Change E in FIRE to Education?

[lakedaemonian]

Canary in the FIRE/Education coal mine?

http://www.latimes.com/business/la-f...427-story.html

Should the E in FIRE be changed to Education?

85% of revenue coming from Federal(ly backed but privatized) Student Aid(Loans).

That sounds as silly as the effectively nationalized mortgage market.

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We've discussed at length the problems with the US higher education market.

Not the least of which is the problem of static nominal(and falling real) entry level incomes for graduates where the cost of purchasing the salary(cost of degree) has exploded resulting in shrinking to negative returns on investment.

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Will we see the fall of more higher education "institutions"?

[dcarrigg]

Re: Change E in FIRE to Education?

Canary in the FIRE/Education coal mine?

http://www.latimes.com/business/la-f...427-story.html

Should the E in FIRE be changed to Education?

85% of revenue coming from Federal(ly backed but privatized) Student Aid(Loans).

That sounds as silly as the effectively nationalized mortgage market.

-----

We've discussed at length the problems with the US higher education market.

Not the least of which is the problem of static nominal(and falling real) entry level incomes for graduates where the cost of purchasing the salary(cost of degree) has exploded resulting in shrinking to negative returns on investment.

-----

Will we see the fall of more higher education "institutions"?

For profit education is a terrible idea anyways. Any sensible country wouldn't allow it under the same accredidation and loan standards as other schools. 12% of students are at for profit colleges. That 12% accounts for 48% of the total student loan defaults. You're literally bankrupting poor people who don't know better by buying stock in these vultures. And the worse part is, people with degrees from for profit colleges are something like 30% less likely to receive a call back when applying to a job for which they qualify. The market doesn't like the degrees either.

[santafe2]

Re: Change E in FIRE to Education?

For profit education is a terrible idea anyways. Any sensible country wouldn't allow it under the same accredidation and loan standards as other schools. 12% of students are at for profit colleges. That 12% accounts for 48% of the total student loan defaults. You're literally bankrupting poor people who don't know better by buying stock in these vultures. And the worse part is, people with degrees from for profit colleges are something like 30% less likely to receive a call back when applying to a job for which they qualify. The market doesn't like the degrees either.

Welcome to debt slavery through education. Your loan is full recourse. That means you can declare bankruptcy and you still owe the money. Is it any wonder most of these schools could care less about the quality of the education or your ability to find a job? These are nearly unregulated marketing firms selling a lifestyle.

[BK]

Re: Change E in FIRE to Education?

Look like the not-for-profit own 52% of the default.....there are lots of crooks parading as Dean's of not for profit. Don't forget all the different debt schemes used to pay for traditional not for profit colleges. Parents use HELOCs and other financing methods that would not show up as a default on educational debt.

[lakedaemonian]

Re: Change E in FIRE to Education?

Welcome to debt slavery through education. Your loan is full recourse. That means you can declare bankruptcy and you still owe the money. Is it any wonder most of these schools could care less about the quality of the education or your ability to find a job? These are nearly unregulated marketing firms selling a lifestyle.

There's heaps of regulations around used car dealers.

Lemon Laws exist as a remedy for buyers of durable consumer goods, should Lemon Laws exist as a remedy for buyers of durable consumer services?

Or should schools be compelled to provide a much higher level of impartial graduate employment statistics?

Say some sort of combination of disclosures documents(like franchise systems) and magazines(circulation statistics) that provide more accurate indicators of average return on education investment(by degree specialization).

[dcarrigg]

Re: Change E in FIRE to Education?

Yeah 88% of the students and 52% of the defaults... When 12% make up the other 48% it shows that something's rotten...

[don]

Re: Change E in FIRE to Education?

try tossing that in the air . . . .

[don]

It Was a Very Good Year

The average class of 2015 graduate with student-loan debt will have to pay back a little more than $35,000, according to an analysis of government data by Mark Kantrowitz, publisher at Edvisors, a group of websites about planning and paying for college.

All together, total education debt–including federal and private education loans–will tally nearly $68 billion this year for graduates with a bachelor’s degree and their parents, Mr. Kantrowitz estimates, a more than 10-fold increase since 1994…

* * *

[don]

Re: It Was a Very Good Year

lunch at the golden circle . . . .

When Corinthian Colleges abruptly shuttered its remaining campuses late last month we asked if for-profit colleges will be the next multi-billion dollar taxpayer-sponsored bailout. That may have seemed like a bit of hyperbole on our part but in fact it was not, because as we explained then, students left out in the cold by Corinthian owed some $200 million in federal student loans and when the government forces an institution to close its doors (which is effectively what happened with Corinthian), students can apply to have their debt discharged.

Because Corinthian is a for-profit institution, students won’t have a particularly easy time transferring their credits (meaning they would have to start over at another school if they wanted to complete their degrees), we said that more likely than not, the government (i.e. taxpayers) would end up eating the cost of forgiving their debt.

Fast forward three weeks and sure enough, the government is scrambling to figure out what to do after Secretary of Education Arne Duncan received a group request from 78,000 students requesting loan forgiveness.
Via Reuters:

The bankruptcy of Corinthian Colleges Inc, one of the biggest for-profit college chains, has set off a scramble to find a way to wipe away billions of dollars of student loans for those who attended its campuses.

More than 50 consumer and labor organizations sent a joint petition on Tuesday to U.S. Secretary of Education Arne Duncan, urging him to cancel federal student loans owed by 78,000 who attended Corinthian schools.

The groups, including the National Consumer Law Center, said the Department of Education had the authority because Corinthian misrepresented its job placement rates and defrauded students by enrolling them in high-cost, low-quality classes.

Corinthian settled allegations about misrepresenting job placements with the California attorney general in 2007.

NCLC lawyer Robyn Smith said there was no precedent for the department to cancel student debt in the way the groups were urging.

"Unfortunately, they haven't used this authority before," she said.

The Department of Education said it had not decided how any debt relief would work.

Well Department of Education, allow us to tell you how the debt “relief” will work. You will end up being forced to write it off because you closed down the school.

And while your decision to shutter the college was likely the right move given the for-profit industry’s reputation for absurdly predatory recruiting practices, you have no one to blame but yourself for allowing these institutions to live off of billions in federal loans for years (while their CEOs pulled in millions in compensation), when you likely knew that in the end, they would have to be closed down once Congress got wind of how they went about luring students.

The real question now is whether continued pressure on for-profit colleges will result in further closures and more petitions from hundreds of thousands of students with tens of billions of loans they now know can be legally discharged. Note that we have not used the term "canceled", because as we like to remind readers, liabilities are never "canceled", they are simply written off by the person for whom they are an asset.

Finally, it's worth noting that nearly every student displaced by a for-profit closure will have student loans because when tuition is double that charged by public institutions, taking out loans is the only option for 88% of attendees. In other words, when the government finally goes all-in on its for-profit crackdown, not only will every student have debt, but the outstanding amount will be about 36% larger than that carried by graduates of public schools.

So yes, this could indeed wind up being a multi-billion dollar taxpayer sponsored bailout, and the first $200 million writedown is just around the corner

let the market decide . . . .

[don]

Re: It Was a Very Good Year

A Student Loan System Stacked Against the Borrower

OCT. 9, 2015


“It feels like I’m being set up to fail.”

That’s how Patrick Wittwer, 31, described his experience trying to repay his roughly $50,000 in student loans. Between misdirected payments by one of the companies servicing his loan and the abusive collection tactics he encountered when he fell behind, Mr. Wittwer said the repayment process simply seemed stacked against him.

A 2008 graduate of Temple University with a degree in media arts, Mr. Wittwer is not alone in his experience. Consumer advocates say student-loan servicers often make an already heavy debt load even more burdensome for borrowers.

A report issued late last month by the Consumer Financial Protection Bureau supports this view. Even though the economy and labor market have improved, student loan borrowers are experiencing high distress levels compared with borrowers with other types of consumer debt, the government report found. More than one in four student loan borrowers are delinquent or in default on their obligations.

In the aftermath of the financial crisis, we learned repeatedly about dubious practices among mortgage servicing companies that made it harder for homeowners trying to repay or renegotiate their loans. Now, similar horror stories are emerging about the companies servicing student loans.

Some 41 million Americans owe $1.2 trillion in student loan debt. The median debt burden among borrowers was $20,000 in 2014, up from $13,000 in 2007.
Companies servicing these loans manage borrowers’ accounts, process their payments and enroll them in alternative repayment plans, including those based on a fixed share of the borrowers’ income. Among the biggest companies are Navient, Great Lakes and Discover Bank.

The Education Department has contracts with 11 loan servicers. But with no federal standards governing these activities, student-loan servicers have great leeway in their practices. Making matters worse, borrowers are not allowed to choose their servicers, so if they encounter problems, they cannot take their business elsewhere.

“Good loan servicing is expensive,” Maura Dundon, senior policy counsel at the Center for Responsible Lending, said in a recent interview. “It requires reaching out and talking to people, and servicers don’t do it because they don’t get compensated for that. This is the fault of servicers, but it’s also the fault of the Department of Education for not writing this into their contracts.”

Denise Horn, a spokeswoman for the Education Department, said the agency continues to strengthen the federal direct loan program “to ensure all students and families receive the highest quality support from their federal loan servicers.” She added: “Everyone needs to do more to protect student loan borrowers — including servicers — and we’ll continue to take steps to strengthen the program and enhance oversight.”

A recent questionnaire by Young Invincibles, a research and advocacy organization focused on advancing economic opportunity for young adults, points to some of the weaknesses in student loan servicing.

One common borrower complaint among the roughly 1,200 people who responded to the survey was that servicers simply fail to follow instructions. Borrowers hoping to reduce both the cost and the length of their repayment period, for example, often ask servicers to steer payments toward higher-cost loans first. In a number of cases, recipients said, the companies ignored these requests.

“For servicers to ignore or do the opposite thing that a borrower would request is indicative of something very negative going on in the industry,” said Jennifer Wang, policy director at Young Invincibles.

Improper levying of late fees was another practice cited by those shouldering student loans. So were losing paperwork and making repeated requests for documentation.

Perhaps the biggest problem cited by borrowers and their advocates was the failure of student loan servicers to advise their customers of the full array of repayment plans available to them. In many cases, this means borrowers do not know they are eligible for loan relief and do not receive it.

Such relief includes repayment plans for federal loans based on a borrower’s income and family size, or debt forgiveness programs for borrowers who work in public service. Military service members also have a right to a lower interest rate while they are on active duty.

But many eligible borrowers don’t hear about these options, advocates say. An August report from the Government Accountability Office estimated that 51 percent of student loan borrowers nationwide are eligible for income-based repayment plans, but only 15 percent are enrolled.

Rather than offer one of these programs, servicers often suggest loan forbearance, in which the borrower stops making payments temporarily. But because interest keeps piling up on the loan during the forbearance period, this is an expensive alternative. And some private student loan servicers charge a $150 fee to put an account into forbearance.

Servicers say the complexity of federal student loan arrangements creates problems both for their workers who must try to explain these deals and for borrowers who need to understand them.

But servicers receive $600 million a year for their work, and explaining loan terms is surely one of the jobs they are being paid to perform. “For a servicer to see a student loan borrower struggle and not help them get into the right repayment plan is a huge customer service failure,” Ms. Wang said.
It is also a taxpayer risk, given that such practices raise a borrower’s potential to default.

Mr. Wittwer, who lives in Philadelphia, said he had encountered difficulties with some of his loan payments even though he arranged for them to be deducted automatically from his bank account last year.

“After six or seven months, I get a late notice for my federal loans and I go in to my bank and double-check that the loan was being paid,” he said. “My loans had been transferred to another office, but the original office had kept collecting it.”

It took about a month to fix the problem, Mr. Wittwer said. “You have to be hypervigilant about it because student loans are constantly being sold and moved.”

Ms. Dundon of the Center for Responsible Lending said that the Education Department had fixed some of the problems in its servicing contracts but that financial incentives were still misaligned in certain areas. For example, service companies receive more money if the loans they oversee are being paid off, and less if borrowers stop paying. While this system encourages servicers to keep borrowers current — a good thing — it discourages them from working with borrowers who fall behind.

Mr. Wittwer said he is currently paying $756 a month on his student loans, the minimum amount. He acknowledged that he did not understand the consequences of the sky-high interest rates on his loans when he took them on. But his credit score is rising and he has a job.

The Consumer Financial Protection Bureau is talking about rules to standardize student loan servicing practices. In the meantime, its enforcement unit has student loan servicing companies under the microscope. It brought a case against Discover Bank last summer, saying it inflated the amounts it said borrowers owed on their loans.

Discover Bank paid $18.5 million without admitting or denying wrongdoing.

Repaying a student loan is challenging enough without servicers adding to the burden with incompetence or dubious practices. Borrowers and taxpayers deserve better.

http://www.nytimes.com/2015/10/11/bu...l?ref=business

[radon]

Re: It Was a Very Good Year

“It feels like I’m being set up to fail.”

That’s how Patrick Wittwer, 31, described his experience trying to repay his roughly $50,000 in student loans.

A 2008 graduate of Temple University with a degree in media arts

If these were treated like any other unsecured loan they never would have lent him 50K in the first place. Take the leverage out of the system and see how fast tuition prices fall. That won't happen because they need these guys to fill all the $40,000,000 buildings growing like ugly weeds in campuses everywhere.

[don]

Re: It Was a Very Good Year

If these were treated like any other unsecured loan they never would have lent him 50K in the first place. Take the leverage out of the system and see how fast tuition prices fall. That won't happen because they need these guys to fill all the $40,000,000 buildings growing like ugly weeds in campuses everywhere.

Important pieces of the incomplete puzzle.