Why Those Student Loans Aren't Getting Paid Off | Hacker News Reader

Why Those Student Loans Aren't Getting Paid Off

mises.org

22 pointslsh12321 comments

Instead of dealing with increasing costs of student loans we've thrown more money and accessibility at it (government sponsored, government backed, etc). Universities responded in kind with increasing tuition because well, people can get the money!

The other thing that happened is more and more of the job market requires a 4 year degree and some experience for entry level jobs! So while the price of education has increased, what your salary is after you are done has either decreased or not kept up.

We've overpriced the purchase of a degree, and made them a commodity in the job market making their value go down.

I think we blew past the point of moral hazard when a degree became so expensive it required taking a loan.

Education has become one of the major economic predators of western civilization.

Substitute 'western civilization' for US/UK? In Europe there still are many countries with free or cheap higher education.

Education as a consumption good funded by loans is tragic though. The most expensive consumption good in a lifetime ...

I might have gone a bit hyperbolic on that. And I always wanted to study at U. Göttingen.

I would modify this to focus on degrees that don't directly lead to income streams that can support loan payoffs, but I agree with the overall sentiment.

You've got cause and effect backward: degrees didn't start "requiring" loans because they became overpriced; they became overpriced because loans were available.

Seems crazy that loan underwriters wouldn't take the type of degree into account. Shutting off the price signal of which jobs are in demand in the market seems extremely irresponsible. Reminds me of subprime lending problems that gave way to 2008.

Student loans are federally insured, so no one cares at all about the likelihood that the student will be able to pay it back.

These federally insured loans seem to be a common source of problems. The massive moral hazard means that incentives don't operate correctly. How do we fix it? Can we wind down and stop federally insured loan programs?

Likely not.

Students coming out of high school have no credit and generally only have a low-paying job. It takes some years to remedy these. The solution would be to have a co-signer, generally parents or other family member. This leaves young folks very much subject to circumstance. Orphan or in foster care? Good luck. Parent that thinks education is sinful, disowns you due to lifestyle, or is one of the 'you aren't my responsibility at 18' crowd? Even more good luck. Parents supportive but have bad credit? Yup. No loan for you.

This wasn't a problem when it was actually feasible to work your way through college, but it simply isn't anymore. A few pull it off, but many more simply can't.

I'm in a strong financial position and support my kids and their education to a very great extent.

Even given that, I'm unlikely to co-sign on a substantial loan for their education. Most parents would be even less willing (or in a less strong position) to co-sign for a loan that can't be discharged in bankruptcy. (And I completely support why they can't be discharged in bankruptcy.)

What we might be able to do is transition the federal guarantee to a private (or possibly still federal) insurance program with properties like variable PMI, factoring in credit, degree, grades, criminal record, or anything else actuarially linked to future repayment prospects. I don't love that idea, for many of the same reasons you mention, but that is a possibly workable middle ground of sorts.

Degree type is still very much betting on the future - and judging on earning average or potential can have some unwanted consequences.

It is a bet because one cannot predict which fields will have good salaries, which will go down, and which will go up: With a college student, you are easily trying to guess if their job will be around in 10, 15, and 20 years... or beyond.

Besides, some professions require schooling, yet they aren't exactly high-paying careers. For example:

Accredited pre-school teachers need an associates' degree, yet in some areas you earn around minimum wage. Sometimes your college job will pay more by then. 'Normal' teacher salaries start low in most places, with no income during the summers. Nurses get paid more, luckily, but not enough to be comfortable at times. Doctors get paid more, but have a heap of debt. Criminal lawyers aren't necessarily rolling in money, especially if you are a public defender. And that is a seriously needed job.

If you base on demand of a job or on the money they are expected to make with the job, it could easily mean that some of these necessary positions won't have folks to fill them unless they have a way to pay for school.

Teachers in my area still get paid over summer. Their pay is distributed to run August-July.

They don't in all areas. A lot of schools in Indiana do not, though occasionally they offer a savings plan so the teachers still get paid during the summer. (This is due to a quirk in payroll law, I guess, and a conservative response to it. My father worked as a business manager for different schools). It definitely isn't a standard at all of them.

How would that work? I seem to recall that I didn't even declare my major until sophomore year (MIT). And even considered changing majors (Mech E to EECS) much later than that.

I don't know that putting a loan officer or a lender approval panel into the mix of a college kid struggling to choose a major is a great idea.

Why not? The whole point is that yes, the kids are struggling to choose a major, and a large number of the time they make a bad decision. If their ability to receive funding was dependent on what they chose to study, then the idea is that more students will choose more productive and beneficial majors.

And the problem you pose is easily solvable. They have to re-apply for loans every school year. Maybe pretty much everyone gets funding freshman year before they declare, but when they re-apply for sophomore year their major is taken into account. If you switch majors mid-year, then when you re-apply the following year, you get evaluated. Or if you received funding for a given year, you are not allowed to switch your major during that year.

EDIT: It's really not all that different than home loans being determined by income, credit history, etc. If you are going to ask for a $500k home loan, you better have the income to pay it back. If you are going to ask for a $100k student loan, you better have the projected/expected future income to pay it back.

Re-apply every year?

What reasonable assurance do I have that my kid won't get denied for his senior year, thus being $100K+ in debt and without a degree? (which is probably worse than the current federally subsidized system)

What assurance do I have that the terms won't get dramatically worse by a private lender for the junior and senior year and for this to be driven by "Now I've got you by the shorties" rather than by "basket weaving is not a lucrative career"?

What effect does that have on smart students of middle-income families who don't have the resources to pay for college without loans, yet make too much to get sufficient need-based grant money?

Your approach confuses economically rewarding courses with socially beneficial courses.

Part of the problem is that resource extraction and redirection activities are drastically overvalued, while activities that generate lasting social value are drastically under-rewarded.

You can't expect markets to correct this, because markets are part of the resource extraction/redirection system, and will always overvalue themselves and undervalue competing social mechanisms.

"But today, in a period when employment and earnings are vastly better than what they were in 2010, the delinquency rate for student loans is more than 11 percent..."

Might wanna check your crystal ball on that one: https://en.wikipedia.org/wiki/Household_income_in_the_United...

???

The link you provided clearly supports this statement.

It's an interesting idea to treat educational loans like home loans, where the bank appraises the value of the home and sets loan limits accordingly.

Reply on news.ycombinator.com