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Yashi

Monday, March 17, 2014

The student loan mill


Last week, the Obama administration rolled out new regulations targeting low-performing colleges: the ones whose graduates have high default rates and huge debt levels relative to their incomes. Using those two data points, the government will start cutting off low-performing schools -- many of which are of the for-profit variety -- from federal loan and grant money in the next 2-3 years. The government is also  investigating ITT Tech for pressuring students to take out loans they couldn’t afford.

James Hamilton calls the new regulations “long overdue”, pointing out that since 2006, the student debt burden has grown from under 4% to more than 7% of GDP. For-profit colleges account for only 13% of higher ed students, he says, but make up a third of all student loans and half of all defaults. And, writes Hamilton, in 2012 student loans surpassed credit card debt as the fastest growing source of problem debt, with more than 10% of loans 90 or more days delinquent.

For-profit colleges saw huge enrollment bumps in the wake of the Great Recession, particularly from students older than 25. A recent New York Fed report suggested many displaced workers turned to for-profit institutions that both cost more and have fewer financial aid options. Students take on more debt, and yet “graduates of for-profits are more likely to earn less, default more, and experience unemployment more than their counterparts at public and non-profit institutions”.

The Obama administration isn’t alone in being worried about student loan debt, which has climbed to $1.2 trillion from just $240 billion in 2003 (check out our posts on this here and here). Two weeks ago, a coalition of progressive groups launched a campaign, “Higher Ed, Not Debt”. At the launch event, Elizabeth Warren said she’s co-sponsoring new legislation that would require institutions with high default rates to pay the government back some of the money they receive from federal loans.

Republicans are also worried. Marco Rubio released a proposal last month advocating that income-based repayment — which is already available, though borrowers have to apply and prove financial hardship — become the default  system for paying off loans. Under the system, monthly payments would be capped at a certain percentage of a person’s salary (the proposal uses 4% as an example, but doesn’t call for anything specific). Wisconsin congressman Tom Petri has a similar plan that goes one step further, deducting the payments from borrower’s paychecks.

There are problems with income-based repayment, writes Bloomberg View. For one thing, income-based repayment systems can mean borrowers take longer to pay off their loans and end up paying more in interest. However, the bipartisan commitment to finding a solution is a good thing, they say. -- Shane Ferro

On to today’s links:

So Hot Right Now
Reverse mortgages are back, with a little help from the Fonz - Peter Rudegeair and Michelle Conlin

UGH
The longevity gap: economic inequality leads to lifespan inequality - Annie Lowrey

Predictably Gloomy
Tech companies want to make "our lives tick in sync with the speculative logic of finance" - Evgeny Morozov

Charts
57% of Americans think we're in a recession. Why? Wages - Josh Barro

Declines
"The era of Facebook is an anomaly": one website and one online identity doesn't work - The Verge

The Fed
Cheat sheet: What Fed policymakers have been saying lately - WSJ

Your Daily Outrage
The racist housing policies that created inner-city American poverty -  Jamelle Bouie

Quotable
"We are bullish about pet ownership" - Inc.

Mt Dox
Dorian Satoshi Nakamoto denies he is Satoshi Nakamoto - @FelixSalmon

Predictions
"The future is about old people, in big cities, afraid of the sky” - Bruce Sterling

Totally Unsurprising
Banks are against a public option for banking - Bloomberg Businessweek

Wonks
An excellent primer on income inequality and growth -  Filip Spagnoli

Housing
Some things to like about the new Johnson-Crapo GSE reform bill - Housing Wire

Advanced Strategy
Banamex loaned lots of money to a few risky corporate borrowers - DealBook

FYI
10 things the CFPB has done for consumers - Mother Jones

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Business Today: Wall Street climbs as Ukraine worries ease, data improves

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03/17/2014
Reuters Election 2012 Daily round-up of the day's top news from the campaign trail, the White House and all the politics in between
Wall Street climbs as Ukraine worries ease, data improves
NEW YORK (Reuters) - U.S. stocks climbed on Monday, with the S&P 500 bouncing from its worst weekly drop in the past seven, as concerns eased over the situation in Crimea, while economic data indicated the economy was improving after a winter slowdown.
GM recalls 1.5 million more vehicles, CEO says 'terrible things happened'
DETROIT (Reuters) - General Motors Co announced new recalls of 1.5 million cars on Monday and in a virtually unprecedented public admission by a GM CEO, Mary Barra acknowledged the company fell short in catching faulty ignition switches linked to 12 deaths and last month's recall of 1.6 million cars.
U.S. factories flex muscle after severe winter chill
WASHINGTON (Reuters) - U.S. manufacturing output recorded its largest increase in six months in February and factory activity in New York state expanded early this month, the latest signs the economy was gaining momentum after being dampened by severe weather.
Sony Pictures to announce layoffs across divisions: source
LOS ANGELES (Reuters) - Sony Pictures Entertainment on Monday will announce layoffs throughout its studio operations in the United States and abroad, according to a person familiar with the matter.
Five months later, jurors face tough task in Madoff aides' trial
NEW YORK (Reuters) - Like Bernard Madoff's Ponzi scheme itself, the trial of five of his former aides has been virtually unprecedented in its scope.
Vodafone agrees $10 billion deal for Spain's Ono
LONDON (Reuters) - Vodafone has agreed to buy Spain's largest cable operator Ono for 7.2 billion euros ($10 billion), the latest hefty deal in a European telecoms sector starting to rebuild as the region recovers from a recession.
Men from Ukraine and New York indicted in U.S. cybercrime case
(Reuters) - Federal prosecutors on Monday announced the indictment of three men they accuse of being members of an international cybercrime ring that tried to steal at least $15 million by hacking into U.S. customer accounts at 14 financial institutions and the Department of Defense's payroll service.
Losses mount as South Africa faces biggest post-apartheid mine strike
JOHANNESBURG (Reuters) - With no end in sight, South Africa's platinum strike is set to become the biggest single stoppage to hit the country's mining sector since the end of apartheid in 1994, and now threatens the viability of an industry already in deep trouble.
El-Erian starts tweeting, but won't talk about Gross
NEW YORK (Reuters) - Mohamed El-Erian, the former chief executive of Pimco, has taken to Twitter to express his views to the world, but he said on Monday he wants to steer clear of the drama surrounding his falling out with co-founder Bill Gross for now.
Big banks need point person for money-laundering lapses: regulator
HOLLYWOOD, FL/WASHINGTON (Reuters) - Big banks should designate senior managers to oversee efforts to police transactions for criminal activity and take responsibility when lapses occur, a top U.S. financial regulator said on Monday.
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