Student Loans: A Crisis in Waiting?

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LAWABIDINGCITIZEN's picture
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http://www.mainstreet.com/article/moneyinvesting/education-planning/student-loans-crisis-waiting“Despite all of the attention that house prices receive, it is noteworthy that even during the housing bubble, real estate appreciation was far exceeded by the growth rate in tuition,” Moody’s explains in the report. “Fears of a bubble in educational spending are not without merit.”

Indeed, tuition costs have increased at a far greater rate than housing, energy and health care costs, as well as the overall rate of inflation. To make matters worse, student enrollment in for-profit schools has increased steadily as well, even though these are typically more expensive. In 2009, just more than 9% of people enrolled in college were at for-profit schools, twice the proportion five years prior.

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bobguzzardi's picture
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Students loans are the next bad debt debacle.

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dmuth's picture
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Students loans are the next bad debt debacle.

Probably.  If you think of the loans as investments, and the repayments on the loans as returns, the value of the investments can't keep rising with the same number of returns.  More and more students are going to default on their loans.

Don't even get me started on for-profit schools.  My alma mater got smacked around by the PA Attorney General's Office awhile back and eventually shut down after being in existance for more than 130 years.  Shameful. 

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Tax Exempt Nonprofit UPENN has an annual budget of $6 billion dollars.

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justcurious's picture
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Could you please explain the point of your comment about Penn? Thanks.

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UPENN is financed in significant part by taxpayers because of its tax exempt status; because it is beneficiary of government grants for research and other programs, because it benefits form government guaranteed and taxpayer financed student loans. All government grants and subsidies and guarantees are taxpayer financed.

UPENN presents itself as a "nonprofit" engaged in doing good and contributing to the collective General Welfare, when,in fact, it is the Big Business of Education. UPENN, a tax taker, is the second largest employer in Pennsylvania.

UPENN President Amy Gutmann is paid $1,367,000 in 2011; 15th highest of university presidents  in 2010, the top of the top of 1% of US taxpayers.

     She's entitled to what she is paid, Amy Gutmann, President of UPENN, is she not?

Does Amy Gutmann or UPENN need more productive  taxpayer money? http://thelibertyblog.org/wp-admin/post.php?post=558&action=edit

Main Street Productive Taxpayers are financing the very pampered lifestyle of academics and administrators. Because UPENN is liberal, the liberal media does not expose this devastating misallocation of resources and the transfer of wealth from the productive and stuggling middle class worker and saver to an affluent, pampered, media coddled, educated, elite and snobby elitist, who are unable to support themselves  in the manner to which they have become accustomed without taxpayer subsidies.

And here is more about tax exempt Pennsylvania's elite institutions of higher learning 

    Riche Rich University President's Say Thank You  http://thelibertyblog.org/wp-admin/post.php?post=390&action=edit

 

Thank you, justcurious, I am trusting  you are asking the question in good faith. See also politeia's aposite response.

 

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justcurious's picture
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Thanks for the additional information.

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UPENN is financed in significant part by taxpayers because of its tax exempt status

So... you consider tax breaks for corporations to be a form of taxpayer financing? Not an unreasonable argument, but I wouldn't have expected you to make it.  Do you apply that philosophy equally to all corporations?

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At The Liberty Blog, www. thelibertyblog.org I write about "Corporatism" frequently. Politeia and I are same wave length on this issue. Tax Credits, Tax Exemptions, Mandates all distort the allocation of resources.

The Free Market, a product of Human Action itself, is flawed and yet, provably, the free market is far more efficient than political allocation of scare resources which corrupts both business and government. Nevertheless, it is endemic and epidemic.

I will ask politeia to tell you about Ludwig Von Mises brilliant "Human Action"

Ludwig Von Mises  www.mises.org

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I agree that $1.3M+ is a fairly unseemly amount of money for one person to make in a year, however isn't that amount dwarfed by the average CEO and even run-of-the-mill executive pay for private corporations?  Particularly corporations with a budget as big as UPENN?

If UPENN is such a leach on the public trough, why do cities like Philly like having them around?  I can think of several reasons, including: Attracting bright career-mind young people to Philadelphia and the region to live and work; and sprucing up the surrounding west Philly neighborhood (which they have done in spades over the last 20 years).

Also: an American university education is just about the best export that we have. Foreign students come here in droves as paying customers. Many end up staying here and starting businesses an creating jobs.

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It's my understanding that sometimes non-profits pay fees in lieu of taxes to the jurisdictions in which they're located. I wonder if Penn does that.

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This is pretty much what I expected you to say. My point is "can we afford this?" President Gutmann's salary is paid, in part, by student loan subsidies. Is the benefit worth the cost? Avoiding quantifying the cost benefit, as you do and other supporters of subsidies do, masks the consequences of fiscal recklessness.

Iceberg ahead and the Obama Rendell Liberals don't seem willing to consider changing course.

We see this playing out in Europe where poor Slovakia institutes fiscal restaints to grow its economy and raise the standard of living of its people, only to be coerced into bailing out the fiscally proflicate. The Slovakian Forgotten Taxpayer.

Like the Forgotten Taxpayer, Slovakia has taken a painful and disciplined approach to its finances and now it is being asked to pay for the mistakes and profligacy of others.

"But consider this: In 2010, Slovakia's GDP per capita was €11,692 ($16,114), while Greece's was €19,822. Going into this crisis, average earnings in Slovakia stood at €8,700 per year, while in Greece they were around €23,900. Meanwhile, the average Slovak pension was €250 per month, compared to €830 a month in Greece. You can see why sympathy for Athens is in short supply in Bratislava."

http://online.wsj.com/article/SB10001424052970203914304576627463361234714.html?mod=WSJ_Opinion_LEFTTopOpinion

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It's you who is making a big deal out of her salary.  So I guess this would all be a lot more acceptable to you if an institution of Penn's size was headed by someone making a much more humble earning?

 

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My point is why is the taxpayer who makes a fraction of what she makes subsidizing her. I don't have to pay CEO's salaries but I am forced to subsidize her salary and many other university presidents like Graham Spencer.

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I see your point, but it's a pretty circuitous one. And if we accept your premise - which I mostly do - that government loan guarantees and tax breaks artificially skew the market, the so should we be far more outraged over subsidies and tax breaks for Big Oil and Big Pharma, and the far more obscenely high salaries that oil and drug execs pull down.  And we should be far more concerned about gov't loan guarantees and tax for things like nuclear power plants, and the salaries of nuclear industry executives.  See, you do subsidize private CEO salaries. But because you choose to pick on poor overpaid Amy whatsername, and U Penn, it pretty small potatoes by comparison.

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This thread is about student loans and I have tried to stay on topic.

 

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Fair enough.

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OK how about this, and hopefully you'll find some agreement with your position:

I do think that student loan guarantees have had a big hand in pushing up the cost of college, in the same way that housing loan guarantees played a big part in the inflation of the housing market. I do agree that loans like that distort the market, produce bubbles, and make things like college and housing a lot less affordable for the rest of us.

 

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Yikes, we agree. Where have I gone wrong? 

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It happens. Shocked

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politeia's picture
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This is no different than the real estate bubble.

Government-backed, no doc loans on houses.

Same for students with their loans for college.

Banks could care less who they lend to and how much they lend when the government creates the moral hazard by backing the loans.

Easy loans also cause prices to artificially rise because it increases demand in an artificial manner that would not occur in a free market where banks had to worry about losing out on their loans. We saw this with the housing bubble, and we are also seeing this with the student loan bubble.

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Brotherhood of Thieves ~ As we must account for every idle word, so must we account for every idle silence.

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Occupy Wall Streets privileged are lobbying for forgiveness of taxpayer funded student loans.

Like subprime loans, students, and their parents, were sold the idea that college education meant better pay and a higher standard of living. The fact that the cost of that education may not result in a commensurate benefit does not seem to have been a matter of "informed consent". On the other hand, no one forced anyone to take these loans and it is not clear why I should have to pay for other people's mistakes or even the government's mistakes.

 

WSJ October 12, 2011: "Last year, Americans began to owe more on their student loans then their credit cards, with student debt reaching the $1 trillion mark. Many have flocked to higher education during the down economy, only to find themselves still unemployed or underemployed."

http://blogs.wsj.com/economics/2011/10/12/student-loan-debt-among-top-occupy-wall-street-concerns/?mod=djemRTE_t

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That's right.  The imprudent lenders should eat the losses, not rely on a government guarantee, which gives them free money.  Don't see what this has to do with OWS, though.

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OWS is protesting student loans and this thread is about student loans. The lender is the US government and the people who have to eat the losses are the taxpayers. The student loan bubble is directly caused by government policy and subsidizes billion dollar tax exempt non profit educational behemoths. Why is a taxpayer subsidizing billionaires?

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According to this article by Temple student and now Inquirer reporter for its new Main Line Neighbors section Ashley Nguyen, Penn doesn't make any Payments in Lieu of Taxes to Philadelphia.   On the other hand, it is presumably the City's largest employer and an important economic engine.  http://temple-news.com/2010/03/29/sans-estimates-city-nonprofits-have-no-landing-strip-for-pilot/

Sure Amy Gutmann is overpaid, but her salary is chicken feed compared to overpaid corporate higher ups who get paid tens of millions while wrecking their companies.

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Interesting article.  Thanks for pointing it out, Hugh.

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This has become an interesting debate/topic, just got some more news :

Wall Street's Pitch to Profit on Federal Student Loans

The investment banking industry – and its friends in Congress – have cooked up a scheme they are pitching to the “supercommittee” that they say would reduce the federal debt and cut federal spending. Supposedly, the plan would take the government’s $555 billion direct student loan holdings off of its books. In reality, the plan, which would allow the bankers to earn fees on a $555 billion deal, plus $100 billion more every year, would not reduce the debt or cut spending. But that hasn’t stopped Wall Street from trying.

http://higheredwatch.newamerica.net/blogposts/2011/wall_streets_pitch_to_profit_on_federal_student_loans-58962

by the way occupy philly can be watched live on :

http://www.livestream.com/occupyphiladelphia?utm_source=lsplayer&utm_medium=embed&utm_campaign=footerlinks

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Wall Street and Washington working together against Main Street's productive Forgotten Taxpayer.

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Tom Woods has an excellent Take On This:

Of course, it is the subsidies themselves that push tuition costs ever higher. Here’s the obvious point everyone pretends not to realize: colleges know the students have access to low-interest loans courtesy of government. Aware that prospective students enjoy artificially increased purchasing power, college administrations raise tuition (and cut back their own aid programs) accordingly. When tuition thus continues to rise, as any fool could predict, we hear huzzahs for the government – for however could students pay this high tuition without government assistance? It is the classic case, as Harry Browne said, of the government breaking your leg, handing you a crutch, and saying, “See? Without me you couldn’t walk.”

This, by the way, is how the government defines affordable. As with housing, government programs artificially increase prices. What makes those inflated prices “affordable,” in the government’s version of things, is that you can get a government-subsidized loan to pay them. Letting prices fall in the first place, so people might be able to pay college tuition or buy a house without enslaving themselves to debt for the rest of their lives, is not even on the table. (Incidentally, Fannie Mae, which was created in order to foster affordable housing, makes loans in excess of $938,000. Hooray for “affordable housing” programs!)

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Brotherhood of Thieves ~ As we must account for every idle word, so must we account for every idle silence.

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Exactly. Dead On. and University faculty and administrators promote the Big Government policies that pay plush salaries for both professors and administrators and...who pays?

              "Nonprofit " UPENN President, the  1% ---   What would she do if there were free market competition? Note that the academic accreditation institutions reduce competition and create a cartel of educational institutions that jack up prices artificially.

 

Maybe Rick Perry will name Ron Paul, secretary of the treasury.

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Is it just me, or have you adopted quite a bit of the Occupy Wall Street vocab?

So, uh, you think we could get just as good an education at a non-accredited school, and save a few bucks in the process?

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While the OWS people are considered left leaning, I see a crossover between what many of the OWS people (outside of the union supporters) are protesting about and what free market types from the Austrian school believe in regards to the problem of corporatism/crony capitalism, wanting to end the Fed and to end the wars.

The student loan problem is crony capitalism, pure and simple. Universities lobby bigtime for as many government student loan subsidies/guarantees as they can get.

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Brotherhood of Thieves ~ As we must account for every idle word, so must we account for every idle silence.

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While the OWS people are considered left leaning, I see a crossover between what many of the OWS people (outside of the union supporters) are protesting about and what free market types from the Austrian school believe in regards to the problem of corporatism/crony capitalism, wanting to end the Fed and to end the wars.

Absolutely, you are dead on correct. No offense was meant on my part toward Bob by that observation.

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Lexo  Did I say unaccredited? Has politeia's simplemindedness infected you?

 

I said the incumbents maintain power by restricting accreditation to educational institutions that are effective. the financial barriers to starting a new college or university are monumental and irrelevant to the question of what students are learning. Incumbents want to maintain power and control; this is an enduring characteristic of human nature as the Founders of our country were well aware.

 

 

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Has politeia's simplemindedness infected you?

While we may no agree on some things, let's stick to the issues, Bob.

I don't personally attack other bloggers, and have never done so to you.

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Brotherhood of Thieves ~ As we must account for every idle word, so must we account for every idle silence.

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Lexo  Perhaps it is the OWSers and the Radical Left and Unionists who have coopted the language of fiscal common sense. Corporatism, sometimes called 'crony capitalism' is language that many have used. Sarah Palin used in last summer in Indianola and then as a post on her web site. This predated OWS which adopted Sarah Palin's language.

Student loan bubble has been a subject explored by Richard Vedder, PhD, for years. Dr. Vedder is Free Market advocate and an expert.                                       http://www.ohio.edu/economics/fs_bios.html

 

Here is a piece on forgiving student loans which the Obama Administration is preparing to do adding to national debt. Student loans are approaching a trillion dollars and much cannot be repaid. This is subprime housing model applied to higher education with knowledge and complicity of our institutions of higher education which have been enriching themselves at expense of Main Street's Forgotten Taxpayer. http://www.nationalreview.com/articles/279716/forgive-student-loans-richard-vedder

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The White House Fact Sheet on Student Loans

It's not the gov which is the culprit , it's more the private lending industry which messed up so many lifes of student borrowers , for example Bofa , citibank and most of all Sallie Mae , (AL LORD = MADDOFF) see :

http://creditboards.com/forums/index.php?showtopic=460213

http://www.philly.com/philly/news/132566428.html?cmpid=15585797

The Administration has made historic investments in Pell Grants and the American Opportunity Tax Credit to help make college more affordable for millions of current and future students.

While college remains an excellent investment for most students, debt may discourage some potential students from enrolling, keeping them from getting the skills they need to compete in the global economy. Some borrowers may struggle to manage their bills and support their families.

The need for enough income to make large monthly payments may discourage some graduates from starting a new job-creating business or entering teaching or another lower-paying public service career.

Today, the President announced a series of additional steps that the Administration will take to make college more affordable and to make it even easier for students to repay their federal student loans:

Help Americans Manage Student Loan Debt by Capping Monthly Payments to What They Can Afford

Allow borrowers to cap their student loan payments at 10% of discretionary income. In the 2010 State of the Union, the President proposed - and Congress quickly enacted - an improved income-based repayment (IBR) plan, which allows student loan borrowers to cap their monthly payments at 15% of their discretionary income. Beginning July 1, 2014, the IBR plan is scheduled to reduce that limit from 15% to 10% of discretionary income.

Today, the President announced that his Administration is putting forth a new "Pay As You Earn" proposal to make sure these same important benefits are made available to some borrowers as soon as 2012. The Administration estimates that this cap will reduce monthly payments for more than 1.6 million student borrowers.

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These banks would not make these loans were it not for Solyndra like guarantees by the government.

ObamaAdministration is attempting to redirect anger for the problem to Wall Street in obvious class warfare Alinsky technique.

There is no advantage to a lender to lend to someone who cannot pay UNLESS the government guarantees.

This is subprime and Solyndra redux.

The Obama Administration shifts obligation to pay to the Forgotten Taxpayer as is the way of Leftists.

 

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Obama failed to accept any responsibility by government.

No surprise there. Government passes the regulations the banks lobby for so government types can have re-election $$$, and that goes for the student loan problem.

And now petitions are going around for legislation to forgive student loans.

How is that fair to those who have paid their loans off?

Same problem with the tax credits new home buyers got to "save" the housing market.

How is that fair to those who bought homes several years ago and can’t get the tax credit?

=================

Brotherhood of Thieves ~ As we must account for every idle word, so must we account for every idle silence.

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Student debt is a symptom of our lack of economic literacy RedState 26 October 2011 Kevin Holtsberry

“This is also a classic example of politicians blindly declaring something a universal good and then making policy that not only ignores economic reality but undermines the economy and harms people (see, housing policy). We blithely declare that everyone should go to college and set up a system that allows anyone breathing to borrow large sums of money with no consequences or connection to reality and wonder why the system doesn’t function. Soon we have millions of people with massive debt and very little to show for it.”

http://www.redstate.com/kevin_holtsberry/2011/10/26/student-debt-is-a-symptom-of-our-lack-of-economic-literacy

 

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Rush Limbaugh had an succinct and insightful take on Obama and the Student Subprime Loan Bubble.

Rush Limbaugh Big Education Rackethttp://www.rushlimbaugh.com/daily/2011/10/27/the_big_education_racket

Obama's Student Loan Fraud October 27, 2011 http://www.rushlimbaugh.com/daily/2011/10/27/obama_s_student_loan_fraud

 

Occupy wants free money and Obama promises it to them. As government subsidized loans increased, the price of tuition increased. Who could have forseen that subsidizing Big Education would raise the price? ( as well as misallocating resources.)

Conn Carroll follows up with more on the Obama's Student Loan faux forgiveness program. Obama hopes the Occupy protestors will buy the phony rhetoric..again.

Past Students Not Eligible for Obama Student Loan Bailout

http://campaign2012.washingtonexaminer.com/blogs/beltway-confidential/past-students-not-elligble-obama-loan-bailout

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Was ths "Q" directed to me or the administrator ?? http://www.nationofchange.org/rep-virginia-foxx-people-student-loans-i-have-very-little-tolerance-them-1334417199 http://act.rebuildthedream.com/sign/denounce-foxx?source=FBS

 

Speaker Boehner and Congress: We call on you to publicly denounce the insulting statement made recently by Representative Virginia Foxx, Chair of the Subcommittee on Higher Education & Workforce Training, when she dismissed and belittled people with student debt. Student loan debt is an urgent issue that affects tens of millions of Americans and must be treated with seriousness and compassion.(and now please don't cry boehner ..)

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READ MORE 123infoworld  this blog seems to present pros and cons of student debt but it seems to me that this is another fiscal crisis as American debt rises and savings decline

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We have some big news. Just a little while ago Senate Majority Leader Harry Reid went to the Senate floor, challenging his Republican colleagues to join Democrats and pass legislation that would prevent interest rates on federally subsidized student loans from doubling this July. On the Senate floor today, Senator Reid said (as prepared for delivery):

[W]ith middle-class families struggling and fewer families able to afford the rising cost of higher education, we cannot afford to put college out of reach for more promising young people.

Doubling interest rates from 3.4 percent to 6.8 percent— effectively socking 7.4 million students with $1,000-a-year in student loan costs — would do just that.

Today Americans have more student loan debt than credit card debt. The average graduate owes close to $25,000. Getting a college education shouldn't burden young people with unsustainable debt.

We need as many Democratic Senators to cosponsor S. 2051 as possible, as it will help generate more momentum for our side and turn up the heat on Republicans. If you haven't done so yet, please tell Sen. Robert Casey to co-sponsor S. 2051, by clicking on the following link.

http://act.credoaction.com/campaign/student_loans_interest/letter.html?registered=1&country=United%20States&petition_id=1580&r=6879712&redirect_url=%2Fcampaign%2Fstudent_loans_interest%2Fletter.html&id=38913-490925-Jo74K8x

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politeia's picture
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While well intentioned, I see this causing more harm than good.

This problem was first caused by government guaranteeing student loans so they were given out like candy, which in turn allowed colleges to artificially inflate tuition.

Now government wants to get involved in price-fixing - a la home mortgages. This will keep tuition artificially high and still too expensive

And, how is this fair to those who worked hard in the past with two part-time jobs or going to school at night an taking 8 years to get a degree with no loans?

Time for government to get out of the student loan business, IMO.

No guarneteed loans and no price-fixing.

If this were left to the free market, tuition would naturally drop due to natural supply/demand and natural competition.

Guarantees on loans and price-fixing only perpetuate the problem - IMHO.

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Brotherhood of Thieves ~ As we must account for every idle word, so must we account for every idle silence.

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More debt, government or private, is not a good thing for the country or for the economy. The government is becomina an enabler of destructive fiscal behaviour by encouraging more bad debt.

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The Student Loan Bubble Continues to Expand.

The Federal Reserve reports that  Student loans soar 275% over past decade By Tami Luhby @CNNMoney May 31, 2012


 

 

 

And the delinquency rates are going in the wrong direction

More Student Loans Are Past Due     May 31, 2012 Real Time Economics WSJ

 

 

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bobguzzardi's picture
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                                                                                                                                               Going in the Wrong Direction. The more the government (productive taxpayers) subsidize billionaire big business education corporations, both for profit and non profit, the higher tuition goes, the higher salaries go, the more buildings are built without any improvement in student learning performance.

WSJ May 31, 2012   Americans are borrowing more to pay for college while reducing other debt as a weak job market prompts more people to go to school and tuition keeps climbing, new Federal Reserve Bank of New York data show.

Americans owed $904 billion in student loans at the end of March, nearly 8% more than a year ago, the New York Fed said Thursday in a quarterly report on consumer credit. That compares with the $679 billion they owed on credit cards at the end of the first quarter.

Between the fourth quarter of 2008, when credit-card debt peaked, and the first quarter of 2012, this borrowing fell by $187 billion, or 21.6%, the Fed said. Over the same period, student-loan debt rose by 41.4%, or $264 billion.

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  It is foreseeable what will happen to the student loan bubble. Ask you federal and state elected officials to stop the subsidies. Not only do the subsidies that taxpayers are forced to pay misallocate scare resources, they create a debt burden on recipients that weighs heavily on them and lowers their standard of living.

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