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The federal government initiated the student loan program in 1958 in response to the launch of Sputnik the year before by the Soviet Union. “High school students who showed promise in mathematics, science, engineering, and foreign language, or those who wanted to be teachers, were offered grants, scholarships, and loans.” In 1965, the government passed The Higher Education Act, which provided more college grants to students, especially lower-income students. The Pell Grant was established for students in 1972 (Citlen).

Then somebody on Wall Street came up with the idea of securitizing student loans, which meant pooling student loans, selling them to investment companies, which would then issue bonds to investors backed by the loans. Student loan payments would primarily go to the investors, with a little to spare to pay for the service providers.

From a Wall Street point-of-view, billions of dollars a year could be made in fees every step of the way with every securitized student loan. Subsequently, Wall Street investors successfully pushed government legislators to reduce grants and to issue more student loans. That is how the US government, as well as politicians of both political parties, has used the student loan program to redistribute billions of dollars of income yearly from the 99 to the 1 percent via the conduit of student loan-backed bonds.

This forced students to borrow more money to help finance their higher education than would otherwise be the case, making loan defaults more likely, especially during economic downturns. The Great Recession hit in December 2007 and lasted until June 2009, but the negative effects of this disaster have continued. The government, of course, is working hard to disguise how bad the situation really is.

Five years ago, fearing an increase of student loan defaults, and a massive devaluing of the student loan backed bonds they owned, investors began selling off their bonds, which resulted in declining values. They couldn’t stand this. Something had to be done to restore investor confidence, and so the federal government doubled student loan interest rates on all new loans from 3.4 to 6.8 percent on July 1, 2013 (Sheehy).

This increased the return on investment while doubling the burden on the 99 percent who take out new loans to finance their college education. The public outcry was so heavily against this increase politicians felt compelled to reduce student loan interest rates within a year. The burden for students and their families had been too great. The US government dropped the rate to 4.9 percent in 2014, which was still a nearly 50 percent increase over 3.4 percent (Lobosco). Doing so, however, stabilized the market for student loan-backed bonds.

Dictionary.com defines “crisis” as “a dramatic, emotional or circumstantial upheaval in a person’s life.” Student loans are a perfect example of such a crisis in the personal lives of borrowers. In 2016, total outstanding student loans represented roughly 7.5 percent of the United States gross domestic product (GDP), up from 3.5 percent only ten years earlier (ACE). Nearly 43 million Americans were chained like slaves to rich bondholders via student loan debt, each with an average balance of $30,000 in 2016 (Friedman).

The cost of university education has grown faster than the value of Federal Pell grants (in current dollars) since 1976. The average Pell grant in 1976 paid 72 percent of the maximum cost of going to a public four-year college or university. This figure grew to 79 percent in 1979. Nowadays, the average Pell grant is less than half of that, hovering inside the 32 to 34 percent range (ACE). Therefore, students have had to increase their borrowing to fund their higher education and Wall Street investment banks and investors of the 1 percent all benefit from this higher student loan debt.

As the negative economic consequences of the Great Recession of 2007-2009 slowly gave ground to better times, student loan defaults fell, from nearly 15 percent in 2013 to 11.8 in 2015 to 11.3 percent in 2016. Defaults occur when former students go 360 days without making a payment. About 593,000 former college students out of 5.2 million total borrowers were in default on their federal debt as of Sept. 30, 2015, the US Department of Education reported. Default rates at public and for-profit colleges dipped, while private, nonprofit schools experienced a slight increase (Nasiripour).

Perhaps the biggest reason the default rate declined was that student loan borrowers deferred their payments at increasing rates, and for longer periods. The default rate, therefore, doesn’t accurately represent the degree to which former students have problems making their loan payments. An Obama White House report said in 2015, “The cohort default rate published by the Education Department is “‘susceptible to artificial manipulation.’”

The share of student borrowers paying down their loans more accurately reflects what is occurring than default rates alone (EPI). The report noted that a rising number of students are unable to make payments on their loans, but manage to avoid defaulting. Because of this, the report stated the actual default rate at four-year institutions is about 12.5 percent, and 25 percent for community colleges. For-profit colleges and universities have a 30 percent default rate. 41.5 million Americans owed more than $1.4 trillion federal student loans by the end of 2016. About one in every four borrowers is either delinquent or in default the report stated. Furthermore, “total indebtedness has doubled since 2009” (Nasiripour).

However, it turns out the White House report understated the numbers by quite a lot. Leaked documents showed only 46 percent of students out of school three years or more are paying down their student loan debt (Obama’s Student Loan Fiasco). This means 54 percent are not paying down their loans. Something else is terribly amiss as well. To be among the 46 percent, you cannot be in default, and you must have paid down the principal of your loan by at least one dollar. So if somebody who has owed $30,000 in student loans since they graduated from college ten years ago paid a dollar on the principal of their loan eight years ago, they have officially paid down their loan and are among the 46 percent. In other words, the bar for those who have not defaulted and are paying down their loans are about as low as one can get.

The government is paying the interest on student loans to bondholders for people who cannot pay down their loans. In other words, the rich are getting richer at the expense of the government and those who are paying down their student loans.

Clearly, tens of millions of people are in a state of personal crisis when it comes to student loans they cannot pay off. In addition, the next economic downturn may bring about a crisis in the financial markets centered on student loans, just as it occurred last time, only it will likely be worse. That economic crisis is looming.

People who have left higher education institutions saddled with an average of $30,000 in debt and limited job prospects are facing a crisis, which will only bring about another crisis in the student loan-backed bonds markets. Student loan debtors have other debts and bills to pay that turn their student loans into tens of millions of individual financial catastrophes, forcing them to spend years postponing payments so they can make their monthly mortgage payments, rent payments, put food on the table, pay their monthly bills, and raise their children.

People go to universities to increase their earning power so as to enjoy greater fruits of their labor. However, the growth of wages and salaries for most people have been flat or in decline for the last thirty-seven years when the official inflation rate is factored in. However, there is significant evidence this official rate is heavily understated, which means people are coming out of college and earning less in real terms than their parents thirty-seven years ago. This is why many people remain mired in student loan debt. Prices are going up faster than their earnings. They simply cannot pay it off and are forced to postpone payments for years and decades.

The remedy to this situation is to increase Pell Grants or simply make college free. According to the nonpartisan Office of Budget Management, the US government is giving the 1 percent and corporations $1.5 trillion dollars over ten years with the new Republican tax cut. Surely the US government can afford to provide such a sum to the middle class via a similar amount, thereby rendering college free. Studies clearly show this would be good for the US economy while there is not one scrap of evidence the tax cuts will do anything positive for the economy.

Student loans are an example of the golden rule of massive US government corruption; he or she who has the gold makes the rules that redistributes income and wealth their way from the less financially well endowed. Nobody knows this better than Wall Street Senator Ron Wyden.

Works Cited
Friedman, Dan. Americans Owe $1.2 Trillion Dollars In Student Loans. New York Daily News, May 17, 2014. http://www.nydailynews.com/news/national/americans-owe-1-2-trillion-student-loans-article-1.1796606

American Council on Education, (ACE) http://www.acenet.edu/news-room/Documents/FactSheet-Pell-Grant-Funding-History-1976-2010.pdf

Investment Memo. Merganser Capital Management, 2016 http://www.merganser.com/PDF/Memo/2015-Q3.pdf
http://money.cnn.com/2012/09/28/pf/college/student-loan-defaults/

Carrillo, Raul. How Wall Street Profits From Student Debt, Rolling Stone. Rolling Stone Magazine, April 14, 2016).

Sheehy, Kelsey. What the Stafford Loan Rate Hike Means for Students. US News and World Report, March 7, 2013 http://www.usnews.com/education/best-colleges/paying-for-college/articles/2013/07/03/what-the-stafford-loan-interest-rate-hike-means-for-students

Obama’s Student Loan Fiasco. Wall Street Journal (WSJ), Jan. 22, 2017

Allan, Nicole, Thompson, Derek. The Myth of the Student Loan Crisis. Atlantic Monthly, March 2017

Citlen, Jeff. A Look into the History of Student Loans. http://www.Lendedu.com, August 15, 2016

Lobosco, Katie. Student Loan Interest Rates Are Going Down. CNN Money, June 30, 2016 http://money.cnn.com/2016/06/30/pf/college/student-loan-interest-rates/

Nasiripour, Shahien. Student Loan Defaults Drop, but the Numbers Are Rigged. Bloomberg News, Sept. 28, 2016
https://www.bloomberg.com/news/articles/2016-09-28/student-loan-defaults-fall-but-the-numbers-are-rigged

Kroeger, Teresa; Cooke Tanyell; Gould, Elise. The Class of 2016. Economic Policy Institute. 21/04/2016. http://www.epi.org/publication/class-of-2016/

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Germany and the Migrant Crisis

German industrialists and financial gurus have a problem. The economic powerhouse of Europe has a looming crisis, which is developing another crisis of its own.

Germany has an aging and declining population. The population of Germany has dropped nearly a million and a half during the last five years. In other words, more Germans are dying than are being born. The workforce is getting older and fewer. This has led to the first crisis for the industrialists.

A declining population means fewer workers will compete for more jobs, meaning wages must go up. This, in turn, means profits must decline, which, in turn, means there is downward pressure on the values of German stocks and bonds. Downward pressure also means the bubble economy of German high finance faces the prospect of a slow or explosive implosion on a scale not seen since the Great Depression.

The great German financial and industrial geniuses came up with a great idea to cut German wage, social service, and salary growth off at the pass: they engaged in a public campaign to encourage millions of immigrants to seek economic and political sanctuary in Germany, which tens of millions of Germans oppose, especially if they want their wages to grow, and the German economy has plenty of room for that.

However, now that the German populace has turned against the rapid influx of immigrants, Chancelor Angela Merkel has reversed course. She no longer wants unfettered immigration, leaving hundreds of thousands of immigrants in limbo, thanks to those wonderful German financial and industrial geniuses.

There are many victims in this scenario, but not one of them is a rich industrialist or affluent master of finance.

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A new study by the Wall Street rating agency called Standard and Poor’s reveals what many already know. High income inequality suppresses the demand for goods and services, depressing GNP growth, and leading to more severe economic crashes than would otherwise be the case.

Here’s what the report won’t tell you. The rich invest their money in the political markets and in other investment areas such as stocks and bonds.

The money going into the political markets is used to convince politicians to pass legislation that redistributes income and wealth from the 99 to the 1 percent, such as free trade treaties. In other words, government corruption is far greater during times of inequality, and also because of it.

The investment money that goes into corporate stocks push up the value of those assets. It’s just a bidding process. So when more people purchase shares of any corporations than those who are selling their shares, the value of those shares go up. The same thing is true of bonds. None of these purchases add to GNP growth, and all of these purchases can result in redistributing income from the 99 to the 1 percent.

When corporate shares head down in value, CEO’s typically cut jobs or employee compensation, or ship jobs overseas to lower wage nations, which pushes profits higher, resulting in rising share and bond prices. The result is nothing more than income redistribution.

And so when inequality rises, it snowballs via the methods above, until such time as somebody decides such inequality is a bad thing. That only happens during the most severe economic crisis’s, such as during the Great Depression when there’s less money to go around to corrupt government.

Check out the story by clicking on the link below.

Wall Street Analysts Research: High Inequality Makes US Vulnerable to Crashes–Billmoyers.com

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Investment banks, such as Goldman Sachs, purchase student loans, just like they do home mortgages. Then they issue bonds against the debt, mostly to rich folks. Your payments go toward the principal and the interest, and the interest in the main heads straight into the pockets of the bondholders. Wall Street makes billions along the entire process of turning the loans into bonds. That’s why the US government doubled student loan interest rates from 3.4 to 6.8 percent last year. Wall Street and the 1 percent prosper at your expense, making student loans nothing more than an income redistribution scam. And that’s why neither political party intends to do anything about this scheme.

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The student loan bubble was due for a collapse last year as record defaults occurred. Wall Street investment firms found that investors were fleeing the bond market that backs student loans late last year due to fears of an impending collapse.

Investment firms buy loans from Sallie Mae and then issue bonds backed by these government guaranteed loans. It’s a profitable business when investors are buying.

In a remarkable coincidence last year, the government doubled the rate of interest students pay for student loans, from 3.4 to 6.8 percent. This doubled the return on investment for bond buyers, but also redistributed income from working class students to Wall Street bankers and investors. In other words, doubling the interest rate on students made the student loan backed bonds a more attractive investment.

We don’t know how many meetings Wall Street pirates had with President Obama, Senate majority leader Harry Reid, and House Majority Leader John Boehner to discuss raising rates on students, or what they said to get the government to jack up the  interest rates, but we can rightly suspect that meetings did occur, and the middle class was the victim of this income redistribution scam.

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Big business makes a ton of its money off of or through the government. Take student loans, for example. Thirty years ago, Wall Street con artists convinced federal legislators to cut back on federal grants for students and to increase student loans. That’s because they found a way to profit from student loans. Buy the loans, bundle them, issue bonds against them, and sell the bonds to rich investors.

The money you pay for your loans goes in great part to those investors. In other words, your student loan debt is greater than what it would’ve been in the absence of these bonds, and you’ve become an indentured servant to the investor class the moment you take out a student loan.

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Who owns the Federal Government? Hint. It’s not the voters.

Think about this. The Federal Reserve bails out rich investors even as these investors are sucking the middle class financially dry. See Breakdown of the $26 Trillion the Federal Reserve Handed Out to Save Incompetent, but Rich Investors. Also, the Federal government has gone out of its way to bail out the one percent, while the rest of America wilts.

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