Government

How the federal government protects abusive debt collectors

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With the latest round of student loan reforms, the Obama administration has worked to develop “loan forgiveness programs and efforts to help borrowers reduce payments”.

However, one glaring aspect of student loan debts has not been addressed at all: abusive debt collectors.

These aren’t just employed by loan sharks or private debt companies either. The Department of Education has hired abusive debt collectors to come after student loan debts, with one-tenth of loans in danger of default—nearly $94 billion.

In fact, lenders hired by the Department of Education have been specifically cited for abuse:

In March 2012, Bloomberg reported that three of the companies working for the Department of Education had settled federal or state charges that they’d engaged in abusive debt collection.

When approached, the Department of Education has been anything but helpful:

The GAO report found that the Education Department still does little to oversee student-loan debt collectors, and has done little more than provide “feedback” when alerted to abuses.

The National Consumer Law Center has been trying for two years, through Freedom of Information Act requests, to obtain information from the Department of Education.

But so far, the Obama administration has stonewalled the requests. On Monday, after more than year attempting to peel back the secrecy around the debt collection contracts, NCLC filed a lawsuit demanding that the Department of Education comply with the Freedom of Information Act and release the data.

The federal government under the Obama administration is protecting abusive debt collectors when students and Americans have a right to know what’s going on. Hopefully, they choose to be more open about their practices soon.

Australia refinances government student loans, women hardest hit?

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Until now, Australian higher education students have been able to obtain government student loans at quite the discount—“with no interest payments other than those needed to keep pace with inflation”.

However, the government has changed the interest rate to around 4.5 percent, so that interest is pegged to the 10-year Treasury bond rate.

What does this mean?

Higher debt and more money to repay.

According to the Tertiary Education Union, “the new arrangements have a built-in bias against graduates with carer responsibilities, which will mainly be women”.

Essentially, if you take time off work to have a child, debt will be accruing during that time at a higher interest rate and you’ll be less prepared to pay it back because of wages not earned during that time.

The link seems tenuous, but the fact remains: the Australian government cannot support lending money at record rates to a citizenry accruing record debt.

California voters: pay down our debt!

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A poll conducted by USC and the LA Times of California voters shows that voters support paying down the state’s debt with reserve funds, over tax cuts and increasing the emergency fund.

Surprisingly, this was the least popular option:

Fourteen percent said the money should be used to cover the cost of pensions and healthcare for public workers, where the state has faced substantial shortfalls.

This goes to show that voters are increasingly aware of the enormous debts that California has rung up over the past few years. Lawmakers propose using a portion of all tax revenues for a variety of purposes, including debt, long-term costs, and a reserve fund to guard against recessions. The proposed amendment will reach the California ballot in November.

A political solution to the student debt crisis

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Student loans are the new political football, with both parties attempting to reach younger voters by trying to do something, anything about the crisis.

However, one unique proposal may be the “Hail Mary” pass from Daniel Oliver, former general counsel to the Department of Education:

Republicans commit, as part of their 2016 platform, to (1) canceling all student loans owed to the federal government and paying off all loans owed to private institutions and (2) eliminating all federal aid, grants, support, etc. to postsecondary educational institutions. It’s a package deal: no elimination of aid, no cancellation of debts.

Under this proposal, the Treasury Department would be even in nine years—which means that with $1 trillion in student loans, nearly $109 billion is spent every year on federal funding for higher education.

While this wouldn’t help students who chose to take on private student loans, this could be a boon to young people trying to overcome student debt—and would change political reality for a generation.

African countries in better debt position than Europe?

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It may sound like an email scam, but Nigeria has a better debt-to-GDP ratio than many European countries.

Most of the countries in Sub-Saharan Africa have been issuing bonds and increasing their debt like wildfire.

The money obtained for those bonds is being used to build public services.

For example:

Nigeria is funding greater electricity output with its $1.5 billion issuances. Kenya will use its 2014 eurobond money to upgrade power, roads, and seaports. Zambia plans to spend on improved healthcare and railways.

However, the party’s now over. According to S&P, “the heydays of bond offerings from newcomers or from frontier markets, like the African issuers” are behind us.

In just the past two years, African countries have issued over $8 billion—therefore increasing the region’s debt by billions—and downgrading the rating of these countries.

The hope is that the funds will be used responsibly to grow and build economies.

It’s hard to build a country on debt alone. Many countries in Sub-Saharan Africa will now rely more heavily on remittance payments from those who have emigrated to other countries.

But the fact remains—these countries are still in a better debt situation than countries like Spain and Greece. Now entire countries are learning the lesson that anyone who has had to balance a household budget knows—debt can be a disaster.

Crisis: Argentina in massive debt

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Countries are not immune to getting into large amounts of debt and then having to struggle to get out of it.

For example—Argentina.

Around a century ago, Argentina was on track to become a European-style country. The location and natural resources were bountiful, the population was educated, and residents enjoyed a high standard of living.

However, Argentina suffered a difficult century, from revolutions to dictatorships to a fruitless battle against the UK for the tiny Falkland Islands.

Things came to a head in 2001, when Argentina stunned the world and “stopped payment on roughly $100 billion worth of debt in December 2001 – the largest sovereign default in world history – amid a financial meltdown and economic depression.”

Now, Argentina has just $9.7 billion in unpaid debt, and has finally found a way to settle it through investor group Paris Club, which includes “Austria, Belgium, Britain, Canada, Denmark, Finland, France, Germany, Italy, Japan, the Netherlands, Spain, Sweden, Switzerland, and the United States.”

Per the agreement:

Argentina must make a minimum initial payment of $1.15 billion by May 2015 and a second payment by May 2016.
“The scheme offers a framework for a sustainable and definitive solution to the question of arrears due by the Argentine Republic to Paris Club creditors,” the statement said.

It goes to show that no individual and no country is immune to high debt.

You won’t believe how fast the US National Debt is increasing…

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You hear many stories about how high the national debt is.

However, it’s not in the numbers, inasmuch as it’s in the rate the numbers are increasing.

For example, in the year 2000:

America’s national debt stood at $ 5.7 trillion, while the annual GDP was $10.7 trillion. Now, 14 years later, with the U.S. GDP standing at $16.2 trillion, the gross national debt exceeds $17.5 trillion.

You don’t need a degree to discover that the national debt is increasing at a faster rate than the economy.

But how much faster?

Between 2000 and 2014 America’s GDP grew, in nominal terms, by 51 percent. In that same period, the national debt increased by more than 200 percent. In other words, during the past decade and a half, the U.S. national debt has grown at four times the rate of its national economy.

That rate is simply unsustainable, and if it continued, would mean that at some point in the near future, the national debt would outweigh US GDP.

Don’t think it could happen?

Japan’s debt is 200% of its GDP. It’s matched only by Zimbabwe, as some of the highest debt-to-GDP in the world.

The Japanese economy, despite being the world’s largest, has been in a slump for over a decade, and with an aging population, it doesn’t seem like this outlook will improve any time soon.

Zimbabwe’s economy has collapsed, with inflation higher than almost any country in world history. Greece follows with a national debt 161% of its GDP, with 1 in 4 Greeks unemployed.

This is not a sustainable path for any countries, and, as seen above, can happen to any country. The US currently stands at 70% debt to GDP. How soon until the US hits 100?