Weird But True

Ever hear anyone say, "It's cheaper, so it must be worse?"

If you believe this New York Times piece, apparently families and colleges themselves think this way too.

As usual

...one more study finds that:

African-American and low-income students carry the heaviest financial load.

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No one should feel sorry for themselves. No one should assume this means they won't make it in life.

And no one should pretend we have equal access to education in this country.

The Birthplace of Modern Debt

South Dakota, USA

That's right. You would probably have less credit card debt today were it not for the government of South Dakota.

The year was 1979. As my father likes to remind me, interest rates and inflation were in the high double digits. He maintains to this day that it was all Jimmy Carter's fault.

Credit card companies were hemorrhaging money because of "usury laws" in most states. The cost of money was 19%, but in New York, for example, the law capped loan interest rates at 12%. Banks were screwed.

They deserved it, right? Well, it was complicated. Because of the caps on interest rates, the average Joe couldn't get a loan from any bank that didn't sanction bone breaking in the terms and conditions. Banks weren't allowed to charge so-called "risky" lower middle class borrowers enough interest to cover the risk.

That would have been the end of it. Mr. Average Joe would have to live within his means and say no to this stupid Atari contraption the kids would be begging for in a couple of years.

But then, two things happened.

1. South Dakota got rid of interest rate limits.

Within weeks, Citibank moved its credit card operations to South Dakota, along with a few thousand jobs the governor could tout in the next campaign.

They started charging 19% or more for credit card debt.

In New York, the cap on credit card interest rates was 12%. Citibank would not be in business today were it not for South Dakota.

2. The Supreme Court decided that, when it came to interest rates, it didn't matter where the borrower lived.

So even though there was a legal limit of 12% in New York, if Average Joe was borrowing from a bank in South Dakota, that bank could charge him as much as he was willing to pay (or as much as they could get past him in the fine print).

Within months, all the banking giants came calling, and South Dakota became the credit card capital of the world. Other states followed. Delaware became the credit card capital of the East.

And by then it didn't matter. Average Joe would be buying a lot more than Atari in the next couple of decades. It was the making of the modern American consumer, courtesy of South Dakota.

Where did I learn this? Frontline. The best thinking cap show on television.

Could this be you?

This guy had his wages garnished because of his student loans. I guess he could have read his mail. But still...taking money out of your bank account? It's not like he evaded taxes or something.

Weekly Roundup

We'll try to put together a weekly roundup of what's going on in the wonderful world of education debt. This is an evolving feature, so stay tuned.

• US News & World Report says the Democrats' plan to ease Student debt burdens will be darn costly -- to the tune of $18-60 billion over five years.



• James Pethokoukis thinks students should attract venture capitalists to fund their education, then pledge a percentage of their future income. Even a secondary market for trading these agreements could emerge.



• Christian Science Monitor laments the mixed messages of the rising cost of education with diminishing value. Should education be free for all?



• And our friend, Harvard Professor Elizabeth Warren finds that a middle class income far from ensures a middle class life. If only we didn't insist on safe neighborhoods with good schools, we wouldn't have to spend so much darn money.

Whodunit?

Student Loan Justice has this excellent post about "Why the department of education should be investigated."

The conclusion may be a little extreme. The tired lingo about corporate welfare and its beneficiaries does sound a bit biased. But there are some compelling arguments and data here.

Some highlights:

Since 1994, the cost of attending college has skyrocketed...
Sallie Mae, the largest provider of student loans, and former Government Sponsored Entity has seen its stock price rise by nearly 2000% during the same period.

In the past 10 years, the Student Loan industry has secured legislation that:

• ...took away bankruptcy protection for all student loans- federally guaranteed or not.


• ...made it illegal for most borrowers to refinance their consolidated debt, even with lenders willing to charge less interest, accept less profit.


• ...gave the lenders collection powers that would “make a mobster envious”, to quote Harvard professor Elizabeth Warren....termination of public employment, income tax seizure, wage garnishment, suspension of professional licenses and certificates, and seizure of social security, and disability payments.

Do what you will with this tidbit: a conflict of interest we've seen before at EPA, Energy, and now the DOE...

The head of the Federal Student Aid program, Theresa Shaw, was brought into the Department of Education from Sallie Mae, and brought many of her Sallie Mae cronies with her.

Finally, kudos to Student Loan Justice for articulating the real problem with all of this:

This legislation has created the perfect mousetrap for a most vulnerable segment of our population: lower and middle class citizens aspiring to achieve the American Dream...

Indeed. Witness scenes from the class struggle in higher education.

Raise The Minimum Wage to $18/hr

Really. Apparently, that's what Tim Worstall thinks Barack Obama means when he says everyone should be able to afford to:

1. Shop at walmart
2. Send their kids to college
3. Plan for retirement.

In order to do all that, the minimum wage would have to be raised to $18 per hour.
It seems he's inadvertently helping Barack's argument. The point being that education COSTS TOO MUCH.

Try finding the good guys

Ok, loyal readers, I have a challenge for you.

Step 1: Search for "Student Loans" on google or on google blog search.
Actually, I've already done it for you. Just click.

Step 2: Try to find at least 5 blogs or articles that cannot be traced back to a student loan lender or financial institution.

You can't.

Are they the only ones who have anything to say about Student Loans?

Do you get the feeling we, the borrowers, should talk a little more?

Strong Words From Teddy

Wow, strong words from Teddy (I'm a Massachusetts native, so I can call him that) on the Student Loan industry.

"It's time to throw the money-changers out of the temple of higher education," thundered Sen. Edward M. Kennedy (D-Mass.), who is in line to become chairman of the Senate committee that oversees education programs.

This from an LA Times article. It looks like one of the Democrats' first priorities will be to reduce the interest rates on Federal Student loans. Not sure how it affects those of us who locked in a consolidation recently. Oh, and there is no word yet on how it will be paid for. The Dems promised not to increase spending without stating the source of revenue offset.

Look for one or both of these promises to be broken around Jan 30, 2007.

Here's the full LA Times article. A pretty good read.

Actually, No

One way to talk to your Student Loan officer. Well, one of them. From the Bangalore branch.

Some More Facts

Over at DebtHitsHard.org they have some disturbing facts that backup the uneasiness we all feel.

I'll add some color to this. It doesn't matter where you grew up, or how you hold your fork, or what race you are. Congrats to the USA on that. Unfortunately, all of that equality has done nothing to prevent the good old American class struggle from making a grand comeback. Consider this from DebtHitsHard:

Student debt is outpacing the starting salaries of jobs in teaching and social work, making it virtually impossible for many debt-laden graduates to pursue careers in fields where they are desperately needed. Nearly one quarter of all graduates from public universities and almost 4 in 10 graduates from private universities have levels of student debt that would become unmanageable at the salaries of starting teachers.

More and more students are delaying major life decisions as a result of increased student debt. Thirty-eight percent of college graduates delay buying their first house because of debt, 14% delay marriage, 14% delay having kids. Compared to 1991, those figures have risen by margins of 52%, 75 % and 100%, respectively.

Let's all take a moment to mourn the idea that you can do whatever you want in life.

Sorry. I know it's what everybody (like her) told you.

The Smell Of (BIG) Fish

I knew there was something fishy going on with the explosion of Student Loan consolidation companies. It ain't just the low interest rates (they're not that low anymore).

Check out this article at the Chronicle of Higher Education from back in 2004 about political contributions from the Student Loan industry.

The highlights:

A Chronicle investigation reveals that over the last year and a half, officials with the loan industry and proprietary institutions have given, individually and through political-action committees, or PAC's, almost $1-million in campaign contributions to the 49 members of the House Committee on Education and the Workforce....

More than half of the money, about $540,000, has gone to the two Republican lawmakers in charge of drafting the higher-education legislation -- Reps. John A. Boehner of Ohio, who heads the full committee, and Howard P. (Buck) McKeon, who leads the panel's subcommittee on higher education....

So what were the big spenders after?

Lobbyists for proprietary institutions, for example, are pushing lawmakers to relax certain rules that institutions must follow to participate in the student-aid programs. Congress wrote those provisions into the law in the early 1990s to crack down on fly-by-night trade schools that had been set up to bilk aid dollars from the government.

It sure does seem easier to get into the Student Loan game. I'll keep digging, but is there any doubt that the lobbyists got exactly what they wanted?

Get Used To It

I remember watching a Phil Donahue show that featured the most frugal people who ever lived. They had something like 12 kids, lived in Vermont, made $30,000 per year combined (this was the early 90's) and had managed to save a sizeable nest egg even though none of their kids were yet out of the house. They bought in bulk before Costco existed. The kids weren't allowed to have Reeboks or Nikes. One poor kid was wearing old brown leather shoes with a gay-ish shoe buckle. They got it from a yard sale for 50 cents.

When I -- the lower middle class 13 year old smarty pants who was sure he would some day never have to worry about money -- saw those shoes, I thought it was child abuse. I thought these people were a joke. How disgusting to live below your means.

Now there are discussion boards about it. The party is over. The piper wants to be paid, and he doesn't care how hung over you are.

"Getting Creative"

Well, this isn't exactly what I expected when the headline says students get creative about paying off loans. I guess I have a dirty mind, but you clean living folks might still want to take a look at this article over at MSNBC about creative financing to get rid of student loans, especially people who got stuck consolidating at a "low" rate...before those same rates proceeded to free fall.

Meanwhile, for the more cynical among us, here's a mildly entertaining video about the "Whacked Jobs" some people get to pay off their student loans.

Guess who's behind it? Yep, another darn loan consolidation company. Did something happen? Why are ther so many of them now?

I'm going to look into this.

Inspirations stories about how to get out of debt. "150,000 mortgage paid off in five years."

How did they do it?

This is what I mean

You can tell your story better than some hack national newspaper site. Watch this video. It's not the best thing in the world, but at least they are trying to make something creative out of their situation.

What situation? The scam that is higher education. While you're in school you have 400 ways not to pay it back -- as long as the interest becomes part of the principal. Even after school -- stretch the loan amount so you pay back twice what you owe.

Is this a joke? It's as serious as a mortgage. And you won't be able to get one of those either if your debt is high.

I make a lot of money. Or at least I thought I did. the whole reason for getting EDUMACATED in the first place.

How much home buying power do I have? Not much. Thanks to scam that is higher education, the promised entry into the "Upper Middle Class," I can only buy twice my income. I guess the kids will be sharing the kitchen. Sorry honey.

I didn't know.

What the hell is this guy so happy about?

If he were a real student loan borrower, he would never have a smile on his face. Especially while on the phone with a student loan lender. Anyway, stay tuned for more videos related to your student loan hell. I'll try to stay away from the advertisers, but some of these have to be shown. What a vapid happy infomercial voice. Like they're selling the Ron Popeil spray on hair. What is happening people? This is our education system! When the last best hope of a generation is a lower interest rate....on an overpriced "private" education, from...let's be honest here....not such a great school.

Well, we got issues.

Welcome To Naked Debt

This blog will be introduced with one sentence:

C’mon…can’t you tell your story better than USA Today?

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