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How badly are US citizens financially struggling this late in an economic expansion?

In early January 2016, the US Department of Education announced the rate of people defaulting on their student loans had dropped from 11.8 percent in 2015 to 11.2 percent in 2016. Back in 2013, the default rate had nearly hit 15 percent.

In 2015, the Obama white house issued a report which stated, “The cohort default rate published by the Education Department is “‘susceptible to artificial manipulation.’” The report stated that the share of student borrowers paying down their loans more accurately reflects what is occurring than default rates alone. 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 plus those former student loan borrowers out of school who are not paying down the balances on their loans stood at 25 percent.

However, it turns out the White House report understated the numbers by quite a lot. Leaked documents in early January 2016 showed only 46 percent of students out of school three years or more are paying down their student loan principal. This means 54 percent are not paying down their loans.

However, on closer inspection, 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. If somebody borrowed $16,000 twenty-five years ago, paid off a dollar on their balance, and haven’t paid a dime since, and have incurred tens of thousands of dollars of penalties and late fees, they, too, are among the 46 percent.

The bar for those who have not defaulted and are paying down their loans are about as low as one can get. The actual crisis, therefore, is even greater than we have been led to believe. This suggests a number of things.

One is that the number of people failing to pay on their student loan balances is significantly less than 46 percent if we raise the bar to $2 or higher. Second, the US economy is historically weak enough that tens of millions of student loan borrowers are unable to pay down their balances (There are roughly 42 million people who have student loan balances).

This suggests the economy is historically weak, and the consequences of this weakness will spread throughout the United States when the economy begins to tank this summer. This suggests defaults will be historically high on home mortgages, car loans, credit card debt, and much more. All of which, strongly suggests this next recession will be worst for the 99 percent than the Great Recession of 2007-09.

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Student Loans
Student loans are a scam intended to redistribute income from college students to wealthy individual and institutional investors. College students today owe more than $1.4 trillion dollars in student loans, and that figure is getting bigger by the day. Total student loans outstanding exceeded total credit card debt when it hit $1.2 trillion in 2014. Only mortgage debt is greater than student loan debt, but with home values going up, mortgage debt is an investment, whereas student loans have become something of a gamble for a large number of students. (Friedman)

Why do the student loans keep piling up?

About twenty-three years ago, somebody on Wall Street discovered student loans could be securitized. That’s a situation in which investment firms buy student loans from issuers, pool them together, and then issue bonds backed by the loans to wealthy investors. The loan originators earn hefty fees with every loan they sell. The investment firms also obtain a large fee with every bond they sell. (Carrillo)

student-debt-cartoon-englehart-495x354

For example, a private commercial bank might issue $10 million in student loans at 6 percent interest. A student spends four or five years in college, and then spends ten to twenty years paying off a loan. So that $10 million principal can earn another $10 million in interest or more over the lifetime of the loan. An investment bank might pay $2 million or more for the $10 million in loans from the commercial bank. Then the investment bank will turn around and collect millions in fees from investors for the same loans once they’re bundled together and bonds are issued. The investors might experience a growth in the value of their bonds, so they can sell them, in which case, somebody will get a fee for performing the task. There’s money to be had for all involved in this process, except for the borrowers. (Carrillo)

Most student loans are guaranteed by the federal government. So there’s no risk to investors. It’s free money. The federal government pays the interest on the loans to the investment banks even when the students are still in school. Once the students are out of school, they are required to pay on the interest and the principal to the bondholders. This is how your student loan payments mostly go directly into the pockets of the 1 percent via these bonds. Some of the proceeds go to the service providers.

The Wall Street business strategy on this matter has always been simple: Push the federal government to limit federal grants to college students, and expand the student loan program. That’s precisely what has occurred. In 2016, total outstanding student loans represented roughly 7.5 percent of the United States gross domestic product, up from 3.5 percent only ten years earlier. Nearly 43 million Americans are chained to student loan debt, each with an average balance of $30,000. (Wikipedia)

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While the total number of Federal Pell grants has grown in current dollars since 1976, the cost of education has grown faster. In 1976, for example, the average Pell grant paid 72 percent of the maximum expense of attending 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)

This forces many students to borrow money to help finance their higher education, and it also plays straight into the hands of wealthy investors. The interests of those investors seem to coincide with the concerns of many politicians within the federal government and both major political parties. Student loan default rates jumped from 2010 to 2013. Along with other corporate media sources, CNN reported in 2012 that “The percentage of borrowers who defaulted on their federal student loans within two years of their first payment jumped to 9.1% in fiscal year 2011, up from 8.8% the previous year, according to U.S. Department of Education data.” Investors began selling off their bonds, resulting in declining values. 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 what is called the American dream, but it’s really becoming the American nightmare. This is rightly called income redistribution. The doubling of student loan interest rates benefited smaller Wall Street investment banks, as well as such Wall Street heavyweights as JP Morgan/Chase and Goldman Sachs. Loan originators and investment companies receive billions of dollars in fees every year from new student loans. Both JP Morgan/Chase and Goldman Sachs are publicly traded corporations. Both corporations are listed among the Dow Jones Industrials, and both keep their stock prices rising, in part, to the securitization of student loans, which benefits their affluent shareholders.

The more interest students are forced to pay, the higher the bonds can sell for, and the more attractive they are to investors, especially since the government guarantees them. (Carrillo) In this way, America’s higher education policies have been legislatively constructed so as to redistribute the income of the 99 to the 1 percent via higher student loan debt.

Wall Street banks also rigged the game even more against student loan borrowers by having the government make it almost impossible to discharge student loan debt through bankruptcy. Students are tied to the debt until it’s paid, or they die. This leaves less money for students to spend when they graduate, forcing them to curtail their purchases, and weakening the economy in the process.

When the US congress and President Obama allowed the interest rate of new student loans to double to 6.8 percent in 2013, the public outcry was so heavily against it that politicians had to reduce student loan interest rates within a year. The burden for students and their families had been too great. The rate was dropped to 4.9 percent in 2014, which was still 50 percent higher than in 2012. (Lobosco)

Bernie Sanders was right when he declared the government could provide free public education to its people. The money is there, and always has been. During the economic crisis of 2008-2009, the federal government and the Federal Reserve gave out tens of trillions of dollars to rich investors, investment banks and hedge funds. Politicians called these actions “quantitative easing” and “bailouts.” (Irvin) See The $26 Trillion Bailout to Save Incompetent but Rich Investors-JohnHively.wordpress.com. If trillions of dollars to bail out the rich are there whenever they need it, why isn’t that money also available when the rest of us need it?

The answer, of course, is simple.

Like many other issues, student loans are a corrupt, financially rigged game that shows how the government acts as a conduit in redistributing income from the 99 to the 1 percent when it doesn’t have to. Just follow the money and you will know who is corrupting your government.

Works Cited
Friedman, D. (May 17, 2014). Americans Owe $1.2 Trillion Dollars In Student Loans. New York Daily News. 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

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

Carrillo, R. (April 14, 2016). How Wall Street Profits From Student Debt, Rolling Stone. http://www.rollingstone.com/politics/news/how-wall-street-profits-from-student-debt-20160414

Irvin, N. (October 29, 2014). Quantitative Easing is Ending, Here’s what it did, in Charts. New York Times. October 29, 2014. https://www.nytimes.com/2014/10/30/upshot/quantitative-easing-is-about-to-end-heres-what-it-did-in-seven-charts.html?_r=0

Sheehy, K. (July 3, 2013). What the Stafford Loan Rate Hike Means for Students. US News and World Report. http://www.usnews.com/education/best-colleges/paying-for-college/articles/2013/07/03/what-the-stafford-loan-interest-rate-hike-means-for-students

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

Wikipedia, Student Loans in the United States. https://en.wikipedia.org/wiki/Student_loans_in_the_United_States

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Comedian John Oliver mocked Jill Stein’s idea that the US Federal Reserve Bank could free student’s from student loan debt by buying up all the student loans and forgiving the debts.

In fact, the Federal Reserve could do exactly that. The Federal Reserve engaged in quantitative easing a few years ago. Quantitative easing was a Fed determined policy in which the Fed purchased trillions of dollars of completely valueless mortgage backed bonds (along with treasury bills) from rich folks at face value.

In other words, if the rich folks bought bonds valued at $100 which had since become valueless, then the Fed bought the bonds at $100. Nice scam huh? But only if you’re rich, and student borrowers are not, so don’t expect the Fed to do anything about their plight.

It’s true as Oliver pointed out, not even the US president can tell the Fed chief what to do. but the US president recommends and appoints the Federal Reserve chief, and negotiations between the two could convince the Fed to purchase all student loan debt, including the student loan backed bonds the rich folks enslave the borrowers with.

Let’s face it, the folks running the Federal Reserve can do anything they like because nobody is in position to hold them responsible for their actions (See video above). In that respect, the Fed is just like any Wall Street bank. So, during the economic meltdown of 2007-12, the Fed mysteriously lost $9 trillion (See The Fed Lost $9 Trillion! Not Likely! JohnHively.Wordpress.com), gave away $26 trillion to the rich folks (Breakdown of the $26 trillion Bailout-JohnHively.wordpress.com), and they created trillions of dollars out of air in order to buy worthless bonds from rich people; but the Fed cannot do the same with student loan borrowers? Nonsense!

We need a central bank of all the people, not just the rich ones, and this can be accomplished through legislation.

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student-loans-2

Nowadays, 43 million Americans owe student loans averaging $35,000. That’s because he or she who has the gold makes the rules in the US federal government.

Twenty years ago, the US Congress privatized the student loan program, which was supposed to give more Americans access to higher education.

In its place, lawmakers created another profit center for Wall Street and a system of college finance that has fed the nation’s cycle of inequality. Step by step, Congress has enacted one law after another to make student debt the worst kind of debt for Americans – and the best kind for banks and debt collectors.

Today, just about everyone involved in the student loan industry makes money off students – the banks, private investors, even the federal government.

For example, student loans made Albert Lord rich. Lord was the CEO who built Sallie Mae into a financial colossus through fees, interest and commissions on billions of dollars of federally guaranteed student loans. For delivering handsome profits to investors, Lord received pay and stock worth hundreds of millions of dollars. He also owns his own private golf course, thanks to everybody else’s student loan payments.

Student Loans

Then we can’t forget the bondholders. That’s right. Like mortgage backed bonds, there are hundreds of billions of dollars of student loan backed bonds. Who owns them? Not the folks who owe student loans. Wall Street investment banks, hedge funds and other assorted super-rich investors own them. When student loan borrowers make payments on their student loans, part of that monthly payment goes to the investors, who, coincidentally, have an incentive to keep pushing government to enact more laws and regulations to ensure that more students take out more debt, and cannot go bankrupt on their current debt.

In other words, the legal structure of student loans was changed back in the 1990’s to ensure that rich investors could suck millions of college students dry. Student loans have become simply another plot to redistribute income from working Americans to the rich.

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Last week, seven US marshals, in full combat gear, arrested Paul Acre at his home in Houston Texas over a 29-year-old unpaid $1500 student loan. Reports are coming in that other people have been arrested for the same thing, as well.

The Obama administration clearly has its priorities straight. Arrest student loan defaulters, who clearly cannot make significant campaign contributions, take them to the judge, and force them into a legally binding repayment contracts. That’s what happened to Acre.

On the other hand, the Obama justice department has been careful not to investigate or charge with any crime a single Wall Street banker, or any of their underlings. You know those people even if you don’t know their names. These are the folks at Citigroup, JP Morgan/Chase, Goldman Sachs, a variety of hedge funds, and others who can and do make significant campaign contributions. They get the cash to do so through illegal activities, such as laundering Mexican drug cartel drug money, committing fraud, ripping off billions from consumers and investors, tanking the economy with illegal actions, and corrupting the US government completely.

Wall Street investment corporations have been caught doing all of this illegal stuff, and more, and have been fined by the US government, but not a single person has been charged with a crime, or arrested.

We clearly have a duel system of justice; one for the rich and powerful, and one for the rest of us.

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In the video below, President Franklin Roosevelt talked about the powerful wealthy vested interests that had taken over the USA government prior to his election in 1932. FDR proposed and signed into law legislation that curbed the power and influence of those vested interests in government at all levels, including a 90 percent top marginal tax rate. That reduced the influence of corruption in government, by reducing the money the corrupting people possessed.

President Carter was the last president under the old regime of anti-corruption established by FDR, which is why the US government never fired a missile, or a pistol, or dropped a bomb on another nation during his reign, which, coincidentally, is looking better and better every time we look back at it.

The Reagan tax cuts for the rich unleashed the power of the rich to corrupt government, and that is precisely why, as FDR said in 1936, corporate interests now consider the US government to be a “mere appendage to their own affairs. We know now that Government by organized money (corporate interests) is just as dangerous as Government by organized mob (organized crime).” Parenthesis mine.

This is why the US government,

1. demands state wide testing, because it’s highly profitable for the publishing industry, and it redistributes income from local and state taxpayers to rich investors of the publishing industry.

2. wages constant war, because it is highly profitable in that it redistributes income from the taxpayers to the rich shareholders of the war industry.

3. gives fewer grants to university students, because it forces college students to take out more student loans, which redistributes income from the 99 to the 1 percent. Wall Street banks purchase the loans, and then issues bonds against the loans to rich investors. Students pay back the loans, but a large portion of their payment goes to the rich bondholders.

4. raised student loan interest rates from 3.4 to 6.8 percent on all new loans a year ago. Republicans and Democratic lawmakers supported this because it forces students to pay more interest to rich investors.

5. negotiates trade treaties, which are nothing more than income redistribution scam. The treaties pave the legal way for corporations to ship and create jobs overseas, and the difference between the old higher US pay and the new lower third world pay goes straight into the wallets of the 1 percent via higher corporate profits, surging dividends and rising share prices.

The list goes on and on. The federal government is totally corrupted to the core, as are many state and local governments. This corruption is the only cause of the income inequality that has occurred in the USA over the last thirty-five years, whereby 1 percent of the population stole 8 percent of the total income produced in the USA when Carter was president, but now rob the rest of us blind by stealing 37 percent of all income produced in the USA. Since President Obama took office, the 1 percent have been stealing 95 percent of all income growth.

That’s why President Carter created on average more jobs per year with rising real wages than every president since him. That’s why Carter was one of the great presidents in US history. The 99 percent earned 92 percent of all income back then, and were able to purchase goods and services in sufficient quantities to create more jobs per year, and with rising real wages every year, than during the reign of any president since then. And that’s precisely why the propaganda machine known as the corporate news media, politicians like Wall Street Senator John McCain, and rich parasites are always putting President Carter down, and call him weak and a bad president, If we look back at the economy of Carter, and his foreign policies, we would call his era the last golden age of the American dream.

Today’s economy is the weakest in history by any measure, including wage and job growth. That’s because the 99 percent now receive only 63 percent of all income in the US. Those people can no longer afford to purchase the goods and services necessary to sustain a strong economy, and those in business and political offices know this is the problem that vexes this economy, but they won’t do anything about it due to the massive corruption.

Excerpt from FDR’s speech:

“For twelve years this Nation was afflicted with hear-nothing, see-nothing, do-nothing Government. The Nation looked to Government but the Government looked away. Nine mocking years with the golden calf and three long years of the scourge! Nine crazy years at the ticker and three long years in the breadlines! Nine mad years of mirage and three long years of despair! Powerful influences strive today to restore that kind of government with its doctrine that that Government is best which is most indifferent.

For nearly four years you have had an Administration which instead of twirling its thumbs has rolled up its sleeves. We will keep our sleeves rolled up.

We had to struggle with the old enemies of peace‹business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism, war profiteering.

They had begun to consider the Government of the United States as a mere appendage to their own affairs. We know now that Government by organized money is just as dangerous as Government by organized mob.

Never before in all our history have these forces been so united against one candidate as they stand today. They are unanimous in their hate for me‹and I welcome their hatred.”

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Student loans are a way the US government redistributes income from the 99 to the 1 percent. Notice also that virtually all K-12 educational reform is geared toward turning the most IQ challenged children into university students. The complete process of student loans and educational reform are interrelated scams to redistribute income from the 99 to the 1 percent. The more students take out loans, and the more kids and parents feel pushed toward university educations, the richer Wall Street and its investors get.

Wall Street investment corporations purchase student loans, and then turn around and issue bonds based on the value of the government guaranteed student loans, meaning there is no risk for the rich investors who opt to purchase these bonds. These student loan transaction generate billions of dollars of income for Wall Street.

That’s one reason why the US government allowed student loan interest rates to double from 3.4 to 6.8 nearly two years ago. The rich investors of Wall Street benefited from this at the expense of the 99 percent.

There is another reason why the US government keeps this massive income redistribution scam going. Wall Street banks have invested billions of dollars into private, for profit, universities.

* ITT is 100 percent owned by Wall Street investment companies.
* The Apollo Group owns the University of Phoenix, among other private universities. JP Morgan, Citigroup, Barclays, Wells Fargo and Blackrock, among others, own 98 percent of the Apollo Group.
* Devry University is 100 percent owned by Bank of America, Barclays, BlackRock, JP Morgan, and Morgan Stanley, among other Wall Street Investment firms.

You can go on and on and the story is the same with respect to for-profit universities. Many of them are owned by Wall Street.

These universities target low income students, and charge several times more tuition than community colleges. Student loans amount to $32 billion in revenue a year for Wall Street owned private universities. That equals 25 percent of all student aid in the USA. The revenue generated by student loans provides up to 90 percent of annual income for Wall Street investment schools.

* In 2012, 88 percent of graduates left school with debt equal to almost $40,000 per student, which goes straight into the pockets of Wall Street investors.

* With interest, late fees, penalties, and collection fees assessed against students, the total cost of an education at these private schools is “can end up being more than double the cost of an education at Harvard University.

* 17 percent of revenue is spent on teaching, 19 percent goes to profits, and 23 percent does to marketing their bogus products.

* The average annual pay of a CEO at any of these corporate schools equals $7.3 million.

* The US Department of Education reports that 72 percent of private school graduates wind up in jobs that “average less pay than high school dropouts.” This may explain why corporate school college graduates represent only 13 percent of all college graduates, but they account for 47 percent of all loan defaults.

And these are only some of the reasons why student loans represent a nice income redistribution scam for the 1 percent at the expense of the 99 percent. Check out the link below for a story and interview about how one person decided, among many, decided it was in his best interest to default on his student loans.

why-this-man-defaulted-on-his-student-loans-and-suggests-others-do-the-same–Yahoo! News

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