Serfdom via student loans – Lenders going after Social Security and saddling college graduates with a debt albatross. Modern day debtor’s prison comes with a University degree.

The sharp attention being pointed toward higher education is important for a variety of reasons including the grim reality that we are facing another extraordinary bubble.  Instead of blindly following into another credit fueled bubble we should probably pause as we cross the $1 trillion student loan threshold.  The cost of education is becoming onerous and student loans are littered with financial landmines.  Many are given to students to attend for-profit schools that will yield very little return on investment in the market aside from stockholders and corporate leaders.  The uglier side also includes the inability to discharge student loans in bankruptcy.  Americans have the ability to discharge mortgage debt if they are unable to pay their home payment.  Businesses have the power to renegotiate contracts and loans with banks.  Yet we somehow have managed to recreate debtor’s prison except it comes in the form of a student loan.  Another dirty secret comes from the financial institutions gouging students with additional fees on top of the original loan balance.  The higher education bubble is popping and the long-term implications loom large for our struggling economy.

Student loans creating a generation of serfs

One of the implicit tenets we live by in America is the ability to fail and comeback from setbacks.  Currently this idea has been usurped by the giant financial organizations and has excluded virtually every other American.  You have luxury hotels imploding and banks simply dishing billion dollar bad bets to the American taxpayer.  At the core of the too big to fail bailouts is the notion that banks made horribly bad bets and needed to walk away.  So they did by saddling the American taxpayer with the bill.  Yet with student loans banks are lending to anyone and everyone willing to attend any questionable institution.  The due diligence is comical and the corruption that is occurring is similar to the mortgage boiler rooms that were dishing out subprime loans to any person that walked in through the front door.  The stories of student loan purgatory are starting to fill the internet.  Take a look at this post from “Frank” over at Student Loan Justice:

“I graduated from law school in December of 97. I have paid on my student loans off and on over the past 9+ years and have paid back an estimated $75,000 on a loan that when I graduated was a little of $100,000. When I last checked the pay off amount it was over $135,000 and thats with paying $75,000 + over the past 9 years. I owe more on it now than when I took them out !! One of my loans is in default, they claim I owe them $23,000+ (which somehow jumped from $17,000 in a span of about 30 days) My two other lenders are close to defaulting and I am unsure if I should just let them default…”

This is one of the darker sides of student loans that are kept hidden by the banks and the government.  Many lenders gouge students when they encounter problems.  Unlike a credit card for example, when you have really extraordinary problems you have an exit hatch with bankruptcy.  Ideally lenders are doing enough due diligence to learn their lesson.  Yet with student loans the market keeps increasing as for-profit schools and other institutions increase tuition and saddle students like Frank above with insane amounts of loans.  First, they have this person stuck in a modern day debtor’s prison.  No way out.  Next, they compound the misery by tacking on fee after fee.  If Frank was unable to pay the initial amount what use is it adding more and more on top of it?  The ugly side of the industry is they realize that they will have to milk the student as much as possible on the front-end.  The government guarantees most loans so many lenders care not if a student really has any ability to pay the loan back in the future.  These lenders quickly say, “well Frank shouldn’t have signed.”  This cynical attitude is what is expected especially when the lender isn’t using his money.  How about we ask the same lender to use their own money if they really feel many of these students warrant the current amount of loans being issued?

The acceleration and growth of student loan debt is incredible:

Student loan debt has long surpassed credit card debt but now is inching closer to $1 trillion.  The bet is that by going to college a student will increase their earnings potential.  The for-profits use multi-decade data on public and private institutions that actually show real increased earnings over a lifetime.  This is true.  Yet the for-profit machine is relatively new.  They tout the earnings potential of a college degree even though they are selling a glorified piece of paper for tens of thousands of dollars with no measurable results for that specific institution.  The result is you have a two-tier system developing with graduates; you have those that went to reputable schools and those who got conned:

“(Miami Hearld) It’s been a year since 23-year-old Carlos Tejero graduated Kaiser University with an associate’s degree in nuclear medicine. He’d been working in retail and as an insurance salesman for some six years before then, so he has some work experience, too. But Tejero is still unemployed, and all the while, the money he took out to pay for his degree is building interest. Tejero is loaded with $18,000 in student debt.“For people who are serious about their education, there’s really no other option,” he said.”

The mentality of “education at any cost” is one that is surging out of control and is a bubble that is fully in season but is also starting to bust:

The cost of going to college has outpaced every category of living by a very wide margin.  It is hard to believe but the cost of college has even surpassed the now historic housing bubble.  How can this be?  You have a perfect combination of:

-Un-regulated casino like financial sector

-Government bought out by financial sector and used as a dumping ground

-A myth that any college is a good college

-A marketing and propaganda machine that is actively destroying the middle class

 

Add this all into the mix and you have the current environment.  It is unfortunate because having a strong educated workforce is something that we should pride ourselves in.  Instead of focusing funds on producing intelligent and knowledgeable individuals the financial sector and government are simply trying to increase the graduate count even if it means hundreds of thousands are coming out of schools with no measurable gain in knowledge.  We are seeing now an army of unemployed college graduates:

This is a record level still and the above chart hides the fact that many graduates are underemployed in a field not utilizing their skill set.

“(eCollegeTimes) Tiffany Groene is waiting tables.

Erin Crites is making lattes and iced coffees.

And Anna Holcombe is buying and selling gold.

These three women share more than just scraping by with low-paying jobs: They all have master’s degrees and are unable to find work in their specialty areas.

There’s even a name for their situation. They are referred to as mal-employed, a term coined in the ’70s for college graduates who could not find jobs that require a degree. Instead, they settle for low-skilled jobs.”

The big difference between now and the 1970s is that these “mal-employed” workers are being hounded by the albatross of student loan debt.  It is interesting that every other item of consumer debt has contracted strongly except that of student loans:

This really isn’t surprising given that our current crony financial system is bent on sucking every nickel and dime out of the working and middle class.  They don’t care that students are being taken for a ride.  Many of these “colleges” set up shop in empty commercial buildings and suddenly are open for business.  It is amazing that anything Wall Street has gotten its hands on it has turned into a giant bubble.  Take housing for example.  Prior to the casino era homes were rather boring investments and people actually built solid equity in their homes.  That all changed as we know once the too big to fail banks got involved.  The same is happening in education.  There is no doubt that we have great institutions in the market.  Yet the amount of subprime institutions is astounding and many are being sucked into this troubling trap.

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What is fascinating is that the vampire financial system might have found a backdoor at robbing people from their Social Security:

“(Valley Advocate) They get 25 cents on the dollar—on average they get $123,000 back from the borrower on a student loan for $100,000. There’s no statute of limitations. … Sallie Mae often brags that they can predict very accurately who is going to default. They treat the people they predict will default much worse. They don’t grant them forbearances. At the root of it is [lack of] bankruptcy protections, which enables the whole system to start cycling up in this predatory fashion.”

Wish number two, Collinge says, is that the system would stop garnishing people’s Social Security. “I’ve gotten submissions [for the Student Loan Justice website] from senior citizens who couldn’t buy medications as a result of a percent of their income going for their loans,” he says.”

What an incredible mess.  Using a college degree to saddle hundreds of thousands with insurmountable levels of debt.  Is this really what we want from our education system?

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