Posts tagged ‘Wall Street Journal’

September 4, 2013

Politicized federal student loan program bails out ‘deadbeats’

by Grace

After a Wall Street Journal editorial related how the federal government advises “deadbeats” to avoid paying back student loans, George Leef of the John W. Pope Center for Higher Education Policy escalated the conversation with charges that politicized federal student-aid programs are promoting waste, fraud, and abuse,  In a surprising development, similar criticism is being echoed on the left.

The Consumer Financial Protection Bureau produced a report explaining how taxpayers are bailing out “deadbeat” student borrowers.

A new analysis by the bureau shows federal-backed student loan debt surpassing $1 trillion, which is nearly double what it was at the start of the Obama Presidency. As college costs have continued to balloon in tandem with federal loan and grant subsidies, students have assumed more debt. Many jobless Americans have also sought asylum from the Obama economy by returning to school….

But deadbeats need not fear. According to the bureau, “there are ways to avoid default on a federal student loan even when you think you can’t afford your payment.”

For instance, income-based repayment plans allow borrowers who meet the Department of Education’s criteria for a “partial financial hardship” to cap their monthly loan payments at 15% of their discretionary income (which is defined as income above 150% of the poverty line). They can also have their entire remaining loan balance forgiven in 25 years regardless of how much they still owe….

Graduates entering “public service” (i.e., government or 501(c)(3) nonprofit employment) get an even sweeter deal since they can discharge their loans entirely after a mere 10 years of making regular payments. That’s right. Take out a big loan, work 10 years for the government repaying as little as possible, and then have your debt entirely forgiven. Maybe this incentive falls under some previously unknown “Making Government Work Pay” program.

Leef’s response chastises the government’s politicized misallocation of taxpayer money that has helped to inflate college tuition costs.

Regarding your editorial “The Rolling Student Loan Bailout” (Aug. 10): Whenever the government gets involved in an activity that is not properly any of its business, we get the infamous trio: waste, fraud, abuse, and then the politicians feel the need to meddle still more in an effort to solve the problems they’ve created. The federal student-aid programs are a perfect illustration. Repayment of loans is being politicized, with easy terms for students provided they make the “right” choices in employment. That will only further misallocate resources and help to keep the higher-education bubble inflated.

Instead of further politicizing student lending, the right move is to get out of it altogether. Even if there were any constitutional warrant for federal lending to college students (and there isn’t), it would be a bad policy. Politicians and bureaucrats are very bad at deciding how to lend other people’s money.

Even Rolling Stone is conceding that easy access federal funds has played a part in propelling college costs to staggering levels.

The federal government has made it easier than ever to borrow money for higher education – saddling a generation with crushing debts and inflating a bubble that could bring down the economy

Related:

August 13, 2013

It’s not always possible to avoid college debt, but try anyway

by Grace

When Rebekah Bell wrote an article for the Wall Street Journal about how it’s possible to graduate from college debt-free, some people scoffed.  Bell is a freelance writer who recently graduated from Biola University, and here’s the essence of her advice.

Scout out scholarships, take courses online, use your skills to make money and get a summer job.

Dave Berry, CollegeConfidential Senior Contributing Editor, had this reaction.

Duh. Good luck with that.

Realistically, it’s almost impossible for many students to escape college debt.  With today’s high college costs, even following Bell’s common-sense recommendations may leave them with a funding gap that can only be met by borrowing.  Still, she did cover the bases on some essential ways to cut costs.

  • Look for scholarships/tuition discounting.  Maximize your merit aid opportunities by applying to schools where your statistics are in the top quarter of admitted students.
  • Take  online classes if you can; they’re often less expensive.
  • Start out your first year or two at community college.
  • Maximize college credits with AP courses, dual enrollment, and College-Level Examination Program (CLEP).
  • Earn money during college.  Working 10-20 hours a week is manageable for many students.
  • Look for paid summer internships.
  • Be frugal.

I would add that graduating in four or even three years makes a huge difference total college costs.  So taking advantage of AP credits and hustling to take all courses needed in time can amount to big savings.

Related:

January 4, 2013

College debt levels higher than all other types of consumer loans

by Grace

The Wall Street Journal picked its top ten economic charts of 2012, including one published in November showing that outstanding student loan debt now “outpaces all other nonhousing consumer debt”.  (Bear in mind the chart does not include unreported student loan “shadow debt” that could increase these figures by one-third or more.)

20121231.COCCollegeDebtLevels1

U.S. student-loan debt rose by $42 billion, or 4.6%, to $956 billion in the third quarter, the Federal Reserve Bank of New York said Tuesday. Overall household borrowing fell during that period.

Payments on 11% of student-loan balances were 90 or more days behind at the end of September, up from 8.9% at the end of June, a rate that now exceeds that for credit cards. Delinquency rates for all other consumer-debt categories fell or were flat.

By design federal student loans are easy for almost anyone to get.

Nearly all student loans—93% of them last year—are made directly by the government, which asks little or nothing about borrowers’ ability to repay, or about what sort of education they intend to pursue.

President Barack Obama championed easy-to-get loans during the campaign, calling higher education “an economic imperative in the 21st century.” A spokesman for Education Secretary Arne Duncan said the goal is “to make student loans available to as many people as possible,” and requiring minimum credit scores would block many Americans from going to college….

… the government demands no collateral and has no underwriting requirements….

… “The way the system works now…put money on the stump, people come and get it,” said Anthony Carnevale, director of Georgetown University’s Center on Education and the Workforce. “Can’t blame them. It’s sitting out there in plain view. It’s easy to get.”

Jackson Toby, a retired Rutgers professor and adjunct scholar at the American Enterprise Institute, recommends reforms that would make student loan lending standards similar to those of other consumer debt.  This change would exclude many lower-income students.

He proposes that students undergo a comprehensive assessment of credit-worthiness, including how much debt they currently have, their academic history and their expected income upon graduation, given their major, before getting federal student loans.

Imposing tougher standards would exclude some potential borrowers. “You would have loans only going to upper-income students at the best colleges,” said Mark Kantrowitz, who publishes Finaid.org, a student-aid website.

Other charts among the WSJ’s top picks cover the changes in categories of consumer spending over the last century, how unemployment benefits differ among the different states, and how deficit spending has become the norm in recent years.

Related:  Did the student loan bubble just burst? (costofcollege.wordpress.com)

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