There is a new bubble on the economic horizon -- the $1 trillion (and counting) student loan explosion. The aggregate amount of student debt now exceeds total U.S. credit card indebtedness.
Many current students are underwater and 45 percent of those who are starting colleges will never earn the degrees that would provide the jobs needed to pay off their loans. We have a 'graduation gridlock' in this country with a college dropout rate equivalent to the worst we imagine from inner city public high schools.
The U.S. taxpayers -- not the schools -- are now on the hook for every dollar of U.S. student loan debt that is not repaid.
For-profit colleges have become like originators of subprime mortgages during the housing bubble. It is an age of 'subprime' student loan debt fueled by Wall Street stock offerings. Boom-time investors correctly perceived that these colleges had invented a "golden goose" business model to die for, all financed by the U.S. taxpayer.
Because traditional universities annually turn away many thousands of students whose work and life schedules don't fit the "academic calendar," the for-profits have been able to seize the opportunity to marry Internet classes with federal student aid to serve this degree-hungry population.
Using commoditized degree programs scheduled at convenient times and matching term-by-term tuition with maximum available federal money, the for-profits have raked in profits with no 'skin in the game'. How they get away with it: under federal law, if a student defaults on their loans, it's the taxpayer, not the school that is left on the hook.
Rules intended to curb these schools shoddy marketing practices were "lobbied down" after the buzz of congressional investigations faded. And they won't kick in anytime soon or address the core risk-shifting issue underlying this business model that makes taxpayers their underwriters.
Taxpayers need to demand new 'no-frills' pathways to expeditious and convenient public degree completion programs. The for-profit golden goose would best be disciplined in three powerful ways:
1. Lower back to 75 percent the federal threshold limit on the percentage of tuition dollars sourced to U.S. taxpayer aid, including benefits to veterans and active duty personnel.
2. Require the for-profits to publicly disclose the ratios of marketing expense to educational expense attributed to each tuition dollar, so that prospective students can discern for themselves whether their success is really the schools' highest priority. Currently, student recruiting expenditures are typically 25 percent or more of for-profit tuition income, compared with about five percent in other U.S. universities, and frequently near a 1-to-1 ratio with expenditures on classes and teachers.
3. All universities with 50 percent or more of tuition income sourced to federal education loans should be required to keep some 'skin in the game' as a percentage of risk they bear on loan defaults. Perhaps five percent risk retention, with a sliding scale below that for amounts under the 50 percent benchmark threshold, would be a sufficient starting place for restoring taxpayer -- and student -- confidence in the huge investments they are making in higher education.
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David_Halperin: House GOP Effort to Please Subprime College Donors Completely Backfires
Look back at the cost of colleges, compare it to before federal student loans were widely in use, watch the prices rise to match the amount people received from student loans. It's self explanatory once you dig into it.
Time was when you could work full time, put yourself through college, and afford to have a place to live and food to eat. I'm not saying you were rolling in the dough, it was tight, but it was doable for a motivated person. We've created a monster, and it's grown out of control. Cut the funds, the cost WILL come down, abruptly. Supply/Demand. If people aren't willing to pay (insert max amount of student loans here), then the cost comes down, or the school closes/restructures/becomes more cost effective. I'm not saying it would be a smooth transition, but we've GOT to get on fixing this, rather than allowing it to keep getting worse and talk about doing something someday.
Also, we've been throwing money at education for years, it's not making it better. Let's stop doing that.
Today they do NOTHING to help people in default. Congress could start the money flowing INTO the coffers, if it just did any of 2 things: Require at least Some percentage of every payment made went to paying off principal, or allow just repayment of principal only and forgive the rest.
But they have had 20 years to fix this.. and they (congress) Has FAILED every time to do so. I no longer believe they ever will.
TLDR: We've become a complacent, stupid populace (Not saying any specific individual or party, but rather the people as a whole) and are contentedly shafting ourselves.
I want Congress to provide an exemption to Section 170 of the current tax code which would allow for donations to student debt to be defined as charitable contributions, and therefore be deductible from income. I have started a petition on Change.org titled "Economic Stimulation Through Student Debt Relief" that currently has 150 signatures in 1 month.
I envision large corporations buying the idea that if they designate a portion of their annual charitable contributions towards student debt, then they could free up that equivalent amount of cash for student debtors (consumers), and immediately impact the US economy. First, Congress must provide the incentives for these corporations to do so. Many people believe that student debtors don't deserve money for getting themselves into this debt, but the fact of the matter is the US has a crisis on its hands. This is a new idea that uses existing money, and is completely voluntary. It is not loan forgiveness.
By putting cash in the hands of educated consumers who will buy homes and cars the entire economy will benefit.
http://www.change.org/petitions/economic-stimulation-through-student-debt-relief
When my father was in the army back in the 50s, the pay was very, very low and they needed such things. Look at the pay scales now, it's most certainly not low, when you consider free room/board, housing subsidies, on base housing, etc etc. Pay scale from 1950 (same from 49-51) http://www.navycs.com/charts/1949-military-pay-chart.html
Average income in 1950 was 3210, so you can see the military pay was very low comparatively ($960/yr at E1, not that anybody stays at e1 all that long, but useful as a baseline), and the GI Bill helped bring that up. Current pay scale is not so low by comparision, but the benefits keep stacking higher and higher.
Just a thought.