Posts Tagged ‘Student Loan Debt’
Now I think I’ve seen it all.
Let’s cut the crap — colleges market themselves to young men and women on the premise that their educational services will provide you a means to get a better job than you would otherwise obtain. That’s the entire purpose of a career-focused education and the only justification for the outrageous tuition charges they assess.
Well, as it turns out if you fail to benefit from the alleged “education” that these people sold you, and in the process you borrowed money using Perkins loans, the college is very likely to come after you, including in court!
Oh, and lest you think they’ll just sue to the principal and accrued interest, nope.
As I’ve pointed out to a number of High Schoolers contemplating going to college and taking out loans, there are statutory penalties that apply if you default. In the case of Perkins loans these amount to an additional 30% of the principal, increasing to 40% on a second collection attempt and another 40% on top of that if they sue.
That basically doubles the amount you owe.
Of course colleges don’t talk about this before you matriculate. After all, “education” as offered in these edifices is only partial, and the representations, both expressed and implied are many — but the warranties few.
My advice to young adults stands: DO NOT BORROW MONEY TO GO TO COLLEGE.
My advice to parents stands: DO NOT, UNDER ANY CIRCUMSTANCES, CONTRIBUTE TO YOUR NOW-ADULT KIDS BEING BAMBOOZLED BY THESE FINANCIAL TRAINWRECKS KNOWN AS “UNIVERSITIES” AND “COLLEGES.”
Discussion (registration required to post)
A titanic political battle is brewing between the parasitic aristocracy, the dependent class and the two classes creating value with their labor.
In the conventional view, America’s socioeconomic classes are divided by income and wealth into various layers of Wealthy, Middle Class and Poor.
If we extend the analysis presented in Why Employment in the U.S. Isn’t Coming Back(January 29, 2013) and Why Employment Is Dead in the Water (January 28, 2013), we getan entirely different framework that breaks naturally into four classes:
1. Parasitic financial Aristocracy (creates no value, skims national surplus)
2. High value creation (employed, heavily taxed)
3. Low value creation (employed/informal economy, lightly taxed)
4. No value creation (unemployed, dependent)
There are of course various distinctions that must be made within each broad class, but the point is the financial health of the nation ultimately depends on creating surplus value–value in excess of the costs of production and overhead.
Wealth that is incapable of generating new wealth is consumed, i.e. eating our seed corn: once the investable capital is gone, it is no longer available to leverage new wealth creation, and the nation spirals into poverty and conflict.
The key metrics are value creation and cost: assessing the value created by each class and the costs of maintaining each class.
In the conventional view, the wealthy subsidize the poor via taxes and donations to charity (i.e. noblesse oblige). But the conventional framework ignores the key question of where the wealthy obtained their fortunes, and the consequences of that wealth acquisition on the larger economy.
If the wealthy parasitically skimmed their wealth, they are in effect depriving the economy of capital that could have been productively invested elsewhere. If they created value far in excess of the costs of their enterprise, then they were conduits of high-value creation.
Here is a snapshot of parasitic wealth skimming: the financial aristocracy skims roughly 5% of the nation’s entire output (GDP) from the 60% of the populace that are debt-serfs (the top 5% have wealth that is not debt-dependent, and the bottom 35% are too poor to have any credit).
Financial profits per capita (per person): this eliminates the abstraction of numbers in the hundreds of billions of dollars by measuring the parasitic skim extracted from each American:
The financial sector is only the most visible part of the parasitic skim; most of the skim is hidden within cartels enabled and enforced by the Central State (Federal government).
Correspondent Mark G. has identified the two dead-giveaway characteristics of parasitic cartels:
1. Real outputs (i.e. surplus value) are visibly falling despite ever higher resource inputs (costs).
2. The cartel enforces a socio-political agenda that has nothing to do with the ostensible purpose of the cartel’s operations.
This describes the national security cartel, the sickcare cartel, the higher-education cartel and the drug-war/gulag cartel, to name just the most obvious.
The national security cartel absorbs hundreds of billions of dollars annually, yet the value of trillion-dollar weapons systems like the F-35 are rapidly diminishing in an era of networked drones.
The sickcare cartel now absorbs almost 20% of the nation’s entire economy (GDP) yet the health of the populace measurably declines by most international metrics.
The higher-education cartel manages to expand its share of the national income even as the cartel’s output–the relevancy and value of its product, a college degree– is increasingly marginalized. (Students: You Are Exploited Debt-Serfs April 12, 2011)
Overcrowded classes now routinely view coursework on large screens that is drawn from the Internet rather than live lectures–lessons the students could get for free on their own. Textbooks that cost $150 each (how’s that for cartel pricing?) cover material that is also available online for free or a very low cost. Meanwhile, administration costs are replacing instruction as the primary costs of the cartel:
No wonder higher education and healthcare are “rights.” That agenda guarantees the cartels’ control of the national income will only expand.
The drug-war/gulag cartel consumes billions of dollars annually on suppressing marijuana and jailing drug users and nickel-bag dealers, while fully legal and readily available alcohol kills tens of thousands annually via vehicle accidents, murders committed while intoxicated, liver disease, etc., none of which can be traced to marijuana useage.
Forgotten thanks to the relentless drug-war/gulag cartel propaganda is the fact that U.S. physicians routinely prescribed cannabis in the late 19th as a cure for a variety of common ailments. (For the record, I am not a user attempting to justify my usage; this is simply unassailable historical fact.)
Since the value created by these cartels is far less than their costs, they are all part of the parasitic aristocracy skimming wealth rather than creating it.
As noted in the previous essays on employment, once an economy’s cost basis rises above the value created by most labor, it is no longer financially possible to pay people to perform low-value creation work.
Robots and software become the only sustainable way to get the work done for a cost that is lower than the value created. Robot Economy Could Cause Up To 75 Percent Unemployment. As I explained in Why Employment in the U.S. Isn’t Coming Back, ever-higher labor and overhead costs make this the only path open to enterprises that aren’t subsidized or protected by the government.
What we need to consider is what happens as the parasitic and dependent classes take an ever-larger share of the national surplus while the classes creating most of the value decline in size and political influence.
This has nothing to do with what people “deserve” or what they’ve been promised; it has everything to do with what is economically sustainable. The conventional political discussion is focused on what everyone is receiving; the discussion that matters is how much value is being created, and can that wealth support a parasitic aristocracy, politically untouchable cartels and a vast and growing class of State dependents.
Based on income and taxes paid, it appears the high value creation class has shrunk to around 20% of the workforce, as the top 20% pay roughly 80% of the income and payroll taxes.
In general terms, there are 150 million people reporting earned income, i.e. working at some sort of job or self-employment. Roughly 38 million are part-time, and so full-time workers number around 112 million. As noted in Why Employment Is Dead in the Water, 38 million American workers earn less than $10,000 per year, a number that aligns with the number of part-time employees; 50 million earn less that $15,000 a year and 61 million earn less than $20,000 annually.
In broad-brush, the bottom 40% of wage earners work in low-value creation jobs. Their wages are capped by the value their labor creates. The top 20% are in high-value creation jobs and the middle 40% fill the spectrum between $100,000 and $21,000 a year in earned income.
Looking ahead, we can discern a time when the class creating most of the value and paying most of the taxes declines to the point that the value created is no longer large enough to support both a parasitic aristocracy and a vast class of dependents (children, retirees, disabled, unemployed, etc.) while the majority of wage earners are barely getting by on their declining household incomes. Recall that there are about 307 million Americans and roughly a third have living-wage jobs, i.e. full-time jobs.
Courtesy of Doug Short:
That sets the stage for a titanic political battle–one that could trigger a constitutional crisis–between the parasitic aristocracy, the dependent class and the two classes creating value with their labor.
In this context, America is filling the gap between the value we create and what we spend by borrowing $1 trillion+ a year on the Federal level and hundreds of billions more on the local-government and private-sector levels. All this debt isn’t being “invested” in new value-creation; it is funding consumption and cartel skimming on a monumental scale.
Charles Hugh Smith – Of Two Minds
The Nearly-Free University model would revolutionize higher education, enabling a universally accessible college education at a very low cost.
The key to understanding higher education in the U.S. is to grasp that it is at heart just another debt-dependent neofeudal cartel. In other words, it is just like sickcare and the national defense complex.
Each cartel shares these features:
1. Compelling PR “cover” for cartel extraction of wealth. ”Healthcare” (i.e. sickcare that profits from illness, not health) is a “right.” The defense industry is the bulwark of democracy, and “educating our children” is the key to future prosperity. Each portrays itself as sacrosanct.
These “Mom and apple pie” cover stories enable monopolistic exploitation: $300 million a piece fighter aircraft (replacing $54 million aircraft), $150,000 college diplomas, and “healthcare” spending that is two times more per capita than competing advanced democracies.
2. Government (monopoly) protection and funding. The largest monopoly is of course the Central State, which holds a monopoly on taxation, coercion and distribution of swag. All these cartels have gained control of Federal (monopoly) funding.
3. Illusory competition. Each cartel is protected by wide, deep regulatory moats and complexity fortresses that protect the Status Quo income streams from any real competition or innovation. Within each cartel, meaningless variations in price are offered as “proof of competition,” but everyone knows the price of each cartel’s “product” ratchets higher, regardless of conditions in the real economy.
That’s the way cartels and monopolies work. The most implacable enemy of innovation is monopoly. If you’re protected from real competition, then you have no incentive or need to innovate. That is the essence of cartel-capitalism and the neofeudal model.
In the case of the higher education cartel, the Federal funding is both cash grants and loans issued to newly minted debt-serfs. Student loans cannot be discharged in bankruptcy like other debt; these loans have ballooned to about $1 trillion.
This is the essence of the neofeudal model: a protected Elite parasitically extracts wealth from the debt-serfs below. Should the debt-serfs resist, the State steps in to coerce compliance.
The problem with protected cartels (neofeudal fiefdoms) is that they are unsustainable. Freed of any competitive pressure or need to innovate, cartels inevitably follow an S-Curve of diminishing returns: it takes more and more money just to sustain the bloated Status Quo, even as the value created by the cartel declines.
For a taste of diminishing returns in the higher education cartel, please read Bureaucrats Paid $250,000 Feed Outcry Over College Costs (via Maoxian). Yes, top research universities have to manage grants and research projects; but only a relative handful of universities need enormous administrative staffing, and even fewer can justify paying managers $250K+ each.
All Federally protected cartels are living off debt. One in every three Federal dollars is borrowed, and this doesn’t even count the $1 trillion in student debt which is nominally private-sector debt.
Debt that skyrockets higher while the real economy that supports it stagnates is unsustainable.
As I note in my new book Why Things Are Falling Apart and What We Can Do About It, complex systems based on diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. This can be a conscious process or it can be a default process, where the system becomes increasingly fragile and then suddenly undergoes a phase-shift that is widely viewed as “impossible,” i.e. the system freezes up or collapses.
The Internet has already opened up an alternative to the neofeudal higher-education cartel. I call it The Nearly-Free University, a development I anticipate will take shape within the next decade. Once the model has been proven, it will rapidly spread, as it is a very advantageous adaptation that is faster, better and cheaper than the present bloated cartel.
The entire education industry on the U.S. is based on an inflexible, increasingly marginal-return “factory model,” something I have written about since 2005. Is Our Education System Based on a Factory Metaphor? (November 15, 2005)
We are “training” millions of people in an assembly-line based on the assumption that academia is a limitless growth industry, when in fact it has reached the zenith of diminishing-return complexity and cost.
The Nearly-Free University may or may not have a physical plant. If it does, it will be a cheap re-use facility such as an abandoned office park or factory. It may not have a physical headquarters at all; “classes” may meet in cafes when the need arises. This is the new distributed model of global corporations, some of which have no headquarters at all. Physical plant is now unnecessary for pretty much everything but lab work.
In the current high-cost model, the physical plant only available at certain times and in a specific locale. The Nearly-Free University would be available anywhere there is an Internet connection and other people willing to self-organize and collaborate. In many cases, if space is required, it could be shared. Vast campuses are no longer needed.
The coursework will largely consist of free lectures and tutorials from non-profits like the Kahn Institute or classes already distributed for free online by institutions such as Stanford and M.I.T.
In place of costly professors and overworked, underpaid non-tenured teachers, the instruction will be overseen by part-time mentors from the real world who act as guides, occasionally lecturing but more often encouraging peer-to-peer tutoring and collaborative projects that are not “study groups” but actual work projects that produce something of value in the real world.
The mentor is a working professional who “works” at the Nearly-Free University on a flex-time basis. Their “job” is to suggest a practical foundation of basic courses in the student’s chosen field; these courses are taken while the student is engaged in the core curriculum, which are the work projects.
These mentors choose to devote time to Nearly-Free University because they enjoy it; their fee will be modest. Most will work part-time while they pursue their primary career.
Students will move seamlessly from online coursework to projects undertaken in real-world enterprises and communities, learning by doing and from collaboration with others in self-organizing groups.
Mentors would have access (as in the Kahn Institute’s classroom software) to a visual display of the student’s coursework and work-project progress.
Student would be encouraged to earn money via the work projects undertaken. Instead of owing $120,000 after four years of passive study, students might complete their University experience with earnings in the bank.
Very few people continue on to research or scholarship within academia, corporations or the national laboratories. A relative handful of large research universities would be enough to train those who needed PhDs for scholarship or high-level research. The Nearly Free University model would educate the 95% who do not need PhDs.
Instead of an essentially opaque diploma—what exactly does a diploma communicate about the student’s mastery, interests, coursework or accomplishments? —students will be issued a C.V./resume listing all their completed courses and their work projects.
Prospective employers would be able to scan this C.V. and get a real sense of the person’s coursework, mastery and work results in the real world.
A decentralized non-profit network of organizations would arise to accredit the coursework shared by the Nearly-Free Universities. There would be no centralized “gatekeeper” that could demand a premium for its accrediting or testing services. Verification of coursework, work history and skillsets would be provided by multiple-sourced, voluntary transparent networks on the Web.
Credentialing is another system that has reached the top of the S-Curve and is slipping into stagnation and decline. What you can accomplish in the real world will rapidly become more valuable than a credential such as a conventional college degree. The credentialing gatekeepers are protecting an “asset”–the college diploma–that is largely a phantom asset for the vast majority of students.
The total cost of the Nearly-Free University might be $3,000 tuition and fees for 3-4 years compared to $60,000+ today. (This does not include room and board, of course.) The credential issued upon “graduation” (an arbitrary concept in an economy that rewards perpetual learning and improved skills) would be secondary to what the student has learned to create, accomplish, fix and innovate in the real world.
This is how innovation works: costs don’t decline by 5%, they decline by an order of magnitude.
There would be no student loans. The low costs of the Nearly-Free University would be paid in cash or hours of labor that the University could “cash” for goods or services it needed to operate in a cash-free labor exchange.
Like many of the concepts discussed in this blog, this model is considered “impossible” within the confines of the Status Quo even though it is the only truly sustainable model of universal education.
The value of higher education for many is the network they establish during their university years. The Nearly-Free University model actually enables far more robust networks to self-assemble than the static, high-cost classroom model. “Lifelong learning” would not be a cliche in the Nearly-Free University, it would be an affordable, dynamic, exciting reality.
Charles Hugh Smith – Of Two Minds
Did you watch the presidential debate on Wednesday night? It is absolutely amazing how they can have an hour and a half debate about the economy and say so little. It seemed like both candidates were falling all over each other wanting to talk about how much they value education, but will more education really solve our problems? After all, 53 percent of all Americans with a bachelor’s degree under the age of 25 were either unemployed or underemployed in 2011. So perhaps they should just both agree that education is a good thing and start talking about how to create more jobs for all of us. If you want to grade the debate from a technical standpoint, clearly Romney was the winner of the debate. Romney was full of energy and was generally sharp with his answers. Obama looked like he had just popped a couple of antidepressants and was ready for nap time. As a result, this might have been the worst blowout in the history of presidential debates. A CNN/ORC International poll that was taken right after the debate found that 67 percent of all Americans that had watched the debate thought that Romney was the winner. Never before had any presidential candidate crossed the 60 percent mark in the history of their post-debate polling. So Romney definitely had a big night. But the reality is that both candidates were telling the American people what they want to hear. If either Obama or Romney told the truth about what we are facing they would lose votes, and in a race this tight both of them really want to avoid doing that. Obama and Romney both desperately want to win this election, and the words that are coming out of their mouths have been carefully crafted to appeal to the “undecided voters” in the swing states. If you actually believe that they can deliver on everything that they are promising, then you must not have been paying much attention to U.S. politics over the past several decades.
Perhaps the biggest failure on Wednesday night was debate moderator Jim Lehrer of PBS. His questions were about as far from “hard hitting” as you could get.
The hour and a half debate was almost entirely about the economy, and yet almost all of the critical economic issues were ignored.
Yes, Obama and Romney have slight differences when it comes to tax rates and regulations, but those small differences are not going to do much to change the direction of this country one way or another.
Meanwhile, there were some really huge issues about the economy that were not addressed at all last night….
1 – In an hour and a half debate about the economy, the Federal Reserve was not mentioned a single time.
2 – In an hour and a half debate about the economy, Ben Bernanke was not mentioned a single time.
3 – In an hour and a half debate about the economy, quantitative easing was not mentioned a single time.
4 – In an hour and a half debate about the economy, the term “derivatives” was not used a single time. Considering the fact that derivatives could bring down our financial system at any moment, this is an issue that should be talked about.
5 – In an hour and a half debate about the economy, there was no mention of the millions of jobs that have been shipped out of the country. Considering the fact that both Obama and Romney have played a role in this, it is probably a topic they both want to avoid. Overall, the United States has lost more than 56,000 manufacturing facilities since 2001.
6 – In an hour and a half debate about the economy, neither candidate mentioned that the velocity of money has plunged to a post-World War II low.
7 – In an hour and a half debate about the economy, the fact that the rest of the world is beginning to reject the U.S. dollar as a reserve currency was not mentioned a single time, but this has enormous implications for our economy in the years ahead.
8 – The fact that the Social Security system is headed for massive trouble was only briefly touched on during the debate. At the moment, there are approximately 56 million Americans that are collecting Social Security benefits. By 2035, that number is projected to grow to an astounding 91 million. Overall, the Social Security system is facing a 134 trillion dollar shortfall over the next 75 years. When are our politicians going to honestly address this massive problem?
9 – In an hour and a half debate about the economy, the nightmarish drought the country is experiencing right now was not mentioned a single time.
10 – In an hour and a half debate about the economy, the financial meltdown in Europe was basically totally ignored. But considering the fact that Europe has a larger economy and a much larger banking system than we do, perhaps someone should have asked Obama and Romney what they plan to do when the financial system of Europe implodes.
11 – In an hour and a half debate about the economy, the student loan debt bubble was only briefly mentioned.
12 – In an hour and a half debate about the economy, there was not a single word about the fact that the gap between the wealthy and the poor is now larger than it has been at any point since the Great Depression.
13 – In an hour and a half debate about the economy, there was no mention of TARP (which they both supported at the time). Would they both bail out the big banks if another financial crisis erupted?
14 – In an hour and a half debate about the economy, there was no mention of the economic stimulus packages (which they both supported at the time). Would they both want more “economic stimulus” if we entered another recession?
15 – In an hour and a half debate about the economy, neither candidate talked about the fact that most of the jobs our economy is producing now are low income jobs. In fact, since the end of the last recession, 58 percent of the jobs that have been created are low paying jobs.
16 – In an hour and a half debate about the economy, neither candidate mentioned that more than 100 million Americans are enrolled in at least one welfare program run by the federal government or that more than half of all Americans are now at least partially financially dependent on the government. I can’t blame Romney for avoiding this point though – he probably wanted to avoid the phrase “47 percent” at all costs.
Is this really the best that America can do?
Tens of millions of Americans tuned in hoping to become more informed about the candidates, and instead what they got was an hour and a half of tap dancing as Obama and Romney constantly tossed out buzzwords such as “education”, “energy independent” and “middle class”.
I honestly don’t know how you can possibly have a debate about the economy without talking about the Federal Reserve, quantitative easing, the trade deficit, Europe or the decline of the U.S. dollar.
But it just happened right in front of our eyes.
I don’t think that I can ever remember another presidential debate that lacked substance as much as this one did.
So what did you all think about the debate? Please feel free to post a comment with your thoughts below….