1. Study: Federal Aid Makes College More Expensive

    A basic tenet of economics holds that the more money you make available for something (of finite supply), the more that “something” is going to cost. In this case, that “something” is college tuition.

    Enter a new study from the New York Fed. Researchers found that increasing the availability of student loans and grants has — shockingly! — caused college to become more and more expensive. (Somewhere out there is a guy who’s mentioned this before.)

    New York Fed: Credit Supply and the Rise in College Tuition…

    The fun part of the PDF, for me, is Section 5 (page 21), where this little tidbit is found:

    Changes in sticker-price tuition have a coefficient of 0.40 on the change in Pell Grant amounts (column 1) and this effect is significant at the 5% confidence level. The economic magnitude of this coefficient is large and implies that a dollar increase in Pell Grants going to an institution is associated with a higher sticker price tuition of about 40 cents. The effect of an increase in subsidized loan amounts is higher, at about 63 cents on the dollar, and this effect is estimated to be statistically significant at the 1% confidence level. Finally, we see the effect of a change in unsubsidized loan amounts on sticker price tuition to be smaller at about 25% but still highly significant.

    All this talk of coefficients makes my head hurt, but I think I get the drift: The more money that FedGov throws at colleges, the more colleges will find ways to take it. Ergo, annual tuition increases of 5 or 10 percent, and more. (Current and future higher-ed students “take it,” too, but in a very different, X-rated manner.)

    The point estimates suggest that the pass-through of increased student aid supply to tuition is around 50 cents on the dollar, on average, although with some heterogeneity. …We find a sensitivity of changes in tuition to changes in subsidized loan amounts on the order of about 60-70 cents on the dollar, with estimates that are highly significant in essentially all of the specifications considered.

    So if you want to see college tuition rates get jacked up even more, year after year, just make more loans and grants available. Especially subsidized loans — those things are the ooey-gooey candy that just never runs out. (If you’re a college, anyhow.)




     

     

  2. Make Your Debt Known

    NOTE: This article was originally published on Money Musings in May of 2006. I’m republishing it now to update some info and links, for one thing, but mainly because I think the idea here — to tell others about your debt, so you can begin to overcome it — is worth repeating. Loudly.

    I have become a big proponent of an idea I first heard from Suze Orman: If you’re in debt, and want out, then you must tell others about your debt.

    I bring this up because this week my wife purchased a newsstand copy of All You magazine. I’d never heard of it before. Because “what I read” is not nearly as important to me as the fact that I just read SOMETHING, I have no problem tossing aside my manhood and flipping through a publication whose self-described audience is “Value-conscious American Women.”

    (Yeah, I’ll read articles from stuff like Cosmopolitan and Woman’s Day, too. Sometimes there’s personal-finance stuff in there, which I’ll read no matter where it comes from. Other times, it’s more like reconnaisance. Us guys can get an interesting look behind enemy lines that way.)

    Anyhow, in this issue of All You, there was a one-page article about a 25-year-old woman who’d piled up $20k in credit-card debt. Not much about the story (soapishly titled “I Was Hiding a Huge Secret”) caught my attention, until I hit this little snippet:

    …I joked to my friends about being in the poorhouse, but because I’d landed a great public relations job, no one guessed what was going on. I never told because I was afraid people would see me as irresponsible.

    One day, though, I was with my best friend, Mandi, and I just blurted out the truth. For the first time, I actually said aloud the amount I owed. It was a huge relief. Mandi, who was a loan processor for a mortgage company, reassured me that I could get my debt under control, and she offered to show me how.

    I don’t know about you guys, but in my experience, folks with money problems almost always get to that point in secrecy. Read that again: Folks with money problems tend to get there in secrecy. I would contend that this is a powerful and dramatic “common feature” in today’s financial world.

    We could spend days talking about why this secrecy, damaging as it so often is, plays out. It’s a cultural thing; money simply isn’t an open topic in social (and, often to a larger degree, familial) circles.

    It’s human nature. Acquiring debt can hint at shortcomings, and who in their right mind wants to advertise his or her shortcomings if they don’t have to do so?

    It’s a “commercial presentation” thing. Ever notice how credit-card bills arrive in discreet white envelopes, while credit advertisements can usually be spotted by your mayor’s son’s future parole officer from two blocks away? Think about the possible implications. If you’re in debt, it’s a “privacy thing,” and you’ll probably want to keep it quiet. If you’re debt-worthy, though, you want the world to know.

    I could probably come up with another 10 or 12 reasons, but I’ll save the wear ‘n’ tear on your browser and eyes, and move on to the good side of all this. More from our spendthrift 25-year-old:

    I’m so glad I opened up about my debt problem. Today I’m 29, and my credit rating’s stellar, my debt’s entirely gone and I’m considering starting my own public relations business.

    Here’s where we recite that old tenet about facing your problems head-on: You pretty much have to. No one else will do it for you, right? For me, a big part of facing my debt head-on was making it a public affair. (In the case of It’s Your Money and this here blog, well, that’s about as public as you can get.)

    I needed the opportunity for learning that this site provided me. I darn sure needed the accountability. I needed the responses from readers, some who’d already been where I was, and who years ago had found the EXIT sign, and some who were right there with me, practically in lock-step, from Day One.

    Not everyone needs these things, of course. Waging a successful war on debt can be done entirely in private. But given the situations I’ve seen in my life, and the people whose lives I’ve seen ruptured by debt, I sure don’t like the odds.

    This is why it’s always made me happy to see new blogs popping up — the ones where the authors have made a decision to move forward in their money lives, to vanquish their debts and whatever other baggage they might have, and to generally get on with kicking life’s butt. I am here to proclaim that it’s a worthy mission.

    There are a host of other goal-oriented bloggers who see fit to make their debt paydowns public, and I commend each one of them. I do still try to keep up with as many as I can. Because I’ve been where they are. By making their debts, their goals, and their actions public, they’ve turned vague “ought-tos” into unmistakable, concrete targets.

    They’re asking for an audience. They’re asking for accountability. This goes against pretty much everything our society preaches regarding money and debt. And by gosh, it takes big-time courage.

    If you’re thinking about doing something like this, about starting up a WordPress blog or LiveJournal or something like that to help you get your money straight, I say “Fire it up.” There’s a great deal to be gained when you open up the windows and let some light in.

    Make your debt, and your task, known.




     

     

  3. Survey: Many Expect Student-Loan Forgiveness

    Well, can’t say I find this to be any surprise:

    NBC News: 25pct of Millenials Expect Student-Loan Forgiveness

    Note to those of you who run political campaigns: If a quarter of those Millenials with student-loan debt expect it to be dumped off on the taxpayer, well, I’m pretty sure they’ll line up to vote for anyone who promises to make it so.

    I’m also fairly confident that there’s a word for folks who borrow money without the intent to repay.

    (Doesn’t apply to governments or super-large automakers, of course; we’ve established that. But you know what I mean.)




     

     

  4. College Debt Comes Home to Roost

    A really fun article which I stumbled upon late Saturday evening:

    NY Times: Boomerang Kids Won’t Leave

    ShacklesI could go on and on about the scam that college debt has become, but I promised myself I wouldn’t do that again. Fact is, this country just moves from one bubble to the next, and Today’s Bubble™ is college debt.

    The article itself is a hoot. But I also highly recommend that you take a look at the 14-photo slideshow which accompanies it, because there you’ll unearth gems like this one from Alexandria, 28 years old, the proud owner of a $90k student-loan chain around her neck:

    I feel like I had no idea what I was doing when I took out those loans. They didn’t really sit us down and talk to us about financial aid or what our options were. I wish they would’ve had a class before you graduate high school, or like the first semester of college: ‘Let me teach you about basic student loans, math, finance, anything that you’re going to need now that you’re 18.’ I wish somebody would’ve been like, Alex, it is not a good idea to take out a loan that has 12.5 percent interest.

    Oh, Alexandria. As Upton Sinclair so succinctly put it, “It is difficult to get a man to understand something when his salary depends on him not understanding it.” The same goes for education: Don’t expect colleges and the rest of the “Big Education” industry to teach you all that basic financial and debt stuff, because their salaries depend on you NOT learning it.

    At least, not until you’ve run up student loans to the hilt and paid off all your bursar and textbook bills.




     

     

  5. My Thoughts on SPENT: LOOKING FOR CHANGE

    For a 40-minute freebie financial documentary, Spent: Looking for Change sure got a lot of publicity. And really, I’m not sure why. Was it directed or bankrolled by someone I should know? (I’m not a film aficionado, in case you hadn’t noticed.)

    Spent: Looking for Change (Movie)

    I’ve watched Spent twice now, and found it to be a well-done film. Definitely worth viewing if you’re a money-dork like me. If you’re coming to it looking for answers to tough financial issues — yours, or our country’s — you’ll get none.

    What’s the Message?

    What does Spent: Looking for Change try to convey? Well, mostly, that there’s a huge segment of our country’s population which is “underserved” by Greedy Nasty Corporate Taxpayer-Backed Profit Machines, also known as banks.

    I’m sure lots of readers have taken me for a banking apologist over the years — check out my blast on overdraft whiners, for example. But the fact is that I have little sympathy either for banks OR for the people they regularly fleece. Am I a cold, heartless bastard? Yes, quite possibly. But one thing I know is this:

    The financial system in the U.S. isn’t set up to allow for people who either (1) make repeated poor decisions, or (2) hit a Big Misfortune in life (think major illness of a family’s breadwinner) to easily recover from those situations. If nothing else, Spent: Looking for Change makes that fact crystal-clear.

    But there’s another message I picked up from Spent, and I’m wondering if it’s what was intended. That message was:

    Everyone needs, and should be provided, the ability to borrow at low cost.

    Oh, how I vehemently disagree with this message. Every “victim” in the film eventually turned to debt as a “solution,” for whatever reason, and every one of them found that the debt they “needed” was either unavailable or came at a high cost.

    Okay. So where’s the problem?

    If you want to borrow money, and the bank pegs you as “high risk,” then high risk equals high cost. Period. That is basic economics. That is life. The earlier we learn that, the better. And if you as the director/producer/funding agent of this film believe that the “high risk equals high cost” precept is wrong or unfair, then I invite you to throw copious amounts of your own hard-earned money into the pile from which high-risk and/or low-income customers can borrow at rock-bottom interest rates.

    Let me know how it turns out, if you don’t mind.

    So I’m a Meanie.

    Would I prefer that the single mom from Texas, who lost her only means of transportation to a title-loan company, have found another way to come up with the funds she needed? Definitely I would. Would I have been willing to loan her that money myself, at low rates? No. Should someone else be forced to do so? No.

    Would I prefer that the young female entrepreneur in the film, who apparently cannot make leather bags fast enough to keep her customers’ orders filled, be able to manageably kick her business into the next gear? Yes, I would … in my heart. But in my head, I wouldn’t loan her the money to do it, nor would I ask anyone else to do so, because the $100k of student-loan debt she took out will always be first at the table when push comes to shove. (Those student loans appear to have been be a TERRIBLE HORRIBLE LIFE-CRUSHING decision here, by the way. But the film says little about this. Nor does it mention the fact that the “huge student-loan problem” we have is because WE HAVE SPENT DECADES HANDING OUT EASY-TO-GET LOANS IN THIS VERY ARENA.)

    Like so many things in life, there aren’t any easy answers here. But I am quite positive that “Let’s make debt more available!” isn’t any kind of an answer, easy or not.




     

     

  6. Surprise: TBTF Banks Will Screw You

    Way back in 2007, I penned a post in which I voiced my displeasure with folks who whine about overdraft fees. In the comments, I was called lots of names … “bank apologist” among the nicest of these.

    Thanks to the fine, upstanding management team at Bank of America, I now have the opportunity to make something crystal clear: The Too Big To Fail Banks (TBTF) banks will screw you any chance they get. This is not a new opinion for me; I’ve felt this way since long before I started this here money blog. I’m just reiterating it here, for those who aren’t paying attention.

    I absolutely felt this way when I wrote the overdraft-whiners post, too. The way I see it, the fact that these banks will hose you at every opportunity is a given. Thus, we as consumers and bank-users must do everything we can to NOT give them that opportunity. That includes knowing how much is in your checking account at any given time, and not executing transactions above that amount, and not giving the bank any reason at all to slap you with a $50 service fee. If you DO give the bank a reason to FeeSmack™ you, then don’t whine about it.

    It’s plain as day: The TBTF banks are in charge. Our government and our economic system require this, because debt is money, and debt underpins EVERYTHING. TBTF banks hold, service, issue, and securitize debt in enormous amounts, so they make the rules. You and I simply have to play by those rules.

    Now allow me, if you will, the opportunity to show just how far TBTF banks (Bank of America, in this case) will go to (1) bend their customers over a counter, and (2) make a buck:

    JDSupra Law News: BOA Senior Admits to Being Told to Lie

    If you have dealings not only with Bank of America, but with pretty much any bank that’s “regional or larger” in size, you really should take a moment to read the article. I’d say that Simone Gordan’s affidavit is a staggering admission, but really, it isn’t. Of course BOA reps were told to lie to customers. BOA was woefully unprepared for the various mortgage- and loan-modification programs which U.S. FedGov thrust upon them, and besides, by lying to customers, there was cash to be made.

    From the affidavit, as stated by Bank of America senior loan collector Gordan:

    Using the Bank of America computer systems I saw that hundreds of customers had made their required trial payments, sent the documents requested of them, but had not received permanent modifications. I also saw records showing that Bank of America employees have told people that documents had not been received when, in fact, the computer system showed that Bank of America had received the documents. This was consistent with the instructions my colleagues and I were given. We were told to lie to customers and claim that Bank of America had not received documents it had requested, and that it had not received trial payments (when in fact it had). We were told that admitting that the bank received documents would “open a can of worms” since the bank was required to underwrite a loan modification within 30 days of receiving those documents and it did not have sufficient underwriting staff to complete the underwriting in that time…. Site leaders regularly told us that the more we delayed the HAMP modification process, the more fees Bank of America would collect.

    Nice, huh? If you or I tried crap like this in our business dealings, we’d go to jail. But a TBTF bank does it, and they get paid.

    Are we clear on how this works yet?

    You must carry on your financial lives as if you are, well, prey.

    Because with TBTF banks, that is absolutely what you are.




     

     

  7. Darn Those Student Loans, Anyway

    If ever you wanted to know just how deep is the belief in consumption and big-ticket buying in this country, you need look no further:

    USA Today: Student Loan Loads Block Home, Car Purchases

    Amidst all the hand-ringing and “Someone must help our debt-ridden children be able to get more debt!” chants, you’ll run into this laser-sharp social commentary … emphasis mine:

    One interesting fact: The high cost of student debt is stopping many young consumers from buying big items, such as new cars, homes and furniture.

    Nearly 30,000 Americans commented to the federal consumer watchdog agency on the student debt issue, and many discussed day-to-day struggles.

    One borrower, Debra, told the CFPB, “I can’t buy a house because of my student loan. I have to rent.” Another borrower, Daria, said: “These loans are stunting my growth as a citizen. No car. No home.”

    Oh, the misery, the suffering, the ANGST these poor young souls must endure! They can’t go out and be Good Little Consumers straight out of college! All because of those big mean nasty student loans which they were forced to take on!

    (And, I might add, over a year later, yet again media voices are lamenting how student loans are keeping a lid on house prices.)




     

     

  8. Employers Turn Small Loans Into Savings

    Now here’s a PBS video which I think illustrates at once a horrific concept, and a fabulous one:

    PBS: Savings and Loans: Employer Plans Encourage Saving (~12 minutes)

    What’s horrific? People borrowing money from their employers. Now, if your employer’s a bank, then hey, fine, whatever; it’s what they do. When all hell blows up on them, taxpayers pick up the tab, and no one much gives a crap after a year or so. (Especially if the stock market is tagging record highs.)

    Outside of that, if your employer isn’t a bank or similar, then they shouldn’t be in the business of making loans. Just my opinion. That’s what banks, credit unions, pawn shops, check-advancers, and your neighborhood loan shark are for. Though of course it’s the employers’ money, and they can do with it what they want. (In the video, the employer is more “facilitating” the loans than they are “making” them. The loans are actually made by local credit unions, with interest rates in the 17 percent range.)

    In my modest personal experience, watching how these sorts of employer-as-lender policies are treated in workplaces, I’ve found that even when these loans turn out well, they tend to be used by the same folks again, and again, and again. Maybe I’m wrong, but I don’t think that’s the goal.

    The Part I Applaud

    In the video, we’re told that the employers in question made an interesting policy tweak: Loan payments are withheld directly from employees’ paychecks over time, and once the loans are paid back, the default option is for employees to continue having those same amounts withheld, but deposited into savings accounts so that they begin building savings. Employees can opt out of this “forced” Baby Step #1, of course, but most (we’re told) do not.

    This part of the plan, I adore.

    By the time the loan is paid back, I’d imagine that you as employee would have at least a decent chance of realizing that you really COULD live without that small chunk of your paycheck. It wasn’t so hard, was it? Lo and behold, the saving you thought you could NEVER EVER do turns out to be achievable — cold, hard cash in a bank account. When the next little emergency pops up, perhaps you’ve got it covered.

    (Though I’d argue that the peace of mind savings provides is probably worth as much as the actual money itself. And the less someone has experienced actual “saving,” the more important that peace of mind is.)

    Given the context that’s presented in the PBS video, I might be willing to revisit my “Employers shouldn’t be making loans” stance. I could see where both parties really could benefit from such an arrangement.




     

     

  9. We Learn Nothing

    Yes, it’s a current article:

    Herald Tribune: Admin Aims to Increase Loans for Homes

    From the story:

    President Barack Obama’s economic advisers and outside experts say the nation’s much-celebrated housing rebound is leaving too many people behind, including young people looking to buy their first homes and individuals with credit records weakened by the recession.

    In response, administration officials say they are working to get banks to lend to a wider range of borrowers by taking advantage of taxpayer-backed programs — including those offered by the Federal Housing Administration — that insure home loans against default.

    I should probably just stop reading the news altogether. Everything I read just about sends me over the edge these days.

    We (deliberately) learn nothing.




     

     

  10. Here We Go Again

    Not going to be much intro to this one. I’ll just repeat here the old adage: “If you can’t tell who the sucker at the table is, then it’s you.”

    LA Times: FHA Gives Defaulters Another Chance

    Unsurprisingly, it seems the FHA is bankrolling (well, guaranteeing) lots of “rebound buyers” in this latest round of home-buying hysterics. What’s a “rebound buyer,” you ask? Well, it’s gals and guys like Hermes Maldonado:

    After two foreclosures and two bankruptcies, Hermes Maldonado is as surprised as anyone that he’s getting a third shot at homeownership.

    The 61-year-old machine operator at a plastics factory bought a $170,000 house in Moreno Valley this summer that boasts laminate-wood floors and squeaky clean appliances. He got the four-bedroom, two-story house despite a pockmarked credit history.

    The last time he owned a home, Maldonado refinanced four times and took on a second mortgage. He put a Cadillac and Mercedes-Benz C300W in the driveway and racked up about $45,000 in credit card bills and other debts. His debt-fueled lifestyle ended only when he was forced into bankruptcy.

    His reentry into homeownership three years later came courtesy of the Federal Housing Administration. The agency has become a major source of cash for so-called rebound buyers — a burgeoning crop of homeowners with past defaults who otherwise would be shut out of the market.

    Good thing the nastiness of 2008 was all Wall Street’s fault, huh? What would we EVER do without government agencies like the FHA around, making things all better?

    Oh, and there is one more completely-unrelated story which I’d like to share:

    NY Times: FHA Audit Said to Show Low Reserves

    So, yeah … cruise on over to these two stories. And try to hold down your lunch.