Wade Rathke: Chief Organizer Blog » student loans

USA and Global Educational Class Divide

Mariehurt — Mon, 21 May 2012 16:25:26 +0000

student protests in Chile

Mexico City World news reports on CNN from Mexico City are featuring huge rallies in Chile once again as students push back over increases in costs and other curtailments. In Quebec several schools have been closed down now in the 12^th week of student strikes over the same issues and the provincial government has also enacted extraordinary measures to require 8-day notice for protests permits and is attempting to not authorize any demonstrations of more than 50 people. Students have declared these actions by the government an “act of war.”

Perhaps more disturbing was the clear statement in The New Yorker by author and academic (and New Orleans native) Nicholas Lemann that the US in essence is now creating a huge educational divide where there are educational institutions for the elite 1% and then there are whatever is available for the 99%. The divide is defined by economic access. Lemann argues in fact that Ivy League-type schools are underpriced even at $60,000 per year where they are currently heading, because many of the 1% would be willing to pay far more if that was the price of admission. The public institutions and second-tier schools are pushing the price points without entering the elite status despite mimicking the business model that is only accessible and achievable by a few other schools. The efforts of Stanford and others to create on-line opportunities are nods in the direction of equity without even the pretense of equity, either domestically or globally, though arguably offering access to both.

Nicholas Lemann

Lemann makes this argument under the cover of claiming that, thankfully in his view, there is no substantial disagreement between Obama and Romney on the issue of continuing to offer interest support for student loans. This is a disingenuous way to make the case, since Lemann never bothers to try to make the argument that this interest matter will remotely address the class divide which he, correctly, claims is already embedded in the current educational system. He makes the throwaway point that there is 50% more unemployment among non-college graduates currently, but that’s hardly a glancing blow when today’s papers also argue that men are queuing up for traditionally female jobs, underemployment, contingent, informal, and intern “employment” are well documented, and there seems to be more weight to the case that a generation is being lost.

Having read Lemann’s The Big Test when it came out a dozen year ago, I know this is a disturbing retreat for him. That book argued among other points that standardized testing had at least the opportunity to create a funny kind of equity that lowered the class divide. Now in a new century to read him on a similar theme, it is hard to ignore his analysis that equity is in full retreat with little hope of victory. Reading that book allowed me to finally understand that it was the V-2 test in WWII that plucked my father and his test scores as a high school grad from Orange County who had worked as a clerk in Los Angeles and in Boeing aircraft plants in Venice before volunteering for the Navy out of the ranks and into an NROTC program that gave him a college experience at Millsaps in Mississippi and a degree from Tulane University in New Orleans and a solid, secure post-war career and life for our family that previously had been beyond even his most remote dreams.

That story, not unlike the human interest tale in today’s Times of a “wise soul” succeeding in school and egg picking to find a possible future otherwise outside his means, are clearly moving towards a place in the United States where we can simply smile and sigh at these exceptions proving the rule that what once we hoped might be a meritocracy has evolved into a financially unforgiving elite class divide.

Chinese Banks, Student Loans, Foreclosures, and Political Impasse

Mariehurt — Wed, 04 Apr 2012 15:26:04 +0000

Wen Jiabao

New Orleans Are you kidding me? The Chinese Premier Wen Jiabao called for breaking up the banks because they are making too much money and charging too much interest. It turned out he was actually calling for breaking up banks in China, rather than elsewhere, but how refreshing to have a head of state calling for accountability and economic contribution from state owned banks.

We forget sometimes in the handwringing impotence of US government officials before Wall Street and big banks and the problems they have wrought that in fact banks only exist as a matter of state and federal charter, are extensively regulated by numerous branches of state and federal government, have money supply and interest controlled by the U.S. Federal Reserve System, and therefore operate in this country as private institutions within the structure of governmental forbearance. And, I’m not even talking about the fact that there has not been so much as a thank you note for gazillions of dollars in bailouts for the banks after they triggered the Great Recession! So much power in the hands of US governmental officials and so much impotence when required to use it, that it simply boggles the mind.

Meanwhile every layer peeled back on the recent $25+ billion foreclosure settlement with the bank indicates more sweet deals and credits received, and therefore less real progress on mortgage loan modifications or principal adjustments. The latest outrage is the fact that banks will get credit for minimal community service and upkeep on some of their properties if done in the name of community service or marketing.

In the richest and cruelest irony yet in the emerging Presidential campaign, Mitt Romney in celebrating his victory in Wisconsin accused President Obama of being “out of touch” and cited the ineffective action on foreclosures as one of the prime pieces of evidence for the charge. Thank Larry Summers, Tim Geithner, Jamie Daemon, and a host of others for this emerging debacle, Mr. President.

And, speaking wholesale erosion of citizen wealth, how can we not look at a similar inability to meaningfully deal with student debt in the heavily governmentally subsidized higher educational institutions of the US. We have now crossed $1 Trillion in student debt. The average student debt is now $25,000 per person. 30% of all student loans are past 30 days due (that’s $300+ Billion, sports fans!). $36 billion of the total student debt is owed by borrowers over 60 years of age and by law 25% of social security checks can be taken to repay that debt when they are 65. 80% of the loans are guaranteed by the government.

Meanwhile Republican candidates for President are complaining that the system was taken away from private banks in what Romney called a “government takeover.” What?!? 80% of the debt is guaranteed by the government, yet the government should have continued to allow banks to make billions just for mailing out envelopes. What rock does he live under?!? Nonetheless, any proposals for making real progress on this issue including practical plans for creating repayment alternatives for students faced with a declining job market have gone nowhere with the divided Congress, so thanks to compounding interest, penalties, etc, the debt will continue to soar.

Might be time for Obama to go all “Chinese” on banks and Wall Street now, and take a couple of licks at college and university costs while doing so!

Predatory Student Loan Travesty

jstuart — Sun, 03 Jul 2011 14:20:09 +0000

New Orleans Ok, one hand is clapping. There was some progress on student loans under the Obama Administration. The huge billion dollar scam that was subsidizing banks was kyboshed and federal loans were taken away from the private sector. Furthermore, President Obama won some limits on payments and implemented some forgiveness programs, especially for public service. Clap! Clap! Clap!

But, let’s not pretend there’s a solution by any means, as costs continue to rise and debt for many continues to compound. I was reminded of all of this as I watched an excellent trailer for a coming documentary called “Default: The Student Loan Documentary.” The highlight (lowlight?) was watching one young person after another state obvious: they took out loans with the dewy eyes of youth buying the American myth that riches were on the other end of the education door, and are now drowning in debt and compound interest charges while navigating well paid jobs, professional jobs ($35000/year) that provide living wages but can’t pay loan shark interest and loans.

It has ceased to be a surprise to me that inevitably if we both to look at any powerless constituency like the young, the old, the poor, or immigrants, it is a certainty that we will find financial predation sucking the citizen wealth out of any groups that can be easily exploited by their acute need or their ignorance. One of the functions of government is to protect and defend citizens against such practices, but in our current ideology too many blind eyes are turned and banks and others prey without restrain or regard.

Rob Lieber in the New York Times talked about two new student loans being offered by U. S. Bank and Wells Fargo, and his column was almost as sad to read as watching “Default” had been. Like sub-prime housing loans and refund anticipation loans, I cannot deny that there isn’t a need and market for private student loans. Part of the reason is that the excellent (3.4% interest) federal loans just don’t carry enough of the weight involved in paying for modern higher education. All of which opens the door for these absurdly dangerous and risky loans to teenagers desperate to go to college. Fixed interest rates are a good thing but U. S. Bank offers one for 15 years at 7.8% or with an upfront fee, 8.46%, which right now is knocking on the door of usury, frankly. Wells Fargo fixed rate product moves from 7.29% to almost double that at 14.21 percent if you are a working stiff trying to go to community college or trade school, which enrages me! Add to both of these products the likely certainty that a teenager will have to have a co-signer, usually from their family, and it is easy to see how the whole family could go down on the false promises made at the altar of better incomes through higher education.

This is only a fix in the way that the term is used with hard drugs rather than higher education. Lieber is right to point out that too few students and their families follow the implicit instructions of the federal program and most advisers to first use up the $31,000 that will come at a cheaper vig from the feds and if you need more, realizing that you may be over your head, and need to look at a different school with more affordable debt.

The snowball currently has more chance in hell than we have of getting Congress to expand the federal program to a higher, more realistic level. Everywhere we read of layoffs and cutbacks at even the relatively more affordable public institutions across the country who are being driven to layoffs and price hikes.

The student loan situation is a travesty. What kind of a society refuses to protect its young?

Laundry List for new Consumer Bureau

jstuart — Mon, 20 Sep 2010 15:28:42 +0000

New Orleans After much sound and fury the Obama Administration seems to have slipped Professor Elizabeth Warren in through the side door of the White House to setup the new Consumer Financial Protection Bureau. It’s all confusing since the Bureau is squeezed between the Federal Reserve and Treasury Departments, and Warren herself has been snuck into the crack since there was no believe that she could have won confirmation from the Congressional committees.

The New York Times’ Ron Lieber in his “Your Money” column recently listed seven suggestions to get her working in the right direction. Most of his suggestions seemed more “small ball” than the scope and hopes for the Bureau. The items weren’t trivial, because he included making sure that student loan disclosures be sufficient to advise students where they could get cheaper loans and some information that would be helpful to consumers like knowing the default rate at for profit colleges and being able to access credit scores for free or reasonably and before landlords and creditors muck around with them.

Ironically none of this really would be a game changer for consumers themselves. Many of the suggestions were a “right to know” kind of thing without necessarily recommending eliminating predatory abuses or giving real “consumer financial protection.” Surely, Warren will have a better list.

But, what was most surprising was the absence of anything really attacking predatory practices in housing loans, providing real protections and requirements for loan modifications, or curtailing and cleaning up the payday lending operations which have devastated lower income working communities. Nothing was on the list about discriminatory practices in lending either?

Professor Warren is only going to be shepherding this Bureau for a short time. Seems like she should be trying to score some runs for consumers, rather than just walk around a couple of bases.

Let’s make a real list and make it happen!

Demand Affordability for Student Loans

jstuart — Thu, 17 Jun 2010 16:20:35 +0000

New Orleans Congress is debating real limits on the amount of student aid that they will cover on for-profit colleges, since finally they have the memo that too many for-profits are fleecing the students and they are paying the bill both on the front end with $20 billion in student loans and on the back end with higher defaults from working stiffs who don’t make enough in the new job to pay for the student loans. The issue here should be simple, just as it was with home loans: the test has to be affordability! When the debt to income ratio is wrong, just as in the housing market, any fool can handicap the chances of default.

The Department of Education has held up new rules for for-profit schools until they calm down the lobbying whiners, but their guideline on affordability hardly seems extreme. They want to make sure that a student loan from such an institution can be paid off within 10 years with no more than 8% of the former student’s income. That’s a stiff bite and anything but a free ride, but it’s still a huge amount of money, especially if the there was no truth to the advertising from the schools that there would be newer and better paying jobs once school was finished.

The Times quoted Senator Tom Harkin (D-Ia) singing the right song: “I am pleased to see the Department of Education releasing proposed regulations around for-profit higher education,” he said on Tuesday. “For-profit colleges must work for students and taxpayers, not just shareholders.” Totally, radical!!! Students and taxpayers, not shareholders!!! I can hear the chant in front of a lot of college-in-a-box outfits that are not delivering.

New regulations that are coming out soon seem to be designed to curtail some of the more unscrupulous recruiting practices used to dupe workers into a fake-education trap that ends up strapping them with debt rather than better chances to succeed.

Affordability criteria, only “selling” to students who are eligible, tightening debt-to-income ratios, not allowing payments for recruiters “by the head,” are all lessons we also learned in the housing subprime meltdown. Interesting to me that we are moving more aggressively to ban these practices from for-profit education than we are in housing, but lessons learned should be applied somewhere at least.

Campaign to reduce student loan debt

jstuart — Sun, 09 May 2010 23:04:18 +0000

New Orleans When I was in Columbus, Ohio a couple of weeks ago, I was stunned when an organizing colleague, Barbara Clark, told me that 75% of the 300 or so tax returns she had helped do at a VITA site at the Neighborhood House had student loan debts that were severe enough in some cases to divert their tax refunds directly to the lenders. I had been even more shocked not long ago to find out that student loans can be deducted from social security payments of all things. From the stories that Barbara shared, these were not young folks just out of school but often men and women in their late 40′s and 50′s who were being crushed by student loans. There’s a campaign out there waiting to be organized.

A Wall Street Journal article yesterday gave some broad hints about some new provisions that have been enacted to provide some debt relief, and quoted a number of sources tearing their hair that information is not getting there to people so that they can access and take advantage of these breaks. Hello, campaign calling!

In 2007 Congress passed a Act that allowed people in “public service” jobs to get debt relief or forgiveness after ten years of working in such public service. Looking it up this morning, it turns out that qualifying jobs are anything with the government or with employment by a 501c3 tax exempt non-profit organization. The student loans need to be federal loans like Sallie Mae and the like, rather than something owed to the college or a bank obviously. Last year in the middle of the meltdown, Congress extended the application of these forgiveness and write down provisions to include folks whose income was less than the level of their loan (ie, if you owe $50 grand and are only making $30000), which would mandate a maximum loan level. The cap on payments is between 10 and 15% of your income and after 25 years any remaining principal and interest is written off. That’s for everyone now.

Of course there are a lot of bells and whistles, details and drumbeats, but you get the picture. There’s some “rules and rights” embedded here, and people are not getting them. Perfect organizing opportunity for advocates and actions!

We need to go old school organizing and start making out a form!

Student Loan Dead Weight

jstuart — Thu, 22 Apr 2010 22:53:25 +0000

Columbus I thought I remembered the Neighborhood House from 30 years ago, but that was a couple of story, white building…must have been something else because now the operation presided over by Allen Huff for the last dozen years was huge with an auditorium, gymnasium, multiple buildings, and god knows what else, including a community organizing program he was supporting out of love and commitment alone. This was my kinda guy. He came in to visit on his vacation AND birthday – there’s a future in a partnership with him!

Talking to a dozen people who wanted to organize in Columbus was fascinating. This was all about the future and getting past the nostalgia of the past. I shopped some of my current ideas about how a new organization might be shaped. There was great feedback and wild interest. I’ll have to think about all of this even more.

One of the most amazing things I heard confronted the very heart of citizen wealth. People who had worked on tax returns for lower income and working families where finding student loan issues with literally 3 out of 4 families, including diversions of the tax refund checks to collectors and to Sallie Mae to pay a piece of old student loans. The families were all ages from the twenties to the sixties! This is a big issue. There’s a campaign calling about student loans in Columbus, and that’s not the least of it!

Ohio State may be in session today in Columbus, but I was being taken to school at the Neighborhood House, and learning at lot!

Shocking Student Loan Debt

jstuart — Sat, 13 Feb 2010 23:03:12 +0000

New Orleans In talking about Citizen Wealth around the country I’m frequently asked about education and the old saw that education creates income security. Odds are that there is still truth to that, but it was shocking to read how predatory the least slipup can be for students taking on debts for a key to supposedly a richer future. An article in today’s Wall Street Journal by Mary Pilon detailed some scandalous charges and run-ups that can take student loans up to as much as a half-million bucks. It’s not surprising to see how these vultures lure the young into a lifetime of debt servitude or more frequently loan defaults.

The tricks of the trade are seductive:

Deferrals: sure seems like a friendly thing to do but the debt accumulates and grows while the payments are postponed.
Compound Interest: I forget the movie where the old rich fellow was telling the callow the youth the secret to wealth, and it was “compound interest,” not “plastics.” The ability to charge interest on top of interest on top of interest, takes the simple debt and its simple interest rate to stratospheric levels once you add time. You are thinking this isn’t predatory, right? This is just the way loans work, chump! If there is no effort to explain the consequences transparently, then over time this morphs into a predatory practice as well. Get it?
Penalties and fees: The story detailed preposterous charges of $20000+ and $50000+ for turning over collection to a debt agency. What?!? How can that be possible?

More of this is going to happen to young people given the huge recession. But according to the story there is over $750 billion and only 40% of the debt is being actively repaid. This also means the debt (see above on compound interest) is also soaring on that 60% for sure.

There was a story of a doctor who had $250,000 in debt which has now gone over $500000+ in 5 years with what and what. There was another story of a mother whose unemployment check of $300 is being garnished by the federal lender, Sallie Mae, for $120 because she had signed for her son while he was in school, and he lost his $29000 job, and defaulted because he was unable to keep up.

If trying to own a home is one ticket to trying to achieve financial security for working families, and we are watching much of that dream wash away in foreclosures and fallen prices, then education was certainly supposed to be another investment in a better future. With eroding jobs, increasing debt, escalating college pricing, and no relief, this looks like a mess.

Seems to me that getting these young scholars right sized on their debts would have been a good investment by the government when it was in bailout mode, but perhaps the reason the government is allowing the banks to patty cake around on the foreclosure mess, is the fact that clearly the government is not willing to write down some of this outrageous debt that they are allowing to grow unabated through predatory practices.

Loans for Students not Predators

jstuart — Wed, 22 Jul 2009 13:43:23 +0000

Baltimore If we didn’t have so many fast deals and multi-billion dollar scams to read about every day, then the student loan situation would be a scandal that doesn’t stop shaming everyone who touches it.

Finally we have a chance to streamline the process and take out the sticky fingered middlemen skimming the cream off the loans, and some Congress people are trying to keep the grease and let the scamming continue. $90 billion could be saved by eliminating the predators and at a time when the children of lower income and working parents are having to forego their dreams of higher education because loan money has dried up, we have folks with their hand in the till trying to stop the flow of dollars that could guarantee better futures. How can this be possible?

Talking to someone the other day, I was even hearing about exciting new ideas to use free tax platforms like the ones pioneered by the ACORN Centers to allow seamless and efficient assistance in filling out the federal loan applications for students. My kids hated me throughout their college years because I made them fill out the applications themselves on line and help me the whole way. We all would have stood in line at an ACORN Center to be able to have someone help us do that, especially if they would have done our taxes, too!

Obama is right about all of this. There’s a better way that pushes more money to families that need student loans, and that creates citizen wealth. The ACORN Centers and others have the right idea as well in making this process more accessible and efficient.

Time for taking names and kicking butt with some Congress folks, I think.