"Student-Loan Companies Hope Congress Will Study Auction Proposal to Death"

From the Chronicle:
"Congress now votes on the levels of subsidy that are given to lenders participating in the federally guaranteed student-loan program. Advocates of an auction argue that it would use market mechanisms, rather than estimates by Congress, to set profit margins in the student-loan industry. Critics, including most lenders, argue that an auction would limit student choice to the lenders that emerged victorious in the government-run auction process."

Maybe student loan companies should worry about something else: both Edwards and Obama have come out in favor of eliminating their role in the federal student loan program.

$20,000 If You Ship Out Now

The Army is offering a bonus that's more than a year's salary for new recruits. 90% are taking it.

" The $20,000 bonus can be enticing, especially to those who lack a steady job, languish in debt or are worried about their future."

Don't know who that could describe...

Debtor Nation

Big, juicy, thinky piece at Harvard Magazine about America's indebted state and its possible consequences.

*The difference between what Americans consume and what we produce (in income) each year is nearly equal to the entire annual output of Brazil.

*We've been this in the red before, but to build infrastructure and capacity, which we're manifestly not doing now. "The United States, for example, was “the world’s biggest debtor for a hundred years,” [Harvard economist Jeffrey] Frieden notes, “but the money was used to build the railroads and the canals and the factories and to improve the ports and to build our cities. It was used productively, and it worked. The question to ask now is not, ‘Is the country living beyond its means?’ The question is, ‘Is the money going to increase the productive capacity of the economy?’ Because if it just goes to getting everybody another iPod,” he warns, “then unless iPods make people more productive, there is going to be trouble down the road when the debt has to be serviced.”"

*Are we headed the way of Argentina? It looks more likely now than just a couple of weeks ago.

*“Part of the reason people are spending beyond their means,” says Rawi Abdelal, an associate professor of business administration at HBS, “is because they are—in a way—witnessing the end of the American dream.” Between 2000 and 2005, even as the U.S. economy grew 14 percent in real terms, and worker productivity increased a remarkable 16.6 percent, workers’ average hourly wages were stagnant. The median family income fell 2.9 percent.

WSJ Knocks the Unpaid Internship

A conservative, whose own daughter is interning at a teen magazine, lauds the auld ice-cream scooping days.

... internships are largely for rich kids--and therein lies another problem. The menial summer job gave many kids their first paycheck and the feeling of independence that came with it. It was also inherently democratic. For eight hours a day, at any rate, working-class and middle-class kids were in the same boat. They all had to learn that life wasn't always entertaining. They had to wait tables for people who could be less than polite--people who sometimes reminded them of themselves. With many of them in four-year colleges (where close to 75% of their classmates come from homes at the top quarter of the income scale), without a draft and now without menial jobs, privileged kids almost never meet up with their less well-off peers.

Maybe, she suggests, your kids should be learning Spanish, not on a volunteer trip to Mexico, but by working alongside immigrants at Taco Bell. Of course she won't make her own daughter do that because she might not get into Harvard!

Jim Cramer on Investing for 20somethings

Q&A with the "Mad Money" dude courtesy the new Freakonomics blog on the NYT. I like this blog!

Q: I’m a young adult (22) who just graduated from college. What advice do you have for young adults like me who appreciate the importance of investing young and want to learn to invest responsibly, but have little money to invest?

A: I started out myself by scraping together what little extra money I could find at the end of the week. But as my nephew, Cliff Mason, said in a controversial set of articles in TheStreet.com, many youngsters fresh out of school must first gauge whether those few extra hard-earned dollars will make you happier in the near term, [be it from] buying that new Xbox game or spending a night out on the town. If you feel you’ve made peace with that aspect of twenty-something life, I believe that young people should start putting away as much as they can afford, either in index funds or an employer-sponsored retirement plan. Until you get up to $5,000 or $10,000 in a non-retirement account, I believe that folks of any age are generally better off staying away from investing in individual stocks.

...

Q: I’m still in my twenties, but cognizant enough to know that Social Security is a waste of my time and money. What do you believe are the most effective ways that a twenty-something can ensure that retirement funds will be available when we enter our sixties, while we wait for the failure of the Social Security tax?

A: Start putting away as much disposable income as you can afford to, and maintain a diversified investment portfolio. Also, I believe that young folks should not be afraid to take more risks. If they pay off, you could be set for some time. And even if they fizzle out, if you’re willing to learn from your mistakes, you still have a few decades before retirement to make up for the losses.

RadioNation podcast

Here's a radio interview I did with Luke Swarthout of the US Pirgs in relation to my Nation editorial last week.

Oh, and here's an interview I did a couple of weeks ago with UniversityChic, a site for college women.

New Yorker on College Loans

The New Yorker's refined economics columnist mentions the same points I've made, oh, once or twice, about the screwed-up economics of college loans.

Suroweicki:
if a student defaults, the government will pay off almost the entire loan. On top of that, the government hands out billions of dollars in subsidies to lenders every year, all but insuring them a steady profit. In effect, lenders get a guaranteed return with very little risk. This convoluted process is good at making student-loan companies rich—Sallie Mae, the biggest issuer of student loans, earned $1.3 billion last year, with a return on equity that dwarfs most other companies’. But it’s not very good at getting government money to students cheaply and efficiently.

Me:
The federal student aid system fails students, but it does a great job of delivering profits to private lenders, which issued $65 billion in loans last year.

Yahoo! Column up

Eight Last-Minute Student Loan Shopping Tips

The fall semester is just around the corner, but some people are still shopping for student loans. One private lender I interviewed told me that up to 80 percent of his loans were made in August.

With all the scrutiny on lenders' relationships with college financial aid officers, the silver lining is that more students are now aware that they have options beyond their colleges' "preferred lender" lists.

With that in mind, here are eight tips for better borrowing, whether you're a freshman, graduate student, or somewhere in between:

Money Quote

From ABC News in Berkeley California (Courtesy the National Direct Student Loan Coalition):

Bruns says small lenders will be forced out of the business. There will be less competition and loan costs will go up. But the director of Berkeley's financial aid office thinks the industry is crying wolf.

Cheryl Resh, U.C. Berkeley Financial Aid: "No one wants to them not to be able to be profitable, we just are taking the excess profits and giving them back to the students."

ABC7's Mark Matthews: "To the tune of $18 billion dollars?"

Cheryl Resh: "There was a lot of excess profits out there."

How to Break In To Journalism

Gawker, that snarky gossip blog with an appealing streak of class resentment, points out that half a dozen of this year's Rolling Stone interns are "children of" someone highly placed or famous or both.

Gus Wenner. (Following in some footsteps.)

Evan Springsteen.

Max Spielberg.

Either Cydney, Caley, or Emily (daughter-of-Chevy) Chase.

Bernie Taupin's step-daughter.

Also, at Vanity Fair: Elizabeth Hanks (Tom), and Christina Huffington (Arianna). And at Elle:
Jade Frampton, daughter of Peter.

Following the Money in Higher Ed

A story that's getting some attention in the New York Times today is about the payoffs that exist between study-abroad programs and colleges that often lead to students paying much more than they would if they just enrolled in foreign universities directly. Colleges put up barriers by refusing to allow transfer credits if you don't go with their preapproved programs. I know when i was at Yale a lot of people ended up not studying abroad, or taking a program without credits, because virtually the only programs approved were Yale's own China and London programs.

Here's the crux:

"Many of these perks are similar, if not identical, to ones uncovered in multiple investigations into the student loan industry, where lenders gave colleges bonuses tied to loan volume, seats on advisory boards and free travel to conferences in the race to get on so-called preferred lender lists. The similarities raise questions about how many aspects of higher education involve such little-known incentives that may have large impacts on the college experience."

Where are the ripoffs in higher education? How about textbooks, housing, makework academic requirements that make it difficult to graduate early, anemic online offerings, barriers to transferring credits between colleges and community colleges, overcrowded lectures taught by graduate students instead of professors?

UPDATE: a reader writes: "You could also add-allowing credit card companies on campus, affinity marketing by alumni associations, selling student consumer information to banks and other corporations."

Funding Higher Ed

I have an editorial in this week's Nation (I don't know why it's behind a paywall, but here's the lede):

When Congress passed bills overhauling federal student aid in mid-July, the rhetoric flew high. House Speaker Nancy Pelosi called them "the single largest increase in college aid since the GI Bill." But the GI Bill radically transformed college from an elite bastion to a middle-class aspiration, while these long-delayed reforms merely regain some lost ground. Certain provisions in these bills could fundamentally change the way society shares the burden of college costs, but upholding the vision of a true meritocracy will require broader reorganization of student loans and even changes in the way colleges are run.

The bills contain $17 billion to $18 billion in new aid. The need-based Pell grant will increase 25 percent over five years; interest rate reductions and loan forgiveness will make loans more affordable. These benefits are paid for by $19 billion in subsidy cuts to the student lending industry. (Differences in the Senate and House versions have yet to be reconciled; a Bush veto threat looks shaky considering the Senate's 78-to-18 margin.)

New Wrinkles in Gender Wage Gap

New Census Bureau analysis presented by the New York Times,
which led with the good news:

In a few large urban areas (NYC, Chicago, Boston, Minneapolis, Dallas), young women 21-30 are now earning more than young men. 117% in NYC, 120% in Dallas.
*One reason is because more women graduate from college, and young, college-educated women are concentrated in urban areas, so that young women on average are more educated than young men. "In 2005, 53 percent of women in their 20s working in New York were college graduates, compared with only 38 percent of men of that age."
* But even among certain college-educated jobs, young women are earning more than young men. "Women in their 20s now make more than men in a wide variety of other jobs: as doctors, personnel managers, architects, economists, lawyers, stock clerks, customer service representatives, editors and reporters."

Andrew Beveridge, who did the demographic analysis which originally appeared in the Gotham Gazette, led with the big picture:
"For those with all levels of education, including college and beyond, wages today have yet to catch up with the “real” wages (in other words, adjusted for inflation) that twentysomethings received in 1970. Men have seen their real wages fall substantially and women outside of New York have seen only very modest gain."

Radio Subjects Wanted

Did student loan debt affect your career decisions? An NPR program wants to know as of this week. Get in touch with me at akamenetz@villagevoice.com.

Mexican Teen Grocery Baggers Earn $0

Good news! Young Mexicans no longer have to brave the border crossing to be exploited by American corporations!

Wal-Mart is Mexico’s largest private-sector employer in the nation today [WHOA!], with nearly 150,000 local residents on its payroll. An additional 19,000 youngsters between the ages of 14 and 16 work after school in hundreds of Wal-Mart stores, mostly as grocery baggers, throughout Mexico—and none of them receives a red cent in wages or fringe benefits.

Legally, this is no problem. They could probably do it here too--just call them bagging "internships."

Dems Knock DoE for Lax Loan Oversight

According to the GAO ,the Dept. of Ed still has no procedures in place to determine which lenders engage in improper inducements, nor does it disseminate good information for consumers about lenders that have been flagged for abuses.

I'm interested to see this study get play in the New York Times, but the information in it is noways surprising. The system is corrupt, people! Abuse is endemic& inherent. Asking the Dept of Ed to police what Congress implicitly sanctions implies a kind of right-hand-doesn't-know-what-the-left-is-doing blindness.

Crotchety Old Men

Hey Garrison Keillor, I thought all the kids were "above average"! Guess not according to your grumpy latest Salon column:
Disaster belief: It's not young people who imagine soup lines when the Dow Jones falls. They're too busy snazzing up their Web sites.

This letter (by this writer)
sums it up , the argument and the rebuttal, better than I ever could:

"it's good to see...

...that the eternal pastime of old people beating up on young people, which has literally been going on since ancient Greece at least, hasn't fallen out of fashion.

Some points:
*Of course the older fellow in Keillor's office tale is more worried about his career than the callow youths in the cubes. He almost certainly has more economic responsiblities (kids, looming retirement) and higher expectations about his living environment (i.e. he probably wouldn't be blase about crashing on a buddy's couch or eating ramen if that job falls through).

*He probably also has a sense of responsibility to his employers inherited from the days when employers actually cared about their employers. The kids know instinctively that anyone who expects that their employment with Northern Grommets is anything other than an economic transaction -- one in which Northern Grommets holds an upper hand -- is a sucker. They are not treated with respect by their bosses, so why should they treat their bosses with respect?

*Keillor notes his father's instinctive solid conservatism. Of course, Keillor didn't know his father when his father was the age of those Gen Y twerps in the cubes. Maybe his dad wanted to have a wacky career in, say, public radio or something, but decided that hard work was the way to go when little Garrison needed feeding and care.

But thanks for suggesting that everyone should abandon any aspirations of creativity in lieu of good hard work at the age of 18. A quick glance at Keillor's Wikipedia bio indicates that he got his start in radio at the age of 27 and sold his first story to the New Yorker at the age of 28. I'm assuming he did something for money during his 20s. Thank God his creative career sprung forth magically in 1969; I'd hate to thing he might have been nursing dreams while working at that job.

Sorry, I don't usually get into writerly psychoanalysis, and I usually like Keillor's columns, but this one left a really bad taste in my mouth."

Bringing Back the GI Bill

My 3rd Yahoo Finance column is up.

Both my grandfathers served in World War II, and both went to school on the GI Bill. One became an accountant and the other a pharmacist.

It's a common experience: about 8 million Americans took advantage of GI Bill benefits between 1944 and 1956. Back then, the military provided full tuition, fees, books, and a stipend to returning soldiers.

Diminishing Returns

The considerable investment paid off in both human and economic terms. It's estimated that for every dollar spent on initial GI Bill benefits, six were returned to the Treasury due to increased earnings by members of the Greatest Generation.

Flash forward 55 years, and our nation is engaged in a conflict that's surpassed the amount of time we fought in the WWII. And according to the Iraq and Afghanistan Veterans of America, a 2004 survey found that "money for college" was the No. 1 reason civilians gave for enlisting to fight in those countries.

But the current Montgomery GI Bill, passed in 1984, far from lives up to its predecessor. Higher costs, stingier benefits, and bureaucracy have put obstacles in the way of young vets attending college. Veterans' advocates are backing a new proposed law that would restore the promise of the GI Bill for all who serve.