Friday, December 7, 2012

Student Loan Racketeering: Congress Critter Introduces a Bill to Make Student Loan Payments a Payroll Tax Deduction




Bloomberg had a very interesting article about a congressional bill that was introduced that would force employers to withhold 15% of an employees' paycheck to pay for student loan debt.

Student-Loan Collection Targeted for Overhaul in Congress
Congress will consider overhauling debt collection in the $100 billion-a-year U.S. student loan program, replacing it with automatic withdrawals from borrowers’ paychecks tied to their income -- a system used in the U.K.

Legislation that Wisconsin Republican Representative Tom Petri plans to introduce as soon as this week would require employers to withhold payments from wages in the same way they do taxes. Payments would be capped at 15 percent of borrowers’ income after basic living expenses.

The bill follows growing concern about the burden of $1 trillion in outstanding student loans, which now exceed credit- card debt.
The above proposal comes on the heels of Obama's 3/10 overhaul of the student loan program that took government guaranteed student lending away from lenders and replaced the Federal government as the direct lender. However, the banksters were still going to collect heavy fees for administering the program, even if they were no longer collecting the interest on student loans.

Obama's student loan overhaul was modeled after a European styled socialist program and the NYT was wild about Obama's new student loan program which is a variation of the Marxist doctrine of "from each according to his ability and to each according to his needs".

Obama Signs Overhaul of Student Loan Program
President Obama signed legislation on Tuesday to expand college access for millions of young Americans by revamping the federal student loan program in what he called “one of the most significant investments in higher education since the G.I. Bill.”....

The new law will eliminate fees paid to private banks to act as intermediaries in providing loans to college students and use much of the nearly $68 billion in savings over 11 years to expand Pell grants and make it easier for students to repay outstanding loans after graduating. The law also invests $2 billion in community colleges over the next four years to provide education and career training programs to workers eligible for trade adjustment aid after dislocation in their industries.

The law will increase Pell grants along with inflation in the next few years, which should raise the maximum grant to $5,975 from $5,550 by 2017, according to the White House, and it will also provide 820,000 more grants by 2020.

Students who borrow money starting in July 2014 will be allowed to cap repayments at 10 percent of income above a basic living allowance, instead of 15 percent. Moreover, if they keep up payments, their balances will be forgiven after 20 years instead of 25 years — or after 10 years if they are in public service, like teaching, nursing or serving in the military.
Student loan debt has spiraled to a staggering $1 trillion according to the WSJ, here. In fact, student loan debt has grown faster than any debt except government debt.




Chart of the Day: Student Loans Have Grown 511% Since 1999 The Atlantic
This chart looks like a mistake, but it's correct. Student loan debt has grown by 511% over this period. In the first quarter of 1999, just $90 billion in student loans were outstanding. As of the second quarter of 2011, that balance had ballooned to $550 billion.
$550 billion in student loan debt as of the the 2nd quarter of 2011 is a ton of student loan debt but for it to increase to over a trillion as of the end of 2011 according to the WSJ is mindboggling and indicates that the figures used by The Atlantic were vastly under reported.

What is going on here?  There are two rackets that need to be understood.  1. the guaranteed student loan racket and 2. the education mafia.  Both of these factors have massively contributed to the rise in education costs as well as the debt burden of students, many of whom have useless degrees and are unemployable.

Why the Government is to Blame for High College Costs
It all goes back to two well-intentioned federal goals: first, that a college education should be within the reach of every American, and second, that if students borrow money from the federal government, they should repay it. Most of us would agree that both are noble goals. But the consequences of both have been stunning.

As a result of the first, the money began to flow; over the last 30 years, inflation-adjusted federal financial aid has quadrupled. Total student debt has now reached the $1 trillion mark, more than the credit card debt of every American combined. The federal deficit in the recently ended fiscal year totaled $1.3 trillion; the debt load carried by college grads now stands at more than two thirds of our nation's massive budget shortfall. According to the College Board, over half of all full-time undergrads at public colleges and universities are now full-time borrowers. At private nonprofit schools, a whopping two thirds have loans.

The more money the federal government pumps into financial aid, the more money the colleges charge for tuition. Inflation-adjusted tuition and fees have tripled over those same 30 years while aid quadrupled; the aid is going up faster than the tuition. Thanks to the federal government, massive sums of money are available to pay for massive tuitions.

This has nothing to do with costs. According to Neal McCluskey's research at the Cato Institute, it costs roughly $8,000 a year to educate an undergraduate at an average residential college. Yet the average college bill—including room and board—charged at a private four-year university is $37,000, and $16,000 at a public one. For a long time, college tuition has been rising faster than the inflation rate, which certainly has hurt middle-class families. Colleges can raise tuition with impunity because colleges know they'll get paid no matter what.

That brings us to that second well-intentioned federal goal, that all student loans must be repaid. In 1976 federal law was changed to state that student loans would no longer be "dischargeable," or covered by bankruptcy.
Most of the student loans used to be made by banks but these loans came with government guarantees. The banks couldn't loose. If students defaulted, the banks got paid principle and interest by the government and it was an extremely lucrative taxpayer guaranteed profit center for the banks. They had nothing to loose and they focused on marketing debt at colleges and universities. With all this easy money (federally guaranteed loan proceeds) pouring in, colleges and universities raised tuition fees and went on big spending binges.

Students are the big losers and many are saddled with mountains of debt that they will never be able to pay.  Moreover, many have nearly worthless college degrees.  A college degree doesn't guarantee a decent paying job and many very frustrated college grads are working in the food service industry or other low wage jobs.

College Degree = $10-Hour Job
There’s no question that this is a tough time for job seekers, but Millennial college graduates are also grappling with a huge disconnect between what they are taught in school — degrees correlate with salaried positions — and how those jobs just simply aren’t around anymore. Even with adjusted, or lowered, expectations, millions of Millennial college graduates find their only opportunities are for positions where $10 an hour is aiming high, benefits are non-existent, and a paid vacation is a laughable concept.....

And Millennials can’t even rely on the U.S. Government for cushy benefits and salary. I recently spoke with a Fish + Wildlife Ranger with a degree in biology who has been there for seven years and is only making $9/hour. Another 12-year F&W veteran just received a $.50-cent raise, to earn $11.50/hour. These two workers are not isolated examples. The majority of open postings on the Federal Government’s website lists hourly salaries ranging from $10 to $15/hour for entry-level positions, with college graduates primarily starting on the lower end. Plus, these government positions aren’t likely to be full-time; the majority of entry-level openings are for internships, are temporary, or operate as an on-contract basis.
Meanwhile, the government keeps telling folks to get a college education.  Perhaps a college education is vastly overrated and we will see a return of real skills.  But so long as the education mafia makes false and unrealistic promises about the value of the degrees they offer and so long as the government continues to subsidize and fund these education schemes, it's not likely that much will change.  Combining the education racket created by the government and colleges with a nasty, stagnant and declining economy translates to disaster.

Yes, the government is responsible for the mess because it subsidized it.  The Heartland Institute nailed it in a piece that documents just another government created disaster.

 The Real Source of Soaring College Debt? Government
The federal government has released a report blaming private lenders and risky borrowers for the nation’s college debt spike, which hit a record high of $1 trillion outstanding this year.....

Taxpayers are on the hook for the vast majority of this: $864 billion of loans outstanding are from federal aid, and $150 billion is from private lenders...

Infinitely available government funds fuel rising tuition and flagrantly unnecessary expenditures....

Out of Control Costs

College costs have increased more than 400 percent in the past 40 years—faster than healthcare. Government programs contribute to that increase by making more money available for colleges to capture by raising prices
The government created the disaster and now the government's solution to the government created problem is a 15% federal withholding tax for student debt? That ought to go over big with the college grads making $10 an hour. Just wait until the Obamacare tax kicks in. In the infinite wisdom of the government's quest for infinite public and private debt lies the seeds of shock and awe economic destruction.

Had the government not intervened in the education business, education costs would be a whole lot more affordable  and so would student debt.  At the end of the day, it's the taxpayers who will eat the student loan debt.

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