Taibbi: We're Saddling College Students with Crushing Debt and the Govt. Is Acting Like a Profiteer

[xchrom]

http://www.alternet.org/economy/matt-taibbi-were-saddling-college-students-crushing-debt-and-govt-acting-greedy-profiteer




***SNIP

Matt, welcome to Democracy Now!

MATT TAIBBI: Good morning.

AMY GOODMAN: So, lay it out for us. What is this scandal, as you describe it?

MATT TAIBBI: Well, there’s this overall connection between the sort of end—it’s very much like the housing crisis, where there was a limitless availability of credit that drove housing prices upward and upward until finally they collapsed. We have a similar dynamic going on here, where there’s sort of this bottomless well of government credit that keeps driving college costs up. And the difference here is not that it’s a market-based problem; it’s more that the government has limitless collection powers, so it has no fear of lending, and it continues to lend and lend and lend. And no matter how many defaults they get, they actually—some have argued that they actually make money on defaults, and they’re projecting a profit of $185 billion over the next 10 years.

AMY GOODMAN: How do they make money on the defaults?

MATT TAIBBI: Through fees and penalties. So, even when people default, even—and it’s not clear exactly how high the number is of defaults, but they’re able to farm those accounts out to collection services and the—for instance, a couple of years ago the government projected a recovery rate of 122 percent for all forms of Stafford loans that were in default. Now this year it’s a little bit lower; it’s somewhere between 103 and 109 percent. But it’s still above 100 percent, which gives you an indication of how easily they’re able to collect from people in default.

[LuvNewcastle]

1. K&R Good article.

[Civilization2]

2. the gov. and their owners, the banksters,. the 1% will happily "profit" from ANYTHING!

In some counties all higher education is payed for,. if you can make the grades, you can get a publicly funded education. Why is education in america a capitalist activity?

[marmar]

3. k/r

The U.S. economy is based on usury these days.

[geek tragedy]

4. Taibbi doesn't understand financial terms. Embarrassing.

http://febp.newamerica.net/background-analysis/federal-student-loan-default-rates

For loans issued in fiscal year 2013, the Department reports three separate measures of default recovery rates as a percentage of outstanding principal and interest at the time of default. These include a cash recovery rate that includes the principal, interest, and penalty fees that that the Department expects to collect on defaulted loans made in fiscal year 2013; a cash recovery rate net of collection costs that measures recoveries after excluding collection fees assessed on the borrower that the Department of Education must pay to private collection agencies it hires to recover defaulted loans; and a net present value recovery rate that measures recoveries net of all collection costs that is adjusted for the time it takes to collect an a defaulted using the “time-value” of money. The later measure is the most comprehensive measure of a recovery rate. According to the president’s fiscal year 2013 budget request, the federal government expects to eventually recover only 81.8 percent of the principal and interest due at the time of default on Subsidized Stafford loans made in fiscal year 2013 that go into default at any point during repayment.

Fiscal Year 2013 Estimated Federal Student Loan Default and Recovery Rates
Loan Type New Loan Volume ($ Billions) Lifetime Default Rate Recovery Rate (pre-collection costs) Recovery Rate (post-collection costs) Net Recovery Rate*
Stafford $32 23.3% 109.8% 95.7% 81.8%
Unsubsidized Stafford $66 16.6% 104.2% 90.9% 78.3%
PLUS $23 9.7% 103.5% 90.1% 75.6%
*Recovery rate net of collection costs adjusted for collection time using risk-free time value of money.

In short, he ignores the fact that it costs money to collect debt (duh) and the time value of money.

[Enthusiast]

5. Kicked and Recommended! nt