Student loans: subprime fiasco?

For-profit higher education could create “another subprime mortgage fiasco” with “low-income students mortgaging their futures not on overpriced homes this time, but on worthless diplomas — with taxpayers on the hook again for any losses,” charged Sen. Richard Durbin, D-Illinois.

Under a new method of calculating defaults that starts next year, 25 percent of for-profit students in repayment would be in default, more than double the current 11.6 percent rate.

Also on Community College Spotlight: A hard-hitting ad campaign targeting for-profit colleges cost only $4,000, claims Campus Progress, rejecting charges that short-seller Steve Eisman funded the campaign.

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Comments

  1. Funny, those not-for-profit universities do exactly the same thing. But pay no attention to the man behind the curtain!

    Well, in both cases, taxpayers are on the hook for the front side loss–the subsidy. But student loans don’t have collateral for someone to foreclose against, and don’t get discharged in bankruptcy, so students are still on the hook. You never could flip your student loans, you just had to get a job to pay them off.

  2. Dave Schutz says:

    Actually, useta be you COULD discharge your student loans in bankruptcy. You had the spectacle of every newly minted doctor going bankrupt in his / her first year of residency, and starting again clean. Congress got huffy, and excluded student loans from bankruptcy. I think this was a bad decision -means that people who make loans to undergraduates for expensive majors ending in “…Studies” know they will be paid back even if the graduate has to spend fifteen years as a barista to do it. Some mechanism to put fear in lenders – while keeping some fear in the borrower! – has to come back, maybe you can discharge 80 per cent of the loan if you are not working at a job which is related to the degree and you aren’t making more than the national average wage?

  3. Tying student loans to academic qualifications (SAT/ACT etc) and major (plus GPA while in college – guys used to have to send grades to their draft board) would help the problem of kids unprepared for college-level work getting loans, but would never be tolerated because the prepared group would be insufficiently diverse. Getting the government out of student loans would be a good start; just let banks to back to restricting loans to those likely to be able to repay them in a reasonable time frame. Just like home loans used to work before PC/Fannie/Freddie got into the act…

  4. Momof4 sure loves her neoconservative talking points.

  5. @jab: While I dont typical agree with momof4, what’s your point?

    1. Statistically speaking, higher standardized test scores disproportionately come from whites and Asians.
    2. The premise of a loan is that you are borrowing money you intend to pay back–thus it isn’t a grant or scholarship.
    3. Fannie and Freddie initiated the subprime meltdown by assisting individuals in getting mortgages who could not otherwise qualify for a loan. The banks were guilty for bad practices as well but likely wouldn’t have taken on the risk if the government didn’t incentive it.

    There are a lot of people in college who (a) don’t have the academic background to suggest they will be successful in college and (b) are majoring in fields with low demand and low wages relative to the cost of college. Neither of these make investment in higher education logical but the system in place now facilitates individuals into some kind of delusion that 25, 50, or 100 thousand dollars in loans makes sense because the government says they qualify.

  6. Tom,

    Actually, it has been debunked numerous times that the sub-prime mortgage bubble was primarily due to the governments involvement in diversifying home ownership. There was wild speculation on property at all socioeconomic levels.

    As for the outrageous debt loads… Black and Latino students are underrepresented at most expensive private colleges… They are not the ones accumulating hundreds of thousands in debt…

    I agree that not everyone is cut out for a 4 year college and the push to get everyone in a 4 year program is counterproductive. I absolutely would like more vocational and technical training done via apprenticeships and through community colleges.

    I was more responding to the pattern of momof4’s posts which always seem to be of the variety that we need to go back to the good ole days when only the “right” sorts of people went to college or owned homes.

  7. Roger Sweeny says:

    Jab,

    I haven’t noticed momof4’s posts saying “that we need to go back to the good ole days when only the “right” sorts of people went to college or owned homes.” That’s accusing her of being a bigot but I don’t see the evidence.

    Perhaps there is some bigotry in the mirror?

  8. Roger…
    Read between the lines… she implied that student loans couldn’t be tied to academic achievement because of racial concerns, or that PC had something to do with the sub-prime mortgage crisis, something that has already been thoroughly debunked (hint, prior to the mortgage crisis, an unprecedented 40% of all home sales were for second investment properties and vacation homes).

  9. Jab-
    Who debunked the claim that the government initiated the subprime loan fiasco? The government?
    My father works at HUD and had been predicting the bubble bursting for a while. He and other analysts at HUD even issued a report back prior to government interference warning of this.

    And while plenty of “right” folk got hit by the bubble bursting, the upward instability in home prices across the board was initiated by relaxed lending standards. It drove prices up across the board. As the economy was spurred by home construction and sales, more buyers were able to enter the market or move to higher levels. Eventually, all that was needed was a critical mass of defaulted mortgages to initiate the burst.

    Yes, the effect was across the board, but that doesn’t change the fact that the change in the market which enabled this was the relaxed lending rules to diversify homeownership.

    You don’t need to go to an expensive private university to rack up massive college debt. Even 30-40 thousand can be difficult to pay off if you have no job. Add another year or two of college studies (which is becoming the norm for unprepared students if they graduate), and it can be even more expensive. Also, how much debt is being held by individuals who dropped or flunked out?

  10. I would like very much to go back to the days when almost all kids in this country, of all racial/ethnic groups and all income levels, were raised by their married biological parents (widowhood excepted). The community standards of behavior, respect for adults, education (even when access to college was limited for some groups) and hard work were pretty much the same for eveyone and schools did not see the kinds of negative-to-threatening behaviors that are now common. The usual pattern was HS grad, job or college (and military for guys – there was a draft), marriage, then kids, even in the days before reliable birth control and legal abortion. The explosion of illegitimacy in the past 4 decades has had a huge, negative impact on the lives of millions of kids. Daniel Moynihan was vilified for raising the red flag when the black illegitimacy rate hit 25%, but it’s now at least 70% and it’s about 40% for the lowest SES decile of whites and 25% for the next decile. Unless that changes, a lot more kids are going to have a lot more problems.

    If anyone thinks that a PC push to guarantee equality of outcomes across racial/ethnic groups, not just in academics and home ownership but in a wide variety of situations, they haven’t been paying attention. It has been explicitly stated by more people than I can count. For example, there have been two or three articles in the Washington Post in the past 6 months bemoaning the lack of diversity at Thomas Jefferson HS (math/sci magnet), with comments from county admins, teachers and parents. There has also been an article praising Montgomery County’s socioeconomic integration regs for housing and its effect on increasing diversity in the schools. I also saw one expressing concern at the lack of diversity at the University of Virginia. There is one currently on another ed website expressing concern at “private public schools”, where the affluence of the neighborhoods means that the student body in their schools is not sufficiently diverse.

    I am opposed to treating people differently based on racial/ethnic status. It is particularly unfair to those URM kids/people whose performance/qualifications need no “thumb on the scale”; they are stigmatized as having been admitted/given the job etc. because of AA . It also violates the legal principle of equality before the law and the explicit language of the Civil Rights Act.

  11. (Sub): “You don’t need to go to an expensive private university to rack up massive college debt.

    Correct. Neither do students and parents have to pay tuition individually to rack up massive college debt, nationally, if taxpayers purchase education services from hordes of college faculty with plush salary and benefit packages. The US K-PhD schooling industry inflicts over $700 billion+ per year in direct costs on US taxpayers and more in pension and health care promises to retired and current employees.

    If the US K-PhD school system is not an employment program for public-sector employees, why cannot any student take, at any time, an exam for credit? If it is fraud for a mechanic to charge for the repair of a functional engine and if it is fraud for a physician to charge for the treatment of a healthy patient, then it is fraud for a teacher, school, school district, or government to charge taxpayers for the instruction of a student who does not need our help.

  12. I agree with Mom of 4: there is a tsunami of dysfunctional kids in the schools. I adore many of them. But, let’s face it, many of them are academic and emotional basket cases (if you’re a teacher, you probably know what I’m talking about). I would love it if schools could fix them. Many of my fellow liberals have faith that they can. I don’t see it. There are limits to what we can do. Just as we’re learning that we cannot bring stable secular democracy to places like Afghanistan, I’m beginning to learn that schools cannot compensate for screwed up homes. Sure, some kids will surmount the obstacles, but many will not. Thus, instead of continuing to try one vain “cure” after another, we should try to prevent such dysfunction in the future. How? The first step is being clear-eyed and intellectually honest about the causes of the situation.

  13. Single-parenthood is not the only cause of our kids’ problems. Even two-parent families are super-stressed these days.

    “A new study has found a strong correlation between the amount of time a father doesn’t spend with his child and bullying. Conducted by Andre Christie-Mizell, associate professor of sociology at Vanderbilt University, the study measured the behavior and perceptions of 687 children aged 10 to 14 living in two-parent homes. He also looked at their parents’ work hours. About 40 percent of the mothers and 47 percent of their spouses/partners worked full-time – on average 35 to 40 hours a week – and 15 percent of mothers and 50 percent of their spouses/partners worked overtime – more than 40 hours a week.” –Daily Kos

    To me, reports like this buttress the case for Swedish-style social policies.

  14. I would like very much to go back to the days when almost all kids in this country, of all racial/ethnic groups and all income levels, were raised by their married biological parents (widowhood excepted).

    Those days never existed: http://www.womensenews.org/story/commentary/010530/iconic-nuclear-family-work-fiction

    Nostalgia for a fictional past is not history.

  15. Oh Ben F, you really ought to expand your horizons beyond the Daily Kos. For one thing, you might find out that Sweden’s had vouchers for coming on twenty years.

    Still think “Swedish style social policies” are all that?