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Just days after reports emerged that student loan defaults are soaring, which is undoubtedly due to some combination of, among other things, poor job prospects for the millions of snowflakes who graduate each year with their $200,000 educations in anthropology and the moral hazard created by liberal politicians constantly calling for student debts to be ‘forgiven’ (a.k.a. forcefully jammed down the throats of taxpayers), the Trump administration has revoked rules put in place by Obama that barred student debt collectors from charging penalty fees on past-due loans.
Originating from the Department of Justice, the “Dear Colleague” letter (full letter included at end of post) says that Obama’s unilateral rules implemented in 2015 could have “benefited from public input”…but what good is being King if you can’t unilaterally force new laws on the masses? Per the Washington Post:
H/t reader squodgy:
“And so it ends.
This could go pear shaped if parents guaranteed the loans.”
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The Department of Education recently released a memo admitting that repayment rates on student loans have been grossly exaggerated. Data from 99.8% of schools across the country has been manipulated to cover up growing problems with the $1.3 trillion in outstanding student loans. New calculations show that more than half of all borrowers from 1,000 different institutions have defaulted on or not paid back a single dollar of their loans over the last seven years.
It’s not uncommon to hear that the growth in student loan debt is like a time bomb threatening to blow up the U.S. economy. Now, you can watch it tick.
As the 2016 election cycle heats up, we suspect the debate over student loan forgiveness will become an ever bigger issue with the Hillary camp looking to woo young voters that aren’t quite as “enthusiastic” about her Presidency as they were about Obama’s. We also suspect that students, helpless “victims” of predatory lenders looking to give them $200,000 to pursue their dreams of becoming anthropologists while consuming copious amount of free beer at frat parties, will grow increasingly vocal in asking why the Nanny State would have given them so much money to pursue non-existent “careers”.
To put the student loan issue into perspective, there is roughly $1.3 trillion of student loans outstanding to 43mm Americans, an average balance of $30k per student. Roughly 16% of borrowers are currently in long-term default with outstanding balances totaling $125 billion, or an average balance of $18k per student.
“Checks were celebrated across the campus as almost like a bonus for being a college kid. [Students] would go directly to the bank to cash it. I bought electronics for my dorm room and drinks were on me for a month or two. In an abstract way, I knew I would have to pay it back. But you don’t have a timeline in your mind about what that was going to look like. I just knew it would happen later.”
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Joining the ranks of “broke lawyers” who can cancel their student debt, “Americans with disabilities have a right to student loan relief,” now according to Ted Mitchell, the undersecretary of education, said in a statement. Almost 400,000 student loan borrowers will now have an easier path to a debt bailout as Obama primes the populist voting pump just in time for the elections.
The Department of Education will send letters to 387,000 people they’ve identified as being eligible for a total and permanent disability discharge, a designation that allows federal student loan borrowers who can’t work because of a disability to have their loans forgiven. The borrowers identified by the Department won’t have to go through the typical application process for receiving a disability discharge, which requires sending in documented proof of their disability. Instead, the borrower will simply have to sign and return the completed application enclosed in the letter.
Over 40 percent of those in student loan programs have stopped making payments. Many borrowers have never made any payments.
The department of education (a useless body that I would eliminate in one second if given the chance), cannot figure out why this is happening.
“We obviously have not cracked that nut but we want to keep working on it,” said Ted Mitchell, the Education Department’s under secretary.
The Wall Street Journal reports More Than 40% of Student Borrowers Aren’t Making Payments.
“Then I get a lecture (from the judge) about the United States and stealing from the government,“ he recounted. He was ordered to pay $5,700, including interest, for the original $1,500 loan. If he does not pay by March 1, he will be arrested again. He is also ordered to pay for the cost of his own arrest.
Houston, Texas — A Houston man was arrested last Thursday over outstanding federal student loan debt left over from nearly three decades ago. Though he owed only $1,500, seven U.S. Marshals wearing combat gear and wielding automatic weapons aggressively arrested him — and authorities have said they will serve many more arrest warrants for outstanding educational bills in the near future.
“They grabbed me, they threw me down,“ 48-year-old Paul Aker told the New York Daily News on Tuesday.“Local PD is just standing there.“
– Obama Administration Improperly Denies Student Loan Debt Relief (Huffington Post, May 8, 2015):
Federal law allows students who were defrauded by their colleges into taking out federal student loans to have their debts forgiven. The Obama administration has said repeatedly it will ensure aggrieved borrowers get this form of relief, a commitment that Education Undersecretary Ted Mitchell reiterated this week following the bankruptcy filing of troubled for-profit school operator Corinthian Colleges Inc.
But that’s not helping Yvette Colon of New York.
Colon, a 53-year-old East Harlem resident, says she is stuck with a worthless credential that’s saddled her with more than $51,000 in federal and private student loans. She attended Sanford-Brown Institute in Manhattan, a for-profit trade school owned by Career Education Corp., from 2006 to 2008, hoping to become a cardiac sonographer.
– Student Debt Accounts For Nearly Half Of US Government “Assets” (ZeroHedge, April 19, 2015):
“The gap would be made up with future tax hikes and/or cuts in spending. Those future taxes would be paid by successful millennials and their descendants, letting unsuccessful millennials off the hook,” Bloomberg notes, bemoaning the likely “solution” to America’s trillion dollar student debt bubble.
– “Staggering” Student Loan Defaults On Deck: 27% Of Students Are A Month Behind On Their Payments (ZeroHedge, April 15, 2015):
A new St. Louis Fed study finds that the delinquency rate for student borrowers in repayment is 27.3%, meaning nearly one in three of the Americans laboring under a debt load that has now swelled to $1.3 trillion are more than a month behind on their payments. Ackman says there’s “no way they are going to pay it back.” We can hear the “cancel the debt” cries now.
– Next Mega-Bailout On Deck: White House Studying “New Bankruptcy Options” For Student-Loan Borrowers (ZeroHedge, March 10, 2015):
It appears that just as the administration is finally figuring out what HFT is, it also decided to take a look at the charts above and has made a decision: the next bailout is about to be unveiled, and it will involve a “streamlined” bankruptcy law allowing students to discharge their student debt.
– 18 Sobering Facts About The Unprecedented Student Loan Debt Crisis In The United States (The American Dream, Oct 7, 2014):
The student loan debt bubble in America is spiraling out of control, and it is financially crippling an entire generation of young Americans. At this point, the grand total of student loan debt in the United States has reached a staggering 1.2 trillion dollars, and an all-time record high 40 million Americans are currently paying off student loan debts. Just when our young people should be planning on buying homes and starting families, they find themselves financially paralyzed by oppressive levels of debt. What makes all of this even worse is that only some of our college graduates are able to get the “good jobs” that we promised them. So with limited job prospects and suffocating levels of debt, this generation of young Americans is increasingly putting off major life commitments such as buying a home and getting married. As a society, we really need to rethink how we are “educating” our young people, because what we are doing now is clearly not working. The following are 18 sobering facts about the unprecedented student loan debt crisis in the United States…
– Obama Unveils Student Loan Debt Bubble Bailout (ZeroHedge, June 9, 2014):
“The challenges of managing student loan debt can lead some borrowers to fall behind on their loan payments and in some cases even default on their debt obligation,” notes the always astute White House… and so it’s time to do something about that… by bailing the bad debtors out with US taxpayers money. As we have been vociferously warning, not only has the student loan debt bubble expanded massively (as the easiest credit substitute for real-world working and unemployment) but delinquencies on the ‘easily available’ credit is soaring with “consequences such as a damaged credit rating, losing their tax refund, or garnished wages.” Consequences, as we have been taught now, are not acceptable for this administration and so President Barack Obama will issue an executive action on Monday aimed at making it easier for young people to avoid trouble repaying student loans.
– What Most Americans Don’t Know About Student Debt (ZeroHedge, June 8, 2014):
Now that student loans, well over $1.1 trillion, are hitting fresh record highs as… well… daily as the S&P500, the Fed is finally getting concerned about the latest debt bubble it has blown (not so much in equities). So concerned, in fact, the New York Fed recently added questions about student loans in its broad survey on consumer expectations to find out what people knew, or rather, did not know about this record debt mountain. We hope it was not shocked to learn that once again the bulk of Americans are taking on unprecedented amounts of debt without having a clue what the conditions are: accordint to the analysis, people don’t fully comprehend the ramifications of taking on student debt.
As Bloomberg summarizes, the survey covered 1,029 people, including those with and without debt. The shocking findings:
– Net Worth Of College Grads With Student Debt Is 20% Less Than High School Grads With No Debt (ZeroHedge, May 18, 2014):
Yesterday we provided a detailed breakdown of the cost aspects of a college education, particularly for young people who have no choice but to fund their education with student debt, a key part of the equation that the San Fran Fed in its particular cost-benefit “analysis” of college education avoided.
There is much information in the post, but one particular aspect of the Pew analysis that the article was based on, bears repeating and highlighting for all those less than “1%” young Americans debating whether a college education is worth the tens if not hundreds of thousands of dollars in student loans: the median net worth of “young” households, those where the head is younger than 40 years old, is $8,700, or 20% less than not college educated households with no student debt.
Why is this notable? Because as the WSJ reported concurrently, the class of 2014 is the most indebted ever.
– American students are well over $1 trillion in debt, and it’s starting to hurt everyone (TIME, Feb 26, 2014):
American students are well over $1 trillion in debt, and it’s starting to hurt everyone, economists say
Chris Rong did everything right. A 23-year-old dentistry student in New York, Chris excelled at one of the country’s top high schools, breezed through college, and is now studying dentistry at one of the best dental schools in the nation.
But it may be a long time before he sees any rewards. He’s moved back home with his parents in Bayside, Queens—an hour-and-a-half commute each way to class at the New York University’s College of Dentistry—and by the time he graduates in 2016, he’ll face $400,000 in student loans. “If the money weren’t a problem I would live on my own,” says Rong. “My debt is hanging over my mind. I’m taking that all on myself.”
– Dear Recently Graduated Millennials: Prepare To Work Until You Are 73 (ZeroHedge, Oct 25, 2013):
Our advice to recently graduating Millennials? Live long.
Because according to a just conducted analysis by NerdWallet, looking at the future of the average recent college graduate, and more importantly looking at the mountain of student loans each graduate will be saddled with and the implications for the earliest possible retirement age onset, Millennials may well have no choice but to postpone their retirement by about a decade, to the ripe old age of 73.
The reason for this, of course, is the magic of compounded interest: that “manageable” debt load grows and grows and grows even assuming one dutifully pays interest on time. And with unemployment at graduation running at 18%, that is a rather generous scenario. Still, even under base case assumption, the median student loan of $23,300 will end up costing students over $115K by the time they retire.
What does that mean in practical terms? “When will students be able to retire given that many are spending the first ten years (or more) of their careers paying off their hefty loans? NerdWallet… found that while retirement is certainly not impossible, for most it will have to wait until their early to mid 70s— over 10 years later than the current average retirement age of 61.” It goes without saying that all else is assumed equal. Alas, in the America’s welfare state future, few things will be equal, and most things will be far worse.
Which, one wonders, may be the secret plan after all: since by now everyone knows that the US’ welfare state is unsustainable for the mid- and certainly long-term future, what better way to avoid draining it, than to force those who would otherwise benefit into at least ten more years of work to pay off debts accumulated over 50 years earlier.
– Student Loan Rates Set To Double On July 1 (NPR, June 28, 2013):
The interest rate on government-backed student loans is going to jump from 3.4 percent to 6.8 percent Monday.
Republicans, Democrats and the Obama administration could not agree on a plan to keep it from happening. Lawmakers say a deal is still possible after the July 4 recess. But if they don’t agree on a plan soon, 7 million students expected to take out new Stafford loans could be stuck with a much bigger bill when they start paying the money back.
– Fed Shocked To Find Student Loans Used For Anything But To Learn (ZeroHedge, June 24, 2013):
Since January, under pressure from the Fed, the Education Department has flagged 126,000 applicants attempting to pocket federal loans and grants without any intent of going to school. As the WSJ reports, officials are cracking down on fraud in student-aid programs after evidence of recipients – acting alone or as part of organized crime rings – misusing funds. “What we find are very poor students academically that are borrowing to the max, getting the maximum in their Pell grant and just going from school to school,” noted one director of financial aid, with roughly $829 million in Pell grants as “improper payments,” in the last year. Rather stunningly, more than 34,000 participants in crime rings improperly received federal student aid last year, up 82% from 2009. “We started seeing student borrowing that was just over the top with no explanation for why,” another director noted, adding “it’s not so much about the education, it’s the money.”
Most federal student aid requires no credit check and comes with few restrictions on how the money is spent and Federal officials say the Internet has helped fuel student aid fraud.
Via The WSJ,
Federal officials are cracking down on fraud in student-aid programs, responding to evidence that a growing number of recipients—acting alone or as part of organized crime rings—are pocketing federal loans and grants without any intent of going to school.
Since January, the agency said it has flagged 126,000 applicants, about 1% of all those seeking aid for the 2013-2014 school year.