Party Schools Exposed

Party schools' parting gift: A lifetime of crippling debt

The story of Cortney Munna, who was profiled in a recent New York Times article about student loan debt is typical in some ways, but not to typical in others.

Cortney, a 2005 graduate of New York University, has $100,000 in student loans to pay off and the burden is an albatross around her neck that influences many aspects of her life. She's been taking night classes that allow her to defer her payments, but how long can you stay in school for this reason? Eventually she is going to have to start making payments and has a lifetime of poverty to look forward to.

You can read the article "Placing the Blame as Students are Buried in Debt. "

Among the questions raised in the story is why New York University's student aid office allowed her to rack up this future-killing debt. Why wasn't she warned about how deep the doo doo was getting?

The article suggests that colleges should be required to discus the debt issue with students before they sign the papers.

But as Andrew Cuomo's investigation of the student loan business has found, predatory lenders and college financial aid offices are working together in what Cuomo called "the unholy alliance." College financial aid officers, he found, owned stock in student loan companies and accepted kickbacks for placing the companies on "preferred lender" lists.

Colleges make millions of dollars from students like Cortney, encouraging them to take out these life-killing loans by telling them that they will pay them off easily after they get their high-paying, post-graduate jobs. As Cortney found, those jobs often do not show up, leaving alumni with no way to make the payments.

Why would colleges warn the students that they are about to fleece? Colleges raise their prices each year and the cost of higher education is increasing faster than health care or gasoline. College financial aid offices act like loan shark front men, handing out the loan forms and forcing students into a life of servitude. Few students see the cliff they are about to fall off of until it is too late. No one is warning them.

Parents and students who want to know more about how this works should read the book "The Student Loan Crisis" by Alan Michael Covigne or wait two months for my book, The Five-Year Party, which details exactly how student financial aid offices routinely fleece students like Cortney who have no idea that they are becoming victims of a scam.

Unemployed graduates, deep in debt, could burst the tuition bubble

With graduates forced to pay off student loans that reach up into the $50,000 range, it's time that we took a second look at the financial benefits of going to a four-year college. The old, outdated cost-benefit analysis was that  a college education meant a $1 million increase in lifetime earnings. But that was calculated before the skyrocketing cost of tuition was figured in, plus all the lost income from spending six years in college. Every year it takes a little longer for college graduates to catch up to their friends who ended their educations at high school.

Now there are increasing numbers of graduates who can't find jobs at all in our economy and are either unemployed or so underemployed in crap jobs that they can't make their payments. So they move back in with their parents and get them to make the loan payments.  You can read all about this in this story from the New York Times.

When stories like this start to get around, you can bet parents and students are going to think twice about going deeply into debt, cleaning out their retirement accounts or taking out a second mortgage to pay for junior to attend the five-year party that subprime four-year colleges have become. 

The best investment in these times are inexpensive two-year programs with direct connections to jobs, such as the ones offered at community colleges. Or, even better yet, the new "no frills" colleges that offer an education without all those high priced buildings, expensive administration salaries, sports teams and student centers that drive college costs up out of sight.

There are plenty of people who have seen the beginnings of a new age of thrift, when value is more important that frills. Colleges are still building monumental palaces along college row and inflating administrative costs as if they were Wall Street bankers. A day of reckoning cannot be far off and like other inflating bubbles, it's likely to explode any time without warning.

College at any price not worth it, economist says

A generation ago it would have been heresy to suggest that NOT going to college was a better choice for some students, but a number of present and former academics are willing to be burned at the stake for daring to voice the truth: for some students, choosing college is the road to financial ruin.

The latest heretic to join this ever-increasing group of critics and reformers is Bill Gunther, a professor of economics at the University of Southern Mississippi, where he is also head of the Bureau of Business and Economic Research. So he is someone who understands not just the academic world but the business world as well. His op-ed piece on this issue was published Sept. 14 in the Hattiesburg American.

Using economic statistics from the U.S. Department of Labor, he found that the "College Wage Premium," the difference between what a high school grad and a college grad earn in terms of salaries, has been declining since 2000 because the supply of college grads has vastly exceeded the demand for them. That's why an increasing number of college grads are finding themselves unemployed or underemployed while paying off huge amounts of student load debt.

He concludes that parents and students need to take the time to carefully evaluate a child before mindlessly sending him off to college. The choice of career, the student's major and the choice of university are all important factors to consider BEFORE enrolling in college.

"Obtaining a college education at any price is not a wise investment strategy and may saddle the student with debt difficult to pay off," he concluded.

What's interesting is that Gunther arrived at the same conclusion I did by following a completely different line of reasoning. I started with my students' statements that they didn't want to come to college and didn't want to learn anything. That led me to the National Survey of Student Engagement studies that showed only 10 percent of college students were fully engaged in the education process and 45 percent were totally disengaged from it. That 45 percent is remarkably close to the 44 percent who binge drink in college. I have no way of telling how much overlap there is, but I would be willing to bet my bank account that there is a lot of overlap.

When scientists reach the same conclusion by following different paths, it's a sign they are approaching the truth. Here it is: The majority of college students at subprime colleges are anti-intellectual and have no interest in education. They are there for the party and are running up a huge bar tab that will take them decades to pay off. I suspect this comes as no surprise to the administrations of subprime colleges who exploit these students through institutionalized robbery.

Students using credit cards to pay soaring tuition bills

Using a credit card with interest rates in the 25% range to pay your tuition bill is simply insane, but as many as 25 percent of college students are doing it, according to a report released yesterday by Kaulkin Ginsberg. With the banks that used to provide private loans all in trouble because of the subprime mortgage meltdown, students are using their credit cards as a last resort.

With their high interest rates and extensive penalties for being even one day late, even small credit card balances can take decades to pay off. But, as the report notes, most students are not aware of these problems and college financial aid officers aren't going to explain them to students  either.

Why? Because colleges make millions of dollars by selling the names and addresses of their students to  credit card companies. Among the colleges that do this are the University of Oklahoma ($13 million), Michigan State University ($14 million), the University of Tennessee ($16.5 million) and the University of Michigan ($14 million.) In other words, colleges are making a huge profit by selling your child's name to these predatory lenders. Is there no shame, sir? 

As a result of these shady deals, students receive 25 credit card solicitations a month and freshmen receive eight of them during their first week in college. Students, who average four cards each, told me this is how they finance their spring break trips to Cancun and even pay their bar bills. Few had any plans about how to pay off these debts and others simply assumed that when they got out of school and were making $100,000 a year it would be no problem. As the report above shows, they are totally uninformed about the current market for college grads.

  This is all part of the corrupt relationship between colleges and predatory lenders uncovered last year by New York attorney general Andrew Cuomo who issued this statement in March 2007. It revealed that colleges were accepting kickbacks from predatory lenders, accepting cash for putting lenders on their "preferred lender" lists and financial aid officers were going on junkets to resorts, all courtesy of the corrupt student loan industry.

"There is an unholy alliance between banks and institutions of higher education that may often not be in the students' best interest," said Cuomo. "The financial arrangements between lenders and these schools are filled with the potential for conflicts of interest. In some cases they may break the law."

So, dear parents, who do you think comes up on the short end when money-grubbing college administrators meet in the back room with bloodsucking lenders who want your kid to be paying them the rest of his life? Can you still believe that colleges have education as their top priority or are their real goals the squeezing out of every dollar they can get? Looked at this way, perhaps college is not such a good deal after all.  

Predatory student loan lenders: We didn't rip off students...much.

Seven predatory student loan lenders told New York Attorney General Andrew Cuomo this week that they were sorry they ripped off thousands of students and their families and promised not to do it anymore. You can read the New York Times story or the official releasefrom Cuomo's office.

They also promised to set up a $1.4 million fund to teach students about financial aid. This may seem like a small punishment for ripping off a very vulnerable segment of society, but Cuomo promised there would be more indictments to come, including disclosures of the cozy relationships between the predatory lenders and the colleges who are the ultimate recipient of the billions of dollars that pass through the loan companies to the campus coffers.

Among the scams included in the release are sending students documents that look like they come from the federal government, giving students I-Pods for signing loan forms with high interest rates and lying to students about interest rates.

It's well known that the "list of preferred lenders" handed out in student financial aid offices and listed on campus web sites are not the ones with the lowest rates, as students think, but the ones who have the friendliest ties with college administrators. Some of these administrators have already been fired after it was revealed that they accepted kickbacks, free trips and other gifts from the lenders. With billions of dollars flowing from the lenders to the colleges every year, and no one really watching, it was inevitable that some of that money would stick to the hands of those helping it along.

Students and their parents should have an attorney examine all loan documents before they sign them. It could save them tens of thousands of dollars.  

Parents of students at first tier colleges are sophisticated enough to be skeptical of the heavy-handed business practices of these lenders, but what about the first generation students who attend the subprime, low-level colleges?  They don't have a chance. The lenders pay a fee to the college to set up tables in the student center that offer students a T-shirt when they sign up for a credit card with a 25% interest rate. Similarly, colleges sell the names and addresses of their students to loan companies so they can flood students' mailboxes with credit card offers. Some of my students said they received 25 of these offers a month.

Predatory student loans are ruining the lives of party school graduates. They leave school with $23,000 in loan debt and $3,000 in credit card debt. Since their party school diplomas are nearly worthless in the marketplace, they are forced to take jobs as clerks, waiters and pizza deliverers. They don't make enough money to support themselves and move back in with their parents. Half of the nation's graduates fall into this boomerang status and stay there until they are well into their 30s. Predatory lenders are the ones profiting from this misery and deserve to be exposed for the scoundrels they are.