America eats its young

August 28, 2018 7:38 AM

The Incredible, Rage-Inducing Inside Story of America’s Student Debt Machine. "Why is the nation’s flagship loan forgiveness program failing the people it’s supposed to help?"
posted by homunculus (29 comments total)

I read this last night and it's a good article about an infuriating set of beliefs and practices. I hate the title of the article, however. Mother Jones publishes a lot of very good investigative work but they tend to oversell some of their work with sensationalist headlines.
posted by ElKevbo at 7:51 AM on August 28, 2018 [3 favorites]

This is primarily a student loan servicing issue. The problem is that loan servicing is VERY expensive, requires a lot of high-touch and tech capabilities, and is poorly understood by almost all policymakers. People only really care about servicing when loans are securitized, and thus investor payout depends on good servicing. But federal loans are not securitized these days. The only way to fix it will be better tech (maybe blockchain? ha ha) or by, unfortunately, paying more for better servicing.
posted by yarly at 8:08 AM on August 28, 2018 [1 favorite]

Meanwhile, as demand for higher education grew, so did college costs, while incomes didn’t keep pace.

A separate article, one I hope that Mother Jones will also present soon.
posted by Melismata at 8:08 AM on August 28, 2018 [4 favorites]

the people it’s supposed to help

This statement presumes the system was built to help the borrowers.

I question that assumption. Maybe it's actually working just fine for the real beneficiaries.
posted by aramaic at 8:19 AM on August 28, 2018 [26 favorites]

Feels like it's working as designed? They rewrote bankruptcy law so student loans could no longer be forgiven. The only thing escalating higher than education costs are medical bills, which feels like a pretty horrific combo. And do you think the Secretary of Education's yacht fleet is going to pay for itself?
posted by fifteen schnitzengruben is my limit at 8:50 AM on August 28, 2018 [16 favorites]

This is primarily a student loan servicing issue.

In spite of having been involuntarily shuffled among three loan servicers, I haven't got any personal horror stories about mistakes they've made. Probably because the only servicer I've been lucky enough to avoid so far is FedLoan.

I just wish there were some reasonable way to actually pay off my loans. I can't afford to make a dent in my principal at 7.125% interest. Income-based repayment keeps me from defaulting, and over 25 years, I'll be paying well over the original loan balance. Knowing I'll have this debt on the books until I'm in my late 50s is pretty demoralizing.

Now, instead of producing profits for banks, the returns on student loans go straight to the government.

I'd be a lot happier if I were paying the same amount in taxes, so that I didn't have to fear the consequences of screwing up the financial paperwork for my income-based repayment plan. Plus the government would recoup all the overhead associated with running what's essentially a separate group of largely-incompetent tax agencies, and could bring it all back under the IRS. And for anyone who's read AskMe US tax questions, it's clear that the IRS is much, much friendlier to people asking for deadline extensions or payment plans than any of the federal loan servicers. Fail to get income-based repayment paperwork in on time? Congratulations, you've got capitalized interest. The IRS's late payment fees are nothing compared to that.
posted by asperity at 9:00 AM on August 28, 2018 [7 favorites]

I just wish there were some reasonable way to actually pay off my loans. I can't afford to make a dent in my principal at 7.125% interest. Income-based repayment keeps me from defaulting, and over 25 years, I'll be paying well over the original loan balance. Knowing I'll have this debt on the books until I'm in my late 50s is pretty demoralizing.

Yep. I only have 30k in student loans, have paid 10k so far and barely made a dent at all. Have never missed a payment but our only plan for paying it off is someday getting a windfall, probably when a parent dies.

Fucking grim, man.
posted by PhoBWanKenobi at 9:34 AM on August 28, 2018 [11 favorites]

The Student Debt Problem Is Worse Than We Imagined

The DeVos School for the Promotion of Student Debt: The education secretary is working hard to protect the scandal-ridden for-profit education industry from accountability.
posted by homunculus at 9:55 AM on August 28, 2018 [11 favorites]

So, genuine question: what happens if someone owing student loans simply leaves the country without intending to ever return? I mean, do they have to avoid transiting the US for ever? Can they come back in fifteen years because the databases have become corrupted?
posted by aramaic at 9:56 AM on August 28, 2018 [5 favorites]

We Must Cancel Everyone’s Student Debt, for the Economy’s Sake
posted by homunculus at 10:01 AM on August 28, 2018 [8 favorites]

Remember, kids, you need a hexagon tattooed on your wrist to get a job. At least until everyone has a hexagon, then you'll need a hexagon and a pentagon. And look at that, tattoo prices are up, artist employment is skyrocketing! Support the tattoo industrial complex!
posted by seanmpuckett at 12:12 PM on August 28, 2018 [5 favorites]

I'm 8 years into Federal service. Have been making payments the entire time. Applied for forgiveness. They agreed I was 8 years in, but determined that none of those 8 years count as the payments are not under an "approved" plan. Since graduation in 2005, my wife and I have collectively made zero change in our loans, despite over a decade of steady payment.

We owe basically 1 full year of my salary. I mean, if not for the mortgage, bills, kid, car, etc. we could maybe pay it off eventually. But it's an anchor on our finances. And forget about putting the kid through college, we're barely able to set aside anything for retirement as it is.

Hooray education.
posted by caution live frogs at 12:12 PM on August 28, 2018 [9 favorites]

People only really care about servicing when loans are securitized, and thus investor payout depends on good servicing

People don't care about servicing when the loans are securitized, either. Take my word on this one.

Time again for my routine plea: if you feel you've been misinformed or mistreated by your loan servicer, please complain to both the CFPB (will rise again one day, dammit) and your local state AG. Multiple states are involved in litigation with servicers right now. The more legitimate resident complaints they have, the more they have to work with.

Also, a nonroutine plea: if you were disqualified because your loans were Direct loans but were in the "wrong" payment plan, there is a one-time program that may help. It's complicated but if that's your situation, it's worth looking into. Note that although you need to already have the ten years of payments to qualify, and there's only a limited amount of money available, it only even became possible to qualify at all for PSLF as of late last year, so if you still have a year or two to go, you might be able to take advantage at that time before the money runs out.
posted by praemunire at 12:30 PM on August 28, 2018 [10 favorites]

The people who don’t do the path of zero AGI are going to end up defaulting on their student loans which is very serious especially if someone co-signed for them. That person is fked.

Just FYI, there are no co-signers on federal student loans, only private. (Also, it takes 20 or 25 years to discharge a loan on an income-driven plan unless you qualify for PSLF, which you almost certainly won't living and earning all your money abroad.)
posted by praemunire at 12:33 PM on August 28, 2018 [3 favorites]

Yep. I only have 30k in student loans, have paid 10k so far and barely made a dent at all. Have never missed a payment but our only plan for paying it off is someday getting a windfall, probably when a parent dies.

Yep. That's exactly how I was able to climb out from under my crushing student load debt by age 31: my mom's life insurance payout after her unexpected and tragic death.
posted by UltraMorgnus at 1:41 PM on August 28, 2018

under certain low income repayment programs you can be discharged after 10 years.

Of the income-driven plans, only ISR (very old plan, Direct loans not eligible) does this. And the minimum payment on ISR is the interest accruing on the loans. So there are not non-PSLF plans that will let you pay $0/mo. due to low income and then discharge you after ten years.

IBR is 20 or 25 years depending on when your loans were taken out, ICR is 25, PAYE is 20, REPAYE is 20. All of these will allow for $0/mo. payments if your income is low enough, but you are stuck for more than 10 years.

These are complicated programs that have changed a lot over time and have lots of nonrational little quirks, so it's easy to make mistakes, but I have spent more time looking into them than you can possibly imagine.
posted by praemunire at 1:49 PM on August 28, 2018 [1 favorite]

Financialization at work.

I'll try to resist repeating that I'm 51 and still paying off student loans.
posted by doctornemo at 7:30 PM on August 28, 2018 [1 favorite]

The loans are only part of the problem. The other two legs of the stool are that even fairly low-paying jobs now require a college degree, and tuition has skyrocketed.

Remember that people took out loans expecting future wage growth. A loan at 7% isn't so bad if wages are growing at 5%. But the growth simply never happened.

Also remember that a small number of people, who are willing to vastly overpay for a college degree, can ruin things for everyone. If only 10% of people are willing to pay full sticker price for the most exclusive colleges... they'll take up ALL the seats in the most exclusive colleges. Even if they're making a bad financial decision, people who are a little bit more financially savvy are forced to overpay to keep up. Financial bubbles are a vicious cycle that suck in people who are aware they are happening.

Fortunately, I think we're just barely starting to see the tide turn, with students caring more about affordability and employers starting to question whether they really need to require a degree for lower-level jobs. It will be extremely painful but I think this bubble will pop.
posted by miyabo at 8:17 PM on August 28, 2018 [6 favorites]

If only 10% of people are willing to pay full sticker price for the most exclusive colleges... they'll take up ALL the seats in the most exclusive colleges

? The most exclusive U.S. colleges (at least as we generally think of them) are formally need-blind in admissions. I'm sure, e.g., Yale could fill all its seats with students paying full tuition, but actually more than half of Yale students currently receive some need-based aid from the university. (Not to imply that the population doesn't skew wealthy, for it most certainly does.)
posted by praemunire at 9:13 PM on August 28, 2018 [2 favorites]

Things like this make me very happy I didn't go to college and that it doesn't matter to my life. Also that my SO's income was sufficient to pay off her loans in a reasonable period, if rather painfully and abruptly thanks to some shitty servicers and impossible policies.

The worst part is that people only a couple of years younger are having a much harder time of it thanks to the magic of compounding. :(
posted by wierdo at 10:37 PM on August 28, 2018 [2 favorites]

The worst part is that people only a couple of years younger are having a much harder time of it thanks to the magic of compounding. :(

The difference of a few years is huge. My sister went to college in 1996 and her federal student loans had like a 2% interest rate. When I was stressed about paying for school, she and my mother encouraged me to take out a bunch of loans since interest rates were low (without stopping to ask me what the interest rates WERE) and later my sis told me it wasn't worth it to her to pay them off because she had a higher interest rate on her savings accounts.

I started college in 2002. My loans all have a 6% interest rate. Big, big difference.
posted by PhoBWanKenobi at 6:34 AM on August 29, 2018 [3 favorites]

I think this bubble will pop.
I've been looking at this possibility for a year, miyabo, and I still see it as possible.

I'm now sure how it would play out. It could look like a bunch of colleges and universities lowering (sticker price) tuition, possibly some under the commands of their state governments. That would involve serious cuts to faculty and staff compensation and many program cuts.

Alternatively, we could see student demand continue to drop. It's been declining since around 2012, unevenly across the US by institutional type and geography; that could well keep going down. Since the supermajority of campuses depend on tuition revenue... perhaps we're back to cuts.

Keep in mind there's a generation of cuts largely invisible to most people. We converted the majority of faculty to part-time status. So cutting beyond that would mean hitting the dwindling group of tenure-track professors and the growing ranks of non-faculty staff, from deans to librarians.

Painful, yes. Or maybe catastrophic.
posted by doctornemo at 10:47 AM on August 29, 2018 [2 favorites]

but actually more than half of Yale students currently receive some need-based aid from the university.

They call it 'aid' because it sounds more charitable and implies that they are charging reasonable prices for tuition. What they are actually receiving is a discount on a wildly marked up product. How much is tuition? The answer seems to be "How much you got? All of that and then some for 20 to 30 years".

It's like a TV commercial I remember from a while back where a man dumps a bag of groceries on the kitchen island and yells "Honey, come look at all the savings I brought home". All that is on that kitchen island are spendings.

The indoctrination we get on fallacious financial reasoning is everywhere and insidious.
posted by srboisvert at 11:47 AM on August 29, 2018 [2 favorites]

Any discussion of the impact of student loans that focuses primarily on six-figure debts and elite universities is missing the point; those borrowers tend not to be the ones who struggle the most. If we can assume that defaulters are the ones hardest-hit by loans (which is very much an "if"), it may be interesting to note that the median student loan defaulter takes out slightly over $9,600 - around half of what the median nondefaulter borrows. Lots more details on who defaults (demographics, academic performance, etc.) at the link.
posted by mosst at 2:38 PM on August 29, 2018 [2 favorites]

Our jokey not so much plan for my child for her to litterally move to another country with free/reasonable tuition instead. Why saddle her in debt when she can go live in Germany, get a great education and come back( if she wants?)?

She's just a baby, but it's a more realistic plan than saving money based on the current tuition inflation rates.
posted by AlexiaSky at 2:38 PM on August 29, 2018 [1 favorite]

This exact thing has happened to me. I've worked for over 5 years in a public-interest qualifying job, and diligently made every payment on time during that span. I've received credit for only 8 months of public interest work. There is no recourse that I can find, no audit I can request, no manager I can speak to.

I've moved on, and I assume that PSLF will never happen to me. My next best hope is to make payments for 25 years and hope for forgiveness then. I'll be 60.
posted by soonertbone at 3:00 PM on August 29, 2018

Just skimming the surface but I moved to DC the same year as this woman, making slightly less money and paying significantly more rent (honestly I have no idea how she found a room for $350 even back in '08). I'm also unclear on why she was paying that much while making that little - several income-based repayment options were available.

For me somehow PSLF through FedLoan seems to be working fine, to the point that they counted several years of payments I made *before filing for PSLF* because I'd been employed by the same employer at the time.

Maybe I dodged a bullet so far. I guess I'd better read the rest of the article to figure out how I'm about to get screwed.
posted by aspersioncast at 4:12 PM on August 29, 2018

Been Down So Long It Looks Like Debt to Me - "An American family’s struggle for student loan redemption." (via @JebBush: "We need a common sense set of policies to solve this disaster.")
posted by kliuless at 10:30 PM on September 2, 2018

Hooray! Government Forgave 96 People's Student Loans! Out Of 28,000 Applicants.
posted by homunculus at 10:34 AM on September 25, 2018 [1 favorite]