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College Debt: Who's To Blame For Students' Suprime Loans?

Placing the Blame as Students Are Buried in Debt
By RON LIEBER | New York Times

Like many middle-class families, Cortney Munna and her mother began the college selection process with a grim determination. They would do whatever they could to get Cortney into the best possible college, and they maintained a blind faith that the investment would be worth it.

Today, however, Ms. Munna, a 26-year-old graduate of New York University, has nearly $100,000 in student loan debt from her four years in college, and affording the full monthly payments would be a struggle. For much of the time since her 2005 graduation, she’s been enrolled in night school, which allows her to defer loan payments.

This is not a long-term solution, because the interest on the loans continues to pile up. So in an eerie echo of the mortgage crisis, tens of thousands of people like Ms. Munna are facing a reckoning. They and their families made borrowing decisions based more on emotion than reason, much as subprime borrowers assumed the value of their houses would always go up.

Meanwhile, universities like N.Y.U. enrolled students without asking many questions about whether they could afford a $50,000 annual tuition bill. Then the colleges introduced the students to lenders who underwrote big loans without any idea of what the students might earn someday — just like the mortgage lenders who didn’t ask borrowers to verify their incomes.

Ms. Munna does not want to walk away from her loans in the same way many mortgage holders are. It would be difficult in any event because federal bankruptcy law makes it nearly impossible to discharge student loan debts. But unless she manages to improve her income quickly, she doesn’t have a lot of good options for digging out.

It is utterly depressing that there are so many people like her facing decades of payments, limited capacity to buy a home and a debt burden that can repel potential life partners. For starters, it’s a shared failure of parenting and loan underwriting.

But perhaps the biggest share lies with colleges and universities because they have the most knowledge of the financial aid process. And I would argue that they had an obligation to counsel students like Ms. Munna, who got in too far over their heads.

How many people are like her? According to the College Board’s Trends in Student Aid study, 10 percent of people who graduated in 2007-8 with student loans had borrowed $40,000 or more. The median debt for bachelor’s degree recipients who borrowed while attending private, nonprofit colleges was $22,380.

The Project on Student Debt, a research and advocacy organization in Oakland, Calif., used federal data to estimate that 206,000 people graduated from college (including many from for-profit universities) with more than $40,000 in student loan debt in that same period. That’s a ninefold increase over the number of people in 1996, using 2008 dollars.

The Family

No one forces borrowers to take out these loans, and Ms. Munna and her mother, Cathryn, have spent the years since her graduation trying to understand where they went wrong. Ms. Munna’s father died when she was 13, after a series of illnesses.

She started college at age 17 and borrowed as much money as she could under the federal loan program. To make up the difference between her grants and work study money and the total cost of attending, her mother co-signed two private loans with Sallie Mae totaling about $20,000.

When they applied for a third loan, however, Sallie Mae rejected the application, citing Cathryn’s credit history. She had returned to college herself to finish her bachelor’s degree and was also borrowing money. N.Y.U. suggested a federal Plus loan for parents, but that would have required immediate payments, something the mother couldn’t afford. So before Cortney’s junior year, N.Y.U. recommended that she apply for a private student loan on her own with Citibank.

Over the course of the next two years, starting when she was still a teenager, she borrowed about $40,000 from Citibank without thinking much about how she would pay it back. How could her mother have let her run up that debt, and why didn’t she try to make her daughter transfer to, say, the best school in the much cheaper state university system in New York? “All I could see was college, and a good college and how proud I was of her,” Cathryn said. “All we needed to do was get this education and get the good job. This is the thing that eats away at me, the naïveté on my part.”

But Cortney resists the idea that this is a tale of bad parenting. “To me, it would be an uncharitable reading,” she said. “My mother has tried her best, and I don’t blame her for anything in this.”

The Lender . . .



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Next time get a real degree.

One that is actually marketable, and you won't have to be working as a photographer's assistant.

You might as well have paid $200,000 to learn how to become a tree. Yes, this blunt.

Nothing wrong with paying through the nose for a degree in women's studies and religion if you grew up with a trust fund, but for most of us we pursue our hobbies on our own dime and down time.

Just sayin', asking "who's fault is this?" only kicks the can of personal responsibility down the road, and empowers those who can't yet grasp what that means.

When are people going to get it that the world is full of opportunities to be scammed and taken advantage of?


We should find out Sallie

We should find out Sallie Mae's transactions with the Federal Reserve.


The comments on this article perfectly exemplify why libertarians will never run America, or even a county. No one if going to vote for people who are so completely devoid of empathy and incapable of understanding that people are NOT all created equal. Yes, an 18 y.o., with 100+ I.Q., who attended a good high school with a rational college counselor, and raised by responsible parents, should be expected to take responsiblity for having made good decisions about school loans. Conversely, an 18 y.o. with a sub 100 I.Q., who attended a crappy high school with a idiot for a college counselor, and raised by irresponsible parents, should not be expected to take the same responsibility for making good decision about school loans. We do not spring whole, fully formed, from the breast of Zeus. We all have to be educated -- and, if that education does not happen, or if through unfortunate differences in mental capabilities some are less capable of absorbing education, it is totally unfair to apply the same rules and expectations to people at opposite extremes of experience and ability. Further, just as banks defrauded home buyers by jiggering home value estimates, so banks and schools jigger the value estimates of a college educations. This is fraud and libertarians should be the first to be screaming foul when it comes to fraud. Instead, we see far too many so-called libertarians making excuses for such corporate and educational establishment corruption. Until libertarians understand that people are different, have different levels of capability, and, as well, become willing to hold corporations responsible for their own role in swindling people through misrepresentation of values, they are going nowhere politically. Politics is about people, not philosophy. You can plan to educate the people, but you have to recognize that there are vast differences in the capabilities of those people, and you have to undergo that education process first, before you start screaming about the people taking responsibility -- at least if you want to be taking seriously by anyone who isn't a fascist. Come on folks, wake up. We can do better than this.

tasmlab's picture

Peter Schiff has great videos on this topic - highly recommended

You can find it on his video blog on http://www.schiffforsenate.com

College loans are sort of a tertiary part of his campaign now, not that he's leading with it, but he's willing to talk about it passionately.

While you're there, give him some money and buy a t-shirt ;-)

Currently consuming: Morehouse's "Better off free", FDR; Wii U; NEP Football

The mother and daughter, both,

are innumerate as well as naive.

I was able to to to college only because in California the two-year colleges were free, and the state university tuition cost $95 a semester, and I lived close enough to one to commute from my parents' home. I also had to buy a $15 parking pass every semester at the university (two year college parking was free). Total per year for the last two years: $220 (except that I indulged myself a couple of extra years beyond that). Books didn't cost much, so a menial summer job, and a few part-time jobs during the school year paid for these things. Never in a million years would I have taken out a loan, nor would my parents have co-signed one. If I couldn't afford something, I couldn't have it.

Whoever got the loan is the slave...debt is slavery

My wife went through 8 years of college to become a pharmacist. She achieved her doctorate and entered the work world with about $7000 in student loans that we paid off a long time ago.

It wasn't rich parents, as both of her parents are/were school teachers. She focused on school, not parties. She drove a crappy car that got her from point a to point b. We shared bowls of ramen noodles on more than a few occasions. Grilled cheese sandwiches were often a treat.

But I think the most important thing of all...she only got small loans that were necessary. She didn't use any grant money, loan money, or scholarship money to buy new televisions, or 22 inch rims for here crappy saturn. She didn't then, and still doesn't buy name brand clothes unless we get them at a very steep discount. She does spend good money on work shoes because she is on her feet a lot, but now she is even buying them off of ebay.

Some say you play the hand your dealt, and I believe that some people just play 52 card pickup with their common sense.

MISH's Take on this

Students fresh out of college, six-figures deep in debt, face decades of debt slavery. Both parents and students are wondering what went wrong. Please consider Placing the Blame as Students Are Buried in Debt.

What Went Wrong?

Supposedly "Ms. Munna and her mother, Cathryn, have spent the years since her graduation trying to understand where they went wrong."

It should take seconds. Going $100,000 in debt to get an interdisciplinary degree in religious and women's studies seem rather foolish to say the least. Exactly what kind of job did Ms. Munna expect to get with that degree?

Now she is working for a photographer and it is plain to see her degree is totally useless.

Ms. Munna and her mom should look in a mirror to see who to blame.

Recognizing the Enabler

Although Ms. Munna should blame herself, there is a huge enabler of these kind of tragedies: Pell Grants and government loans.

Subprime Goes to College

Inquiring minds are reading the Eisman ira sohn conference slides and speech-5-26-10 presentation called Subprime Goes to College.


Follow me on Twitter for breaking news from a libertarian perspective


Uh, the student?

Every single one I've spoken to ENJOYS being in debt! The have truly been dumbed down by the public fool system. At least the Nazis were forthright enough to call it the "Ministry of Propoganda". Here we call it the "Department of Education".

I don't know anyone who truly

I don't know anyone who truly enjoys being in debt, but it does seem that the majority of people have this belief and acceptance in their minds that people will be in debt their entire lives.


Students partly to blame

I know it's popular to rag on the banks... but we should be fair and state that students don't *have* to get into debt. Now my college tuition for my BS and MS combined was "only" about 35k. But because I worked throughout both degrees, including two years full time work, I only had to borrow $2,500 to get through a single term. Otherwise I paid for the whole thing in cash. I did have a credit card, which I used more than once to pay tuition early in the term (so I could enroll), but then paid it off by the end of the term. At some point, students will need to accept that hard work and even slowing down the pace of earning your degree can, in fact, be financially smarter.


One of my nieces graduates

One of my nieces graduates this year. She'll be saving a great sum of money by going to community college, but I've been telling her that it might be a much better idea for her to try to get a job right away, save some money and then pay for college from savings instead of through loans. I've been telling her this early winter. Told her that the costs for college go beyond simply classes & books, that she'll end up looking for money from credit cards, etc... and that it all can so quickly build up over a period of however many years she ends up being in college. I told her that by the time she graduates college the amount she owes may be really overwhelming.

She's pretty much convinced, though, that she has to go to college right out of high school. In some sense she seems as though she is entitled to it.

I'm a college graduate and that is the advice that I've been giving her.


It's not the kids fault

Most kids from the mid 90's on were given credit cards on their 18th birthday.

In a free-society "credit" is only given to people who have "real" colateral (mostly only to wealthy people) and more importantly a "history" of progressively higher and promptly paid off loans.

These kids were not given enough knowledge in high school (nor were 3 generations of their predecessors) to make these types of decisions.

This is why they are called "predatory loans."

That describes my situation

I've wished for a long time that I'd been introduced to the likes of Ron Paul and the dangers of debt before I'd gone to college.

Now...I am making my payments...barely...and have the next 25-30 years to look forward to such. Needless to say, I'm not a happy camper.

Predatory lending

Banks donate huge dollars to Universities, pay large fees to booth booths to recruit credit card users at colleges, and have members on University Foundations and Boards of Directors. Go figure they would be taking advantage of students and their ignorant parents to hawk themselves into a lifetime of debt.


What I want to know is WHO

What I want to know is WHO were the frontmen for the bankster push to increase student loans and raise tuition costs? As far as I can tell, most people for the longest time could work and put themselves through college.

Ventura 2012

I was recently talking with . . .

a retiring college administrator.

Yes, he is deeply invested in the 'university education is the key to a good future' mentality, but he said that with costs being cut by the state, there are reduced class offerings.
This assistant dean is responsible for recruitment, and he admits that he is good at it; he's got facts and figures at his fingertips for all programs, and he's a bright man.

But, now, he says it is too hard to 'sell' young people on a particular program when classes aren't available.


The part that really impressed me was his weariness. He's tired of the press, the aggression required.

The idea that universities are, somehow, set aside from the rest of 'business' is an old-fashioned one, and it doesn't apply at all now.

it's hard to be awake; it's easier to dream--

.edu really is BIG

.edu really is BIG business.

I don't see why the school doesn't have classes available, though.

If that college has the demand from students but is incapable of making classes available, that makes me think there is something seriously wrong with their business plan or the execution of it. There are many colleges that get along fine without money from the government.


The more the government

The more the government subsidizes things the more they cost. The government decided to make buying a house easier with Fannie Mae, Freddie Mac, the FHA, and super low interest rates. The result -- house prices were bid up through the roof. We know how that worked out.

The government has an incredible array of rules and regulations combined with subsidies and hand outs in the health care industry. The result -- big increases in costs every year with the result that nobody can afford it anymore. So now politicians say we have to nationalize the whole thing. (They will handle the costs the way other countries have -- by rationing health care.)

The government has long been subsidizing "higher education". The result -- tuition has risen faster than inflation for decades. Nobody should go $100,000 into debt to get a college degree -- unless they're studying to be a neurosurgeon so have a fair chance of making the money back. If you can't afford college there are alternatives. First, are you more interested in learning stuff or in getting a piece of paper that says you learned stuff? If the former, the cheap solution is obvious -- buy the right books and read them. If the latter, look for a less expensive if less prestigious college. Remember that after a couple of years in the work force nobody gives a damn where you got your degree, or even *whether* you got a degree.

So no, the government should not bail out people with $100,000 student loans. Doing so will simply encourage more of that sort of idiocy, just as the bailing out of investment bankers will encourage more dangerous risk taking. Also, I have bad news for Cortney -- if your Mom encouraged you to get $100,000 into the hole that *is* bad parenting, even if she did everything else right.

Accepting what you're saying means

Accepting what you're saying means the older people of this country are handing a far worse world to the young people than what was delivered to them. So tell the kids to go buy the books themselves and learn and create a curriculum themselves? Are you... I'm just saying... I don't know what to say. The hopeful decisions older people got to make about their futures when they were young aren't nearly as accessible any longer. That's beyond pathetic.

"the older people of this

"the older people of this country are handing a far worse world to the young people than what was delivered to them"

There are many older people who feel exactly that way, as if they are going to be the first generation who leaves a lower quality of life to the next generation.


reedr3v's picture

The hopeful trend is for young people

to get out of brick-and-mortar institutions and into the wonderful, cheap, quality educational programs available on line now. It doesn't have the prestige yet, now the social opportunities, but not the headaches and pocketbook aches either.

I went to a well known

I went to a well known university. I worked summers and paid for 70% of it, my parents paid for 10% of it, and I borrowed 20%. The loan was paid off in a few years. But tuition (in inflation adjusted terms) was cheaper then. Now when I want to learn something new I don't enroll in expensive college courses. I read the damn books. As long as people are willing to mortgage their future to pay extortionate tuition the universities will continue to gouge them. It's their choice.

As for the world being worse than it was 40 years ago, well, where is it written that the world has to keep getting better? Decades of short term polices by your government (and by too many individuals) pretty much guaranteed that things would get worse.

As an example, most middle class members of my parent's generation got pensions, whether they worked in government or in private industry. My generation doesn't get a pension unless it works for the government. You can thank this on outsourcing, globalization, and unreasonable financial assumptions by pension managers. This sucks for me, but again, where is it written that my life has to be easier than my parents'?

"where is it written that my

"where is it written that my life has to be easier than my parents'?"

It doesn't have to be easier, but our parents generations would prefer that they leave us all with higher living standards as opposed to lower living standards.


that doesnt mean you go from

that doesnt mean you go from a Kia lifestyle to a Mercedes lifestyle. The lifestyle argument could be said to our current financial mess in this country. A lifestyle based upon credit, credit, and more credit. It took me awhile to understand this too and I had some real good books to teach me a way. But even then it took some time. Keeping up with the Jones's is no way to have a higher standard of living.

People really have got to look at their lives and decide if "stuff" is more important or is the relationships and family more important. The former will leave you broke and the latter will make you rich.

An additinoal factor.

Other commenters, below, have raised the important points.

An additional factor, however, is clueless college administrators at many colleges who reserved grants for foreign students and left the citizens with only loans as financial aid options.

(They were apparently thinking of the foreign students in terms of the stereotypes of the general population of their countries as poor and downtrodden - without checking into their actual financial situations, when in fact the ones who made it to US colleges and universities were mainly the children of their countries' upper classes. My wife recalls grants going to Rolex-wearing, Porsche-driving party boys while she was working her way thorough by waiting tables.)

= = = =
"Obama’s Economists: ‘Stimulus’ Has Cost $278,000 per Job."

That means: For each job "created or saved" about five were destroyed.

indeed, spouse and I (senior citizens both and still working--

no great hope for retirement ahead)--

both remember menial and undesireable (very early morning) work from our college days. Neither of us came from 'poor' families, but neither of us had support--

and we were determined to get our degrees without debt--

it's all so different now. Looking back, though (mine was the private university; my spouse's was the Ivy League public, a huge state university with a big reputation), neither of us feel that, beyond the struggle to attain, most of our classes were worth that struggle.

Our degrees in hand so many decades ago that a college education was still considered prestigious--

we really thought we had 'arrived'--

one of our adult children has his/her own business and hasn't attended college and does well and sees his/her peers returning 'home' after attending universities in various places, unable to:
--get into graduate school
--get decent jobs

but . . . not being particularly well-educated in a traditional sense.

Our adult child who does attend college struggles with the 'jumping through hoops' and does so only because talents in a particular area make it seem more adviseable to go to college rather than to work dead-end jobs.

My sympathies are with *our* young people, whether they be the college-degreed friend of my child who is making minimum wage or whether they be my child who is defying 'tradition' not to take college courses.

And all that debt!

it's hard to be awake; it's easier to dream--

Yeah, the entire mathematics

Yeah, the entire mathematics department at Yale is Chinese, except for a handful of Russians.

And I remember Liberian Mike from Eastern CT state U. That was back in what, 2000 or 2001? He'd strut around wearing a cross encrusted in thousands of diamonds. His father "ran the family business," as Mike said, and Mike never paid for anything without having to break a $100 bill.

Still, I wonder if Mike got a scholarship, or did his gun-running blood diamond merchant dad just need to get his son out of a madhouse known for kidnappings?

"Cowards & idiots can come along for the ride but they gotta sit in the back seat!"

Well, this topic gets to me,

Well, this topic gets to me, too. My daughter went to college on scholarships and loans. At the age of 44, while she was in college I also went back. We were careful about what we borrowed and both worked part time (I delivered pizza at night). Unlike some, we did not continue to "fool the system" by staying in school to not pay on it, we started paying. When interest rates went down I transferred mine around onto credit cards with deals of zero apr. It took me about 11 years to pay it off abt $29,000), and when she sold a house for profit she paid off hers (abt $37,000).
These people who take out loans and have little intentions of paying them back irk the hell out of me. Now what..? A bailout for THEM after I worked so hard to be responsible?
If you borrow money and are NOT a fraud/criminal..you should have every intention of paying it back according to the terms of the loan and do so. Period.

How can a young kid know?

How can a young kid know if they'll be able to pay off a $100k loan 4 years later? I'm not trying to excuse irresponsible behavior but I remember what my own mindset was like. You get into the best school you can and then you figure out a way to pay for it. The inflation in education has run at 10%/year for decades. Now the bubble has burst in terms of people's ability to repay. From the perspective of the student they can't repossess the education, they can't resell it or remove it. This is a crappy situation. I hate this.

If a kid can't do simple math

If a kid can't do simple math (i.e., figure the cost of paying back a loan with interest, and how much you have to make before taxes to pay it) then he doesn't belong in college. Remedial high school is more like it.