Max Student Loans at $2,000?

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Mark Cuban wrote the following in a blog post offering advice to the Occupy Wall Street protesters:

3.  Limit the Size of Student Loans to $2,000 per year

Crazy ? Maybe, maybe not.  What happened to the price of homes when the mortgage loan bubble popped ? They plummeted. If the size of student loans are capped at a low level, you know what will happen to the price of going to a college or  university ? It will plummet.  Colleges and universities will have to completely rethink what they are, what purpose they serve and who their customers will be. Will some go out of business ? Absolutely. That is real world. Will the quality of education suffer ? Given that TAs will still work for cheap, I doubt it.

Now some might argue that limiting student loans will limit the ability of lower income students to go to better schools. I say nonsense on two fronts. The only thing that allowing students to graduate with 50k , 80k or even more debt  does is assure they will stay low income for a long, long time after they graduate ! The 2nd improvement will be that smart students will find the schools that adapt to the new rules and offer the best education they can afford. Just as they do now, but without loading up on debt.

The beauty of capitalism is that people like me will figure out new and better ways to create and operate for profit universities that educate as well or better as today’s state institutions, AND I have no doubt that the state colleges and universities will figure out how to adapt to the new world of limited student loans as well.

Finally, the impact on the overall economy will be ENORMOUS. There is more student loan debt than credit card debt outstanding today. By relieving this burden at graduation, students will be able to participate in the economy.

We could argue about the $2,000 number, but he brings up some interesting points.  As I've mentioned in previous posts we are at the beginning of what will hopefully be 7+ years of our children attending college, and as you can probably imagine we're quite interested in how this all works. Last year when our oldest son was considering schools to apply for we had a few questions we asked him over and over when he was looking at private or out-of-state schools – "Is the difference in tuition between NC State (or any other state school) and Davidson (or any other private school) really worth it?  Will the curriculum meet your needs that much better? Is going to that school a necessity to get you into the grad school or job that you're considering?"

When you start crunching the numbers even a state school's tuition, fees, books and room and board add up to a hefty chunk of change. Without student aid you're looking at roughly $10,000 a semester and if a student graduates in four years that's $80,000.  Multiply that number by three or four and you have the total damage from a private school, and as they say in debates about the federal budget, "$10,000 here, $10,000 there and next thing you know you're talking serious money."

So how do people pay for this?  Some scholarships, some grants and lots of student loans. Unfortunately those student loans often lead to financial trouble, and in many cases students just can't, or won't, pay them off. In the '80s I worked as an intern for the National Association of Student Financial Aid Administrators (NASFAA) and back then delinquent student loans were a bigger problem than they are now.  As I made hundreds of copies of NASFAA's position papers and delivered them to the Hill I learned that schools were going out and hunting down students for whom they could secure government-backed student loans without regard for the student's actual ability to perform in the classroom.  As a result there were a ton of schools that were raking in the dough as huge chunks of their students dropped out. That means that in the worst cases people were accumulating huge piles of debt and not even getting a degree in return.  I seem to remember some reforms being implemented that helped reduce the drop out and default rates, but unfortunately loan default's are still a problem as highlighted in this Sep. 12, 2011 NY Times story:

According to Department of Education data released Monday, 8.8 percent of borrowers over all defaulted in the fiscal year that ended last Sept. 30, the latest figures available, up from 7 percent the previous year.

At public institutions, the rate was 7.2 percent, up from 6 percent, and at not-for-profit private institutions, it was 4.6 percent, up from 4 percent…

Although the new overall rates are the highest since the 1997, when they were also 8.8 percent, default rates peaked in 1990 at more than 20 percent…

Although for-profit colleges, which typically serve low-income students, enroll only about 10 percent of the nation’s undergraduates, Mr. Kvaal said, their students made up 150,000, or almost half, of the defaults…

The problem may be even greater. “Some research has shown that as few as one in five defaults at a for-profit college occur in the two-year window,” said Debbie Cochrane, program director at the Institute for College Access & Success, which runs the Project on Student Debt. “The extent of borrower distress is barely touched upon with these rates.”

The high default rate at for-profit colleges, the fastest-growing sector of higher education, has become an increasing concern for the government, since such institutions depend on federal student aid for more than 80 percent of their revenues. Last spring, in internal documents gathered from the publicly traded for-profit colleges for hearings on the student debt problem, the Senate Health Education Labor and Pensions Committee found that some companies estimated that their students had staggeringly high lifetime default rates — in one case, 77.7 percent…

Colleges with excessive default rates, either exceeding 40 percent in the latest year, or 25 percent for three consecutive years, can lose their eligibility for federal student aid programs. This year, five institutions — four of them for-profits — lost eligibility, Mr. Kvaal said.

In part because of the high default rates at the for-profit colleges, the department recently adopted regulations designed to curb recruiting abuses, and cut off eligibility for federal aid at programs that leave students with high debt loads and poor job prospects.

Reading this causes me to question whether or not capping student loans would actually lead to more for-profit schools stepping up to compete as Cuban suggests, but I do think he's right to call into question the whole higher education funding model.  If school's were suddenly faced with the loan spigot being turned off how would they adjust?  Would we see an explosion in affordable online learning initiatives?  Would we suddenly see the corporate world sending the message that alternative learning is fine by them, because quite frankly not enough students were coming from the limited number of schools left standing thanks to their massive endowments?  If so, would we see student's flocking to alternative forms of learning because they know that it could be the ticket to a brighter future?  Would they be happy without the keg parties at the Sigma Xi house?

Cuban's thrown out an idea that begs lots of questions and they're the kinds of questions I think we need to be seriously considering.

Is Your Kid’s Student ID a Debit Card?

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This morning I stumbled across this story about a community college student who was suspended for two semesters because he protested on the school's Facebook page the school's forcing students to use student ID offered by a debit card company. He was later reinstated after an advocacy group intervened on his behalf.  From the story:

Catawba Valley Community College student Marc Bechtol was suspended for two semesters earlier this week after complaining about the debit card on the school's Facebook page, according to the Foundation for Individual Rights in Education.  Bechtol's Facebook complaint included a suggestion urging readers to find "good viruses" to send to the school or register it for porn sites. On Oct. 4, Bechtol was pulled from class and told he was no longer allowed on campus.

After the Foundation for Individual Rights in Education (FIRE) intervened, Bechtol was reinstated. The school viewed Bechtol’s post as a threat, but FIRE argued that it was protected free speech and not a serious threat…

Bechtol complained last spring that school was forcing him to obtain a debit card issued by financial firm Higher One, and that his personal information would be shared with the company. When he did, he said he immediately began receiving credit card spam, which directly inspired his Facebook comment.

"Did anyone else get a bunch of credit card spam in their CVCC inbox today? So, did CVCC sell our names to banks, or did Higher One? I think we should register CVCC's address with every porn site known to man. Anyone know any good viruses to send them?" he wrote, according to the letter FIRE published.

I currently have one child attending a North Carolina university (UNCC), and will likely have two more attending NC schools in the next three years, and I can tell you I would be quite unhappy to discover that their only choice for student ID is a debit card.  I couldn't tell from reading the story if there was any way for students to get an ID that had a deactivated debit card feature, but even if there is I think the student raised a good point – why should they have to deal with their names being sold to marketers?

Something else that bothers me about this story is the school's reaction to the student's Facebook rant.  Granted he suggested students register the school with porn sites and/or infect the school's network with viruses, but you'd think the school's administrators would recognize hyperbole when they see it.  Or maybe not.  Any which way you slice it I'd say they overreacted just a touch.

Matt Taibbi’s Advice to the Occupy Wall Street Folks

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Rolling Stone columnist Matt Taibbi, the guy who's had his teeth into Wall Street for a while now and just won't let go, has some advice for the Occupy Wall Street folks.  You definitely need to read the whole thing to see the point-by-point demands he recommends they make (Break Up the Monopolies, Pay for Your Own Bailouts, No Public Money for Private Lobbying, Tax Hedge-Fund Gamblers, Change the Way Bankers Get Paid), but I thought I'd share this paragraph because it struck a chord with me:

That, to me, speaks volumes about the primary challenge of opposing the 50-headed hydra of Wall Street corruption, which is that it's extremely difficult to explain the crimes of the modern financial elite in a simple visual. The essence of this particular sort of oligarchic power is its complexity and day-to-day invisibility: Its worst crimes, from bribery and insider trading and market manipulation, to backroom dominance of government and the usurping of the regulatory structure from within, simply can't be seen by the public or put on TV. There just isn't going to be an iconic "Running Girl" photo with Goldman Sachs, Citigroup or Bank of America – just 62 million Americans with zero or negative net worth, scratching their heads and wondering where the hell all their money went and why their votes seem to count less and less each and every year.

13% Ain’t So Bad

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So Gallup says that Congress' approval rating is at 13%, tied for an all-time low.  You might be tempted to think that this bodes ill for the current members of Congress, but I'd like to point out a few things that may help explain why low approval ratings probably won't translate into a lot of carnage for Congressional incumbents on Election Day 2012:

  • I bet if you did a separate poll for each member of Congress that asked his or her constituents how they were doing you'd get numbers showing a much higher approval rating.
  • I bet most of us think we do a fine job selecting our own Congresscritters, but the idiots in other parts of the country are TERRIBLE at selecting theirs.
  • The vast majority of incumbents will be facing off against people who are no great shakes themselves, and who are likely to be running poorly funded campaigns.  We tend to vote for the folks who spend the most to buy our love, so this doesn't bode well for challengers.

Sadly I don't have much hope for getting an improved Congress because I don't have a lot of confidence in the rest of us demanding one.

 

 

The Whining 1%

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Paul Krugman's piece, Panic of the Plutocrats, highlights one distinction that I think many people have forgotten – there's a difference between business in the "Main Street" sense and business in the "Wall Street" sense:

What’s going on here? The answer, surely, is that Wall Street’s Masters of the Universe realize, deep down, how morally indefensible their position is. They’re not John Galt; they’re not even Steve Jobs. They’re people who got rich by peddling complex financial schemes that, far from delivering clear benefits to the American people, helped push us into a crisis whose aftereffects continue to blight the lives of tens of millions of their fellow citizens.

Yet they have paid no price. Their institutions were bailed out by taxpayers, with few strings attached. They continue to benefit from explicit and implicit federal guarantees — basically, they’re still in a game of heads they win, tails taxpayers lose. And they benefit from tax loopholes that in many cases have people with multimillion-dollar incomes paying lower rates than middle-class families.

Listen, I get it that we need finance. We need people who can provide capital to the Main Street businesses, and I think there are plenty of fine people working in the financial sector, but just like there are crooks and scam artists working on Main Street there are also crooks and scam artists working on Wall Street. Even if we didn't already have plenty of stories showing that the Wall Street scammers filled their personal vaults while barbequing our Golden Goose, I think the incessant screeching like that currently emanating from halls of power would cause us to say, "The lady (aka the Whining 1%) doth protest too much."

I’d Have Gone With Triniteen

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Anyone else seen this?

I thought it was an Onion piece when I came across it, but from what I can tell it's real. I really don't think they could have come up with a worse name for their movement(?) if they tried.

Related thought: I seem to remember someone in high school (I went to a Lutheran HS from 10th to 12th grade) proposing to go trick-or-treating as the Holy Ghost, but it's been so many years it's just as likely a figment of my increasingly-faulty memory.

NC Senator Co-Sponsoring “Repatriation Holiday” Bill

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If you had to guess which North Carolina Senator, Republican Richard Burr or Democrat Kay Hagan, was co-sponsoring a bill with former Republican Presidential candidate John McCain that would provide a "tax holiday" for multinational firms which would you guess?  Of course it wouldn't be blog-worthy if it was Sen. Burr, so you'd be right if you guessed Sen. Hagan.  Over at Tax.com Christopher Bergin isn't too happy about it:

Why am I worked up? Because tomorrow two Senators, Democrat Kay Hagan and Republican John McCain plan to introduce a bill they will call the Foreign Earnings Reinvestment Act to provide a repatriation holiday. They should really call it the Outrageous Grab Under False Pretenses Act…

Why? In part because the U.S. economy stinks and they see an opening, neatly laid out in WIN America's mission statement: "We have an opportunity right now to make a significant investment in our struggling economy, boost U.S. businesses, and help put people back to work." They urge that "Congress should pass legislation to offer an immediate reduction of taxation on income earned overseas by innovative American businesses to allow that money to be brought home and invested in the United States." 

Trust me, there's nothing innovative or new here. The Heritage report correctly points out that this proposed “sequel to a similar 2004 holiday would, like its predecessor, have a minuscule effect on domestic investment and thus have a minuscule effect on the U.S. economy and job creation." So, the idea is that you line the pockets of large corporations at a time when regular taxpayers are struggling to hold onto their jobs, their houses and their way of life.

Will I Ever Outgrow the Wonder?

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I've been an enthusiastic online traveler for about 15 years, maybe a little longer, and I've always wondered when the wonder of it would wear off.  As long as I keep stumbling across things like this blog post about triangular letters used by Soviet soldiers to send news back home from the front in World War II I doubt it ever will. An excerpt:

Folding had one more advantage: that the content of the letter was easy to check. Therefore, it was forbidden to seal them in any way. The censors working at the front did not primarily search for letters reviling the system – according to the analysis of the surviving front letters, almost none of them includes any political reference or Stalin’s name –, but whether they include any indication from which military movements and plans could be deduced. These were erased with black ink, but the mail was still transmitted.

Sovietletter

A Modern Day, Budweiser-Drinking Karl Marx

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If I were to paraphrase what PIMCO's Bill Gross wrote in his investment letter it would be, "Financiers of the world your ride on the backs of laborers is coming to an end. If you want to keep living in luxury you better find a way to make sure they feel justly rewarded and not like you're bending them over the rail…so to speak." Here's an excerpt of what he wrote:

Ultimately, however, both labor and capital suffer as a deleveraging household sector in the throes of a jobless recovery refuses – if only through fear and consumptive exhaustion – to play their historic role in the capitalistic system. This “labor trap” phenomenon – in which consumers stop spending out of fear of unemployment or perhaps negative real wages, shrinking home prices or an overall loss of faith in the American Dream – is what markets or “capital” should now begin to recognize. Long-term profits cannot ultimately grow unless they are partnered with near equal benefits for labor. Washington, London, Berlin and yes, even Beijing must accept this commonsensical reality alongside several other structural initiatives that seek to rebalance the global economy. The United States in particular requires an enhanced safety net of benefits for the unemployed unless and until it can produce enough jobs to return to our prior economic model which suggested opportunity for all who were willing to grab for the brass ring – a ring that is now tarnished if not unavailable for the grasping. Policies promoting “Buy American” goods and services – which in turn would employ more Americans – should also be reintroduced. China and Brazil do it. Why not us?
If structural solutions are not put in place, a six-pac market observer should look at both stocks and bonds as rather flabby knock-offs of their former selves; no resemblance at all to Jack LaLanne but more to a 55-year-old terminator grown fat and rendered out of shape by years of neglect and perhaps greed for short-term profits as opposed to long-term balance. There are no double-digit investment returns anywhere in sight for owners of financial assets. Bonds, stocks and real estate are in fact overvalued because of near zero percent interest rates and a developed world growth rate closer to 0 than the 3 – 4% historical norms. There is only a New Normal economy at best and a global recession at worst to look forward to in future years. A modern day, Budweiser-drinking Karl Marx might have put it this way: “Laborers of the world, unite – you have only your six-packs to lose.” He might also have added, “Investors/policymakers of the world wake up – you’re killing the proletariat goose that lays your golden eggs.”

H/T to Ed for the link.