Sunday, February 27, 2011

This Week on Frontline....Something Unexpected

I noted that there will be a repeat of the story about the for-profit schools.

College, inc.

Digging around on the website, I found a section documenting the response to the subject.  I stumbled across a letter in which directors of homeless shelters railed about how the schools were deliberately recruiting students from the homeless ranks and sticking them with a worthless degree.  That in itself is not news. 

However, Frontline then revealed something a tiny bit odd about the origin of the letter through a link:

Down the rabbit hole we go...

To simplify, what they are saying is that there is a certain group of people who buy stocks in these companies with the expectation that the shares will drop in price so that they will short sell  the stocks.  What's more, they have gone as far as to engage the services of others to publicly trash these companies so that they can help increase the drop in price.

Now, I'm not saying that these schools that promise you a degree in basket weaving are noble heroes.  What I want to know is why is this phenomenon not more widely known or taken into account in media coverage?

Sure, I can legitimately see this happening, so I'm not questioning the validity of the article.  It's just that I can't see publicly traded universities being the only investment out there that is the target of special interest groups such as this.

It's a bit like the bubble all over again.  Many of those companies raised capital fairly quickly and spent it down to nothing in the span of a year or more by wasting it on everything from salaries that were out of step with the market, high dollar advertisements, and fancy amenities.  In the end, certain people cleanly walked away with some of that money.  Yet, even though it was staring everyone in the face, it wasn't until these companies gasped their last breath and had their bones danced upon by the Feds that anybody really bothered to assess what was really going on during that time.

I personally find this sort of thing to be interesting because it adds another depth to the discussion.  In essence, the very owners of these schools (stockholders are owners of corporations, n'est-ce pas?) are praying for their product's destruction.  They are glad for every single one of those homeless people who come out saddled with $80,000 in debt and nothing to show for it beyond an associate's degree in polishing turds because those people only function as an argument for the stock price to be driven down.

Tuesday, February 15, 2011

I.B.R. vs. I Be Po'

I am intrigued by Income Based Repayment and trying to figure out how it stacks up as an actual aid to borrowers, or if it leaves people paying more in the long run.

Correct me if I'm wrong, but this is my understanding of how it works:

They take your loans and info about your income and personal circumstances.  They run everything through a magic machine to determine what your monthly payments are.  Every year, they dig through your earnings and adjust your payments accordingly.  If your monthly payments are computed to be less than what you would pay on interest, the government picks up the difference for the first 3 years of repayment.

However, IF you start making too much money and your computed payments turn out to be more than what you would pay on standard repayment, then you make your payments at the standard repayment level.

If you work in public service and started paying your loans back in 2008, then the remainder of your loans are forgiven after making 10 years' worth of "qualifying payments" either at IBR level or at standard repayment level.  No other repayment plan can be substituted as a qualifying payment. 

If you work in a regular old job, then the balance of your loans is wiped clean after 25 years (if you meet all of their requirements).

Now, the latter one sounds like it would be difficult to actually achieve.  I don't even want to know how much money someone is going to shell out in interest over the course of two decades.  Barring that, let's say that at year 10 of repayment and you had a relatively small loan principal to begin with (about $100,000). And, because you came into the right financial circumstances, you are now paying what you would pay at standard repayment levels.  Does that push up your repayment date?  What I mean is, does the lender calculate your payments based upon the expectation that it will take you 30 years to repay your loan even if you are now paying more? Or, do they say, "based upon your monthly payments, you should have this loan paid off by year 20," which means that you'll never get to the magical 25 year mark?

I point out that it's usually better to pay things off sooner so that you aren't wasting money on unnecessary interest.  However, if the latter is the case, I wonder how many people out there might have been motivated to pay extra every month just to get rid of their student loans and pay less in interest over the life of the loan instead of thinking that they'll get a big chunk of their debt wiped away.

Additionally, it seems like it would be very hard for for a borrower to be able to anticipate how this repayment plan will financially benefit the borrower the most.

If you owe $250,000 in student loan debt, and can see the writing on the wall that you will always have a $30,000 a year job and are never going to marry someone rich, it looks like more of a no-brainer that your loans might make it to the 25 year mark (even if it will make you cry how much money you spent on interest making it to that milestone).

As for public interest jobs, the question becomes slightly different.  The quandary becomes this:

Would it be better to eat top ramen and pay off your loans in about 5-7 years, or should you just go ahead and ride the white lightening for the full 10 years?

Yes, I know the answer depends heavily upon how much you owe and the income you have over the next 10 years.  But, once again, let's say that a person had a principal of less than $100,000, and they expected to make about $60,000 by the 4th year of their employment, is that person better off living in a shed and paying above the monthly amount?  Or, should they just make the minimum payments on IBR for 10 years with the full expectation that they will always work in public service for that entire decade and wait to see what debt gets wiped away?

I know there are money gurus out there who could calculate this stuff faster than Rain Man, but they still can't calculate variables such as your promotional potential, whether you lose that job due to unforeseen circumstances, or if they give up on public service at year 7 of repayment, which would then presumably put them on the road to the "25 or die" track unless they go back to public service at some point in the future.  Unless you owe a very large student loan debt, at which it is going to be hard to pay the full standard repayment amount regardless of what happens in your career, it seems like people who are right on the edge could end up paying more than what they had to should they make the wrong decision (whether it be to try to pay off the debt early or to do IBR for the full 10 years).

What do you think?

Sunday, February 13, 2011

Waste that Money in a Way that Will Make You Happy

I wish word would spread far and wide to the "if only I had a degree in X, I will be saved from my misery" crowd that another degree isn't going to save them.

I have your interests at heart, my friend, and it's time for some tough love.  I may look like a hypocrite because I've got the letters "J.D." after my name, but if you were looking for buried IED's, and you sent Private Tim out there to find the bombs, and he hobbles back carrying his bloody limb, would you doubt his word that there were explosives buried beneath the road?

If you go into something like nursing or teaching about 10 years into your career, you actually stand a decent shot of beginning a new career without a lot of pain. 

If you are going back to school because you think a MBA or some other degree is going to magically open a door to the riches you were denied, I have a better idea: Why don't you get a credit card with a $50,000 limit and use it to buy airline trips to Cancun, triple mocha lattes from Starbucks every day of the week, a brand new stereo system, a 3-D television, Prada clothing, and front row tickets to see the Rolling Stones?

Come on.  You might as well put that money to actual use, and in a way that will make you happy.  We all know that most of you tossing around the "maybe I'll get a M.B.A." aren't really that interested in business.  If you were that interested in business, you would actually sit down with a few trade papers.

Still, you reply, "buying thousands of dollars worth of mocha lattes sounds like a complete waste of money!  A business degree will help me make money!"

Will it?

Just like the law, the high-paying jobs are only available to the very few from the top schools, with special emphasis on the young. 

And here you are.  You've probably already established a family and are in a comfortable routine, even if you want more money or to get away from your dead-end situation.  Yet, if you're going to school because you don't want to take one for the team and pick up and move yours stuff to another city where they might be more opportunity, I am not sure what you think additional schooling is going to bring.

If you graduate with an M.B.A., only to find out that the job market in your chosen city is bone dry, what will you do then?

You can become like a lot of other people and simply let that new degree gather dust on the shelf while you continue to work in the bull shit job you were working before-hand while secretly harboring hope that someone will respond to your resumes.

It is sort of like if a sous chef from a 3-star French restaurant decided to move to Boonie Lake, Arkansas and is surprised that they can't find any fancy restaurants to work in.

Even so, you might find jobs in your chosen abode.  As so happens in many of these cases, you may also feel offended that these starter jobs pay so little.  Now, you have a house, family, and student loan debt.  You were counting upon the big salaries that you had read in a tiny blurb in U.S.A. Today, but as I said, those jobs went to a select few.  Again, the degree gathers dust.  This is especially true of those who were actually making good money before they went back to school.  It never fully crosses their mind that employers aren't that excited about what they used to do.  In fact, those people tend to be the biggest losers as it is only after they sunk all of that money and time into that degree that they are fully confronted by the reality  that it didn't double their salary.  They even discover to their horror that their salary noticeably shrank because that added income is now going to pay for student loans, and will be doing so for the next 10-30 years.

So, what I propose is that you actually enjoy that money with fabulous vacations to China and pay it off at a crippling interest rate instead of having years of your life being eaten up by boring subject matter and hours of study that have robbed you of time with friends and family and THEN paying a crippling interest rate.  You get to go to China, have a constant caffeine high on the good stuff (instead of being relegated to Maxwell House), and dress well. 

In fact, quit being a wuss and cut out the middle man and go ahead and start applying for jobs elsewhere with your current background because that is what is going to end up happening with the new degree. 

Saturday, February 5, 2011

Why More American't Don't Travel Abroad

As this is a blog that also touches upon the prospects of education and upward mobility, I thought I would share this article from CNN:

Why American's Don't Travel Abroad

When explaining why only 30% of Americans hold a passport, the article boiled down the problem down this way:
Tourism experts and avid travelers attribute Americans' lack of interest in international travel to a few key factors, including: the United States' own rich cultural and geographic diversity, an American skepticism and/or ignorance about international destinations, a work culture that prevents Americans from taking long vacations abroad and the prohibitive cost and logistics of going overseas.
Yes, it is like someone from the Land of the Out of Touch had a baby with the NPR Junkie.  Sort of like a Glenn Beck meets the Academic liberal.

"Why there is no such thing as rampant poverty, unemployment, and jobs that don't permit you to travel at will!    Nobody travels because they persist in their backwards, racist, hatred of foreigners!"

Once again, another American commits the crime of believing that foreigners do not engage in racism.  Back in the 1960's, about 20 years after the holocaust, some European hotel let Sammy Davis Junior stay in the same room that other people would stay in.  Now, they've gone from a land of genocide to being a post-racial utopia whose example we can all learn from. 

Anyway, I think it was a bit too depressing for this travel expert to recall the exact number of people who live below the poverty line.  In 2009, one in six in the U.S. experienced food scarcity at some point during the year.   A large portion of those people depended upon handouts to be able to eat, and many got into that position because they had issues with employment, because they were either unemployed or had to take a lower-paying job.  Pray tell, where are those people supposed to find $3,000 to jaunt off to Europe and live off of authentic pizza from Napoli like Julia Roberts?

In spite of the fact that the actual author of Eat, Pray, Love paid with her trip with an advance from her publisher to write about the experience, what that book sells is only slightly different from what is said in the CNN article:  You're supposed to "throw caution to the wind" and live abroad for a year to "find yourself" because the money is going to magically appear in your couch cushion.  Nevermind that you don't have money to eat and pay your bills.

Also, I wonder how many Americans out there who are gainfully employed, but who have had such a big chunk of their salary wiped out by student loans that they can't even think of going to Europe?  Maybe they could have gone on the cheap about 10 years ago with that $30,000 a year salary because they owed much less in student loan debt.  Now, if you're sending about $600 a month to Sallie Mae, on top of paying more in health insurance premiums, rent, and gasoline, a $3,000 trip is much more extravagant.  In fact, I know lots of people who would love to go to Europe, but the cost is too high in spite of what the jackal in the CNN article says.  If people are living at home because they cannot afford to have their own apartment, it would be a tad irresponsible to even go on a "cheap" vacation to Ireland.  If you are already barely making it to the end of the month as far as paying the bills, it doesn't take a rocket scientist to figure out that you don't have any extra money to pay for a trip to Europe. 

And if we're going to acknowledge that the majority of jobs don't pay enough for a luxury trip, then we can also point the finger at the fact that two weeks of vacation is not enough to live out those fantasies.  That is, unless you want to work through the holidays without going home for Christmas, forego traveling to see your sister in Wisconsin during the summer, having any three day weekends to relax, or taking days off to run some necessary errands.  Unless your family lives in town, you are single, have no children, and have a constitution of iron where you can go for months without taking a day off, and are lucky enough that you will never need to take a day off to meet with a repair person because of plumbing and cable issues, saving up enough vacation time to be able to go somewhere for an extended period of time is difficult. 

...That is, if you are lucky enough to work in a place that offers paid vacation, and does not frown upon their employees taking several days off in a row.

Yes, so, in spite of this person's theory that America is so incredibly affluent that everybody should be spending months in Europe, the reality is that, even for the people who aren't too poor to travel, there are many more who can't simply because of logistics.