New Orleans

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?

New Orleans

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!

New Orleans

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.

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!

New Orleans

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.