'I'm a Student-Debt Slave.' How'd We Get Here?
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We hyped up college: It is your goal in life to go to send your kids to college. Everybody has to go to college. If you don't go to college you will fail.
Nobody talked about college as an investment: College isn't just another step in life. It is an investment. $75K for college makes sense if you will get a degree that enables you to get an income of $120K. It does not make sense to invest $75K in a degree that might get you an income of $40K.
We didn't tie the loan to the degree being obtained: Do we need workers with this degree? Is there a glut of people with this degree?
Etc.
That's what being able to discharge a loan via bankruptcy would do.
Unfortunately, when they redid bankruptcy laws so you couldn't discharge student loans that way, the current situation became practically inevitable.
For example, home mortgages are breakable because the bank gets the house. What does the bank get when you break your Sallie Mae loan? Zero. Only the government would lend money knowing the borrower might never pay it back. They might as well be honest and just subsidize tuition, in that case.
Unsecured loans are often dischargeable in bankruptcy (even student loans are, though its harder than most other unsecured loans.)
The idea that only secured loans can be discharged in bankruptcy is false.
> Only the government would lend money knowing the borrower might never pay it back.
Obviously false, as private insitutions do issue unsecured credit that is dischargeable in bankruptcy.
You're just creating a different problem.
Back when school loans could be discharged, a new doctor could declare bankruptcy immediately after medical school to wipe out the $200k in student debt.
Well, if you allow that "moral hazard", it means the price (a.k.a. interest rates) for those loans must increase to account for the increase in defaults and worthless loans. It means poorer people can't go to school because the interest rates loans are too high. Tweak the economic game and you get a different problem instead of solving all problems.
The doctor/lawyer/engineer wipes out the school loans but the banks can't take back the "education" in the graduates' brains. The graduates go on to earn a living and the banks get nothing. In other words, it's an unsecured loan.
There are other unsecured loans that can be discharged such as credit cards. But their interest rates of 22% reflect the higher risks of nonpayment and no significant recovery of money when liquidating debtor's assets in bankruptcy court.
Student loans are 6% instead of 22% interest rate[1][2]. They don't have to so high because they can't be discharged (easily) and they are guaranteed by the government.
[1]https://studentaid.ed.gov/sa/about/announcements/interest-ra...
[2]http://www.valuepenguin.com/average-credit-card-interest-rat...
As an extreme case, Cuba uses "medical diplomacy" to train foreign students to be doctors, including students from the US who want to work in poor and rural areas in the US and don't want to be $100K+ in debt.
As with housing, irresponsible loans due to financialization is the root of the issue.
People look down on community colleges. They overvalue private schools. They hype up slight differences in quality of education or job placement.
Schools compete on amenities and prestige rather than cost. So costs keep going up.
The feds shouldn't loan to anyone who doesn't already have 60 credits. And private loans should be dischargible in bankruptcy.
Also GradPlus and ParentPlus loans should have caps. The Feds will loan someone going to Columbia Lawschool 90k a year. It's stupid.
A lot of the Ivy League folks at my current coding job are "surprised" that I started at a CC. I went transferred to a UC, and the CC classes were smaller, the teachers were of better quality, and they were more accessible whenever I needed help.
But no, we sell college as the entire "package" -- Getting laid in the dorms, doing MDMA, getting away from your parents for the first time, etc. This "package" has added costs.
Eye opener right there, I like limited competition.
College is a very interesting market where it is capitalist for the wealthy and for second tier and below (and indeed, is more capitalist the lower the quality of the education, as you get to for-profit schools), but is basically entirely socialist for the bulk of the student body at elite schools.
Further the ivy elite schools have such tiny enrollments they are irrelevent in the grand scheme of things. Harvard undergrad accepts ~2 thousand vs 3.3 million people graduating high school per year. Now add another million who drop out. ~0.05%
The best of the best do this, but very few graduates can get in. If my understanding is correct, it's pretty much only the ivy league and their peers that do this. Probably less than 1% of college students go to a school like that.
I've seen many of my friends spend all their income on house/rent just to live in a good school district. There is no way they are going to let their kids not go to college, they have already created a narrative, a spiral for their kids, no way a kid can escape college at this point. Sunken cost bias.
They spend thousand of dollars on all kinds of things like swimming, piano, ballet, science clubs, coding clubs, robotic clubs, social work club ect. All gears towards making their Stanford application look good. There is no stopping now, wheels are already in motion, full speed ahead.
Kid's view of his life is a hero who lives up to expectations, against all odds. Each test is a battle that must be won. He has been raised on a constant diet of praises for his 'good work', his mind conditioned to keep the praises coming at all costs. The narrative has been set, love is love of success, fear is fear of failure.
I always wondered how 'interests' come into being. Would love to read more about this if anyone has pointers.
The only thing I can suggest is to surround your kids with interesting things and interesting people. We're fortunate to live in a neighborhood where you can't swing a cat without hitting someone with an interesting occupation, ranging from academics to artists and musicians.
That's awesome!
Slightly off-topic tangent (how music is becoming a career track in China): http://www.nytimes.com/video/business/international/10000000...
maybe tech is mildly more open-minded than say, the law profession, when it comes to elite institution bias. let's not fool ourselves and pretend it isn't a thing though.
But what is the desire for working for a "top tier" company? Looking at the average salaries for Amazon, Facebook, and Microsoft, they aren't that much higher than startups and smaller companies in lower cost areas.
The rest of it -- the narrative, making the Stanford application look good, etc., ... Nope. Sure, I know parents who have that mind set, but I also know parents who don't. I grew up in a culture that values education as an end unto itself. Taking music lessons was just part of the normal routine.
Basically there are not enough well paying middle-class jobs due to productivity gains, automation, globalization, and working women.
The great circle of lost purpose.
One thing that really bothers me are the tax rules applied to different types of interest. For people that buy a home, they can write off 100% of the interest. For someone with $100k in grad loans and a high salary, but living in an expensive city, they can only right off $3k in interest.
Why does the person 'investing' in their education not able to get the same tax benefit as the person buying a home to enjoy? This tax inequity disproportionately favors the wealthy.
(2) $3k goes a long way, considering the low rates due to #1. Sure, it may not be the interest for all 100k, but jeez, don't do that.
(2) "don't do that."
For many professionals it makes sense to pull out $100k in loans to rapidly increase their income / move jobs etc. Just because it goes a long way does not mean it is sufficient. I am speaking to the inequity of the situation, which IMO is really terrible.
So, these numbers are not some one-size-fits-all situation. Trying to make policies that work equally well for a wide variety of situations is nigh impossible.
Were you living in it? Why didn't it qualify for the write off?
Big cities and small towns are fundamentally different real estate environments. Federal laws that aim to help some mythical "average American" usually fail to account for such things.
Maybe it is because I grew up with very little, but college was never a 'do what you love' or 'go for the experience'. It was 100% about making sure that I didn't have scrape together change to put gas in the car or buy some food ever again. I just so happened to be extremely lucky, because I love programming, computers and technology.
At current prices, perhaps the job-training-investment view is the only reasonable one to take, but we'd like to know why the prices have risen so much and see if we can't knock them back down so that the experiential-rite-of-passage approach becomes not-insane again.
Most college players don't go on to be successful in the NFL, but for those who do, college was a very good investment.
Or has TV warped my view?
To the contrary, college as an personal investment has been the driving force behind the increase in price for American universities for decades.
Here's a 1976 newspaper article on the topic, which suggests that the analysis of college as an investment wasn't new even then: https://news.google.com/newspapers?nid=110&dat=19761113&id=R... and people both pro- and against an emphasis on getting a college education used "investment" to argue their point.
Here's a 2002 article where a higher-education advocate asserts that while not all students may view college as an investment, "I'm sure parents do." https://news.google.com/newspapers?nid=266&dat=20020718&id=R... . This is a far cry from "nobody talked about college as an investment."
Here's a 1988 article on the high price of college, where a college president says "It became clear that young people were seeing college as an investment and that price was less important as a result" - https://news.google.com/newspapers?nid=2199&dat=19880323&id=...
That last shows the connection I proposed in my first paragraph. My belief is that an increasing focus on "college as investment" will mean the price of college will rise until it's just under the expected increase in lifetime income.
Also, if this is a real investment, then multiple people should be allowed to invest, and not just the student. If companies want to hire college-trained chemists, they should be funding colleges for that, or funding employees or giving scholarships to get a college education. Otherwise it comes across as pushing training costs from the company onto the student, yes?
The 1976 article argues that college-educated people are also more informed citizens and more likely to use non-violent solutions for a problem. Is that not a useful investment that the community itself should invest in, even if there is a glut of people with a mathematics degree?
If so, this isn't really raising taxes as a cost, but investing in the future of the community, yes?
Yet it always seems in these debates that only the teenager is considered competent enough to make the correct investment decision on taking on what may be decades of personal debt.
And how can we know what will be needed 5-10 years in the future? Granted, there are some that are long-shots for ever being worth borrowing for, but even professional degrees like Law have taken a major downturn that no one predicted.
E.g. > [Q:] Let's talk about the student lending giant Sallie Mae. You report how the decision to privatize Sallie Mae in 1997 played a huge role in helping to create this debt crisis. Explain.
> [A:] Sallie Mae was a government-affiliated corporation whose board was made up in part of public officials. When it first came into existence, it was supposed to help create a market for the student debt that the feds were issuing. But after privatization, it became a full-service, for-profit corporation that really "verticalized" its involvement in the student debt industry, everything from issuing loans to running collection bureaus. The concern now is we replaced a program whose real purpose was to help people go to college with something where that's kind of a secondary goal. The primary goal, of course, for for-profit institutions is the bottom line.
Not a word of that explains how privatization created the debt crisis. It's a screed against private companies running loan servicing instead of government bureaucrats.
> [Q:] Suddenly, hedge funds, investors, lots of banks had a more direct role, not just in lending, but in the fees, services, in the collection. And Sallie Mae and other financial organizations began marketing private loans with higher interest rates and fees and with fewer relief options?
> Right. All of the functions of the student loan program originally were run by government agencies, bureaucrats, I guess you could say in a dismissive way, but they were not motivated by profit. They were there to make the program run. When you privatize collections, you get really aggressive companies that come in there and work really hard to get the money back.
Ask anybody who has ever dealt with the IRS whether the government is aggressive about getting money owed to it. Besides that, private loans are a red-herring. 92.5% of student loans are owned by the federal government: http://measureone.com/reports. The interest rates are exorbitant (I pay almost 8% on mine), but that is necessary to support the extremely generous repayment terms (payments capped at 10% of disposable income). And it's bureaucrats in charge of all this, not evil hedge fund managers.
That's what almost everyone fails to mention every-time "crippling student loan debt" pops up. It's capped at 10% of disposable income, and disposable income is calculated as 1.5x the federal poverty level. So if you're making under that (because you're stuck in a part time food service job), you pay nothing. As you make more money, you'll pay more, but it will never go above 10% of disposable income, and you can write off up to $2,500 per year in interest paid on the debt (so if you're making very little you'll be able to take a deduction for almost the entire amount you pay). Then if you haven't managed to pay off your loans after 20 years of making payments, the debt is cancelled [1].
The Obama administration also changed the eligibility for income based repayment plans, so that people with older student loan debt can sign up for them as well.
[1] There's still a problem with the IRS taxing cancelled deb but, it's not as bad as it seems.
First, You're only taxed up to insolvency. So for instance, if you have more liabilities than assets (including the student loan), the tax debt is cancelled. This is likely the case for someone who didn't make enough to pay off the loan in 20 years.
Second, sometime over the next 20 years as more and more people face this situation, congress is likely to do something. There are no interest groups fighting for the status quo, it won't cost that much, and it looks good as a press release, so there's good reason to think congress will fix this.
What's important is that this slow repayment isn't an issue for anyone because there's no interest charged on the loan. It is indexed (with the CPI) so its real value doesn't change. Expensive university fees aren't so much an issue because the repayments don't hurt in the slightest.
Obviously this can only exist as a public scheme. The government's effectively writing a loan that will provide no return at best, and for a variety of reasons may not be repaid at worst. Still, considering recent governments' zeal in increasing enrolment rates, it's a relatively cheap way of providing pain free student debt.
The payment threshold is lower in the US 1.5x the federal poverty rate (so about 16k a year for single person), but again you only pay 10% of anything above that. And any remaining debt is cancelled after 20 years as long as you keep making minimum payments.
And that's a depreciating asset! Granted, one that can be repossessed, unlike an education...
So yes, 8% is exorbitant now, at least in the US. Of course, those 8% loans may have been taken out ages ago. I'm not sure what the state of higher education loan refinancing is.
My chemistry class wouldn't transfer so I had to repeat it. So I took it at a local community college. Before I was allowed to register, I was forced to go to an orientation. The worst motivational speaker I've ever seen kept hammering the students about living life to the fullest and enjoying the college life. I walked out.
The last time I took a class, I could take a full course load for $700. The chemistry class was $800+ alone.
It amazes me that if you came home and told your parents you purchased a $80k car with payments they would consider you an idiot; If you told them you wanted to pay $80k for a college (with a 50% graduation rate) and received a loan that cannot be wiped out by dissability or bankruptsy -- they would think you were a genious.
Part of what is wrong with the world is that too many people go along with the plans other people make for them. Too many people drink the koolaid and believe the hype that a degree is a guaranteed ticket to a serious career. It absolutely is not.
We have the Internet now. It make education extremely cheap. Use it.
Save actual teacher interactions for things that can't be taught over the Internet.
Can you find a collection of Coursera courses that is actually a reasonable substitute for a 4-year degree in CS? There are certainly a handful of interesting topics, but I'm not seeing the whole picture.
You're still thinking in terms of a "degree". Education is not a checkbox on the road to getting a job. That's the old thinking, and it is doomed. A better question is what skills and experience would I need to be valuable in the workplace. Education, especially CS is an ongoing process that never ends.
Speaking from personal experience, I did a little bit of community college but dropped out because I didn't think it was worth paying tons of money for something I could learn from a $40 book (or free online now).
I'm working as a software engineer now and am earning more than most of my peers with CS degrees. No college degree, no Coursera certificates, just real world experience and learning what I needed to.
Hit the nail on the head.
There is education for its own sake, for personal intellectual growth - reading, writing, and discussing philosophy, literature, (pure) math, social sciences, etc. which is really best served by a 4-year residential experience with others who actually care about it.
And there is education for
>what skills and experience would I need to be valuable in the workplace.
which may be best served in MOOCs, community college, specialty career training schools, or simply on the job.
Their unholy alliance in the university system is making both worse. Education for its own sake is dragged down by people who don't want to be there and don't really have the mental horsepower but are simply collecting a credential on their way to a job. It's made unaffordable to those who actually want it by all this demand from people who just want credentials.
Career training is dragged down by adherence to the structures and costs associated with liberal education (dorms, classrooms, libraries, etc), slowed down by all that "distracting" liberal education imposed along the way.
It's time the two were severed entirely.
http://www.theatlantic.com/education/archive/2015/01/where-t...
Bright kids succeed. One of the way they succeed is by going into good colleges. But that does not mean any Tom dick and Harry could succeed going to any college.
How we got here is a complex story that can't be explained in a few sentences loaded with obvious partisan snipes e.g. "the Republicans privatized Sallie Mae", while neglecting to mention the Bush Administration's repeated warnings about reckless lending at Sallie Mae and Freddie Mac that went ignored by a Democrat-controlled Congress. There's more than one side to the story.
One of the main problems of course is that universities find it easier to raise tuition than to cut costs. Budgets rise, tuition rises, and students simply borrow more money, in a kind of death spiral that is now reaching its logical conclusion: hundreds of thousands of graduates crippled with enormous debts and an inability to earn the necessary income to pay them off.
When I compare the campuses of today with those of the 1970s, when I was in university, and earlier in the 1960s and 1950s when my elders were in school, I am aghast at the ridiculous and profligate expenditures that have little or nothing to do with higher education. Student activity centers came into vogue in the '70s and were built all over the country: theaters, game rooms, snack bars and restaurants, activity rooms, etc.
Today they are like malls complete with food courts, clothing shops, Starbucks, cyber cafes or free wifi zones -- palatial, sprawling, with high ceilings, multi-tiered glass and steel structures that run into the hundreds of millions of dollars in construction costs and then many millions in operational costs.
Dormitories were once the most basic housing imaginable, concrete blockhouses full of doubles and triples with cheap mattresses on wooden platforms, a cheap dresser, and military style bathrooms. Today in some places at least, they are like luxury condos.
Forgiving loans is not an option. Millions of Americans worked hard to pay off their own loans and feel little sympathy for those who foolishly over-borrowed.
The only solution is a simple one: cut costs. According to my academic friends, many universities today have more bureaucrats than professors, and better paid than professors, too. Cut the staff to the bare bones, eliminate the Olympic swimming pools and town-within-a-town developments, and focus on one thing: education.
I could run a university for a fraction of the cost by renting an old warehouse, subdividing into a few lecture halls and rooms, hire 20-30 professors, a custodian or two, get a bunch of chairs and white boards and wifi routers, and poof! education will result. Students can live at home and brown-bag it. In fact I've often thought about doing this. Find a bunch of professors who are sick of dead-end adjunct jobs and offer them a way to take back their lives.
Whereas in Germany, for example, even though universities have no tuition fees, only 28% of high school students (equivalent to 1150+ SAT) pass the exams needed to go to them. In the US, we don't pay for the whole thing, but we have no gate to pass through other than getting a college to admit you.
The problem is the implicit assumption that colleges only admit the students that are quite capable of graduating, and that the degree will be worth it. Well, those things may have been mostly true at one point, I'm sure, but without any incentives, they're not really the case now.
Graduation percentage is the key to seeing how far we fall short. First off, check out this amazing article: http://www.demos.org/blog/5/18/14/college-graduation-gap or just look at the most essential chart: http://www.demos.org/sites/default/files/imce/satincomegrad....
Just to make this clearer, the average high school student scores about 1000 on the SAT (the NCAA only requires 800 for eligibility if you can pull a B average). The graduation percentages around 1000 are pretty bad, yet over 50% of high school students have gone to college since 1980, 60% since 1990 and up to 70% since then.
These graduation percentages are very challenging data. Especially looking at the students that can benefit the most from the hoped-for added earning potential. So this is difficult to confront, because it causes cognitive dissonance with our self-image as a country of opportunity.
If you were paying any attention during the mortgage crisis, you can see a pattern here. Everyone is encouraged to stretch to get the most expensive thing they can afford, and the loans are easy to come by.
Well, almost; private lenders are actually kind of strict, which means that marginal and low-ability students (or those who have poor college grades) are shut out. As in this story, they have to go to their relatives to co-sign loans instead, or lose their sunk costs (and dreams) for lack of those last few thousand dollars. Again, this is for students who aren't qualifying for debt that can't be discharged in bankruptcy...
If there was some kind of change to the employment market that significantly devalued the $1.3 trillion in student debt, that would be a heck of a write-off. So in our automated future, maybe we won't be deciding how to give everyone free money, but instead dealing with the gigantic amount of bad student loans we have on the books.
Again, this article puts student debt at $1.3 trillion. That's almost twice as much as is outstanding on all car loans, except that the cars actually exist. A lot of people never get to drive their college education off the lot. How much student aid should we budget to provide for students who never graduate, or even those who we are pretty sure never will?