each course and each course I completed brought me closer to the “light at the end of the tunnel” as I was self motivated to persevere and take one step closer to completion of all required courses. When I graduated, it was one of the happiest days of my life. It seemed to take forever, but it was all worth it. My college degree was more meaningful to me, than my graduate degree. What was earned the hard way, makes you appreciate it even more. It was all worth it and I don’t have any “nooses” around my debt.
I grew up overseas and my dad owned a finance company and he taught me at an early age, to live below your means and to put aside money for a rainy day. He taught me frugality, delayed gratification, having a savings account, disciplined spending, stay away from debts and loans, pay cash. He led by example and I am grateful for what he taught me and I am all the better for it.
Mitchell most recently was CEO of the NewSchools Venture Fund, which collects millions from philanthropies and venture funds and invests the money in creating charter chains and for-profit ventures.
Among his many other accomplishments, Mitchell served as chairman of the State Board of Education for Governor Arnold Schwarzenegegger, a time of unprecedented expansion of charter schools and deep budget cuts for both K-12 piblic schools and public higher education.
“I had not done so previously because I strongly dislike my writing style in those days. I frequently used chat room talk like “LMAO” (laughing my ass off), in those early posts.”
That is funny, because I started reading you Mike back in those days and it was your writing style, or more precisely, your tone and tenor that kept me coming back. I read Calculated Risk back then too, but stopped because all he did was parrot the official statistics as if they were God’s own Truth. It was your candor and uncanny ability to extrapolate that interested me. Thank you and please keep going.
Thanks!
The 2005 Bankruptcy Law is what keeps Jon Corzine a free man: Here’s Chris Whalen a few years back
http://us1.irabankratings.com/pub/IRAstory.asp?tag=529
Pingback: Department of Education Wonders “Why 40% of Student Borrowers Don’t Make Payments”; Blame Bush (Seriously)! by Mike Mish Shedlock | STRAIGHT LINE LOGIC
The fault lies with the democrats…..like everything the government can not figure out, it is just common sense. When politicians continue to promote free stuff, people are not going to pay money for something that might become free……..look to Hillary and Bernie!
The worst is yet to come because they have been giving our country away for free too!
Hey, if it weren’t for student loans the poor tykes wouldn’t be able to live in $1,500 per month luxury apartments complete with masseuse, spas, pools, restaurants, …. Parents would be better off buying a home for junior to stay in as caretaker, and renting out the spare bedrooms. The mortgage would be covered and a profit made.
The smart ones ARE the ones who milk it for all it is worth with no intent to ever pay it off. You finally leave after six years with an Psych or Sociology or Women’s History degree after changing majors for the twelfth time, and try and pay off $65,000 in loans at a near minimum wage job that your degree did nothing to prepare you for. And that you could have been working right out of high school these past six years. Then in six months the government wants an additional amount of your paycheck for the next 20 or more years. Figure out early it is not worth trying and don’t. The don’t bother generation is born.