Wake Up And Smell The Espresso (Education) in [Market-Ticker]
Laura Sayer, unsure of what she wanted to do after graduating from college in 2006, figured a master's degree was "a safe bet."
With $5,000 in undergraduate loans from her time at the University of Cincinnati, Sayer was set back $50,000 more after completing the Interdisciplinary Master's Program in Humanities and Social Thought at New York University. The 27-year-old now makes about $45,000 a year as an administrative assistant for a nonprofit group, a job that didn't require her advanced degree.
More people are losing the same gamble as a 33 percent jump in U.S. graduate school enrollment in the past decade, coupled with an 80 percent surge in tuition and required fees, runs headlong into a weaker job market. Universities are fueling the trend by offering more one- and two-year programs in areas from environmental science to sports management that rarely come with financial aid other than the option for loans.
And how does that happen in a free market for loans?
It doesn't.
Why not? Because nobody in their right mind would loan you $50,000 for two years of school to complete a Masters if there was not a decent return on the investment, which means that your income expectations would be boosted by more the fully-laden interest-inclusive cost over the next ten years (the typical repayment period) from where you are without it.
Yet Laura was able to source the money. Why?
Because the financial industry bribed, cajoled and scammed its way into turning that debt into something that Laura could not discharge in bankruptcy. As such there was no risk for the lender in making the loan and they didn't give a damn that there was no reasonable expectation that Laura would find a job that paid at least $10,000 a year more with her Masters than she had before it -- a job that in addition would actually require the Masters to obtain.
Remember, the lender always has superior information because they have the benefit of all the loans they made before and how they performed. They also have spent a lot of time and money modeling loan performance and they thus controlled all the variables that went into those models. As such they are, on an "actuarial" (across the entire universe of these loans) basis far more knowledgeable than Laura is about whether she will be able to pay and they know what factors control for that success -- and which do not.
Laura has none of this information. She knows only one thing -- how hard she is wiling to personally work, and she has some idea of her personal aptitude. That's all. She's at a severe disadvantage in this evaluation.
This is why bankruptcy was written into the Constitution and why it's so important. The threat of the borrower declaring bankruptcy and avoiding the debt taken on is the only market check and balance that works to restrain predatory and abusive behavior by lenders. With it no lender intentionally makes a foolish loan because while the borrower has their credit rating ruined the lender loses their actual investment.
This intentional distortion, which the lenders and government pressed for and profit from, must be addressed. There is no student and no family that should ever consent to a non-dischargable student loan under any circumstances and no adult worth the title "parent" should be willing to provide or file any document related to qualification for same, including but not limited to a FASFA. Among other things it is none of the damn government's business what income and assets a parent has in relationship to their now-adult offspring, as their obligation to provide for said offspring ended at the age of 18 years.
We will never solve the problem of out-of-control educational costs until parents and students stand en-masse and simply refuse to cooperate with this rank corporate-sponsored and government-assisted financial rape. Neither the universities or the lenders are your friends -- they're predators, you're their "meat", and part and parcel of their predation is capitalizing on our youth's inexperience and a drilled-in "trust in authority" (false and malicious) claim that has been foisted off on them during their previous years in school.
It's that simple.
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