By Alex Pareene
The $1
Trillion Student Loan Rip-Off: How an Entire Generation Was Tricked into Taking
on Crushing Debt That Just Enriches Banks
Young people
accepted a home mortgage worth of debt before they ever even had a regular
income based on phony promises.
USA
Today says that at some point this year, student loan debt will exceed
$1 trillion, surpassing even credit card debt. Felix Salmon says the number is
closer to $550
billion. Either way total student loan debt is rising as other debts
have tailed off. Delinquency
has increased, too, since the height of the financial crisis.
It’s a huge mess.
Some people have noticed that “student loan debt” comes up a
lot among the Wall Street Occupiers and the members of the 99 percent movement.
Often, older people, who either attended school when tuition was reasonable, or
who didn’t attend college at all in an era when a high school diploma was
enough of a qualification for a stable, middle-class career, tend to think this
is all the entitled whining of spoiled kids. They don’t understand that these
kids accepted a home mortgage worth of debt before they ever even had a regular
income, based on phony promises, and that the debt is inescapable, regardless
of life circumstances or ability to pay.
Thanks to the horrific 2005 bankruptcy bill, one of the most
nakedly venal modern examples of Congress serving the interests of the rentiers
and creditors over the vast majority, debtors cannot discharge student loans
through bankruptcy. The government is shielded from the risk, and creditors are
licensed to collect by almost any means they deem necessary, giving no one in
charge any real incentive (beyond basic human decency) to fix the situation.
In other words, this is unprecedentedly awful for an entire
generation of young people just
entering adulthood.
“It’s going to create a generation of wage slavery,” says
Nick Pardini, a Villanova University graduate student in finance who has warned
on a blog for investors that student loans are the next credit bubble — with
borrowers, rather than lenders, as the losers.
Even if by some miracle our unemployed and underemployed
debt-laden graduates all win decent jobs tomorrow, the money they make will go
into paying off these now-delinquent loans instead of anything productive for
the economy as a whole. Banks will continue to see massive profits, in other
words.
The impossibility of escaping student loan debt
is why
an industry sprang up to foist
useless, overpriced degrees on vulnerable people. It’s a scam, but a profitable
one, and respectable enough for major establishment players to feel comfortable
making a killing on it.
Like, for instance, Kaplan University, a
chain of for-profit colleges built on winning
free government student aid money and attracting suckers to borrow small
fortunes.
[…]
Student loans
outstanding will exceed $1 trillion this year
By Dennis
Cauchon, USA TODAY
Updated 10/25/2011
1:23 PM
Students and
workers seeking retraining are borrowing extraordinary amounts of money through
federal loan programs, potentially putting a huge burden on the backs of young
people looking for jobs and trying to start careers.
By Butch
Dill, AP
Full-time
undergrads borrowed an average of 4,963 last year, according to the College
Board.
The amount of
student loans taken out last year crossed the $100 billion mark for the first
time and total loans outstanding will exceed $1 trillion for the first time
this year. Americans now owe more on student loans than on credit cards,
reports the Federal
Reserve Bank of New York, the U.S. Department of Education and private
sources.
Students are
borrowing twice what they did a decade ago after adjusting for inflation,
the College Board reports. Total
outstanding debt has doubled in the past five years — a sharp contrast to
consumers reducing what's owed on home loans and credit cards.
Taxpayers and
other lenders have little risk of losing money on the loans, unlike mortgages
made during the real estate bubble. Congress has given the lenders, the
government included, broad collection powers, far greater than those of
mortgage or credit card lenders. The debt can't be shed in bankruptcy.
The credit
risk falls on young people who will start adult life deeper in debt, a burden
that could place a drag on the economy in the future.
[…]
"It's
going to create a generation of wage slavery," says Nick Pardini, a Villanova University graduate
student in finance who has warned on a blog for investors that student loans
are the next credit bubble — with borrowers, rather than lenders, as the
losers.
Full-time
undergraduate students borrowed an average $4,963 in 2010, up 63% from a decade
earlier after adjusting for inflation, the College Board reports. What's
happening:
•Defaults. The
portion of borrowers in default — more than nine months behind on payments —
rose from 6.7% in 2007 to 8.8% in 2009, according to the most recent federal
data.
•For
profit-schools. The highest default rates are at for-profit schools that
tend to serve lower-income students and offer courses online. The University of Phoenix,
the nation's largest, got 88% of its revenue from federal programs last year,
most of it from student loans.
"Federal
student loans are like no other loans," says Alisa Cunningham, research
chief at the Institute for Higher Education Policy. "The consequences are
so high for making a mistake."
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