In Debt We Trust

I chose this movie because it was a warning about consumer credit and the national savings rate prior to the current financial crisis. Consumer debt has doubled in the last 10 years. When this movie was made in 2006, consumer debt was at about $2 trillion. When mortgages are included, total consumer debt is about $7 trillion. This money is owed to fewer and fewer companies. 10 banks dominate 92% of the industry. After our recent series of bailouts, the industry today has consolidated even more. The movie points out that the largest contributors to political campaigns in the US are these financial institutions.

The movie spends a lot of time interviewing people who are behind on their bills or shuffle debt around from one credit card to another. Another section is devoted to the marketing of cards. I think this focus on this is misplaced. A major issue mentioned in this movie and should be focused on more is the issue of rising interest rates, late fees, and finance charges. Much of this was addressed in the credit card bill passed last year. The movie also discusses rent-to-own establishments and tax advance offers with very high loans. The filmmaker also gets kudos for outing the subprime mortgage as a predatory lending scam years before it was cool to say so.

Beyond that, the biggest problem we face is that we live in a culture of consumption. Financing and refinancing mortgages, according to the movie, is creating serfdom of the 21st century. According to the people interviewed, most people will not pay off their homes during their lifetime and will spend their whole lives serving those debts. All of this is going on in an atmosphere of stagnant income and rising costs for health, housing, and education.

This movie has an honorable mission but it fails because it talks down to its viewers. The movie generally talks about deregulation and favorable court decisions. There are no specifics. The filmmaker goes to Wilmington,
Delaware to talk about political corruption but says nothing concerete about any particular law or politician. A bankruptcy attorney who was interviewed called credit cards evil. To really hit home, the movie needed to be more specific and concrete and not spend so much time in emotional fluff. Simply saying we need legislation and regulation is not a solution.

The exception to this was coverage of the 2005 Bankruptcy Bill, which the movie handled very well. Highlighting this give-away to the credit card companies is important. Ted Kennedy's floor speech was especially poignant. The bill limits the ways in which people can file for bankruptcy protection. One notable change is that, thanks to the bill, student loans can no longer be discharged in bankruptcy. This was a basically a give away to the industry. Prior to the bill, student loans were one of the most profitable types of loans. There was no need to 'reform' this type of loan. Also notable, was that the bill, passed a year after Hurricane Katrina, floods were also ruled out as a ground for bankruptcy. The recommends that we watch the K Street Gang, and I think I will. The book focuses on the Republican party, but this is a problem that affects both parties. Joe Biden is from Delaware, and both Obama and Biden voted for the Bankruptcy Bill. You can currently buy it used for $0.01 on Amazon, but, ironically enough, you need a credit card to buy it online!

FRONTINE: College Inc

FRONTLINE: College Inc. is a fascinating documentary about the world of for-profit universities. These schools are the ones you see advertised everywhere like the University of Phoenix and DeVry. According to Frontline, community colleges and public universities are overwhelmed with demand and cannot adequately handle the public's demand for education. The documentary questions if for-profit schools the answer to this problem.

The documentary begins by following an educational investor. He brings in investors to help turn around troubled universities. His job is it to turn each school into a profitable business. The movie also discusses the success of the University of Phoenix, whose parent company, the Apollo Group, is publicly traded. The first quarter of the documentary puts a positive focus on the schools. They are, after all, providing a positive service, and have the potential to play a positive role in American society.

Digging a bit deeper, however, reveals some major problems with the for-profit model from beginning to end.

Promotion - In 2008,  the University of Phoenix spent $130 million on ads. The school spends more on marketing and advertising than it does on the product itself. For-profit schools have been accused of requiring recruiters to fill quotas, leading to the recruitment of students who are not financially or intellectually ready to begin school. One former recruiter interviewed by Frontline said she was told to convince potential students that a college degree will solve all of their problems.

Funding - What terrifies me is the debt many students take on to attend a for-profit university. These students make up 10% of students, but 25% of financial aid (grants and loans) recipients, and, by some estimates, almost 50% of defaults. Median student debt for students attending a 4 year public university is $7,960, for a private non-profit median debt $17,040, and for a private for-profit university median debt is $31,190. These loans are backed by the federal government and is what makes a for-profit university possible.

It's interesting to watch the host, Martin Smith, interview an investor. Instead of referring to the enrollment process as signing up kids for classes, Smith refers to qualifying them for loans, and the investor doesn't seem to have a problem with this. The founder of the University of Phoenix is a billionaire thanks to the federal student loan system. The financial troubles of his students don't matter to him. All that matters is that men like Jack Walsh, a private equity trader, can count for-profit universities amongst their investments. This, needless to say, was highly disturbing.

Perhaps it is beyond the scope of the documentary, but Frontline did not show how deep of a problem this is. The issue is not confined to for-profit schools, they are simply the easiest to attack. Funding education is a moral dilemma facing the country. Society values an education and believes that anyone willing and able to go to school should be able to. Because of this, student loans are fairly easy to obtain. Because they are so easy to obtain, universities can charge more and more

Outcomes - This to me is the saddest part of the story. Many who go through the program find themselves to be unqualified for jobs when they graduate. The documentary talks to three women graduated from a nursing program without ever getting any experience in a hospital. The lack of practical experience disqualified them from most jobs, leaving them $30,000 in debt and unemployed.

I really recommend watching this movie. It's a real eye-opener.