What Student Loans Are Really Used For: The Depressing Case Studies

Tyler Durden's picture

Some of our readers may have missed our post from September 2012 in which we showed that far from being used for their generally accepted purpose, student loans - now well over $1 trillion and more than the total credit card debt outstanding - in numerous instances are instead abused to fund virtually everything else besides paying for tuition. Recall: "Robert Thomas Price Jr. borrowed about $105,000 for his tuition at Harrisburg Area Community College from 2005 and 2007, federal authorities say. It doesn’t cost anywhere near that much to study at HACC, though. So Price, 45, of Newport, is facing federal student loan fraud and mail fraud charges. A U.S. Middle District Court indictment alleges that Price spent much of the loan money on crack cocaine, cars, motorcycles, jewelry, tattoos and video games."

At the time many derided this case study as an isolated example of fund abuse by an isolated individual. Nearly two years later, a study by the WSJ confirms what most have known: far from an isolated incident, "student" loans have become a primary source of funding for an every greater portion of the US population, and that when looking at total credit creation in the US economy, non-revolving student debt has as much if not more relevance than mere revolving credit, when it comes to determining how pays for what.

The WSJ takes on a more conservative tone when it says that "some Americans caught in the weak job market are lining up for federal student aid, not for education that boosts their employment prospects but for the chance to take out low-cost loans, sometimes with little intention of getting a degree."

Unfortunately, its examples demonstrate a pervasive culture of monetary abuse, which has become as rampant, if at a much lesser scale, as what the TBTF banks have been acused of doing in order to perpetuate the illusion that they are solvent - indirectly taking from taxpayers to fund an unsustainable lifestyle. Taxpayers, who will end up with massive losses on their involuntary "investment" in either case.

Take Ray Selent, a 30-year-old former retail clerk in Fort Lauderdale, Fla. He was unemployed in 2012 when he enrolled as a part-time student at Broward County's community college. That allowed him to borrow thousands of dollars to pay rent to his mother, cover his cellphone bill and catch the occasional movie.




Tommie Matherne, a 32-year-old married father of five in Billings, Mont., has been going to school since 2010, when he realized the $10 an hour he was making as a mall security guard wasn't covering his family's expenses. He uses roughly $2,000 in student loans each year to stock his fridge and catch up on bills. His wife is a stay-at-home mother who also gets loans to take online courses.


"We've been taking whatever we can for student loans every year, taking whatever we have left over and using it to stock up the freezer just so we have a couple extra months where we don't have to worry about food," says Mr. Matherne, who owes $51,600 in federal loans.


Some students end up going deeper into debt. Early last year, when Denna Merritt lost her long-term unemployment benefits, the 49-year-old Indianapolis woman enrolled part-time at the Art Institute of Pittsburgh's online program, aiming for a degree in graphic design. She took out $15,000 in federal loans, $2,800 of which went to catch up on unpaid bills, including utilities, health-insurance premiums and cable.


"Obviously, it's better not to use it that way if you can help it, because you're just going to owe that much more later," says Ms. Merritt, a former bookkeeper.

The logic for why "students" (or not) chose the easy way out? "The only way I feel I can survive financially is by going back to school and putting myself in more student debt," says Mr. Selent, who has since added $8,000 in student debt from living expenses. Returning to school also gave Mr. Selent a reprieve on the $400 a month he owed from previous student debt because the federal government doesn't require payments while borrowers are in school.

In other words, running away from insolvency by adding on more debt. And not just any debt, but Federal debt, which has no liens on any assets, aside from converting the obligor into a non-dischargeable, indentured debt slave indefinitely, with wage garnishment rights afforded to the government. Of course, the borrowers know all about this, but that too is a bridge to be crossed in due course. For now, someone has to pay for the rent and the food, even if that someone is once again the US taxpayer.

Expect stories like these to continue. Here's why:

College officials and federal watchdogs can't say exactly how much of the U.S.'s swelling $1.1 trillion in student-loan debt has gone to living expenses. But data and government reports indicate the phenomenon is real. The Education Department's inspector general warned last month that the rise of online education has led more students to borrow excessively for personal expenses. Its report said that among online programs at eight universities and colleges, non-education expenses such as rent, transportation and "miscellaneous" items made up more than half the costs covered by student aid.


The report also found the schools disbursed an average of $5,285 in loans each to more than 42,000 students who didn't log any credits at the time. The report pointed to possible factors such as fraud in addition to cases of people enrolling without serious intentions of getting a degree.


Capella Education Co., which runs online schools, examined student costs and debt at institutions?public and private?in Minnesota and concluded that between a quarter and three-quarters of loans taken out by students were for non-education expenses. At one of Capella's master's programs, the typical graduate left with about $30,200 in student debt even though tuition, fees and book costs totaled roughly $18,800. Borrowers are prohibited under federal law, except in rare instances, from discharging student debt through bankruptcy.


The share of student borrowers taking out the maximum amount of loans—$12,500 a year for undergraduates—has risen since the recession. In the 2011-12 academic year, federal Education Department data show, 68% of all undergraduate borrowers hit the annual loan ceiling, up from 60% in 2008.

When one averages out the numbers, how many students are said to abuse their loans and use the proceeds to fund "other" uses? "About a quarter."

Research suggests a fair chunk of that is going to non-education expenses. In 2011-12, about a quarter of student borrowers took out loans that exceeded their tuition, after grants, by $2,500, according to research by Mark Kantrowitz, a higher-education analyst and publisher of the education site Edvisors.com.

And the one take home paragraph that summarizes this latest capital misallocation clusterfuck which has Fed bailout written all over it:

Mr. Selent, of Fort Lauderdale, knows he is getting himself deeper in a hole but prefers that to the alternative of making minimum wage. In his 20s, he earned a bachelor's degree in communications from a local for-profit school but couldn't find a job in the field after graduating and began falling behind on his student-loan bills. He is now taking courses for a degree in theater so he can become an actor.

What else is there to add? Maybe just the chart of student debt.


And this chart, showing where all the newly created money is really going:

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Kreditanstalt's picture

Wonder if some of these frauds are also buying dash-4-trash S&P stocks with the money too...

Murf_DaSurf's picture




Maintaining Tenure is priceless

Pladizow's picture

"You cant fix stupid." - Ron White

Sofa King's picture

No kidding. Do these ass-hats realize that you can't discharge that debt with bankruptcy? Stupid as it gets.

Chuck Norris's picture

Did they interview Fonestar? He's gotta be a 34 year old boy living in his mothers basement. Used $5000 in student loans to "invest" in bitcoin.

BaBaBouy's picture

""A U.S. Middle District Court indictment alleges that Price spent much of the loan money on crack cocaine, cars, motorcycles, jewelry, tattoos and video games.""

He's A Patriot, Supporting The USA Economy And Bruffet's Empire...

camaro68ss's picture

use your student loans and buy something useful like gold and silver

dont even worry about paying them back, obama will most likely "use his pen" and forgive all student loans

imapopulistnow's picture

Not a critique, just an observation.  The unskilled are getting by using combinations of part-time minimum wage jobs (<30 hours), illegal and unreported income (such as drug dealing), foodstamps, earned income tax credits, tax and UC benefit fraud, student loans for living expenses, medicaid, obama phones and various housing & home energy support programs for single Moms.  

Manthong's picture

.gov does not care as long as you are in debt.

..and lots of kids drink their way through college for a degree in primitive art graded on a no lose curve instead of working their way through for a practical skill.

..as long as there is debt to create

wallstreetaposteriori's picture

I'm gonna make a T-shirt that says "my student loans paid for hookers and cocaine" Thumbs muthafucking up.

wallstreetaposteriori's picture

and the back of it will say.. " and your tax dollars support my foodstamps".  Right fonestar?

halfawake's picture

guys don't worry about it i'm sure they will pay it back they seem like good people.

gmrpeabody's picture

Public education at it's best...

noless's picture

Every time i read an article like this i wonder why i bother even attempting to work to begin with, i could just pick a decent city on the beach and "earn my degree online." Fuck, might as well go to Mexico, would they even check if my ip was originating from inside the country?

Villageidiot777's picture

1st world problem.


I wish education would cost anything, so I could take student loan to buy gold and silver. Instead, they paid me for studying.

CheapBastard's picture

Hey, yo!  List'n up.

No one gives a sheet about yo’ grades. Wat’s impotent is wat car u dribe and wat iPone yo us’n.  Also gottsa no the latest jack on Beeper and Kim k.

gmrpeabody's picture

Don't do that anymore, Cheap. You either got it or you don't..., you don't.

Redneck Hippy's picture

So?  I spent my student loan on a Ford Pinto.  Cocaine seems like a bargain, relatively speaking.

balolalo's picture

Thank god you can get a clean slate if your file for bankruptcy.... oh wait that's only for wall street.  

From Wikipedia:  "Debt bondage (also known as debt slavery or bonded labor) is a person's pledge of their labor or services as security for the repayment for a debt or other obligation. The services required to repay the debt may be undefined, and the services' duration may be undefined. Debt bondage can be passed on from generation to generation."

Serfdom 2.0

BaBaBouy's picture

Jamy Will Own You For Life And Your Next 50 Reincarnations...

Steaming_Wookie_Doo's picture

Spot on. This has to be by design. I couldn't imagine a meaningful loan pgm where there wasn't either direct pmt to the school or reimbursement based on a receipted expense. With no minimum GPA (heck, they don't even check if you're actually enrolled) it is a pit of fraud. Of course, the simpletons who do this, whether thru short-sighted hedonism, or as a mechanism to fund an income gap, will of course find themselves with a more or less permanent monkey on their backs. Now my question is, way down the line, will these student loan debts become the means with which to deny SS or disability benefits? 

StychoKiller's picture

IF there's any justice, these folks should end up doing hard labor on a chain-gang!

Colonel Klink's picture

I said this whole thing about 3 months ago that people were using student loans to survive since they couldn't find any meaningful employment.  No one seemed to think it was credible.  Conspiracy theory once again becomes conspiracy fact.

wallstreetaposteriori's picture

Shit... it was obvious years ago when the student loan debt skyrocketed and employment plummeted.  The worst part is that even with all this "education" we still are the fucking stupidest country in the world.  

CheapBastard's picture

<< we still are the fucking stupidest country in the world....>> ... and also one of the obestest.

PartofOne's picture

LMAO!!!  Did you mean to say "and also one of the obestest" or "and also one of the most obese"?

Either way, your point "<< we still are the fucking stupidest country in the world....>>" was made; by using the pronoun "we" you included yourself!



NidStyles's picture

That's part of the joke junior, thanks for catching up.

Colonel Klink's picture

Agreed, I saw it years ago too but merely commented in a thread about the ever increasing use of student loan debt.

CH1's picture

even with all this "education" we still are the fucking stupidest country in the world. 

No, it's BECAUSE of that education! That's what  it's for!

thadoctrizin's picture

Bingo.  The .gov will tap your soc. security payments until your debt is paid = less SocSec payouts = SocSec crisis solved.

Honey Badger's picture

Pay off student loan debt with credit card debt, home equity loans, etc, and THEN declare BK.  Fuck the bankers.

corporatewhore's picture

LMAO!  Perfect solution!!!!  I love it.  I'm going back to school!

SophoricOne's picture

This is precisely what I've told my kids.  Don't take the loans, but if you have to, get an education in a subject someone will pay you for, i.e. engineering.  And then, transfer your student loan balances to unsecured debt.

SophoricOne's picture

This is precisely what I've told my kids.  Don't take the loans, but if you have to, get an education in a subject someone will pay you for, i.e. engineering.  And then, transfer your student loan balances to unsecured debt.

Blammo's picture

"He is now taking courses for a degree in theater so he can become an actor."

So he can impersonate somebody with a functional brain?

SafelyGraze's picture

where those tuition dollars go

athletic centers


university hospital renovation


tuition serves as collateral for larger loans to institutions


LawsofPhysics's picture

Please, fucking everybody in the club figured out the leverage angle years ago.


NotApplicable's picture

These "premier student-housing builders" are gettin fat wallets too.


CheapBastard's picture

Sucking the Teets dry....until people realize 99% of the "college courses" will be Tele Courses you watch from your living room in your pj's with little or no need for "student housing."


Renewable Life's picture

Look on the bright side, we will have a generation of liberal arts majors and some with masters and PhD's too! Think how peaceful we will be as a Nation, how understanding as a group of human beings, we will be!  Social Justice, democracy, and equality will reign throughout the land, maybe we will elect a Black President or a Women! maybe we will legalize weed, wouldn't that be great!!!

America will be paradise when that happens!

ohhhhhhhh wait, what!!!! It already happened?????? What war??? What poverty??? What unemployment???  The statistics are lies, its NOT true, It cant be true, I live in a great neighorhood, I have a nice car, I teach at the University Liberal Arts and my wife is a government employee, everything is great, everything will be great tommorow!!

FEDbuster's picture

Soon members of the Free Shit Army will have their student loan debts absolved by Executive Order.  Work anywhere in .gov or qualify for SSI, welfare, etc... and your loans will be forgiven.  Just vote for the Santa Claus Party, wash your gmo food down with floridated water and stay glued to the slime oozin' out of your 60in. Chinese flat screen.

corporatewhore's picture

what's your point?? that the Repubs are any better?  Pleeeeaaasse.    Or the tea partiers?

they're in on the take with corporate welfare far greater than any safety net / student loan etc. can ever be.


Who's the bigger hypocrite?  Liberal dems or Conservate Pubs?



FEDbuster's picture

They are ALL on the take with bankster bribes, but the Libtards tend to use their power to buy votes.  Buying votes seems to be working pretty well for them, I don't see the "balance of power" getting any better for the republicans anytime soon.  The Santa Claus party has bought the popular votes it needs to stay in power (although Obamacare is kicking them in the ass right now).  Just saw the DICKtator may delay his signature accomplishment for yet another year.

SilverRhino's picture

You know ... and this sounds terrible to even think it.  

You could borrow $100K in student loans and use that to make a decent next egg to emigrate / disappear with a new complete identity.   

Metric's picture

Interesting thought.  This idea needs to be developed further -- it's too deliciously subversive not to.

So you take out $100k to take $5k worth of classes, buy bitcoin and a new ID, and then disappear into Ecuador, buy a nice casa for $30k in a mountain village, and sell Facebook short with the rest from your computer.

Damn, someone needs to write a book on this.  I guess the $5k should be spent on Spanish classes.

SteveNYC's picture

Another Bernanke legacy! No?

Fed prints cash, buys treasurys --> .gov loans said cash to student, holds paper --> student defaults on paper --> Fed prints cash, buys student loan paper --> Fed owns both treasury and student loan debt