Citizen America

Student Loan Bubble of Debt & Corruption Set To Explode

Overview: This research paper exposes the facts behind the failed student loan debt  system and how it is serving up immense institutionalized discrimination toward placing millions of minorities and the poor into permanent debt servitude to the federal government–all while banks reap enormous profits with nearly zero risks and put taxpayers on the hook for major yet needless losses.

Imagine you just invested 4-years of your life getting a college education and now you owe a bank, or its strong-arm enforcer (federal government) $25,000 at the rate of 7.9% (even though the government lends banks money at ½% interests). (1) Now imagine upon graduation you could not get a decent job that utilizes the hard earned education, but instead you have to go to work for McDonalds for minimum wage and ask for Food Stamp and other government relief to supplement your “unlivable wage”—forget paying your student loans because you don’t even have an extra dime to go see the dentist, doctor, or go out on a date once a month—you’re living with 6 people all sharing a tiny apartment so they can afford the rent. What happened? The answer is your career plans did not work out as promised by the Department of Education, your school, and you country’s culture of education first—instead, now you’re a loser! And that’s not even the bad part.

Flash forward 2-years when your student loans officially go into default. The bank/lender cries to government and government takes over your loan, paying off the lender for 99% of all their loses (including penalties and interests). Now enter the Nazi-like henchmen at the Department of Education—the collections department. Suddenly, without notice, your bank accounts are frozen then sucked dry, your wages at McDonalds garnished, and harassing phone calls are coming to your boss, you, your friends and more. Tax refunds—right—they get sucked away too by the big bad wolf. You see, you’re now treated like a criminal and deadbeat as far the government is concerned and their piece of the pie comes first—don’t complain even if you are living on the streets because Uncle “Nazi” Sam is relentless and never wrong and his absolute authoritarian power that gives him the right to bypass your 5^th Amendment Right to “due process” has the same effect on you as Hitler’s SS ability to affect control on the German people at will.

What’s worse is that you and thousands of people like you decide to speak out and march on Wall Street, to “Occupy” it and make grievances but instead of the people supporting your cause, many scorn you as a loser, deadbeat, scam artists, or just a bunch of self-entitled spoiled kids searching for free handouts. How dare you ask for student loan forgiveness—we won’t even let your declare bankruptcy to escape permanent debt oppression—we will press your student loan debt for your entire lifetime and we will do our best to get it because we are the Department of Education—“Heil Hitler”!

Is a Hitler reference an exaggeration—yes. Is the authoritarianism real—also yes!

Yet education is said to be the heartbeat of the modern American Dream but the reality is the patient is on life support and failing fast and millions of students are getting run over by that dream.

Today’s graduates, due to recession impacts alone, will earn far less over their lifetime than those who graduated during non-recessionary periods. (2)

The caliber of jobs available in a recession, and their accompanying wages, tend to suffer. High-end firms hire fewer people and drive down salaries because jobs are in such demand. That means many graduates end up with lower-wage, lower-skill jobs at less-prestigious firms or in firms outside their field of interest. Once the economy picks up and they try for better jobs, these workers have to learn skills they should have been developing immediately out of college. In the meantime, colleagues who graduated in a better economy have already developed these skills and progressed much further. (2) – WSJ

The Bureau of Labor Statistics reports that about 17 million workers with college degrees, from undergraduates to doctorate levels, are working in jobs that require less skill levels than afforded by bachelor’s degree. (3) This means most accumulated major educational debt as a losing investment proposition.

However, the pervasive US culture—schools of thought largely churned out by colleges and lenders who profit off the educational system—is that education is king and a solid investment. The reality is for many it’s not—it’s a complete debt nightmare and the problem is not only hurting millions of unsuspecting students (most of whom are in the poverty class or racial minority classes because those two group assume most student loan debt and a highly targeted by government programs), but it’s hurting the nation and taxpayers who have to foot the bill while “fat-cat” banks reap all the profits and assume zero risks.

As the cost of education skyrockets, so, too, will student loan debts. The federal government is to blame for it all because it artificially resets the educational cost bench mark by providing college education funding maximums (limits that constantly rise), which educators seek to match—thus artificially driving up tuition costs and encouraging irresponsible behavior in nonprofit colleges whereby they are overstaffed purposely toward substantiating the need to keep government guarantee program maximums escalating. Prior to such federal programs, educators were strongly forced by market conditions to keep costs down, hence tuition, so most families could afford to pay for the education out-of-pocket.

Government also destroys the free market by installing educational loan guarantees so lenders can never lose. And the government allows for excessive interest rates and penalties against students that dramatically compound their cost impacts and help push higher default rates. Such penalties and defaults can spike total costs by as much as 40%. (4)

Perhaps most diabolical about the entire federal government’s education loan system is that it deliberately targets the poor and minorities and as a result, places many into permanent debt servitude to the federal government when they ultimately fail on their career goals and subsequently default. Blacks, many of which would never qualify for loans to begin with, are issued federal loans even when the government knows they are 5-times more likely to default than Whites. (4) Hispanics are also defaulting at twice the rate of Whites. (4) Yet when such student borrowers default, they are being placed directly into a permanent debtor’s prison in which their student loans can almost never be discharged in bankruptcy or forgiven otherwise—the result is massive discrimination that has been institutionalized by the federal government and militantly enforced by radical  Department of Education policies of oppression. The Department of Education claims it’s trying to help the poor and minorities yet in reality, its easy-loan-to-permanent-debt-oppression “shell game” is turning millions of them into “lifetime debt slaves” and ruining their lives  under the same government system that quietly demands government never loses—all while students are deceived and never once told of the severe risks associated with such caustic debts . Yet if prospective students were told of such risks before assuming student loans, much of the education system would likely collapse in the US due to lack of student participation and banks would lose billions in profits–hence government knowingly hides the risks and hence acts as a poor and minority targeting predator).

Then there is the issue of this system getting out of hand financially for the government itself, hence taxpayers who are going to be forced into yet another bail-out because or corrupt government institutions and Congressional policies and laws that support lenders over taxpayers and supports itself over students.

According to FinAid, the total private and federal Student Loan Debt (SLD) in the US is now $0.95 trillion. (5)

SLD has now exceeded credit card debt, which has been dropping but is still $790 billion or about $160 billion less than SLD. (6) However, SLD is galloping forward, adding $300 billion in just the last 4-years and has reached $100 billion a year mark now.(7)

Some quick math tells us we will have a $2 trillion SLD tiger-by-the-tail in just 10-years at current new debt to escalating costs to pay-off ratios. What that translates to is that we have a broken SLD system that increasingly ensures its own financial collapse.

Currently the SLD default rate (2009) was 8.8%, which included 6.0% to 7.2% for public institutions and 11.6% to 15% at for-profits schools. (8)

Stunningly, the actual or unreported SLD default rate measured since 1995 (t0 2010) is 1-in5 for nonprofit schools, 1.5-in-5 for community colleges, and 2-in-5 for for-profit schools. (8b). In other words, 20% to 40% of the entire student loan system is a complete failure and eventually that debt is going to have to be eaten by taxpayer dollars–all while banks sidestep the losses and enjoy fat profit windfalls off the loans that do pay off.

For-profit colleges have long blamed the sector’s higher-than-average default rates on the sociodemographics of their students. According to the Career College Association, 43 percent of students attending for-profits are members of minority groups, and almost half are the first in their families to attend college. More than three-quarters are employed. (8b)  —The Chronicle

These facts show that the student loan system is disproportionately drawing in and thus harming minorities through premeditated discriminatory practices because the system understands the vast majority of those harmed are going to be minorities who will eventually suffer STD defaults—thus we have hard evidence that the government is deliberately targeting the poor and minorities with its programs then turning around on them when they default on their STD and placing them into permanent “debtor’s prison” from which there is little hope of escape—can you say systemic corruption and discrimination!

Default rates are calculated once a student loan debtor has failed to make payments for about 2 years. Over 320,000 defaults occurred while over 3.6 million entered repayment for 2009. (8)

“These hard economic times have made it even more difficult for student borrowers to repay their loans, and that’s why implementing education reforms… is more important than ever,” said U.S. Secretary of Education Arne Duncan.” (8)

Duncan, of course, fails to mention any of the hard underlying issues of the corrupt student loan system that Senator Edward Kennedy had once sought to investigate and take-down prior to his death. A long time proponent of the student aid system, Kennedy sat on the U.S. Senate Health, Education, Labor and Pensions Committee that ultimately issued a Report on Marketing Practices in the Federal Family Education Loan Program from an investigation on corruption of the entire student loan system. Corruption was documented as rampant.

“This investigative report demonstrates that inappropriate marketing practices, conflicts of interest, and back-room deals are found all too frequently in the student loan industry. The findings underscore the urgent need for systemic reform in the student loan system. (9)

In 2002, the Inspector General found the National Student Loan Program audit found a variety of ill-practice issues that included “unallowable and unsupported costs for marketing and public relations, information systems, employee benefits, administration, and communication”. (10)

The California Research Bureau released a report in 2008 that documented fraud and abuse by the entire student loan system and many lenders.

In February 2007, New York Attorney General Andrew Cuomo began an investigation of deceptive lending practices by student loan providers, including illegal payments and inducements to universities, colleges, and financial aid officers…. The investigation found financial arrangements and relationships between lenders and schools, such as revenue sharing and referral fees, to be “…burdened with a strong potential for conflicts of interest.” (11)

While the studies and investigations did delve in, they did not fully document the many other allegations of criminal wrong-doings that track into the Department of Education and with major lenders and loan servicers. Currently, Citizen America Foundation is undergoing research on allegations of RICO Act violations that may involve federal, state, and private officials throughout the system and many key personnel who conduct business within it.

The piling on of harms by government and profiteers was also reported in 2010 by The Valley Advocate:

…conventional protections for borrowers don’t apply to student loans. They can’t be discharged in bankruptcy, even after many years. Wages, tax returns, including earned income tax credits, and even Social Security and disability benefits can be garnished to pay them. Incredibly, professional licenses can be revoked as a penalty for defaulting, making it even less likely that the borrower will ever catch up. And many classes of student loans are even exempt from truth-in-lending laws. Nonprofit state-operated lending operations were also exempted from the Fair Debt Collection and Practices Act. In many cases, state usury laws don’t apply to student loans. (12)

Summary

So let’s sum it up—the federal government, using discrimination and corrupted policies and systems, is targeting the vulnerable and minorities, aiding them to incur massive amounts of government backed debts (debts that most students would not otherwise ever qualify for, hence would be protected by market factors), then when those students are unable to make the career and earnings grade they were promised by the system (largely because of other failed federal government policies that keep an abundance of high paying jobs from graduates) then the very same government that says it is trying to help the less fortunate is turning around and placing those students into permanent debt slavery for the remainder of their lives—or until they miraculously hit the Lotto and pay off their student loan debts! And the whole while lenders are reaping billions in profits never taking on a nickel’s worth of risk—taxpayers pay for all losses and banks reap all the rewards while we create an entire generation of debt slaves where all hope of the Middle Class American Dream is all but crushed to death.

Whatever this system is the one thing it is not is pro-American—everything embodying it clearly stands against the traditional ideals and values of the American people and the nation’s tradition of fair play and justice for all. Government is the crook here and it’s getting away with murder while millions of other Americans are being falsely led to believe the system is fine and it is students who are the lazy no good spoiled brats who are complaining of a lack of freebies–Dr. Joseph Goebbels’ propaganda machine appears live and well in modern America!

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 References and Links

(1) Student Loans (FinAid, taken Oct 15, 2011) At: http://www.finaid.org/loans/

(2) Sara Murry, The Curse of the Class of 2009 (The Wall Street Journal, May 9, 2009) At: http://online.wsj.com/article/SB124181970915002009.html

(3) Richard Veddar, Why Did 17 Million Students Go to College? (The Chronicle, Oct 20, 2010) At: http://chronicle.com/blogs/innovations/why-did-17-million-students-go-to-college/27634

(4) Study: Student Loan Default Rates Highest Among Minorities (Diverse, Oct 24, 2007 At: http://diverseeducation.com/article/9856/

(5) Student Loan Debt Clock (FinAid, taken Oct 15, 2011) At: http://www.finaid.org/loans/studentloandebtclock.phtml

(6) G.19 Statistical Release (Federal Reserve, Oct , 7, 2011) At: http://www.federalreserve.gov/releases/g19/Current/

(7) Mark Kantrowitz, Total College Debt Nows Exceeds Total Credit Card Debt (Fin Aid / Fastweb, Aug 11, 2011 )At: http://www.fastweb.com/financial-aid/articles/2589-total-college-debt-now-exceeds-total-credit-card-debt

(8) Default Rates Rise for Federal Student Loans (US Department of Education, Sept 12, 2011) At: http://www.ed.gov/news/press-releases/default-rates-rise-federal-student-loans

(8b) Kelly Field, Government Vastly Undercounts Defaults (The Chronicle, July11, 2010) At: http://chronicle.com/article/Many-More-Students-Are/66223

(9) Laura Burton Capps/ Melissa Wagoner, Senator Edward M. Kennedy Releases Report On Student Loan System (US Senate Committee On Health, Education, Labor & Pensions, June 14, 2007) At: http://help.senate.gov/newsroom/press/release/?id=b8abd3bd-402f-4232-a88c-e4ceb246253b&groups=Chair

(10) Audit of the National Student Loan Program’s Establishment of the Federal Family Education Loan Program Federal and Operating Funds (Office of Inspector General, Sept 2002) ED-OIG/A07-B0002, At: http://www2.ed.gov/about/offices/list/oig/auditreports/a07b0002.pdf

(11) Charlene Wear Simmons, Ph.D., Student Loans for Higher Education (California Research Bureau, Jan 2008)pg 41, CB-8002, At: http://www.library.ca.gov/crb/08/08-002.pdf

(12) Stephanie Kraft, Killer Loans: Student loan borrowers drown in debt as lenders make billions (Valley Advocate, Oct 14, 2010) At: http://www.valleyadvocate.com/article.cfm?aid=12585

15. October 2011 by admin
Categories: Research Papers | 2 comments