Friday, February 26, 2010

And a Word from the U.S. Secretary of the Department of Education, Arne Duncan

My rants are in blue.  This baller, turned Government Official, has some ideas about how to improve the education system in this country.  He has a bone to pick with Sallie Mae as well, but I'm not so sure that his plan will change life for those students who are currently in default.  Read on....

Direct student loans: A better way to invest in education

By Arne Duncan
Friday, February 26, 2010
For too long, bankers have gotten a free ride from the U.S. Department of Education.  Really, Captain Obvious?

Under current law, taxpayers provide as much as $9 billion each year to subsidize guaranteed student loans issued by banks. The banks earn profits on the interest; if students default, taxpayers take the loss, not the banks. In other words, working Americans pay while bankers get rich.  Not clear on which taxpayers he's talking about. It's my understanding that the only taxpayers that suffer are those who are unable to pay their loans.  Otherwise, like death and taxes, this money is paid back to the lender (and therefore the Government). 

Meanwhile, educators, engineers and computer scientists -- the backbone of the new economy -- face crushing debt from six-figure college tuitions. A study of national postsecondary student aid found that in 2008, two-thirds of college seniors graduated with debt averaging more than $23,000. That number will rise as public and private college tuition costs escalate.  What about Lawyers and those that choose to go to Graduate School?  I  know that JDs are FAR from the back bone of society, but lawyers, on average, graduate with $90K in debt. $23K is child's play.  Way to make a major problem seem minor, Mr. Duncan!

The banks have had plenty of help with government bailouts and other subsidies while working families and students are increasingly squeezed. President Obama wants to eliminate the subsidy for banks and use that money to help poor and middle-class students and adults attend college.  I wish that Pres. Obama would not use the money to help students go to college.  Geez... it's just more free money that will be soaked up by the Educational Industrial Complex.  He needs to stop extending government help to students so that colleges will be forced to be competitive.  Lah di dah di... you know my spiel.

The president also wants to strengthen community colleges, give grants to states that improve college completion rates and boost early-learning programs. I hate to break it to you, but not everyone who goes to college should.  Those that can't complete it, aren't dropping out for lack of funds.  With guaranteed returns, banks will lend money to students who want it.  They are dropping out because they missed their calling, i.e. are not "college material."  Why push people to finish something that costs money and doesn't necessarily better one's job prospects.  I'm not knocking it. I consider them the lucky ones.  He wants to lower maximum monthly payments for student loans from the current 15 percent of income to 10 percent to make college debt more manageable. How about 5%?  At 10%t, a person who earns $40K will pay $400?  That's a bit steep to me.  I paid about 6% of my monthly salary to student loans (when I had a job) and I really thought that was reasonable.

Not surprisingly, the banks are working hard to block our common-sense proposal. Sallie Mae, the largest player in the student lending business, has spent millions of dollars to lobby Congress and run ads in several states, claiming that our proposal will cost jobs and inhibit service. These claims must be challenged.  If by service you mean, people who call you mother, place of business, cell phone and neighbors to harass you to pay your loans... I think that Sallie Mae could handle a little less service.  And I don't give a shit about the jobs that will be lost.  If you are the type of person that can go to work every day and fleece students from their hard earned money, thereby prohibiting them from eating, getting married and buying homes... you deserve to be homeless.  Morality, people.  Look into it. I wouldn't take a job where I'd step on kittens. How is this different?

The president's plan actually creates jobs and draws on free-market principles by selecting private companies through a competitive process to service student loans issued directly by the Education Department. These private companies, including Sallie Mae, compete for our business and are evaluated on the quality of their customer service and their default rates.  This is where our dear Secretary of Education loses me.  Are we accusing Sallie Mae of having bad customer service?  Is that what they have done to hurt students in this country?  Try this, Mr. Duncan: we will set up a committee to investigate and prosecute Sallie Mae for predatory lending.  That's the kind of reform I'm looking for.  Being concerned about which servicing company has the best customer service is like being concerned about whether the executioner is swift with his sword.  He's still going to kill you.  And Sallie Mae or other mysterious private companies are still going to rape you.  We need to force their hands and have them work with students so that there won't be defaults anymore. If someone provides proof of income and reasonable expenses... and they really can't afford to pay more than $50 a month, why can't the Government force Sallie Mae to take $50 a month. 

Loan servicing is a growing industry as more and more Americans pursue college degrees. Under our contract, the high-performing companies will get more business over time while poor-performing companies will get less. The market will play, and students and taxpayers will win.  This is a riot.  So, those with loans, will graduate from college and work for companies that collect on student loans from their peers.  I guess it's a job (for the greedy and black-hearted).  I'm sure that the jobs in this growing industry will be shipped to India before long, when college grads with $50K in debt demand to be paid more than minimum wage so that they may service said debt.  "Hello, this is Debbie calling from Bangalore.  How may I be helping you today.  I see that you be late with your payment. Thank you.  Please.  Transferring you to manager. Be patient."  Imagine the head tilt.  Ha.

It's no wonder that the banking industry is pushing back hard to protect its taxpayer subsidy. Over the years, this giveaway has generated billions in profits for banks and hundreds of millions of dollars in compensation for bank executives.

The banking industry's claims that it wants to protect American jobs are also suspect. The fact is, Sallie Mae sent thousands of American loan servicing jobs overseas in 2007 to further increase profits, and it agreed to bring them back last year only to compete for our loan-servicing business.  Wow.  So happy that you MADE them hire Americans.  Really!   This is the best thing that I've read all day.

The Education Department has issued more than $187 billion in student loans since the Direct Loan Program was created in 1993. The number of universities participating in the program has more than doubled, to 2,300, in just the past three years. There is no justification to continue wasteful subsidies to banks. It is time to complete the shift to direct lending.  So, there will be more subsidized loans?  Is that what he's saying?

The president's proposal, which has passed the House and awaits Senate consideration, represents the ideal hybrid of public investment and market-based management. Through direct lending, we get a bigger bang for taxpayer bucks while using competition and private-sector expertise to improve customer service.  Once again, this focus on "customer service" throws me for a loop.  Don't get it at all.

The writer is the U.S. secretary of education.

What do you guys think?  Is he full of crap?  Is this a good plan or a non-plan?  Will it change anything at all?  Chime in! 


  1. I don't know where this idea of "made" Sallie Mae hire Americans...last time I checked (which was two days ago), Indians still answer the call. I just checked their careers page real quick and most of the jobs are in IT. I see a Temporary Customer Service position and seven Collector positions. Lies....

  2. It is ALL smoke and mirrors - just like everything else in government. They will hold some "town halls" meetings, maybe some hearings, yell at a few student lender CEOs, issue a report, and NOTHING much will happen or change. It is all for public consumption, i.e. give the rubes the perception that "their" reps are doing something.

  3. Ultimately, controlling student lending will be a good thing for most people who want to go to college. Unemployment statistics are pretty clear that even now, some higher education benefits people. Unemployment for people with only a high school diploma or less is consistently significantly higher than unemployment figures for people who have a college education or higher. Increasing direct federal lending will also make it easier for students to take advantage of plans like income-based repayment.

    It doesn't solve the problem of vastly escalating tuition and falsified law school employment statistics, but for high school grads it should be helpful.

  4. "It's my understanding that the only taxpayers that suffer are those who are unable to pay their loans. Otherwise, like death and taxes, this money is paid back to the lender (and therefore the Government). "

    Not really. People can die without ever paying off their loans. Some even flee overseas, making them either unreachable or significantly difficult to reach that it's not worth it. See this article from 2008:

  5. I laughed at the $23k debt too, Angel. Even $90k is child's play. There are people with more than $200k total in private and federal loans. The majority of these people will go to their graves never paying off their debt, their lives destroyed. Duncan is making light of a very, very serious and life destroying problem.

    I don't trust Arne Duncan to fix the system. I've read things about his days as CEO of the Chicago Public Schools and he sounds like a libertarian in the way he handled business in Chicago. He's a privatizer who allowed the military to run some of the predominantly African-American public schools there. Yay, just what we need, to train more poor minority kids to fight in Afghanistan and Pakistan.

    That's why I am not surprised to read in this article that his plan draws on free market principles. If Duncan is fine with public schools going to any predatory corporate interest, I doubt his plan is to prosecute predatory lenders like Sallie Mae. Students might get better customer service or lower interest rates but it doesn't solve the problem. Students will still owe thousands to private loan sharks tuition will continue to increase. Nothing will change.

  6. This may be long, but I'm not at this blog by accident.

    America is shooting themselves in the foot by messing around with this problem. The tides are going to turn and what will happen is that no one will go to college. Not no one, but the enrollment will drop. Because people won't be able to afford it and people will be afraid to take out the loans.

    No one takes out a loan thinking they'll never pay it back. You have every intention on paying it back.

    What's the deal with the customer service thing? I loved this part

    " I wouldn't take a job where I'd step on kittens."

    Neither would I, yet there's people would. The same people who call up threatening people's parents, sure make your mom and dad feel guilty for not being able to help their child. It doesn't make them have the money any more than before.

    They need to fix the job market. I applied to at least 30 jobs last year, I refuse to believe that I just happen to suck that badly. My current job is cutting costs all over the place.

    Why are they focusing so much on getting people into college? What's the point in that? So that more people can graduate into a still jobless market?

    It's frustrating and stressful. You do what you're told. You go to school, you get the right grades so that you can go to college you get the degree and then you get a handful of bills that grow seemingly by the hour.

    Fix the problem before you lead more people into the same situation.

    Then there's talk about making 12th grade optional. What in the world? Aren't we in bad enough shape when it comes to the educated Americans?

    I would love for this guy to spend the day with a struggling graduate. Just the day, he could be my receptionist answer all the calls and read the mail. Since he seems to think everything is so simple.



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