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Taibbi writes: "On a wind-swept, frigid night in February 2009, a 37-year-old schoolteacher named Scott Nailor parked his rusted '92 Toyota Tercel in the parking lot of a Fireside Inn in Auburn, Maine. He picked this spot to have a final reckoning with himself. He was going to end his life."

Students on a college campus. (photo: Calvin College)
Students on a college campus. (photo: Calvin College)

The Great College Loan Swindle

By Matt Taibbi, Rolling Stone

04 November 17

How universities, banks and the government turned student debt into America's next financial black hole

n a wind-swept, frigid night in February 2009, a 37-year-old schoolteacher named Scott Nailor parked his rusted '92 Toyota Tercel in the parking lot of a Fireside Inn in Auburn, Maine. He picked this spot to have a final reckoning with himself. He was going to end his life.

Beaten down after more than a decade of struggle with student debt, after years of taking false doors and slipping into various puddles of bureaucratic quicksand, he was giving up the fight. "This is it, I'm done," he remembers thinking. "I sat there and just sort of felt like I'm going to take my life. I'm going to find a way to park this car in the garage, with it running or whatever."

Nailor's problems began at 19 years old, when he borrowed for tuition so that he could pursue a bachelor's degree at the University of Southern Maine. He graduated summa cum laude four years later and immediately got a job in his field, as an English teacher.

But he graduated with $35,000 in debt, a big hill to climb on a part-time teacher's $18,000 salary. He struggled with payments, and he and his wife then consolidated their student debt, which soon totaled more than $50,000. They declared bankruptcy and defaulted on the loans. From there he found himself in a loan "rehabilitation" program that added to his overall balance. "That's when the noose began to tighten," he says.

The collectors called day and night, at work and at home. "In the middle of class too, while I was teaching," he says. He ended up in another rehabilitation program that put him on a road toward an essentially endless cycle of rising payments. Today, he pays $471 a month toward "rehabilitation," and, like countless other borrowers, he pays nothing at all toward his real debt, which he now calculates would cost more than $100,000 to extinguish. "Not one dollar of it goes to principal," says Nailor. "I will never be able to pay it off. My only hope to escape from this crushing debt is to die."

After repeated phone calls with lending agencies about his ever-rising interest payments, Nailor now believes things will only get worse with time. "At this rate, I may easily break $1 million in debt before I retire from teaching," he says.

Nailor had more than once reached the stage in his thoughts where he was thinking about how to physically pull off his suicide. "I'd been there before, that just was the worst of it," he says. "It scared me, bad."

He had a young son and a younger daughter, but Nailor had been so broken by the experience of financial failure that he managed to convince himself they would be better off without him. What saved him is that he called his wife to say goodbye. "I don't know why I called my wife. I'm glad I did," he says. "I just wanted her or someone to tell me to pick it up, keep fighting, it's going to be all right. And she did."

From that moment, Nailor managed to focus on his family. Still, the core problem – the spiraling debt that has taken over his life, as it has for millions of other Americans – remains.

Horror stories about student debt are nothing new. But this school year marks a considerable worsening of a tale that ought to have been a national emergency years ago. The government in charge of regulating this mess is now filled with predatory monsters who have extensive ties to the exploitative for-profit education industry – from Donald Trump himself to Education Secretary Betsy DeVos, who sets much of the federal loan policy, to Julian Schmoke, onetime dean of the infamous DeVry University, whom Trump appointed to police fraud in education.

Americans don't understand the student-loan crisis because they've been trained to view the issue in terms of a series of separate, unrelated problems. They will read in one place that as of the summer of 2017, a record 8.5 million Americans are in default on their student debt, with about $1.3 trillion in loans still outstanding.

In another place, voters will read that the cost of higher education is skyrocketing, soaring in a seemingly market-defying arc that for nearly a decade now has run almost double the rate of inflation. Tuition for a halfway decent school now frequently surpasses $50,000 a year. How, the average newsreader wonders, can any child not born in a yacht afford to go to school these days?

In a third place, that same reader will see some heartless monster, usually a Republican, threatening to cut federal student lending. The current bogeyman is Trump, who is threatening to slash the Pell Grant program by $3.9 billion, which would seem to put higher education even further out of reach for poor and middle-income families. This too seems appalling, and triggers a different kind of response, encouraging progressive voters to lobby for increased availability for educational lending.

But the separateness of these stories clouds the unifying issue underneath: The education industry as a whole is a con. In fact, since the mortgage business blew up in 2008, education and student debt is probably our reigning unexposed nation-wide scam.

It's a multiparty affair, what shakedown artists call a "big store scheme," like in the movie The Sting: a complex deception requiring a big cast to string the mark along every step of the way. In higher education, every party you meet, from the moment you first set foot on campus, is in on the game.

America as a country has evolved in recent decades into a confederacy of widescale industrial scams. The biggest slices of our economic pie – sectors like health care, military production, banking, even commercial and residential real estate – have become crude income-redistribution schemes, often untethered from the market by subsidies or bailouts, with the richest companies benefiting from gamed or denuded regulatory systems that make profits almost as assured as taxes. Guaranteed-profit scams – that's the last thing America makes with any level of consistent competence. In that light, Trump, among other things, the former head of a schlock diploma mill called Trump University, is a perfect president for these times. He's the scammer-in-chief in the Great American Ripoff Age, a time in which fleecing students is one of our signature achievements.

It starts with the sales pitch colleges make to kids. The thrust of it is usually that people who go to college make lots more money than the unfortunate dunces who don't. "A bachelor's degree is worth $2.8 million on average over a lifetime" is how Georgetown University put it. The Census Bureau tells us similarly that a master's degree is worth on average about $1.3 million more than a high school diploma.

But these stats say more about the increasing uselessness of a high school degree than they do about the value of a college diploma. Moreover, since virtually everyone at the very highest strata of society has a college degree, the stats are skewed by a handful of financial titans. A college degree has become a minimal status marker as much as anything else. "I'm sure people who take polo lessons or sailing lessons earn a lot more on average too," says Alan Collinge of Student Loan Justice, which advocates for debt forgiveness and other reforms. "Does that mean you should send your kids to sailing school?"

But the pitch works on everyone these days, especially since good jobs for Trump's beloved "poorly educated" are scarce to nonexistent. Going to college doesn't guarantee a good job, far from it, but the data show that not going dooms most young people to an increasingly shallow pool of the very crappiest, lowest-paying jobs. There's a lot of stick, but not much carrot, in the education game.

It's a vicious cycle. Since everyone feels obligated to go to college, most everyone who can go, does, creating a glut of graduates. And as that glut of degree recipients grows, the squeeze on the un-degreed grows tighter, increasing further that original negative incentive: Don't go to college, and you'll be standing on soup lines by age 25.

With that inducement in place, colleges can charge almost any amount, and kids will pay – so long as they can get the money. And here we run into problem number two: It's too easy to find that money.

Parents, not wanting their kids to fall behind, will pay every dollar they have. But if they don't have the cash, there is a virtually unlimited amount of credit available to young people. Proposed cuts to Pell Grants aside, the landscape is filled with public and private lending, and students gobble it up. Kids who walk into financial-aid offices are often not told what signing their names on the various aid forms will mean down the line. A lot of kids don't even understand the concept of interest or amortization tables – they think if they're borrowing $8,000, they're paying back $8,000.

Nailor certainly was unaware of what he was getting into when he was 19. "I had no idea [about interest]," he says. "I just remember thinking, 'I don't have to worry about it right now. I want to go to school.' " He pauses in disgust. "It's unsettling to remember how it was like, 'Here, just sign this and you're all set.' I wish I could take the time machine back and slap myself in the face."

The average amount of debt for a student leaving school is skyrocketing even faster than the rate of tuition increase. In 2016, for instance, the average amount of debt for an exiting college graduate was a staggering $37,172. That's a rise of six percent over just the previous year. With the average undergraduate interest rate at about 3.7 percent, the interest alone costs around $115 per month, meaning anyone who can't afford to pay into the principal faces the prospect of $69,000 in payments over 50 years.

So here's the con so far. You must go to college because you're screwed if you don't. Costs are outrageously high, but you pay them because you have to, and because the system makes it easy to borrow massive amounts of money. The third part of the con is the worst: You can't get out of the debt. Since government lenders in particular have virtually unlimited power to collect on student debt – preying on everything from salary to income-tax returns – even running is not an option. And since most young people find themselves unable to make their full payments early on, they often find themselves perpetually paying down interest only, never touching the principal. Our billionaire president can declare bankruptcy four times, but students are the one class of citizen that may not do it even once.

October 2017 was supposed to represent the first glimmer of light at the end of this tunnel. This month marks the 10th anniversary of the Public Service Loan Forgiveness program, one of the few avenues for wiping out student debt. The idea, launched by George W. Bush, was pretty simple: Students could pledge to work 10 years for the government or a nonprofit and have their debt forgiven. In order to qualify, borrowers had to make payments for 10 years using a complex formula. This month, then, was to start the first mass wipeouts of debt in the history of American student lending. But more than half of the 700,000 enrollees have already been expunged from the program for, among other things, failing to certify their incomes on time, one of many bureaucratic tricks employed to limit forgiveness eligibility. To date, fewer than 500 participants are scheduled to receive loan forgiveness in this first round.

Moreover, Trump has called for the program's elimination by 2018, meaning that any relief that begins this month is likely only temporary. The only thing that is guaranteed to remain real for the immediate future are the massive profits being generated on the backs of young people, who before long become old people who, all too often, remain ensnared until their last days in one of the country's most brilliant and devious moneymaking schemes.

Everybody wins in this madness, except students. Even though many of the loans are originated by the state, most of them are serviced by private or quasi-private companies like Navient – which until 2014 was the student-loan arm of Sallie Mae – or Nelnet, companies that reported a combined profit of around $1 billion last year (the U.S. government made a profit of $1.6 billion in 2016!). Debt-collector companies like Performant (which generated $141.4 million in revenues; the family of Betsy DeVos is a major investor), and most particularly the colleges and universities, get to prey on the desperation and terror of parents and young people, and in the process rake in vast sums virtually without fear of market consequence.

About that: Universities, especially public institutions, have successfully defended rising tuition in recent years by blaming the hikes on reduced support from states. But this explanation was blown to bits in large part due to a bizarre slip-up in the middle of a controversy over state support of the University of Wisconsin system a few years ago.

In that incident, UW raised tuition by 5.5 percent six years in a row after 2007. The school blamed stresses from the financial crisis and decreased state aid. But when pressed during a state committee hearing in 2013 about the university's finances, UW system president Kevin Reilly admitted they held $648 million in reserve, including $414 million in tuition payments. This was excess hidey-hole cash the school was sitting on, separate and distinct from, say, an endowment fund.

After the university was showered with criticism for hoarding cash at a time when it was gouging students with huge price increases every year, the school responded by saying, essentially, it only did what all the other kids were doing. UW released data showing that other major state-school systems across the country were similarly stashing huge amounts of cash. While Wisconsin's surplus was only 25 percent of its operating budget, for instance, Minnesota's was 29 percent, and Illinois maintained a whopping 34 percent reserve.

When Collinge, of Student Loan Justice, looked into it, he found that the phenomenon wasn't confined to state schools. Private schools, too, have been hoarding cash even as they plead poverty and jack up tuition fees. "They're all doing it," he says.

While universities sit on their stockpiles of cash and the loan industry generates record profits, the pain of living in debilitating debt for many lasts into retirement. Take Veronica Martish. She's a 68-year-old veteran, having served in the armed forces in the Vietnam era. She's also a grandmother who's never been in trouble and considers herself a patriot. "The thing is, I tried to do everything right in my life," she says. "But this ruined my life."

This is an $8,000 student loan she took out in 1989, through Sallie Mae. She borrowed the money so she could take courses at Quinebaug Valley Community College in Connecticut. Five years later, after deaths in her family, she fell behind on her payments and entered a loan-rehabilitation program. "That's when my nightmare began," she says.

In rehabilitation, Martish's $8,000 loan, with fees and interest, ballooned into a $27,000 debt, which she has been carrying ever since. She says she's paid more than $63,000 to date and is nowhere near discharging the principal. "By the time I die," she says, "I will probably pay more than $200,000 toward an $8,000 loan." She pauses. "It's a scam, you see. Nothing ever comes off the loan. It's all interest and fees. And they chase you until you're old, like me. They never stop. Ever."

And that's the other thing about lending to students: It's the safest grift around.

There's probably no better symbol of the bankruptcy of the education industry than Trump University. The half-literate president's effort at higher learning drew in suckers with pathetic promises of great real-estate insights (for instance, that Trump "hand-picked" the instructors) and then charged them truckfuls of cash for get-rich-quick tutorials that students and faculty later described as "almost completely worthless" and a "total lie." That Trump got to settle a lawsuit on this matter for $25 million and still managed to be elected president is, ironically, a remarkable testament to the failure of our education system. About the only example that might be worse is DeVry University, which told students that 90 percent of graduates seeking jobs found them in their fields within six months of graduation. The FTC found those claims "false and unsubstantiated," and ordered $100 million in refunds and debt relief, but that was in 2016 – before Trump put DeVry chief Schmoke, of all people, in charge of rooting out education fraud. Like a lot of things connected to politics lately, it would be funny if it weren't somehow actually happening. "Yeah, it's the fox guarding the henhouse," says Collinge. "You could probably find a worse analogy."

But the real problem with the student-loan story is that it's so poorly understood by people not living the nightmare. There's so much propaganda that blames the borrowers for taking on the debt in the first place that there's often little sympathy for people in hopeless situations. To make matters worse, band-aid programs that supposedly offer help hypnotize the public into thinking there are ways out, when the "help" is usually just another trick to add to the balance.

"That's part of the problem with the narrative," says Nailor, the schoolteacher. "People think that there's help, so what are you complaining about? All you got to do is apply for help."

But the help, he says, coming from a for-profit predatory system, often just makes things worse. "It did for me," he says. "It does for a lot of people." your social media marketing partner


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+19 # wantrealdemocracy 2017-11-04 11:32
All these young people with college debt need to do is join the military. They get killed and the debt is cancelled. We have lots of money for wars and the dead kids family will get paid to bury their dead family member. There you go!! Student debt is over for that person with student debt.
+19 # bardphile 2017-11-04 11:49
Great report.
+37 # jwb110 2017-11-04 11:51
Those student loan banks are private banks. They have nothing to do with the government and ultimately don't come under government purview.
Republicans have been attacking education for as long as I can remember and I was born in the 50s. Their overall plan is to dumb down America, except for the elites that can afford education for their children without student loans. A ill-educated electorate is easy to manipulate. That's all this is about and that plan is fully in place given what I have seen since the last Presidential election. The new way for the Elitists
is keep the country dumb and poor. Cheap labor for rotten jobs. Get rid of abortion funding and/or make it an actionable offense and then you have a lot more cheap labor. Give the rich more and keep the populace saddled. If they off themselves, so what, there will be plenty to take their place.
This is the kind of recipe that ends in disaster and has for all history. Get ready for both of these things.
+19 # dusty 2017-11-04 11:59
Once you go bankrupt it is imperative that anyone not borrow or live on credit -- and don't turn any accounts over to any businesses that are going to help you rehabilitate yourself. We don't need rehab, the capitalist credit system does. It is a system based on maximum exploitation of the borrower while making the borrower feel that he/she is the bad person. Low wages and debt combine to imprison our minds and bodies. When years ago bankruptcy was a method utilized to get out of debt I resolved not to borrow one damn dime unless it was a house/home or perhaps a car to get to and from work, creature comforts for the family or for me, hell no! Who needs that crap advertised as necessary for our good life. The credit system has been evolved to turn us into two and three income families to just get by and then to buy on credit so we can have some satisfaction but it is short lived. There is a reason that the financial industries are a place of immense profit for the wealthy -- we are the slaves and they are the slave owners.
+23 # sriskin 2017-11-04 12:20
The best comment I can make is St. Matt's simple declarative sentence: "America as a country has evolved ... into a confederacy of widescale industrial scams." We have learned to consume our future in vast wholesale merciless hog-fests; the whole country is, like the personal stories of people mentioned in this article, committing suicide.
+23 # sriskin 2017-11-04 12:28
The one dimension St. Taibbi misses is the fact that the education being bought at Tiffany prices is barely better than that offered at Trump U. Please understand that this is not being said by a student but by a professor of more than forty years.
+5 # AldoJay69 2017-11-04 12:55
And what does crushing debt buy?
Matt, please follow up with an expose' of what practical, useful knowledge 4 years and 128 credit-hours supplies. Between required courses and "electives," how much "learning" applies to one's chosen field?
And what of the promise of affordable, no BS online education? Any value there?
What about law degree$ and medical degree$?
+14 # jimmythelark 2017-11-04 13:02
I went to university in 1966-1969, I worked
( work-Study program) and finished in 3 yrs with a B.A. in Psychology- left owing $2.000 went in the Military for 3 yrs- they deferred the interest - then went back to school for a M.S and then went on for a Phd. When I finished they said I owed them 3,500- I told them to FUCK OFF !! 6 mos later they accepted 2,000 cash and I was done !! If all students STOP PAYING - the GOVERNMENT - all the THIEVES and SCOUNDRELS all the BANKS will relent and go away !! DEFAULT !!! DEFAULT !!!! DEFAULT !!!! The BANKS in 2008 walked away from their DEBT !! Who BAILED them OUT !!! YOU AND I !! What a SCAM our financial system IS ?????
+12 # laborequalswealth 2017-11-05 13:12
Except back then the student debts were dischargeable in bankruptcy. No more. Amurikkka has decided that it is better to just eat our young.

We're are consuming our seed corn and drinking sea water.
+18 # ddd-rrr 2017-11-04 14:06
Thanks, Matt Taibbi, Rolling Stone, and RSN for bringing this huge horror story to light!
The story of the "scammer-in-chi ef" -- and of his aids and accomplices -- rolls on!
I think I'm now in favor of student loan debt forgiveness, regardless of the cost.
+9 # Dudu101 2017-11-04 14:12
"can't pay...won't pay...will vote."
Predicted by a economist I can't remember the name of.
Another debt bubble is car financing, especially used car debt. People are employed and the stock market keeps rising, but debt continues to rise. We are overdue for another recession, since the business cycle seems to be 7 years.
In 2018 and 2020, the question asked of voters will be "Are you better off?" after 2-4 years of Trump and GOP dominance.
+16 # Adoregon 2017-11-04 15:28
Welcome to the USF.
(United States of Fraud)

This article is all about usury.

You remember the story about Jesus and the money changers? Well here it is in the USF.
Land of the scam.
Never give a sucker an even break.
Kick 'em when they're down.

+1 # VoxFox 2017-11-04 15:43
Apart from the Rip-Off Culture Taibbi describes here, the academics once again show that their sights are set on the past; with NO solutions being offered for the Future while they make false promises about a fake, privileged past, where children of the elite and 'The GI Bill' students benefitted from a never-to-be-rep eated future.
The REAL jobs are tradesmen, with non-exportable skills or localized activity that cannot be economically performed by remote technicians using cheap digital technology. The fraud of education, at all levels, must be exposed where children are socially indoctrinated to conform
and taught useless knowledge after acquiring reading and arithmetic skills. Meanwhile, bogus educational hurdles are erected (like Algebra 11) to reduce the numbers of young people moving forward into the few remaining good and useful jobs, such as nursing.
+11 # laborequalswealth 2017-11-05 13:14
Some of us actually think that a knowledge of art, literature, history, sociology and psychology make for better citizens.

But what the heck. Let's just all turn into soulless technocrats, eh? Who needs civilization, right?
+1 # PeacefulGarden 2017-11-06 06:29
Yep, it is kinda funny that our institutes of "higher learning" have become expensive trade schools. My son is at the University of Maryland, which is taking every dollar I have an then some, and I wonder what will become of him when he is done his Computer Science degree. The kid is brilliant, top scores, IQ to the 140 mark, and a father who taught him computer programming at age 14 (I am an old C programmer). But, alas, I write music, read poetry, laugh at Larry David skits, and wonder, is my son's expensive college really worth it?

Then I have this wtf moment, and say to myself, if they want my son and I to carry this enormous debt load, fxk it.

Given the fact that the Paradise Paper are being released, I must say that there is not enough money circulating in our economy to pay back the billions of college debt... so fxk it!
+18 # VoxFox 2017-11-04 15:56
Once again, the parasite class comes to the fore, living off 'interest payments' like all the Rentiers of the past. Lawyers also get into the act by adding unread 'Small-Print' to make it extremely difficult to escape the Money-Trap. America is a doomed nation of the naive being exploited by the Clever-Clever.
+3 # Caliban 2017-11-04 18:17
My own modest suggestion is that instead of borrowing, more young people get a job and work their way through college. Yes, it might take six years instead four, but the pay-off is clearly there in the absence of future-killing debt levels.

And maybe if more students worked there way through college, the loan sharks would scared off by both the smaller number of borrowers and a less cooperative student/parent mindset.

So, youngsters, don't go after that easy loan with its too hard aftermath. Instead, do the hard stuff first and come out of it better prepared financially with the additional bonus of real-life work experience.
+14 # suziemama 2017-11-04 23:37
Many students do work during college, and during breaks between terms. It used to be that working during college was sufficient to eliminate or minimize the need for borrowing. The economics have changed. The low wage jobs that students can get don't come close to covering tuition costs.
+3 # Caliban 2017-11-05 14:19
I understand what you are saying about the low wages for students who work during their studies, but I was also suggesting work BEFORE college, so that the savings are already in the bank.

In either case, though, the article makes it clear that burgeoning post-college debt is a terrible thing for everybody except the private lenders who profit from it.
+15 # opinionaire 2017-11-05 09:32
Did that myself in the 70s--when it was marginally still possible to do so, but required my holding down three jobs while attending school. That was grueling, and, although I managed to graduate from a major (state) university magna cum laude, and go on to earn a doctorate, that remains a particularly difficult time and memory. Tuition has increased markedly, and wages have not. That makes it beyond the reach of the vast majority of young people, or of their families.
+1 # bread and butter 2017-11-06 08:47
This isn't the '70s anymore.

If you work 40+ hours a week, year-round, for a few decades, you should be able to pay your way through a bachelor's degree, by the time you're in your early 40s.
+13 # tm7devils 2017-11-04 19:51
Greed, for all the extensive damage it does in the world, should be considered a class 1 felony - with the convicted having to pay back what they absconded with or serve 10 years behind bars - no parole.
0 # ericlipps 2017-11-09 11:18
So here's the con so far. You must go to college because you're screwed if you don't. Costs are outrageously high, but you pay them because you have to, and because the system makes it easy to borrow massive amounts of money. The third part of the con is the worst: You can't get out of the debt. Since government lenders in particular have virtually unlimited power to collect on student debt – preying on everything from salary to income-tax returns – even running is not an option. And since most young people find themselves unable to make their full payments early on, they often find themselves perpetually paying down interest only, never touching the principal. Our billionaire president can declare bankruptcy four times, but students are the one class of citizen that may not do it even once.
I was lucky, if you can call it that: I had a physical disability, so I was able to get a grant which covered nearly all my expenses, and I'd had the good fortune to have a rich grandmother who died during my senior year in high school and left me $10,000, which covered the rest. AND, of course, I went to college before tuition soared into orbit.

These days, students and their families are trapped in what amounts to debt peonage. This is one reason among many why most Americans' standard of living has lagged far behind the growth in GDP and corporate profits for decades.

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