Sunday, May 31, 2009

What Happened To My Loan Forgiveness Program?

My two best friends from college are pursuing careers as a public school principal and a public interest lawyer. Both are relying on loan forgiveness programs.
Now these programs, which were supposed to encourage people to enter essential public service occupations, are imperiled by the economy.

Loan forgiveness programs across the country , whether sponsored by states or private organizations, are reneging on millions of dollars in promises and leaving young workers in the lurch. Ron Lieber writes, in an important scoop,
"There are no guarantees that financing for the loan forgiveness programs will survive the next state legislative session (or that the economy will improve enough for them to find other ways of financing the forgiveness). We found this so disturbing that we decided to call up every single entity, state or federal, that we could find that offered loan forgiveness programs. Then, we asked them point-blank if they would like to offer an absolute promise to borrowers or potential borrowers that the loan forgiveness programs would not go away while the borrowers were still using them." The answer, often, was no. You can visit the New York Times website where they are building a database of the fates of various programs nationwide.

There is no way this can stand. It just isn't feasible, long term, to have people incur tens of thousands of dollars in debt to pursue basic middle class jobs.

Friday, May 22, 2009

A Moment of Clarity On Student Loans and the Bailout

Increasingly it looks like the combination of a credit crisis and Democratic leadership will do away with the FFEL (the lender-based student loan program that is more costly for taxpayers), saving up to $94 billion over 10 years that could be used for the Pell Grant. Even Sallie Mae is sorta playing ball.

But in attacking the FFEL program, the Department of Education has committed a gaffe (defined as "a politician accidentally telling the truth.")

"Education Department leaders repeatedly describe the guaranteed loan program as being "on life support," which strikes some loan industry officials as hypocritical since the White House boasts in many other settings that its efforts to shore up the financial industry have been hugely successful."

Let's not kid ourselves. The financial system as a whole IS on life support thanks to a free flowing IV drip of federal dollars, which ultimately swell the national debt that our grandchildren will be paying back. That includes the student loan industry, the mortgage industry, and the credit card industry.
I defer to those with greater expertise who say that this life support project is necessary in a broader sense; but for student loans, if a government department is in a position to take it over at less expense to taxpayers, let's do it.

Tuesday, May 19, 2009

Our Hero, Elizabeth Warren

Thanks, James Scurlock (the Morgan Spurlock of debt) who wrote a great piece about why Elizabeth Warren is so awesome. She gets what the real problem is: the financial system was profiting on the backs of American families. We're not going to be able to fix it or prop it up as long as people can't pay off their credit card debt. In fact several rounds of defaults are still looming.

"We can't have a modern economy without solvent banks, but we can't have solvent banks or a functioning economy without solvent families." That such a notion remains controversial is almost mind-numbing."

And that Ms. Warren would be attacked and berated for it by a usually incredibly smart and savvy financial journalist on a podcast, Planet Money, that I listen to every week is kinda bewildering. What I heard NPR's Adam Davidson say last week is that Ms. Warren is improperly imposing her "out of the mainstream" views on a process, the TARP, that is supposed to be led by sober "elder statesmen" (yes, he did say statesMEN--unfortunate choice of phrase). But her ideas should not be out of the mainstream. They are the new mainstream. She belongs to a select group of economic observers who warned that a day of debt reckoning was coming--not with scary voodoo or black swan hocus pocus but in plain, sober, easy-to-understand terms--"the problem is as much a credit crisis as a slide in conditions for average American families."

The Two-Income Trap should be required reading for Tim Geithner and crew.

Monday, May 18, 2009

NACE Can't Sugarcoat: Job Market for New Grads Sucks

You can usually rely on the National Association of Colleges and Employers for some happy talk about how this year is the "best ever" for employment for new grads.

Not in 2009.

"NACE’s 2009 Student Survey shows that just 19.7 percent of 2009 graduates who applied for a job actually have one. In comparison, 51 percent of those graduating in 2007 and 26 percent of those graduating in 2008 who had applied for a job had one in hand by the time of graduation."

Not only have fewer found jobs, fewer are even looking for work. And, interestingly, you don't see too many going to grad school, either.
What's the plan, guys? Move to Norway?

chart via Planet Money

Sunday, May 17, 2009

The Trouble With Suze

Generally, I think my fellow Yahoo! Finance Expert gives pretty solid financial advice. Sure, she's compromised somewhat by her endorsements like, but she seems to genuinely care about helping people, the opposite of an irresponsible clown like Jim Cramer.

However, after reading her profile in the New York Times Magazine, I realized that I think her priorities are totally screwed up. She seems to equate financial security with being rich.
I mean, maybe this is obvious, since she wrote a book called "The Courage To Be Rich." But really, that's BS.

If we learned anything from the past year's fiscal insanity, it's that financial security, financial integrity, and financial freedom have nothing to do with having a ton of money. You have financial security if you are able to cover your basic expenses and save for the future. You have financial integrity if you're not fronting by buying a bunch of crap you can't afford while neglecting your future. And financial freedom, for life, means the ability to live well within your means. They are relational values, not absolutes.

Ok, you might argue that "basic expenses" requires a certain dollar value per year, but I think it's all contextual. You could live on the beach in Goa for $10,000 a year, and as long as you manage to play enough guitar to clear $11,000 in tips, presto, you have financial freedom.

This was the part of the story I found the most galling:
"She has been reluctant to work on school curricula on personal finance, because she says students can’t learn empowerment from people who aren’t empowered, and teachers, she says, are too underpaid ever to have any real self-worth."

Seriously?? Suze is suggesting that people who go into teaching aren't empowered and don't value themselves because they're too big of losers not to become a stockbroker or a TV personality like she did? Teachers, who do the most important job in our society, have no self worth because they're underpaid? Ok, I might agree that they're underpaid, but in point of fact, in most places in the US they make a solid middle class living, with security and benefits that are unheard-of in most careers. Teaching is an enviable career to a huge chunk of the American public. This is incredibly out of touch.

Suze's right about one thing: young people shouldn't be learning about personal finance from her.

Thursday, May 14, 2009

Young People Cutting Back More In Recession

The Pew Research Center takes a look at the impact of the recession on various age groups. Not surprisingly, folks my parents' age are the hardest hit since they've lost so much of their nest eggs. Older, retired people are feeling the least stress since they hopefully already had most of their finances squared away. Young adults had very little money to lose in the stock market, but they're cutting back more on spending. Which is a good thing.