The gov’t has now made education a total financial debt trap not just for the students but the parents as well. IF you fill out the FASFA form you are co-signing for your child’s student debt. since there is a high high chance of default the gov’t can(and will) come after the parents income…however that may be derived. There are parents now having their social security garnished as the children have defaulted on the loan and the parents as co-signers via FASFA are now on the hook. Karl Denninger lays it out. The the paragraph with the (1) next to it for the summary of the scam that is FASFA.
Contemplate a few things as you go through the remainder of your week.
What has had its increase in cost cause the most harm to American households and individuals over the last 30 years?
There are two things: medical care and post-secondary education.
What do they have in common?
Financialization and the removal of risk from those providing the financing.
Let’s take post-secondary education first.
Starting in the 1980s the Federal Government, in a series of legislative moves, started removing bankruptcy as a means of discharging educational debt. This greatly incentivized various organizations to provide “educational loans.” The government then put in place policies that declared adults to be children on a legal basis when it came to finances.
(1) Specifically, the FAFSA prohibits an unmarried person under the age of 24 from being financially independent! You are legally an adult at 18 and will go to an adult prison if you commit a crime, you can enlist in the service, get married, sign a contract (even if to your severe detriment), borrow money and be obligated to pay same, you can drink at 21, all over the objection of your parents, but the Federal Government will force your parents to disclose their income and assets and will penalize you if they make too much or have too much even if you get none of it now or ever, until you’re 24 and if either or both parents refuse then you’re cut off from all financial programs and are charged the highest possible price. This is outrageously unconstitutional on its face as it declares a parent an indentured servant to the state and penalizes a young adult due to no act of their own. There’s a pretty-clean argument that this system, in fact, constitutes extortion and since there are multiple parties including the college involved it’s Racketeering. Finally the parents are not entitled to any sort of information or input on their former kid’s grades, progress, choice of major or spending while in school — whether via loans or otherwise.
Then the Federal Government went further in the wake of 2008 and basically took over educational lending entirely. The exception remaining are “PLUS” loans which are actually co-signed by the parents of said adult children but even those that are not federally-made remain non-dischargable in bankruptcy.
Let me be clear: There is almost-never any reason for any person to take out any “educational” loan of any sort to attend a post-secondary educational institution. PLUS loans are purely abusive in every single case and ought to not be outlawed they ought to be considered racketeering on their face as they attempt to coerce parents into being responsible for another adult’s decisions and outcomes.
It gets even worse in the post-graduate world because for Masters and PhD work there are essentially no grants of any sort — only loans. There are plenty of Masters and PhD fields that do not reliably return salaries in the six figure range and many fields, particularly in the arts and social sciences, where a Bachelors degree is close to worthless as anything more than an admission ticket to graduate school! As just one example National Geographic is rumored to refuse to even consider employing someone in their writing, photography or graphics arts areas without a post-graduate degree in some area of fine arts — and they’re not alone. Look at virtually any social science field and you will find myriad “Masters+” requirements, effectively forcing six to eight year college attendance. With educational loans being amortized over 10 years a $100,000 college debt @ 4% requires just over $1,000 a month in payments to be made after tax, which means you need $12,000 of free cash flow after all taxes and living expenses to be able to afford it.
What salary must be earned to do this assuming (1) you own a house or rent something at a similar capitalization rate to the principal and interest on same, (2) you own a car with a modest ($250) monthly payment amount (note that this is roughly half the going payment for car loans today) and (3) you have no other consumer debt whatsoever, and take none in the future (hopelessly optimistic based on current statistical data.)
Let’s look at the basic rules of finance: You can afford 28% of your gross income on P&I (or rent) for your residence and no more than 36% to service all debt — including the $12,000 for college loans.
So let’s assume you pay $800 a month for either rent or P&I on a house. This is possible in many communities, but not in most large cities; there it’s at least 50% higher. We’ll also add the $250 car payment monthly, and then the $1,000 for educational debt.
This amounts to $2,050 monthly in mandatory free cash flow. For that to be no more than 36% of gross income we thus see that you need a $5,700 gross income per month to meet this expense ratio and that allows for no mistakes, no savings and no additional consumer debt of any sort such as a credit card or otherwise. It is extremely aggressive, in other words in that one serious financial accident (e.g. a bad car wreck, illness, layoff, etc.) leaves you screwed. The basic rules of reasonable safety require that you have six to 12 months of gross income stashed which means you need at least $35,000 in cash in the bank in addition to have a reasonable level of financial safety.
This is nearly $70,000 a year in salary plus another $35,000 in the bank which is wildly beyond first-year salaries and savings capacity for virtually all fields with a Bachelors degree. In fact for 10 broad categories including engineering and communications the first-year salary average in 2015 was just $50,000 or roughly 40% short of the minimum requirement to be self-sufficient and on the bleeding edge of financially dangerous!
What if you get out of college with $50,000 in total debt? That helps a lot and drops your mandatory spend to about $1,500. Now you just make it as an average person if nothing goes wrong.
Does that make it a reasonable deal? No, and here’s why:
1. That $50,000 wage survey value is an average. Half the people will do better, half worse. If you’re in the bottom half you’re hosed and in the street immediately. Taking any bet that is a literal coin-toss between barely making it and falling off the cliff is insane.
2. More importantly you might not finish college, either in 4 years (in fact the majority of students do not finish “on plan” in 4 years) or worse, at all! The odds of you being able to make those payments if you don’t get the degree are an effective zero. The odds of making the payments if it’s $75,000 in debt instead of $50,000 because it takes you six years to finish is likewise much closer to zero. While some cases of people finishing late or not at all are their fault this is not exclusively so; you could have a serious accident or illness that forces you to interrupt your college studies, for example which is completely beyond your control and yet if you leave school not only do you owe all the money you borrowed payment must begin almost immediately.
3. If you default there are statutory penalties and interest that are immediately applied and cannot be renegotiated or removed. These will add as much as 50% to the debt immediately and irrevocably!
4. Finally, if you can’t pay you also can’t declare bankruptcy and get out of the debt. It will literally follow you until you die and they will take your Social Security check if you live that long — after applying interest for all those years! If your parents are dumb enough to have co-signed they will take everything they have too, even their house in states that protect it from bankruptcy. Why? Because when they garnish their income your parents will not be able to make the property tax payments and thus they’ll be forced to sell which immediately exposes the net cash that can and will be seized. There are many “Boomers” who have made this mistake and had any hope of retirement permanently destroyed. If you’re a young adult and allow your parents to sign on these loans, say much less ask them to you are a monster and deserve to be BBQd alive and eaten, and yes, I mean that literally.
It is in fact the design of these “lending” programs and the FASFA that have led to the cost of college escalating.
Because human nature works this way; if you financialize something then those who provide the financing will seek to take from the consumer (that’s you, as a student and your family) all but one dollar of value you gain from whatever it is that you’re buying — in this case the education you receive. This has led colleges to add five times as many “administrators” as Professors, all of whom do not teach one single student, while they build gilded edifices including “dorms” and “food courts” most akin to luxury condominiums and five-star restaurants! Not one penny of that money goes to improving your understanding of Calculus, Engineering or Fine Art but with everyone making a percentage it sure does go to the college’s employees, administrators and suppliers, driving costs up at ridiculous rates while doing exactly zero to improve the quality of said “education.” In fact it can be argued that ridiculous incentives are created to pass failing students since essentially none of the funds go to actual education and all go toward those dorms, food and other administrative things which continue to exist and be profitable whether you learn anything or not!
The most important take-away from such a process is this:
The college only cares about taking all but one dollar of the earnings potential they impart on average; whether you personally get something more than a dollar out of your education or lose everything doesn’t matter to them one bit as you are nothing more than a number on a spreadsheet. That is a fact because they are protected from losing anything irrespective of how well you make out — or don’t, as the case may be.
Now let’s look at Health Care and you’ll notice the exact same dynamic in play — but through slightly different means.
Health care firms are notorious for pricing procedures and drugs on what they claim is the “imputed value” of the procedure instead of what it costs to perform or produce. In other words if a drugmaker comes up with a cure for Hepatitis C (which they did) they will price it at whatever they think the average person with the disease would either spend on health care for the rest of their lives if the drug did not exist or worse, what they might earn if cured!
This is the exact dynamic that has driven up college costs and it’s everywhere in the health field. You never hear drug makers, doctors or hospital administrators talk about what it costs to make a drug, to extract a tooth, to remove an appendix or to birth a child.
They all talk about what the perceived value of that thing is as justification for their price.
This model cannot work in a competitive market because the floor on prices in a competitive market is set by cost, not value. If someone tries to price a product or service beyond a reasonable profit they provide an immediate incentive for someone else to come along, enter the market and undersell them.
Why doesn’t that happen in the medical (and college) field?
It fails to occur because of artificial and illegal constraints these businesses place on competitive entry.
Both businesses severely restrict competitive supply — colleges via the “accreditation” process (an unaccredited degree is likely worthless) and medical providers via both overt restraint of trade (including restricting the supply of doctors through college admission constraints!) and a combination of CON laws and state licensing requirements that allow them to deny entrance or exit of competitors, along with the supply of doctors, directly. In addition the medical field refuses to publish a price list and rampantly engages in both collusion and discrimination based on what else you buy from unrelated parties.
I note that the government has passed consumer protection laws at both Federal and State levels that bars such behavior, if it tends to lessen competition, as an illegally tied coercive sale but both federal and state governments refuse to enforce these laws against anyone in the medical field.
Think about how crazy this all is in the context of your car. How long would the local gas station last if they didn’t post a price for gasoline and how much you paid was only knowable after you pumped the gas? Worse, what if the price varied by as much as 1,000% depending on which car insurance company you used — with some being “out of network” and thus forcing you to pay $25/gallon while others left you billed at $2.50/gallon?
One local gas station would go out of business in a day if they tried this crap. If all the gas stations got together with the car insurance companies and did this in a given town, or any reasonable percentage of them, the government would show up with handcuffs and padlocks within an hour, throw everyone involved in prison and chain the doors closed because such conduct violates not only consumer protection laws but federal criminal laws on the books for more than 100 years in the form of 15 USC Chapter 1.
The same thing would happen if the car dealers got together and tried the same thing with repairs; your oil change is $50 if you’re insured with Allstate, $100 if with State Farm and $5,000 if with Progressive because they’re out of network. Oh, and you can’t buy the oil filters and oil to do it yourself either as they would refuse to sell either to you since you’re not “licensed” as a car repair shop.
Incidentally car dealers used to refuse to quote prices claiming they “couldn’t” tell what was wrong until after they did the work, and before the Monroney Sticker (the window sticker on new cars) they also refused to post prices on new cars as well. If you’re old enough you remember the exposes’ that the media ran on this scam in the car business where they sent in a little old lady with a car that had absolutely nothing wrong with it, or some minor $20 part that needed replaced and came out with a $1,000 bill. Today that doesn’t happen any more and you get a binding estimate before the first wrench turns, along with a federal requirement to post a sticker price on every new car because the government at both the state and federal levels passed laws barring deceptive practices and told the dealers and repair shops that if they didn’t cut it out people would be going to prison.
Folks, there is nothing effective that will be done about college education or health care until we put a stop to the forced assumption of risk being thrown off the people making the loans and prosecute the colluders, price-fixers and other violators of both consumer protection and federal anti-trust laws.
Let’s ask the question another way: Since basic human nature will seek to maximize the dollars extracted from you why doesn’t this same thing happen with Televisions or Computers in the local Best Buy? In other words since it is human nature to seek to maximize profit why is it that a 4kTV is under $1,000 today and a 1080p (much inferior) TV was $3,000 a few years ago? Why didn’t, in short, the TV makers and Best Buy do the same thing to TV prices that colleges did to college prices or hospital prices?
Simple: There is effectively no recourse if you don’t pay at Best Buy and Best Buy can’t refuse to give you a price until after the TV is in your house because it’s both illegal and Wal Mart down the street has posted their prices!
Further if Best Buy and Wal Mart try to keep Joe’s Appliances from opening down the street and selling TVs because Joe noted that both existing stores were selling at an uncompetitive price the executives of both Wal Mart and Best Buy would face prosecution.
Finally the best case for Best Buy if you don’t pay is that they can come repossess the TV. But a year from now, when you don’t pay, the $1,000 television is worth $400! They can’t take your house or Social Security check. In other words they have no recourse if they try to jack up the price through financializing the transaction because when you default they lose money. It is exactly that counterbalance that prevents the financialization of television purchases (which is extremely common; many are in fact bought on credit) from leading to $20,000 TV sets and people losing everything because they signed on the line instead of paying cash.
In short competition is the check and balance on what is otherwise an entirely expected human behavior that will and does screw you out of every single penny you have. Without competition there is nothing that will prevent this exploitation especially when the good or service is something that is believed to be “essential” such as food, gasoline, medicine or education.
As a nation we must stop this crap. If we don’t the medical scams will destroy our economy within the next four to five years, and the educational scam has already destroyed the earnings power and forward outlook for millions of young Americans.
That blood is on your hands.
This nation’s people collectively and individually own it — all of it — and that all those “smiling faces” can show up on mainstream TeeVee without a line of pickets 20 people deep around the studio says everything I need to know about the people of this nation’s willing consent to the daily financial******you not only take dry yourself but serve up on those who have no voice — including those who are not yet born.
I find especially vile those who preach or demonstrate about the evil of abortion while sitting on their ass in this regard.
Yes, I understand that resolving these issues will cause a large short-term drop in GDP (15% or more) and that would be viewed as “bad” by those in power — and the administrators in those hospitals and colleges!
But if the local hospital or college went out of business because it had borrowed too much money and, faced with an 80% reduction in revenue they couldn’t make the interest payments on the debt that’s good, not bad!
Because there are plenty of people with money out in the economy and they’d jump at the chance to buy a hospital or college at 10% of the cost of building a new one, complete with lecture halls or operating rooms and, just as importantly, no existing employment agreements that drive up the cost of operation.
With that 90% discount on the capital equipment necessary to provide those services and no existing employment agreements, freeing the new owners to negotiate from the ground up prices would crash instantly by more than half and that’s good if you’re someone who needs health care or wants an education — not bad. Yes, it would bankrupt a lot of companies and colleges who took out stupid loans but it would benefit you tremendously along with those who didn’t do stupid things and thus could buy those assets for pennies on the dollar and make a nice profit while providing you with services you wish to buy at a rational, market-based price.
Don’t tell me it’s impossible to do this in the medical field because it clearly, on the evidence, is not. Right now you can get on a plane, fly to India, and have bypass surgery done for $2,000. The doctor was trained in the United States or one of the other world-class international hospitals, the equipment was all made by the same firms that make it here in the US, the hospital rooms are private and appointed like a luxury hotel and the complication rate is lower than the best hospitals in the United States while the price is 1/50th of what it is here. Why? No financialization at all. Cash on the table or no procedure — period. And finally actual competition is present.
Even in the United States you can go to the Surgery Center of Oklahoma where there’s no formal financialization — just cash. Unfortunately here the supplies and equipment are still price-controlled so it’s only 1/10th of the price in the hospital across town instead of 1/50th, but that’s still a hell of an improvement. Oh, and the complication rate is lower than those other hospitals here in the US as well. Why? Because complications are included in the price at the Surgery Center (and not at the hospital) so there’s a very big incentive for them to not screw up (and give you an infection, for example.)
Likewise, how is it that we put men on the moon more than once with college educations that cost 1/10th of what they are today in inflation-adjusted dollars? It’s simple — dorms were block concrete, chow was a mess hall and there were damn near no administrators to be found — just professors. If you borrowed you did it privately and if you couldn’t pay the lender ate it, so nobody would lend you money unless they were real sure you’d pay it back. No college could price credit hours, dorm rooms and food like they do now because nobody was going to be able to stroke checks for it and if someone borrowed and couldn’t pay the lender wound up chewing his own arm off. In short there was no “free money”, there was no enslaving either the student or their parents and bad financial decisions were taken by the person who made them instead of shoved off on others.
Are you going to stop this America? Are you going to demand that our legislators repeal all college financing protections including the bankruptcy law changes and FASFA — right ****ing now? Are you going to demand that colleges and businesses that collude to “require” degrees in unregulated businesses be prosecuted for anti-trust, extortion and racketeering? Are you going to demand that hospitals, drug companies and your local doctor’s office post prices and charge everyone the same amount under penalty of prosecution through long-standing consumer protection laws at both the state and federal levels, and that states either repeal their “CON” laws now or be sued by the DOJ for anti-trust? Are you going to tell Trump, the Republicans and Democrats that you will not accept either “Obamacare” or “repeal and replace” without prosecution of those who are fixing prices and extorting the public with their “Explanations of Benefits”, along with a refusal to post prices, provide pre-procedure binding quotes and bill in a level fashion at all? Are you going to demand that any hospital that shows up next to someone in pre-op who has already been drugged with sedatives to sign a blanket consent form be criminally prosecuted for intentionally addling someone’s consciousness and taking advantage of them exactly as you would expect someone who Roofie’s a woman’s drink to be? Are you going to demand that the import ban on drugs be repealed now and that any drug company that engages in differential pricing across borders or other anti-competitive behavior, including bogus patent extension filings that occur on a literal daily basis today be hit with indictments and prosecution under 100+ year old laws that forbid such acts?
Are you willing to enforce said demands with any and all lawful actions available to you, including sign-waving protests, voting people out of office, showing up at town halls and confronting these jackals face-to-face, refusing to associate with anyone involved in these scams in any social or professional setting while being very public about why, telling your Alma Mater to go **** a duck when the fundraisers call or write, picketing the homes and offices of lawmakers, college administrators and hospital executives along with their families who all personally profit from their activities, refusing to work for them or serve them in your profession and even extending your activism up to and including a general strike that you will not return to work from until and unless all of the above happens?
No? None of the above, you say? You’re gonna cheer for your favorite college team that’s screwing young adults in the ass 5,000 at a time and buy football tickets instead?
Well then **** y’all because I’m not paying for your decision to sit on your ass or, even worse, cheerlead for not only your own financial destruction but also that of every young adult and child in the nation including your own.
For more than ten years I’ve made writing columns on the economy, markets and the abuses served up on America a priority. I’ve written those columns from all four corners of the country, I’ve taken my laptop and done it on vacation, I’ve written on news of the day that pops up in the middle of the night and I’ve got dozens of data tables that I have to update on everything from employment to the Z1 flow-of-funds to consumer debt. I’ve written the checks for colocation space and servers, business-class Internet complete with a conduit feed here and more. I pay the bill every month for the additional power and A/C consumed by the equipment that runs here 24×7 and I keep a backup set of both data and hardware “just in case” — and those who have been around since ’07 have seen times it was needed. Yet for all of this and pointing out both the inevitable math — there is no arguing with arithmetic, nor can political considerations wave it aside — nobody gives a ****. There’s nothing but excuse after excuse, never mind the clear evidence that your children and those who came of age during this time are being screwed blind (gee, why do you think all those millennials are living at home and many aren’t bothering to work?) and you are about to take it in the pooper in a big way within the next few years, not decades from now.
I’ve cut it way back over the last couple of years but the few articles here and there still don’t get through and generate anything more than a few clucks of “oh yes, we see it.” Not one bit of activism. Every now and then they generate a spate of “guns, gays and God” in response and I get out the banhammer to knock that sort of stupidity into the next county. Three or four articles a day didn’t do jack and focusing on the two largest areas of the screwing that will come apart and destroy the economy over the last two years hasn’t changed a damn thing in terms of the number of people who will get off their ass either. The count is a statistical zero — and that’s a fact. The people of this country are all engorged in selfie nation telling yourselves how pretty, sexy, masculine (ha!) or macho you are on Facesucker, Instrascrew or finding someone to diddle for a night — or an hour — on Tinder.
That’s what the data says, and what’s where the money is going and I need only look at the price of Facebook’s and Amazon’s stock to see it.
Well y’all have at it and y’all deserve what’s coming. For my part “winding it down” is on its way to be taken to a whole new and much lower level.
I’m not starting a new business, despite having a few of them in my back pocket. I won’t take business risk, I won’t create jobs and I won’t hire. It won’t be all that long before I tire of paying that outsized internet bill and chop that too, since most of it is there so you can consume this — then immediately discard the mathematical truth of it all as unworthy of action or response. I won’t entice my offspring to do something that is financially suicidal. I will evade every bit of the scam to the maximum legal extent available to me, and I’ll evade all the people involved in it too, with my middle finger erected in their face if they won’t take the hint. I won’t partake of the medical and educational scams you all explicitly and implicitly support and I will label every one who sits on their ass or preens on Facebook a scum-sucking bastard unworthy of the air consumed. If I require medical attention and can ambulate to somewhere it can be provided at a rational cost I’ll go there and deny all of your cronies a single penny of my money. If I can’t for whatever reason then I accept death and will use my last breath and beat of my heart to give everyone in both areas of this scam — along with all who silently refused to act — a big fat bird.
Let me know what your decision is but remember the words of Rush in “Free Will”:
If you choose not to decide you still have made a choice.
I’ve made mine and now it’s your turn to make yours.