Tag Archives: student loans

Sanders Tweet Raises Questions About His Understanding of Secured Loans, Collateral

2016 Democratic presidential candidate and U.S. Senator from Vermont Bernie Sanders was widely rebuked on social media on Saturday after posting a tweet that appeared to demonstrate a misunderstanding as to why financial institutions offer better borrowing rates for secured loans than unsecured ones.

The tweet prompted neoconservative political commentator Bill Kristol to question whether it was the “most economically illiterate tweet ever.

In the case of unsecured student loans, financial institutions do not have collateral to repossess in the event that the potential graduate does not end up paying back the loan, putting the lender at greater risk than secured home refinance loans.

[RELATED: Bernie Sanders Calls for Full Independent Audit of Federal Reserve]

According to financial education company The Educated Investor, “There are many reasons why some loans have lower interest rates than others. Long-term loans generally have higher rates than short-term loans. Secured loans also have lower interest rates than loans for which there is no collateral. A mortgage, for example, is a long-term, secured loan. If you follow mortgage rates, then you know that they are lower than the rate for an unsecured personal loan from your local bank or finance company.”

Twitchy notes that commenters on Twitter quickly piled on, questioning Sanders’ understanding of economics.

https://twitter.com/KSConservative1/status/680809346406690816?ref_src=twsrc%5Etfw

Sanders had posted a similar tweet regarding higher interest rates for college compared to other loans earlier this year on October 15.

Commenters at that time also criticized Sanders’ apparent lack of consideration for the value of collateral in determining loan interest rates.

Supporters of Sanders defended his comments, citing that the facts that the government can garnish a student loan recipient’s wages and that it does not allow student loans to be discharged through bankruptcy as features of student loans that add value to lenders and debt collectors.

For more election coverage, click here.

Obama Admin Will Forgive Up To $3.6 BILLION In Student Loans

By Blake Neff

The Department of Education announced Monday that it is implementing a plan to forgive as much as $3.6 billion in student loans given to students attending schools affiliated with the defunct for-profit college chain Corinthian Colleges.

Corinthian was once one of the biggest players in for-profit colleges, but abruptly fell apart in 2014 amid accusations that it was inflating graduates’ job placement rates and attempting to defraud the federal government. In the course of the investigation, Corinthian lost the right to draw federal student loans, and since those loans provided the vast majority of its revenue, the college swiftly fell into bankruptcy. That left tens of thousands of students out in the cold, while the college itself has become a punching bag for those critical of alleged predatory behaviors by for-profit education companies.

Since then, many have called for the government to offer loan forgiveness for students they say were exploited by Corinthian. Notably, about 200 former students have taken part in a “debt strike,” refusing to make any payments on their student loans. The delinquent borrowers claim they were tricked by false job placement rates and also were never notified their schools were under a federal investigation placing them at risk of closure.

WATCH:

Ordinarily, student loans cannot be discharged in bankruptcy or forgiven without spending at least a decade on a federal repayment plan. Exceptions, however, exist for fraud and for schools that shut down. Previously, only a few thousand students still attending Corinthian when its last campuses closed in April were eligible to have their student loans forgiven. Under the newly-announced plan, any student attending a Corinthian-affiliated school after June 20 of last year will be eligible, ballooning the number of people eligible for forgiveness by tens of thousands.

The overall cost of this forgiveness could be quite high. Overall, $3.6 billion in federal student loans were given to 350,000 Corinthian students since 2010. While it’s very unlikely that all of those students will seek or qualify for forgiveness, Secretary of Education Arne Duncan told reporters in a conference call Monday that the Department has no way of knowing just how high the forgiveness figure will go. A “special master” will be in charge of overseeing the process of determining what students qualify, but any Corinthian student who applies for forgiveness will be allowed to cease payments while their case is being considered.

Such a large-scale forgiveness of student debt is unprecedented in U.S. history.

“No previous administration, no state and no Congress has ever done this,” Duncan said. Nevertheless, some activists say it isn’t enough. The Debt Collective, which organized the Corinthian debt strike, says the Obama Administration should go much further and totally forgive the debts of every single Corinthian student, even those who have graduated or successfully transferred credits to another school.

“The legal and most painless possible process for students is no process—they deserve an automatic discharge of their debts,” the Collective said in a blog post. “The Department of Education’s ‘solution’ is a bureaucratically tortured process designed to provide relief only to those who hear about it and can figure out how to navigate unnecessary red tape.”

On the other side of the issue, some Republicans have criticized the new plan for going too far, arguing that easy forgiveness is setting a bad precedent that puts taxpayers on the hook for the wrongdoing of private colleges.

“Students have been hurt, but the department is establishing a precedent that puts taxpayers on the hook for what a college may have done,” Sen. Lamar Alexander, chair of the Senate’s education committee, said in a statement sent to The Daily Caller News Foundation. “If your car is a lemon you don’t sue the bank that made the auto loan; you sue the car company?”

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Congress Cuts Aid for Student Grants…Gives the Money to Student Loan Contractors

As the United States government prepares its budget for the next year, and attempts to avoid another shut-down, Congress has agreed on a bill that would cut $303 million from the nation’s largest source of student grants, and would give it to student loan contractors.

The Washington Post reported that the measure was “championed by Senate Democrats,” and intends to cut funding to the $33.7 billion Pell Grant program, which aided nearly nine million students in the 2013-2014 school year.

According to the Huffington Post, the money that is taken from the Pell Grant program will be given to the Department of Education’s loan contractors, who will “get up to $721.7 million,” which is a “nearly $44 million increase” from the 2013 fiscal year.

Budget documents from the Department of Education show that during the 2012-2013 school year, three out of every four students who received funding from the Pell Grant program came from households with less than $30,000 in annual income, and were given an average $3,826 from the program.

The Huffington Post reported that this change “comes at a time when the Education Department’s loan servicers are under intense scrutiny,” from Federal officials who have “accused them of mistreating borrowers and hurting taxpayers.

The proposal to decrease funding to the Pell Grant program, giving it to student loan contractors instead, was first introduced over the summer by Senator Tom Harkin, a Democrat from Iowa and the outgoing chairman of the sub-committee on education.

Harkin released a statement saying, “This bill takes a thoughtful approach to funding these critical programs because it funds America’s priorities and it is how we invest in our future.”

According to the Washington Post, Harkin’s “history of advocating for college affordability,” has made student advocates “disappointed that he would jeopardize such a critical source of education funding.”

Jennifer Wang, the policy director for Young Invincibles, an advocacy group that encourages young adults to become more educated and involved in politics, said that whenever a new spending bill is introduced, the group is constantly worried about what implication it might have on the Pell Grant program.

We have seen funding shortfalls in the past and Congress always ends up having to find additional dollars elsewhere to fund the program,” said Wang. “Why put students in that position again?”

 

Will Obama forgive student loans by executive order?

In President Obama’s State of the Union address, he mentioned plans to make higher education available for everyone.

Obama said, “We’re offering millions the opportunity to cap their monthly student loan payments to ten percent of their income, and I want to work with Congress to see how we can help even more Americans who feel trapped by student loan debt.”

Obama didn’t provide details on how he plans to do this, but he has talked about student loan forgiveness in the past.

Students not awarded with full scholarships turn to student loans. And now, those borrowers are defaulting at an alarming rate.

National student-loan debt surpassed the $1 trillion mark, rising by $33 billion in the third quarter of 2013, according to a November report released by the Federal Reserve Bank of New York.

According to Seth Mason (referencing an Institute for Higher Learning report), Nearly half (41%) of student loan holders have been behind on their payments over the last 5 years, and, last year, a full 12% of borrowers were in outright default on their student loans. At the current rate of growth, the student loan default rate will eclipse the historic maximum default rate for home loans, 14%, by mid-2015.

Despite our seemingly non-stop economic “recovery” efforts, the student loan default rate has grown steadily since the 2009 economic bottom, surpassing even credit card debt.

0114_StudentLoans

Despite the default rate, the government is making huge profits*  off of cash-strapped students.

According to the Detroit Free Press:

The $41.3-billion profit for the 2013 fiscal year is down $3.6 billion from the previous year but still enough to pay for one year of tuition at the University of Michigan for 2,955,426 Michigan residents.

It’s a higher profit level than all but two companies in the world: Exxon Mobil cleared $44.9 billion in 2012, and Apple cleared $41.7 billion.

In 2010, Danny Schechter described student loans as a ticking time bomb of American debt. In 2014, the debt continues to grow.

“The danger here is that instead of capitalism we end up with serfdom, because these students are indebted for life,” he said.

Economist Max Wolff said, “Students graduating are facing the worst job market in a generation at least. And so you have people with more debt than we have ever seen before, who are having a harder time finding any job, let alone a job that pays them enough to somehow pay off all this debt.

Despite some reforms like the income-based repayment (IBR) plan, which allows student borrowers to cap their monthly payments to 15% of their discretionary income, students still want relief (Beginning 7/1/2014 this will drop to 10% and all their debt forgiven after 20 years).

Last year, Sen. Elizabeth Warren (D-Mass.) said, “college graduates struggling to repay their student loans should have an easier time getting their debt eliminated if they go into bankruptcy” (Right now the law prohibits student loan bankruptcies). She also wanted to make student loan interest rates the same as the Federal Reserve discount rate, 0.75 percent. Her proposal failed.

Bypassing Congress and using executive orders to get things done was a reoccurring mantra in Obama’s State of the Union address. Will Obama issue an executive order to forgive student loans completely, or will his plan look similar to Warren’s proposal? Currently, the rhetoric from Obama’s opposition are merely scare tactics. Big barks from GOP leaders with no bite. So it should be interesting to see what solutions Obama offers to “solve” the student loan fiasco.

President Obama wants college to be for everybody, but realistically, should this be the case? Is it better to graduate with an art history degree and $30k in debt or to skip college? With that much debt and limited job prospects, the parents’ basement is really the only housing this person could afford. Students are discovering that a college degree is not the golden ticket to prosperity as promised by Big Education. A college degree may help, but the key to success in America is still hard work, determination and relentless persistence that will win in the end.

 

Follow Joshua Cook on Facebook and on Twitter: @RealJoshuaCook

*Some dispute the student loan windfall profit claim. They say it doesn’t factor in the market risks. [more here]