Though there is no time-limit for student borrowers to pay their student loans, it is however has created more problems to many.  There are no studies on average years are required to pay the loans.  However, according to the fed law, the loans will be forgiven around 20 years.

Plus and minus the standard deviation, the average student loan (undergrad) borrowers have to labored about 20 years to repay their loans.  If a person graduate from a college at the age of 22, then she or he will finish repaying the loans at around 42 years old.

The important question is this:  will it be good strategies for all the borrowers to pay the minimum amount and wait until the loans mature in 20 years when it got forgiven? May be or may be not because the forgiven amount is subject to income tax!

Happy Labor Day!

Recently several articles in the media reported that it is getting more difficult to get the student loan forgiveness.

The American public needs to be thankful for the current administrator has helped the voters to make up their mind regarding in the 2020 election.  Stark differences have helped to erase the gray areas.

All the suffering will soon be over, but two conditions have to be met.

1. Participated in the 2020 election process and
2. Make the right choice.

It is not about bailing out someone’s financial mistakes.  It is not even about blue or red dichotomy.  Rather, it is all about making a rational choice and stop the unfair wealth transfers.  Perhaps, there are lemons in the borrowers population group.  However, there are also good apples and oranges, which may be the largest group in the whole population.  Evidences have shown that some of the borrowers will never be able to pay-off their loans, ever and will bring along their loan to their grave.  Sad!

Hang in there buddies and remember the date.  Unless it will be changed, the date is November 3, 2020—15 months from today.

So, what is the IYC (inverted yield curve).  In short it is a graph that shows the relationship between short-term and long-term bond yields, where long-term yields fall below short-term yields.  Financial market participants use this chart as a prediction of possible economic recession in the future.

On August 14, 2019, the IYC exactly showed that, and caused the DOW to down-nosed more than 800 points on average, which is around 3.05%.  If recession is going to occur in the long-run that will bring chain reactions such as a weaker job market which then will affect the ability of student loan borrowers to repay their loan.  Meaning?  More people will take the forbearance option.  This will push even further the default rate.

In short, if the prediction is correct (which has been in the past), here is going to happen in the US higher ed:

1. Losing jobs, mean delayed loan repayment.
2. More people may enroll to update their skill set.  So enrollment in certain areas or programs may go up.
3. Demand for student loans may go up, but higher ed institutions may need to rely more on their own resources due to a lower state budget which caused by lower state income tax.
4. Since education can be seen as long-term investment, the interest charged rate supposed to be lower because of the IYC hypothesis.  But it will not happen any time soon.

As the 2020 election gets closer, the public has an important decision to make.  Either to continue transfer their wealth or hard-earned cash willingly to other entities or to make the right decision to stop it.  Needless to say that as a whole, the society, and certainly not particular individuals or institutions can make that decision.  Rather a collective decision.

There are pros and cons on any public policy decisions.  However, issues related to the student loan debt deserve in-depth analyses.  The Association has long shared its research and the results show that the problem is not about paying back the loan.  Rather, the intention errors or the systematic errors that have been induced into the system is the issue.  These intention errors are designed to benefit certain entities which have reduced the ability of the borrowers to pay-off their loans at a reasonable time.   These strategies are applied based on the ideas that the longer the loans are paid-off, the more milk can be produced from them, in term of interest charges, late fees and others.  Some may take the remaining of the loan balance to their grave.  It is pretty sad.

The systematic errors and moral hazard have been added intentionally to the system to benefit certain parties.  This is the root of the problems.  Asymmetric information and the power to make deviations in the whole system have enabled certain parties to make abnormal profit on the expense of others.  The whole industry has been distorted with lack of wisdom., i.e., the presence of moral hazard and systematic errors.   These errors goes uncheck, especially in a situation where check-and-balance has not been exercise by those institutions that supposed to do that.  Or perhaps, the grand collaboration intentionally done to distort the system has occurred.  Who knows?

Under such circumstances there is no way out to contain the issue.  But likely be possible through the implementation of an appropriate public policy.  This is one of the reasons why the issue of student loan debt getting worse everyday without the sign of easing.  That is because no current optimal public policy is available.  Or may be the executive branch does not think this is an issue or may not be their best interest.  Therefore, there is a minimal viable effort directed to find a pareto optimal solution.

However, the American public now has the golden opportunity to reverse the course.  But, the society as a whole has to make the right choice.  America, it is into your hand to solve the skyrocketing student loan debt is in-placed.  It is you, the American public that has the ability to make this important change which may have a life-time future financial impacts on everyone of you.  It is not up to someone or an institution to make the change.  Certain law makers in the Capitol Hill have supported this life-time opportunity.  However, they cannot make it happens without your participations.  The American public has to support them.

Happy election!

Every year the Fourth of July refreshes the memory of every American citizen about their freedom.  As a nation, the Americans have to be thankful for many accomplishments that make its citizens living in a better condition compared to those in many other countries in the world.

However, one also has to think factors that may drag that condition; and those factors potentially will affect the future of the country.  This site consistently shares thoughts on the student loans.  Mishandling of the loan debt may have negative effects.  Systematic errors have transformed the situation from bad to worse, up to a point with a binomial outcome–let the current condition runs its course with minimal or no public policy, until the law makers or the new elected administration completely bails it out.  The American public does not need to know that the problem exists until a Wall Street tells the public that there is a serious issue with student loan system for the Street is part of the contributor of the moral hazard.

Happy Fourth!

Recent discussions on personal finances revealed that majority of the American public is unquestionably concerned about their financial situation, and student loan debt seems to be one of the biggest issues.  Majority of the players, except for the students, their family, and portions of the American public, may have received the benefit directly or indirectly from the situation.  There are always two sides of the same coin and each side has its own story to justify its interest.

Yes, one may ask, what is the common zone where everyone feels comfortable with the student loan issues.  Looking at the data and the American public’s opinion, it is pretty obvious that one side of the coin is worse off for their wealth has been “legally” transferred to the other side of the same coin.  In any business arbitrage cases,  there is always one party who stays independent, the referee or the judge that has the role to bring both sides on the table that may lead to solve the disputes.

Unfortunately, that is not the case for student loans.  There is no designated referee  that can be considered as the judge.  Perhaps, among the three government branches, supposedly the executive branch will help to resolve the issue through public policy.  The reality is that there is hardly a regulation designed to protect the worse-off side of the coin.  The reason is simple for the focus of the current administration is not on education.  Rather, on the economy, in particular to increase the DOW through whatever means possible for it is seen as a viable success story that can be sold on the campaign trail.  However, one needs to observe if the market is the sole representative of the economic growth?  Perhaps, this is a new approach in economic theory of how one can measure the economic growth through the DOW, rather than the GDP.  But, one also can ask a critical question of how a simple tweet can increase the DOW by 400 points literally in a couple of minutes? How can GDP got affected by only one tweet? How then this relates to a real country economic growth?  How increasing in the DOW is able to ensure the economic equality among the citizens of UCLE SAM?

That having said, the American public has the opportunity to reverse the course.  To stop the wealth transfer from their hard-earned dollars to others which will forever change their financial burdens by participating in the big dance next year.  The student loan borrowers have the opportunity to express their voice which may have huge impacts not only on themselves, but also for their siblings’ future well-being.  This is the biggest moment for more than 64.6 million loan borrowers to change their financial challenges through collective efforts, called presidential election.  While the Association is neutral, and does not lean toward a particular candidate, the public may check candidate’s track record on this particular issue through the following article that has been written and shared in the BLOG.  In the article, AAEA has calculated a score and analyzed who is the strongest and reliable advocates for the student borrowers.  Who is strongly side with and for the borrowers as shown in the following recent article that confirmed again our independent observations, and data analytics based analyses.

On the graduation ceremonies of 2019 class, the new graduates at Morehouse College are overjoyed.  Not only that they finally received their dreamed diploma, but also for special gift that each of them will receive from the commencement speaker.  It is Mr. Smith who promised to pay all their student loan debt by creating a special grant that will serve the purpose.

Two days prior to the commencement ceremonies at Morehouse College, to be exact, on Thursday May 17, 2019, the American public also learned that Navient-the loan servicing company also celebrated a milestone for making the Fortune 500 list.  In announcing its success, the company reported its $13.7 trillion in revenue and $1.1 trillion in profit.

Let’s analyze these two great news by using a coin that has two faces–head and tail.  Needless to say that there may be 2 important sources of $13.7 trillion revenue, that are coming from interest and the late payment fees.  These revenues can be seen as the amount of transferred wealth from the borrowers and the public to one of the American corporations, which happened to be listed as a public entity in Wall street.

It is depend which side of the same coin that one on.  You may love the student loan program if you own the company’s shares or otherwise, if you are on the opposite side.

Pretty simple answers.  The winners are those who have the common sense.  While the opposite is true for those who defy logic.

Having said that, the American public is smart enough to figure out who belong to each group.  The following example will show to the public how applying strategies that defy logic leads to short-run profit, but disaster in the long-run.  It is commonly known that sellers try to extract or make as much profit as possible out of their customers.  What is wrong with this strategy in the long-run?  Well, for one thing, because charged price is too high, it causes the buyers to run away for they cannot afford to pay it.  This then will trigger them, the consumers, to find substitution products, if there is any or even to completely abandon their plan.  In this sense, some sellers who keep increasing their price-tag indirectly, slowly but surely moving away from their competitive advantage.  As results, they will experience student enrollment decline, not in the short-run, but in the future. This is clearly the example of bounded rationality, where the pack follow the so-called best practices.  Copying what other association members are doing.  However, this hypothesis may not apply to the top schools such as the Ivy League with a single digit admissions rate.

The smart service providers, however, will seize this golden opportunity to stay cool.  By doing so, they indirectly increase their competitive edges and core competencies.  As results, their institutions are able to outsmart their counterparts and take a place as the market leader.  Those who keep increasing their tuition though enjoy the short-run profit,, are, in fact, down graded, or voluntarily give up their competitive advantage to others.  Yet, the school board may reward the management with pay increase or at least patting on the back, simply because the board members operate in different world.  Did anyone see how dysfunctional the whole system was?  This is a clear example of the lack of wisdom!

The Association believe that only a handful institutions even know, understood this kind of logic or are willing to adopt these strategies.  That is one of the reasons why they are classified as the losers.  Lack of wisdom, experience serious bounded rationality and lack of moral virtue are the three traits that cannot be found on the winners side.

ESCC  stands for Education Standard and Compliance Commission

Looking ahead, one may ask what next, after the student loan got written-off from the book?  Well, after 10 years, the same issues will pop again, unless new public policies are put in placed.  Establishing the new policies will be the second step, and in the mathematical concept for optimization, it is called a sufficient condition (SC) in these new efforts.  Let us call this SCN.  The SCN is nothing, but the necessary condition under the old system and named it NCO.  Because of the systematic errors that have been induced in the system for decades, the NCO cannot function well, crippled or ineffective.  The American public can see what kind of damages or results it has caused.  $1.5 trillion debt is accumulated because higher ed industry has been distorted badly, with no possible way to lower it.  This number will keep increasing per second, per second, and accelerate every time, when the American citizens are breathing the air.

Citizens of the United States of America have to make the urgent decisions

Increasing student loan debt should be interpreted as continuous transfer of wealth from the American public to someone’s else pocket.  And this transfer occurs every second.  It is a kind of transfer money or wealth or whatever one wants to call it, from the have-not to the have, or from small to big guys.  Of course it cannot be denied that Uncle Sam makes some $$ through the loan origination fees and the interest charges, which, in some cases higher than what the competitive market is charging.  Pretty pathetic, isn’t it?  Hopefully by now, the American public has a better picture, and realizes how broken the system was and how urgent it is to get it fixed.  But many parties and entities love the broken system for they got the benefit out-of-it.

One may ask why?  The answer is quite straight forward, because lack of control.  DOE does not have the man power to do all the job.  Or should one say it does not have the will to do so, or simply using a simple phrase, DOE does not care.  It hopes that it can do minimal control through IPEDS.  The real world shows that the fruits of this policy are almost close to zero.  But, why Uncle Sam keeps on waiting until the student loan debt (SLD) is in crisis?  Is it because it makes sweet money out of its citizens?  The American public is hoping that the new loans management will be better in the future.  However, the apparatus needs to be established without delay.

AAEA has proposed that Uncle Sam has an entity that is equivalent to SEC (Security and Exchange Commission).  On December 14, 2014, the Association has written, shared and proposed the so-called ESCC (Education Standard and Compliance Commission) followed by the second post on October 30, 2015.  Under the new atmosphere, the American people may have a chance to see the light again,.ie., not worrying about accumulated debt after finishing their education.  However, without ESCC, the disease will comeback again after 10 years.  America, it is the time to make the change!