Ripping Off Young America: The College-Loan Scandal


The federal government has made it easier than ever to borrow money for higher education - saddling a generation with crushing debts and inflating a bubble that could bring down the economy

 

By Matt Taibbi
RollingStone

On May 31st, president Barack Obama strolled into the bright sunlight of the Rose Garden, covered from head to toe in the slime and ooze of the Benghazi and IRS scandals. In a Karl Rove-ian masterstroke, he simply pretended they weren't there and changed the subject.

The topic? Student loans. Unless Congress took action soon, he warned, the relatively low 3.4 percent interest rates on key federal student loans would double. Obama knew the Republicans would make a scene over extending the subsidized loan program, and that he could corner them into looking like obstructionist meanies out to snatch the lollipop of higher education from America's youth. "We cannot price the middle class or folks who are willing to work hard to get into the middle class," he said sternly, "out of a college education."

Flash-forward through a few months of brinkmanship and name-calling, and not only is nobody talking about the IRS anymore, but the Republicans and Democrats are snuggled in bed together on the student-loan thing, having hatched a quick-fix plan on July 31st to peg interest rates to Treasury rates, ensuring the rate for undergrads would only rise to 3.86 percent for the coming year.

Though this was just the thinnest of temporary solutions – Congressional Budget Office projections predicted interest rates on undergraduate loans under the new plan would still rise as high as 7.25 percent within five years, while graduate loans could reach an even more ridiculous 8.8 percent – the jobholders on Capitol Hill couldn't stop congratulating themselves for their "rare" "feat" of bipartisan cooperation. "This proves Washington can work," clucked House Republican Luke Messer of Indiana, in a typically autoerotic assessment of the work done by Beltway pols like himself who were now freed up for their August vacations.

Not only had the president succeeded in moving the goal posts on his spring scandals, he'd teamed up with the Republicans to perpetuate a long-standing deception about the education issue: that the student-loan controversy is now entirely about interest rates and/or access to school loans.

Obama had already set himself up as a great champion of student rights by taking on banks and greedy lenders like Sallie Mae. Three years earlier, he'd scored what at the time looked like a major victory over the Republicans with a transformative plan to revamp the student-loan industry. The 2010 bill mostly eliminated private banks and lenders from the federal student-loan business. Henceforth, the government would lend college money directly to students, with no middlemen taking a cut. The president insisted the plan would eliminate waste and promised to pass the savings along to students in the form of more college and university loans, including $36 billion in new Pell grants over 10 years for low-income students. Republican senator and former Secretary of Education Lamar Alexander bashed the move as "another Washington takeover."

The thing is, none of it – not last month's deal, not Obama's 2010 reforms – mattered that much. No doubt, seeing rates double permanently would genuinely have sucked for many students, so it was nice to avoid that. And yes, it was theoretically beneficial when Obama took banks and middlemen out of the federal student-loan game. But the dirty secret of American higher education is that student-loan interest rates are almost irrelevant. It's not the cost of the loan that's the problem, it's the principal – the appallingly high tuition costs that have been soaring at two to three times the rate of inflation, an irrational upward trajectory eerily reminiscent of skyrocketing housing prices in the years before 2008.

How is this happening? It's complicated. But throw off the mystery and what you'll uncover is a shameful and oppressive outrage that for years now has been systematically perpetrated against a generation of young adults. For this story, I interviewed people who developed crippling mental and physical conditions, who considered suicide, who had to give up hope of having children, who were forced to leave the country, or who even entered a life of crime because of their student debts.

They all take responsibility for their own mistakes. They know they didn't arrive at gorgeous campuses for four golden years of boozing, balling and bong hits by way of anybody's cattle car. But they're angry, too, and they should be. Because the underlying cause of all that later-life distress and heartache – the reason they carry such crushing, life-alteringly huge college debt – is that our university-tuition system really is exploitative and unfair, designed primarily to benefit two major actors.

First in line are the colleges and universities, and the contractors who build their extravagant athletic complexes, hotel-like dormitories and God knows what other campus embellishments. For these little regional economic empires, the federal student-loan system is essentially a massive and ongoing government subsidy, once funded mostly by emotionally vulnerable parents, but now increasingly paid for in the form of federally backed loans to a political constituency – low- and middle-income students – that has virtually no lobby in Washington.

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Student Loan Collection Draws CFPB Attention And Ire


The CFPB laid down some serious fines on National Collegiate Student Loan Trusts and its debt collector, Transworld Systems, Inc. The firms were collectively ordered to pay $26.1 million for attempting to collect on loans that were at best out of date and at worst nonexistent.

The Consumer Financial Protection Bureau (CFPB) specifically alleges that the firms would drag “borrowers” into court or pursue aggressive collection actions on consumers whose debts had already expired — or on debts that they could not actually prove were owed. The action against the entities further alleges that they relied on false and misleading legal documents to compel funds out of consumers illegally.

All in all, the trust filed nearly 500 lawsuits (486 at current count, though that number could climb) on debts where the statute of limitations for collections had already expired — totaling about $3.5 million in funds collected from consumers that they arguably no longer owed.

National Collegiate Student Loan Trusts is comprised of 15 trusts that own more than 800,000 private student loans in total. In the years before the financial crisis — when the world started taking a much more jaundiced look at the practice — the firm specialized in buying up student loans and packaging out those loans to investors.

And — like the subprime mortgage loans whose securitization brought on the housing bubble and the resultant recession — the paperwork associated with National Collegiate securitized student loans was often flawed or incomplete, according to the CFPB.

Harm to Consumers

Those debts, the CFPB noted in its complaint, had extremely pernicious results for consumers. Reports indicated that the debt collection agency filed nearly 95,000 lawsuits across the country between 2012 and 2016.

In 2,000 suits, National Collegiate could neither produce proof of ownership of the debt nor a promissory note, which borrowers sign promising to repay the loan. Despite being unable to produce those documents necessary to validate their debt, Transworld employees nonetheless signed sworn affidavits claiming to have reviewed account records they never read — and even, at times, had interns and mailroom clerks execute affidavits when there were backlogs.

Borrowers paid $21 million in judgments against them.

The trust’s collection practices were so extreme that Donald Uderitz, the founder of private equity firm Vantage Capital Group (VCG) and beneficial owner of the trusts (his company receives any money remaining after noteholders are paid), became concerned enough to bring in an auditor in 2015 to review the work of the company charged with handling loan payments and maintaining custody of the loan documents.

The End of a Long Investigation

The new settlements come after a three-year investigation — and still must be signed off on by a federal judge.

Uderitz noted that they collaborated with the CFPB on the agreement and they would work with the agency “to finish the job.”

”We frankly welcomed the intervention of the CFPB to help us to put an end to these appalling practices,” he said.

Transworld will pay a $2.5 million fine and take other measures “in order to avoid costly and potentially protracted litigation with our primary regulator,” it said in a statement.

The trust — as is standard practice — has neither admitted nor denied the CFPB finding, but has affirmed that its business practices “adhere to all federal and state consumer protection laws and embody best practices in the industry.”

Student loan debt, however, remains something of a sword of Damocles hanging over the head of the economy. As of the end of Q2, 11.2 percent of all outstanding student loan debt was 90 days past due or defaulted, a greater proportion than for credit cards and mortgages, according to the New York Federal Reserve Bank.

The CFPB has also been recently making noises about toughening regulation on debt collectors, due to the annual tidal wave of complaints from consumers about illegal and harassing practices by various debt collectors.

As of yet, no new rule has been proposed.

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Wisconsin to Remove Academics From Higher Ed


 
When I cover the madness affecting higher education, California comes up often, although I certainly cover schools in the rest of the country.
 
Wisconsin has avoided the madness, with nothing in the way of riots or flamboyant frauds that seem commonplace elsewhere. You’d  think the state government there would leave well enough alone, but such is not the case. Are they jealous? It would seems so, because when I write of events in Wisconsin, it’s always about the ways the government there is working diligently to undermine the success higher education has seen in Wisconsin.
 
 
 
One of the key factors in the destruction of higher ed, identified by everyone who works in it, has been the infestation of a greedy administrative class filled by people with no actual education experience.
 
Dean: “We need to have a meeting regarding a student complaint about you. She said the final exam she took didn’t have the questions on it that it was supposed to have.”
 
--the gentle reader needs to understand the only way a student could make this complaint is if she had access to the final exam questions—I was tipped off that the student had access to the final, so, yes, I changed some things around. The Dean, having no education experience, could only determine there was an unhappy student.
 
Every campus has legions of administrators, filling hives which eventually turn into palaces. The way how higher education is set up, especially community colleges, makes it particularly easy to stick a few dozen friends and family into 100k a year “do nothing” administrative jobs with nobody the wiser. Yes, every once in a blue moon we find out about it, but it won’t surprise me to eventually learn that dozens of states have systems with such activity in them.
 
Admin: “It is now mandatory that on the first day of class, you are to assign all students into groups, for purposes of group projects and in-class work. You will maintain these groups for the entire semester.”
 
I’m serious, yet another utterly inexperienced Deanling tried to cram this down our throats, because “group projects improve retention.” Only after faculty explained to her repeatedly that attrition made this idea completely unworkable (because about half our students were fake students who were only there for the checks) did she relent….I can’t recall if it was 3, or 4, weekly meetings until she acknowledged reality. I kid myself to think the faculty convinced her directly, but we were smart enough to tell the students stuck in 1-person groups to complain to the Dean about it.
 

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Video: The Least Diverse Place in America

Our College Campuses


What is the least diverse place in America? It's the institution that most actively seeks racial, ethnic, gender, and cultural diversity: the college campus! Colleges want students to look different, but think the same. Charlie Kirk, founder of Turning Point USA, explains.

 
 
 
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Video: Dr Jordan Peterson - The Unconscious Mind of The SJW


Psychology Professor Dr. Jordan B. Peterson makes a psychoanalytical / Freudian hypothesis on the unconscious desires of the SJW. Could it be that as masculinity is getting more and more eradicated out of western society, the longing for dominance and hyper masculinity grows even in those who argue for equality and call for the removal of 'toxic masculinity'?

 
 
 
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Video: Millennials in the Workforce

A Generation of Weakness


Editor's Note:
This presentation really sums up what the dominance of Liberal (Socialist/Collectivist/Communist) dominance of our gubermint/media/education has done to intellectually and emotionally cripple entire generations.

 

 
 
 
 
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