Student Loan Delinquencies are Worse than Reported
MARCH 13, 2012 – Last week, Businessweek did some research on the 10% student loan delinquency rate number that was often cited by the mainstream media and the Obama Administration as having little difference between the overall delinquencies of other types of debt and found there were some serious issues with the numbers that were recently reported by the mainstream media.
Could this be the single biggest issue we face. Not jobs? Could jobs be secondary to a broken education system? It’s one that the mainstream media isn’t covering widely and one that could have far reaching consequences if our government doesn’t radically change the way it approaches these student loans. If not, the only way will eventually be to forgive these loans but at a far greater price than the 27% number quoted in this article: But at what price?
First off, our Federal Government has created a complex system for getting more kids to school that is quickly getting out of control and risks the very thing that so many of us look to; educating our kids. I won’t get into that complex system. Second, I never would have qualified for a student loan. My parents put both my sister and I through college through their savings so I have little understanding when it comes to actually being a student and being forced to decide whether school was more important than say, eating/living. Higher education for me was not option. My wife, though did have a student loan and that opened my eyes. What became clear to me with her loan was that our Government, not private organizations or companies, are the ones that we need to be worried about when it comes to predatory lending practices and that our colleges (both public and private) themselves the benefactors of these loans are at least partly to blame for the overwhelming delinquency problem.
What troubles me is the lack of concern or of any questions being raised by anyone with in our State Education systems. Our state institutions are led by presidents, who were chosen by regents, who were assigned by our state politicians. You would think that at some level you would have someone within this group in some state around the country beginning to raise the alarm to this growing threat. Unfortunately, we rarely hear anything from any of these politicians or people in the middle about the lack of this being a sustainable model. Could it be that stable?
Here are some thoughts:
I think you will be hard pressed to find a single state institution in this country that contracted with the economy since 2008. Since the 2001 economic collapse nearly every college in this country has been increasing their building projects; building new stadiums, buildings, labs etc. All of this during a period of contraction or only modest growth, when fewer students should have been available to afford these secondary educations (not to mention online degrees). How is that? Obviously, it’s to attract more students than the competing institutions in the next state or city that are also getting the same grants and Federal money. These institutions can’t simply be growing based on future enrollment expectations, particularly when you look at demographics showing people having fewer kids and putting off having children until later in life.
For those that actually pay the tuition out of pocket the bill continues to climb. Most of these people probably earn to much to qualify for the student loans so they look to private institutions or just face the fact that their child won’t be attending the prestigious Alma Mater that they attended so many years ago. Tuition’s rate of increases continues to increase at a very unsustainable rate and those that pay continue to balk at the continued steep price feeling nearly powerless about it. Those right on the edge may be the lucky (or unlucky) ones to actually be capable of fudging the system so as to get their kids qualified for Federal Student loans.
What this really leads me to conclude is that the Federal government gladly hands the money over either by way of grants or shovel ready projects or student loans because it means a potential for greater numbers of citizens to potentially join a new entitlement class. The Government, whether Republican or Democratically controlled seems bent on trying to get more kids to attend college by any means possible. Big campaigns stress how vital a college degree is and the stats do show that you will earn more over a lifetime if you earn a degree, but while these kids and parents may believe this is the road to prosperity, the real fact is they may have unknowingly just joined a multilevel welfare scheme disguised as a student loan that is now 27% delinquent.
Surely, there are plenty of well-educated 1st line educators that see the trouble with this system. In fact they probably can see it in their grades but more on that in a second. They have to know they are a part of it, but even they can’t do anything because they essentially check their 1st amendment rights at the institutions door to tow the institutions agenda when teaching or planning the direction of the institution. That’s the exact opposite of what we should expect from higher ed. We know that these institutions are primarily bastions of liberal thinkers and while this may be extreme thinking to say that these educators today check their 1st amendments at the door, you have to think of it terms of where we were and where we are going within the education system. These 1st line educators, have to continue to propagate their school’s agenda and show allegiance just as you would if you belonged to a private institution because failing to do so could mean a direct loss of tenure or their job. They have to keep up the focus on making sure the institutions they serve continue as pipelines in which to funnel Federal money by teaching kids the same tired stuff that doesn’t necessarily lead to critical thinking skills or training needed to be successful in a very quickly changing global marketplace. That means more delinquent loans, but a stable (albeit shortsighted) long term career choice for them.
This affects all of academics too. Too many failures in a class could mean a bad teacher but it could also mean the student(s) is/are incapable of achieving a basic understanding in the class. This could also mean less money because the teacher is forced into a no child left behind situation, where too many kids failing could also lead to their own reprimand for losing critical funding for not achieving higher grades from their student class. Therefore, all of academics are dumbed down to improve the probability students achieve the minimum level of expectations because unlike no child left behind, most careers don’t have any standardized testing to gauge how well a particular teacher/college is doing at preparing that student for it.
Eventually, when the money drys up, and the delinquencies get too high, this will become the new crisis for the Federal government. It will cut back funding to states and try to pass the blame to the states whose support for Washington’s effort is lacking. It will then become such a crisis that Washington will have to take action to protect the jobs of those at these institutions (its primary voting constituents) or the state politicians will face losing their jobs to this growing new entitlement majority. The Federal Government will need to make bolder moves to borrow both privately and abroad at riskier and riskier terms. Out of all options, Washington, rather than see the system fail, will swoop in and take over these State Institutions thereby bloating an already increasing government entity. The money trail will become clouded and confused as the money trail disappears and suddenly all these educators will become unwilling Federal employees.
If you think it can’t happen then just look at the TSA taking over all the private security detail after 9/11. People thought it was no big deal. We should do it for safety. But then it got bigger. Now, the only people that enjoy the TSA seem to be the people the media finds. Suddenly the treasury forced banks to take money, a back door way of saying we control you now. Thankfully, that was short lived and they paid it back the moment they were allowed to. Then it was GM and Chrysler where bond holders, stock holders and their salaried workers were told they had no choice but a loss and the Union auto workers got everything. Then finally we have Obamacare, 1200 pages of mostly something since hardly anyone seems to know whats in it but surely does one thing, raises the premiums for non government sponsored plans.
The Federal Government will make its case that this is vital for saving and avoiding a financial crisis. The blame will shift to every bond holder from a building on a campus to the bond holders backing student loans as they are demonized for taking a risk on risky loan. The Government will force them to take write-downs and write them off because they are supposedly the 1%. This will bring all but a select few private colleges to the brink of collapse as they find it difficult to compete as the Federal Government shuts down loans to students wanting to attend these non state run institutions (i.e., the new affirmative action) and prevent all but the very wealthy kids from achieving a non state run education much like what is occurring in our healthcare system.
The repercussions are wide ranging:
Once they take over the state education, there’s really nothing to stop the Federal Government from making the case that it should then also take over troubled local school districts such as the Detroit or Kansas City MO school district…or worse all the schools. It could never do that now, without major repercussions from local citizens but when they already control state institutions for higher education, many parents may finally realize the “best” option for their child to get to higher education is through Federal control of both. Efforts to control testing will be politicized and numbers like the TAKS tests in Texas or any other state will be unreliable at best. SAT scores may just vanish to the delight of many students and parents.
Eventually writing off all these loans will come to a head as it did in England when the Government, broke, told its citizens no more free tuition. Great riots consumed London and riots will likely happen here and consume our cities as kids and adults demand a free education for themselves. Rioters will probably burn their institutions down for no good reason, not understanding they are the majority now and can vote any person who dares to touch their new entitlement. One by one the Federal Government will rebuild these institutions and more workers will find themselves working directly for the Federal Government. Our forefathers who created this country surmised, only because they did it themselves, that our politicians will eventually hand enough money to their constituents that this new entitlement class votes not with their heads and out concern for their country but for their own self-interests.
The bottom line a college degree should not be something we are entitled to but a privilege and Washington needs to get out of the business of having anything to do with the student loan business. The trajectory of delinquency is unsustainable but the consequences of perpetuating this fraud are a greater threat to democracy.
Brian Begshaw is a new contributor to the Lee’s Summit Conservative. If you liked his thoughts on this subject, let him know by posting comments.