Showing posts with label Zero Hedge. Show all posts
Showing posts with label Zero Hedge. Show all posts

Monday, November 23, 2020

Toilet-paper college degrees paid for with toilet-paper money: DOE's expert says taxpayers on hook for $400 million in student loans

 Our old friend, the U.S. Department of Education, released an internal report showing that the U.S. government will probably lose about $435 billion in unpaid student loans.  

As Josh Mitchell pointed out in a Wall Street Journal article, this amount approaches the amount of money private lenders lost during the 2008 home-mortgage fiasco.  Unlike 2008, however, the student-loan crisis will probably not trigger a financial meltdown.  The feds will simply borrow billions of new dollars to absorb the loss. The taxpayers won't even notice.

But I think the student-loan debacle is worse than DOE's internal report admits.  Nine million people are in long-term, income-based repayment plans (IBRPs), and almost all of them are not making monthly loan payments that are large enough to cover accruing interest on their underlying loans.  DOE's report estimates that IBRP borrowers will only pay off about half the amount of their loan balances. But the loss must be larger than that if the vast majority of people in these plans aren't paying down their loans.

Millions of people are taking out student loans to finance their college degrees--betting that their education will land them a good job. Too often, they lose the bet.

Meanwhile, people who skip college for a vocational school or an apprenticeship in the trades are making more money than college grads and aren't mired in student-loan debt. As Zero Hedge Fund put it, "there are plenty of hard working plumbers earning six-figures, who didn't take on a mountain of debt for a toilet-paper degree."

As conservative economists keep warning us, the Unites States will soon experience a spike in inflation unless the government stops printing money and running deficit budgets. When that occurs, students will have the bitter satisfaction of paying off their loans for toilet paper degrees with toilet-paper money. 

This is what hyperinflation looks like.







Sunday, June 28, 2020

NYU professor describes second-tier universities as higher education's Walking Dead, predicts "hundreds, if not thousands" will fail

Zero Hedge posted an article yesterday by Maria Copeland on the precarious condition of America's second-tier colleges.  Copeland quoted NYU professor Scott Galloway's dire prediction:
What department stores were to retail, tier-two higher tuition universities are about to become to [higher] education and that is they are soon going to become the walking dead.
 Galloway predicts that "hundred, if not thousands" of non-elite college will close within the next five to ten years.

I think Professor Galloway is right. We will soon see the mass closures of colleges and universities. Small institutions in New England, the mid-Atlantic states and the upper Midwest have already begun closing.

Why is this happening?

Sky-high tuition. First, small private colleges allowed their tuition to creep up to unreasonable levels.  Until recently, students and their families absorbed these tuition increases passively because they could always pay college costs by taking out more jumbo student loans.

But the coronavirus pandemic, which forced colleges to shift to online instruction, prompted many students to question the value of their educational experience. It is one thing to pay $50,000 a year to listen to a pompous professor's lecture when the student is sitting in an ivy-covered campus building surrounded by sexually active classmates. It is quite another to hear the same lecture on a home computer.

Colleges tried to reverse declining enrollments by drastically slashing tuition costs. Net first-year tuition at the private liberal arts colleges is now about half the sticker price.  But for many small schools, tuition cuts did not attract enough new students to maintain their revenues.

Fewer international students.  It's all about the money, and private American colleges aggressively recruited Asian (mainly Chinese) students who generally paid the full cost of tuition--no discounts for these kids.  But Asian enrollments have dropped off dramatically.

The colleges say that Chinese students are opting not to go to college in the U.S. because they are frightened by America's "gun culture" and Trump's so-called xenophobic foreign policy.  But I disagree.

Asian students and their parents have figured out that American higher education is not worth what it costs.  Secondary education in China and other Asian countries is generally more rigorous than U.S. high school programs. What must Chinese students think when they discover that many of their American classmates come to college without knowing the basic rules of grammar and diction?

Declining interest in the liberal arts. The small private colleges nestled in rural New England and small Midwestern towns specialize in the liberal arts: history, philosophy, literature, etc.  But young people aren't interested in getting a classical college education--especially when it will cost them a quarter-million dollars and doesn't prepare them for a job.

Second-tier colleges have tried to rebrand themselves by offering programs that are more vocationally oriented. But they are burdened by battalions of professors who got their Ph.Ds in the humanities and are unwilling or incapable of retooling.

Most of these professorial dinosaurs are tenured, entitling them to paychecks, health insurance, and pension plans.  The inability to jettison low-value faculty is bringing many private colleges down.


What does this mean to students and professors? Second-rung colleges have been in trouble for years, but the coronavirus pandemic may be the straw that breaks the camel's back.  Now may be a good time for high school graduates to take a gap year while the turmoil in higher education gets sorted out.  College students should also consider transferring from expensive private schools to cheaper public universities.

Humanities professors at struggling private colleges need to formulate their Plan B.  There is an excellent chance their institution will shut down within the next few years.   And graduate students in the humanities need to rethink their career plans. In the coming years, the United States will need a lot more plumbers, electricians, and medical technicians and a lot fewer historians specializing in the Ming dynasty.

Second-tier private colleges: Are they the Walking Dead?

Saturday, June 1, 2019

Dude! Don't move to India to escape student loans!

Zero Hedge posted an article yesterday about people who fled the United States to escape their student loans. (Annie Nova wrote the original story for CNBC).  Chad Haag, for example, graduated from the University of Northern Colorado and emigrated to India to get away from $20,000 in college-loan debt.

Apparently, Haag is somewhat ambivalent about India. He gets to see elephants--a plus.  But Haag is not crazy about the plumbing. "Some toilets here are holes in the ground you squat over," he confided.

Zero Hedge went on to report on a woman who went to Japan to teach English and a guy who moved to China--also to teach English. Both said they were partly motivated to leave the U.S. by their student-loan debt.

Dudes! Don't move overseas to dodge your student loans. People who cannot find good jobs can enroll in one of the Department of Education's income-based repayment plans (IBRPs). If they are unemployed or living below the poverty line, their monthly loan payment will be zero. An IBRP is a terrible option, as I have often said. But for most people, it beats moving to Asia.

Frankly, I'm not buying the underlying premise of this story. Millions of people have defaulted on their student loans and hardly any of them have left the U.S.  Why would they? People can't dodge their student loans by moving overseas. The debt will be waiting for them when they return, along with accumulated interest and penalties.

My guess is that student-loan debtors who leave the United States have multiple motives. Mr. Haag, for example, married an Indian national, which must be the major reason he is living in a country that doesn't meet his hygiene standards. And thousands of people teach English overseas simply to experience another culture.

If we are looking for signs of suffering, we shouldn't focus on a handful of people who have left the country with student loans hanging over their heads. We should reflect on plummeting birth rates, declining homeownership, and inadequate savings for retirement.

The student-loan program is a catastrophe but publicizing a few outliers is a distraction. We need to relieve the suffering experienced by millions of people. In my mind that can best be accomplished in the bankruptcy courts. And then we need to find a better way to finance higher education.




Thursday, November 16, 2017

College dropouts who don't pay off their student loans: The village of the damned

About 70 percent of high school graduates go on to college, but a lot of them drop out before getting their college degrees. And a good number of dropouts took out student loans to finance their studies.

What happens to these people?

A recent survey polled college dropouts who had outstanding student loans; and this is what the pollsters found.
  • Respondents reported that they had, on average, almost $14,000 in student-loan debt.
  • More than half of college dropouts said they were not making any payments on their student loans.
  • More than a third of the survey respondents (35 percent) said they had not made a single payment on their student-loan debt
What are we to make of this?

First of all, indebted college dropouts are probably underestimating how much they owe on student loans. Other studies have shown that a lot of student borrowers are hazy about how much they borrowed, and some don't know the interest rate on their loans. Quite a few don't know the difference between federal loans and private loans, and aren't sure which type of loans they have.

So it seems fair to conclude that if indebted college dropouts report that they owe an average of $14,000, they probably owe more--maybe a lot more. For one thing, dropouts who aren't making loan payments may not understand how much accrued interest has been added to their loan balances. And dropouts who defaulted on their student loans may not realize that the debt collectors undoubtedly added default penalties to their accumulated debt.

It is true that some dropouts who aren't making student-loan payments may have obtained economic hardship deferments that temporarily excuse them from making monthly loan payments. But interest accrues on a student loan while it is in economic hardship status, which means that the loan balance is growing month by month.

This is what we can say for sure: Last year, 1.1 million student-loan borrowers defaulted on their loans at an average rate of 3,000 people each day.  And some percentage of that number are people who took out student loans to attend college and then dropped out.

Indebted college dropouts don't know it, but they have entered the village of the damned. If they defaulted on their student loans, the loan balances ballooned due to default penalties. Even if their loans are in forbearance, interest continues to accrue. At some point, these unfortunate dropouts will realize they are carrying debt loads they can't pay off.

At that point, they will only have two options. They can enter an income-driven repayment plan, which will stretch their payments out for 20 or 25 years. Can you imagine making monthly payments on student loans for a quarter of a century even though you dropped out of college without a degree?

The other option is bankruptcy, and that option is going to be more and more viable as the bankruptcy courts wake up to the fact that the student-loan program is a catastrophe that has wreaked misery and suffering on millions.

In my view, now is the time for people who are overwhelmed by student debt to file for bankruptcy.  It is true that student-loan debtors must prove undue hardship in order to get bankruptcy relief. But, as Matt Taibbi's article in Rolling Stone documented, a lot of people are suffering at the undue hardship level.


College droputs with student-loan debt: The village of the damned


References

Tyler Durden. (2017,November 7). About 33% of Students Drop Out of College; Here's How Many Go On to Default On Their Student Debt. zerohedge.com (blog).

LendEDU (2017, November 2). College Dropouts and Student Debt. LendEDU.com (blog).

Matt Taibbi. (2017, October). The Great College Loan SwindleRolling Stone.

The Wrong Move on Student LoansNew York Times, April 6, 2017.




Thursday, May 4, 2017

Millennials now outnumber Baby Boomers and they believe student loans should be forgiven: Politicians take note

 Gordon Long authored an essay for MATASII.com (reposted on the Zero Hedge blog site) that contains some profound observations about the Millennial generation. As Long points out, Millennials now surpass Baby Boomers as the nation's largest generation. In 2015, there were 74.9 Baby Boomers (ages 51-69), while there were 75.4 million Millennials (ages 18-34). And of course, Baby Boomers will shrink as a percentage of the nation's entire population as they grow older and die.

Gordon argues that Millennials have a larger sense of entitlement than Baby Boomers, who, after all, were raised by people from the notoriously self-reliant Greatest Generation. My late parents, for example, lived through the Great Depression and World War II, and they didn't believe anyone was entitled to anything; and I suppose some of that philosophy was passed on to me.  My children are Millennials; and I think they believe that everyone living in a prosperous society is entitled to health care and a basic level of education. If so, I agree with them.


Gordon made two observations about Millennials that have important political implications. First, millennials make about 20 percent less than the Baby Boomers did at their age--they are poorer as a whole than my generation was when we were young.


Second, a lot of Millennials believe student loans should be forgiven. And why shouldn't they hold that view? After all, I paid a pittance for a fine law degree when I was young and immediately got a well-paying job. Millions of Millennials are burdened with student loans and are struggling to find good jobs in a weak job market.


Long believes the Millennials' support for Bernie Sanders during the 2016 presidential election can be largely explained by Bernie's impassioned call for a free college education for everyone. This is a very appealing proposal to a generation of Americans who hold billions of dollars in student debt.


So what are the political implications of Long's observations? Simply this: the Millennials will not put up with the status quo in terms of the federal student program. Our political and media elites seem to think young Americans will continue borrowing more and more money for postsecondary education and will be content to enter into income-driven repayment plans that last as long as a quarter of a century. But the elites are delusional.


In the next presidential election and every election thereafter, the Millennials and the generations coming after them will flock to any candidate who calls for student loan forgiveness and free postsecondary education. They will become one-issue voters.


So far at least, President Trump and Secretary of Education Betsy DeVos are tone deaf to the student loan crisis. The Department of Education is mishandling the Public Service Loan Forgiveness program, and it nullified a decision by the Obama administration to ban student loan collection agencies from slapping huge penalties on student borrowers who defaulted on their loans. Apparently, DeVos is seeking advice from the for-profit college industry rather than the student debtors who were victimized by that industry.


The student loan crisis grows worse by the month, and the politicians who step forward with solutions will win the vote of the Millennials and a lot of other Americans. If our current President doesn't understand that, he will be a one-termer.





References


Stacy Cowley. Student Loan Forgiveness Program Approval Letters May Be Invalid, Education Dept. SaysNew York Times, March 30, 2017.


Steve Rhode. Public Service Loan Forgiveness Program Teeters With Unmitigated DisasterPersonal Finance Syndication Network, PFSyn.com, May 2, 2017.


Editorial, The Wrong Move on Student Loans. New York Times, April 76, 2017.