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Tag: Debt

The Source Of The Student Debt Crisis Is Not Expensive Tuition

Matt York / AP

America's surging student loan debt — which now totals more than $ 1 trillion — has been driven by older, low-income students at for-profit schools and two-year community colleges who enrolled in droves during the recession, according to a report released today by the Brookings Institution.

Many anecdotes suggest that the student debt crisis, and rising rate of student loan defaults, has been built by skyrocketing tuition costs and $ 100,000 loan tabs at America's priciest four-year universities. But the report shows that the crisis is largely the result of a sharp rise in enrollment at for-profit colleges and community colleges, and that it is built by much smaller balances — many of just $ 8,000 or $ 15,000.

More troublingly, the report found, for-profit and community college students are defaulting in higher numbers — since 2011, more than a fifth defaulted within two years, more than double the number for borrowers at four-year universities. Many such borrowers, unable to make any payments, have only seen their loan balances swell since they left school.

The report marks a dramatic shift from fifteen years ago, when borrowing was dominated by graduate students and young people at four-year universities, mostly large public schools. In 1999, 70% of new borrowers were students at nonprofit four-year schools. But between 2009 and 2011, students at for-profit schools and community colleges made up almost half of all borrowers, some 45%.

That change is reflected starkly in the list of schools whose students owed the most federal loans. In 2000, just one of the top 20 schools was a for-profit, the University of Phoenix; 16 were public universities. In 2014, 13 schools were for-profits, including 8 of the country's top 10 schools with the highest loan balances, and just seven were public universities.

The amount owed by students at the University of Phoenix grew 1500%, from $ 2.1 billion to $ 35.5 billion.

Brookings Institution / Via

The borrowers at for-profit schools and community colleges are older, poorer, and more high-risk: more likely to drop out without finishing their degrees and poorly insulated from unemployment. They are the students who, the report found, are defaulting on their loans in increasing numbers.

Those borrowers, the report said, are “mired in a system where they are unlikely to have the resources to repay their loans in full, and yet generally have no way to have those loans discharged.”

As the economy strengthens, the report said, there has been a sharp decrease in students enrolling in both for-profit and community colleges, which is likely to eventually improve loan default rates.

But the Brookings report also highlights a growing “gray area” among borrowers: students at a small cluster of non-selective, “unconventional” four year schools that “share many of the characteristics of for-profit institutions.” Those schools have high borrowing rates and poor employment outcomes, the report said — and have only seen their enrollments increase since 2011.

BuzzFeed – Business

Apple iTunes And AppStore No Longer Work In Greece Due To Debt Crisis

PayPal, iCloud, and many online subscription services are now off limits due to laws banning the use of Greek credit cards to spend money outside the country.

Last weekend, Greece's government imposed capital controls — restrictions on the ability to take money out of the country — due to an economic crisis that continues to deepen after the country failed to make a debt repayment to the International Monetary Fund. The restrictions were an attempt to ensure cash remains within Greece's economy and is not simply moved to a foreign safe haven.

However, the move has also had the effect of stopping many payments made using Greek credit cards to online services based outside the country. As a result, ordinary Greeks who are accustomed to using international services such as Apple's AppStore and PayPal are now finding that they can non longer use popular paid-for internet services due to the financial restrictions.

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BuzzFeed – Tech

Controversial Debt Relief Firms Target For-Profit College Students

Largely via social media.

Debt relief firms that have been sued for advertising wildly expensive, misleading student loan services have begun to explicitly target students of for-profit colleges on social media.

Pages with names like “Student Loan Forgiveness Support,” which have amassed tens of thousands of likes on Facebook, are using recent news about closures and lawsuits against for-profit colleges to lure those students into so-called “debt forgiveness” services, which essentially entail paying as much as $ 1,000 to fill out a free loan rehabilitation form provided by the Education Department.

As a result, thousands of poor students who have already been victimized by for-profit colleges could end up paying hundreds of dollars to yet another predatory company. The targeting of students at for-profits is a new twist on an exploitative scheme that is only just beginning to draw national attention. As scrutiny of for-profit colleges grows and several more face possible closure or legal action, it will likely only intensify.

The student loan relief scheme treads familiar territory. In 2008, in the wake of the housing crisis, mortgage scams flourished, including those that lured borrowers into paying thousands of dollars in upfront fees to fill out loan modification forms.

When it comes to student loans, the scheme works like this: Advertisements tell people that they are eligible for federal student loan forgiveness and encourage them to call a phone number for more information. Once they call, salespeople offer to enroll debtors in a federal program, usually one that offers income-based repayment or loan consolidation, handling paperwork and promising they will “negotiate” with the government on debtors' behalf to get a maximum amount.

Firms defend their work by comparing their services to tax preparation. But the forms required by the Education Department are much more straightforward than complicated tax forms, and are readily available and downloadable from the Department's website. The process is exceedingly simple, with no negotiation required: If you fill out a form and your income qualifies you for the repayment plan, you'll be enrolled in it.

The fees charged for those services are often exorbitant: A lawsuit filed by the Illinois Attorney General this summer against two student loan debt settlement firms alleged that they charged illegal upfront fees of $ 700 to $ 1,200, and sometimes tacked on monthly payments of $ 49 for no apparent reason.

The Illinois lawsuits chronicle scores of deceptive practices by debt settlement firms, including promising “debt forgiveness” when the only services they provide are consolidation and different payment plans, claiming that they are affiliated with the federal government, and implying to debtors that they are not able to fill out the forms on their own. Many also claim the existence of a nonexistent “Obama Debt Forgiveness Program” through which students' loans can be erased.

Historically, debt settlement firms “aim at everybody,” said Deanne Loonin, an attorney for the National Consumer Law Center who authored a report on the schemes last year: Graduate student or graduate of Everest College, if you have student loan debt, you may find yourself barraged by emails and advertisements offering “debt forgiveness help.”

But in the wake of news about the closure of Everest College and government lawsuits that could entail debt relief on students' private loans, Facebook pages have sprung up that appear to be devoted entirely to luring for-profit college students. One such page, “Student Loan Forgiveness,” has racked up more than 10,000 likes since it began just two months ago. It regularly posts articles about lawsuits against Everest and ITT that say, “If you are a FORMER STUDENT and HAVE STUDENT LOANS…There are circumstances in which you can have your federal student loans forgiven.”

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BuzzFeed – Business