Congressional Student Debt Deal Perpetuates Predatory Practices, Higher Education Cost Inflation

Yves here. This Real News Network interview with Alan Collinge, author of Student Loan Scam: The Most Oppressive Debt in U.S. History and How We Can Fight Back, gives a short and clear overview of how student borrowers lack the protections that exist in other types of consumer lending, and how the Congressional deal to tinker with interest rates completely sidestepped the real problems in this market.


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31 comments

  1. rjs

    that the Australian young are also being enslaved surprised me:
    Student debt soars, incomes fall below poverty line – More Australians are attending university than at any time in the past 150 years, but most now struggle to live on incomes that are below the poverty line while their levels of debt have soared by almost 30% in the past six years. Many students graduate owing so much money that it will take years to repay and leave them facing a life without ever owning a home. A report released on Monday by Universities Australia on the financial circumstances facing local and overseas students, from newcomers to postgraduates, says most are experiencing far greater levels of financial distress than ever before, with more than two-thirds reporting being worried about their financial situation. The report says the situation is worse for students from poorer families and indigenous backgrounds, with the great majority experiencing severe financial distress. Based on a survey of nearly 12,000 students across the university sector, the report says the financial demands on almost half of all students outstrip their earnings. The survey found that 80% of full-time undergraduates work an average of 16 hours a week; a third regularly miss classes because of their jobs; and 17% said they often went without food or other necessities.

    1. Yves Smith Post author

      Wow, there were starting to be protests over rising uni fees when I was in Oz (now ten years ago) but it sounds as if costs have exploded since then. I don’t recall much of any discussion of student debt, more students being priced out of higher education. Any comments from Down Under appreciated.

      1. skippy

        Neoliberal service sector econ feature… survival of the Financial Fittest.

        Start with the Unions… then its Education and lastly Health (their working on health over here now [incrementally]). In our state the commons are for sale, cough, fire sale imo. Then its fracking time w/new ports for transport (see kill reef). BTW the bacterial extraction of coal gasses is starting (green fracking lool). Check your backyard.

        skippy… on a lighter note… the labor{???} power broker Eddie Obeid just got handed down a bummer from the ICAC for corruption with suggestions of criminal charges to be brought and party ban. Anywho his wife was on the tele protesting the witch hunt of her family and my wife cracked (in light of $400 neck rub after meal with friends at posh hotel [friends tab, on the record]…

        “lov you should get yourself checked out… your man was with a prostitute… wheres your priority’s”

        ROFLMMAO~

    2. lolcar

      In Australia, the debt for tuition can be quite large but its indexed to inflation rather than incurring interest and the threshold for repayment is $50,000/year. Never earn that kind of money, never pay it back. Of course you’ve still got to eat and find somewhere to hang your hat while you’re studying. Hence the high number of students working. Still minimum wage in Australia is probably the highest in the world.

      1. psychohistorian

        While I am an advocate of probably even a better deal for students the support that Australia provides seems quite ENGLIGHTENED in relation to that provided by the US.

        America has become the victim of the financial parasite controlled by the plutocracy. To the extent we are still the titular leaders of the “free” world, this does not bode well for Australia’s continued orbit in the US/Western Bloc Empire.

        Restrict inheritance for the top 10% and the social incentives in our world would change drastically for the better, IMO…..we need structural change, not fig leafs.

  2. middle seaman

    Nothing tells you more about the dirty, scamming, arrogant, anti-social and pro rich student loan than that these loans are fire proof from bankruptcy. The addition of variable interest rate taxes students on money they haven’t made yet. Must be American exceptionalism no country will ever surpass. In a turn of black humor, the anti-tax GOP champions this twilight zone disaster.

    Clearly, the dream according to congress is a nation of hamburger flippers.

  3. McWatt

    Can any one find a place for a bright young woman just graduated a few days ago with a Masters in African Studies from Oxford?

    1. nonclassical

      …public truth tellers are likely of utmost relevance…could you report on what is happening in Africa-“emerging market”-competition for resources??

  4. Dave

    Student loan debt is just masking the underlying structural problem. Jobs don’t exist, and the ones that do don’t pay or have questionable long-term prospects. I’ve been on a few college tours lately and the financial aid focus is on what the families expected contribution is based on their tax returns and assets. There is absolutely no discussion on the expected earnings capacity of the end product once it graduates. Some of these schools are so expensive that they really should be dropping many undergraduate degrees where there is no reasonable expectation of a rate of return and let lower tier schools support those degrees.

    1. Jim Haygood

      ‘Some of these schools are so expensive that they really should be dropping many undergraduate degrees where there is no reasonable expectation of a rate of return and let lower tier schools support those degrees.’

      Your assertion is entirely reasonable, but assumes a customer-oriented focus that simply does not exist.

      Higher education is a cost-plus cartel that’s utterly unconcerned with issues such as excess capacity or negative ROI on its degree programs.

      They gleefully use aspirational marketing (‘you’ll never amount to anything without a college degree’) to sucker in naive youths who have little concept of their adult earning power and financial obligations, and stick them with obligations that can be as a large as a mortgage.

      That academia is now joined at the hip with Congressionally regulated loan sharking tells you all you need to know about the sleaze that pervades higher education as thoroughly as it does Wall Street.

      Yo, I should have gotten my degree in Applied Sociopathology.

      1. Not a Real Person

        Civilization as we know it is a pyramid scheme. Why should we expect hierarchical system, such as the college system to be any different?

  5. JGordon

    While in college learn Chinese, and studying ESl as well is even better. Then go to China when you graduate. For one, Chinese girls are super-cute, and plus they aren’t indoctrinated in all the women’s studies crap that tend to make American women unpleasant to be around. And creditors tend not to follow people who allegedly owe debt outside of the US, for various reasons. And since the US is a declining empire and a corrupt banana Republic police state with a standard of living that is in constant decline there’s really no reason to stick around anyway. Better to feather your nest elsewhere while you can.

    That’s what I told my brother, who is currently taking on massive student loans to go to college.

    1. nonclassical

      ..your advice was applied by ex-NBA center from Seattle Jawan Oldham…who has long been in Chinese casino industry…

  6. docg

    Thanks for the link, Yves. But I don’t need to see the video, I’m already deeply incensed over this outrageous scam, piled on top of what was already an outrageous scam, dating back many years. As an educator I have over and over again warned students about the folly of attending an over-priced institution and taking out loans to pay for it, but sadly the scam seems to be more successful now than ever.

    Especially disheartening is the combination of sky high tuition and rock bottom compensation for the great majority teaching in these institutions. So where, exactly, is all the money going?

    I see something insidious that looks like the engine driving this insanity. You’re a high school senior. You can’t really afford to go to college. But you are unlikely to find a job after you graduate. So if you don’t go to college, you’ll be sitting around home bored, sneaking a joint when you can, hanging out with your pals, playing video games, but mostly just bored out of your mind.

    On the other hand, if you do go to college, you can get loans covering just about all your expenses, including your living expenses. You’ll be having a great time partying with other students, meeting new and interesting people, getting laid (hopefully), and maybe even learning some new and interesting stuff about math, science, history and like that. On top of that you’ll be eligible for additional loans that are just like having a job, but even better, because you won’t need to actually work.

    So, unless you’ve got Jiminy Cricket perched on your shoulder, you are not going to think twice when tempted by the evil plan so eagerly offered you in that admissions office.

  7. washunate

    Thanks for putting inflation in a headline!

    The rise in prices over the past couple of decades in healthcare, higher ed, housing, and so forth is at the heart of the upward transfer of wealth in our society.

  8. jal

    Since all students who borrow will be slaves, it would make sense for the student to select the employer to whom they want to be an Indentured servant

    http://en.wikipedia.org/wiki/Indentured_servant

    Education should be free …

    military pays if you sign up

    employer pay if you sign up

    AND
    while thinking about it. This would resolve “path to citizenship” just as it did in the past.

  9. bluntobj

    It is good that student debt lacks protections, and it would be even better if it has a high rate of interest.

    Anything that might dissuade a potential future debt slave from riding the education pain train works for me.

    Education should not be financed, period. It should be paid for in cash. Anything that perpetuates lending to students will inevitably raise the cost of education. Anyone who perpetuates this system desires the bondage of future generations. The effects of availability of credit in any industry have been more than adequately demonstrated over the past several decades.

    Education, healthcare, infrastructure, housing, etc. should all be paid in cash.

    1. F. Beard

      Education, healthcare, infrastructure, housing, etc. should all be paid in cash. bluntobj

      We need at least a temporary ban on further credit creation plus a metered*, universal bailout with new fiat first. That will help pay off existing credit debt and give non-debtors some cash to HONESTLY (100% reserve) lend.

      Longer term, we need Equity-based money to replace endogenous money creation via the thieving government-backed credit cartel.

      * to just replace existing debt as it is repaid.

    2. Jackson Bane

      Make all of it affordable, why be blunt? School is free in other countries, housing is something most Americans are confused about too. US healthcare is behind an iron curtain of tyrannical pay walls, reems of poorly written lobbying that become laws via bought and sold stooges, and is designed to harm for profit rather than promote health. Look, when you have a Government that is no longer representative of the people, you don’t go Koch/Cato/Libertarian to create less Democracy. Instead you brew some nice herbal tea, ignore most of the political pornography online, and make sure to get plenty of rest, fresh water, and “me” time.

  10. rps

    Most 18-19 year olds can’t qualify for bank loans to buy a car or house because they have no assets. Yet, the loan shark pied pipers of congress target these same kids, labelling them “students” so they can qualify for NINJA loans without lawful redress. Sorta like the perv in the car offering candy to the kiddies and then kidnapping their financial futures.

  11. F. Beard

    Who needs debt when one has Equity? So why aren’t we sharing Equity? Ans: There’s no need to share since if one has Equity he is also so-called creditworthy and can steal other people’s purchasing power while KEEPING his Equity all to himself. See how that works? Have your cake and eat it too? Unless you have none because it was stolen by that process?

  12. Mike Della

    This is happening in the U.S. too. Wages do not meet inflation for the past decade or even longer, so a lot of people fall into credit card debt. It affects people of every income bracket too. With professional debt relief, you can gain control of your debt. There are reputable companies still out there.

  13. AmberDort

    I understand some people disagreement in discharging student loans but remember the saying about walking a mile in another’s shoes.
    I owe more for my student loan that I would earn in two years because of the interest rates. How about to give our legislators the minimum wage instead of an hourly wage they have, because they do minimum work – which would make them ineligible for medical insurance coverage. I found an an immediate solution to get money and I cannot even imagine how I can do without lending services.

  14. run75441

    Yves:

    Just a few points and it may be helpful to some of the readers.

    – Congress did not strike down State Usury laws (although it could correct the situation). SCOTUS did so in 1978, Marquette Nat. Bank of Minneapolis v. First of Omaha Service Corp. Brennan thought Congress would react to this and they didn’t. I believe South Dakota and Delware became the banking capitals because of lenient laws after Usury was struck down.
    – Do not deal with the commercial banks (Sallie Mae, Chase, Morgan, Discover, etc.) for student loans, go to the government agency “Direct Loans.” At least you have a half a chance if you run into trouble.
    – Consolidate loans under one agency (Direct Loans – not banks) so you can minimize payment. After a while, they will hand you off to someone like Cornerstone who still has to follow the same rules.
    – You can get out of student loans if you are a pauper and you wait 25 years (fact). Basically you have to have no or very little income.
    – Mkae sure you do forbearance each year if you can not make payments. Interest will still build.
    – I disagree with the speaker, Compound Interest does make a difference if you are going to make payments for 10, 15, or 20 years (which is common). The best thing Congress could have done is make it simple interest (fat chance).
    – If you become a teacher, etc.; you can lose some of the debt by working in economically deprived areas. There are other occupations which can take advantage of this also.
    – Go back to the college and ask for more money. Don’t go where there are no grants, etc. offered.

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