Submitted By: Mike Spindell, Guest Blogger
One month before I was scheduled to begin my freshman year in College my mother died. My father had gone bankrupt in his automobile franchise the year before and was working as a car salesman. Money was tight, but I had won a full tuition scholarship under the New York State Regents Scholarship program. While tuition was not a problem, there would be other costs associated with College, such as books and various student fees. My father found out about New York State’s student loan program and signed me up for a low amount of money, with the understanding that he would repay it. Due to his business failure my father had no way to get credit in his own name. Ironically, one month before my sophomore year my father died. I was 18 years old and the only work I had ever done was as a “car jockey” at the dealership where my father worked. There was little money in my father’s estate and I soon had to start school. I upped my student loan to the maximum allowed so that I would have living expenses until I could get a job to support myself through my remaining college years. Within two months, still reeling from the effect of being orphaned, I had gotten a job as a Night Watchman in a municipal hospital and arranged my course schedule around it. I lived in a furnished room, with a bathroom in a common hall, but my life slowly began to normalize. Later I got a job as a Clerk/Delivery boy in a liquor store, working 35 hours a week after school and making $32.50 plus tips, using my own car. I managed to scrimp by with the aid of taking out the maximum available student loans each year. The loans under the program them were from a bank, guaranteed by New York State. After I graduated I got a job for $6,000 a year and tried to pull my financial head above water. Six months after graduation though, I was notified by the bank that my student loan was to start being repaid, at a fixed rate that to me was a hardship financially. I went to the bank to ask to restructure the deal so I would pay less each month and they refused. It turned out that the New York State Student Loan plan was set in such a way that if the borrower defaulted the State would pay the bank the full amount immediately and then go after the borrower. It was therefore in the bank’s interest to have the student default, since they would get their return much more quickly.
Flash to many years down the road and my two daughters going to college. I was forced to take out student loans for their education, but I made each of them the promise that I, not they, would pay it back. This was of course the result of my own experience and I considered it my duty. I paid off my oldest daughter’s debt and am now paying off my youngest daughter’s debt. On my fixed income this is difficult. Both of them are working with good jobs, however, I don’t want my children to go through what I went through and would prefer they are not burdened by the costs of their education. Incidentally, they both worked part time when they went through college, although in both instances I didn’t want them to have to do so and that is only a minor part of why I am so proud of them. Which leads me to what is going on today with the Federal Student Loan Program, which brings in a surplus of $184 billion for the Federal Government. Call me what you will, but I don’t think that government should be a profit making enterprise and I certainly believe that it is in all of our interests to educate our children. At least one Senator feels the same way.In this week’s edition of Rob Kall’s OpEdNews at http://www.opednews.com/ Senator Elizabeth Warren wrote an article titled: The Whole System Stinks. http://www.opednews.com/articles/The-Whole-System-Stinks-by-Elizabeth-Warren-130723-245.html Senator Warren, one of my few favorite Senators, takes apart the student loan program and exposes its faults. OpEdNews is one of my go to places when I want to get perspective on “unfiltered news”
“I’ve spent years fighting back against credit card companies that put out zero-interest teaser rate cards, planning to jack up the price later and make all their profits in the fine print.
I also fought back against teaser rate mortgages that promised low payments in the first few years, but then shot up to rates that pushed millions of families into foreclosure.
So it’s shocking to me that the United States Senate would offer its own teaser rate for our student loan system — a system that is scheduled to make more than $184 billion in profits over the next ten years. That’s not the business the United States government should be in.
We had a majority in the Senate to keep student interest rates low, but because of Republican filibusters, the interest rate on federally subsidized student loans jumped from 3.4% to 6.8% on July 1st. Instead of restoring that 3.4% rate, a new so-called “compromise” plan on the table raises the interest rate on those loans this year to 3.86% for undergraduate students, and 5.41% for graduate students in 2013.
And then it gets worse. The plan is set up to collect higher interest rates in future years. After just 24 months, the rate jumps above 6.8% for graduate students. Within a few years, rates for all loans will be higher than if Congress does nothing — and some could climb as high as 10.5%. Even worse, with the federal government already making billions in profits off these programs, the “compromise” plan is set up to actually increase those profits by hundreds of millions of dollars more.
I can’t support a proposal that squeezes even more profits out of our kids, while millionaires and billionaires still don’t pay their fair share. This is a bad deal.”
So the original interest rates being paid by students was 3.4% and it jumped to 6.8% on June 1st. Even the compromise being proposed would be 5,41% in 2013, with further jumps in the years beyond. For comparison let’s look at the “Prime Rate” which is currently: 3.25%. The Prime Rate is used to finance short term business loans. http://www.federalreserve.gov/releases/h15/current/h15.pdf. I’m linking a chart on the current interest rates charged by the Fed. Peruse it and you will see that the discount rates charged (albeit for the fact they are short term) at well below 1%. Also the current average mortgage rate around the country is 3.13%. Compare those rates to the 3.4% currently being charged students and that has current been doubled. http://www.federalreserve.gov/monetarypolicy/discountrate.htm
I pretend no financial expertise but luckily Senator Warren is an expert on banking and finances. She continues:
“Senator Jack Reed has offered an amendment that is a true compromise: let rates move with the market, but set a cap on student loan interest rates at their current rates. I am proud to cosponsor that amendment. It’s the only way to ensure that students don’t end up paying more than they would if Congress does nothing.
In the end, this is a simple math problem. If Republicans insist that we continue to make the same $184 billion in profit off of the student loan program, that just means that students in future years will have to pay higher rates to make up the difference. I don’t believe in pitting our kids against each other. In fact, I think this whole system stinks.
We should not go along with any plan that demands that our students continue to produce huge profits for our government. Making billions and billions in profits off the backs of students is obscene.
Senator Jack Reed’s amendment is the only plan on the table right now that guarantees student loan interest rates won’t skyrocket above their current levels. We need to pass this amendment for our kids and grandkids.
I appreciate the hard work that my colleagues have done to try to defeat the Republican filibuster so that we can keep student loan rates low.
But our students are drowning under a trillion dollars in student loan debt. We need to start now with one basic principle: cut government profits on student loans. I can’t support a deal that actually increases those profits”
The average cost for public college tuition per year across the country is $6,585 per year. For a private college it is $25,143. http://www.chacha.com/question/what-is-the-average-cost-of-college-tuition-for-a-student-today When I went to school at a private college in the early 60’s it was about $1,200 per year. The going rate today is more than 20 times what I would have paid if not on full scholarship. That education costs have skyrocketed faster than the rate of inflation and why that is true is yet another issue, for another time. However, the issue of our children getting the best education possible is an important one to be dealt with here. I know that some will say that it isn’t the government’s business to ensure that all receive the best education that they can and I would answer that I think they’re wrong. From a smart capitalistic perspective the financial health of a society depends on the financial health of its people. The future of a society in this modern world likewise depends on the education of our children. I’m willing to accept in this instance that the conservative notion that such programs should be revenue neutral as workable and fair. However, that the student loan program should work as a “profit center” for our government, while bankers are able to borrow at highly subsidized rates, not only is monumentally unfair, but ultimately destructive.
Society should not be a “winner takes all” proposition, ultimately because a “winner takes all” system is fundamentally unstable. We humans psychologically require some stability in our lives or we run amok. A market economy is workable in many areas, but an unfettered free market economy logically devolves into tyranny. There is no market economy solution to the need for government assistance to help with financing higher education that doesn’t end with the mass of graduates being crushed by massive debt and fundamentally enslaved to it. If you disagree, or have a better idea I’d like to hear it and I’d be open to it. However, I began this piece from a personal perspective of what getting an education and educating my children has cost me and I am one of those lucky test takers that winds up in the first percentile, thus my full scholarship. There are too many others, better students and greater scholars than myself, who deserve the opportunities I’ve had and if they get them probably will make far greater contributions to the long term good of this society.
Submitted By: Mike Spindell, Guest Blogger
nick,
my daughter’s law school debt is in the six figures and she is not alone in having that kind of debt.. I like the Australian plan suggested above, but in this job market, I am not sure it work out as well for both parties. Ken is right that we as a society should do everything we can to foster the ability to attend higher education because it benefits society in the long run.
There exists sufficient wealth in the country to open the doors to all public colleges for anyone who wants to attend at any point in their life. Moore’s Law assures we all need to go back, like, yesterday. Public school ought to be just that, and throughout one’s whole life, not just K-12.
“Student loans” has the same awful sound to it as does the phrase, “crumbling schools,” both symptoms of criminal negligence insofar as raising children who can run an increasingly complex nation.
Forgive the debt. Every nickle. No one who is presently rich will be any less rich as a result.
I have been following this student loan debacle for quite awhile. Elizabeth Warren is becoming the true populist of the Senate. She really seems to care about the average person while most of the others only pay lip service. Glad I sent most of my campaign contributions to her as Scott Brown truly was a tool of the banks.
In Canada, the student gets 18 months of interest free time after graduating from University, to find employment, arrange his or her self financially, and get a bit of a head start. The assistance from the federal and the provincial government is roughly 60/40 grants/loans. There have been plans in the past where loan forgiveness of up to 30% has been given when the student completes his or her education in the field they started, in the time prescribed by the field, and with a reasonable grade point average.
We, in the US should be encouraging our youth to go as far as they can with their education. This is good for them and good for us all. A student unhindered by financial restrictions is far more likely to contribute to society as a whole than one who is convinced that it will only lead to misery. This is woefully true in our tech areas but even if the education results in a liberal arts degree with a greater understanding of history, literature, and the arts, this contributes to the quality of life for us all. The people of European are much better educated regardless of what jobs they hold. If for only to have a decent conversation with someone pumping gas, it is worth it.
Education should be made available and loans should be structured as if the governments were lending to their prime borrowers, the banks. Loans should be fixed at the time they are taken out at the prime rate. Forgiveness, and restructuring should be treated the same way as takes place between the governments and the banks. If the feds make money then that money should go directly back into a system of grants and scholarships. The business of education should be treated as business to succeed for all involved or all of us Americans.
TonyC, I think all candy should be free.
Blouise cited a statistic regarding student loan debt exceeding both credit card and auto loan debt. In a piece I saw on CNN, I believe it’s credit and auto COMBINED! Even considering the fact that credit card debt is the lowest in over a decade[good] as well as auto loan debt[good and bad], this is a staggering amount.
My thoughts are to keep it simple. That’s my default position. Tie the student loan rate to 30 year fixed rate mortgages. That’s fair and easy. I had 6k student loan debt when I graduated in 1974. My son-in-law has over 65k in student loan debts for graduate and graduate school. The 6k seemed daunting to me and the 65k is as Juliet stated, an albatross. They were able to buy a house recently, but it was tight. There used to be ways to have some debt forgiven. I had some of mine forgiven, I forget how much, by being a Vista volunteer. I assume the current Vista programs offer that, but I don’t know for certain.
A related problem is that somewhere between the 1970’s and now, the paradigm became, “If you want to be successful you have to go to college.” That’s bullshit. I had friends in my youth who were just as smart and smarter than myself who did not go to college for various reasons. The motivated ones became tool and die makers, electricians, mechanics, and other skilled craftsmen. They made good money as employees and the ones w/ entrepreneurial skills started their own businesses. They did better financially then most of my classmates who went to Ivy league schools. College has become an industry. With the private “colleges” like Phoenix, Globe, etc. it has become a shady industry. Much of the aforementioned debt is owed to dubious schools like these who were deregulated by W ~10 years ago. They are growing in numbers like weeds. I’m not into regulation, but this is an area where it’s sorely needed.
I think all education should be free, including (in the modern world) access to online versions of books and notes, through the internet or library-provided computers. Including trade educations.
Perhaps we could have some sort of community service requirement for enrolling in and then flunking classes. I do believe that pre-requisites or passing entrance exams for some classes is a necessity; I am not saying we should destroy the structure of education. But overall I do not think the waste or abuse of such a system, the unfinished or even pointless education which would certainly occur, would exceed the benefit to all of us of letting anybody learn anything they want to learn.
I believe there would be a net productivity gain, a net professionalism gain, and a reduction in poverty, and therefore a reduction in desperation, crime, and anger in general. As a “general welfare” issue I think unlimited free education would help humanity in general.
Great job Mike….
Interesting take raff….
I have, after years of unpaid interest, over $60,000 in student loans for a state law school education I’ll never be able to finish. I have the Income Based Repayment Plan, for which my monthly payment is zero. However, I’ll never be able to buy a home, because of this outstanding debt.
There are other costs to an education that is so unreasonably expensive.
Educated Citizenry !! We don’t need no Stinkin Educated Citizenry !!
http://www.alternet.org/investigations/united-states-awash-public-stupidity-and-views-critical-thought-both-liability-and?akid=10738.1140348.zdOOzT&rd=1&src=newsletter874666&t=3
Since the late1970s, there has been an intensification in the United States, Canada and Europe of neoliberal modes of governance, ideology and policies – a historical period in which the foundations for democratic public spheres have been dismantled. Schools, public radio, the media and other critical cultural apparatuses have been under siege, viewed as dangerous to a market-driven society that considers critical thought, dialogue, and civic engagement a threat to its basic values, ideologies, and structures of power. This was the beginning of an historical era in which the discourse of democracy, public values, and the common good came crashing to the ground.
Mike Spindell, thanks for your informative and important article.
Diogenes, I will up your estimate to 300%. The costs of the loan servicing will not increase. The banksters and Guv thugs are making the current profits with all the servicing fees already included. The higher rates are pure unadulterated profit.
Ah yes, the fabled Free Market handling of genius, wisdom, education, and intellect.
Let’s think up some commercials.
In the seventies I was able to even finish my second degree with no debt. I taught three undergraduate classes a semester as a graduate assistant. I worked for the intramural department checking out equipment all the hours I could get and still be able to attend my own graduate school classes. Also, the best thing about being on the campus so much: working on campus, teaching undergraduate classes, and taking evening classes in my opinion, was, it kept me focused on school. Tuition now, and I’m only making a guess for public universities based on what my daughter’s generation is paying, is several hundred percent higher. There are also many less work opportunities for today’s students.Tuition was deregulated in Texas in 2003 and college tuition for public universities has skyrocketed in the last decade.
In paragraph one I believe you meant to write, “The loans under the program then.”…
How sad so few seem to care or understand that this is our own governments doing. It’s a known fact on the billions of dollars spent on “national security”. The disgrace against humanity in investing in violence as opposed to investing in knowledge.
It’s such a elephant in the room and we need are comedy central Hero’s to tackle it and make it change. Colbert & Stewart. 😀
Senator Warren is as powerful as a solar panel in the desert, it’s no small claim that she bears the passion only a mother could give to our nation.
Thank you for this article it makes it easier to express my thoughts to those who may dismiss my argument and call me an ungrateful government hating hippie. I believe in all of you and teamwork is the only way we can win.
Our scheme is called HECS
http://en.wikipedia.org/wiki/HECS#HECS
(There are no qualifying requirements or loan to apply for. There is no interest charged over the life of the debt).
Thank you for sharing that Mike.
In Australia we have a scheme that charges your University education to your future income. It was controversial at the time, but it’s a reasonable way to, in-effect, claw back the cost from future taxpayers.
You can get 13 years of absolutely top quality education for your child in Australia from Government schools. Australia ranks very highly for education outcomes – well ahead of the US. This is yet another scenario where in the USofA, top dollar is paid for services with middling to poor outcomes. You’d think the conservatives would be right into the ‘value-for-money’ argument, but no….
Also, that for-profit Education (or for-profit Health provision) is fundamentally immoral is a non-controversial idea in Australia.
As usual, Mike, an illuminating article. Thanks!
In my math, a jump from 3.4% to 6.8% is a 200% jump.
Show me what product or service DOUBLED its price in one fell swoop!
I admire Prof. Warren for spending her time and energy in this snake pit we created and maintain.
Mike,
Timely article. Through the government we do tend to eat our own, don’t we.
Student loan debt surpasses both credit card debt and auto loan debt, and its a growing anchor not just on college graduates, but on the economy.
The purpose of the so called student loan “deal” is to hoodwink the public into thinking that the Congress is being fair to students and to parents of students. As Sen. Warren pointed out, nothing could be farther from the truth. This is a money making deal and of course, the poor and middle class families end up getting screwed. I do like Sen. Warren’s idea of the students paying the same as financial institutions pay to the Fed. Unfortunately, it has zero chance of getting passed. Great job Mike. I just hope it has a happy ending.