Trump administration rolls back protections for people in default on student loans

[Theodarzna]

I don't think the current problem is that large. We have about a trillion dollars in total outstanding student loans; much of that is debt that will be paid down by students in due time. Even if we were cynical and said that we're going to be on the hook for half of it (this is pretty unlikely!), the United States is perfectly capable of digesting half a trillion in bad debt.

My concern is it continuing to run away.

Its between $902 Billion and $1 Trillion, almost entirely concentrated on a single generation more or less. That is money that won't go to buying cradles, houses, or anything else. That is money that will not be used to start a family, buy homes for that family and set down roots in a community. This is the problem with Conservatisms full embrace of Capitalism; a free willingness to commit suicide in the name of a false idol.

[NYC17]

This is a hard issue to solve, but part of the PROBLEM is that the loans are guaranteed. There are three parties in the room, the College, the student, and the banker. If the loan is guaranteed, there is no incentive for the College and the Banker to keep the cost down. Eventually, the bank and the College get their money over the course of the student's life.

It's a clever way to have 18 year olds sell themselves into indentured servitude for a degree that probably doesn't result in a job.

If the student could declare bankruptcy, at least the College and the bank have to think about the student's prospects after College. Giving a $100k loan to a B student to study Anthropology is maybe the cruelest thing you can do to someone economically.

And as bad is that is...private for-profit colleges are exponentially worse.

[Azadina]

Don't worry, they'll make sure taxpayers (aside from the people with student loans) aren't suffering by instituting a Debtor's Prison in a decade or two. We clearly don't mean forced labor camps! They're just working to pay off their debts to big banks society!

Well, gotta keep private prisons populated somehow!

[Tijuana]

Yes, during the housing bubble, banks conned their way into profits. More specifically, individuals trading arcane financial products and giving bad loans conned their way into profits.

No, I don't think losing a bunch of paper assets but remaining fabulously, light-money-on-fire wealthy is all that much of an incentive. Losing your house is an incentive. Going to jail is an incentive.

Wait, what? I'm arguing against massive college subsidies.

Do you not understand, in any way, how stocks work? Lehman was a publicly traded company, guy. It was owned by retirees, pension managers, individuals, corporations, charities, or any other entity that invests money. You have this Scrooge McDuck, or Tex Richman image in your mind, and nothing could be further from reality. YOU probably own some kind of stocks, via mutual funds or pensions. Are YOU Scrooge McDuck?

You are speaking about stadiums, as if they are publicly funded. They are not. What are you on about?

[NYC17]

Well, gotta keep private prisons populated somehow!

That awkward moment when a college tries to sell their stadium naming rights to a private prison corporation...

http://www.nytimes.com/2013/02/20/sp...a-stadium.html

[Wolfman31]

Don't be in default. It's very easy to not be in default. If you're below a certain income level and/or collecting food stamps etc, you can have your payments deferred during this time of economic hardship, reducing your payment to less than $5 a month in most cases and $0 in others. There's also ways to get your debt forgiven like volunteer work like the PeaceCorps etc. The reality is that most kids are defaulting on their loans because Bernie Sanders told them college should be free so they're refusing to pay for it or work with any program. Why should they be protected from making bad decisions? That's part of accepting the responsibility of adulthood.

[Azadina]

That awkward moment when a college tries to sell their stadium naming rights to a private prison corporation...

http://www.nytimes.com/2013/02/20/sp...a-stadium.html

I feel traumatized... I wasn't ready to see that D:

[Felya]

Don't be in default. It's very easy to not be in default. If you're below a certain income level and/or collecting food stamps etc, you can have your payments deferred during this time of economic hardship, reducing your payment to less than $5 a month in most cases and $0 in others. There's also ways to get your debt forgiven like volunteer work like the PeaceCorps etc. The reality is that most kids are defaulting on their loans because Bernie Sanders told them college should be free so they're refusing to pay for it or work with any program. Why should they be protected from making bad decisions? That's part of accepting the responsibility of adulthood.

Bernie Sanders was relevant for a year. College cost has been a constant...

[Spectral]

Right, so my question is who, or what, determines the rate? There's no market in the realm of student loans that consumers(students and their parents) have an impact or influence in.

That's where I'm advocating for this going to being either much more or much less market oriented. Student loans should either be on a legitimate risk assessment basis (private) or just entirely dictated entirely by the government. The current in between system is what bothers me - we allow banks to make a fortune on student loans, but back those loans and absolve banks of the risk. That's a bad idea!

[Renathras]

The whole system is messed up. Federal loan guarantees have ballooned the cost of college many times over what inflation is because colleges know that students can go to the federal government with their hands out and get tens of thousands of dollars in loan money to get a degree in transgender hispanic lesibian women's studies, never be employable with such a degree, and then the student cannot get it absolved even through bankruptcy - all of which the university has no issue with because it doesn't negatively affect THEM in any way.

That is, universities don't have to pay any of the costs but get all of the benefits - they get all the money but they don't have to pay for insuring/guaranteeing the loan (taxpayers do), of paying the loans (students do), of paying for defaulted loans (taxpayers do, with some being paid for by the banks that issue some of the loans), and aren't responsible for whether or not the student gets a job where they can actually pay back the loans.

.

My personal belief is that the whole system needs to be changed. Federal loans should only be offered for STEM majors (science, technology, engineering, and medical) to encourage things that our society needs and where there are jobs (sorry, special snowflakes, no women's studies or basket weaving classes unless you can pay for them yourself) with provisions for smaller loans for technical school degrees (tech schools are usually shorter and offer lower wage jobs but jobs that there is a consistent need of like automotive mechanics or plumbers, etc.), colleges should have to help students get jobs, so the best way to do this is make the UNIVERSITY have to pay for 50% of the loan until the student gets employed or something (not something so simple as that - it'd be too easy to abuse that, but you get what I mean), the Trump revocation of the Obama order should stand (lenders SHOULD be able to tack on fees - they can with EVERY OTHER TYPE OF LOAN there is), but student loans should ALSO be absolvable with bankruptcy (they can with EVERY OTHER TYPE OF LOAN there is - so see, I'm seeking parity here). The size of loans should also be marked to coincide with state universities, not private or for-profit ones, and should only go to legal US citizens.

As my point on tech schools might lead you to believe, I'm also not one of those people that believes everyone needs to get a college/university degree at a 4 year institution, and that there are alternative paths in life for people. My major point is that the government should not be blanket subsidizing all of this, which leads to gross distortions in the market and massive over-inflation in costs. Rather it should target the money to things that our society needs and where there are jobs (STEM stuff). If you want a job in something else that has little guarantee of work, you should pay for it, not the taxpayers. Ironically, this would actually make the cost for those other studies go down as universities realize that students can't borrow tens of thousands of dollars from the government anymore to pay for them.

But not everyone needs a college degree to have a good job or be happy, so the goal shouldn't be to throw money at students to get a degree - ANY degree - and spend the next twenty years paying for a degree they may not have even wanted and which isn't doing them any good.

.

In short, universities need to be on the hook so they'll temper their buying of new student centers with the fact THEY have to pay for it and can't write it off on students' collective debts, the money should go to students going into fields where there are jobs and that our society has a consistent need of, banks should be able to collect on them just like they would any other loan, but also distressed borrowers should be able to get out of them just like they can any other loan.

Doing these things would go a long way towards cutting the cost growth curve of higher education, getting more people into employable and innovative fields that our economy needs, and reducing the overall debt burden for all parties.

...this is why it will never happen - it would actually fix the problem while not serving any particular ideological niche or special interest (it serves neither the rich loan companies nor the free money/more entitlements progressives.)

[alexw]

Do you not understand, in any way, how stocks work? Lehman was a publicly traded company, guy. It was owned by retirees, pension managers, individuals, corporations, charities, or any other entity that invests money. You have this Scrooge McDuck, or Tex Richman image in your mind, and nothing could be further from reality. YOU probably own some kind of stocks, via mutual funds or pensions. Are YOU Scrooge McDuck?

You are speaking about stadiums, as if they are publicly funded. They are not. What are you on about?

You appear not to understand what happened during the housing bubble. Those working in banks made loans or sold products based on loans that had no real economic return value. These were then booked as current income and the rewards to the workers at those banks were based on those booked values.

So a fictitious loan product that had a supposed value of say, $20m over its lifetime, would be booked as that and a bonus of $1m paid to the senior banker who created it, and millions more to others involved in the process. A few years down the line however the loans underlying that product would collapse and the bank would end up losing $18m of that $20m. Enough of those were made and went bad that the banks went bust.

There was a whole lot of fraud involved in this. Proper underwriting of the loans (basically checking that they met basic standards) would have meant they would not have been made. Those checks were not done, and other basic processes to validate the loans ignored. Overall the whole thing can be aptly described as a single giant con.

[Wolfman31]

Bernie Sanders was relevant for a year. College cost has been a constant...

Welcome to America? The largest industry in this country is the healthcare industry, profiting off the misery of sick people. College is no different. If there's money to be made, the people will have to pay it. And the system is rigged so that a high school diploma simply isn't enough anymore. No matter what path you take, you have to work hard to find any success. You have to scratch and claw your way to a decent existence. It's not going to be handed to you for free or even at a discount rate.

[Deleted]

No, you got that wrong.
The system is one of the worst in the developed world. The quality would be the absolute best.
The US has the most top 20, 50, 100 universities of any country in the world.
It's the system that fails miserably. It hasn't always been that way. The commercialization of education started in the 1970s.

Fair, developed world and not entire world.
And as i said, My comment was not about quality.

When you say "worst", are you referring to cost effectiveness? My reply would be that one has to determine what the goal is for "worst" to be meaningful. I'm skeptical of the idea that Americans are even trying to pull off getting decent bang for their buck in the educational world. Instead, commitment to pouring endless and ever-increasing sums of money into education acts as a form of social signaling of how committed one is to education. Pouring money into the most hopeless school districts (~$20K per student per year in Baltimore, for example) signals an extreme commitment to egalitarian principles.

Put another way, education spending isn't about education.

yes, cost effectiveness is one way it fails hard.

[Orange Joe]

Bernie Sanders was relevant for a year. College cost has been a constant...

This doesn't look constant to me. In fact it's starting on a exponential growth.

[NYC17]

I feel traumatized... I wasn't ready to see that D:

Just imagine if it was your school.

Am I making it worse? I feel like I'm making it worse...

[Felya]

You appear not to understand what happened during the housing bubble. Those working in banks made loans or sold products based on loans that had no real economic return value. These were then booked as current income and the rewards to the workers at those banks were based on those booked values.

So a fictitious loan product that had a supposed value of say, $20m over its lifetime, would be booked as that and a bonus of $1m paid to the senior banker who created it, and millions more to others involved in the process. A few years down the line however the loans underlying that product would collapse and the bank would end up losing $18m of that $20m. Enough of those were made and went bad that the banks went bust.

There was a whole lot of fraud involved in this. Proper underwriting of the loans (basically checking that they met basic standards) would have meant they would not have been made. Those checks were not done, and other basic processes to validate the loans ignored. Overall the whole thing can be aptly described as a single giant con.

Banks rated their own loans and were (still are at 1% until Dott-Frank is repealed removes the limit) able to invest at the same time. The result was that banks split loans into pieces and then packed several different loan's pieces as a whole, rated higher than individual loans. These were then resold multiple times, until it hit a ceiling. Good loan's pieces were out pacing the bad ones, with house market booming. Once loans were starting to default it took down every package that contained it's piece.

The other piece to this was the subprime mortgages. Due to the above packaging, volume actually dictated the amount you get. The good loans were able to maintain the price subprime mortgages, before their paiments ballooned. This encouraged banks to lend to those that were less than qualified, with even Clinton demanding banks lend to lower incomes. You still see these around, many of which you see as 0% down loans now a day.

What ended up happening, is that the intent to sell as much as possible, collided with the ticking time bomb that was subprime mortgages. As the year limits on the subprime rate hit, with payments ballooning. Then with these loans being like little bites of poison that was contained in the majority of these packages, we got the perfect storm of banks failing, while kicking out people out of their homes.

It's what you get when you combine greed with blind ambition.

Greed + Blind Ambition = doom

[Deleted]

You know, for the moment I'll ignore what Trump did, since there's another major point I want to raise.
I see that many of the people on the first 2 pages at least argue that people should not have gotten a loan in first place for their education so I want to tag this point.

First of all, an educated population is one that:
- makes smart choices
- manages to secure better jobs on average
- ends up earning more, thus, paying more taxes to the state, that also benefits
- is not tricked as hard by populism

So, overall, to me, I would say it would be in the best interest of the state to actually have an educated population. You get smarter people that bring or build important companies, earn more and pay more taxes and aren't tricked as easily.
And, since it is in the interest of the country itself to actually have a better educated population, I would wager that the country itself should support the education system from taxes. As in, the students shouldn't have to pay 40.000$ (!?!?) for an university education.

"But Snowraven, some of these students are shit, they don't deserve to have their education payed for from our taxes!" - well fine, you're not ok with X barely passing their year with... C ( I understood this is an average note in the USA?) or 6/10 or something. I can accept that.
But what about those passing their years with B+, A- , A and A+, 8/10, 9/10 and 10/10? Are you going to throw the barely passing people and the good and exceptional students in the same pot? That guy/girl passing their year with 9/10 or 10/10 could actually be one of the exceptional engines of society! But he/she can't, because you're keeping them all for years trying to wrestle themselves out of the mud of student loans. For years they can't even attempt to think at starting a company or getting another loan for something useful because they're already in the mud of student loans so they have to waste precious years working shit jobs trying to grow to gain enough to live their lives and pay their former student loans.

And from here many fail at that, getting in another nonsense in the way on defaulting on these loans or actually having them grow in a random company to pay for their loans but never actually creating something new, something great because they simply couldn't afford to... and by the time they can actually afford to, they end up not doing it anymore as they're comfy in their jobs and don't want to risk anymore.
And I'm not even taking into account the fact that a loan taken now one might need to pay back 3x-4x times more!

"Well, yes, but what if someone decides to study some useless major like... X?" - like what? I saw here in the thread some examples:
- arts - well I see people buying paintings and works of art and publicity companies need art in their commercials, so guess it's not so useless
- feminism - well I believe that men and women should be treated equally, and you do need social workers and people to work with victims of abuse and help them, so again, not as useless as you might say.
And, in the end, if your country found a major to not be useful, they should lower the number of seats a university can have for that major. Universities will adapt, they'll start teaching the majors that are funded by the country more.

"Well the USA can't afford to pay for college education!" - give me a break, my country, Romania, is one of the two poorest countries in the EU and yet it can afford to pay for education at least for those 8+ students. And you know what? It's starting to work. Yeah, it took 20 years, but it's starting to work. The quality of life is improving, we have the highest growing economy in the EU per year as percent of total economy and our young don't accept the populist bullshit as much anymore.
And take into account that only 27 years ago we were a communist country. One ruled by a dictator with planned economy. And after that fell everyone rushed to steal as much as they could, so we started in a really shit point, unlike your country. Yet we can still care of the university education.


Overall, what you are doing now is snuffing innovation, shunning creativity, creating an indebted population that hates the political class and the bankers, creating a population that's dumber and pays less taxes. Is this the country you want? Is this your great "American Dream"?

[Felya]

This doesn't look constant to me. In fact it's starting on a exponential growth.

Constant and exponential growth are not mutually exclusive. Your chart show the pace has consistently out done CPI/Food/Shelter/Medicare. Yeah, it's always been skyrocketing...

[Orange Joe]

Constant and exponential growth are not mutually exclusive. Your chart show the pace has consistently out done CPI/Food/Shelter/Medicare. Yeah, it's always been skyrocketing...

I realized after I quoted you I might have misread you. I thought you were saying it was staying at a constant rate and not increasing much.

Is that what you were saying or were you saying it's raising in costs has been a constant?

[Felya]

Welcome to America? The largest industry in this country is the healthcare industry, profiting off the misery of sick people. College is no different. If there's money to be made, the people will have to pay it. And the system is rigged so that a high school diploma simply isn't enough anymore. No matter what path you take, you have to work hard to find any success. You have to scratch and claw your way to a decent existence. It's not going to be handed to you for free or even at a discount rate.

Can we please stop with the "system is rigged" bullshit. This is the system, there is nothing rigged... there is no hidden wizard... Everything and anything that is done for profit, has to demonstrate growth or see devaluation. For profit, does not require or demand that your industry is in consistent, unless it's constantly growing. If you don't like it, make it public, where the goal is a constant breaking even. Unlike private, public institutions have a much lower bar on earnings. Because the only thing they need to maintain, is breaking even. Something that a private industry cannot do, without devaluation.

There is nothing rigged. The sun rising, isn't rigged against the moon.