All in the Family featured the curmudgeonly Archie Bunker. Archie was television’s most famous grouch, blunt, blustering, straightforward and untouched by the PC crowd. He was the archetype of the conservative male. Michael desprately tried to reeducate him, but he persisted in his breviloquence.



Looking back at the last 40 years, we realize: ARCHIE WAS RIGHT!

11/17/2015

Thought on College Financing

You have no doubt seen pics like this one from last week.
I won't say anything about 6 students not being 1 million, or make any comments about the fact that the one guy in the pic not having enough game to tag any one of the five chicks that he no doubt was trying to impress.  I can only wonder if the other kids at this college were too busy spending time in the library or at their part time jobs to participate in the rally.


 Ya gotta love the Marines, they even try to protect the internet from stupid.  Not that anyone could win that war, but I admire him for trying.

The way to solve the problem with the high cost of college is very simple, get the government out of it.  I mean all together.  No federal grants to the colleges.  No federal student loans for the kids.  No federal involvement of any kind.  Of course that's not gonna happen but still its the best solution.

The best way to raise the pay for American  jobs is to kick out illegals and jail people who hire them.  Again not going to happen.  Still its the best solution, assuming that solving the problem is the goal.

The best way to do a lot of things is never going to be on the table as far as the politicians are concerned.  The second best way to help college kids with tuition and debt costs is responsible underwriting.

Back when I was a banker we had to do something called underwriting.  Basically underwriting is a process of deciding if a loan is a good risk or not.  Every kind of loan has a standard of generally accepted parameters that indicate if the loan will be repaid as agreed.  It's time to underwrite student loans the same way.

Here are some criteria that should be evaluated before granting a loan:
  • Will the loan cover general studies or prerequisites?  It shouldn't you can't get a job by taking those classes.  No it doesn't matter that you have to take those classes to take the classes you need for your major. Either the student should pay for the class, or the college should find a way to make that class more affordable or eliminate it as a requirement.
  • What are the post graduation job prospects for a person with the major that the loan is being written for?
  • What are the odds that someone will actually hire the person we are lending money to if they graduate?
  • What is the likely income that a person with this degree will be hired for?  If it is too low to meet normal living expenses and repay the debt, then no loan.
There are many more underwriting criteria that could be added to a responsible underwriting matrix for student loans, but you get the idea.  Student loans cannot be discharged in bankruptcy.  The size of the loan can exceed the cost of a McMansion but no one is taking a good hard look at whether or not the kid could actually pay the thing back or if they can even get a job doing whatever the degree is supposed to get them a job in.  

Every other kind of loan you can get has requirements you have to meet before you can get the loan.  Want a car?  Do you have good credit, a job and does that job pay you enough to make the car payments after meeting your other expenses?  Want a mortgage?  Same requirements, plus some.  Why?  Because the lender wants to get their money back.

Student loan?  No credit, no down payment, no chance in hell of getting a job with that degree?  No problem!  Here's a cool $250,000.  It's all for the college of course, with a little beer and condom money on the side.  By the way you have to pay it back no matter what.  No other kind of loan works like this.  If I as a lender did this to anyone in any other lending situation it would be considered unconscionable and possibly unenforceable when it came time to collect repayment.

Underwrite the loans.  Will this keep some kids out of college and out of courses of study?  Yes.  So what?  If a kid wants a PhD in tiddlywinks, I'm cool with it.  Just don't pretend that he's going to be able to pay back a loan with that degree.  Don't give him the loan.  Let his parents or scholarships or whoever wants to pick up the tab.

Know what else will happen if kids can't just sign their name and rack up a ton of debt for school?  Colleges will have to get very competitive to attract students.  This means they will have to offer better programs, enforce stricter recruiting standards or lower prices accordingly.  Get the government out.  Let the market in.  Everybody wins.

11 comments:

  1. Susan4:04 PM

    Regarding federal school loans, you really want to pull your hair out? My Florida friend got herself $10K loan to finish up her Master's in Education. She is already a teacher with a great job so she will be able to pay it off with no problem.

    This is the hair pulling part. When it comes time to repay, if you are late on your payment, or if you miss one, the clock goes back to ZERO. It is as if you had never paid down the loan in any way at all. They simply reset the clock and start you back at the beginning. So say if she has paid off $9K of that loan, she misses a payment, or it is late in any way, the clock gets reset, and she starts all over again. No ifs ands or buts about it. All hail the federal scammers.

    My friend said she talked to the employee on the phone for almost an hour nailing this all down. When she is telling me all of this, my jaw just dropped. It is like the Feds give you these loans, and you are on a fairly permanent slave train until you pay it all off. So automatic withdrawals for bills like these are a good thing. That way you are never late.

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    Replies
    1. I'm not sure that your friend is 100% correct on that. I cannot see any such contract being enforceable.

      Delete
    2. WaterBoy5:44 PM

      Yeah, I gotta agree with Res Ipsa on this one. The terms of Federally-backed student loans are dictated by the DoE and that provision is not one of which I have ever heard.

      If your friend got such a bad deal, then it's only if she went outside the normal process and got one from a loan shark or something..

      Even in cases of total default, a typical penalty for collecting on the bad debt is only about 25% (lender dependent). But for a delinquent loan (late by even just one day), there is usually a grace period of a couple of weeks before a late fee might be imposed. And as soon as the debtor catches up, it's back to normal.

      I might consider not paying it and seeing what the court says, if not for the risk of a lead pipe to the kneecap.

      Delete
    3. Susan1:17 PM

      Actually Res, I believe that she is. This is a woman who has one of the most inquisitive minds I have ever run across in my life.
      She also got this information straight from somebody who works for that Fed loan program. She spent nearly an hour quizzing this woman about everything regarding paying back this loan.

      This is a woman who is the textbook example of how to squeeze a nickle until it poops. I have never known her to be wrong on anything when it comes to money. She has to be right, because as a single woman, she is responsible for her own financial well being and retirement.

      She is a teacher now as her profession, but she spent her career in journalism as a librarian/researcher. She doesn't take anything at face value without checking at least several other reputable sources.

      That is why I felt totally comfortable passing this on Res. After all, this is the Federal government, and they do pretty much anything they want to, even when they are emptying your wallet with an evil smile.

      No Waterboy, she did not get her loan from a loan shark. It was a Federal loan program. I understand this sounds hard to believe, but as a fellow Christian, she would not lie about it.

      Delete
    4. WaterBoy3:28 PM

      Susan: "I understand this sounds hard to believe, but as a fellow Christian, she would not lie about it."

      Why would you think that would be hard to believe, whether she's a Christian or not?

      By the same token, it is also not hard to believe that the government worker would have her facts wrong and pass that misinformation along to your friend. Which is precisely what I think is most likely in this case (the loan shark bit was just for laughs, you know).

      As I said, if it is from a Federal loan program (as opposed to a private loan), there are standard terms and conditions which apply to all of them. See here, here, here, and here for some of those terms and conditions.

      Please note that not one of those pages mention a 'reset to zero' penalty for any kind of delinquency or default, while they do include options for things like deferments and forebearance which only accrue interest while payments are not being made (again with no mention of forfeit of principal already paid).

      Now I ask you which is more likely to be correct: the one single government worker on the phone, or the several different workers who put together the separate websites?

      Susan: "After all, this is the Federal government, and they do pretty much anything they want to, even when they are emptying your wallet with an evil smile."

      Boy, and I thought I was a cynic....;)

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    5. Susan,

      I don't doubt that you are repeating what you were told accurately. When I ran a bank we would handle some student loans. We bought up the servicing rights for people who lived in our service area which allowed them to make their payment locally. I never saw terms like the ones you described.

      It's true I've not done that kind of work in the last 10 years so things could have changed but that kind of debt repayment schedule is unconscionable.

      I can see a situation where the borrower defaults on a loan and over time the interest and penalties could grow back to the principle amount. Which might be what she meant when she was describing the situation to you.

      Delete
  2. Susan4:08 PM

    I hoped you saw that Marine. He is totally one of the good ones. Over the weekend, when the story came out on Breitbart of those spoiled Mizzou brats who actually had the affrontery to whine by tweet about how Paris is stealing their spotlight, I just wished for some heavenly lightning to come down and slap these brats silly.

    I could not believe they actually believed that Res. Oh, one more thing, Breitbart also started officially today a Breitbart Jerusalem page on their website. Should be very informative.

    ReplyDelete
  3. Res -- MEANIE!!
    Don't you know education is a right?

    Shesh - I never worked less than 2 part time jobs to pay for mine. These little leftoids are just learning to be proper locusts.

    ReplyDelete
  4. I worked a lot of 40 hour weeks in high school and college both. I managed to graduate almost on time, I had one class that I had to take after 4 years. I finished it up the next semester. During those years I paid for three trips overseas and kept up a active dating life, and paid for my own cars. I graduated with a small amount of debt but had that paid off in less than two years.

    I'm a big meanie and proud of it.

    ReplyDelete
    Replies
    1. I'll hoist a glass to that.

      Delete
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