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Federal Loan Programs Draining Students to Inflate Debt Bubble


The colossal scope of student debt in America is no longer a secret, but the federal government has yet to take its proper share of the blame for the crisis. In an excellent piece at Rolling Stone, Matt Taibbi homes in on how government lending practices have inflated the bubble, and documents many abuses of federal student loan programs.

For starters, federal loans are exempt from many of the disclosure requirements that apply to traditional loans, to it’s easy to obscure important information that young, financially inexperienced student borrowers need. Worse, the abundance of government loans, combined with extremely lax accreditation standards, has led to an extraordinary situation in which unscrupulous for-profit institutions rely on federal loans to cover more than 90 percent of their tuition. And despite the lofty rhetoric about how government loans offer disadvantaged young peopl a path to college, the federal government has made significant profits off these loans, and is willing to go to extremes to make sure it can collect:

However high that default number really is, what’s clear is that the state is still able to turn billions in profit on its lending, and expects to continue to do so for the next 10 years. The reason for that, again, lies in something everyone who has a student loan understands implicitly – the state and its collectors are not ­squeamish collecting the money they’re owed. The government is in the pain business, and business is good.

“They called me at work, sometimes two to three times a day, doing all the stuff they aren’t supposed to do: threats, et cetera,” says 41-year-old Shawn FitzGerald, who owes $300 a month and says he expects to be paying off education loans into his sixties. “They told the receptionist at my job that I was in legal trouble. . . .”

“Sallie Mae has started sending letters to my deceased mother,” says Thomas Daggett of Chesterfield, Massachusetts, who left school in the Nineties and owes $35,000.

“I have been told I made the wrong decision going to college, as well as being told I was a failure, an idiot and a mooch,” says Larissa, a young woman from a blue-collar town outside Chicago. “I’ve had ex-boyfriends that I never even lived with contacted by collection agents, my childhood friend’s distant relatives contacted by them, as well as distant relatives of my own. . . .”

As the loan crisis grows, it has become abundantly clear that the cozy relationship between federal lenders and universities is causing serious problems for millions of Americans, and the issues described above only scratch the surface. Read the whole thing.

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  • Corlyss

    “despite the lofty rhetoric about how government loans offer disadvantaged young peopl a path to college,”
    I suppose the putative model for the student loan program was the GI bill educational benefits. In the discussions at the time there was statistical evidence to show that college grads made more money, and could therefore be expected to pay more in taxes as well as benefit their own families. I guess the Utopian vision behind offering undereducated and ill-prepared disadvantaged people an opportunity to go to college was pretty much the same. The fact that so many disadvantaged kids obtain such loans is just coincidentally a way for the Liberals/Progressives to prove a lot of their cherished nostrums about IQ and poverty on the taxpayer’s dime.

  • Jane the Actuary

    Yet we hear repeatedly that college is “worth it” no matter the cost!

    Is college “worth it” because employers hiring for even low-paid semi-skilled jobs are asking for college degrees due to the poor job market and consequently large numbers of unemployed youth? Maybe, maybe it’s “worth it” to any given individual — but it is definitely not “worth it” for society as a whole, for so many people to be paying so much money to go to college. And these stories of student debt don’t even consider the parents who take out second mortgages and spend their retirement savings on their children’s college education, then can’t afford to retire.

  • Kelly Hall

    The edu-aristrocracy is getting rich off the backs of hard-pressed students, many of whom have nothing but a lifetime of indentured servitude ahead. The academic elite are helped along by the political aristocracy in the form of ultra-inflationary subsidies, which are quickly morphing from grants and scholarships into high-interest student loans. Theiy seem to have no idea what damage they’re doing not only to these students, but ultimately themselves.

    On the other hand, maybe they know exactly what they’re doing, and intend to co-opt this army of debt-ridden students to do their bidding. Perhaps these students will be coerced into joining “debt brigades”, under the auspicies of, say, the DHS. In exchange for “debt forgiveness”, they will be compelled to further the regime’s cause by creating and distributing propaganda, conducting surveillance on family and friends, operating drones (since so many of them are expert gamers). You know, kinda like the Peace Corps meets the Stasi.
    Good times to follow.

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