"Student Loans Are Broken: This Company Just Raised $100 Million to Fix Them," by J. J. Colao (Forbes)
Money Quote: "'The federal government is pricing loans as a one-size-fits-all-solution,' explains [David] Klein, 33. 'They're not pricing loans appropriately for the most creditworthy.' This means that an MBA student at Harvard often pays the same rate as a student at a much less selective program, even though their earning potential and employment prospects differ dramatically."
The article discusses CommonBond, a student lending company that just raised $100M. It plans on offering student loans below what the federal government is charging by cherry-picking good students from great degree programs which presumably have a lower default rate. What do you think? Should the government get out of student lending and/or guaranteeing entirely? Would the market do a better job of not creating education bubbles? Will this just leave the bad risks on government's shoulders? Would this create social problems? Is this the future?
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Weil Gotshal & Manges Partner Harvey Miller discusses the future of law school in the U.S. with Tom Keene on Bloomberg Television's "Bloomberg Surveillance.
How in touch is he?
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"Some law schools report increasing enrollment, citing low tuition and increasing financial aid," by Debra Cassens Weiss (ABA Journal)
Money Quote: "Some law schools are reporting increasing enrollments even as the number of applicants dropped 12% this year."
Again proving that there is one born every minute.
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Money Quote: "I was never proud of my work at ITT. I sold associates degrees that cost approximately $30,000 and bachelor's degrees that cost almost exactly double, $60,000. Worse, I witnessed admissions counselors, financial aid counselors, and management act from a belief not unlike the one articulated at Kaplan University. Most memorable was a September sales meeting where we were told that autumn is an excellent time to close these 'losers' because they will be depressed about their friends going away to college."
Professor Cottom has an article in the September/October 2013 issue of Mother Jones but I can't find it anywhere on-line. I did find this Huffington Post piece which is similar. Should we start calling law schools' "Admissions Office" the "Sales Department"? Do you think TTT Sales Departments refer to their prospective sales leads as losers, or at least think it? Do they call them lemmings behind their backs?
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And thanks to Anonymous from the prior post who forwarded these NBC links:
http://www.nbcnews.com/video/nightly-news/52942307/#52942307
http://www.nbcnews.com/video/nightly-news/52941990/#52941990
as follow up to the story about the young attorney holding down three part-time jobs while living at home with his parents. Remember the future is in energy drinks.
Its obscene that GW increased its enrolment by 22% this year - of course it had to lower its LSAT standards to do it. GW's reputation has plummeted the last few years and this certainly won't help. The suckers enrolling at GW still think of it as the semi-elite school it once was instead of the mediocre Tier 2 that it is well on the way to becoming.
ReplyDeleteAs far as for-profit colleges go, I taught at one as an adjunct recently and the administration was concerned about nothing but retention. Retention, retention, retention.
ReplyDeleteThe academic standards were zero, and grades were given away just so that some of the stupidest morons I've ever seen would stay in class. It was disgusting seeing the inside of those places, and I can't believe federal loan money is allowed to be used to finance online education.
CommonBond is only doing plain old fashioned free market underwriting, which government involvement in higher education did away with.
ReplyDeleteCommonBond can only "compete" on interest rates, and it's measly competition. In a marketplace where tuition is so high it has to be bought on credit, it's the dominant lender - the DOE - that effectively sets the price of tuition (the principal amount borrowed). CommonBond is just riding the coattails of the DOE's monopoly rent. No other dynamic could exist as long as the DOE has no lending standards and remains overwhelmingly the largest lender. Ain't nobody can 'afford' to lose money like the federal government.
ReplyDeleteBTW, it looks like they're in the derivatives market. Wikipedia on CommonBond: "This fund will draw on institutional investors as well as alumni for capital, and will be structured and securitized." Structured by pooling into derivatives with AAA ratings and sold the world over? Securitized with credit default swaps? People done run that scam already. AND, they still benefit from lack of bankruptcy protection. F' em. Are the few extra % points on federal loans worth the 'default' protection of IBR/ PAYE, forbearance, automatic forgiveness after 20 years, and the remote possibility of a government bailout? I think so.
I agree. At the onset of the article, I was expecting to see some sort of very competitive interest rate, something rivaling what used to be the subsidized Staffords, and private loans way back in the 90s (or so I've heard form my older cousins).
DeleteThe fact that they only seem to compete on loan origination fees is a crock. The loan origination fees aren't a tangible debt to the borrower. I still need to net my 30x3=100k in loans over the three years of grad school. Whether the principal/initial amount is 102k or 104k is irrelevant, as the compounding of the 6.x interest quickly obliterates the savings.
I'm too lazy and under the weather right now to crunch the numbers, but I suspect that over a 10 year repayment plan for 100k over three years, the difference in fees+interest paid to the government via Salie Mae versus this CommonBond is under 6k and that number likely only amounts to a few percentage points in total saving.
Again, as 11:12 states, not worth trading away IBR, PAYE, forbearance, and deferrals.
I thought GradPlus were private loans also? And doesn't GradPlus come under IBR, PAYE, etc.? I thought these loans would have also.
DeleteBut in any case 6.41% versus 6.24% interest does look like a pretty measly saving.
My understanding is that IBR, ICR and PAYE are only for loans held by the Feds.
DeleteI can see GW going the way of Hastings, American, or even Miami if they don't use some common sense, downsize their operation, and maintain their brand.
ReplyDeleteI can see GW going the way of Hastings, American, or Miami if they don't use some common sense, downsize their operation, and maintain their brand.
ReplyDeleteAgreed. If I was a GW alum I would be calling for heads. They have chosen short term fleeting profits over GWs most important asset - its reputation.
Deletethat Harvey Miller video was disgusting. even though he is one of the most credentialed in the field, he doesnt know what he is talking about regarding "history" majors and the like. when he was challenged by that Asian anchor about on-the-job training, he defaulted to his bullshit rhetoric.
ReplyDeleteI am sorry to see GWU water down its admissions standards.
ReplyDeleteGWU was really reaching for the Zen of Pure Trap, and the excellent quality of its student body was part of that, along with the high-end-of-the-spectrum tuition, the miserable placement stats, and Dean Berman's humiliation of the 20% of the graduating class working law school sponsored jobs, aka "Pathways to Practice."
http://insidethelawschoolscam.blogspot.com/2012/06/welfare-reform.html
And out of that trappiness--the destruction of the careers and futures of brilliant kids, not just bright and promising ones--
came some hysterically cynical student "Law Revue" sketches.
http://www.youtube.com/watch?v=T3sEsWTPfYQ
http://www.youtube.com/watch?v=-3Wa5X8Tdto
https://www.youtube.com/watch?v=hQsPC2n4T6Q
"I see you running 'round the school bragging 'bout your job- fuck you!"
DeleteIt's pretty sad when having a job of the type that the school supposedly provides is something to brag about.
I only watched the first video. They are sad.
DeleteKnow-it-all kids think they know it all, and then their know-it-all attitude hits the brick wall of reality.
Achievement in life, they believe, is a matter of obtaining a degree. Its sad to see people so deceived, and then reap the consequences, but they WANT and CHOSE to be deceived. They still think the world owes them a living because of their super prestigious T-60 or whatever degree!
The people who led these kids astray with their lies also share much blame. (And yes, they are KIDS, NOT ADULTS, just look at their mental ages. Welcome to the future of America, childhood now lasts through your twenties and above if you want!)
"the destruction of the careers and futures of brilliant kids" Ridiculous. Even if somebody made the mistake of going to law school and incurring debt, IBR limits that debt to manageable levels, the kid still has a legal education which can never be taken from them (you can argue the merits of this all you want, but I learned lots in law school) and brilliant kids . . the cream of the crop, almost always rises to the top. Only negativity will keep somebody down. So if you are "brilliant" and a legal career is out, do something else . . the something else you likely would have done had you not gone to law school in the first place.
ReplyDeleteI would not suggest anyone use IBR as a fallback plan. First, it can be changed or ended by congress any time. Second, it screws up your credit if you want things like a home or car loan (and many potential mates may be leery of committing for life to someone with such debt). Third, even if the debt is forgiven you get a huge tax bill for the amount that is forgiven--and with late fees, penalties, and interest compounding on itself, the tax bill may not be any less than the original loan amount.
Delete"Only negativity will keep somebody down."
DeleteThank you, Deepak Chopra. The yin energy will weigh down the inner yang vitality that bring lawyers much success. No more scam talk or the negative energy will hurt new grads job prospects even more!
They started their own firms right out of law school and so can you:http://www.abajournal.com/news/article/podcast_monthly_episode_42/?utm_medium=email&utm_campaign=weekly_email&utm_source=maestro&sc_cid=130904BK
ReplyDelete