AuthorTopic: Subprime Student Loans  (Read 4091 times)

Offline RE

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What’s Scarier Than Student Loans? Welcome to the World of Subprime Children

Income share agreements sound like a better deal than today’s student loans, but what will they do to society?

By Malcolm Harris

Mr. Harris is the author of “Kids These Days: Human Capital and the Making of Millennials.”

    May 11, 2019

Credit Tim Lahan

As American families refresh the wait lists and weigh their aid offers, yet another cohort of children sets foot into our disaster of a national higher education financing system. Student debt in the United States is over $1.5 trillion, with half of it accumulated in the past decade. Income share agreements — in which borrowers pledge a percentage of future income against debt — present the first plausible alternative. That’s what we should be afraid of.

There’s a lot to dislike about the student debt status quo, which is now almost completely controlled by the federal government. Although the Democrats don’t like to talk about it, the Obama administration effectively nationalized a vast majority of student borrowing in 2010 when it ended federal guarantees for outside lenders as a cost-cutting provision of the Affordable Care Act. The government has a number of advantages as a lender, including an exemption from regulations on debt collectors and the ability to print money. Private investors have thus been pushed to the margin of what has become the largest nonmortgage debt category in the United States; the federal government has over 90 percent of the market.

Income share agreements, or I.S.A.s, began as an experimental model of education funding. One of the first income share programs was designed in the 1970s with the help of the Nobel Prize-winning economist James Tobin at Yale. It was poorly structured in a number of ways — students signed on as a class and kept paying until the whole debt was gone, but wealthier graduates who were able to pay a large chunk at once could opt out — and it closed down (without full repayment) in 2001. One big problem with I.S.A.s is that there is no collateral to these loans. You can’t repossess a classics degree. And as Gary Becker, the University of Chicago neoliberal economist, once lamented, “courts have frowned on contracts which even indirectly suggest involuntary servitude.”

Purdue and a few other universities have come up with I.S.A. programs that could point the way forward. They assess different rates and repayment durations depending on the borrower’s major. If you’re a chemical engineering major at Purdue, you enjoy better terms than if you study English: Under its I.S.A. schedule, chemical engineers are expected to repay $33,000 at the rate of about 8.5 percent of their income for seven years and four months, while for English majors it’s almost 15 percent for nine years and eight months. But these university I.S.A.s are meant to supplement rather than replace student loans.

Now private capital is starting to find its way into I.S.A.s, through a handful of online computer science training programs. With names like Pathrise, Thinkful and the Lambda School, these “career accelerators” provide tech companies with certified coders and provide participants with a credential in months, not years. Students in these programs can pay by way of an I.S.A. that is financed and serviced by investors gathered under their own Silicon Valley-style names like Leif. By my estimate, the private I.S.A. sector has yet to reach 1 percent of the $100 billion-plus in annual higher-education lending, but it’s growing fast.

A company called Big League Advance has started lending to algorithmically approved minor-league baseball players; something similar might appeal to college athletes whose scholarships fail to cover all their costs. From there, it’s only a few steps before investors sets their sights on other reliable investments: Ivy League finance, Stanford biology, engineering at flagship state universities.

What’s the appeal of an I.S.A. over a regular student loan? From a capitalist’s perspective, the federal government has a weakness: It treats all borrowers the same. Borrowers face the same interest rates whether they are mediocre art students or valedictorians studying quantum computing at a top engineering school. But private I.S.A. lenders can skim the cream of students off the top.

The returns on higher-education loans are already high — new student-loan borrowers will be paying the Treasury 4.5 percent to 7 percent for the 2019-20 academic year — so private lenders can offer better terms to students who are the most reliable bets. And while it’s difficult to fit all but the bare necessities of college life under federal loans limits, promising students will be able to borrow enough with a private I.S.A. to simulate the worry-free college experience of their wealthy peers.

If you can convince investors you’re going to be rich for the rest of your life, why spend your college years poor? I.S.A.s bridge the gap. It’s hard to think up a better advertisement for free-market capitalism.

But I.S.A.s are premised on the idea of discriminating among individuals. Once the high-achieving poor and working-class students have been nabbed by I.S.A.s, the default rate for federal loans starts to rise, which means the interest rates for these loans have to go up to compensate. A two-tiered borrowing system emerges, and the public half degrades.

If I.S.A.s take off as a desirable funding source, it’s inevitable that they will begin to reshape childhood. Instead of just trying to build a résumé that appeals to admissions committees, students would spend their adolescence trying to build profiles that scan as successful to investors. Every child becomes his or her own start-up. I.S.A.s will no doubt protect their child-ranking algorithms as trade secrets, but if years of research on tech bias is any guide, we can expect they’ll perpetuate existing inequalities.

For students who are risky bets, rated as less than investment-grade, lenders can tweak repayment periods and terms until the algorithm approves. Computers can make practically infinite distinctions among potential borrowers, and there’s nothing to stop future applicants from optimizing themselves into anxiety and depression even worse than what we see now.

Welcome to the world of subprime children. This is the path we’re on, and it ends with teenagers being careful to always smile in front of their laptop cameras lest the I.S.A. algorithm find them uninvestably dour. The alternative is to reconsider education as a social good and make capitalists pay for it, not as an investment but via taxation. If we’re not careful, investors from Silicon Valley and beyond will reshape the country’s children in their own image.

Malcolm Harris (@BigMeanInternet) is the author of “Kids These Days: Human Capital and the Making of Millennials.”
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Offline RE

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🎓 Map: Cities in the South are being held back by student debt
« Reply #151 on: May 15, 2019, 03:32:13 PM »
This is CFS.  There are more poor cities in Old Dixie.


Map: Cities in the South are being held back by student debt
Aarthi Swaminathan
Finance Writer
Yahoo FinanceMay 15, 2019

There are more than a trillion dollars in outstanding student loans, affecting millions of Americans, and a new study by WalletHub details how borrowers in the South are feeling the pain more than most.

The study — which looked at 2,510 cities across the U.S. and divided the median student loan balance held by adult borrowers living in those cities by their median earnings — identified cities when residents were most and least indebted relative their salaries.

Thirteen of the bottom 20 cities were in the South (i.e., south of the Mason-Dixon line and east of the Mississippi River). On the other end of the spectrum, 10 of the top 20 cities with the best debt-to-earnings ratio were in California.
(Graphic: David Foster)
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(Graphic: David Foster)

"What's worrying is that overall, post-college debt is a huge financial burden to Americans,” WalletHub analyst Jill Gonzalez told Yahoo Finance. “High balances, combined with long payoff timelines and low earnings, make graduates delay other financial goals like owning a home or saving for retirement."
‘Trillion-dollar black hole’ caused by student debt

The hotly debated issue of student loans features a wide cast of characters from presidential candidates — who are calling for broad cancellations of debt — to economists who consider it a “micro” problem.

But with more borrowers going delinquent and defaulting on their loan repayments — as well as a gradual decay of existing loan forgiveness programs — the student loan crisis has created a “trillion-dollar black hole in our financial market” that has left people “drowning under the weight of this unprecedented burden,” former CFPB student loan ombudsman Seth Frotman told the Committee on Financial Services on Capitol Hill in March.

In the WalletHub study, the cities in the 99th percentile — those with borrowers who saw their student loans comprise of around 68% to 85% of their income — were at the highest levels in Sun City West in Arizona, followed by Green Valley in Arizona and Palatka in Florida.
Student debt has soared in the 21st century. (Graphic: David Foster/Yahoo Finance)
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Student debt has soared in the 21st century. (Graphic: David Foster/Yahoo Finance)

The median student debt held by borrowers in those three cities was between $17,000 to $21,000, while their earnings were between $21,000 to $25,000, yielding a student debt-to-income ratio of more than 83%.

"The common thread among the 99th percentile was low median earnings for bachelor's degree holders, some even as low as $20,000 annually,” Gonzalez said. “This is why even cities with a lower amount of debt such as Forest Park, GA or Lexington, NC still manage to have a student debt to median earnings ratio around 75%.”
What the top cities have in common

Conversely, cities in the top percentile saw a student debt-to-earnings between 15% at the lowest end and 21%.
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Offline RE

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Let's see... Student Debt is around $1T.  So if you got 1000 Billionaires to contribute $1B Each you could solve the problem!  lol.  According to Forbes, there are only 540 Billionaires in the FSoA, and I doubt Chinese Billionaires will contribute to solve this problem.

Nice gesture though.


May 19, 2019 6:20pm

Philanthropist Robert F. Smith speaks at Morehouse College graduation. (Credit: YouTube)   

Philanthropist Robert F. Smith delivered a life-changing commencement speech Sunday at Morehouse College in Atlanta.

The billionaire businessman, who received an honorary degree from the historically black school, surprised the nearly 400 graduating seniors by announcing his family would provide a grant to pay off student debt for the entire Class of 2019.

“On behalf of the eight generations of my family who have been in this country, we’re gonna put a little fuel in your bus,” Smith said in a video posted on social media.

“This is my class,” he added, “and I know my class will pay this forward.”

The gift to the private, all-male school is said to be worth about $40 million. It comes in addition to a $1.5 million donation Smith gave Morehouse earlier this year for scholarships and a new park.

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Some students told the Atlanta Journal Constitution they were graduating with up to $90,000 in debt.

Smith is a Cornell grad, and has an MBA from Columbia University. He founded Vista Equity Partners, a software and technology investment firm, which has $46 billion in assets, according to its website.

He is the richest African-American in the United States, with a net worth of $5 billion, according to Forbes. This year he ranks #355 on the Forbes Billionaires List of the world’s richest people.

Smith has Hollywood ties as well after investing in Hidden Empire Film Group — which is run by Deon Taylor and Roxanne Avent. The group’s recent releases include Meet the Blacks (2016), Traffik (2018), and The Intruder, a psychological thriller released on May 3. The film stars Meagan Good, Michael Ealy, and Dennis Quaid. To date, it has grossed $28 million domestically.
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Offline K-Dog

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Re: Subprime Student Loans
« Reply #153 on: May 20, 2019, 12:47:13 AM »
we’re gonna put a little fuel in your bus

 :aola: :multiplespotting: :hello: :wav:
Under ideal conditions of temperature and pressure the organism will grow without limit.


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