Tag Archives: Financial Reform

Who Is to Blame for Student Debt?

3 Jun

Readers of Young Workers Movement likely already know the answer to that question: the rising cost of higher education, combined with a labor market that values that high-priced education possibly regardless of quality.

However, Ron Lieber in a New York Times’ column last week placed the blame with students for failing to properly consider the cost of college when enrolling and their colleges for failing to counsel them.  His argument is that smart students and their parents should better assess what taking out substantial student loans will mean to their future financial situation.  Fair enough.  $100,000 in student loan debt – which is nearly impossible to default on in bankruptcy court – should set-off some alarm bells.  But that’s your #1, top-pick choice of school, that is both academically stimulating and socially engaging, money seems not to matter.  Besides, society tells you to go to the best college you can get into, and, as a general trend, the higher ranked schools cost more.

Lieber also argues college admissions counselors should talk with students about their ability to afford the school, which might bring them back to reality.  There is a reason college admissions counselors do not look at financial statements – having nothing to do with the awkward inappropriateness of that conversation, which Lieber dismisses.  Admissions departments do not have financial information because it could then potentially be used in determining enrollment.  How could schools then be prevented from only choose the rich kids so as to avoid enrolling anyone that would need financial aid?  There are already too many challenges facing low-income students, having to convince admissions counselors that spending a few financial aid dollars on them is a good investment, shouldn’t be a part of the equation.

So what do we need to do?  We need to change the system.  The federal government’s transformation of the student financial loan system is a great first step, as it will increase the value of federal aid and stop paying big banks what the government could do itself.  The financial reform bill in conference right now is also a great step, as it will put some oversight over the big banks dolling out private loans.

The answer is taking the cost out of college.  Imagine a system of higher education where money does not determine if or where you enroll, does not drive the quality of the education nor does it harm your ability to be a self-sustainable, financially-sound young worker when you graduate.  Rather than continue to subsidize the cost of college through grants and loans, the federal government should look to subsidize the cost of college by giving those grants to the colleges directly.  Invest directly in the schools, not the students.  The status quo allows for the cost spiral to continue escalating upwards without breakers.  The closest thing we have in the US to this system is the public college system of state and community facilities of higher education, but it is under attack by budget cuts.  Change of this magnitude will be difficult to come because of the degree of corporatization of higher education, but in the meantime blaming the students won’t help.  Blame the system they are caught up in.

Financial Reform Passes Senate

21 May

Last night, the Senate passed their financial reform bill.  After several surprising weeks of debate, Democrats and Republicans made a bipartisan effort to strengthen the bill’s oversight over the financial system that led to this economic crisis.  This bill is a significant victory for young workers by cracking down on Wall Street banks that prey on their financial weakness and, more globally, corrupt the economic system to favor the rich.

Is it a perfect bill?  No.  Did anyone really expect that it would be?

You only need to see the way the Chamber of Commerce is freaking out right now to know that this is good policy.  In a statement, Thomas J. Donohue, President of the US Chamber of Commerce, said: “Today we have taken a significant step in the wrong direction, and it will put American companies and our financial system at a competitive disadvantage to the detriment of our long-term economic growth.”

On the key elements that are needed to put Wall Street in-check and give working families a greater share of economic opportunity, this bill does well:

  • Providing for orderly dismantling of big banks
  • Strong Consumer Financial Protection Agency
  • Giving shareholders a greater voice
  • Regulating derivatives
  • Holding rating agencies accountable

The attention now moves to the conference committee, where big businesses again will try to weaken the bill.  Working families must demand the bill remains strong and gets to the President’s desk.

New Brief: Young Americans Need Wall Street Reform

13 May

FOR IMMEDIATE RELEASE
2010-5-13

Contact:
Jake Stilwell, USSA, 202-640-6572
Chris Lindstrom, U.S. PIRG, 617-747-4330
Caleb Gibson, Demos, 202-263-4576

RISKING OUR FUTURE MIDDLE CLASS: Young Americans Need Financial Reform

WASHNGTON, May 13 – Young Americans face “lasting damage” from the dual crises in the financial sector and in personal finance, making it urgent that Congress pass strong financial reform legislation.

RISKING OUR FUTURE MIDDLE CLASS: Young Americans Need Financial Reform , released on Thursday by three leading youth advocacy organizations – the United States Student Association, U. S. Public Interest Research Group, and Demos – documents how hard youth have been hit by the country’s economic crisis.

·         Young people (16-24 year-olds) have higher unemployment
rates than any other population group,

·         Programs have been cut, or tuitions increased, or both, at
most of the country’s public colleges and universities.

·         Young Americans have high levels of indebtedness due to
private student loans, credit card balances, mortgages and car loans.

Risking Our Future Middle Class makes it abundantly clear of the urgency for the Senate to pass the America’s Restoring Financial Stability Act, S. 3217, now under consideration by the Senate. Amongother things, the legislation would establish an independent Consumer Financial Protection Bureau (CFPB), regulate derivatives and other
shadow markets, end the too-big-to-fail regime and provide other safeguards following the world’s greatest financial meltdown since the Great Depression of 1929.

“From credit cards to private student loans, we’ve been aggressively targeted by abundant but risky credit,” explained Andrew Merki, a junior at the University of Indiana at Bloomington and the chair of the Indiana PIRG, a member of the U.S. Public Inerest Research Group.  “The tens of thousands of dollars in high interest loans I’ll have to repay at graduation will benefit the banks, but keep me in a financial hole.”

“This is a generation of 18 – 29 year olds unemployed or involuntarily out of the workforce,” added Angela Peoples of the United States Student Association. “With jobs scarce, higher education should be an accessible training ground, but instead it is under siege.”

Risking Our Future Middle Class documents that debt has become a generation defining characteristic for today’s young adults. For instance, private student loans typically have uncapped, variable interest rates reaching as high as 18% in recent years, and they cannot be deferred in the event of job loss.

“Young adults need tools to save and build assets for the future, otherwise they’ll be dragged down by a predatory financial market,” noted Caleb Gibson of Demos.  “We need more disclosure, fair pricing, and protection from the excessive risk taking of banks.”

Senator Dick Durbin (D-IL) recently sponsored an amendment to the Wall Street reform package that would ensure that private loans from the country’s largest student lender, Sallie Mae, fall under the CFPB’s
authority.

“Too often, students, who don’t realize the long-term impact of their loan decisions, fall victim to high interest rates and predatory lending.  We owe it to them and their families to make sure higher education remains accessible by putting strong protections in place that prevent abusive practices in private student lending,” Durbin
said.

Similar legislation passed the House in December. According to Americans for Financial Reform, a coalition of more than 250 reform organizations including U.S. PIRG, USSA, and Demos, industry opponents of the strongest parts of the reform package have been spending almost $1.4 million a day since the beginning of 2009 in an attempt to weaken
the pending legislation through special interest carve-outs and weakening amendments.

#   #    #

For more information on Americans for Financial Reform, visit www.ourfinancialsecurity.org.  For more information on improving the private student loan marketplace, visit www.uspirg.org/student-debt.

Young Workers and Financial Reform

6 May

(Photo by Chris Hondros/Getty Images)

Today the Senate rejected several an amendment by Senator Richard Shelby (R-AL) to gut the Consumer Financial Protection Bureau.  Why should young workers care?

a) Since young workers are the most susceptible to unscrupulous credit card, student loan, and auto lenders, having a consumer advocate to regulate these bottom-feeders would be useful.

b) Its time we reined in the greedy and reckless behavior of the big banks, and brought the financial sector more in line  with its purpose: to maintain the necessary capitol for strong businesses to keep growing, providing good jobs for working families.

Young workers have been caught up in a world of debt.  USA Today summarized current data and statistics in an article in April:

•About 37% of 18- to 29-year-olds have been underemployed or out of work during the recession, the highest share among the age group in more than three decades, according to a Pew Research Center study released in February.

•This generation is the least likely of any to be covered by health insurance. Just 61% say they were covered by some form of a health plan, the Pew study said.

•Only 58% pay monthly bills on time, a National Foundation for Credit Counseling (NFCC) 2010 survey said.

•60% of workers 20 to 29 years old cashed out their 401(k) retirement plans — typically a big financial no-no because such a move squanders retirement assets and forces the recipient to pay a tax penalty — when they changed or lost jobs, an October study by Hewitt Associates said.

•Nearly 70% of Gen Y members are not building up a cash cushion, and 43% are amassing too much credit card debt, says a November MetLife poll.

•On average, Gen Yers each have more than three credit cards, and 20% carry a balance of more than $10,000, according to Fidelity Investments.

•Millennials are graduating from college with an average of $23,200 in student debt, according to the most recent data from the Project on Student Debt. That is a 24% increase from 2004.

The personal debt crises that young workers are suffering through began before the recession and was caused by the same big firms that are fighting reform now.  As Up To Our Eyeballs: How Shady Lenders and Failed Economic Policies are Drowning Americans in Debt, published in 2008, the debt crisis hit young workers and working families generally the hardest.  Take the story of 26 year-old Rene whose student loan debt and underemployment has forced her to repeatedly ask her mother for help.  “I shouldn’t have to be doing this. I’m twenty-six years old. I live on my own, I have a full-time job. I shouldn’t have to ask my mom to feed me.”

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