Student Debt in America: Lend with a Smile, Collect with a Fist
nytimes.com
nytimes.com
Obviously the policy for undergraduate education makes a lot of sense. Don't consider risk because everyone as a policy decision is guaranteed a chance to climb the ladder of opportunity. But after completion of a Bachelors degree the lender should be able to take into account grades and ability to repay given expected outcomes.
For loans without a cosigner I'd imagine interest rates would be on par with credit card rates, possibly higher since its a large, unsecured loan.
Regardless, you already can get student loans that can be removed in bankruptcy, they just require a cosigner and have higher interest rates so no one wants them.
It would be interesting to see schools cosign loans past the 2nd year. They could chapter out underperforming students with an associates after two years since they would be on the hook for repayment past there. Then the loans would still be accessible basically equally and schools would have incentive to keep costs down and be more selective rather than just growing indefinitely.
There are multiple datasets available that you can find yourself, or eg
http://www.slate.com/blogs/moneybox/2015/04/16/student_loans...
Additionally, private loans always have and still do take into account the credit history of the borrowers. If you don't have a credit history or someone willing to cosign you're basically out of luck.
I don't think opportunistic bankruptcy filings are an issue at all, but I do think it would be an issue for banks to lend significant amounts of money to people with no way to quantify the risk associated with it.
I don't have the perfect answer, but I do think it's better to have loans accessible by lower income people than to have the ability to discharge the loans in bankruptcy which by your admission only a small number of people do.
BTW I am very intrigued by your idea of having a school cosign for a student after the second year. If nothing else it would force schools to think twice about their acceptance habits. It seems to me to be more in line with academia's not-for-profit interests, but I guess tuition dollars are too entrenched at this stage?
I wouldn't blame the woman in the article because this program was likely before her time, but I would certainly blame anyone who takes out too much now.
Honest question. Do you think the age of majority should be raised form 18 to some higher age? (Like 21?). I hear a lot of this sentiment when discussing student loans, and it makes me think that if one is not capable of understanding the consequences of their financial decisions at 18, then their parents should still be in charge of their life.
1. stick with the original plan of becoming a teacher. Take out minimal loans, work, pay off loans.
2. move towards a degree in law and complete the degree after her illness. Work, pay off loans.
3. get a teaching job after her illness, hold off on the graduate degree, work, pay off loans.
I have no sympathy for her. She clearly couldn't afford college (which is acceptable, that's why loans exist); however she also couldn't think to budget or plan financially for the future. She should have stuck to a single path and slowly worked forward rather than trying to do everything in as short a time as possible.
> A new survey from CareerBuilder suggests that plenty of Americans never work in the field that they prepared for in college. Among the 2,134 workers surveyed, 47 percent of college graduates did not find a first job that was related to their college major. What's more, 32 percent of college grads said that they had never worked in a field related to their majors. [0]
Also, if the student is not an adult, perhaps granting federally subsidized cheap credit is ill advised.
[0] http://www.cbsnews.com/news/new-study-shows-careers-and-coll...
I'd be willing to bet that most majors aren't clustered around a figure of 32% never working in a field related to their major. It's almost certainly a wide spread. That means it's less useful as general advice, and more an indicator that some majors prepare you for a specific career, and some majors are just used as a generic signal that you graduated college.
Depending on the state, working as a teacher requires an advance degree in education. So some people go to college to study English or science and then return to graduate school for an advanced degree in education.
My degree is Economics. I'm a project manager at a large software company. Am I using my degree? Probably not directly, but I certainly use the critical thinking skills obtained during my years in school. A bit of the math comes in handy as well.
The two largest programs at my university were English and Psychology. I guarantee very few of those graduates pursued careers in either field. But, a good psychology degree takes a fair bit of statistics with a dose of scientific method. And the English degree took critical reading and analysis.
Worse the government compounds interest while people are in deferrals. At 8% interest the first year of collage loans cost an extra 36% in just 3 years. But, you prepay for each semester which adds even more months on top of that.
Tells more about you than about her.
Also, so what if it was irresponsible? Does being irresponsible mean that you deserve all of the consequences of your actions and no further examination or thought is necessary? That's just terrible black-and-white legalism. Legalism sucks.
"She briefly enrolled in an education Ph.D. program at Texas A&M before withdrawing, but not fast enough to avoid an additional $7,458 in loans."
Unbelievable. Makes it sound like student loans are just lurking around waiting to attack unsuspecting victims.
They 1) make tuition unaffordable (even for those who aren't taking on debt), and 2) enslave those that do take on the debt.
We should cancel the program en mass.
(That's what Bernie Sanders proposed)
Ms. Kelley has one possible escape route: a federal loan forgiveness program that caps her payments as a percentage of her income and erases her debts if she logs 10 years of service in the public or nonprofit sector. (For today’s students, income-based repayment systems are helping lift the burden of debt.) But that would still mean a decade of what she describes as “futile” payments that won’t even cover her monthly interest expenses, leaving nothing to put away for retirement.
She didn't pay a single dime towards her loans in 25 years. Furthermore, she voluntarily cashed out her retirement fund, which would have been 100% protected against creditors.
Working for 10 years in the public sector in order to forgive her debt is not futile. That would be the one intelligent thing she could do in the 25 years of pure stupidity. She doesn't deserve a retirement, especially when she's done everything possible to not have one at all.
Yes, she doesn't claim that it's anyone else's fault, yet at the same time, she doesn't really seem to understand that all of her actions have serious consequences, and the actions she still makes also have consequences. She seems to think that when she reaches retirement age, she should be able to retire, just like that, even though she has actively jeopardized it in the past 25 years.
If she's not willing to pay a portion of her debt because its "futile", the best she can hope for is that her kids do well and take care of her ... or leave the country.
the way out would be a government program similar to HARP, let them finance to a new low rate, remove penalty amounts, and start paying it back. Perhaps teaching at low income high need systems to earn credits as well. I have little issue with funding a college education provided it is needed by society and there is a defined service payback. However hers is just lots of bad mistakes compounded by a undisciplined government agency.
Amazing that the loan agencies cannot cut deals like they can do with people with huge tax loads.
With Sallie Mae I would speak with foreign customer service rep who was barely fluent in English, I would be put on hold for literally hours, would be lied to about my eligibility for certain programs, the website was horrible, and trying to get paperwork processed was took months.
Direct Loans, I speak with an American, am on hold for under 10 minutes, and have all my questions answered truthfully. Their website is great and all of my stuff gets processed under a week.
Despite all of the Republicans chest beating about privatized industry doing a better job than Government can, I've found it to be an extreme degree of exactly the opposite in this case.
Which is stupid.
If the government is going to subsidize something like this by "issuing loans" or "guaranteeing loans", doing the paperwork themselves rather than pushing it off to for-profit private entities makes all the sense in the world. There is no substantial problem here for the market to solve; Entities that participate are simple rent-taking parasites on the process of government subsidies reaching students, doing no work themselves other than advertising.
Tuition growth is a separate and very real issue.
Bankruptcy is a closely related issue, which has quite a bit more bearing on the article. We have a word for cultures that do not practice bankruptcy and pass on unpayable debts: slave states. Bankruptcy - the positive ability to escape from debt and in doing so to be blacklisted from further debtors - is essential both to keeping people free from indenture and also to keeping lenders honest in their assessment and labelling of debts.
College debts are particularly difficult to assess risk on: A free market does not seem like it would fund as many educations as the government would prefer people to get educated, which is where this started. That's why I think the government should favor grants over extreme long-term debts. Factor in the cost today instead of pretending we'll have the money tomorrow, and you head off a lot of pain for both lenders and debtors. The government can already redress its losses through taxation. A credit rating that shows default to the government is a deterrent just as much as a credit rating that shows default to a bank.
Some fraction of people will always be irresponsible, unrealistic, or just unlucky in acquiring debts they can't handle. Heaping blame on them and examining their individual faults is a distraction from attempts to actually deal with the fact that some fraction of people will always fall into that category.
Our language on topics like this has some of the most baggage of anything we talk about. It's important to examine all the words you're using, and try to remember to ask "Is this a useful paradigm to apply". Because the National Debt is not Household Debt or Municipal Debt. Household Debt is not loaning your neighbor 50 bucks for beer. Loaning your neighbor 50 bucks is not a bail bond. Every situation is unique and trying to imbue them all with the same morality and judge your way out of the problems they develop is worse than useless.
Yes, lenders will harass you. Yes, they might sue you.
If you are in debt, and can't pay back--first send a registered letter to the collection agency stating you do not want to be contacted again about the debt.
If worse comes to worse, and they get a judgement against you; don't panic. You have rights. They cannot clean out you bank account. They cannot take you entire paycheck. (with a little accounting magic, you could make a fair amount of money, and they still wont be able to attach you pay check.) You are allowed to keep possessions, but make sure you read what you are allowed to keep. Hell, you are even allowed to keep heirlooms up to a certain value.
My point is yes they want your money. Be smart? Don't panic. You can still have a full life. Try to make your self Judgement Proof.
I've never said this, but if you are a recent graduate, and have student loans, and have a sneaky feeling you won't be able to pay off the student loans; maybe read on. Really try to keep your credit clean. Get that first job--apply for unsecured credit. Don't lie on the applications. If you can swing it, use credit cards to pay off your student loans.
Yes, use CC to pay off your student loans. Do it right. Make sure you have enough unsecured credit to pay off the student loans.
Wait a few months. Declare a chapter 7 bankruptcy.
It's not an easy maneuver, but as far as I know it's legal, but run it by an attorney. If it works--great! Try to keep abreast of federal bankruptcy laws, and changes. It seems like with every Republican administration lobbyists try their best to make declaring bankruptcy more difficult. I foresee a Republican administration in our near future? In doing any legal research--I found findlaw to be a horrid legal site. Too many wannabe attorneys.
What ever you do don't do anything rash--like leave the country, or even think about suicide. Yes, there are people who have killed them-self's because they don't know they have basic debtor rights. Being in debt is not the end of the world.
Of course since our Congress doesn't really give a shit because they're mostly millionaires, the only "reform" they talk about is lowering interest rates and expanding income based repayment programs - none of which address the crux of the problem.
I'm glad that students are finally realizing that they're getting royally fucked in the ass here, and that given our current legislative environment, absolutely nothing will be done until students across the nations collectively default on their loans. Luckily I think we're going to see this happen within the next 5 years. This is just piss poor policy, and it's a shame that more people aren't advocating for change, and that Congress can get away with continually kicking the can down the road.
I've noticed that young students have to make these choices about loans right out of high school, but we don't really force them to calculate their starting salary and payments until it's time for graduation. It's like pretend money at that point for all of us and of course we all think we'll be the next billionaire anyway.
This lady isn't very bright, but at the same time it's not very smart to keep loaning people money when they've repeatedly failed to pay back the money they've already been loaned.
This is the problem. It shouldn't have shocked her. It takes a minute to do the math and calculate how much a debt will equal in x years if you don't make a single payment. It's 100% predictable.
They could also bring a lawsuit for the debt in the country where the US person emigrated to. This is much harder.
Leaving everything behind for an anonymous life in a 2nd tier Chinese city has got obvious drawbacks compared to having a middle class life in the US. But it's better than debt slavery. Many English teachers have a very comfortable life. Clearly enough people are taking this way out that you encounter them regularly while stretching one's legs on the plane to Beijing.
The payday loan industry and consumer loans in general are under ever-growing scrutiny and some of the most recent proposals and regulations are based on ability to repay. If a lender does not do their due diligence on a potential borrower based on objective information of current/projected income and expenses, the lender could be penalized and even lose their lending license.
With student loans, the ability to repay is considered a moot point since the borrower is a student and likely has no income, let alone income history. However this increased risk is met with an artificially lower interest rate (<10% vs 50-200% APR), the most lax underwriting criteria & acceptance rates (almost all domestic students qualify and receive), and no questions about how it will be paid off.
The primary externality here is that a whole industry, secondary education, has adapted to these crutches by increasing tuition, as the article states. The value provided by these institutions is arguably not increasing since it's becoming more of a commodity than a value-add (e.g. the fact that the bachelor's is the new diploma) and thus you could argue that adjusted for inflation post-degree salaries are not increasing. This leads to the ability to repay not improving and even getting worse.
The false assumption in all this is that education is an investment that yields a higher income even while adjusted for the interest on loans. The elephant in the room is the necessary segregation of students based on potential ability to repay, which is the present value of a student's income based on their future income. The primary indicators of this are based on caliber of the institution, graduation rates as per institution/major, desirability of their major, performance in school, necessity/likelihood of going to graduate school, current unemployment in the industry, job growth in the industry as it relates to time of graduation and beyond, and other significant factors. By understanding this, loan products can be customized for each student in the absence of credit history to more accurately assess risk.
Higher risk applicants may think twice when seeing higher interest rates and ultimately may make the decision to seek a lower product by pursuing a lower risk opportunity. At the end of the day, these are very personal decisions that can only be decided by the individual. However by not pricing loans accurately, we are giving the false impression that each student's decision after high school and/or undergrad is similar in ability to repay with their limited resources (e.g. stress, time, money). The government owes it to their citizens to be even more responsible than the private industry. Student loans may seem like an income generating opportunity such as tax revenue but it is preying on the least educated, most vulnerable, but most promising demographic. It should be viewed like Social Security and Medicare where a certain demographic is dependent on it for livelihood rather than an afterthought.
I get this argument, but IMO it would ultimately devolve into a system with a fixed set of sanctioned fields of study which only the wealthy could venture outside of. We really don't want that.
Don't forget that knowledge is an end unto itself: an educated person is better for society at large, even if they're flipping burgers for a living. The economic utility of a college education extends far beyond the student being educated.
Of course not: IMHO, the unfairness in the current system is preferable to the unfairness you describe.
> Telling a kid that their only path out of poverty is to be an engineer or schoolteacher, but art historian is not an option -- I would love for that to be the worst of our social problems.
You're assuming the sole motivation is to make money, which isn't always the case. Some would be much happier as a poor art historian than a moderately wealthy engineer. Who are we to question that?
If there was restricted access to loans or harsher terms, people from less favorable economic backgrounds would likely not pursue those sanctioned fields, unless they had some specific advantage such as ability since this could yield to a higher chance of success.