Friday, October 28, 2011

Student loans? "Don't worry, be happy."

The Examiner
William Heuisler

To further an altruistic notion that every American needs to go to college government encourages everyone to borrow…because taxpayers will pay.

Tuesday, President Obama announced Improved Income-Based Repayment (IBR), a plan to allow student tuition-loan borrowers to cap their monthly payments at 10% of their discretionary income as soon as 2012. The new government policy supposedly saves students lots of money. Bottom line? Income adjusted deferred repayments will stretch schedules beyond the reasonable capacity of conventional lenders to carry the debt.

Imagine car dealers saying, “Take the new car. Pay when you can afford to.”

And who underwrites these generous policies? US Taxpayers, of course.

Over 20 years, college tuition has increased twice as fast as the cost of living. Student debt grew from under $200 billion eleven years ago to more than $1 trillion this year. Average student debt is $23,000 (up 8 % from 2010). Students owe more to colleges than everybody owes credit card companies. From 2005 to 2008, college tuition increased four times faster than the Consumer Price Index. In 2011 college tuition increased almost 8 % in all US State Colleges. (Lewin, 2008)

Arizona’s State Universities voted to raise 2012 tuition for instate students an average of 18.8%. Tuition increased 22% at UofA to $10,027; increased 19.5 % at ASU to $9,716; and increased 15% at NAU to $8,824. Added to the flood of tuition money, Arizona State Universities will receive more than $692 million in State taxpayer Funding next fiscal year. (Meyers, 2011)

And where does the money go? Teaching faculties have dropped from three quarters of college employees in 1970 to just over half n 2005. Apparently no one cares where the money goes. “It’s only Government money”.

Higher education is only affordable to many students because the Federal Government promotes and subsidizes the loans with taxpayer guarantees.

Not only do Government policies make US taxpayers underwrite the huge student debt, but last Tuesday, President Obama’s IBR made sure that debt will last longer and grow larger. Deferral of payment does not save money.

Deferral of payment increases the cost of the debt. And student tuition loans already have many government deferrals.

1) A lost or low paying job means 2 to 3 years “unemployment deferment” or “economic hardship deferment”.

2) Lenders must offer “forbearance time” if more important bills must be paid.

3) Government offers Title IV “administrative forbearance deferment”.

Many student loans go years without payment. Interest grows. Banks profit. If, or whenever, a student finally, actually defaults on the loan, the Federal Government reimburses the bank...with Taxpayer money.
Lewin, T. (2008). New York Times. Downturn expected to drive tuition up.

 Meyers, A. (2011). AZ Arizona board approves steep tuition hikes.

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  1. No, actually taxpayers don't pay, and this is a big part of the problem. With the money spent on the wars in Iraq and Afghanistan, or on the banker bailouts, America could pay for a college education for everyone who would benefit from one. Instead, students borrow, and at the 6.8% interest rate charged by the Department of Education, the government actually makes a profit of of lending to students while giving free money to Israel, defense contractors and corporations.

    Higher education works best when it is directly funded by the taxpayers - taxpayers have an incentive to want to get what they paid for - the best and most useful educations for the lowest possible price. With guaranteed loans, colleges have no incentives to cut costs, which is why tuition keeps going up faster than everything else. Lending to fund education should be abolished, but college could still be available for minimal expense if we had a government which spent for productive things like helping citizens gain useful skills, instead of destructive things like wars and subsidies for the wealthy.

  2. As you point out, the longer the loan is deferred, the more interest the Bankers get.

    Perhaps a more sensible "bailout" than Obomber's would be to cancel interest on all loans ending up in the Government's hands. That would include, for example, any defaulted student loans. There is strong precedent for this under English Common Law- the Magna Carta guaranteed that all usurious debt coming into the crown's hands would have the interest cancelled and only the principle would be due.

  3. Student loan consolidation programs can provide a plethora of repayment prospects and opens the door to several recompense options. Most borrowers utilize such programs to decrease their monthly payment; this is easily accomplished after one lender essentially buys a borrower's credits from their current lenders and merges these accounts into one loan.


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