Tag: loans

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education and schooling subsidy

Education Fraud

student, debt, relief

It’s a mess.

Families are often sold a bill of goods regarding higher education.

Unless a student pursues a subject like computer science, architecture, engineering, or medicine, it may take decades to pay off student loans.

Graduates who specialized in Advanced Basket Weaving, the Sociology of Postmodern Literary Stylings, and Marxist Techniques for Making White People Feel Guilty just might snag a high-paying job as an Ivy League professor or senior manager of a corporate “antiracism” task force. But beyond those few spots, opportunities are scant.

And, of course, many people who pursued legitimate studies in the liberal arts or technical subjects also don’t make enough to emerge from massive debt any decade soon. Nor does every STEM grad necessarily cash in. Individual results vary.

What to do?

The Biden administration has decided to wipe out student debt en masse, expanding the Public Service Loan Forgiveness Program so that about 40,000 student-loan borrowers escape debt immediately and the debt of millions of others is slashed.

But is forcing others to pay this debt through their taxes — parents and children who perhaps carefully avoided taking out student loans — a just and practical answer to the problem?

The long-term solution is to get the government out of the business of subsidizing higher education in any manner, whether in the form of direct payments to schools or loans to students. Without the massive subsidies, tuition costs would decline.

The short-term solution? Launch an investigation into whether the U.S. Department of Education, colleges and universities — along with both Republican and Democratic administrations — have engaged in fraud against those who took out the loans. 

If students were defrauded, first seek redress from the perpetrators. Not the taxpayers.

This is Common Sense. I’m Paul Jacob.

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education and schooling subsidy

The Most Foolish Bank of All

education, bank, loans, Devos,

There are few things more foolish than turning the Department of Education into a bank.

“Congress never set up the U.S. Department of Education to be a bank, nor did it define the secretary of education as the nation’s ‘top banker,’” said Betsy DeVos, Trump’s controversial Department of Education secretary, at an annual education conference in Reno. “But that’s effectively what Congress expects based on its policies.”

Secretary DeVos “recommended that Federal Student Aid (FSA) — the nation’s largest provider of financial aid — be spun off from the Education Department so student loans can be better managed and administered,” Forbes summarizes.

The FSA is a bank, but not a very good one. It makes bad bets, which Mrs. DeVos tries to make clear by asking a few rhetorical questions:

  • “Is it any surprise . . . that both principal and interest are currently being paid down for only one in four loans? 
  • “Nearly 11 million borrowers have loans that are delinquent or in default? 
  • “And 43 percent of all loans are considered ‘in distress’?”

Even worse, the loans amount to an especially cumbersome form of subsidy, one that has corrupted the university system, misallocated higher education resources and inflated tuitions, and sunk generations into debt.

While DeVos’s reforms might possibly be an improvement, what if the troubles associated with the federal government’s student loan programs are not the result of how they are managed, but that the federal government is involved at all?

Centralizing consumer credit in specialized Congress-created lending institutions (Fannie Mae and Freddie Mac) was at the heart of last decade’s massive financial crisis. Shouldn’t a major banking reform focus on avoiding the moral hazards involved in government-run credit and subsidies?

DeVos’s plan doesn’t strike me as educated on this angle.

This is Common Sense. I’m Paul Jacob.

education, bank, loans, Devos,

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Higher Ed Jubilee?

Student loans, bailout, bail out, loans, jubilee, banks, subsidies

“Everything is beautiful in its own way,” goes Ray Stevens’s hit song of 1970. But still, pay your bills. 

That’s what I thought reading a Fox Business story on a recent poll in which 42 percent of Americans, a plurality, thought that “President Trump’s administration should forgive all federal student debt in order to help stimulate the economy.”

Roughly 37 percent disagree, at least. Twenty-one percent were undecided.

For starters, justifying a huge financial giveaway to some citizens at the expense of other citizens as a way to help “stimulate the economy”? A sad commentary on the state of civic discussion.

Of course, this particular voter survey may have been concocted as nothing more than some capitalist PR plot by MoneyTips.com. Still, the numbers are believable, and with total student debt reaching $1.3 trillion — owed by some 44 million Americans — the subject is certain to come up again.

Let’s not forget, Bernie Sanders declared it a sin against public policy that Americans were not provided a free university-level education. I can hear his future oration, “We bailed out the banks for the one-percent. We can bail out the students!”

It should be a popular position on college campuses, cui bono and all.

“Drilling into the data, we found millennials (18-29) were especially passionate about student loan debt forgiveness, strongly agreeing with the idea nearly twice as much as those 50 and older,” confirmed MoneyTips co-founder Michael Dubrow. “Even if older people are still paying off their loans, younger people paid more and borrowed more for higher education.”

This sounds like a good reason to cut current subsidies, not increase them.

No. More. Bailouts.

This is Common Sense. I’m Paul Jacob.

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Categories
Accountability free trade & free markets ideological culture moral hazard national politics & policies

Puerto Rico’s Debt, Our Problem

“We have an important choice to make,” presidential candidate and Senator Bernie Sanders recently wrote to Congress. “[D]o we stand with the working people of Puerto Rico or do we stand with Wall Street and the Tea Party?”

The bill in question has been dubbed Paul Ryan’s “first big victory as Speaker,” but was written in tandem with the White House. The plan attempts to rescue Puerto Rico, a United States territory, from financial collapse with both bailouts and austerity — the latter including a lowered minimum wage.

I hadn’t heard any Tea Party squawk about this, so that reference must be just signaling on Bernie’s part.

Puerto Rico is $72 billion in the hole. Basically, Sanders wants to partially repudiate that debt: “The billionaire hedge fund managers on Wall Street cannot get a 100 percent return on their bonds while workers, senior citizens and children are punished.”

Of course our sympathies are almost entirely with the people of Puerto Rico. But it was their government that racked up the debt, and repudiating sovereign debt is a tricky and parlous thing.

What happens when the United States itself faces similar (or worse) straits? Would Bernie then, again, plan to stick it to the government’s creditors — even after he, himself, had voted to increase spending above revenues and periodically raise the debt ceiling — and think that this wouldn’t have consequences?

Meanwhile, the possible minimum wage reduction is one of the stickiest of the issues. Bernie sees it as “sticking it” to the poor.

In truth, it would help increase employment, thus help the poor get out of poverty.

This is Common Sense. I’m Paul Jacob.

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Puerto Rico, debt, loan, Bernie Sanders

 

Categories
folly free trade & free markets moral hazard nannyism national politics & policies responsibility

Auto Destruct

car, automobile, auto, loan, bubble, illustration

Just when you thought it safe to go back into the loan market. . . .

Yes, you guessed it: a bubble may be about to pop.

There are actually several, but here’s one you might not expect: the automobile loan market.

Though less regulated and tampered with than the housing market, auto loans aren’t immune to “moral hazard” and other government-induced dangers. The Fed’s low interest rates are almost certainly stimulating the new car market. “Subprime” car loans are way up and so are delinquencies. Do the bankers making these decreasingly solvent loans expect a bailout?

As Eric Peters notes at his immensely fascinating automobile website, the average car loan is now $32,000, “a record high.” And then there’s the “ever-increasing duration of new cars loans. They are now on average six years long — and seven year loans are becoming pretty common.”

Why? “In order to spread out payments (now averaging almost $500 a month) that have become simply too much to manage for most people.”

But then of course car prices are rising. And not just because of simple inflation. It’s the result of government regulations, mandates, and . . . general craziness. Many buyers now finance used car purchases, too, as Mr. Peters explains. That used to be fairly uncommon. The used-car market has been unduly affected by government insanity as well. Remember Cash for Clunkers? Politicians boasted about their managed destruction of millions of used autos.

What they really achieved was a tighter-than-ever supply of usable older cars.

Cruising toward the auto-destruct of the auto-loan markets.

This is Common Sense. I’m Paul Jacob.

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car, automobile, auto, loan, bubble, illustration

 

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