# Government Funded Student Loans



## andi (Mar 17, 2012)

This came up in another topic and it really has had my mind going. It wasn’t really “on topic”, and I really don't think it fit the intended "tone" of Marty's topic, so figured it deserved its own. LOL

The start was the current “hot topic” of Government Funded Student Loans and their possible effect on the unreasonable inflation of College tuition. One school of thought feels that because the Colleges “know” that the students have “access” to more money, through these loans, they have inflated their prices. The idea is that by removing these loans, the cost will go down, that’s how the economy works. Another justification for removing these loans is that it is unconstitutional to expect taxpayers to fund someone else’s education. If you can’t afford it, then get a private loan, if you don’t qualify, then you don’t get the loan. Simple.

For me it seems obvious that at one point these loans were more accepted, when they were first introduced. At that point, the economy would have been better, tuition more affordable and college was not a “given”, not everyone expected to attend, so obviously less demand for these loans. Over time though, the colleges have abused the situation, increasing fees exorbitantly, knowing the government/taxpayer would fit the bill. In addition, it has been drilled into our minds that College is the only option if you hope to have a financially stable future. Finally, financial advisors have mastered how to work the system to get the most out of it and benefit their customers. Loans that originally were rewarded to a more limited specific group who were exceptionally driven but financially unable, are now just being over issued and feeding the original problem they meant to solve.

For me, it is very hard to decide exactly where I stand on this issue. I think it is as much a philosophical one as it is a political one. These loans did serve a purpose and were awarded with good ethical intent. Help motivated students so they have the same opportunity as everyone else. It was the bad side of the free market that abused them and took advantage of the situation. Firstly, the product being sold didn’t improve and justify a price increase. It was just pretty much: _Student, _“How much is tuition?” _College:_ ”I don’t know? How much you got? “(big toothy grin). Secondly, it became a “science” getting the loans. Financial advisors used their ability to get as much money out of the system for their clients as possible, whether or not they were the most “needy” students. Logic would tell me, the students who really needed the money, with lower income, are not the students who have the contacts or income to hire a financial advisor to get them the money.

So for me, so far, a good honest program is ruined by greed. Up to this point, it would seem like taking the money away from the truly needy and motivated students would be ethically wrong on every level. The idea that the motivated financially challenged students lose their loans because the not so needy outsmarted the system is horrible.	Additionally, if put into the private sector, what is to say that Private Loan companies won’t give out just as many loans as the government did, therefore keeping the price of Colleges just as high.

The second justification for removing the loans, the constitutional one that is a bit more depressing, seems to make more sense. Remove the loans because Tax Payers should not be forced to pay for someone else’s education. Let’s say that was justifiable, though it may be considered harsh, I don’t think it is really unjust. Should anyone really be “forced” to help those less fortunate? Shouldn’t that be a choice that we all have the freedom to make?

At the end of the day, how is the success or greatness of our Country measured? If we stay focused on our AAA rating, stop the loans, stop the handouts, focus on making our economy thrive, expect the money to trickle down, is that Success? If we are relying on the idea that “greed” is the only true motivator, and that motivation makes the whole economy work, how can we also say that the “greedy” will be honest enough, to not find a way to stop the money from trickling down, to catch it for themselves, like with student loans. Doesn’t this entire Student Loan situation sort of show how a free economy will totally abuse and corrupt any program aimed at the lower class? Wouldn’t the same principal, greed, that makes the free market thrive stop it from benefiting the “lower class”?

Wow, I should probably just stop typing … hmmmm ….


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## jyuukai (Mar 18, 2012)

I kind of see where you are going with this but it's really quite wrong to say that we shouldn't have these loans at all. I've been out of high school for 6 years and I have only been able to afford a handful of college courses aimed towards my eventual goal of a Masters in Library Science. Why is this you may ask? Well, I have to pay OUT OF POCKET and even though I work my a-- off I have to pay things like: BILLS

That's right, I have living expenses too, and they come before my education! I am unwilling to accept the crushing debt that comes with a personal loan big enough to cover 6 years of education, especially in this uncertain economy where I may not get a position that will ever be able to pay it off.

Just because I wasn't born into an affluent family doesn't meant I don't have the right to a higher education like my peers, and it certainly doesn't mean that I should be relegated to the realm of working minimum wage jobs the rest of my life because I couldn't afford to finish my degree. If you allow that then you effectively separate the country into a caste system; those that are born rich stay rich and work the high-paying jobs, those that are born poor can suck it and work at McDonald's the rest of their lives.


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## Jill (Mar 18, 2012)

I feel that the ease that's in place to receive the subsidized loans is the reason costs are so high and why tuition outpaces inflation 3 to 1. Colleges cannot charge more than what the majority will pay. When something outpaces the rest if the economy by such a large degree, you've got to realize something is artificially altering the "fair price".


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## andi (Mar 18, 2012)

It seems like another thing that could be "artificially altering" the price would be an extremely unjustified demand. Currently it is unheard of to not get a "higher education", and college is the only option that many see. Every parent puts so much pressure to make sure they get their kids to go to College, to guarantee security. For example, the above poster feels that her only option other than College is minimum wage at McDonalds. That is simply not true, but it is a very widely held misconception. At the end of the day, College does not equal security and has nothing to do with being a happy successful individual. 

I have been searching online for charts to see how exactly the Loans have increased compared to the increase in Tuition. The only information I could find was that Tuition has went up about 400% in the last twenty years, and that Loans have went up 150% in the last ten years I believe. This would lead me to believe that the reason for the increase in Tuition is NOT based on loans. The tuition has increased disproportionately to the loan increase; it would seem that the Loans have increased a tiny amount to make up for the extreme increase in Tuition. In addition, Pel Grants, that originally made up a very large percentage of the cost of tuition have not increased in a proportionate manner with tuition. It would appear that the government has went from "giving out" the money, in grants, to increasing slightly what they "lend" instead. This seems like the right track to be on. 

Another factor that comes into play when looking at financing college is your parents income. Now many of us do not have "free access" to our parent’s accounts, but there income has a substantial effect on how much money you are allowed. In reality, to use the analogy I used before, the College isnt just going through our pockets to see how much we can afford, they want to know how much our family has, then they can charge more. Maybe some policies should be put in place limiting how much information we must give to someone we are "buying" from. For Example, I sell horses and run a training facility. If I asked for my clients for their last 10 years of tax returns and gross income before I price any services, so I could inflate prices accordingly, that would be REDICULOUS. I would be considered a crook. Additionally if I then said, "well I am sorry, but if you didn't have the money I wouldn’t take it, my hands are tied. Maybe you should think about giving some of it away?" My plan is still to take the same % of their income! Yes, I have reduced the amount I charge, but only if you have less money, that is not improvement. If I am going to take 50% of what you have, be it 100 or 1000, you are better of paying more and having more left over.


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## andi (Mar 18, 2012)

In searching for a chart that compares the increase in Government Funding with the increase in Tuition cost I found a slightly different one.

The below chart follows the inflation of Tuition versus General Inflation. As you can see, most recently, the numbers do show Tuition Inflation being about 4x higher than General Inflation. But in this chart it looks like the reasoning was that General Infaltion took a very substantial recent drop when the economy "collapsed". In addition I could see Tuition not makeing the same drop or even increasing following the collapse because College has been seen as some sort of "security", a way to survive when the jobs are at higher demand. This chart seems to exhibit the opposite of the theory of Loans being the cause of the difference in Inflation. It would seem that there was some unreasonable Inflation between 2000 and 2008, but that the inflation comparisons were relatively close to one another unstill right before the collapse. At some point it was working, or does that just mean that for a very short moment the General Inflation was just as broken as Tuition Inflation?


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## Jill (Mar 18, 2012)

James, I agree with much of what you are saying about college and it not being THE answer for everyone, etc.

I personally think natural ability will take you so much further in life than an education can and some of the most successful people I have known did not go to college. Lots of business owners... I'm not sure it wouldn't make more sense to spend college savings toward buying a first home when it comes to many potential students.

For whatever it's worth, I do not have a college degree and if I could go back in time, I'd do that the same way I did it already. I've had some college classes that were fun and I have pursued a number of professional designations that specifically relate to what I do for a living, along with all the licensing of course. The designations are graduate level study, but only about what I do for a living. A college degree would not make me happier, and it would not make me richer (probably the opposite -- as I'd have not hit the ground running as soon and I would have had lots of debt). For those who want to pursue college, I think that's great, but I don't think it's what everyone needs to do in order to be a successful person on whatever level that means to the individual. Please don't anyone think I'm devaluing their education or aspirations. Just trying to convey my feelings on the subject and a point of view that maybe isn't as much the norm as it could or should be.

However, your chart doesn't look accurate.  Is that just from one state? Or from a questionable source? I've been on top of this kind of information for many years. I've got to be...

Here's something that is an accurate depiction of the scenario:






http://inflationdata...n_Inflation.asp


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## andi (Mar 18, 2012)

That is what I am wondering Jill. This is were the chart came from, http://www.stlouisfed.org/publications/itv/articles/?id=1722. I see that it is a State website, but the information and numbers seem like they are meant to be Nation Wide?


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## Jill (Mar 18, 2012)

I don't know. The chart I posted is along what I know to be the situation, from my experience helping clients and my study for the designations and continuing education I have to do. I did edit up my post as I thought harder about what I wanted to convey.


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## Jill (Mar 18, 2012)

PS I could nearly wright a few pages here on LB about FASFA and qualifying for college assistance. Anyone preparing for this situation, please check with a financial adviser who is knowledgeable in that area (not nearly all planners would be). There are some loopholes and things in place regarding the years you should or should not use the 529's and other savings to cover. Some things you may do early in the college career can cause the family expected contribution to be more the following year(s), so things like timing when you use which pools of money can save families SO much. Also looking into the more expense private collages with a specialist is often an excellent idea. Those schools have private grant money and I often see the cost of a big time prestigious college costing far less out of pocket than the state colleges. 123college.com is a good starting point to at least get your heads around some of what is possible and some of the potential pitfalls that happen probably to more families than not.


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## andi (Mar 18, 2012)

OOH, I found one that totally clears this all up,






LOL


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## Jill (Mar 18, 2012)

Oh yes, now it's clear



AND when the inflation data our dear old Uncle Sam publishes specifically EXcludes the _little_ things like gas and food costs... Oy! But hey, that's only the kind of thing every day people have to buy every day


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## chandab (Mar 18, 2012)

If I knew then, but I know now, I don't know if I'd have gone to college or at the very least tried a different major. I have a Bachelor's degree in my field, to which I've either been told I have too much education for the job I'm applying for so they can't pay me what my education demands (and thus won't hire me) or I don't have enough education as the position requires a Master's. Oh, and on many entry level positions I was told I didn't have enough experience, coming straight out of college. So, how do you get that experience, when no one will hire you, because you don't have enough experience? I'm well past college age, don't plan to go back, but do feel for me it was a waste; even though my dad always said "no education is ever wasted, as no one can take it away from you".


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## ohmt (Mar 18, 2012)

...


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## andi (Mar 18, 2012)

After spending the day looking for and trying to desipher charts, on thing that amazes me is the way numbers and "facts" can be "used" to reinforce almost any opinion. For example, I have still yet to find the chart that shows the year to year increase of government loans. For me I would expect the chart to show a 400% increase, if it really is to blame for the 400% increase in the Tuition cost. I did find one that states in the last 10 years a 100% increase in Government loans, but more importantly almost a 1000% increase is Private loans for college. Now really that percentage should point to one obvious conclusion, it is the Private loans that are causing the increase. But again, in reality there is more to the numbers. Even with a 1000% increase in Private loans, they still only account for about 20% of the total Loans awarded. So 80% of Student Loans are government funded. I still would have concern though, if government funded loans were removed, that the Private Loan companies would just take over those clients and lend to them, therefore enabling the grossly inflated tuition price. So the ending of the Government Loan program would result in a massive financial benefit for the Private Loan industry, increasing their "ownership" of the student loan market from 20 to 100%. At his economic time, when most loan companies are failing, this "new market" seems like it could be industry changing! But I am not so sure about the "Motives" now for this recent topic, I am not so sure it really is about these "poor kids, with crippling debt".


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## Jill (Mar 18, 2012)

James, I think most of the "private" loans are government subsidized. I'm kind of lost regarding some of what you're saying about this thread though. For whatever it's worth, I've shared my knowledge of the topic and my sincere opinion of the situation


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## andi (Mar 18, 2012)

I would love to discuss it, actually work out the part I missworded or you missunderstood. My intent is to start a conversation were a group can work together through the information we each have to come to the most informed conclustion. I am not sure if it is just that I am mentioning a different view, or seem to be headed in a different direction than you agree wih. I honestly don't mean that offensivily Jill, I just get the feeling that sometimes that is what motivates you to not be involved in conversations with me.

My point was I think even numbers can be taken out of context. For example, the two charts we posted both seem to be professional reliable charts, but looks like they contradict each other. If you look up online for inflation charts over the years, many of them look like the one I posted, but most that are comparing Tuition Inflation to Regular Inflation look like the one you posted. I think the reason for that is the one I posted is showing a more detailed version, while yours is a longer spanning chart whose focus is on the relationship between the two inflations, the minor details have little to no bearing on the overall big picture. But of course, when you see the two, if you don't really look into the information in each, you could jump to the conclusion that one is just inaccurate. In reality, if you research it, their was a significant but very quickly correctly de-flation in late 2008. So they both are correct and reliable resources.

My last part was that this entire topic, about removing Government funded loans, has been brought to the forefront under the idea that it is all about the poor burdened kids. After looking at it from, "who’s going to benefit from this change", it seems like this would probably just benefit private loan companies. That is simply a thought that came up today, looking at these numbers. I would be interested in others opinions of different ways to interpret them.

I also wonder why you would think that the loans I considered Private were actually "government subsidized"? Is there a chart or research that you have seen that shows different numbers than I gave? Or possibly a "loop whole" that is commonly used to label Government loans as Private Loans to distort numbers? I could definitely see this possibility, but your statement doesn’t really explain. Below is the chart and article ...






http://www.campusecho.com/beyond-nccu/borrowing-for-your-future-1.300840


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## Jill (Mar 18, 2012)

James, I was speaking my opinion as well as my business understanding. I'll come back later and see if I can add or clarify or better get what you're saying. My motivation in discussions on LB is to participate by sharing my perspective, opinion and knowledge -- just like most if not all of us. We may often have different opinions I'm sure. I've got no horse in this race but do have a point of practical experience when it comes to college costs.


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## Fanch (Mar 21, 2012)

Im from Canada so my story doesnt have direct relevance, but still want to share.

I have wanted to do a degree in biology since I was 9 years old, I've always wanted to go to university, so I will fork out however much if is no matter what. But I come from a family that can give me no support other than emotional. Plain and simple, even working a full time job over the summer, I could not have paid for the year of school I am currently in without loans.


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## Ashley (Mar 24, 2012)

I dont particularly like doing away with the subsidized loans. I im almost over my head in the whole with loans, most that are incurring a 7 person intrest the whole time I sit here. When I am done with school I will be a house in debit, I try not to think about it because if I did I would drop out, but for my daughter I must push on. I also know when I am done I am pretty much promised a job as its a high demand field. Right now I still cant find a job which sucks horribly. Its not fun facing how to raise a 4 month old and only having days left of unemployment. Temp services these days are just as hard to get into as a regular job. Its getting crazy.


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## Sonya (Mar 24, 2012)

"incurring a 7 person intrest"

although that is high...when my husband and I went to school in the early 90's, the rate on student loans was 11%. Took me many moons to pay them off.


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## Ashley (Mar 24, 2012)

Ick I so hate posting from my phone and auto correct


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## Shari (Mar 27, 2012)

My son needs a student loan to get into college, back when I was young it was simple. Now... it is incredibly complicated, just about need a lawyer to figure everything out.


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## Riverrose28 (Mar 27, 2012)

OMG! I had no idea that a convict could get a college education using my tax paid in money. I had to save for years for my kids, and even had to borrow from relatives to help during the Reagan recession, which just about put us under. This is outragious! Hubby served in Viet Nam and was drafted straight from High School, when he got out he could receive a low interest loan, but opted for trade school instead, but I refuse to pay for criminals to get an education. Who do I contact in my state? My congressperson?


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## Jill (Mar 27, 2012)

I sure am with you on this one, Diane @ Castle Rock!


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## Shari (Mar 27, 2012)

Riverrose28 said:


> OMG! I had no idea that a convict could get a college education using my tax paid in money. I had to save for years for my kids, and even had to borrow from relatives to help during the Reagan recession, which just about put us under. This is outragious! Hubby served in Viet Nam and was drafted straight from High School, when he got out he could receive a low interest loan, but opted for trade school instead, but I refuse to pay for criminals to get an education. Who do I contact in my state? My congressperson?


And if you are an illegal mexican, they too get a free ride for College. Is disgusting.

Folks like you and I, our families are good citizens, pay taxes and so on, we struggle to even get into college but people that break the law, get it for free. Not Kosher.


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## kaykay (Mar 29, 2012)

As I watch my kids struggle to pay their student loans stuff like the California Dream Act about sends me through the roof. Unbelieveable to me! I wrote about this last year when it was enacted but for those who haven't heard of it here is a link

http://articles.lati...am-act-20111009

Small excerpt:

The new law also makes students who are not legally in the country eligible for institutional grants while attending the University of California and California State University systems. And it permits them to obtain fee waivers in the community college system.

As far as prisoners go I am conflicted on that. If one is going to get out and return to society we are better off having them get more education verses learning how to be a better criminal.


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