July 2, 2103--The Big Boys & the Little Guy

We have a friend in Delray who for years has worked seven days a week cheffing at a local restaurant. As he puts it, "The first five days are for me and the other two for my family. Especially for my mother who lives in Honduras and for my children so they can go to college and not have to work on their feet all day like their father."

When we saw him in April just before heading north, he told us he was looking for a house or condo to buy. That the market was still soft and he had saved up enough for a downpayment. I asked him the other day what had happened with his search.

He made a face and said, "It's my luck that just when I had enough to make a downpayment, the big boys, sensing that the market was picking up, moved in with cash and began to buy up all the places I had been looking at. So, if you were a bank holding property, who would you rather sell to--me, who needs a mortgage, or those who are paying with cash?"

This hardly required an answer. "So what should I tell my children who are in high school? One is in her second year, the other will be a senior in August. What should I tell them about college? That they need a degree so they can have a career rather than, like me, a job? But with all the young college graduates without jobs what real difference will it make for them? Is it worth it to borrow thousands of dollars to get a degree that no longer guarantees that there'll be jobs waiting for graduates?"

I couldn't think of what to say to offer any assurance.

"You know," he continued, if you graduate with $75,000 of debt, it's almost the same thing as having a mortgage."

"I hadn't thought of it that way," I said, "But that's a good way to think about it. And then, if a young person with so much debt thinks about getting married and buying a house, that debt burden affects his credit rating and makes it hard to get a mortgage, forgetting for the moment, how realistic is it for a young couple to be able to pay off maybe two student loans plus an actual mortgage."

"Now you know my problem," our friend said, drifting back to the kitchen.

When we got home, reading the New York Times, Rona said there was an article about how interest rates on student loans on July 1st doubled from 3.4 to 6.8 percent. Nearly twice as much as the average rate on mortgages.

"This is," I said, "because Republicans in Congress want these rates to be set by market conditions, not governmental action."

"In fact, refusing to deal with the problem," Rona chimed in, "they took off for yet another week of vacation at taxpayer expense."

"I remember back in 1965 when guaranteed student loans became available. The idea was to offer low-interest loans to college students that they wouldn't have to begin to repay until after graduation."

"To make things affordable at the time meant that if tuition was $15,000 a year, with, say, a $5,000 loan, the out-of-pocket cost would be only $10,000."

"Yeah," I said, "that was the idea; but what happened? While we were working at NYU, what did they do?"

"Instead of keeping tuition at about the same level as it was when loans became more available, they raised tuition by at least as much as the maximum possible loan. If NYU at the time cost $25,000 a year and students could borrow $5,000, they raised tuition to $30,000 and students and their families still had to come up with the same $25,000."

"What a scam," I said. "And what did they do with the extra money?"

"It made it possible to raise faculty salaries, cut back on the number of classes they were required to teach, and made it possible to expand the number of sabbaticals so that professors could every few years get a semester or two off at full pay."

"What a scandal," Rona said. "A scandal no one talks about."

"And all the while J___ is working seven days a week just to make ends meet and maybe to be able to put aside some money to help pay for his children's college."

"As he put it the other day, it's another example of the big guys taking advantage of the little guy."

"Including the banks," I said, "which for years made the loans, were paid by the government to do so. And the interest was guaranteed, also by the government. So, in effect, there were billions of dollars of automatic, guaranteed profit for the banks."

"No wonder J___ is fed up."

"As am I."