It’s funny how the faux journalists at the WSJ do an article about this a month after I already ripped apart the Obama lies.
http://www.theburningplatform.com/2016/03/19/the-great-student-loan-scam/
Submitted by Mike “Mish” Shedlock of MishTalk
Department of Education Wonders “Why 40% of Student Borrowers Don’t Make Payments”; Blame Bush (Seriously)!
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.
We are rapidly approaching the time of total chaos. The rule of law is becoming a quaint relic. Note today’s mainstream media infatuation: North Carolina and its gender bathrooms. Really? While Rome burns, Nero fiddles. Out.
We need debt destruction on a massive scale throughout the entire economy.
Why would a person with student loans want to waste good money they earn from their crap job to repay student loans when they believe that President Sanders or Clinton will wave a magic wand and make them disappear?
Only 60% to go. Burn it down.
Come on, this whole easy student loan money thing was just a way to inflate the salaries of the liberal illuminati at the universities. In a free market, you wouldn’t have Deans of bullshit schools earning a half mil a year. Our entire higher ed cartel needs a full on reckoning.
Sorry Charlie, this was also true in the 1970’s. I graduated from FSU in 1969 and a Black friend told me that he and his friends will not pay back their college loans because the government owes them an education because of slavery. There are two big colleges in Tallahassee (FSU and FAMU) and together they are 42% Blacks. Study done and taxpayers don’t need to pay anything.
I’m in the bracket that is paying them. Its crippling. The upfront cost doubled, and interest rates more than tripled while I was in college. Then I graduated into an economy that was not recovering, let alone growing. Wages were stagnant.
It sucks. I’m paying them back, but not a day goes by where I don’t question my decision to finish out my degree(s) instead of falling for sunk cost fallacy and finishing them out. Of course, when I was thinking about quitting my parents rode me about it, so thanks guys. Good call there.
The student loan bubble is unrepayable. They need to reassess our educational system and figure out a way to get this monkey off the backs of the Millennial generation, otherwise they are guaranteeing the revolution they so fear.
My son has no loans and we are very proud of that… however, he tried to convince us that he could take out a student loan, get a new car and NEVER pay it back. He’s positive of that… all his peers at college who are in debt up to their eyeballs assure him they will never have to pay more than a fraction of it back.
We can’t stop him from taking a loan… however, since we promised him that if HE paid for the first three years debt-free we would get him through the last, we have sufficient leverage to keep him from taking on that student loan.
But, when I see shit like this, I can’t help but agree with his peers in many ways… there is NO WAY the debt can be paid back.
As for me and my house? We still think there is value in having integrity and trustworthy character. Call us old-fashioned and stupid, but there will be no student loan debt that can’t be paid back here.
“We need debt destruction on a massive scale throughout the entire economy.”
Our money is debt. Destroying that debt means our money just goes away leaving nothing.
You bank accounts are the Bank’s debt to you, are you willing to have that debt destroyed and the then Bank owing you nothing? leaving your balances at zero?
Think this debt destruction thing through a bit before you call for it, it means all your monetary assets will be taken from you and nothing given in return.
The problem we have developed over the last century goes way beyond any easy solutions or fixes.
Maggie,
“… all his peers at college who are in debt up to their eyeballs assure him they will never have to pay more than a fraction of it back.”
They are probably right.
Rewarding fiscal irresponsibility, which punishes fiscal responsibility, is all the current rage.
Anon
You are right
Debt equals equity
Not only from an accounting persoective
One person’s debt is another person’s equity
We have so much debt and so little collateral backing it that realistically there is only one side of the ledger
Debt and equity are combined to make equity!
We should have provided subsidies instead of loans like we do for health insurance on the exchanges
Then the default rate would be zero!
@Ghost – I’m a straight white guy with a STEM degree in the MidWest. Even if they nuke all student loan debt I will still get stuck holding the bill.
@TPC… I hear you. Nick and I believe that the reason the only thing that will crash the stock market is for us to put some of our savings back in… the only times in our lives it ever “crashed” was when we were invested.
It sucks to be us. I paid back every dime of my student loans from 1981-83. I got a 3 year deferment when I joined the USAF and then paid them all back $100 a month. Of course, that was back when they were guaranteed at 5.5% interest so college students weren’t getting raped by the colleges. No more of that.
Wip, you are right on. The entire multi-generational debt mess will never be resolved by repayments alone. A lot of it WILL be repaid. A lot of it will vaporize in defaults, settlements, bankruptcies, and repudiation. Much of the social strife we experience in the coming years is likely to start with debt disputes.
The Bankruptcy Abuse Prevention and Consumer Protection Act was the distant early warning that creditors were waking up to the shift in social mood regarding debt and the obligation to repay. It also was the first major extension of Federal guarantees outside the FDIC — this time, to guarantee the obligation to pay a particular class of loans. That has since been under attack, and has been watered down already.
The creditor class has a firm grip on the power levers in the system, but they are badly outnumbered. As noted in some of the comments above, we are seeing all sorts of approaches to civil disobedience of the student loan laws. The tensions cannot help but escalate as time and defaults march on.
And by the way, I want to express my amazement and admiration for the sheer magnitude of the carrying capacity the American economy is exhibiting! We just keep piling on the debt, and making monthly payments, and the economy keeps lurching along, years after a lot of very smart people were convinced we had reached the end of the rope. Is this due mostly to being able to print our own currency, which happens to be the reserve currency of the world (for now)? That may be a big part of the explanation. I believe the other part of the explanation is that we haven’t yet reached a final saturation point, whatever that may turn out to be.
The Hemmingway quote about bankruptcy sums it up nicely: it goes slowly at first, then suddenly happens all at once. It appears we are in the slowly phase…As CSNY sang, “It Appears to be a Long Time Coming…”
TPC , you signed the contract .You knew exactly what you were doing . So Quit pissing and moaning big boy. Take responsibility for your actions without complaining. Be a real man for once in your life.
I finally got around to reading your climate change post last night .It was ok because everyone without brain damage knows climate change is a lie .The comment section was much more entertaining.200+ comments . Not bad.
Bob ,we still have a superior military industrial machine at the moment. Sooner or later we will be defeated in a major conflict ( thinking south China sea ) and the dollar will lose its reserve status.
These two .Reserve dollar status and military might are keeping us going .
Thanks bb. You are right. Military power is a very important piece of the global equation. Too bad we have squandered so much of it to such little net effect over the years…
Jim, take it as a badge of honor. Your articles get nicked all the time. They deserve to be. Someone has to be the firebell.
For Maggie…..the U.S. Stock Market has not taken a big hit like virtually all other major markets. The reason is that we are the best looking pig in the pen. EU, Japan, China have been putting their money into the U.S. They know when the toast is getting burnt.
The U.S. markets, even though we are up against significant resistance in SP500, will take off even if we have a temporary slide down.
Nuke the debt, student or otherwise.
Nuke the “wealth” it represents.
Then nuke the prices for everything demanded by those who believed they owned all that “wealth.” Then nuke all the jobs now existing to cater to all that excess demand. Then nuke every promise of money flows, from Pell Grants to SocSec to Medicaid/Medicare and everything else.
This is why a fiat monetary system is such a disaster. Not that gold or silver are magical, just that you need a fixed measuring stick so that when your entire civilization goes off the deep end, the limit is reached EARLIER.
We were due for a mass mania boom. We got it 1982 to 1987 or 1995. Everything since then has been utterly off the reservation, and the last act in this tragedy is going to be very unpleasant because of it.
We live in the Mother of All Painted Into A Corners.
kokoda, stocks go up until they don’t.
From a technical standpoint, this does not look like a typical place from where a stock market launches on another multi-year major bull run.
Of course, i could be wrong.
Maggie: “My son has no loans and we are very proud of that… however, he tried to convince us that he could take out a student loan, get a new car and NEVER pay it back.”
He’s right. My student loans fell off my credit report at the beginning of the year after 7 years in default. So much for the student loan boogie man. had my wages garnished once while I was working as a waitress and the amount the received was laughable. It’s kinda hard to garnish wages from someone who only gets paid $15.00 a week on their paycheck.
Next thing you know, we will be reading in the WSJ how the Boomer retirement meme is a big lie. Assholes.
Stephanie, why did you default on your loans ?
ILuvCO2- I took out my loans from Citigroup prior to the 2008 financial crisis. In 2010 Citigroup sold 80% of their student loan portfolio to Discover and Sallie Mae. After that sale I could never find out who owned my debt. See, there’s a lot of legal manipulation concerning student loans. But as they created new laws they overlooked old laws such as the proof of ownership concerning debt. The student loan situation right now is no different than the mortgage situation in 2008. A bunch of robo signing, betting and selling of debt without a proper accounting paper trail.
Most people pay their loans back for two reasons; either they believe paying back debt is a moral obligation (it’s not considering our whole monetary system is usury or money begetting money) or they believe there’s long term consequences (such as “You can’t discharge student loans in bankruptcy”, which is true. Except they left out there’s no consequences other than wage garnishment for default).
The student loan scam is set up for students to never be able to payback their loans in full. In our debt monetary system you create money by creating debt. If I took out $5,000 as a loan I would’ve created $5,000 in “money”. Every time I am charged interest on the $5,000 that interest creates “money”. If a student takes out $50,000 in student loans plus a life time of interest that’s a lot of money created in their lifetime by being set up to never be able to repay those loans. Even worst is when that student graduates and can’t start making payments immediately (deferment charges interest).
‘The most powerful force in the universe is compound interest’ – Albert Einstein
Interesting Stephanie. My son is now a freshman and has had to take out some loan money. Reason being I spent his college money putting him through private school so he did not have to be brainwashed by private school.
I have planned on helping him pay those loans off when I can take payments from my 401K at the time I do not have to incur an early withdrawal penalty.
From your post and another thread today, it appears most people think student loans will never have to be paid off . Something to think about. Although it was no coincidence that the student loan program was hijacked by the gubbmint via obamacare.
Knowing my son, however, he will always think it is a moral obligation to pay it back, as he signed a contract, albeit to a corrupt entity.
brainwashed by public school, dammit.
In the old days, banks lent money earned by honest folks to other honest folks who had a need for it; the depositor got an interest rate return on their money, the borrower got to build a house, barn, buy land, make widgets, whatever, increasing the economy; and the banks charged a reasonable spread for their own profits based on the risks of the borrower.
Nowadays, the banks lend currency into existence (currency from nothing), lend it to any idiot who wants to take out the loan, charge exorbitant interest on invented currency and take no risk if at all possible.
I will take out no more loans if at all possible, the whole enterprise is fraudulent, shot through with hidden risks and the bankers rewrote the laws to let them steal money from their depositors. Death will be too good for most of them.
…the graduates don’t have the $ to pay back their loans…
and those that do have the money should pay their debt…
or should they?
@bb –
3 main points of contention:
1. Cost skyrocketed over my time during college. This is due to the greed of the government and the stupidity of the masses.
2. Wages have flatlined/stagnated in all industries, even STEM.
3. My parents rode me pretty hard about going to college, as did everyone else in my family.
My story isn’t unique, I am not special. All I do is provide anecdotal evidence to support the towering mountain of proof that our educational system is just like our tax system: predatory, and with a primary goal of reducing people to nothing more than debt-slavery.
TPC- The student loans and the interest aren’t the only financial burden. If you make your student loan payments in your 20’s and 30’s you will be set up for financial ruin in your later years by not being able to capitalize on compound interest from investing for 40 decades before retirement. But, the Fed ruin that anyway with ZIRP and so Millennials got double fucked.
Oops, meant 4 decades.
I read recently that da goobermint has turned a bunch of delinquent student loan accounts over to collection agencies. One agency in Texas applied for arrest warrants and uses the US Marshals Service to arrest the deadbeats and drag them into court. The article indicated that they were being compelled to sign payment terms before leaving court. The whole thing sounded a bit fishy to me. I sure as wouldn’t sign anything or say a word until speaking with a lawyer. Then again I pay my bills come hell or high water.
I may not agree with their tactics but a deadbeat is just a thief. I have a low tolerance for thieves.
IS: Once again a lie makes it half way across the world before the truth can put its boots on. That’s not what happened. He wasn’t arrest for not paying his student loans. He was arrested because he didn’t appear in court.
“US Marshals say man wasn’t just arrested because he didn’t pay student loans’
http://www.chron.com/news/houston-texas/houston/article/US-Marshals-say-man-wasn-t-arrested-because-he-6834620.php
‘But according to the U.S. Marshals Service, there was a bit more to Aker’s story that wasn’t told on air.
According to the feds Aker had a warrant for his arrest and that he had been dodging them for some time.
The U.S. Marshals Service noted Tuesday that they have been given the responsibility for service of civil processes as directed by the federal court system. These civil processes can include summons for individuals to appear in court to address delinquent federal student loans.
“Since November 2012, U.S. Marshals had made several attempts to serve a show cause order to Paul Aker to appear in federal court, including searching at numerous known addresses. Marshals spoke with Aker by phone and requested he appear in court, but Aker refused. A federal judge then issued a warrant for Aker’s arrest for failing to appear at a Dec. 14, 2012, hearing,” the agency said in a statement Tuesday. “
Student loans have been a great way to mask the real unemployment numbers. The fraudulent increase in “disability” recipients lends a hand. The cycle seems to be employment>>>1 YR unemployment from State>>>1 YR UE from Feds>>>2-4 YRS education debt+living expenses>>>lifetime** of diasbility due to chronic hangnails or some shit, or, for the slow learners, a streak of shitty, minimum wage employment to recharge the two years of unemployment>>>then lifetime** disability.
**or until uncle sugar encounters his own debt limit. Hell, it will probably take all the various wealth redistribution offices six months to stop sending rubber checks out to the FSA after the crash.
If you could ever really dig down on it, I’d bet 70%-80% of the country is on the take in one way or another. You better be provisioned to hunker down for three months minimum when shit breaks bad. Delinquent student loans won’t be a shocking statistic that day!