tagged w/ Student Loans
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Matt Gratz, Political Fail Blog
The American dream is a phrase that once meant an individual could work hard, get an education, and earn an income that allows for a happy & healthy life. The phrase today can still mean these things, just not to everyone. There are a few who can afford college and there are many who must borrow money for their education. Our civilization is at a point where we need to make a decision about how we want to live in these bodies while we have them. Should we create an economy/way of life dependent on every young person owing tens or even hundreds of thousands of dollars to banks just for the chance at a head start in their career? Or should education be a service that we provide to each other because an educated population benefits all mankind and betters our society?
In recent years I have noticed a huge rise is the number of online colleges and occupational studies schools. I see more and more poorly made commercials advertising online college degrees and local occupational colleges that will send you on your way to living the life of your dreams. A couple things the commercials leave out are the cost of tuition and the amount you will be paying after interest is added to your loan(s).
I know from personal experience how these for profit schools prey on America's youth. At the age of 16 I had graduated from high school one full year early and was looking for the perfect college to go to. At the time I was working in a restaurant and figured that working with food and people was something that I should continue doing. I saw a commercial for the California Culinary Academy in San Francisco and thought a school so close to home that can offer me a head start in the culinary field would be a perfect place to go.
I called the school to get some information and was transferred to a recruiter who was very eager to get me to see the school in person. The recruiter told me how difficult it was to be accepted into CCA and encouraged me to begin the application process right away, meaning he wanted me to get my mother's credit card to seal the deal with a non-refundable application fee of $75 I believe. (Remember I was only 16 at the time.) We then set up a time to meet.
When I arrived at the school for the first time I remember being overwhelmed by the size of the buildings and all the people in suits, you don't see much of that back in Hollister. My parents and I met with the recruiter who offered to show us around the campus. During our tour the recruiter spoke of the wonders of the school, the success of the alumni and the happiness of the current class. He claimed to be uncertain of the costs, as there was a whole separate department for dealing with the tuition & housing fees, however he was certain of the success rate of graduates.
At one point in the tour the recruiter took me to marble floored hall where there was a large bulletin board on one wall which was covered in pieces of paper. Each piece of paper was a job opportunity from all over the world, just waiting to be picked by graduates. I was led to believe that before graduation I would be picking one of these places to spend an eight week internship which could turn into a permanent job, that was not the case at all.
After the lie filled tour was complete I was then interviewed. I was asked a small series of generic personality questions then I was asked to close my eyes and describe my dream hotel. I described a five star Hawaiian beach resort in which I was the manager earning more than enough to pay multiple student loans. After describing my dream job I was told that the only way I could achieve that level of success was with a degree from this school.
Once I was enrolled and attending the school it started to become very clear that I had been lied to. The classes were short and beyond pointless, the teachers were rude and unprofessional, and most of the students had no business even being there. Many (like me) were fresh out of high school and were completely dependent on student loans. (One day bus loads of high-school seniors showed up for a field trip and CCA officials actually asked us to miss our class time to give these kids tours!)
The final classes were absolute bullshit. For six weeks the school's working restaurant is turned into a "classroom" in which some students work the kitchen and others work the floor serving tables. We were not allowed to keep tips and we were encouraged to "up-sell" the costumers, meaning try to get as much cash out of them as you can while you have their attention. Since the classes were so large, a few students took turns being the "manager" of the restaurant which meant at the end of the "class" they got to count and record the money. Each three week class on how to serve tables costs $2,000.00. (So that means they have hundreds of kids paying $4,000 to serve tables for six weeks!!)
I know I am not alone in these feelings of anger and regret. There are hundreds of thousands if not millions of other young people in the same situation as me today. For this reason (among others) people all over the country are joining together in unity to occupy their local cities and towns. The 99% include all of us who are forced to work and spend our lives achieving someone else's goals. There is no reason I should start out my professional life with over 100k in debt. It is obvious that student loans are a form of enslavement and I refuse to be a part of it. I will not work and waste my life to pay off a never ending bill. I will not be a slave. I am part of the 99% who are rejecting the old and making way for the new. We can create a better way, so why don't we?
See original blog post for more (8000 character limit) -->>
http://www.politicalfailblog.com/2011/11/how-california-culinary-academy-other.htmlMatt Gratz, Political Fail Blog
The American dream is a phrase that once meant an... more
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In the 1960's the only way tenants could fight back against evil slum lords was to go on rent strikes -- they refused to pay until the slum lords fixed the apartments. I think the next logical step in the Occupy Wall St Movement is to advocate for national Mortage and Student Loan Strikes!
The banks need to be punished and forced to change. If million sof American refused to pay their outrageous student loans and their mortgages -- it would critically "starve the beast" to paraphrase our Tea Party friends. We need to stop meekly feeding the machine of Big Loans. If the banks refuse to modify home loans? Mortgage Strike nationwide!
And what recourse would the banks have if tens of million sof Americans simply stopped paying? It would cripple them and the sheer volume of the defaults would make it impossible for the banks to pursue legal action.In the 1960's the only way tenants could fight back against evil slum lords was... more
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Of the many long-term problems the U.S. economy faces, student loans are a big one. Education costs are rising very quickly and incomes aren't. As a result, students will have to borrow more and more money to obtain university degrees and will have a tougher time paying their loans. President Obama seeks to respond to this question with an executive order in the next part of his "We Can't Wait" unilateral stimulus effort. While the president's heart may be in the right place, his effort isn't like to have much impact.
The Problem: Student Loans' Crazy Growth
The cost of college is growing rapidly. That wouldn't be a problem if incomes were growing as quickly as tuition and fees. They aren't. In order to cope with the growing expense of college, more students are relying on bigger loans. The chart below demonstrates the problem pretty clearly:
You can see that student loans have grown by 511% since 1999. Meanwhile, disposable income has grown by just 73%. As this chart also shows, most outstanding student loan debt (82%!) was accrued by students over just the past decade.
Obama's Executive Orders
The president seeks to make the situation a little bit easier for some of those graduates. He will create an executive order that has three components.
•He will clear the way for borrowers with direct government loans and government-backed private loans to consolidate their balances. The White House estimates that this will cut the effective interest rate on student loans by up to 0.5%.
•He will limit the amount of student loan payments to 10% of a graduate's income. (Currently, the limit is 15%.)
•He will allow debt still outstanding after 20 years to be forgiven. (Currently, forgiveness occurs after 25 years.)
Those last two orders are really just the president moving up the timeline of existing legislation. Both changes are set to go into effect in 2014, but the president will order that they go into effect as of 2012.
The Impact
Let's consider the impact of each of these orders.
Consolidation
The first would clearly be the most significant, because it is aimed at helping more student loan borrowers. How much would an interest rate reduction of up to 0.5% affect payments?
For the average borrower, the impact would be small. In 2011, Bachelor's degree recipients graduating with debt had an average balance of $27,204, according to an analysis done by finaid.org, based on Department of Education data. That average has ballooned from just $17,646 over the past decade.
Using these values as the high and low bounds of average student debt over the last ten years, the monthly savings for the average student loan borrower would be between $4.50 and $7.75 per month. Clearly, this isn't going to save the economy. While borrowers with bigger balances would save more, this is the average. And even someone with $100,000 in loans would only cut their monthly payments by $28.50.
Payment Limits
As mentioned, the government already has a program for borrowers to reduce their student loan payments to a ceiling of 15% of their income. At this time, just 450,000 borrowers are participating. How many others would benefit from the 10% cap?*
Originally, I did a calculation to estimate whether the average student loan borrower could benefit from this program. Since then, I have learned that this calculation assumed a much broader population of borrowers than will actually be eligible for the program. The White House estimate is 1.6 million borrowers could participate. Any borrower who graduated in 2011 or earlier will not be eligible, so its effect will be felt strictly by those in school now or in the future. For a very lengthy explanation of this aspect of the student loan plan, see this post, written after the criteria was clarified.
Loan Forgiveness
Of all these parts of Obama's executive order, the loan forgiveness aspect will have the least impact. By moving the timeline from 25 to 20 years, it could be significant in the long run -- but it won't be felt for decades. Remember, 82% of the current student loan debt outstanding was accrued in just the past decade. So it will be at least another 10 years before any of those borrowers have hit the 20-year mark in their student loan payments.
...."
http://www.theatlantic.com/business/archive/2011/10/obamas-student-loan-action-wont-have-much-impact/247411/"
Of the many long-term problems the U.S. economy faces, student loans are a big... more
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President Obama has finally realized that the only way he's going to get something done -- anything, no matter how small the measure -- is to bypass the obstructionist brinkmanship that has become synonymous with the Congressional Teapublicans, and enact a few Executive Orders to address a areas that average Americans struggle with under our present economic inequality.
http://veracitystew.com/2011/10/26/obama-side-steps-gop-pushes-plan-to-ease-student-loan-debt/President Obama has finally realized that the only way he's going to get... more
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APNewsBreak: Dems mum on Obama proposal on debt collectors pursuing money owed government
http://www.washingtonpost.com/politics/federal-government/apnewsbreak-dems-mum-on-obama-proposal-on-debt-collectors-pursuing-money-owed-government/2011/10/04/gIQATDh5JL_story.html
WASHINGTON — To the dismay of consumer groups and the discomfort of Democrats, President Barack Obama wants Congress to make it easier for private debt collectors to call the cellphones of consumers delinquent on student loans and other billions owed the federal government.
The change “is expected to provide substantial increases in collections, particularly as an increasing share of households no longer have landlines and rely instead on cellphones,” the administration wrote recently. The little-noticed recommendation would apply only to cases in which money is owed the government, and is tucked into the mammoth $3 trillion deficit-reduction plan the president submitted to Congress.
Despite the claim, the administration has not yet developed an estimate of how much the government would collect, and critics reject the logic behind the recommendation.
“Enabling robo-calls (to cellphones) is just going to lead to more harassment and abuse, and it’s not going to help the government collect more money,” said Lauren Saunders of the Boston-based National Consumer Law Center. “People aren’t paying their student loans because they can’t find a job.”
Whatever the impact on the budget deficit, the proposal has aligned the White House with the private debt collection industry — frequently the subject of consumer complaints — at a time when the economy is weak, unemployment is high and Obama is embarking on his campaign for re-election.
Democrats in Congress who frequently support the president, including Senate Majority Leader Harry Reid of Nevada and House Democratic leader Nancy Pelosi of California, declined through aides to say whether they favor or oppose the plan.
Nor was there any reaction from two other members of the party’s leadership in the Senate, Sens. Dick Durbin of Illinois and Chuck Schumer of New York. Both men frequently take the side of consumers in legislative struggles.
Several aides, speaking on condition of anonymity so they could talk freely, said Democrats do not want to oppose the president but are unable to support the request.
Mark Schiffman, a spokesman for ACA International, an industry trade association, said the administration “basically has come to the same solution we have” at a time when an increasing number of Americans have no landline phone to receive calls.
The change “is something we have been advocating for,” he said, although he added his organization did not have direct discussions with administration officials in advance.
Schiffman noted that debt collectors have long been allowed to make robo-calls to landline phones. He said automatic dialing is a more efficient way to contact consumers who are overdue in their payments, and the industry wants it allowed in all cases, not solely those involving debts owed to the government, as Obama has proposed. Legislation along those lines was introduced in the House last week.
Federal law currently permits private debt collectors to use automatic dialing in trying to contact consumers on their landline phones. They also are permitted to make individually-dialed calls to some cellphones.
The request comes at a time when the government is looking for ways to collect tens of billions of dollars.
According to a report by the Treasury Department’s Financial Management Service, the Education and the Health and Human Services departments as well as FMS itself referred debts totaling $35.9 billion to private debt collectors in the 2010 fiscal year.
The Education Department accounted for the largest share by far — $28.8 billion referred to 22 private debt collection companies. The firms collected $685 million outright, and another $1.7 billion was recast into agreements that are designed to be paid monthly, according to the report.
Education Department officials did not respond to several requests to speak on the record about the proposal.
According to written responses the department provided to questions, it hires private collection agencies in part so the government can gain “the benefits of greater collections” through the use of new technology that is developed by private industry.
Collection agencies can receive a fee of as much as 17.5 percent of the amount they recover.
A different federal agency, the Federal Trade Commission, collects extensive records about the private debt collection industry in general.
“The FTC receives more complaints about the debt collection industry than any other specific industry,” according to an annual report to Congress, more than 100,000 in 2010.
The complaints fall into several categories, citing alleged harassment, demands for impermissibly large payments, failure to provide required consumer notice and threatening dire consequences such as jail time....APNewsBreak: Dems mum on Obama proposal on debt collectors pursuing money owed... more
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Wealth and power are rapidly becoming concentrated at the top and the large global corporations are making massive amounts of money. Meanwhile, the American middle class is being systematically wiped out of existence as U.S. workers are slowly being merged into the new “global” labor pool.
Corporations are moving operations out of the U.S. at breathtaking speed. Since the U.S. government does not penalize them for doing so, there really is no incentive for them to stay.
Meanwhile, the richest 1% of Americans — those making $380,000 or more — have seen their incomes grow 33% over the last 20 years, leaving average Americans in the dust.
http://rtruth.blog.com/2011/09/28/the-great-exterminationthe-middle-class-in-america/Wealth and power are rapidly becoming concentrated at the top and the large global... more
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mab001
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The share of federal student loan defaults rose sharply last year, especially at for-profit colleges and universities, where 15 percent of borrowers defaulted in the first two years of repayment, up from 11.6 percent the previous year.
According to Department of Education data released Monday, 8.8 percent of borrowers over all defaulted in the fiscal year that ended last Sept. 30, the latest figures available, up from 7 percent the previous year.
At public institutions, the rate was 7.2 percent, up from 6 percent, and at not-for-profit private institutions, it was 4.6 percent, up from 4 percent.
“Borrowers are struggling in this economy,” said James Kvaal, deputy under secretary of education. “We see a strong relationship between student default rates and unemployment rates.”
Although the new overall rates are the highest since the 1997, when they were also 8.8 percent, default rates peaked in 1990 at more than 20 percent.
The new rates represent a snapshot in time, covering the 3.6 million borrowers whose first loan payments came due between Oct. 1, 2008, and Sept. 30, 2009, and who defaulted before Sept. 30, 2010. More than 320,000 of those borrowers defaulted during that period.
Although for-profit colleges, which typically serve low-income students, enroll only about 10 percent of the nation’s undergraduates, Mr. Kvaal said, their students made up 150,000, or almost half, of the defaults.
The problem may be even greater. “Some research has shown that as few as one in five defaults at a for-profit college occur in the two-year window,” said Debbie Cochrane, program director at the Institute for College Access & Success, which runs the Project on Student Debt. “The extent of borrower distress is barely touched upon with these rates.”
A recent study by the Institute for Higher Education Policy found that for every borrower who defaults, at least two more fall behind in payments. The study found that only 37 percent of borrowers who started repaying their student loans in 2005 were able to pay them back fully and on time.
The Department of Education is in the process of switching to a three-year default rate, in an effort to capture a more accurate picture.
The high default rate at for-profit colleges, the fastest-growing sector of higher education, has become an increasing concern for the government, since such institutions depend on federal student aid for more than 80 (80!) percent of their revenues......
Continue at:
http://www.nytimes.com/2011/09/13/education/13loans.html?_r=1The share of federal student loan defaults rose sharply last year, especially at... more
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-- Record borrowing by college students who are graduating without jobs could lead to major problems in the nation's economy, according to a recent report by Moody's Analytics.
"The long-run outlook for student lending and borrowers remains worrisome," concluded the report, which came out in July.
"Unlike other segments of the consumer credit economy, student loans have not demonstrated much improvement in performance despite some improvement in the broader economy. ... [T]here is increasing concern that many students may be getting their loans for the wrong reasons, or that borrowers -- and lenders -- have unrealistic expectations of borrowers' future earnings."(this is a ticking time bomb that may spark the civil unrest America's missing.)-- Record borrowing by college students who are graduating without jobs could lead to... more
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Only one in five of America's college-leavers now land a job, leaving the rest to struggle with deep debt and desperation, according to fresh statistics. The level of unemployment crept back up to over nine per cent in May.
Recruitment is at its lowest for eight months, which is bad news for those completing college this summer.
America is home to the world’s most expensive and prestigious universities. Yet, paying for them has created a nation where the majority signs on to lifetime payments of loans.
“I’ll probably have $60,000 in student debt,” says Anna Kiefer, a student of New York University.
Read More and watch the video report here:
http://www.politicalfailblog.com/2011/06/us-graduate-gamble-high-fees-low.htmlOnly one in five of America's college-leavers now land a job, leaving the rest to... more
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Many young adults complain that they will be trapped in student loan debt for the rest of their lives. It could be worse: yes, really, worse. A young woman in Kansas died of cancer shortly after graduating from college, and the lenders of her $45,000 in student loans decided to come after the balance from her estate: in her case, her parents. Because every grieving family needs to fight banks.
All of the woman's lenders quickly agreed that her parents were not legally obligated to pay her student loans, since she was an adult and her parents never co-signed. Except Wells Fargo, which insisted that her heirs owed the bank $6,000. The company mysteriously changed its mind when contacted by a local TV station about the family's situation.
Student loans generally die when the borrower does; if a family member or spouse co-signs or spouses consolidate their loans together, then the surviving person is responsible for the entire balance.
http://consumerist.com/2011/02/dead-womans-parents-told-to-pay-wells-fargo-student-loan.htmlMany young adults complain that they will be trapped in student loan debt for the rest... more
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Two sets of information were presented to me in the last 24 hours that have dramatically reinforced my feeling that diminishing returns have set in to investments in higher education, with increasing evidence suggesting that we are in one respect “overinvesting” in the field. First, following up on information provided by former student Douglas Himes at the Bureau of Labor Statistics (BLS), my sidekick Chris Matgouranis showed me the table reproduced below (And for more see this).Two sets of information were presented to me in the last 24 hours that have... more
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Lord Browne is currently reviewing the tuition fee system, which was a review started during the Labour government. Though today the Universities Minister states the funding system is a mess and wants to "reduce the burden on the taxpayer"-BBC. A number of newspapers are saying this hints towards a future rise in tuition fees.
No word on a system the Russell Group is hoping for, where universities set the fees. Though it sounds like Willetts views the Student Loan company model negatively, I'm guessing the Russell idea is one alternative.
"Willetts said the system – whereby universities charge fees, the Student Loans Company pays them and students repay only when they have graduated and earn over £15,000 a year – was "unsustainable" and in need of "radical change..."The system doesn't contain strong incentives for universities to focus on teaching and the student experience, as opposed to research.".-Guardian, though student loans did badly control loans this year, where a number of students received money late.
Willetts states he does not want to inflict misery onto students, and proposed other plans like students gaining degrees from any university but from their local college.
"He said students should be able to study for a degree at any university in England, but attend lectures at their local further education college.
"That means that you don't have the costs of living away from home but you do get a prestigious degree and that's actually how we spread our access to higher education," he said."-BBC
"Record numbers of young people are applying to UK universities - applications for this year are up 16.5% on last year."-BBC, while the Guardian notes student union concerns students are already leaving with up to £22,000 in debt.
"The Lib Dem deputy leader Simon Hughes said he "hoped" fees wouldn't rise."-Politics Home
http://www.guardian.co.uk/education/2010/jun/09/david-willetts-students-tuition-feesLord Browne is currently reviewing the tuition fee system, which was a review started... more
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One 'demographic' being talked about is the youth vote and how each party is approaching this group to win votes. However, a senior in the National Union of Students said the main parties are avoiding the issue of tuition fees rises, which has caused criticism from students.
“All of the major parties are seeking to dodge the issue of fees. The Liberal Democrats have wavered on their position; there has been almost an absence of dialogue and certainly no detail from both the Conservatives and Labour parties, conveniently hiding behind the Browne review.”- Aaron Porter quote from the Times.
The article talks about Nick Barr "an economist who helped to design the student loans system" who they say wants a shake up in the fee system, but it sounds like he 'backs' the rise and wants a reduction in the use of grants, so the money can concentrate on A-levels more.
The article also talks about alternative systems that could be used to fund university courses and reduce student repayments. It sounds like the issue needs more clarity for parties on what action they would take and an election would be a perfect time to debate it.One 'demographic' being talked about is the youth vote and how each party is... more
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This is a guest post from Dan Ucko. He is formerly an intern for Vanguard and blogs at blog.plugintodan.com. He graduated from Cal Poly Pomona in 2009.
I've been out of college for a little while now.
Six months, two weeks and one day to be exact.
Thing is, I’m not totally sure what I’m doing.
Then again, who is?
Options for college graduates are slim in this economy. And recovery isn’t happening overnight.
Jobs — or at least good ones — are still hard to come by.
One in 10 people in this country are unemployed. In California, it’s one in 12.
Fewer than 20 percent of 2009 grads that applied for a job have one, according to this survey. And it’s no better back in school.
State universities have been cutting courses and programs, like labs for science classes and student exchange programs. All with fewer days of education and tuition fees that keep increasing.
President Obama addressed the needs of the middle class during his first State of the Union address yesterday and expectations were high. He has plans on the way to help the job market, reform higher and lower education, cut taxes and keep his presidency accountable.
They’re minor in comparison to last year’s massive bailouts and the struggling healthcare overhaul, but not a bad start.
While the president attempted to bring back some of that hope we’ve all been missing, I was still left uneasy about the state of the nation.
My generation is experiencing the toughest times our age group has ever seen.
Today’s students, while often supported by their parents, have it harder than ever: we’re constantly under pressure to perform.
Between SAT scores, AP classes and GPAs, there’s always a new way of evaluating how qualified we are for the next step.
Yet, when do we have time to actually figure out what that next step is?
Personally, I’m in a hurry to stop losing money. I work part-time and freelance on the side, but the freelance market for writers isn’t exactly what it used to be.
Savings is a thing of the past. While my parents supported me through college, the deal was you’re on your own once you finish.
So I’m thrown into the wild with $15,000 in debt, not enough work in the field and little time to figure things out when rent is due each month.
There doesn’t appear to be any clear-cut path anymore.
“A high school diploma no longer guarantees a good job,” Obama told the nation yesterday. Yeah, well neither does a college degree.
But at least he’s listening. “In the United States of America, no one should go broke because they chose to go to college” was another line from his speech.
It was our generation that ushered him into office, after all, so we should be entitled to some high expectations.
Obama is promising a $10,000 tax subsidy for community college students and loan repayment reform that forgets a students’ debt after 20 years.
He’s also planning to give tax breaks to parents with kids in college, extend unemployment and create new green jobs.
It all sounds great. Let’s just hope it happens — sooner, rather than later.
For now, empower yourself: understand your student loans, watch the job market, and hold our president to his promises.
Recently on the Current News Blog:
- Mr. President, your patient is waiting: A Doctor's Commentary
- What's your State of the Union wishlist?
- Help ProPublica with their Super Bowl Blitz
- Trafficking Worries Amid Haiti Adoptions - Lily Bixler
- Sri Lanka Goes to the PollsThis is a guest post from Dan Ucko. He is formerly an intern for Vanguard and blogs at... more
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ECMC Group Inc., a student-loan guarantee agency in Minnesota, acknowledged on Friday a data breach in which the personal information of 3.3 million borrowers, including their Social Security numbers, was compromised.
Guarantee agencies such as ECMC are the private entities that, under the U.S. government's system of federally subsidized student loans, collect government money and then turn around and pay it to private loan companies when borrowers default on their student loans.
ECMC said in a written statement that the affected borrowers would be notified and given free credit protection and monitoring services. "We deeply regret that this incident occurred and the stress it has caused our borrowers," ECMC's president and chief executive, Richard J. Boyle, said in the statement.
ECMC's admission of the data theft came one day after Congress voted to shut down the bank-based system of student lending in favor of direct lending by the Education Department, in part because of the cost and complexity of the bank-based system.
The data theft "occurred sometime during the weekend of March 20-21," the company said in its statement. The company was instructed by the FBI not to discuss the matter publicly until Friday, according to the Education Department.
"Protecting student privacy is a top priority for the department," said Justin Hamilton, a department spokesman. "We are working with ECMC to make sure that affected individuals are provided with resources to protect their information and to provide them with identity-theft insurance."ECMC Group Inc., a student-loan guarantee agency in Minnesota, acknowledged on Friday... more
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It's about time that the Federal Government stopped allowing banks to reap all the profits, while assuming all the risk for Student Loans. This will also lower interest rates and reduce debt for Higher Education.It's about time that the Federal Government stopped allowing banks to reap all... more
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By Zach Carter, Media Consortium blogger
Now that health care reform has finally been enacted, a host of critical economic issues are taking center stage, including financial reform, unemployment and deeply rooted economic inequality. But it’s important to note that with its health care vote, the U.S. House of Representatives actually approved a very important, and often overlooked financial reform: Student lending.
Pedro de la Torre III of Campus Progress explains the current student loan nightmare in an interview with The American Prospect’s Rebecca Delaney. For years, the U.S. government has paid massive subsidies to some of the worst-run companies in the country.
Thanks a lot, Sallie Mae
As de la Torre notes, instead of directly making loans to students, the government spent years funneling money to firms like Sallie Mae to actually make the loans. When things went sour, taxpayers covered the lender’s losses from student loans that ultimately went bad.
Taxpayers were also footing the bill for the loans and taking on the risk, while private companies and their executives enjoyed the benefits. The executives made quite a haul. In 2008 alone, Sallie Mae CEO Albert Lord took home an astonishing $46 million. Even among CEOs, that’s a princely sum—more than double what Halliburton CEO David Lesar made the same year. All of that money could have financed a lot of college educations.
Fortunately, the student loan landscape is almost certain to change as a result of the health care vote. The House bill included a provision to end student loan subsidies and boost funding for direct grants from the government to students.
Since the student loan reform and health care were both eligible for reconciliation in the Senate (meaning only 51 votes are needed for passage instead of the 60 to clear a filibuster), House Democrats decided to move on both at the same time. It’s a significant reform, and one that will soon become law with President Barack Obama’s signature.
What would an overhaul of the consumer finance industry entail?
The student loan system is just one aspect of the consumer finance industry that needs a major overhaul. On mortgages, credit cards, overdrafts, and payday loans, the banking status quo is one of outright predation. As Heather McGhee of Demos explains to The Nation’s Christopher Hayes, there’s a reason why federal agencies do a lousy job regulating consumer banking abuses.
Right now there is no agency responsible for consumer protection alone. Every regulator also focuses on making sure banks don’t fail, which generally means that regulators support anything that increases short-term profits. Egregiously predatory practices generally lead to big short-term gains in banking.
A new consumer financial protection bureau
Last week, Senate Banking Committee Chairman Chris Dodd (D-CT) introduced a bill that would create a new bureau of consumer financial protection, with no constraints from bank profitability. It’s a step in the right direction, but as McGhee notes, there are plenty of problems with Dodd’s proposal. Most problematically, the bill gives existing agencies a veto power over any new consumer protection rules. That’s a terrible loophole. Existing regulators have actively opposed consumer protections in the past, and there is every reason to expect that practice to continue.
Rapid tax refunds scam the poor
It’s late March, which means tax season is getting into full swing. All over the country, mascots from Liberty Tax are spilling into the streets wearing goofy costumes, trying to win your business. But millions of Americans don’t realize that Liberty, along with H&R Block, Jackson-Hewitt and hundreds of smaller businesses are engaged in a monstrous scam disguised as a complicated accounting service.
As Alexander Zaitchik emphasizes for AlterNet, these tax preparers have used deceptive advertising and slick salesmanship to con people into taking out “refund anticipation loans,” also known as “rapid refunds” and a handful of other pleasant euphemisms. It’s a simple gimmick: H&R Block does your taxes, and then presents you with your tax refund, right away, no waiting. But the check you receive is not actually your tax refund—it’s your tax refund minus a truckload of fees that you didn’t realize were being deducted. This is the tax-time equivalent of payday lending.
When the government sends in your actual, larger tax refund one-to-two weeks later, you won’t see it—it goes straight to H&R Block’s bank partner. Those banks are making big money taking from your tax returns. Here’s Zaitchik:
“In 2008, more than eight million Americans spent nearly a billion dollars paying interest and fees on RALs—often based on misleading or incomplete information—swelling the profits of tax preparers and their partner banks.”
The one break low-income people get under the U.S. tax code is the Earned Income Tax Credit (EITC), the nation’s largest anti-poverty program. Only about 16% of taxpayers qualify for the EITC, but as Zaitchik notes, nearly two-thirds of the people who take out refund anticipation loans receive the credit. Tax preparers are making a concerted effort to prey on the poor, making the EITC program more expensive and less efficient for all taxpayers—not just those who go to H&R Block or Liberty Tax.
More action needed on jobs
Beyond finance, the U.S. economy has a serious jobs problem. Last week, Congress approved an $18 billion jobs package that is simply far too small to make a serious dent in the nearly double-digit unemployment rate. As Art Levine explains for Working In These Times, the package will create 250,000 jobs at best. That number shouldn’t be acceptable to anyone watching the U.S. economy, which has shed about 7 million jobs since the recession began.
There are much stronger options available than the $18 million bill the Senate approved. Rep. George Miller (D-CA) has introduced a bill in the House that would quickly save or create one million jobs, and the House has already passed a separate $154 billion jobs package that would prevent 900,000 lay-offs. If the Senate moved on either one, the result would be a major economic boost.
The link between poor economies and poor health
All of these problems—unemployment, student loan scamming, refund anticipation loan sharking and other forms of financial predation—reinforce economic inequality in the United States, which is at levels unseen since before the Great Depression. That inequality is ultimately actively damaging to public health, as epidemiologist Richard Wilkinson explains in an interview with Brooke Jarvis for Yes! Magazine. Rampant economic inequality in the United States is literally making us sick.
“We looked at life expectancy, mental illness, teen birthrates, violence, the percent of populations in prison, and drug use,” Wilkinson says. “They were all not just a little bit worse, but much worse, in more unequal countries.”
With health care finally finished, Congress and the administration have an opportunity to make serious headway on the economy. They’ve got plenty of work to do.
This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.By Zach Carter, Media Consortium blogger
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