Thursday, October 8, 2015

Borrowing Too Much Is Too Easy ... It's the Repaying That's Too Hard ... The Student Loan Example and Government Deceit ... The Repayment Burden Is Much Heavier Than Commonly Believed

We are bombarded continuously with the following 'easy money' sales routine: 'no money down --- no payments necessary for years --- and then only minimum monthly payments are required.' Credit card companies and retailers use it to their advantage continuously. Let the buyer beware!

But should this same story be unfolding with government sponsored student loans? And shouldn't high schools, colleges and trade schools be teaching the young soon-to-be-excessively-indebted borrowers to beware? Well, they're not, and it doesn't seem fair to me. How about you?

Are they selling or lying? To the young heavily indebted borrowers, as Hillary Clinton would say, "At this point, what difference does it make?"

So here's my answer, Hillary. To me the difference the student loan borrowing and repayment fiasco makes is this: it tells the story of an intrusive government that misleads the very people it claims to help --- those poor and middle class kids that you falsely purport to represent. In other words, it makes a tremendous difference to those young people who then age and eventually end up on the losing side of their deal with government.

We all know that much truth is to be found in the common sense saying that figures don't lie but liars figure. This definitely is the case when our government claims with respect to a delinquency rate on student loans that 8.5% is equal to 71% -- or that 12.9% is the same as 78.2%.

But in fact that's how much student loan debt delinquencies are understated by government lenders. They make the borrowing easy and the repaying hard, if not impossible. Maybe that's why Hillary wants to make college 'free.' It's election season.

So what are We the People to believe about the government lending programs in which we mistakenly place our trust? Do government officials really lie when they 'shade the truth' in order to make the sale? You be the judge.

Student Debt Is Worse Than You Think has the story behind the government's version of the growing student loan debt repayment debacle:

"After a series of blockbuster hearings held 25 years ago on abuses in the higher education industry, Congress designed a system to protect undergraduates from risky student loans.

But two weeks ago, the Department of Education released a trove of new data suggesting that the system is failing and that, at some colleges, the saddling of students with loans they can’t afford to pay down is far more dire than anyone knew.

The loan crisis hits hardest at colleges enrolling large numbers of students from low-income backgrounds. These undergraduates have to borrow for college, then often have difficulty finding well-paying jobs after graduation — if they graduate at all. As a result, they struggle to repay their loans. The colleges with the lowest student-loan repayment rates include many for-profit colleges, but also some public and private nonprofit colleges, including a substantial number of historically black institutions. Even some wealthier, more selective colleges turn out to have a bigger student loan problem than previously realized.

Along with recent research finding that student loan defaults are heavily concentrated among the most economically marginalized students, the new data suggests that debt is a major financial obstacle for people who already face barriers to opportunity. . . .

Congress created a rule called the cohort default rate.” Every year, the education department calculates the percentage of borrowers who have recently left a given college and have defaulted on their federal-government-backed loans. If the default rate is too high, the college is kicked out of the federal financial aid system. The rule was an immediate success — more than 1,500 for-profit schools were pushed out. A number of public and nonprofit colleges were also forced to bring their default rates down.

But the system has limitations. Only colleges with a default rate above 30 percent for three consecutive years, or above 40 percent in any single year, are expelled from the financial aid system. And students who default more than two to three years after leaving college don’t count as defaulters. Nor do students who manage to avoid default, but struggle to repay their loans.

In September, the department made a different calculation. Instead of default rates, the department calculated non-repayment rates, which include both defaulters and borrowers who have never paid a single dollar of principal on their loans. The non-repayment category includes people who are only paying interest, have delayed making payments by enrolling in graduate school or are getting loan extensions. The non-repayment rates were calculated over a longer time period: at one, three, five and seven years after students leave college.

Some of the numbers are startling. American National University — a “military friendly” for-profit chain offering degrees in business, health care and information technology, both online and at 30 campuses in six Midwestern states — has an official default rate of 8.5 percent, well below the national average of 11.8 percent. But its five-year non-repayment rate is 71 percent. Even after seven years, most of the university’s students, the large majority of whom borrow, have failed to pay back a penny of their loans.

How is this possible? Because, as American National’s “Department of Repayment Success” web page helpfully explains, students are legally allowed to defer or otherwise delay making their loan payments based on economic hardship, continuing education and other factors. Of course, interest accumulates in the meantime. This is “repayment success” only in the sense that it successfully helps students postpone paying back their loans long enough to push the moment of debt crisis beyond the federal default-rate window and keep American National eligible for more federal aid. Proving economic hardship is likely to be easy, since the typical former student earns only $22,400 per year 10 years after entering school.

Some more mainstream colleges also have significant non-repayment rates. Louisville, Georgia State and the Universities of Cincinnati, Houston, South Florida and Alabama all have single-digit default rates but have five-year non-repayment rates of over 20 percent. At the University of Memphis, 35 percent of students have not paid down principal after five years. More than half of the students who borrowed to attend the for-profit University of Phoenix, which enrolls hundreds of thousands of students, have been unable to pay back a dollar of their loan principal after five years.

All told, over 700 colleges . . . have over half of their borrowers fail to pay down any debt after seven years. Nearly all of those colleges remain eligible for federal financial aid.

Among both public and private nonprofit institutions, the debt problem is most acute when students with very little money attend colleges with very little money. All 25 of the public universities with the highest five-year non-repayment rates are historically black institutions. Of the 25 private colleges with the worst non-repayment rates, 22 are historically black. One example, Lane College in Jackson, Tenn., has a 12.9 percent default rate but a 78.2 percent non-repayment rate.

Historically black colleges are neither unusually expensive nor profligate institutions. Most have served their communities for decades or longer, suffering racism and inadequate funding while enrolling young people who are often low-income, first-generation college students. As a result, despite the fact that tuition at historically black schools is often much lower than at well-heeled private schools, the vast majority of their students borrow.

That so many graduates of black colleges struggle to repay their loans may exacerbate racial wealth disparities. These non-repayment rates, moreover, do not include the private loans that many students take out once their federal aid is exhausted, or the debt that parents are increasingly carrying to pay for their children’s college education."

Summing Up
Our monopolistic and expensive government schools graduate many poor and middle class kids from high school who aren't prepared to do college work.
Next our government loans those same poor and middle class kids the money to attend the expensive college or trade school of their choice.

Then many of those kids drop out before graduating while others graduate but are unable to get good jobs. In any event, the now young adults are incapable of properly servicing the 'helpful' loans they were 'encouraged' to undertake by both 'helpful' government and college administrators.
Reality then 'happens' to those young, uninformed, undereducated and now heavily indebted Americans.

And regardless of what the 'official' stats reveal, the 'real' repayment problem that is broadcast to be less than 10% often exceeds 70%. That isn't an accidental miscalculation: it's a flat-out lie.
And it's a lie whose repercussions and ramifications will endure for the rest of our young and misled students' lifetimes. Yet they'll still vote for Hillary.

Isn't government great? Aren't expensive colleges wonderful? Aren't We the People well informed?
Sadly, that's not the case. At least that's my take.
Thanks. Bob.

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