Student Loan Bubble

Lawsuit claims JP Morgan, Citi, and Nelnet defrauded students and US government

2009-10-19T18:50:28Z

Student Loan Bubble typically focuses on the fundamental questions of student debt in the United States, but as this topic gets more attention, it is inevitable that those companies involved in this industry will also receive more attention.

An ongoing theme of Student Loan Bubble is the structural similarity to the US housing bubble, such as high-risk loans to individuals with no collateral or credit history, decade-long repayment schedules, and variable interest rates. Given the spectacular collapse of the US housing industry and the level of fraud that was later uncovered, it should not be surprising that some are asking the same questions of the student loan industry.

Between bringing a lawsuit against lending companies and established guilt, a lot of evidence must be presented before the connection is made. Student Loan Bubble is curious to watch this case as it unfolds.

Excerpt from: http://www.businessinsider.com/jpmorgan-citi-charg…

The 285 page suit [...] says Nelnet illegally induced students to apply for federal student loans, paying telemarketers to aggressively push the government product, and used false advertising to get more applications, like promising that students would save thousands of dollars in interest payments by consilidating their loans with Nelnet. They then presented false claims to the Department of Education to receive federal funding.

According to the suit, JPMorgan and Citi alledgely “ratified and/or authorized the wrongful acts of Nelnet and have benefitted from such conduct.”

Without specifying a total amount, the suit asks for triple the U.S. claim payments and other damages, plus civil penalties. It asks for $5,500 to $11,000 for each claim Nelnet presented to the Department of Education between 2004 and 2007 (the number is unclear).

The government could have intervened in the suit, but declined, according to court filings.

No related posts.

Student Loan Debt and Low Income Families

2009-10-13T02:40:48Z

The Wall Street Journal recently reviewed the ways low income families are impacted by the US credit crunch. In addition to consumer purchases, The WSJ points to student loan debt as a major factor — sometimes the largest — in the composition of individual debt portfolios.

Excerpt from: http://online.wsj.com/article/SB125511860883676713…

“We saw an extension of credit to a much deeper socioeconomic level, and they got access to the same credit instruments as middle-class and mainstream Americans,” says Ronald Mann, a Columbia University law professor. Now, “it will be harder for families at the bottom of the income ladder to get credit cards,” he says.

The financial crisis has forced lenders to be especially cautious with the riskiest borrowers, a category that low-income families often fall into because their debt tends to be higher relative to income and assets. The ratio of credit-card debt to income is 50% higher for the lowest two-fifths of Americans by income than for the top two-fifths, Federal Reserve data show.

Although the tone of the article tends to focus on young people and their consumer behaviors, there is also a glimpse at a much more troubling problem.

Treasury Secretary Timothy Geithner, testifying before Congress in July, said: “We now know that millions of Americans were…unable to evaluate the risks associated with borrowing to support the purchase of a home, a car or an education.”

Student Loan Bubble is curious to hear more about Geithner’s perspective on the inability of Americans to evaluate risk, and if this can be remedied by better information, better financial education, different regulation, or perhaps something else entirely.

Education is an excellent vehicle for elevating one’s socioeconomic status, but The WSJ has identified a major issue for those in greatest need of elevation: disproportionate debt levels, coupled with the previously unheard of suggestion that education might be a risky investment.

Credit cards are a fatally attractive gimmick for managing student loan debt The student loan bubble is a unique debt situation that spans multiple generations, with the younger doing its best to...

The Lifetime Earnings Myth Part II: College Grads only earn $732576 more than High School Grads

2009-03-13T22:51:24Z

If you are fortunate enough to be in college right now, or if you ever went to college, then you are probably aware of the statistic that proclaims, “college graduates earn $1,000,000 more than high school graduates.” On this basis, you may have rationalized student debt as being a necessary liability for achieving this higher lifetime earning potential. It’s easy to see where this mythical million comes from: according to the oft-quoted statistic, by the time college grads retire they will be earning about $25,000 more per year than high school grads. Multiply that figure by 40 years of productive labor, and you get $1,000,000.

Student Loan Bubble recently discussed one major problem with this figure: new college graduates will only earn $7000 more per year than their high school peers, while shouldering significantly more debt than high school-educated workers. Additionally, high school grads will have at least four years worth of income before college grads even enter the workforce. The take home message from the first Student Loan Bubble article is that recent grads are facing a very real risk that they won’t be able to manage their student loan debt with such a meager income increase, at least during the first few years.

The first article provoked some interesting feedback such as the question, “what happens later in life?” In this article, Student Loan Bubble presents two graphs of lifetime earnings, which were calculated based on median income data from the US Census. The census provides data in 10-year aggregates, so Student Loan Bubble assumed a yearly pay raise that would make yearly earnings consistent with the census aggregates. After determining yearly income, Student Loan Bubble determined the cumulative income between the ages of 21 and 64.

The first graph presents yearly median incomes of High School and College graduates. You can click for a higher resolution version. Notice that the gap is not major while workers are young, and that by age 35, everyone has nearly achieved their maximum earning potential. It is difficult to perceive, but high school workers actually notice a slight pay decline between age 55 and 64.

Next, Student Loan Bubble presents cumulative earnings, and these results might surprise you. By the time workers are 64, college grads will have earned $1,991,574 while high school grads will have earned $1,258,998. These are median figures, which means that 50% of workers will earn less than these amounts. The difference in median lifetime earning is $732,576, which is less than 75% of the fabled $1,000,000.

Consider, too, that it not unusual to pay $120,000 to attend a private university for 4 years, and the earning difference drops to approximately $600,000. Once interest expenses are included in this figure, and accounting for the very real risk of penalties for late payments, the earning difference will be reduced even further. It should be reiterated again that these are all median data, which are a robust measure that is not affected by high-earning outliers.

It is plainly evident from these graphs that college graduates can expect to earn more with their degree, but the exact amount of this earning difference deserves to be scrutinized. The next step is to examine the upper and lower quartiles to see how the relationship looks. Student Loan Bubble predicts that the earnings gap for the 25th percentile will be somewhat lower than the median difference, and that the 75th percentile will show a much larger income difference.

It is the conclusion of Student Loan Bubble that the $1,000,000 lifetime earning difference truly is a myth that is not supported by the median income data. In the case that this myth has been used to justify excessive student debt liabilities, it is possible that some students will be seriously disappointed by their lifetime earning potential.

Supplement: A CSV file is available to download here, for anyone who wishes to give these data a closer look.
student-loan-bubble-lifetime-median-income.csv

The lifetime earning myth: go to college, make $1 million extra. The reality: recent college grads annually earn $7,415 more than high school grads. In a recent article for Forbes Magazine, Kathy Kristof writes about "The Great College Hoax," which debunks the premise that...

Is student loan forgiveness the answer?

2009-03-13T16:42:53Z

Many sectors of the economy, from banking to insurance to manufacturing, have all received extremely sizable public assistance in order to repair their damaged businesses. To be clear, these “bailouts” are actually offsetting the losses from disastrous decision-making or failed business models. If the economy were not being affected en masse, these same businesses would probably be allowed to fail, because every indication is that they have failed.

What, then, about those who used debt to create real value? What about the companies that leveraged their debt and invested wisely? What about the individuals who used debt to pay for education? This line of reasoning is loaded, because it takes as a presupposition that “Education is Valuable.” With the caveat that some people might argue over the true value of education, Student Loan Bubble will take it as a given that college usually does increase an individual’s capacity to be a productive member of society.

At what point did we collectively decide that our public funds would be used to reward failed businesses? When did we decide we would use public money to send people to school, only to leave them with crippling debt repayments? As Student Loan Bubble has previously speculated, it is entirely possible that the public financing of education has driven tuition prices up at a rate much faster than inflation.

As a nation, are we entirely satisfied to punish the most productive members of our society with debt that is impossible to discharge, when it was probably a public policy error that inflated tuition prices in the first place?

Certainly, this line of reasoning is not without consequence. This is the perfect storm that would trigger the Student Loan Bubble, which would create a new “dark ages” for US colleges and universities who rely on inflated tuition, and would bankrupt even more lending companies. Those securities that are backed by student loan debt would suddenly become “toxic assets” in exactly the same manner as housing mortgages. Government purchase of those newly-toxic assets would, in fact, be a bailout for the student lending industry.

At this point, Student Loan Bubble is not willing to articulate a formal position on the topic, but there are extremely compelling arguments to be made for both sides of the issue. Consider the following article from banks.com…

Excerpt from: http://www.banks.com/blogs/mortgages/2009/03/13/wo…

In a way, it makes sense. How many of us graduated from school with student loan debt? What would we be able to buy if we didn’t have it? How much more would we be able to borrow if we weren’t making student loan payments? The stated goals of our leaders, since the issue of financial crisis reared its head, have all been connected with getting us to spend more money. So why not make it possible?

Student loan forgiveness would be costly, though. The government would have to buy all the loans from the folks it subsidizes to offer low cost student loans, and then forgive the loans. It could work, though, as part of the effort to cut out the “middle man” when it comes to student loans. If the government began making the loans directly to students, rather than paying others to do so, the government could make money on it. And it might go toward reducing the horrendous deficit we’re in.

Long-term student loan inflation provided money to students, indirectly to colleges A central component of the Student Loan Bubble thesis is the effect of over-abundant federally subsidized debt, which increased students'...
Sallie Mae: the privatization of student loan profits A 2006 report by Leslie Stahl of 60 minutes investigates Sallie Mae, the program set up by Congress in 1972...
What causes tuition to rise? It's funny how a question might take five words to ask, and require chapters to answer. Here's one such question:...

The housing bubble, explained through fascinating animation

2009-03-13T16:30:22Z

The housing bubble, and the consequent credit crisis, is a very complex system that is elegantly and lucidly explained in the following video, created by Jonathan Jarvis.

There is at least one element missing from the video, which is mentioned but not expanded upon: Credit Default Swaps (CDS), which explain how insurance companies are also included in the flowchart. The Collateralized Debt Obligations (CDOs) are partially insured by CDSes, which is a guarantee that if the CDO stops earning money, the insurance company will pay the difference. Because the CDO market was actually the business of reselling housing mortgages (and we all know how that went) the CDS contracts are now in effect. Now, insurance companies must pay out sums of money that are a large portion of the total mortgage defaults.

Nevertheless, this video is fantastic, and it is a useful tool for learning more about the student loan bubble. In the same way that bankers created CDOs out of mortgages, student loan debt has also been packaged and resold to other bankers and investors. Unlike mortgages, students are not able to default on their loan repayments.

Excerpt from: http://vimeo.com/3261363

The goal of giving form to a complex situation like the credit crisis is to quickly supply the essence of the situation to those unfamiliar and uninitiated. This project was completed as part of my thesis work in the Media Design Program, a graduate studio at the Art Center College of Design in Pasadena, California.

Default: the Student Loan Documentary After watching the trailer for Default: the Student Loan Documentary, I eagerly anticipate the general release of this film, which...
Is student loan forgiveness the answer? Many sectors of the economy, from banking to insurance to manufacturing, have all received extremely sizable public assistance in order...
Long-term student loan inflation provided money to students, indirectly to colleges A central component of the Student Loan Bubble thesis is the effect of over-abundant federally subsidized debt, which increased students'...

The lifetime earning myth: go to college, make $1 million extra. The reality: recent college grads annually earn $7,415 more than high school grads.

2009-02-23T03:25:33Z

In a recent article for Forbes Magazine, Kathy Kristof writes about “The Great College Hoax,” which debunks the premise that student debt will be offset by higher lifetime earnings. Kristof discusses the census finding that, on average, college-educated individuals earn $25,900 more per year than high school graduates, pointing out the fallacy of inferring too much about the reasons for this income discrepancy.

Student Loan Bubble sees a much more serious statistical error in this reasoning: recent graduates earn less at the beginning of their careers, and average (also called “mean”) earnings are a distorted representation of actual earnings. A few individuals (so-called outliers) who earn much more than the rest will distort the mean, while the median will be resistant to this problem. Wikipedia provides the following explanation of median versus mean:

The median is primarily used for skewed distributions, which it represents differently than the arithmetic mean. Consider the multiset { 1, 2, 2, 2, 3, 9 }. The median is 2 in this case, as is the mode, and it might be seen as a better indication of central tendency than the arithmetic mean of 3.166.

Calculation of medians is a popular technique in summary statistics and summarizing statistical data, since it is simple to understand and easy to calculate, while also giving a measure that is more robust in the presence of outlier values than is the mean.

The following table, entitled “Earnings By Occupation and Education,” presents median yearly earnings for individuals aged 21-24, broken down by educational attainment. Click on the image for the full-size version. The original census data are available from http://www.census.gov/hhes/www/income/earnings/call1usboth.html

Students cannot expect to earn an “average” amount of money; in this case, the median is a much more accurate picture of reality. Among recent graduates, the median income discrepancy between college and high school grads is a mere $7,415, which is accompanied by tens of thousands in student debt repayment. Later in life, a college degree is “worth more,” but student debt repayment usually begins when the student is 21 or 22 years old; student lenders are not content to wait until the debtor earns a higher annual income.

It is the conclusion of Student Loan Bubble that the median income statistic deserves more attention, and that lifetime earnings are a misrepresentation of what recent graduates can expect to earn. Between college and high school graduates, loan debt uniquely affects the former, who do not earn dramatically more than the latter. College graduates in their early 20s are at unique risk of not earning enough to repay their student debts. The risk inherent in managing student loans as a young professional may not be offset by future earning potential.

Excerpt from: http://www.forbes.com/forbes/2009/0202/060.html

Census figures show that college grads earn an average of $57,500 a year, which is 82% more than the $31,600 high school alumni make. Multiply the $25,900 difference by the 40 years the average person works and, sure enough, it comes to a tad over $1 million.

But anybody who has gotten a passing grade in statistics knows what’s wrong with this line of argument. A correlation between B.A.s and incomes is not proof of cause and effect. It may reflect nothing more than the fact that the economy rewards smart people and smart people are likely to go to college. To cite the extreme and obvious example: Bill Gates is rich because he knows how to run a business, not because he matriculated at Harvard. Finishing his degree wouldn’t have increased his income.

All the while students have been lulled into thinking of the extra $1 million that will be theirs, they have been forced to disgorge an ever larger fraction of it in pursuit of the degree. While the premium that college grads earn over high schoolers has remained relatively constant over the past five years, the cost of acquiring a degree has risen at twice the rate of inflation, dramatically undermining any value a sheepskin adds.

Offsetting that million-dollar income discrepancy is the $46,700 four-year cost of tuition, fees, books, room and board at a public school and $99,900 at a private one–even after financial aid, scholarships and grants. Add all this to the equation and college grads don’t pull even with high school grads in lifetime income until age 33 on average, the College Board says. Even that doesn’t include the $125,000 in pay students forgo over four years.

The Lifetime Earnings Myth Part II: College Grads only earn $732576 more than High School Grads If you are fortunate enough to be in college right now, or if you ever went to college, then you...

Regarding H.R.384: Consumer Protections for Student Borrowers

2009-02-19T16:09:41Z

On January 26, 2009 a coalition including The Project on Student Debt sent the following letter to Congressman Barney Frank, Chairman of the Financial Services Committee, and Congressman George Miller, Chairman of the Education and Labor Committee. Student Loan Bubble is reprinting the full text of the letter, formatted as HTML for the Internet, without additional commentary.

Dear Chairman Frank and Chairman Miller:

As representatives of students, consumers, colleges, administrators, and counselors, we want to take this opportunity to thank you for your efforts to include consumer protections and accountability under the Troubled Asset Relief Program (TARP) through H.R.384, the TARP Reform and Accountability Act of 2009.

We are writing about an urgent matter related to the planned roll-out of the TARP sub-program, the Term Asset-Backed Securities Loan Facility (TALF), in February. As you know, we are concerned about the planned allocation of TALF funds to private student loan providers. Private student loans are more risky and expensive than federal loans because of high variable interest rates and few consumer protections, and private loan lenders already enjoy special bankruptcy treatment under federal law. For these reasons, financial aid experts agree that private loans should only be a last resort for students. Additionally, we estimate that just eight percent of undergraduates use private student loans, and many of those borrowers have not exhausted their federal loan options.

To ensure that taxpayer dollars in the TALF program serve students and consumers as well as lenders, we ask you to urge the Secretary of Treasury to make the receipt of TALF funds for private student loan financing conditional upon adequate consumer protections and better data collection. Specific conditions that we believe are important for the Secretary implement include:

Loan modification and/or work-out requirements, such as reductions in principal and economic hardship deferrals, for current and future private student loans;

Discharges in cases of borrower death or severe disability, for current and future private student loans;

Limits on interest rates, origination and other fees for future loans;

Mandatory loan certification and inclusion of the FTC holder notice for future loans; and

Detailed data reporting on individual future loans replicating the reporting required for Family Federal Education Loans (FFEL) pursuant to section 1092b(a) of 20 U.S.C..

A bailout for the providers of usurious private student loans will not solve the college affordability crisis caused by the failing economy, and will actually be detrimental to many students and consumers. However, if a form of rescue is provided for private student loans, it would be unconscionable to do so without also providing better consumer protections. Implementing these protections will help ensure that private lenders do not unfairly benefit from the bailout at the expense of past, present, and future students and their families.

We realize that there are many pressing issues requiring your attention during these difficult economic times, but respectfully request that you consider this issue a priority given the fast-approaching commencement of TALF fund disbursement.

Sincerely,

American Association of Collegiate Registrars and Admissions Officers
American Association of Community Colleges
American Association of State Colleges and Universities
American Association of University Women (AAUW)
Americans for Fairness in Lending
Campus Progress
Consumers Union
Dēmos: A Network for Ideas & Action
The Greenlining Institute
National Association for the Advancement of Colored People (NAACP)
National Association of Student Financial Aid Administrators
National Center for Public Policy and Higher Education
National Consumer Law Center (on behalf of our low-income clients)
National Consumers League
The Project on Student Debt (an initiative of the Institute for College Access & Success)
National Association for College Admission Counseling
The Sargent Shriver National Center on Poverty Law
U.S. Public Interest Research Groups
United States Students Association

Default: the Student Loan Documentary After watching the trailer for Default: the Student Loan Documentary, I eagerly anticipate the general release of this film, which...
Long-term student loan inflation provided money to students, indirectly to colleges A central component of the Student Loan Bubble thesis is the effect of over-abundant federally subsidized debt, which increased students'...
How will the student loan bubble affect colleges? An inevitable consequence of the changing landscape in student loans is that colleges and universities have a mixed outlook, because...

What causes tuition to rise?

2009-02-19T01:22:20Z

It’s funny how a question might take five words to ask, and require chapters to answer. Here’s one such question: “what causes tuition to rise?” Certainly, there are several factors that drive tuition prices, including:

inflation – year after year, our currency is devalued as the monetary base is expanded, thereby reducing the purchasing power of our currency. This is reflected in the cost of all goods, although tuition appears to increase at a certain multiple of the rate of inflation.
prestige – colleges seek to increase their prestige, as this is a critical factor that differentiates colleges from one another, and colleges may justifiably expend more money on prestige-related expenses (faculty hires, luxury construction, etc).
student achievement – the quality of students is related to who submits applications, whose applications are accepted, and which students decide to attend. In attracting the highest quality students, colleges might offer tuition breaks to certain students, which they would offset by charging all students a generally higher tuition.
resource provisioning – related to all of the previous factors, it is critical for colleges to provide resources to students to increase prestige and student achievement, but the amount expended on resources will be subject to inflation.
available student credit – the capacity of students to “afford higher tuition” is related to the amount of credit that is available for students to borrow. This credit is subject to legislative pressures, and less influenced by traditional financing metrics (e.g. collateral, credit history).
education legislation – the ability of lenders to take risks on financially unproven debtors (i.e. 17- and 18-year old students) is related to incentive programs that must be artificially inexpensive for lenders, which is not possible through free-market forces and must be driven by extra-market intervention through legislation.

Likely, there are other factors to include in this model, but this is a start.

The core question involves “what causes what.” Do colleges charge more because they must do so to grow their prestige, or can they grow prestige because students are able to pay more? Does it cost more to pay for school because schools provide more resources, because those resources cost more, or is this fundamentally unrelated? The number of different models that can be formed using the factors listed above only grows as more factors are identified. For now, Student Loan Bubble will look at existing work to see what others have identified, but this is a theme that Student Loan Bubble will revisit from time to time.

In the following New York Times piece, Glater describes certain consequences of the year-over-year increase in tuition, and some of the forces that drive it. It’s not a “grand unified theory of tuition” but many of the previously listed factors are reflected in this article. I was particularly interested to learn that lending at public schools is inversely related to state funding of those schools, such that students have historically made up the funding deficit through loans. State citizens will be exposed to the cost of public school funding through the taxes they pay, and reducing this form of exposure increases the costs that are shouldered by individuals. I also thought it was interesting that certain forms of low-income grants have decreased in recent years, and I am curious to know more about that causes for that.

Read on, and if you can think of other factors that influence tuition prices, please post a reply to this article.

Excerpt from: http://www.nytimes.com/2007/10/23/education/23tuit…

“The average price of college is continuing to rise more rapidly than the consumer price index, more rapidly than prices in the economy,” Sandy Baum, a co-author of the report who is a senior policy analyst for the College Board and a professor at Skidmore College, told reporters at a news conference yesterday.

Ms. Baum added that the prices “are probably higher than most of us want.”

Those price increases reflect increases in the sticker price that colleges advertise, though, Ms. Baum said, the average student does not pay that full amount. At public universities, the average student gets about $3,600 in grants and tax benefits, lowering the actual cost to around $2,600. At private institutions, aid totals about $9,300, bringing the cost to $14,400.

But even the net price, after taking into account grants and other forms of aid, is rising more quickly than prices of other goods and than family incomes. In recent years, consumer prices have risen less than 3 percent a year, while net tuition at public colleges has risen by 8.8 percent and at private ones, 6.7 percent.

The changes in tuition at public institutions closely track changes in financing they receive from state governments and other public sources, the report found. When state and local support for public colleges declined over the last seven years, tuition and fees rose more quickly, and as state support has grown of late, the pace of increases fell, it said.

“We hope that state governments – which really set tuition prices at most public colleges and universities – will do their part to reinvest in higher education,” David Ward, president of the American Council on Education, said in a statement released by the College Board.

Private loans, those not guaranteed by the federal government, continued to be the fastest-growing form of borrowing, totaling more than $17 billion in the 2006-7 academic year. In the same period, students and their families borrowed $59.6 billion in federally guaranteed loans.

Long-term student loan inflation provided money to students, indirectly to colleges A central component of the Student Loan Bubble thesis is the effect of over-abundant federally subsidized debt, which increased students'...
Is student loan forgiveness the answer? Many sectors of the economy, from banking to insurance to manufacturing, have all received extremely sizable public assistance in order...
Regarding H.R.384: Consumer Protections for Student Borrowers On January 26, 2009 a coalition including The Project on Student Debt sent the following letter to Congressman Barney Frank,...

Sallie Mae: the privatization of student loan profits

2009-02-14T21:13:43Z

A 2006 report by Leslie Stahl of 60 minutes investigates Sallie Mae, the program set up by Congress in 1972 that was later privatized, becoming an extremely profitable, publicly traded company. Sallie Mae is the anthropomorphic name for SLM Corporation, who are in the business of providing private and federally subsidized loans to student borrowers. In 1997, SLM began the process of ending its federal charter, which was concluded in 2004. During this process, SLM acquired a host of other businesses, including collections agencies, while maintaining strong ties to the federal government and strengthening ties to higher education. As of 2009, SLM manages more student loans than any other company.

For its lending and collection businesses, SLM Corporation enjoys unprecedented legal advantages that are not shared by any other class of financing, including many unique techniques for retrieving repayment from students who have defaulted. As a result, the repayment rate for student loans is currently 95%, which is significantly higher than in the past, and is higher than other industries. Stahl interviews several experts to figure out how SLM Corporation came to be, and uncovers a fascinating story of amazing profits and questionable expenses.

RTFA: http://www.cbsnews.com/stories/2006/05/05/60minute…

“It may be called ‘private’ by the people in the system. But it’s not private at all,” says Michael Dannenberg, who analyzes student loan policy at the New America Foundation, a non-partisan think tank.

“What do you call it?” Stahl asks.

“Frankly, it’s a socialist-like system,” he says. “It’s not as if this private entity is assuming any risks. No, no, no. The law makes sure that this so-called private entity has virtually no risk.”

On top of that, Sallie Mae also owns some of the biggest collection agencies in the country. Once a student borrower goes into default, the government pays Sallie Mae all the principle and compounded interest that have accrued.

The loan then passes into the collection phase. If Sallie Mae is the collector, it gets to keep up to 25 percent of whatever is recovered. In 2005, nearly a fifth of its revenue came from its collection business.

“Sallie Mae makes money if you pay back on time. And Sallie Mae makes money if you don’t pay back on time,” says Elizabeth Warren, a professor of bankruptcy law at Harvard Law School.

Warren says it’s a mistake to allow Sallie Mae to be both a lender and a collector.

“It shouldn’t be the case that Sallie Mae gets to play every hand at the poker table while the government is the one that keeps anteing up the money,” Warren tells Stahl. “But let’s be clear. That by itself isn’t enough. We have to decide collectively as a country: do we want to encourage the young people who are trying to get college diplomas? And if the answer to that is yes, the way to encourage them is not to double and triple the amount that they owe when they get into financial troubles.”

By law, private lenders must offer payment options, but that usually means the loans just balloon. So even though 95 percent do pay up over time, many are burdened with heavy debt. In a statement, Sallie Mae told 60 Minutes it makes far more money from those who pay on time, than from those who default

Long-term student loan inflation provided money to students, indirectly to colleges A central component of the Student Loan Bubble thesis is the effect of over-abundant federally subsidized debt, which increased students'...
Is student loan forgiveness the answer? Many sectors of the economy, from banking to insurance to manufacturing, have all received extremely sizable public assistance in order...

Default: the Student Loan Documentary

2009-02-14T17:51:20Z

After watching the trailer for Default: the Student Loan Documentary, I eagerly anticipate the general release of this film, which focuses on the personal stories of students who have been affected by educational debt. Although there are strong political and financial overtones to the student loan bubble at large, it is important not to lose track of the actual people who will be most strongly impacted.

It is very common to read criticisms of students who have taken on more debt than they can handle, and if this film is able to speak to those criticisms, it will be a significant accomplishment. This challenge involves convincing a wide audience including people who dutifully paid all of their student loan debt, those who required no debt to begin with, those who compromised in order to avoid debt, and those who didn’t go to school at all. With an audience like that, Default might be a very difficult sell.

The following trailer is about 5 minutes long.

Excerpt from: http://www.defaultmovie.com/?page_id=2

Default: The Student Loan Documentary is a feature-length documentary chronicling the stories of borrowers from different backgrounds affected by the private student lending industry and their struggles to change the system.

In 2005 private student loans were exempted of ALL consumer protections. No matter when their loans were taken, many borrowers now find themselves in a paralyzing predicament of repaying two, three or multiple times the original amount borrowed, with no bankruptcy protection, no cap on fees and penalties and no recourse to the law. The consequences are dire, with stories of borrowers in financial and emotional ruin.

Beyond these personal accounts, DEFAULT will explain the differences between federal and private student loans, a subject often overlooked by colleges and high school counselors. It will also give detail on the rise of the private lending industry and of college debt.

While the media has focused on the disaster that sub-prime mortgages have turned out to be, only superficial attention has been given to financial giants which have been profiting by approving loans to low-income students with variable interest rates up to 25%.

As The National Consumer Law Center concluded in their March 2008 report titled “Paying The Price: The High Cost of Private Student Loans and the Dangers for Student Borrowers”, there are ominous signs that “the student loan market is headed for the same fate as the subprime mortgage industry .”

Default is directed by Aurora Meneghello and produced by Serge Bakalian. Keep an eye on the official website, which is www.defaultmovie.com. Student Loan Bubble will keep you posted as this story develops.

The housing bubble, explained through fascinating animation The housing bubble, and the consequent credit crisis, is a very complex system that is elegantly and lucidly explained in...
Sallie Mae: the privatization of student loan profits A 2006 report by Leslie Stahl of 60 minutes investigates Sallie Mae, the program set up by Congress in 1972...