The recent revolution in Egypt was fomented due to the large number of young, college educated, unemployed people. But that could never happen here, right? Smug America has this situation completely under control. We're above reproach. But we're not. Almost the same situation exists in the US. Increasingly, there is a surplus of young college educated and unemployed people. There is one significant difference, however. In the US most of them have tens of thousands of dollars of student loan debt to add to their misery. In Egypt, for all the bad things you could have said about the autocratic Mubarak regime, at least college education was free!
President Obama and a lot of other wise people have suggested that the unemployment problem would be solved if only everyone would get a college education. Tell that to the Egyptians. They all got one, and they're still jobless. As the ranks of the US jobless fill up with college educated young people, maybe one day they will stop and realize that this was bogus advice. But the advice the unemployed get is always designed to avert their glance from the real problem: unemployment brought on by technological advance and outsourcing of jobs to countries where labor is cheaper. And the solution they propose - more education - kicks the can down the road and is also designed to strengthen the bottom lines of the for profit education industry and Wall Street which is always more than willing to provide loans and drive people into debt. That's how they make their money. And the kids will not complain about being jobless again until after they get their diplomas and still find themselves jobless. Many with advanced degrees will also be subjected to the indignity of then being told they're "overqualified." At the present time there is more outstanding student loan debt than there is credit card debt.
This is from the Wall Street Journal:
Consumers now owe more on their student loans than their credit cards.
Americans owe some $826.5 billion in revolving credit, according to June 2010 figures from the Federal Reserve. (Most of revolving credit is credit-card debt.) Student loans outstanding today — both federal and private — total some $829.785 billion, according to Mark Kantrowitz, publisher of FinAid.org and FastWeb.com.
“The growth in education debt outstanding is like cooking a lobster,” Mr. Kantrowitz says. “The increase in total student debt occurs slowly but steadily, so by the time you notice that the water is boiling, you’re already cooked.”
By his math, there is $605.6 billion in federal student loans outstanding and $167.8 billion in private student loans outstanding. He estimates that $300 billion in federal student loan debts have been incurred in the last four years.
Partially, this is a story about Americans paying down credit card debt. Some are seeking a new frugality, but many credit card companies are raising minimum monthly payments or cutting off new and existing lines that consumers in the past may have turned to during tough times. Revolving credit, the majority of which is credit card debt, reached a high in September 2008 of $975.7 billion, according to Fed data. A consumer who juggles both credit-card and student-loan debt is likely to pay of the credit-card first, as that debt tends to carry a higher interest rate.
In terms of volume, a person is likely to borrow more money to go to school today than, say, spend on necessities using a credit card during a patch of unemployment. Tuition at public and private four-year universities last year went as high as $26,000, with additional fees for housing and books not showing any signs of letting up either. It’s no surprise that many parents, reeling from the downturn, would turn to borrowing to make up the difference. With the cost of education increasing rapidly and the duration of unemployment increasing, perhaps the surprise is that this turning point didn’t hit earlier.
Student Loan Justice, a Washington State-based student loan advocacy group issued a statement on the student-loan eclipse, estimating that media coverage of credit cards exceeds coverage of student loans “by a factor of approximately 15-to-1 based on unscientific news surveys conducted since 2007.”
But student loan debt, in many ways, is different than credit-card debt. These loans typically can’t be discharged in bankruptcy. They have different repayment terms, some of which can catch some have heavy consequences for borrowers who miss payments and borrowers’ families.
Student loan debt is a ticking time bomb. Not only can an increasing number of recent graduates not find jobs, but their student loans are going into default. When penalties and interest are added in from non-payment, a $30 K loan soon exceeds $100,000. Alan Collinge at studentloanjustice.org has blogged extensively about the lack of consumer protections for student loans. The situation is almost worse than debtors' prisons. Those with student loans lose their right to bankruptcy protection. Their student loans can follow them to the grave and even garnish their social security. Those parents unfortunate enough to have co-signed will now find themselves hounded as well as their offspring.
How did the student loan industry get this way. Most student loans used to be government issued. Collinge writes:
Congress removed bankruptcy protections, refinancing rights, statutes of limitations, truth in lending requirements, fair debt collection practice requirements (for state agencies) and even removed state usury laws from applicability to federally guaranteed student loans. Congress also gave unprecedented powers of collection to the industry, including wage, tax return, Social Security, and Disability income garnishment, suspension of state issued professional licenses, termination from public employment, and other unprecedented collection tools that are used against borrowers for the purpose of collecting defaulted student loan debt.
Concurrently, Congress established a fee system for defaulted loans that allows the holders of defaulted loans to keep 20% of all payments from borrowers before any portion of the payment is applied to principal and interest on the loan. In the absence of fundamental consumer protections, the defaulted borrowers' only available recourse is to submit to a hugely expensive "loan rehabilitation" process whereby they are forced to make extended payments (which are almost never applied to the principal or interest on the loan), and then sign for a new loan to which additional fees are attached. This effectively obligates the borrower to a much larger debt than when the loan defaulted, often double, triple, or even more than the original loan amount.
This leaves the borrower in a far more distressed position than before rehabilitation, and more likely to default again. There are no other options for the borrower to resolve the debt, regardless of any other factors, including the validity of the default itself (there is no appeals process for challenging determinations of default).
This fee system and associated rehabilitation schemes have provided a massive revenue stream for a shadowy, nationwide network of politically connected guarantors, servicers, and collection companies who have greatly enriched themselves at the expense of unfortunate borrowers. It has caused immeasurable damage to millions of borrowers and their families, who see what started as an unmanageable debt become a financial cataclysm- that debilitates, marginalizes, and ultimately relegates them to a lifetime of financial servitude and despondency in many cases.
In addition to Sallie Mae, the Department of Education is making money off these "subprime" student loans. Private for-profit colleges and universities are shovelling money out the door to students whom they know never will be able to repay. These defaulted loans follow the person around for the rest of their life making it impossible to redeem their credit rating and ever get a loan again.
When Sallie Mae was privatized, CEO Albert Lord successfully lobbied Congress to take away standard consumer protections from student loans making them the most draconian and predatory kinds of loans out there. Now that President Obama has taken many of these loans back under government auspices, Sallie Mae is still acting as servicer to many of them. As servicer they will continue to exact draconian penalties and do to students the same kind of things that they do when the loans are entirely private. They haven't missed a beat. They can even garnish social security checks!