Saturday, July 25, 2015

Smart Buying 101 ... Predatory Government Student Loans are 'Awarded' to Unknowing and Unprepared Students

A Smart Buyer is always in the process of acquiring more basic financial knowledge and experience.

And on the way to becoming a Smart Buyer, our budding enthusiast comes to understand and internalize that the motives and actions of the seller are self interested and fundamentally different than are his own.

But perhaps equally important, he realizes that the government 'help' being offered by self interested politicians isn't intended or even designed to help him. He knows that all things political are in fact political things.

In addition to knowing that politics sucks, the Smart Buyer knows that sellers, including those leading government sponsored entities, are in it to win it for themselves, and that it really ia a caveat emptor, Buyer Beware, world out there. At that point he's not a cynic but rather an official card carrying member of the 'Smart Buyer' Club.

So with that background, let's consider two questions today --- (1) Is our government acting as a predatory lender when it grants federal student loans to unknowing and non-smart buyers?(2) Does our K-12 educational curriculum adequately prepare graduates and prospective college students to be 'Smart Buyers?'

Sadly, and in my opinion, the correct answers to those two questions are yes and no, respectively. But a Smart Buyer knows that the answer to such questions must come from himself or herself, so what do you think?

Well, one pundit takes my side on #1 and proceeds to argue the case convincingly in Uncle Sam, Predatory Lender?:'

"Is the federal government a predatory lender?

A predatory lender makes loans with unfair or abusive terms and conditions, where the lender coerces, induces or deceives the borrower into accepting the loan. A predatory lender may also take advantage of a borrower’s lack of understanding and lack of sophistication with regard to complicated financial transactions.

The U.S. Department of Education makes loans without regard to the borrower’s future ability to repay the debt. . . . Aggregate loan limits are not based on the student’s likely income after graduation. . . .

Colleges are not permitted to categorically reduce loan limits based on the borrower’s degree level, academic major or enrollment status. For example, students who are enrolled on a half-time basis can borrow the same amount as full-time students. The U.S. Department of Education has issued guidance that restricts the colleges’ statutory authority to reduce loan amounts, thereby preventing colleges from taking steps to ensure that students graduate with an affordable amount of debt. . . .

Policymakers often argue that easy access to federal loans provides low-income students with access to a postsecondary education. But loans are not really financial aid, as they don’t cut college costs. Loans must be repaid, usually with interest. Loans are not a solution if they bury borrowers in more debt than they can afford to repay."


Now let's address question #2. As a starting point, let's agree that taxpayers generously fund K-12 education and that many students graduate from high school each year and head for college unprepared academically. And that even those students who are otherwise prepared academically are most likely to be entering college unprepared to make basic financial decisions about borrowing and its future financial effects.

And that's where our 'friendly' high cost college recruiters and 'helpful' high cost government lenders enter the picture, often saddling the unknowing and unprepared students with a lifetime obligation to repay high cost predatory loans.

The 'friendly' high cost and unproductive college administrations and 'helpful' government officials are unaffected by all this predatory lending, of course. On the other hand, the unknowing ones, aka the taxpayers and students, are destined to pick up the final tab as the 'game's' ultimate losers. They will get to pay, and pay, and then pay some more, for a very long time to come. Finally, the 'party' ends.

Summing Up

And to make the 'friendly' and helpful' scam complete, the unprepared student (educationally as well as with respect to basic financial understanding) upon entering college may be required to take remedial courses before he later drops out of college. Of course, these courses for the unprepared both take additional time and money which is usually in the form of additional student loans.

Money loaned by the government isn't 'free' money. For that matter, Pell Grants aren't free either.

In the end, somebody pays, and that somebody is either the student or the taxpayer.

Meanwhile, K-12 schools, colleges, government officials, public sector union leaders and other elected politicians play the very profitable game (for them) of 'you scratch my back and I'll scratch yours' with OPM (Other People's Money).

And that OPM was once MOM (My Own Money) before it was taken from the students, their families and other taxpayers, either in the here and now or later in life.

All too often the college experience is an expensive, unproductive and life changing experience leading to a lifetime of unnecessary and burdensome debt.

That's my take.

Thanks. Bob.

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