Student Debt Profit, Brexit Fallout, Pharma Payroll Mapped

By Peter Ward     July 1, 2016

Getting Rich Off Student Debt

America’s student loan market has become a profit center for Wall Street and the government, according to an article published this week by Reveal, a project supported by The Center for Investigative Reporting.

The current state of the student loan program is a long way from what President Lyndon B. Johnson envisioned when he signed the Higher Education Act of 1965, which was meant to ensure any student who wanted to attend college could do so through federal loans and scholarships.

“Step by step, Congress has enacted one law after another to make student debt the worst kind of debt for Americans – and the best kind for banks and debt collectors,” write authors James B. Steele and Lance Williams.

Banks and debt collectors—more concerned with profits than diplomas—charge high interest rates and penalty fees and face few limits on lending to students at high risk of default. Many students are unaware of the risks they are taking, particularly as college tuition fees have soared, state investment in public universities has tumbled and middle class incomes have stagnated.

In 1972, under President Richard Nixon, Congress expanded the program by creating the Student Loan Marketing Association, or Sallie Mae, to increase the amount of money available for student loans. Banks loaned the money to students, and Sallie Mae bought the loans from the banks.

In 1992 President Bill Clinton pushed through a revision of the program that meant the federal government could be the direct lender of the loans. But when Republicans won control of Congress in 1994 they attempted to kill the direct loan program and privatize Sallie Mae. In order to secure the future of the direct loan program, Clinton agreed to the privatization of Sallie Mae. This move effectively enabled the private market to run the student loan program. Since then Sallie Mae has grown enormously, making people like former CEO Albert Lord extremely rich.

The Federal government still owns roughly 90% of the $1.3 trillion in outstanding student loans, but the Department of Education rarely interacts with students, instead it pays private contractors to collect the debts.

Today, 1 in 4 borrowers are behind on payments and nearly 8 million are in default. In 2005 Congress reformed bankruptcy laws, barring debtors from discharging private student loans via bankruptcy, removing a final refuge for most debtors.

Both U.S. Presidential candidates Hillary Clinton and Donald Trump have proposed reforms to the system, but there is very little incentive for the government to fix the core problem. Federal loans issued between 2007 and 2012 are projected to generate $66 billion in income for the government.

Brexit Fallout Continues

The United Kingdom’s decision to exit the European Union continued to cause mayhem in financial markets this week, as Europe and the U.K. deal with mounting uncertainty.

The referendum on the E.U., held last Thursday, saw 52% of Brits back an exit. Since then, the U.K. Prime Minister resigned, the British pound sterling fell to a 31-year low against the dollar, and banks lost a third of their value before stabilizing. Scotland and Northern Ireland have also talked of leaving the United Kingdom in order to stay in the E.U.

“It is now a week since voters narrowly opted for Brexit, and the country has seldom looked so wildly off the rails,” wrote The Economist on Thursday.

Ratings agencies S&P and Fitch were also unimpressed by the U.K.’s decision, as both cut the country’s credit rating, meaning they think loaning money the U.K. is riskier post-Brexit vote.

Britain has yet to invoke Article 50, which gives notice to the E.U. that the country intends to leave, and allows two years to exit. The E.U. has urged the U.K. to make a hasty departure in order to limit uncertainty in the markets, but the political situation in the U.K. has made that unlikely.

Prime Minister David Cameron announced on the day after the vote he would be leaving in October, and a battle within the ruling Conservative party will decide the next leader of the country. To make matters more complicated, the leader of the campaign to leave Europe, Boris Johnson, surprisingly announced he will not compete in the leadership contest. This increases the likelihood that a new Prime Minister will be one who did not back Brexit.

Doctors on Pharma’s Payroll Mapped

Does your local hospital take payments from drug and medical device companies? The answer may depend on where you live, as a ProPublica investigation found that the location of a hospital makes a big difference in the likelihood doctors accept meals and promotional payments from pharma and medical device companies.

The investigation was accompanied by an interactive map in which users are able to determine the percentage of doctors in their state or specific hospital who accept payments from the pharma and medical device industry. For the past six years ProPublica has tracked these payments to doctors, and found that some earn hundreds of thousands of dollars or more every year working with drug and device companies.

The investigation also found that the most promoted drugs typically aren’t cures or big medical breakthroughs, and there was an association between the payments and higher rates of prescribing brand-name drugs.

The data shows that in New Jersey, nearly 79% of hospital-affiliated doctors accept payments from the drug and devices industry, the highest in the country. In contrast, only 20% of Vermont doctors take the same types of payments, the lowest in the U.S. The interactive map shows that in general doctors in southern states are more likely to be paid by pharma and device companies. Readers are also able to search for their own local hospital to see how many doctors are taking payments there, and how the figure compares to the rest of the state.

Trump’s Charity Called into Question

Donald Trump has a long track record of promising money to charities. But an investigation by the Washington Post this week revealed the businessman, reality TV star and presumptive Republican presidential nominee is far less generous than he claims.

In May Trump gave $1 million to a nonprofit group that helps veterans’ families, after pressure from the media over a pledge made months earlier. But in the 15 years before that, the investigation found that Trump donated about $2.8 million through a foundation, less than a third of his pledged amount. Records also show that Trump has given nothing to his foundation since 2008.

Trump claims he has given away millions privately, off the books of the foundation, but refuses to release his tax returns, which could verify the boasts. The Washington Post contacted 188 charities, looking for evidence of personal gifts from Trump between 2008 and this May, and found just one donation, a 2009 gift of between $5,000 and $9,999 to the Police Athletic League of New York City.

This Week’s Top Headlines

Lionsgate to Acquire Starz, a Pay Channel, for $4.4 Billion – Michael J. de la Merced, New York Times

Carney Says BOE Summer Stimulus Likely as Brexit Infects Economy – Scott Hamilton, Bloomberg News

Fed Stress Tests Clear 31 of 33 Big U.S. Banks to Boost Returns to Investors – Ryan Tracy, Donna Borak, Wall Street Journal  

Mondelez makes takeover bid for Hershey: source – Lauren Hirsch, Reuters

Exxon Touts Carbon Tax to Oil Industry – Amy Harder, Bradley Olson, Wall Street Journal

Oil Pares Biggest Quarterly Gain Since 2009 Amid Rebalancing – Mark Shenk, Caroline Alexander, Bloomberg News

Hertz teams up with Uber and Lyft – Matt Egan, CNN Money

Mortgage rates haven’t been this low in three years – Kathy Orton, Washington Post

Google’s offices in Spain raided by tax authorities – Natasha Lomas, TechCrunch

World’s Largest Uncut Diamond Fails to Sell at Sotheby’s Auction – Morgan Winsor, ABC News

 

This entry was posted on Friday, July 1st, 2016 at 4:41 pm. It is filed under Week in Review. You can follow any responses to this entry through the RSS 2.0 feed.