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What Student Loans Are Really Used For: The Depressing Case Studies
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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I think you mean DHS. And med degrees will get you sucked into the Obamacare nightmare as an in-debt-ured servant; you work for .Gov until your loans are gone.
DHS? Fodder for Drug Lords and Criminal Friends of Eric Holder and the ATF.
This guy should switch to economics, perfect line of thinking. The future's so bright, I gotta wear shades...
When he wins an Oscar. He will have a great feel good speech.
I don't get this scam. A $2000 student loan can't help that much ??? Do you even have to show up to class ???
"Price spent much of the loan money on crack cocaine, cars, motorcycles, jewelry, tattoos and video games."
HE GOT ALOT MORE OUT OF HIS EDUCATION THAN I DID!!!
ZH common refrain - Going to college is for idiots and tenured professors (which doesn't even exist in a number of depts and colleges) are the root of the ills in higher education in America.
Unfortunately, you can't read. Taking college loans and using those dollars to pay for your lifestyle is for idiots. You must be one.
Of course you shouldn't you can't discharge them nowadays under current law. Instead of focusing on issues related to pricing transparency and improving that process the WSJ focuses on gov't aid and abuses because it fits their rubric under Murdoch. If it was private banks lending out yet to higher education students, you wouldn't even see this article on the WSJ.
Nope. I got a full ride under grad at BU due to SAT scores/grades and finished a double major (history/biology) in 4 years. Worked full-time and did while I did my master's part-time in the evenigns/weekends and then got my PhD in 4 years on a federally-funded position the first 2 years and then teaching/reaching stipdend from university.
AND MY GUESS IS YOU HAVEN'T PRODUCED A GD THING IN THE REAL WORLD. MOST LIKELY YOU ARE SUCKING OFF TAXPAYERS IN THE GOVERNMENT IN A "FEDERALLY FUNDED POSITION" OR A PROFESSOR WHICH IS ALSO A "FEDERALLY FUNDED POSITION".
Right now I work for a large health insurer and yeah we are on the gov tit for Medicare Advantage and Obamacare. Just everybody thogh in one way or another is on the govt tit nowadays either indirectly or directly.
Rationalization hamster alert - CD would have a field day.
Its even bigger than that...
March 04, 2014, 01:02 pm
Budget allots $5.5B for ObamaCare program decried as a ‘bailout’Read more: http://thehill.com/blogs/healthwatch/health-reform-implementation/199831-budget-seeks-55b-for-obamacare-program-decried#ixzz2v2OQaLZP
Follow us: @thehill on Twitter | TheHill on Facebook
The White House’s 2015 budget proposes spending $5.5 billion next year on an ObamaCare program that Republicans have labeled a “bailout” of the insurance industry...
Read more: http://thehill.com/blogs/healthwatch/health-reform-implementation/199831-budget-seeks-55b-for-obamacare-program-decried#ixzz2v2Of9Tla
Follow us: @thehill on Twitter | TheHill on Facebook
how about you actually read the article
study as hard as you can in high school, place out of as many "prerequisites" (fucking SHAM) as you can on entering, get a part time job and load up on as many credits as you can each semester, and GTFO as fast as you can
if you have to have that "big name" degree, transfer into it after doing a year or two at a community / junior college that's properly affiliated... keep the costs down and the class sizes small in the beginning, the real stuff doesn't get shown to you until your junior year anyway
and if you really want to pull it off, get an internship so the part time work is relevant to your area of study... you'll get hired faster than you can say "debt free"
What the higher educations system more than anything needs a huge flashlight on it to get past along of the BS price tag (which is never the actual price that almsot all students actually pay even with loans/aid) and post-graduation statistics.
This would only happen through legislation and a federal mandate since there is too much of a vested interest in higher education to prevent it. One thing the federal gov't should try to do as much as possible is to ensure that markets are at least semi-competitive and wherever possible there is a high degree of transparency around pricing for products and services because in reality the private sector has strong incentive to not transparency price especially if large producers can get together & set prices.
I feel another wave of student loan suicides coming on.
A good number of these for profit schools are "bust outs" run by criminal organizations that run with the money once the default limit is breached and loans are cut off!
There's a way to fix this but it won't be happening in our life times. The banks are deeply entrenched in this scam and won't allow anyone to take their daily bread.
Make colleges and universities part of a federal education plan and cover the tuitions for anyone. Cap incomes to the faculty according to federal pay grades. Offer assistance in form of government grants to achievers who otherwise couldn't afford to go to school.
Let parents pay for and police their kids lifestyle choices while at campus.
Scrap all student loan nonsense and cut the banks out. What is this teaching kids anyway? That it's ok to go into debt to afford a higher education that may or may not yield anything after graduation? Then those kids go from student loans to car loans, to mortages to credit card debt and so on? Eternal debt slaves and they're never going to understand just what it is they signed up for and why they will be poor for the most part while others are living off the fruits of their labor all their lives.
The banks won't allow eduction reform in this country. It's a trillion Dollar industry to them with the option to upsell later into more and more debt. Why would they give that up?
The dollar is just like Doritos. Beg, borrow and steal all of them you want. The Fed will make more. No questions asked.
Who? The Fed?? Always wrong, but never in doubt.
I just started university several months back (not in the US) and I'm fairly lucky to have my parents support me with many essentials - any real "excess" from my student loan just goes into stacking some physical, lol.
Also the tuition fees are just outrageous considering like many of my peers I find it much better to not turn upto lectures or labs in order to learn the material and pass the exams.
If you are a non-science major with no labs and are taking a full-course load, you likely have a max of 16 actual class hours/week. If you aren't working PT, it is a joke that you can't learn the material in an undergrad class and yet show up to lectures too.
That graph goes hockey stick about the time that a college degree became irrelevant in getting a job.
This same movie long ago ran at the VA, where many students repeatedly signed up for GI Bill education benefits and never attended a single class. Then they pleaded ignorance and asked forgiveness of the loan amount.
The difference then was the the VA did forgive the loan (more or less automatically) and happily signed up the same folks to do it all again the next semester. Eventually that scam was (sorta) cleaned up by Congress by requiring colleges to take attendance and requiring students to attend. Rocket science.
Eventually pols currently in office will "fix" this scam, too, probably by simply forgiving the student "loan" amounts by decree and generously paying off lenders with public funds. The beneficiaries will, of course, be eternally grateful and more than eager to vote the same scoundrels back into office.
Same movie, same scam, same result.
And now we know one of the reasons why the labor force participation rate is so low. Why work when you get access to more and more free cash just by signing up for classes and then voting and campaigning for Obama and Hillary to get the debt written off?
Please address all the taxbreaks given to Big Banks, WalMart and other corporate citizens. And yes, they give to Obama and Hillary too.
indirectly taking from taxpayers
What a load of crap. Who in their right mind still believes "taxpayers" pay government budgets. Governments don't have budgets they have Central Banks..
You have got to be kidding me. Bankers have taken over America Dude.
This is propaganda.
There is no Dr. Evil at the center of this with raised eyebrows and a finger out. At the center of this is an idea, a principal that this is the best system to reward those in the center ring with the most power and control and then slowly feather out payments and control all the way out to the serfs on the peripherals, all a giant ponzi that can never be resolved.
The players in the center got there through graduating through the mob, bloodlines, fraternity, conspiracy. But there is no one ruler, the very center of the black hole is nothing more than an idea that this is the way it's supposed to be. Until that idea is replaced, submission and servitude will rule the world vis a vis debt servitude unless mother nature steps in and mixes things up without our permission first.
We give money to people who don't want to work, so why deny these poor kids who want to get an education and go to work?
They should all be issued a student EBT (SEBT) card with a balance totalling their full tuition cost and estimated cost of living for 4 years.
I just know it would all be used wisely. "and create jobs"
Re: We give money to people who don't want to work
Would you guys lay-off Big-Ag. Some of our finest patriots get government loot for not working.
As a young entrepreneur I used my student loans as seed money for a successful pot & coke business!
If you can't beat 'em, may as well join 'em, and use the money to buy valuable physical producing or savings assets.
Well, it's about time there was a post on this. Here is why the student loan scam is being sustained, not just to support the diploma industry, but because the loan proceeds have become yet another welfare program.
Tulving is out of the gold coin business. Check their phone number.
-------------
The Tulving Company is Out of Business
March 3, 2014 3:45PM EST
As we predicted/requested on Friday, The Tulving Company has gone out of business, as of Monday morning. They are no longer answering their phones, and we have confirmed that they have ceased operations.
Many people are in denial about this; unfortunately, it is true. Their website won't be shut down until they think to do so or it expires. Their phones will after a certain number of rings go to the default "E-mail us to place an order" message. But there is no way to place an order, they are dismantling the company.
This page will be updated as more information comes in.
There is a lot of information on our old page about The Tulving Company.
We hope to update this page with information about what will happen next. At this point, our best guess is that The Tulving Company will file for bankruptcy. Unfortunately, we believe that there will be little in the way of available assets with which to compensate those whose orders were not fulfilled.
Well, it's about time there was a post on this. Here is why the student loan scam is being sustained, not just to support the diploma industry, but because the loan proceeds have become yet another welfare program.
Just another classic example of how government involvement, and interest rate distortions created by the Fed, leads to moral hazard and malinvestment. This is misallocated capital that steals away opportunity for capital to find more productive uses in the economy. This is going to end badly in the next downturn. The occupy movement calls for debt forgiveness. Think about how large and loud those calls will be in the next downturn. What's another 1.5 trillion when we already have 17 trillion? Come to think of it, why ever pay on any loan again? This is the moral hazard implosion coming home to roost. Next stop nationalization of private retirement accounts, and bail-ins. It's all coming in this Marxist Keynesian experiment run amuck.
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.
Hopefully when his wife is not studying to be a military historian at the U of Phoenix, she getting her plants started for this year's growing season. Last I checked, said season in Billings isn't exactly long. And damn, that's a lot of children to feed on $10.00 per hour.
Debt Slaves Period
It would only be fair if all these guys will be bailed out just like the banks right? Or will the banks be bailed out again when all these guys never pay their loans back ?
The country exists for the benefit of the top 10%.
The peasants are just food for the sociopaths.
The country exists for the benefit of the top 10%.
The peasants are just food for the sociopaths.
Our system is designed to select for only the nuttiest greediest most mentally ill nut jobs to run things. Got to hand it to our Founding Fathers; they designed a psychosis selector like no other in all of History.
Had a customer come in for service work on her vehicle. Upon leaving I mentioned that she would need brake work asap.
She responded by letting me know that she had to complete 11 hours of class time to receive her next student loan payout. That didn't surprise me too much, as I hang out at this site. I felt a bit sad for her financial state and then started wondering how much of the student loan money is being spent for 'sustanance' vs 'education', and does it really matter?
The problem with this type of debt is it's pretty tough to go bankrupt and not have to pay it back
Federal student loans are the domestic equivalent of the IMF without the military coercion (yet).
Ha, I got a no interest student loan and put it to work investing it while my GI Bill paid for my degree. Then after I graduated I paid back the loan and kept the interest.
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."
If fraud and bailouts are good enough for the Too Big To Fails, what's the problem with Joe-Six-Pack perpetrating it? Oh thats right, JAIL for J6P, but no jail for the bankster scum. I find the sanctimonious tone of the bankster's WSJ rag preaching on the "moral hazard" of J6Ps fraudulant student loans absolutely hysterical.
""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.""
And our bankers did any better?
Why of course they did! Houses in the Hamptons, Bugatti's, gold toilets, hookers and blow (none of that "hoi-polloi" crack cocaine for them).
Ha, education is such a racket! Prices have soared and the product has gotten worse? Is it just me or is does something seem off here?
In other words, running away from insolvency by adding on more debt.
Paul Krugman taught them well!
I still have student loans, and I graduated in 1998. I had to take deferments for a year on several of them; even back then work was hard to find.
BUT, I didn't have cable TV or motorcycles or a LOT of other crap my fellow students bought in Kawlej. I was always amazed at the crap they 'had' to have, and how indifferent they were to it...example, new PCs EACH and EVERY semester--the old one they'd just leave out by the garbage cans. The end of every Spring semester saw whole households of good stacked by the dorm dumpsters...the student would just take everything they'd bought for living in the dorms (refrigerators, lamps, PCs, stereos, video games, etc) and dump it.
Americans have no sense of proportion to their lives. They utterly refuse to live within their means. Even now I live (relatively) poorly and frugally, I still have trouble finding work, and I don't have cable TV or any of the crap. But I don't have the mountains of debt, no credit cards, nothing but what's left of a car note a mortgage to wrestle with. I try very hard to balance what I earn with what I can afford. And I get to listen to my friends and coworkers complain they cannot live off of over twice my household income.
WTF, over?
I'm really seeing this more and more in everyday life. A young girl (pretty snot nosed) in our apartment glibly told me that "Yeah I got a lot of loans, but I'll just pay on them forever, so what?". Well she's out of school, can't afford to live in this apartment anymore, moved out, I saw her working as a bagger at the grocery store, paying a portion of that low wage to service her "so what?" loans.
Just yesterday I saw a fat white guy, late 20's working at Starbucks. What an attitude he had! Probably just woke up from the college loan kool aid and realized that "Yes, Jimmy, there is such a thing as a shit job for you in this world."
In the same vein there was a white haired old man working at the SAME Starbucks, also with a shit attitude that looked like he just got run off the road of life.
I'm sorry to see other people suffer, but I woke up to this debt shit years ago and changed my ways. Others will have to learn for themselves, and pay a steep price for it too. That's the price of "bubbling" up the news just to keep the lemmings in order. Eventually there are ALWAYS real consequences.
Seems to me like many (if not most) of these too cool 20 somethings have 'mommy & daddy' to pay for everything they can't so they can someone 'affford' to have the latest Iphone, Macbook, North Face coat, drive a (likely leased or daddy cosigned) 2010 or later Acura or Infinity. In the NYC area especially you see many of these types who are 'student' and maybe working at some retail job or 'creative job' paying less than $60,000 a year (which is poor for one person in the NYC area outside Manhattan)... but they have mommy & daddy and the inheritance coming -- if they didn't many of these kids wouldn't be able to afford the bus fair from Ohio or whatever part of america they are tranplanting themselves from let alone pay rent on an apartment costing over $3,000 a month and the brokers fee which ranges from one month - 15% of the annual rent.
The kid in the article is studying to be an actor because, despite his lack of cash, it raises his status and lets him meet and pick up chicks.
Tuition and FASFA and the bloated financial aid offices have nothing to do with this? No worries 70 % business majors and no science, math, or engineers.. This article on having someone eat is not as offensive as the institutions taking the money... The real welfare and usury debt criminals and as far as I know most are tax free..
http://philebersole.files.wordpress.com/2013/08/111104-tuition-chart.jpg
http://cnsnews.com/sites/default/files/imagecache/large/images/Student%2...