Mike Meru is the "Poster Child" of the Student Loan Crisis

Mike Meru Has $1 Million in Student Loans. How Did That Happen? Escalating tuition and easy credit have yielded a class of student-loan borrowers with spectacular debt they may never pay back

Excerpt:

Mike Meru, a 37-year-old orthodontist, made a big investment in his education. As of Thursday, he owed $1,060,945.42 in student loans.

Mr. Meru pays only $1,589.97 a month—not enough to cover the interest, so his debt from seven years at the University of Southern California grows by $130 a day. In two decades, his loan balance will be $2 million.

He and his wife, Melissa, have become numb to the burden, focused instead on raising their two daughters. “If you thought about it every single day,” Mrs. Meru said, “you’d have a mental breakdown.”

Due to escalating tuition and easy credit, the U.S. has 101 people who owe at least $1 million in federal student loans, according to the Education Department. Five years ago, 14 people owed that much.

More could join that group. While the typical student borrower owes $17,000, the number of those who owe at least $100,000 has risen to around 2.5 million, nearly 6% of the borrowing pool, Education Department data show.

For graduate-school students especially, there is little incentive for universities to help put the brakes on big borrowing. The government essentially allows grad students to borrow any amount to cover tuition and living costs, with few guardrails on how the final sum will be repaid.

More than a third of borrowers from one of the government’s main graduate school lending programs have enrolled in some form of federal loan-forgiveness plan.

“These are choices. We’re not coercing,” said Avishai Sadan, dean of USC’s Herman Ostrow School of Dentistry, where Mr. Meru went to school and one of the most expensive in the U.S. “You know exactly what you’re getting into.”

Even the best planners might not have anticipated the sharp increases in tuition and student-loan interest rates from 2005 to 2012, Mr. Meru’s tenure as a student. While the Federal Reserve was reducing interest rates to near zero to combat the recession, rates for grad students were as high as 8.5%.

Dental school is the costliest higher-education program in the U.S. Private nonprofit schools during the 2015-2016 school year charged an average of $71,820 a year, the Urban Institute found. The USC program now costs $91,000 a year, and $137,000 when living expenses are included.

Comment: He makes over $ 200K per year has a $ 400K mortgage  (map) and drives a Tesla. Why are we subsidizing his life?!

Unfortunately, if you just forgive loans wo resolving why tuition is high in the first place, you have given schools carte blanche to raise tuition. Why wouldn’t they raise tuition if future loans will be forgiven too ? https://t.co/LTFhehOapy

— Mark Cuban (@mcuban) March 14, 2019

Bill Boegeman: "Exploited" by student loans?

Student loans: Interest rates keep borrowers in the hole - Something’s wrong when $6,000 in payments cut debt only $700.

Excerpt:

Between my three banks, my total student loan debt as of Oct. 17, 2014, was $82,961.02. That’s how much it cost me to get a B.S. in social studies education from Minnesota State University, Mankato.

It was worth every penny. My education readied me not only for teaching but for life. I am a better person today because of the things that I learned at Mankato, and the knowledge and skills behind the paper diploma I received. Do I wish that it had cost me less? Yes. Do I think that it should have cost me less? Absolutely. Higher education is way too expensive in this country, and even though my debt is partly the result of more than three years of untouched accumulated interest, it’s still a travesty that anyone could end up $80,000 deep for a four-year degree from an in-state university. That said, if I could go back in time and see that price tag, would I still do it? You bet.

Here’s the part that really makes me mad: For 12 months, I have been making student loan payments of just over $500 a month. That means that over the course of a year, I put about a $6,000 dent into my student loan debt, or so I thought. On Oct. 17, 2015, a year to the day after I began paying off my loans, my total student loan debt was …

$82,264.27 

If you don’t have a calculator handy, that adds up to just under $700 less than I owed a year ago— $700 out of the $6,000 I put in that actually went toward reducing my debt. That’s about 11 percent of the total amount paid, just enough to reduce my total debt by almost 1 percent. Where did the other 89 percent ($5,300) go? Interest.

That’s messed up. I mean, c’mon, man, I understand interest. That’s why loans exist. The lender needs to see a return on their investment. I get it. But this is more than a return. This is a rip-off.

Full disclosure: I am making minimum payments. Had I chosen a different repayment plan and paid a little more each month, that huge debt would undoubtedly be just a little bit slighter, the percentage reduction a little bit greater. But the key words are “a little bit.” Either way, the lenders still win big. And those other repayment plans sucked anyway.

Could I afford a little higher payment if I cut out some social outings, canceled next summer’s travel plans, and scratched my monthly subscriptions to HBO and the WWE Network? Yeah, probably. But I enjoy those things, and I don’t want to sacrifice the quality of life that I enjoy today just so I can pay my loans off by the time I’m 48 as opposed to 52.

Some people say that these things are not mutually exclusive — that you can spend for today while also saving for tomorrow. That might be true if you’re making bank, but it’s not exactly true if you’re not. Every dollar spent now is a dollar not saved for later. Every dollar saved for later is a dollar you can’t spend now. And when you don’t have a ton of money left over at the end of every paycheck, this does turn into an either-or scenario. Either you enjoy life now, or you enjoy life later. In other words, you’re either making bank, or you’re making decisions.

At the end of the day, I don’t expect people to feel bad for me, a middle-class white guy who, immense student loan debt aside, has it pretty good. However, I do expect people to be angry at those financial institutions that are keeping me, and millions of others like me, from having it a little better. Those white-collar crooks who rig the game in their favor and then force us all to play.

Those lenders who are preying on the vulnerable, exploiting those in need of help for their own personal gain, and exacerbating the enormous gap that already exists in this country between the haves and the have-nots. As for me, I’m hoping our political leaders will figure something out, that they’ll come up with some kind of combo-platter solution that offers forms of student loan forgiveness mixed with caps on the exorbitant interest rates our lenders currently are allowed to charge. Until then, I’ll just continue being one of the millions of screwed-over young adults in this country, lucky and privileged enough to receive a college education, but not blessed enough to be born in an era where this kind of exploitation has been outlawed.

Comments:

• My daughter paid her way through 4 years at Mankato, She started working and saving at 14 for college. She graduated in 2007 debt free
• A simple math class or finance class would help Bill understand interest
• Was Bill exploited? No way!

Student Loans a "Ball and Chain" for Parents Too!

Co-signing a student loan? You may never be able to free yourself

Excerpt:

Parents and grandparents who signed on to their kids’ private student loans are having trouble getting out of them, even when their student is successfully paying back the debt, a new report suggests. About 90% of co-signers who applied to be released from a private loan were rejected, according to a Consumer Financial Protection Bureau review of more than 3,100 complaints about private student loans. Often student borrowers can’t qualify for a private loan without a co-signer and even if they do, a more credit-worthy co-signer could give them access to a lower interest rate. “Parents and grandparents put their financial futures on the line by co-signing private student loans to help family members achieve the dream of higher education,” said CFPB Director Richard Cordray

Comment: Image source. We know parents who are co-signers with their children's loans and are unable to retire.

Student Debt Traps Parents Too!

How a mother and son got locked in $115,000 student debt trap - "I’m 63 years old and I’m afraid I’m going to have to work the rest of my life.”

Excerpt:

Stephan eventually fell behind on his student loan payments. And, as lenders are wont do, they turned to his cosigner to pick up the tab. Both son and mother field dozens of phone calls from lenders and debt collectors each week. “It’s one of the biggest burdens on me because I know that [my mother] is struggling financially and it’s not her debt,” Stephan, 30, says. “It just adds to the stress of everything I’m going through and inability to pay back these loans, defaulting and worrying about what they’re going to do next.” To keep debt collectors at bay, he and his mother pool their resources each month, paying roughly $1,000 when they can. His loan balance, which totaled $88,000 when he graduated, has since ballooned to over $115,525, thanks in part to ever-accruing interest and late fees. “This is after both of us paying literally thousands of dollars over the last several years to try to keep the loans from defaulting,” Deborah says. “My savings are gone. I’m going on 63 years old and I’m afraid I’m going to have to work the rest of my life.” The consequences of their debt go beyond dollars and cents. Both of their credit scores have plummeted. When Deborah needed to buy a new car, the only loan she qualified for came with a 20% APR. Stephan and his wife haven’t been able to qualify for a mortgage, so they continue to rent. They have applied for medical relief services to help manage their sons’ expenses, but are consistently denied based on their combined income without consideration for the amount they pay toward student loans each month. “If I could do it all over again, I would never, ever go to that school and take that money,” Stephan says. “I would rather have zero college debt and work at a convenience store than deal with what I’m dealing with right now.”

Comments: Deborah and Stephan image a snap from the article. The top image from Forgive Student Debt (not a view I expose!). Robert Reich on student debt (I don't agree with his position either but worthwhile read and has another photo of the 'ball and chain' student). My own views:

• There is a moral hazard in debt forgiveness. 
• On a personal level we did not cosign on any student loans for our children. As far as I know 2 of my 3 did not undertake student loans. All have college degrees. One soon to have a Masters from M.I.T. 
• Kathee and I both worked and paid our way through college. I know that was eons ago (I graduated in '71 and Kathee in '73) and that times were different then. 
• Options for students: PSEO (not an option for me in the '60s), working and saving, living at home, community college, join the military and use GI Bill (my son), Starbucks. 
• We have friends who cannot retire because of the very same issue in this article. 

Mark Cuban: Student Loan "easy money" creating a bubble

Limit student loans to improve economy
Excerpt:

The best way to fix the student loan bubble is to limit the allotted amount of loans each student is allowed to receive each year to no more than $10,000, Cuban said, adding that a cap on student debt would force universities to lower tuition and curb spending. Rising tuition costs don't help the economy as much as increasing students' purchasing power-a college may just use the extra cash to "build a better fitness center at your school." Tuition revenue is "just easy money and easy money goes to a college administrators' head just as much as anybody else, Cuban said on CNBC's "Squawk on the Street" Monday. Anytime you create easy money, you're gonna create a bubble or inflation and that's what's happening with college tuition, Cuban said.

Comment: Image source. EZ student loans inflates tuition, makes slaves out of students, hurts the housing market and the economy.A related article - Major Debt Shift for Millenials

Obama's student loan give-a-way

Obama Taps Taxpayers For Student Stimulus

Excerpt:

Obama has broad latitude in this area – certainly broader than the first two parts of his western campaign trip, underwater mortgages and subsidies for hiring veterans – because one of his early legislative initiatives was to have the federal government take over the student lending business in America.

Obama argued for the measure in 2009 as a cost-savings initiative, saying that the old system of privately issued, government secured loans reduced the amount of available money for needy students and also prevented the feds from making the system more efficient.

But Obama is now seeking to use that new power to obtain a taxpayer-financed stimulus that Congress won’t approve. The idea is to cap student loan repayment rates at 10 percent of a debtor’s income that goes above the poverty line, and then limiting the life of a loan to 20 years.

Take this example: If Suzy Creamcheese gets into George Washington University and borrows from the government the requisite $212,000 to obtain an undergraduate degree, her repayment schedule will be based on what she earns. If Suzy opts to heed the president’s call for public service, and takes a job as a city social worker earning $25,000, her payments would be limited to $1,411 a year after the $10,890 of poverty-level income is subtracted from her total exposure.

Twenty years at that rate would have taxpayers recoup only $28,220 of their $212,000 loan to Suzy.

The president will also allow student debtors to refinance and consolidate loans on more favorable terms, further decreasing the payoff for taxpayers.

Comment: This will be hugely popular! I'm not sure how the President has the power to give it away like this!

Student Loans: Bondage of the young and naive

The Debt That Won't Go Away

Excerpt:

In 2009, the most recent data available, 67 percent of graduates had debt, averaging $24,000 per student, up 6 percent from the previous year, according to the non-profit Project on Student Debt. The numbers are even higher at private institutions.

The figures do not include the growing number of loans taken out by parents, and only limited data on for-profit colleges, where student debt is typically much higher, but relatively few institutions report it.

Americans now owe more on their student loans than they do on their credit cards—a first, according to FinAid.org, which has created what it calls the Student Loan Debt Clock.

The organization figures America’s student loan debt is growing at a rate of $2,853.88 per second. At this pace, it will surpass $1 trillion in 2012.

Comment: CNBC has a one hour program that is worthwhile. The individual stories are heartrending. Particularly pathetic are kids taking out student loans for lame majors that have little future. More CNBC coverage here.

The Ball and Chain of Student Loan Debt

College debt meets real life

Excerpt:

"My student debt has made me nervous to take chances," one woman wrote.

"I haven't been able to afford health insurance," said a 2010 graduate of Minnesota State University Moorhead.

"Student debt has deterred me from pursuing many job offers (and passions -- I would love to work with a nonprofit organization assisting veterans) that did not pay enough," said a woman who expects to pay back more than $40,000 in student loan debt over 30 years.

Many students surveyed went straight to graduate school. That decision defers loan payments but eventually adds to them.

"That may not be the best idea in the long term," said Jered Weber, director of communications for the student association. "At least it gives you a little more time. It's especially hard with this job market."

Alumni echoed that thought. One business management grad makes $14,000 a year as a direct care staffer.

Halfway through, the survey asks: "Looking back, how would you change your college experience, related to finances?"

"I wouldn't have gone," Ezra Kazee answered.

Kazee finished his political science degree at Winona State University in 2008. Thanks in part to $300 monthly loan payments, his family lives paycheck to paycheck, he said. "At the end of the day I have mortgaged my life and my children's future for an education that did absolutely nothing for me."

He works as a debt collector.

Comment: Sad ....

Sue Dad .... get out of school debt

That’s One Way to Get Out of Student Loan Debt

Excerpt:

It’s not news that some children, especially as they hit their teenage and college years, don’t get along with their parents. But even experienced attorneys say it’s rare when the disagreements grow to a point where litigation is required.

So consider the odd case of Dana Soderberg, who went to court to force her father to live up to a deal to pay her tuition at Southern Connecticut State University.

After Ms. Soderberg’s parents divorced in 2004, she convinced her father to sign a contract committing to pay for the costs of her education until she reached age 25. He lived up to the deal for a while, but then stopped paying before her senior year of college began, the article says. Earlier this month the judge ruled that the father had indeed breached the contract.

Comment: My kids are wondering: Now where was that contract?

The stupidity of student loans

The Subprime Crisis of Student Debt

Excerpt:

Ms. Munna, a 26-year-old graduate of New York University, has nearly $100,000 in student loan debt from her four years in college, and affording the full monthly payments would be a struggle. For much of the time since her 2005 graduation, she’s been enrolled in night school, which allows her to defer loan payments.

...

Meanwhile, universities like N.Y.U. enrolled students without asking many questions about whether they could afford a $50,000 annual bill. Then the colleges introduced the students to lenders who underwrote big loans without any idea of what the students might earn someday — just like the mortgage lenders who didn’t ask borrowers to verify their incomes.

Ms. Munna does not want to walk away from her loans in the same way many mortgage holders are. It would be difficult in any event because federal bankruptcy law makes it nearly impossible to discharge student loan debts. But unless she manages to improve her income quickly, she doesn’t have a lot of good options for digging out.

It is utterly depressing that there are so many people like her facing decades of payments, limited capacity to buy a home and a debt burden that can repel potential life partners. For starters, it’s a shared failure of parenting and loan underwriting.

But perhaps the biggest share lies with colleges and universities because they have the most knowledge of the financial aid process. And I would argue that they had an obligation to counsel students like Ms. Munna, who got in too far over their heads.

How many people are like her? According to the College Board’s Trends in Student Aid study, 10 percent of people who graduated in 2007-8 with student loans had borrowed $40,000 or more. The median debt for bachelor’s degree recipients who borrowed while attending private, nonprofit colleges was $22,380.

The Project on Student Debt, a research and advocacy organization in Oakland, Calif., used federal data to estimate that 206,000 people graduated from college (including many from for-profit universities) with more than $40,000 in student loan debt in that same period. That’s a ninefold increase over the number of people in 1996, using 2008 dollars.

Comment: Colleges don't care!

The growing burden of student loans

In Grim Job Market, Student Loans Are a Costly Burden

Excerpt:

hey bought into the notion that if they went to college — never mind the debt — their degree would lead to a lucrative job. And repaying their student loans would never be a problem.

But the economic crisis has turned those assumptions on their ear as thousands of recent graduates have been unable to find jobs or are earning too little to cover the payments for loans that are sometimes as high as $50,000.

The result has been rising default rates for student loans. And unlike other debts, student loans cannot easily be renegotiated.

“You often hear the quote that you can’t put a price on ignorance,” said Ezra Kazee, who has $29,000 in student debt and has been unable to find a job since graduating from Winona State University in Minnesota last May. “But with the way higher education is going, ignorance is looking more and more affordable every day.”

About two-thirds of the students graduating from college next month, or an estimated 1.8 million, have taken on student loans to pay ever-rising tuition and room and board. The average cumulative debt among graduating seniors is about $22,500, according to FinAid.org, a Web site that specializes in financial aid.

Comment: Student loans are a good idea if you are going to be a Doctor .... otherwise avoid them!

College: Tuition up 439% over 25 years.

College May Become Unaffordable for Most in U.S.

Excerpt:

... college tuition and fees increased 439 percent from 1982 to 2007, adjusted for inflation, while median family income rose 147 percent. Student borrowing has more than doubled in the last decade, and students from lower-income families, on average, get smaller grants from the colleges they attend than students from more affluent families.

Comment: 2 of my children are still in college. One is closing in on his Associates' degree (paying his own way while working), the other is working on a Bachelor's (Engineering). He is funding his by work, VA benefits, and tuition reimbursement. Both (along with my daughter) eschewed student loans.

A Bachelor's in Borrowing

A Bachelor's in Borrowing

Excerpt:

As Americans curb their spending and battle to keep up with credit cards and mortgages, another type of debt is starting to overtake people: student loans. Although the U.S. has experienced economic downturns before, never has one converged with such high levels of student debt.

Total borrowing for school has more than doubled to $85 billion in the 2007-2008 school year from $41 billion 10 years earlier, adjusted for inflation, according to the College Board, the research and testing concern. The percentage of private loans, which generally carry less-generous terms, has ballooned to 23% from 7%. Meanwhile, subsidized federal aid has remained relatively flat at about $42.8 billion per year.

Comment: Schools activity encourage new student borrowing!

Credit crunch for student loans

Sallie boss warns of student loan ‘train wreck’

Excerpt:

Experts said that, unless the government intervenes or market conditions rapidly improve, Sallie Mae could have no choice but to stop writing new federally backed loans.

House lawmakers on Thursday approved a measure to boost the availability of credit for Sallie Mae and other student lenders, and analysts believe the Treasury department could act as soon as next week.

Sallie Mae lost $104 million in the first quarter as it grappled with higher borrowing costs, restructuring charges and other factors, though Lord said in a conference call with analysts that the company would not lower its full-year earnings target.

Shares of the Reston, Va.-based company climbed almost 6 percent Thursday, but remained 70 percent from last summer.

Even though the majority of student loans are highly rated and carry a federal guarantee, investor demand for securities backed by these assets has plummeted — a sign of just how nervous investors are about securities backed by mortgages, student loans and other debt.

Bank of America Corp. said Thursday it would stop private student loans, but continue offering government-backed loans. On Wednesday, Citigroup Inc. said its Student Loan Corp. subsidiary will temporarily stop issuing loans to students at schools where profits have not been satisfactory.


Comments: Could be good for students ... avoid those loans (I have 1 kid who graduated with no-student loans. Another nearing an Associates with no student loans!).