Wednesday, March 05, 2014

Mass Delusions + Student Loan Fraud

Making the media rounds is a Wall Street Journal report on the fraud that is rampant in the student loan racket. Zero Hedge properly gloats about pointing out the fraud well over a year ago. This is a scam many are aware but rarely discussed in big media. The loans are being used to supplement incomes and help people keep their living standards. I did not say survive because woven into the details are examples of continued mass delusions, maintaining discretionary spending and absolute denial of reality. If the article reveals anything, it reveals that American society is still firmly in the denial phase of the aftermath of the American financial crisis.

First and foremost on the list of perps is a financial system and government attuned to keeping the economic engine forever growing at a steady clip. The dollar system needs to expand marginal borrowing. Consequences be damned, any means necessary to hit that 3% growth number. Student loans have replaced the revolving credit card debt system as the means for Americans to live beyond reality. These loans were made nondischargeable in the late '90s (thanks President Clinton Treasury Secretary Rubin), following borrowers forever and now linked to the feds, garnished off wages if necessary for repayment. These 21st century loans are not just for schooling, or school at all as the report points out how schools "disbursed an average of $5,285 in loans each to more than 42,000 students who didn't log any credits at the time" ($221.97 million, peanuts of the $1.1 trillion). Students leave schools with nearly double the loans than what the classes actually cost. Students are maximizing loans even when not needed and are continuing to do so the longer the recession goes. Simple fix of directly transmitting money to the school must not have been written into regulations.

The system gets a nice boost from this. Where was the watchdog? Our media was too tied into this to complain. Schools advertise. Those for-profit colleges that WaPo ran and kept after selling off the WaPo media entities minted serious coin. Looking at the loan numbers after 2008, the Federal government money went straight into their pockets. Those for profit schools were breedig grounds for fraud up-front as enrollers were paid on the number of students they pulled in and federal money they collected, nothing related to student retention. Churn and burn. Banks earned money servicing loans. Traditional colleges took in enough money to continue raising the cost of tuition. The University of Alabama costs $24,000 for one year's worth of tuition, which is more than Dartmouth, Cornell, Harvard etc. were charging in 2003. Education is a jobs engine. Education trains our future workers. Say it enough and click your heels, it may come true. These students all still believe that getting the degree is the key despite the staggering number of unemployed college graduates. If the Bucknell University graduate is collecting food stamps, then the online slow bleed degree, pajamas wearing student will be as well.

The students themselves are a combination of delusional and desperate. In the WSJ article, Ray Selent, age 30, was a communications major who couldn't find work in his field so he's been in school recently to be an actor. The action picture of him acting is worth the click on the WSJ link alone. He used his student loan money for classes, his cell phone, seeing movies and to pay his mom rent. Tommie Matherne is a father of five in Billings, Montana who was not earning enough as a security guard so he went to school. They use the cash to stock up on food and pay bills. I hope this is not the same Tommie Matherne in Billings, Montana on LinkedIn who is a comsci guy with lots of computer skills listed. He has taken out $51,600 in loans. Expectd diploma in 2015. These people have swallowed the have to get a degree propaganda. There are other ways to pay the bills.

These people are also in denial. Some are using money just to maintain living standards. Cell phones and movie tickets are wants. I would love to know the ages of Matherne's kids. He is 32 now in 2014, which made him 28 in 2010 when he was a $10/hour security guard. Did he have all five kids before 28 or did a kid or two come along after 2010? The media wants us to pity him, but hey, reality is nuanced. Ray Selent claims the money keeps him from falling apart. Living with your mom at 30 should be bad enough, but I guess the cell phone keeps him happy. He will be acting in no time. Maybe the USG can fund local community theater. Student loan money can be transmitted through EBT cards, so if your strip club accepts EBT, then taxpayer receipts and Chinese/Russian/Petro-exporter lending funds lap dances. I am hearing echoes of the Charlie LeDuff Detroit book where his brother says sure the system screwed people over, but Americans also forgot that you have to work for it. We just want to hustle our way through life.

No one wants to cut back. No one wants to face reality. The starts of Great Depression 2.0 hit people, and people forgot to change their lives to the changed situation. Take in your elderly parent, hell no, let him sit in a raisin ranch that charges just exactly what his social security and medicare pays for. Not have kid number five, hell no, gimme debt slavery for a hit. Our corrupt system does not need the economic boost as much as it needs this pool of screwed over and lied to Americans in a system of increasing wealth inequality to keep that debt heroin needle full. Paper over the social dysfunction. Keep them buying Iphones with that student loan money just so the mandarins can pass through another round of red rover red rover immigration and put one more year between the financial crisis and any criminal charges. Play the game long enough, and the underclass will forget all about 2008. Give yourself enough time and you can find new patsies for when the reflated bubble loses steam. I checked the five stages of grief. After denial comes anger, so the system better have one juicy target for the little people to be angry at when the financial meth is gone. Go long pitchforks.


Inane Rambler said...

My macro professor keeps beating the "education is key" drum. Given that he's an more of an educator than a researcher, at least in temperament no wonder he keeps beating it.

Portlander said...


Brock's son, since you maintain a lively interest in Portland's housing politics, I thought you might enjoy the call-in show today on our public radio.

The back-story is that a parcel of land in N/NE Portland, not too far from the woman in the Oregonian article you covered a few weeks back, was going to be sold to Trader Joe's to put in a new store. The development plan had very little in the way of gimme-dats, and heck it was a Trader Joe's! Can't get much more SWPL than TJ's. Whole Foods maybe, but the neighborhood isn't that rich. It's middle class SWPL w/ kids, not 10%-er professionals and certainly not 1%-er trust-funders. So, lacking adequate gimme-dats some racial group no one had ever heard of before complained mightily and TJ's backed out. When TJ's pulled out, the local SWPL's got _really_ ticked and blamed the city for not standing up on TJ's behalf and blamed the group no one had ever heard of before for being overtly racist.

I'm not much of a TJ's shopper so I didn't take it personally like my SWPL neighbors did. I've just popped some popcorn and enjoyed the show.

I will say one aspect that's been glossed over is TJ's was going to get the parcel for some million bucks under market value. (I forget the exact number. I thought it was $400k, but that's such chump change I'm doubtful of that number.) That's how PDC is used to doing business, but usually the money is handed out to connected locals, not out-of-state corporations. The thing is, TJ's doesn't need the million bucks, and the parcel doesn't warrant a subsidy to get a nice retailer in there anymore. So, WTF?

Anyway, I'm not sure how long until the audio gets posted, it was about a 45 minute show today. But you should be able to tell from the comments how the show went. It's really funny listening to SWPL try to discuss racism by minorities while trying not to get labelled as racists themselves. The Cognitive Dissonance is palpable. Cheers.

PS. A while back you asked about other locales in the US following the Irvine model in O.C. Have you heard of The Villages in FL. It's retirees so maybe not a perfect match, but other than that pretty close to the same deal.

Anonymous said...

...not have kid number five...

you're the delusiounal one. White families with five kids, or more kids than they can support?

Negroes don't pay for their kids anyway, the government does through a variety of programs paid for by White men who then delay and don't have kids so they can pay the taxes.

Mike said...

I really believe a lot of this "taking out a mortgage to pay for college" nonsense will begin to be questioned by Gen X'ers who are beginning to see their kids go to college. They are the 1st generation to have graduated with any significant amount of student loans and I think they will begin to balk at some of the costs involved. Similar to cord-cutting in regards to cable TV, it won't be an en masse movement but at the margins it will be noticeable.

klejdys said...

@SOBL1 - great post. fun read, agree w/ all.

@Mike -
Great point here: "Similar to cord-cutting in regards to cable TV, it won't be an en masse movement but at the margins it will be noticeable."

Going into debt is slavery. There will be those who figure this out and use the system to still get what they want, but not become slaves. Two solutions: 1.) ROTC 2.) Community colleges + their feeder relationships w/ good local schools. Many ways to skin the cat for those who take time to think about it. Those who get experience get f**ked by dummy HR depts who say you have to get a degree. They could stop this insanity in a minute if 1.) they could IQ test and 2.) valued experience over a piece of paper. Viva market efficiency!

Re: Cable providers, the high-end service providers will flourish (DTV) while those in the middle (Cox, DishNetwork, etc.) will get squeezed (sound familiar?). Low-end or no-end providers like NFLX or Amazon Prime will grow at the expense of the middle. And the ranks of those who use torrents may grow a bit as well.

Portlander said...

OT follow-up:

SoBL, not sure you've had time for the Portland link from yesterday, but that show generated a huge out-cry of comments complaining about the one-sidedness of airing PAALF without anyone to criticize them. It caused OPB to do a follow-up story today with PAALF critics.

One of the two guests was a black businessman (realtor) from the neighborhood who called PAALF as being miserable leadership for the black community. @7:50 "I wished you white people would stop talking to them. I'm tired of them."

He didn't name Jesse Jackson, but his very bald complaints about PAALF reminded me of the complaints of Jesse Jackson and various black politicians as well: they are in it for themselves, and need a dysfunctional and dependent black constituency to keep their shake-down racket going.

The really funny part was @30:15 when the black businessman said, "if all those guys [PAALF] had a heart-attack tonight Portland would be doing very, very much better." There's a note that it's been edited, but all the juicy parts seem to still there. Good times. :)

Portlander said...

Funny part aside, 28:00 mark is where he is most clear and coherent. "We've got poor black leadership, and PAALF is a great example of it. PAALF is a great example of why the black community is where it's at. We've got problems with racism. We've got white people we've got to deal with, but you know we've got a lot of black people we really got to deal with... PAALF is not speaking for us. They are not speaking for the black people of Portland."

Clearly he sees PAALF as only a part of a much larger problem of the black leadership. I think it's safe to assume he's among the 1% of blacks that voted for Mitt Romney.

Son of Brock Landers said...

Portlander - i finally listened to that radio segment. I dont see how liberalism's coalition can survive with infighting over small property deals. Gentrification is hysterical to witness unfold because blacks are so screwed. Hispanics destroy them and wealthy people can buy the pols for shielding.

E. Rekshun said...

Good piece. When I attended the University of FL 2-year MBA program, I received a 50% tuition scholarship, bringing my out of pocket tuition to just $5000 for the entire 2-year program. The National Direct Student Loan Program offered me a $25K loan at a fixed 2.25% deferred until six mos. after graduation. I took the money and invested it in CDs at 5.5%.