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Mon Feb 4, 2013, 07:56 PM

Student loans: The next housing bubble

from Salon.com:

Student loans: The next housing bubble
College students accrue hundreds of thousands in debt with little hope of paying it back. It's a cruel game

By Paul Campos

The American system of higher education is increasingly becoming a fiscal disaster for ever-larger numbers of students who move through it. That disaster is being caused by a combination of terrible incentives, institutional greed — and the pervasive myth that more education is the cure for economic inequality.

The extent of this myth is highlighted by a new report from the Center for College Affordability and Productivity, which indicates that nearly half of all employed college graduates have jobs that require less than a four-year college education. Despite such sobering statistics, the higher-education complex remains remarkably successful at ensuring that American taxpayers fund the acquisition of educational credentials that, in many cases, leave the people who obtain them worse off than they were before they enrolled.

Far from being “priceless,” as the promoters of ever-more spending on higher education would have Americans believe, both undergraduate and post-graduate education is turning out to be a catastrophic investment for many young and not-so-young adults.

In recent years, law school has become the most striking example of this remarkably perverse system. Consider how American legal education is funded:

* Law schools calculate a total annual cost of attendance, based on their tuition and the cost of living in the area where the school is located. For example, American University’s law school estimates this year’s cost of attendance as $70,204.

* Any student a law school chooses to admit can, assuming he or she is not currently in default on an educational loan, borrow 100 percent of the cost of attendance for that particular school from the federal government, in the form of educational loans that currently carry interest rates of 6.8 percent and 7.9 percent.

* The federal government puts no limits on how much money a school can make its students eligible to borrow, nor does it make any effort to determine whether the federal loans students are taking out have any reasonable prospect of being paid back.

* Interest begins to accrue on these loans as soon as they are disbursed. This means that a student who enrolled, for example, in American University last fall will have — assuming a 3.5 percent annual increase in the cost of attendance — approximately $260,000 in debt when the student’s first loan payment comes due, six months after graduation. The student will owe monthly payments of more than $3,000 on the standard 10-year repayment plan, and nearly $2,000 on an extended 25-year repayment schedule.

The complete piece is at: http://www.salon.com/2013/02/04/student_loans_the_next_housing_bubble/

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marmar Feb 2013 OP
dotymed Feb 2013 #1
yurbud Feb 2013 #2

Response to marmar (Original post)

Tue Feb 5, 2013, 09:50 AM

1. Bail the students out, not the banksters. n/t

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Response to marmar (Original post)

Tue Feb 5, 2013, 10:47 AM

2. shouldn't student loans be made at the same interest rate WALL STREET got on their bailouts?

especially the Federal Reserve bailouts to them?

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