Alumni Relations

I have one question about this:

Needy U.S. borrowers are defaulting on almost $1 billion in federal student loans earmarked for the poor, leaving schools such as Yale University and the University of Pennsylvania with little choice except to sue their graduates.

The record defaults on federal Perkins loans may jeopardize the prospects of current students since they are part of a revolving fund that colleges give to students who show extraordinary financial hardship.

Yale, Penn and George Washington University have all sued former students over nonpayment, court records show. While no one tracks the number of lawsuits, students defaulted on $964 million in Perkins loans in the year ended June 2011, 20 percent more than five years earlier, government data show. Unlike most student loans — distributed and collected by the federal government — Perkins loans are administered by colleges, which use repayment money to lend to other poor students.

“If you borrow to go to school, it may not be just the government that ends up coming after you if you can’t pay,” said Deanne Loonin, an attorney with the National Consumer Law Center, a nonprofit advocacy group in Boston. “We offer credit very easily.” If the student doesn’t benefit financially from the education, “the government or the school comes after them very aggressively.”

Does increasing the amount of federal money available for student loans decrease or increase the likelihood of default?

This is another problem for which there is a workable solution: an online program offered at low or no cost that confers an associates degree.

It will never be adopted if only because such a program would reveal the intellectual bankruptcy of the idea of higher education for all.

12 comments… add one

  • PD Shaw

    The max Perkins loan is $5,500 per year of undergrad study (five percent interest), so I doubt that these loans are onerous when compared to other student loans taken out on top of that.

  • Presumably, the intent is to reduce the cost of financing an education without reducing indebtedness by increasing the proportion of federal loans to private loans. Sadly, the history of that strategy has been to increase the cost of education, pretty much basic economics.

    I seriously doubt that paying too much in interest is the reason for the defaults. I think a more likely candidate is the unavailability of jobs for graduates. More funds available or Perkins loans won’t do much about that.

  • steve

    “an online program offered at low or no cost that confers an associates degree.”

    This is currently being provided by for profit colleges. They have exceptionally high default rates on their loans and poor rates of appropriate job placement. Do employers perceive these as second rate employees, or are these programs deficient? Do we need to publicly fund such a program?

    http://www.help.senate.gov/imo/media/for_profit_report/Contents.pdf

    Steve

  • PD Shaw

    steve, University of Wisconsin is also offering it:

    http://online.wsj.com/article/SB10001424127887323301104578255992379228564.html?mod=ITP_pageone_1

    I think this might particularly be useful to lower the education costs of professional degrees, including MDs.

  • PD Shaw

    I mean by eliminating or shortening the undergraduate prerequisite to professional schools.

  • Icepick

    This is another problem for which there is a workable solution: an online program offered at low or no cost that confers an associates degree.

    Yeah, but what that cheap education won’t get you is the connections that come with going to Yale, Penn, or GW.

    Not that those connections seem to be doing any good for the students who have defaulted. Why, it’s almost like there’s a bad economy or something!

  • steve

    PD- Will be interesting to see if companies will hire people with these degrees. As to medical school, I dont know. You would still need to have labs, even for undergrad. I would have a more difficult time assessing a pre-med applicant from such a program I think. Did they go there to save money or do they have socialization problems? (I was asked if I could help interview applicants, but just dont have time now. May reconsider if things settle down.) One of the things you learn, or at least I think we do, is how kids can handle their independence when they leave home and go to college. If I get 30 minutes to interview some kid who has lived at home all of his life, how do I gauge that?

    Steve

  • Drew

    Walking from your debt obligations? Hey, its the new normal!! And after all, its only greedy lenders to blame, not the debtors.

    And let’s get real, Obama will run all the interference these deadbeats need.

    But hey, good for me. Those endowments will need to tweek their allocations to PE up to cover the bad debt losses. How’s THAT for rent seeking?!

    Sorry, couldn’t resist……

  • PD Shaw

    @steve, other countries (Britain, France & Germany) do not appear to rely upon undergraduate studies as a precursor to medical training. If we are going to look for ways to moderate physician salaries, we might look at how necessary the extra four years of undergrad is.

    I also wonder if these other countries have higher failure rates, and for whatever reason, U.S. medical programs have too much invested to fail anybody? But that’s just a flexible construct. You could have a program that accepted every Tom, Dick & Harry, and planned on failing 99.9999%. Or you could have a program that will fail almost nobody and expend a lot of resources on preventing admissions.

  • @steve, other countries (Britain, France & Germany) do not appear to rely upon undergraduate studies as a precursor to medical training. If we are going to look for ways to moderate physician salaries, we might look at how necessary the extra four years of undergrad is.

    That’s easy, PD. We don’t train physicians here. We train medical researchers and then give them jobs as physicians. As to whether the qualities of mind and temperament are interchangeable between the two, I leave it to the reader to decide.

    Once upon a time that made sense. Physicians were the medical researchers. That was a long, long time ago and we haven’t adjusted. Yes, that’s one of the reasons that our healthcare is so expensive.

  • Icepick

    And after all, its only greedy lenders to blame, not the debtors.

    And let’s get real, Obama will run all the interference these deadbeats need.

    As to the first, if the students can’t pay, then they can’t pay. It’s as simple as that.

    As to the second sentence, what makes you think Obama will help people with too much student loan debt? Has he proposed making student loan debt just like other non-collateralized debts, dis-chargeable in a bankruptcy court? I’m not even sure he’s made any comment on it at all. He, like the previous two Presidents, seems happy to make debt slaves of all but the anointed few.

    But if people can’t pay, they can’t pay. It’s as simple as that. What would you propose, debtor’s prisons? Indentured servitude?

  • steve

    @Dave- Residencies are not research oriented, with just a few exceptions. I susoect we do it this way because it was the other professions do and what we have always done. Tevye would understand. BTW, we do have 6 year programs in the US, what some other countries do (Germany?). Penn State has one and I have just hired one of their 6 year wonders. Their grads have a rep for being bright, but immature.

    Steve

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