US Household Debt Surpasses 2008 High
nytimes.com
nytimes.com
I was fortunate enough to have parents who made saving for my college a priority, but watching them go through the same dance with my younger brother makes me wonder how most people get it done.
There's a huge value in going to higher education, but the ever increasing cost and amount of debt people are taking on is setting everyone but the top 10% of graduates up for a life of being in debt, which is kind of horrifying. Especially since they are debts that are impossible to shed through bankruptcy.
As far as being a bubble...there's definitely overvaluation. I think the term "bubble" is both too small and too narrow focused for what's going on right now. People just voted in Trump because they want work. I don't know how society corrects all of this, and it all feels related.
From an outsiders (AU) perspective, it sounds very depressing for youngsters - massive student loans and then you need to jump on the mortgage treadmill (unless you're lucky).
It almost sounds to the point where individual students could pay for personal tutors with the amount of cash they're spending* (or borrowing then spending). Someone over there must be making bank on this... I guess the banks.
Edit: As in, if you took 100 ComSci students each paying $30k a year (or whatever it is), $3,000,000 should get you some pretty good educators for the year i.e. can the game be taken back from the uni's, and education started afresh with a new organisation?
Except that the top marginal tax rates also used to be much, much higher, so it was subsidized by the rich.
But then, there are also many more people going to college now, and there aren't any new Ivy League schools being minted.
If it gets bad enough, the pressure to find alternative ways to educate will build up until we find a good alternative route.
I suppose in the end that is the point. It's the piece of paper that has the value/door opening ability, not the actual knowledge imparted.
Part of the problem with that route is that a big part of university education is the signaling and brand value, and that's hard to replace via tutoring. Maybe that won't always be such a big factor, though.
This is a problem caused by government, not a lack of funding.
But the decreased funding for research on the backend, and decreased direct funding for public schools, have made it so that schools need to seek out funding in other ways.
For example, they actively recruit full-fare foreign students now for the tuition. It has also caused tuition to rise, relegating the ability for students to pay their own way via a part time job or two to the past.
EDIT: And yeah, the increased demand for a fixed supply increasing the price is what I meant by "they're not minting new Ivys". I wouldn't agree that it's a bad thing that we're educating more people to a high level, though.
The mandate is that the UC system is required to offer spots for the top 12.5% of the current year's in-state graduating high school seniors, so this mandate obviously expands if university-age population increases. Which to be fair is sensible: it makes sense for the state university system's size to be roughly proportional to the size of the state's university-aged population. But then you should fund it proportionally too.
Here are some numbers I put together a few years ago (not updated since 2012): http://www.kmjn.org/misc/uc_funding.txt
Which is not to say overpaid administrators aren't also sucking out more money than they should be. The UC Office of the President (UCOP) is currently being deservedly raked over the coals by the state auditor, and I would not shed a tear if UCOP's budget specifically were cut. But in terms of big-picture trends, the state's per-student funding declining from $30k/student in the '70s and '80s to less than half of that in 2012 is a pretty good first-order explanation.
You'd think they would consolidate administrative services like payroll under UCOP, but UCOP doesn't even do their own (they outsource it to UCLA).
People who might have been totally successful in vocational school or a variety of other things have been directed towards college they can't afford, they struggle in, and come out with exactly zero new opportunities open to them but now $100k+ in the hole.
* In most fields.. some fields absolutely require a college education.. for now.
It's exactly the same as saying that people who own Ferraris make more money, so therefore the key to reducing poverty is increasing Ferrari ownership. And of course it's reasonable to take on hundreds of thousands of dollars in debt to buy that Ferrari because owning one will help you make more money.
As absurd as the Ferrari ownership push is, at a certain point, once enough people own them it does start to make sense for any given individual. I mean, who's going to hire the one weirdo who doesn't own a Ferrari?
Education arguably has a lot more intrinsic value than a luxury sports car. But a degree from an accredited institution is not the same as education.
This perfectly fits your Ferrari fallacy: When you own a Ferrari, you're part of a highly-exclusive social club. "Well... No, my Ferrari didn't actually earn me more money, per se, but it let me hobnob with so-and-so, and look at me now! Totally worth the crippling debt!"
CAAM courses taught me about numerical stability, and how careful one must be to design an algorithm correctly if you care about the accuracy of your results. Statistics was tough and taught me how much I don't know about that field, while giving me the tools to understand probability and statistical distributions. These are extremely relevant in business, where we use statistics to model and predict customer behavior, or to fight abuse.
One of the most memorable courses of my university education was ELEC 220, which teaches you how CPUs work from the transistor level up. That and related courses culminated with having you design your own general-purpose computer, from scratch, in a simulator, using nothing but basic logic gates and buses. This included designing the RAM, the instruction set, the ALU, and a number of other components from first principles. I learned that, when you understand those first principles, it's actually not that hard!
Another course, COMP 421: Operating Systems and Concurrent Programming, required me to build my own implementation of Unix processes and multithreading, my own virtual memory system, implementation of locks and mutexes, a malloc-style allocator based on `brk` (a system call that I built previously for my implementation of processes, implemented on top of my virtual memory system), and so on. I built my own simple OS kernel. I think we made a file system too. These are very difficult to build correctly and the experience of putting that effort in, and getting it right, taught me about the limits of my ability, and what I can achieve if I apply myself.
These projects were incredibly challenging, and I learned a tremendous amount during these courses and more. I gained the confidence that, if I needed to, I can design and build most of a modern computer and OS from first principles. This in turn provides a strong foundation for understanding and reasoning about actual, real systems. It gave me the ability to understand how things work at all layers, from transistors to the CPU, to the OS, to an interpreted programming language, to an algorithm running in the language; to dive deep into any layer, and design solutions for any problem. I think this kind of comfort and competence is difficult for non-CS graduates to achieve.
It also gives me an understanding of just how much I don't know in fields like mathematics, statistics, and numerical stability, so that I have a healthy respect for them and know when to investigate and apply rigorous solutions in these spaces to business challenges. A passing familiarity makes it possible for me to research and apply known solutions quickly.
I studied other fields like psychology and human factors, which have been relevant to understanding people (like users of software), and modeling various failures in systems, e.g. operator error.
After graduating college, I also learned a tremendous amount about software engineering in industry. The amount that I learned in industry easily equals or exceeds what I learned in college. However, the topics that you can effectively learn in college are difficult to effectively learn in other ways.
I think I'd only be a shell of the engineer I am today if I hadn't had this education to build on. While I think you can get a job in the industry without this kind of education, if you want to be top in your field some day, then a rigorous theoretical/applied education is a real advantage.
Anecdotally, I am a software developer without a degree (I did some college, never finished it - but I can't say that I took anything useful away from it, certainly not anything related to my day-to-day job). I've learned some of the things that you list on my own, and I haven't learned others (like electric engineering) - but that didn't prevent me from finding a good starting job, and working my way up through the ranks.
So, while not disputing that STEM degrees are useful and offer something that industry experience does not - do we actually need STEM degrees for everyone in the industry? or even for the majority?
A person can probably build back office web applications to meet simple business requirements with a coding bootcamp or by being self taught. If you're trying to scale a global website or web service for hundreds of millions of users with high availability and performance, then a CS education will help. A person doesn't need a CS degree to make iOS apps, but if one is inventing new technology, like self-driving cars or autonomous delivery drones, then a CS degree will help.
I don't apply every individual thing that I learned in my CS degree; a broad education helped me understand what my strengths are, so I can focus on my strengths. Many of the fields of study have been applicable to the kinds of business problems that I tackle. The computational mathematics and statistics have been highly relevant to modeling behavior for business optimization purposes, and to the application of machine learning. I have applied many of the lessons I learned about concurrency, distributed systems, operating systems, etc., in the design of high-performance, high-availability, low latency systems. My study of cryptography and computer security has been relevant.
What's right for a student depends on them, their goals, and their financial situation. I was fortunate to have financial support in the form of scholarships and aid from my parents, and the passion to want to devour all the knowledge I could about CS. An ambitious person who desires to make the most of themselves, to work on the hardest problems, to strive to reach the top of their field, will benefit from a CS education I think. But, I agree that a degree is not required to get a job as a programmer.
I would agree with the advice that one should only pursue a degree (if it's financially taxing) if one has a life plan to enter an industry based on that degree afterward, where that industry has adequately high paying jobs. There are also other forms of success than the ones I'm describing -- one does not need to be a technologist to succeed in business.
However, what should/could be done, is states could do what they've been supposed to do this whole time and begin actually covering students' tuition directly. Unfortunately most states don't increase tertiary education spending YOY at a rate fast enough to cover the increasing costs and enrollment numbers. So the burden falls on the federal government, which gave us this terrible debt-based system
For this to actually work, you need to either regulate prices, or have a public-owned, government-run nonprofit with an explicit mandate to keep the prices as low as they can be, regardless of demand - and throw subsidies only at it.
Most civilized nations have decided that they don't want that kind of thing a long time ago.
I'll leave it as an exercise to the reader to identify other contributing factors...
I'll leave it as an exercise to the reader to identify other contributing factors...
2. It's a LOT easier to get into all of those fields with a relevant degree. As noted elsewhere, a degree is a strong signal that you can perform at least some of the work.
Also: youth with nontraditional backgrounds (e.g. women, ethnic minorities) obviously begin the IT hiring process at a disadvantage. Having a 4-year degree can level the playing field with "traditional" applications possessing only a HS diploma.
There are 4,140 in the US. https://www.infoplease.com/us/higher-education/number-us-col...
There are about 4,000 in Europe. http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=URISERV:c...
The US demonstrably does not have the "large majority" of universities as was claimed.
Makes no sense to me. Any person who thinks something is more expensive than it can be; can start his own college and win over the market while making a lot of money.
How can a person claim to know the value of other people's labor ?
No, because there are enormous barriers to entry. We can, however, see that many other countries have similarly good universities that don't cost as much per pupil.
> How can a person claim to know the value of other people's labor ?
Every person who has ever hired someone does that.
I really wish I had done this. It would've saved me $20,000+. It's a great option, especially if you're in a place with a good community college system with guaranteed admissions agreements (e.g., Virginia).
Compared to what, the price of a hamburger? In state tuition can be 1/2 or 1/3 the price of out of state tuition at the same school, and state schools have lower tuition than a lot of other unis already.
Paying tens of thousands of dollars per year to associate with others doing the same seems odd.
Think about how University education should compare to high school education, in terms of costs. High school costs about $12k per student-year [0], which includes about 1200 hours of staff time [1].
My entire 4-year undergraduate course had less than 2000 hours of staff time, which was about half large lectures and half labs and tutorials. The lectures were always larger classes than high school, and the tutes and labs were about the same size, and mostly taught by later-year students who were paid less than high school teachers.
Facilities-wise, classrooms are classrooms, toilets are toilets, and offices are offices. I can't see any reason why university buildings should be more expensive than high school buildings, for a given number of students. Besides, high school capital outlay is less than 10% of total [0]. Universities can also have classes later in the day and at night, and so get more use out of the buildings.
Then there's equipment, particularly in the labs. The university had significantly more lab equipment than high school. However, there were also significantly more students using it. This wouldn't increase the cost of computer science, maths, business, etc, but might add to the costs of physics, chemistry, engineering. I'd need to see a real cost-breakdown to believe it would be much more expensive.
It should be possible to provide a similar level of education as current universities for less than $5k per year. That's disruption.
[0] https://nces.ed.gov/fastfacts/display.asp?id=66 [1] https://nces.ed.gov/surveys/sass/tables/sass0708_035_s1s.asp
A university degree tells me three things a Coursera certificate doesn't:
1. A graduate have more breadth and depth in a given major. Standford's CS course includes math, physics, engineering, programming theory, data structures, algorithms, etc. (Just picked Stanford's program at random, not advocating they're perfect)
2. A graduate has exposure to multiple topics/subjects, and hopefully has some critical thinking skills. A Coursera cert doesn't do that.
3. Somebody graded them. It wasn't some massive online system.
Maybe other people don't care about these things, but as a former manager, I've found these qualities produce a better well rounded individual in the workplace. There are exceptions to the rule, of course, but that's my experience.
To your point: All these things can be replaced, but I'd argue micro-degrees don't do that.
I do hope this is solved: The price is crazy.
However, there's nothing to stop a person studying just as many topics/subjects online, and to cover them in about as much depth.
I think a standard in terms of grading would be a huge win.
I'm not saying that is what you are doing but it does seem to have hints of it.
Education economics is messed up. Where else does one pay lots and lots of money for something that is essentially freely available?
Through 1992, the top 50 colleges in the USA got together each year to collude on: amount of tuition base salary for assistant professors preventing any bidding wars for applicants
Then the Federal government sued and put a stop to that. However, by that point the tuition was way out of whack and the private elite colleges are still allowed to increase tuition at a rate that is above the inflation rate, therefore keeping tuition very high.
At the same time the endowments have increased to huge amounts.
Elite colleges are being run like corporations with the goal to maximize income and continually increase the endowment.
Therefore, tuition will continue to rise (as every college uses the elite private college tuition as their yardstick) until the Federal government sues and forces the elite colleges to reduce their endowment by using the money to reduce tuition.
Elite colleges will gobble up all the money that they are allowed to........
https://www.quora.com/Why-have-college-costs-increased-so-dr...
Gov intervention is probably needed.
The government interventino has been the problem, as you just exposed.
Let people default on their student debt with 5 years of bad credit, and colleges will fix themselves.
From this it follows that if government gets out of the business of such loans, then a lot fewer people would be able to get them - which would mean that colleges would suddenly get a lot less applicants, sending their revenues plummeting. Which, in turn, would force them to lower the prices.
It's doubtful that it would bring them to the point where a loan wouldn't be necessary for most students, and it would still exclude quite a few who cannot afford such a loan, or wouldn't qualify for it. But one could argue that it's better to not be able to take such a loan in the first place, then to be able to take it only to be saddled with a mountain of debt with no hope of repaying it, and no ability to discharge it in bankruptcy.
IMO, if we want universal high education, the government needs to be in the game, but instead of providing traditional loans, or underwriting such from private parties, we should have a system whereby a loan is unconditionally provided in exchange for a share of future income, with a progressive bracket system (i.e. you don't pay anything below $X, including if you aren't working; and you pay a percentage off anything earned above $X). Percentage would be variable depending on how much income, on average, is expected to be earned by holder of a given degree, based on the current job market - this is to avoid subsidizing too many "worthless" degrees that never pay anything back.
Also, I would expect such system to emphasize trade schools over "real" college - and that is a good thing.
How can the colleges fix themselves? They are not the one's giving out the loans. Maybe that's how it should be... It forces the colleges to have a vested interest in their students' future.
That is what needs to be corrected, by making the high loan-driven tuition levels no longer a reasonable offer in the marketplace, to force the prices back down to more service-oriented fees instead of a profit center.
"Well we threatened a bunch of people with violence until they behaved against their own judgement. Turns out this led to all sorts of problems. Better do some more threatening to correct it."
In addition to being moral, a free market avoids this sort of feedback loop.
I've noticed that younger students are starting to realize how much risk there is in something like that and shy away when my generation didn't. Maybe it's that I grew up in a "striving" middle class, but a lot of my friends were told "just go to the best college no matter what and don't think about cost you'll make tons later," which ended up to be only partially true, and only for some people.
I'm hoping that http://lambdauniversity.com will help overcome some of those things and extend opportunities to folks who can't afford that kind of risk. It's full-time computer science training for free up front, paid back as a percentage of income for a couple years after you graduate. If you don't make more than $50k/yr you never pay back.
The problem in the US system is the government feels everyone has a "right" to an education, so it will underwrite an unlimited amount of loans regardless of what you do with them.
That pumps the system so full of cash no one is quite sure what to do. They just keep raising prices and people keep coming, because what are you going to do, not go to college? Even after funding slows, the prices are still sky high, and people keep paying.
Thus ITT Tech.
and a nation paying highly unreasonable and ballooning sums of money so that a functional literate adult can obtain an education that rarely leads to 10x better outcomes
You can pay for private K-12, or "pay up" and move to a more expensive school district (read: taxes) which would theoretically give you a better education.
School districts have problems with people claiming grandparent's home addresses to attend a better school, and it happens across the country.
[0] http://www.moneysavingexpert.com/students/student-finance-ca...
I've always quite liked that my student loan repayment is tied to my salary as it's one less bill to worry about if/when things go badly. It means that when we were getting our business off the ground and didn't take salary out, I at least didn't have to worry about the student loan.
Don't get me wrong, I'm looking forward to the day I'm not having to pay it but at the same time, I think the changes in university fees would be better received if they simply called it a graduate tax that expires after 20 years.
If universities started choosing applicants this way, we end up with a system that reinforces generational wealth, rather than lifting folks out of poverty. No easy solutions here.
What? How does that work?
Edited to add: this link suggests you can make it go away, but you need to do some extra work: https://studentloanhero.com/featured/student-loan-bankruptcy...
Lenders charge a premium over the prime interest rate because of the risk that they will never get their money back. Student loans are backed by the federal government - there is zero risk for these lenders. They seem to be under the impression that they should be getting paid for risk that they don't have to shoulder.
Why on earth should 18 year olds be entering financial transactions over hundreds of thousands of dollars, where they, but not their counterparty, get to shoulder all the risk? One would expect that the lenders should be sophisticated enough to know how to deal with it, and price accordingly.
And it should be dischargable.
But of course, we are living in a country that is controled by fabulously wealthy and powerful individuals and their businesses.
The education lobby, like any other lobby, successfully petitioned the government to make student loans a contract in blood.
It is deeply irrational, unfair, and leads to inflation and rampant misallocation of resources.
But the education cartel and its alligned politicians don't give one fuck about that. In fact, this was the intended outcome.
They count the money and if it ever breaks, hey, they're rich!
There are three players in the student loan game: lender, servicer, and guarantor. The lender is pretty much what it sounds like. The servicer is the agency that handles the repayment process (and any deferment or forbearance) as long as the loan is not in default. The guarantor is where the loan is transferred if it goes into default.
The guarantor will add collection fees of up to 20% of the defaulted balance, and can pursue those collection methods I mentioned earlier. They can also hire an outside agency to do collections. Their main job is to get loans out of default, either by rehabilitating the loan (a process whereby a borrower makes 12 on time, consecutive payments, and the loan is kicked out of default status), or directing the borrower to consolidate.
Navient falls under the category of lender or servicer (or both), depending on the specific loan. Their interest is in stringing out the payments as long as possible, and wring out as much money from the borrower as they can, which is why they got into trouble recently for directing borrowers to deferment and forbearance options rather than lower payment plans.
If that sounds like a lot of people interested in putting 18 year olds in debt, it is. I worked in this industry for a couple years on the consolidation front, and heard a lot of sad tales.
These articles from The Consumerist give you a better idea what the outrage is about:
https://consumerist.com/2017/04/03/navient-claims-its-under-...
https://consumerist.com/2017/01/18/student-loan-giant-navien...
I think the first covers the "moral outrage" a bit more than the second when it mentions how Navient's public statements are all to the effect of "we're here to help you," while their actions all point the other way. The second is just some straight up shady shit they've been doing.
It's pretty insane, to be honest
I don't know where you live but in Canada the car dealer won't give you the keys without getting confirmation of comprehensive insurance coverage with lienholder protection. Personally just did it a couple of months ago.
I'm a firm believer in maturing before entering a transaction like that. Maybe even "taking off a year" or working full-time for a bit to understand how "the real world" may work from what you understood it as at home (hint: it's much easier for some than others).
Thanks to merit-based scholarships and need-based aid, I graduated with minimal debt, despite attending a private college with a $45k per year sticker price. Thanks to a proper choice of majors, I made good money right out of school.
I'm always puzzled when people claim that one needs to come from money to succeed.
While some (perhaps many or most in some schools) professors live in the isolation of academia, lecturers or part-time, non-tenure professors often work in a field related to the subject they are teaching, and can be a good source of connections for students.
Sure, simple attendance may not be enough for many students, but most colleges do at least try to give you the opportunities and tools you need to succeed.
I'm not trying to be hard on you, it's just that I'm skeptical about whether new non-academic programs in universities improve outcomes enough to offset their costs to individual students. The check on administrative bloat is very weak in the US, and arbitrary ratings like the US News & World Report have more influence than customers do.
I do see how it can be easy to believe that ratings have more influence than students. At the same time, many ratings include student surveys as a substantial part of the ratings process.
Additionally, I can see how it can be easy to believe that there is significant administrative bloat in universities, even when the reports on funding sources and costs state that the administrative costs have been going down. For many the budgets and administration of public universities simply don't have enough transparency, and even when they strive to achieve transparency there may not be enough historical data to give people any real perspective.
Further, it's easy to point the finger at all sorts of practices within a University as sources of said administrative bloat, regardless of whether the budgets support those arguments.
When you have a significant reduction in state funding for public universities, you drive those institutions to look for ways to overcome those budget shortfalls. Generally speaking, it's hard to get people to accept salary reductions, so cost-cutting measures come from other directions. Where I work, tenured/tenure-track faculty in some colleges are teaching significantly more credit-hours than they would have ten years ago, so there are fewer lecturers, students, part-time faculty teaching classes. Since the tenured faculty don't get paid more for teaching more classes, this is a pretty effective cost-cutting measure for some colleges, but it has its limits, especially since those faculty are also expected to continue with other intellectual contributions (such as research).
Every new staff or faculty member hired anywhere within the University has to be justified. They no longer hire someone simply because a position has been vacated, so when someone retires it's possible that their duties simply get distributed among others and the position goes away.
However, if someone's job is basically fund-raising, it's probably going to be easier to get approval for that position, especially if you can find a candidate with a proven history of improving the budget situation for an educational institution.
Meanwhile, programs and physical things like buildings and equipment tend to be attractive to donors. You can put up buildings and fill them with equipment by demonstrating a willingness to pay for 50% of the cost and then creating a big push for donors, and with the right people working on the project you can end up paying significantly less (or nothing). Further, you can then leverage the new building/equipment for further facilities/equipment upgrades.
Good luck getting someone to pay someone's pension or to pay the salary of any of the staff dealing with the budget, custodial work, IT, etc.
Assuming everyone can do what you did is foolish because there's not physically enough scholarships to go around. There's probably a much greater number of people equally puzzled why they have to go to community college because they couldn't get a scholarship.
Anyways after 3 semesters I realized that I really didn't like the major I was in so I dropped outta that school and moved home and went to community college until I got myself together and motivated. When that happened I moved into a local state school that is known for being extremely good for its cost.
I don't regret going to the expensive school even if most of the credits didn't transfer, I met some great people there who will be valuable friends to have made. I also don't regret not going there anymore because it would have been way too expensive.
It's also divided into 51 smaller, more localized governments.
Can you please give me a simple, non-racist explanation why this matters? Please explicitly spell-out what is/is not homogeneous (I always assume race), and explain why that complicates things.
Consider the concept of a business cluster, note that the city as a cluster is a reasonable idea [1].
Note that the population of Denmark does not break top 30 in a list of global cities [2].
Conclude that the country of Denmark, with its small geographic and demographic attributes, could specialise entirely in one high-margin economic area and further specialise their laws and social systems to that.
Basically, 5 million people can be sustained by the excess wealth of a strong local cluster. 50 million people cannot be sustained by one strong cluster, and the different clusters may have different needs.
I have no idea about Denmark, but if they /are/ clustered as a country around some high-tech industry, maybe the economically rational equilibrium to give out scholarships to support the local cluster? Maybe they are just nice people? A country with many clusters needs a one-size-fits-all legal and social system that works with all the clusters. The economic equilibriums may be different to a single cluster.
[1] https://en.wikipedia.org/wiki/Business_cluster#By_type_of_co... [2] https://en.wikipedia.org/wiki/List_of_largest_cities
Not all of them but enough that it affects government at the highest levels. It definitely complicates any topic dealing with poverty becuase race usually gets tied to status in various nonsensical ways.
He's right. There's nothing wrong with being brutally honest.
US has become a country where profit runs everything. What happens when a large percentage of youth don't get education and make enough to buy a house?
of course, a big part of the problem is employers. Employers place a large value on Ivy league schools and expensive universities, thus creating the consumer demand in the first place.
If I had a "small $1 million loan" right now, I'd be able to take much greater risks in terms of quitting my job to create a startup or whatever. Thus I'd be far more likely to be more successful (financially speaking)
... then your fate would be similar to the fate of a typical big lottery winner: having all your money spent in a few years and your life derailed.
Children of wealthy people succeed not because of inherited money, but because of wealth management habits they learned from their parents.
> majoring in Underwater Basket Weaving was not a great idea from a financial point of view
I've met many people in places like McKinsey or Goldman Sachs (i.e. "elite" high paying jobs) with degrees from Oxford or Cambridge in Philosophy, English, Arch & Ant or Theology (in "decreasing usefulness"). Many more than, say, graduates in accounting or business administration from Manchester University, although a few might make it. Hell, I know a Harvard philosophy major who co-authored a very useful Haskell library.
My conclusions from anecdotal evidence:
- these universities, regardless of degree, encourage very hard, focused work, and teach and encourage critical thinking; both critical thinking and hard focused work are useful in all jobs;
- people overestimate the "technical" portion of most jobs, and how easily it can be taught (a law conversion course takes a mere few months in the UK, and banks routinely train thousands of fresh unqualified graduates every year);
- people overestimate the marketability of skills taught in most "useful" degrees especially outside its area of specialisation (e.g. is a medical major more qualified a strategy consultant than a philosophy major?);
- you gain access to a vast alumni network and its reputation (which includes world leaders, the CEO of the companies you apply to, etc.);
- the selective nature of admissions sends the market a signal about your "intrinsic" quality.
(edited to be more readable on mobile)
Obviously, if you want to become a specialist and you are sure of it, it is a better idea to study that field in the best place you gain admission to. But that has not been true of the vast majority of my former classmates.
In fact I watched a strange inversion whereby those who were certain they wanted to be engineers are now at McKinsey or banks and those who were certain they wanted to make tons of money in business are now working in "hard" engineering jobs (structural engineering, fluid dynamics for car companies, etc.).
The reality is - more nuanced. Certainly there are many who consider both GS and McKinsey to be very bad things indeed, and not in any way a professional niche that high quality graduates should aspire to.
Perhaps there may be more to "intrinsic quality" than an obsessive work ethic and social connections?
My experience has been the opposite to yours. People who don't have technical degrees but have been trained to consider themselves experts in business management generally overestimate their own skills, and vastly underestimate the skills and insights of those (nominally) "under" them.
When you are on the other side, other variables come into play. For example, elite grads might be generally overvalued and for the same money you can get a much better community college drop out (who is on the tail end of his own talent distribution), because the market undervalues his skills. This is something that comes up a lot in the Valley and the last team I've personally hired was about half no-degree and half not-famous-degree, so you can guess my position (we hired based on technical capability and more or less ignored CVs).
Whether or not I agree with you on Goldman and McKinsey's intrinsic value adding capability, I have observed that people doing a stint at either are basically guaranteed nice employment for life, fast track to the best management jobs, get a premium on hiring, and so on. Which is what the OP was concerned with.
Worth noting that in the UK until recently cost and university were un-related. Indeed, it's one of the aspects of the modern system that infuriates me. I despise the idea of a bright child choosing a mediocre university to save 2-3k of student debt per annum. I can't believe it's good for the state of society.
It's also worth noting that the terms of student debt in the UK are far far less usurious than in the US.
I'll say it: You just hired for cheap.
- I find that just using a hyphen or asterisk for the bullet
- and two newlines to separate items works well enough.
There isn't any specific formatting that will be rendered as an html list.
For a start there isn't a single legal system in the UK - Scotland has a different process for qualifying than England does and NI and Wales might have different processes.
In Scotland to qualify as a lawyer if you already have a first degree in another subject requires 2 years to get an LLB and then another year to get a postgraduate diploma in legal practice (both full time) then 2 years training at a law firm.
From what I can see in England the equivalent of the 2 years LLB takes 1 year but you still have to get a postgraduate qualification and do the training.
The Law Society for England and Wales says 4 years to qualify as as solicitor if you have first degree.
https://www.lawsociety.org.uk/law-careers/becoming-a-solicit...
Qualifying as a barrister (or advocate here in Scotland) ironically may take less time - but that's exceptional.
NB My wife did the "conversion course" route here in Scotland and it took 5 year and she went on to be called to the bar as an Advocate.
this recommendation was always weighed against the 'freshmen experience'.
i think the demographics and expectations of the college-bound is what has changed, not necessarily the advice. getting a good paying job after school was an amazing achievement, even for top schools like university of california's top campuses, not something expected as normal.
>but it was well understood that majoring in Underwater Basket Weaving
The way you make such a condescending argument and blame the victim takes away any credibility in your comment. The issue is that tuition has ballooned since the 90s. Tuition is outpacing income/inflation and most else, so regardless of what school or major, the ROI is going down for most. Also, even if you went to a top-tier school and had student loans in the 1990s, you could discharge them in bankruptcy--until Bush changed that in 2005. Things really have gotten harder, it's not as you falsely claim that people are picking useless majors.
Ballooning tuition was an inevitable outcome, as was the speculative financialisation of educational institutions, and the relative loss of value of student teaching and post-grad research.
It's really just a form of compulsory loan sharking, and it's politically and economically cancerous.
Not only does it have immensely toxic second order effects, it's almost guaranteed to kill, or at least seriously damage, its host economy.
As for "useless majors" - one of the foundations of any civilised society is personal freedom, and that includes the freedom for cultural and intellectual exploration.
Forcing all activities to compete economically and sweat a profit is not freedom - it's the opposite.
http://www.dailycal.org/2014/12/22/history-uc-tuition-since-...
If random internet sites are to be believed, the $630 combined tuition plus fees in 1976 is roughly $2k today. An awful lot of students could manage that without aid.
I did not have a single lecture or discussion with any of my professors about how I could use my degree to get a job, what kind of careers I could pursue, and how to use my degree for anything outside of academia.
Humanities education has become "education for education's sake".
That's fine and all if the cost of tuition is low. But when you're spending $30k/year on tuition, your professors believing that "everyone should just go into academia" is just a bad investment.
I agree, this should be something more emphasized.
I also blame (to a degree) my K-12 career for not putting an emphasis on any courses related to budgeting or Home Economics.
I set myself with a well-known localized (to the industry) degree (Music Performance), but still couldn't implement it; even in a sense where I could turn it into something a bit more "useful" (Music Education).
Plenty of my classmates have gone on to utilize it effectively.
My major wasn't useless; I was.
The only person who ever told me to consider what sort of job I'd get was the advisor for the law school who said I shouldn't go into law if I ever wanted to make money. At the time I didn't trust her because every other adult in school and my personal life was giving me the opposite advice
But if even the second, third, fourth, fifth, etc, choices also leave you 50K+ in the hole... and nobody will give you a glance without some kind of degree... what the fuck are you supposed to do?
IME you're wildly overestimating the number of people who think they're going to make tons of money with a BA in Photography or similar. They just need to tick that degree checkbox to be employable at most places, and everyone has been telling them to go to a 4 year university their entire life, and they're all stupidly expensive.
It's still understood. It's just that, it's not a very useful piece of information, since _all_ degrees are more expensive nowadays -- not just the basket-weaving ones.
It's not something I really know how to explain, except that the modern expectation of "established person" is someone with a degree. So until that expectation goes away,it seems we're going to be culturally stuck here for a while.
/anecdote
The most common undergraduate major is Business. The "liberal arts and humanities" make up about, what was it, 12% of all bachelor's degrees?
Speculators buy assets that they aren't going to use themselves purely to sell it to someone else. If speculators are selling to mostly to other speculators and transactions between speculators starts taking up the bulk of the active market and it starts driving prices up... that's a bubble. What happens is that at some point speculators will panic when other speculators stop buying the asset, and they race to cash out of the asset before everyone else does, except there's mostly other speculators who are also trying to dump the asset on the market...
Those Dutch tulips or 2000-era dot-com stocks are examples of this type of asset. These are assets that didn't have much value except to speculators. (Cf. you can live in or rent out a house, or collect dividends from other categories of stock, or melt down gold, etc.) As soon as there's a price drop... every speculator is terrified of being the last one holding the bag and sees every other speculator thinking the same thing and accurately see speculators as controlling the price and they all race like hell to dump the asset as quickly as possible. The price drops to near zero.
With an education it's difficult to imagine how this sort of thing could happen. In short, it's an exceedingly difficult asset to transfer. You can't sell your education. There doesn't seem to be a conceivable way that everyone would "sell" their education all at once. Also the process of buying an education takes many years to carry out and so doesn't seem so compatible with overnight frenzies. And the value of previously acquired educations doesn't drop if people buy fewer or cheaper ones; it might actually go up instead.
If people collectively decide Ivy league educations aren't worth buying anymore... it will probably be a trend that occurs over a matter of decades.
Just because something feels dumbfoundingly "expensive" doesn't mean that it's a "bubble".
Private student loans operate similarly and have similar risks. Similarly, you can't _sell_ an education except with a job so if there is even the slightest panic a bunch of people can't pay their loans and the holder of the note can't sell the underlying "education".
People with large amounts of debt demand high salaries (because they have to pay the debt) .
The bubble would burst when companies realize that they can pay someone who went to a trade school/bootcamp much less money, for a similar quality of work than that produced by the people with expensive degrees.
It is already starting to happen, with the insane amount of bootcampers that have appeared only in the last 3 years.
What is the market going to look like 3 years after NOW, when supply has glutted to an even more ridiculous degree?
(My experience is in the tech markets but I see no reason why this couldn't be the case for other job markets. We are the canary in the coal mine of what is to come )
Well, what will happen is that the market for new grad jobs starts to plummet, and all of a sudden those people who paid 200k are left with a fancy piece of paper, and no high paying jobs.
THEN is when things get even more interesting. Now these people with no high paying job start becoming unable to pay back their loans... At which point the whole thing comes crashing down.
The bubble is not just the college degree. It is the market and loans BEHIND the expensive piece of paper.
If Americans could be replaced with outsourced people who do just as good a job for a 1/3 the price, then yes, the bubble would have popped.
The reason why that didn't happen is because an American worker really is worth the money you pay them.
With college, maybe the 200K degree DOES actually make you 200K smarter and more efficient.
If that is the case, then the college degree isn't a bubble. It is backed up by actual value.
Here their wikipedia for more info: https://en.wikipedia.org/wiki/University_of_the_People
I'm not sure you can make a blanket statement like that. The reason all these student loans have become a problem is that objectively a lot of degrees don't have a huge value. People are borrowing insane amounts to become the billionth undecided communications major and it doesn't make any sense at all.
It's almost like we've cut k-12 education funding (and quality) so low that people need to go to college just to get the education they should have received in high school.
At 6.8% interest and 10 year repayment that comes to about $2,761 per year, with interest that can be paid with pre-tax money. Yes, thats a hefty amount to many, but earnings with a college degree are still much more than enough to offset that burden.
Furthermore, 42% are for less than 10k.
The student loan debt crisis doesn't seem like all doom and gloom just yet.
[1] https://trends.collegeboard.org/student-aid/figures-tables/d...
Yes its from 2015, but I can't imagine the distribution has changed so much that it is irrelevant. According to Wikipedia, 39.9% owed less than 10k in 2012 [2].
https://en.wikipedia.org/wiki/Student_loan_default_in_the_Un...
Maybe that's intended, but I feel like it'd be useful to include the average amount of debt of students who graduate. For my state (PA), it's at almost $35k, but only 71% of them have any debt at all [1]. That means that $35k is calculated with 29% of the values being zeroes.
My degree wasn't in math, but I think that means that if you graduated with any debt at all in PA, you've likely got $50k or more.
Does that mean it's a bubble? I don't know. I do know when I was an employee of a private university in PA, we were told year after year of 4% tuition hikes while being told we should be patting ourselves on the back because it's below the national average. That definitely sounds unsustainable, but so far it's been working out pretty well for colleges.
[1] http://ticas.org/posd/map-state-data#overlay=posd/state_data...
[1] https://static.newamerica.org/attachments/750-the-graduate-s...
I don't understand how people in USA are not aware of this and literally rioting in the streets. At the very least swing public opinion and voting. Don't even start talking about the we are americans we don't like taxes BS, you really think being a young adult with a 200K student loan and a $6K deductible for healthcare insurance is better than an extra ~5-10% of tax? It's truly mind boggling.
Nothing is free. Someone is paying for it.
Second, you can also study CS for free in the United States or at a heavy scholarship. Large state schools subsidize a lot of engineers in their educational pursuit so long as you achieve good grades, or score well on entrance exams.
The primary issue we're facing is that we, as a society, decided that in order to obtain an ok-paying job you must attend a university, even when the skills for the job have nothing to do with your education aside from genera knowledge increase. Because of this fact, and the large number of students seeking entrance to university (to get a job) we find that we have far too many students who want to attend college who should not be attending college and they get funneled into degree programs that, while valuable, are not valuable for work. The students that have exceptional need, or exceptional skill, are almost always given a full tuition scholarship so long as they make good grades.
Furthermore, by any measure that matters, the universities in the United States are the best in the world, bar none. So the competition to attend, places further pressure on those seeking degrees that do not immediately translate into a high paying job. We've made a mistake, as a society, by emphasizing "go to college" over "go to trade school".
The rest of your tax argument is based on not much. Paying high taxes is not indicative of anything. In many cases (in my opinion) government does a great job with services. Areas like healthcare are a prime candidate for government take over, but university education is a far more complicated situation. As somebody else mentioned, most student loans are for under $20,000. And a $6,000 deductible? Idk. I have a great healthcare plan where I don't pay much out of pocket.
There is a good podcast about the cost of healthcare but I can't recal the name. But basically, the US spends far more than any country whether you consider it as a nationalized system or a free market system. It's far more complicated than a simple "pay $5,000 more in taxes" argument.
Maybe a very tiny minority of the top schools, but in my experience as a CS graduate from another country, I have not really found the skills taught to graduates outside of the small circle of Ivy Leagues and top-tier unis to be anything particuarly extraordinary.
Grade inflation and the American bias of universities as research institutions where quality is measured by the number of papers and impact factor does not favor other educational systems where most of the research is done in specialized institutions where undergrads are not being taught.
When you get to make up the rankings, it's generally no surprise that the rankings favor you.
https://www.timeshighereducation.com/world-university-rankin...
To put another way, let's take a doctor. He can make a huge salary, but also has a huge student loan debt to pay off (potentially high 6 figure). You can't just slash their salaries and stick them with that education bill. And you can't slash education prices as long as they're more or less private. These two go hand in hand and are going to continue to plague us in costs.
You could say that a real character or charismatic leader may emerge from outside the political system and slowly convince people to change things, but the US just got the former and I don't know that it's working very well.
Brings to mind this recent story about Dwayne Johnson as a potential candidate: http://www.gq.com/story/dwayne-johnson-for-president-cover
The real answer to me is that a lot of people hear "free college for everyone", and decide that this doesn't make sense because there's no way they themselves could have succeeded in college. Extrapolate from that, and most people can't attend college. So if it's a program that only benefits the few, it's evil socialism, and it will just make the government bigger while me and my children get nothing out of it.
Now pretty much every step of that logic is faulty, but I believe it's what people mean when they say "we can't afford to send everyone to college for free". Where the reality is, we really can't afford not to send everyone for free in an information economy.
For example, European GDP per capita is typically ~75% that of the US GDP per capita. Have you ever considered the possibility that the tax regimes of European economies might be a contributing factor to this?
Or have you considered what differences in attendance look like? For example the US has significantly higher than OECD average for tertiary education achievement (https://data.oecd.org/eduatt/population-with-tertiary-educat...) Now, imagine what our achievement would look like without any cost for the education. Further, consider this doesn't take into account graduation rates. It may very well be the case that US graduation rates are lower than European rates implying even larger costs in the US.
What about the effects of such policies on quality? The US is typically seen as having excellent higher education quality. Would a regime under which higher education becomes free require wage freezes for professors? Increases in class size? Decreases in extra-curricular support?
What about the many Euro countries that offer free higher education but to a much smaller sample of the population by making it extremely restrictive (i.e. Germany)?
What's mind boggling is that anyone could ignore the massive tradeoffs of such a widespread and costly project as free higher education in the US and simply refer to it as "magic".
For almost all professions, you can work in that profession after getting a degree from any accredited institution (or often even an unaccredited institution.) Almost all schools are accredited. Virtually every (probably every) public university is accredited and they usually have very low admittance requirements, low costs, and generous scholarships. In many (most?) states, high test scores or a good high school GPA get you a free ride to an in-state public university.
Community college is a good way to get the first two years of a four year degree, or for an Associate's degree that, depending on your field, may be sufficient. They generally also have vocational programs.
You could most certainly become an aviation engineer, architect, etc. by going to almost any school.
The debt story is vastly overblown in the US - it's a serious problem, but mostly among middle-class to upper-middle class families who allow their kids to select the most prestigious and expensive schools, regardless of their academic qualifications, chosen major, or ability to pay. Even in 2017 you can easily get a four-year degree from a good accredited institution and graduate debt free, even if you're not an academic superstar.
That would be the other side of the coin: if you do poorly on the exam or have poor grades, your choices are limited, no?
The upside of the American system is that anyone can get higher education. The downside is that many of the schools are tuition mills.
Having to paying for higher education wouldn't even be such a problem if it still cost what it did when my parents attended.
Although, maybe this whole thing is that the military budget has gone up by 80% since my grandparents attended college and education spending by the federal government has gone down 10 times. Also with the fact that there are five times as many Americans attending college than when my grandparents did, I definitely agree it's time we sat down as a nation and discussed whether we as a nation should pay for our children to be educated to the level necessary to excel in the modern economy.
I don't think the tax hike would even be that extreme. The reason tuition is what it costs right now is that it pays for the people who are getting free rides for various reasons. We got a letter from University of California once that among other things stated that only about 40% of tuition for someone who is paying to attend actually goes to education that student, the other 60% goes to paying for people the UC gave grants and scholarships to. [Warning - Napkin Math] If it actually cost something like $10k per year per american college student, of which there are 20.5 million students attending both public and private universities, we would need something like an addition $210 billion in tax revenue per year, or an addition 6.4% revenue. So your 25% federal tax bracket would turn into 26.6%. That's not all that much when you think about it. Or, the government renegotiates their military contracts to stop being price-gouged in order lower the defense budget. Then use the savings to help fund education...
This fueled significant administrative bloat (compare the administrative org chart of your school to the one your parents or grandparents attended) and massive spending on new facilities, which locked in the need for the higher tuition rates.
It's hardly a perfect system but the basic idea is not unreasonable. And remember, if one pumps money into the system from the government side (which, IMHO, should happen) the counterintuitive result is that rich kids are likely to be the first ones to benefit.
And that's a pretty optimistic observable.
http://www.businessinsider.com/how-do-european-countries-aff...
"For all countries, with the exception of Finland, the US has a much higher percentage of students who have enrolled in post-high school education."
After typically attending primary school for four years [1] (age 6-10 or 7-11), there are three basic types of secondary schools:
- The Hauptschule (general school) is five years long (for a total of nine years). This level of education traditionally [1] prepares for vocational training in the crafts, e.g. in construction or as a barber and so on. As far as I know, there is no way to get to university from here.
- The Realschule (real school) is six years long (for a total of ten years). This level of education is traditionally [1] required for office staff. From this point, you can get to the Allgemeine Hochschulreife by completing vocational education in a profession of your choosing (typically 3 years), then attending school again for 1-2 years, which gives you the Fachhochschulreife (entrance qualification for universities of applied sciences).
This is how my brothers got their degrees: They both went through Realschule, completed vocational training (one as a road builder, the other as a gauger), then got the Fachhochschulreife, applied to a university of applied sciences, and completed a 4-year curriculum to become certified civil engineers.
- The Gymnasium is eight or nine years long (for a total of 12-13 years). Successful completion gives you the Allgemeine Hochschulreife (general university entrance qualification) which allows you to enroll at any university in Germany.
This is how I did it. The only barrier that might exist is a Numerus Clausus: If courses are in higher demand than what universities can muster, they can restrict entry to students with a grade higher than a certain threshold. (The grade is the one on the entrance qualification.)
In my case (I studied physics and computer science in Dresden), this didn't apply: All I had to do was to fill out a form with my name, address and desired major and hand it in before a certain deadline. Also, there is a small tuition fee of around 250 euros per semester. Of this, about 180 euros pay for my subsidized public transit ticket. About 60 euros go to the Studentenwerk (student services), which operates the university's canteens and offers counseling. The remaining change goes to the student's council.
[1] The fine print for all of these descriptions: The education system is in constant upheaval in Germany. Every politician or focus group has their own opinion on how the system should be. Therefore, there's not just 3 forms of secondary school. More like 30 or 40 (over all 16 member states of the Federal Republic of Germany). Secondly, there's a similar trend in Germany than in the US or elsewhere to put less and less value on the shorter tiers of secondary school. More and more roles that used to be Realschule plus vocational education now require a degree. And more and more vocational trainings that used to require Hauptschule now require Realschule. Whereas, a few decades ago, maybe 10% of pupils attended Gymnasium (and went on to university), nowadays it's more like 50-60%.
People wonder why they have to pay so much for tuition and extra fees. Somewhere along the line sports became more important than academia and drove the cost of a 4 year degree from a 15k to 100k.
http://www.huffingtonpost.com/dr-philip-l-yeagle/may-you-get...
In SOME countries in europe, higher education is free. I've met plenty of Brits with student loans. They're still in Europe (and the eu for now)
The root of the social equality issues in the US are vastly far removed from "free college". It's the exact opposite - we need fewer marginal colleges, fewer for profit colleges, fewer marginal graduates, fewer drop outs, and more job training.
If the US could take one lesson from European education, it would be a good system of tracking students into job training in high school.
You are basically advocating the most regressive tax in history. That money would be vastly better served by sending it to inner city elementary schools than dangling in front of a huge group of people who will never be able to use it.
The fallacy you're falling for is that you think that a person's tax bill is going to change depending on what the government spends money on. If the government doesn't spend on education then a hairdresser doesn't get to pay less tax; that money is saved to used to cut taxes for the wealthy, or to give giant corporations a break, or to buy even fancier bombs from billion dollar arms companies. Ordinary people aren't affected.
Given the choice between giving corporations an amnesty on reshoring the billions in cash they have in offshore accounts or paying for kids to go to college for free, I think the better option is education.
No, I never said that, I said there are better ways to spend the money. In 2015 in East Palo Alto, they had to close an elementary school for two weeks because they had no heat. How much do you think those kids benefit from a promise of free college versus a safe, clean, heated, well staffed elementary school?
Given the choice between giving corporations an amnesty on reshoring the billions in cash they have in offshore accounts or paying for kids to go to college for free, I think the better option is education.
Talk about fallacies, there is a false dilemma wrapped in a straw man for you, but let's go with it. No one is offering that choice, but if they were, you should probably be for it because the reshored money could be used for education, though hopefully spent wisely, not on free college. With an amnesty, at least the govt. gets some money to spend. It doesn't help pay for free college to do nothing.
I don't understand that part. In the EU poorer kids have better chances to change their situation due to easier access to higher education.
More degrees inflating the job market, isn't going to increase productivity or magically make more jobs. And since there's already an oversupply of candidates, even more candidates won't make it much better.
If you want to see what more degrees does to a country, take a quick look at China. There, the glut of degree holding candidates is so great, that migratory workers get paid more than college graduates!
The one that kills me is that my sister, who graduated high school with a 4.5 gpa (second only to her class's valedictorian) wasn't able to get any scholarships or grants. If your parents' credit is good enough to take out the loans very few seem to be willing to give you even a merit scholarship.
So I worked my ass off while attending school (academics and side projects) and got myself a nice tech-industry job (not like I'm pulling a Google level of pay though). Still, with the interest rates the government loans are (~7.5%), I'm paying a $2,350 a month bill to shed my student loans in 5 years. Kind of unnerving to think I'll be paying on them for the rest of my 20's. I won't lie, I find myself envious of people I met in school who got free rides in many cases for nothing more than being a member of some special interest group. A bunch of them are talking about starting companies or going to work for very risky (early stage) startups as they don't owe anything to anyone. With the student loan payment though, doing anything that doesn't have good stability seems like a bad choice.
Can you refinance?
https://www.edvisors.com/college-loans/federal/stafford/inte...
If you can, you're much better off limiting your student loans and working to pay for food/beer/rent etc. students who work through college generally manage to pull the same or higher GPAs anyway, so you're not going to hurt your career.
As far as taking out twice the tuition, it doesn't particularly help when the loan system "recommends" borrowing 2x the tuition and gives you a bunch of warnings if you try to borrow less. I ended up working the last two years I was there (also moved off campus).
- $121k in loans is a lot in absolute terms. But compared to the other big purchase people often make, it's not expensive at all (and has a shorter period to expected ROI). The expected ROI on a degree is still massively positive.
- The opportunity to be able to earn -- in one's 20s -- a spare $2,350/mo from a job (versus starting a business) is remarkable. That's close to 70% of the median personal income in the US, which after 5 years will become disposable income for you. At 30, you will be able to basically throw away most of the salary of the median American worker (who is more senior than you). That's remarkable. A 5-year ROI is tremendous for most investments.
- The comparison with alternative career paths makes it entirely rational to borrow six figures for college, at least in the US. The existence of a few well-paid jobs that do not require a degree aside, several studies have consistently shown that college degrees increase lifetime earnings. Basically it boils down to borrowing a lot of money for college is a better bet than the alternative ("either you're slinging crack rock or you got a wicked jump shot.")
- Folks are comfortable financing houses and cars. It's interesting that they get squeamish when financing the one major purchase that's most likely to earn them money.
- Presumably stretching repayment out to 10 years or more would make the burden much more bearable. We finance houses over 30 years; it does make some sense to finance education over one's entire career.
- Obviously I get that the math is different for different career paths/majors/schools. But I'm kind of surprised that the math works out as well as it does.
My student loans are over a much longer timeframe than they give. Closer to 30-years on all of them. Paying mine off are important to me, for obvious reasons, but the interest rates I pay on mine are only second to my home in affordability.
Instead, predatory colleges raise prices of room & board, add random extra charges, add useless admin, spend recklessly(see UC extravagant spending scandal) because of cost disease, poor understanding of personal finance and govt backed loans people keep going regardless of cost.
Moreover, to get something like a $20k-$30k credit limit as an 18-24 year-old, you almost certainly need a parent to cosign, as you yourself would not have sufficiently long credit or positive income history. That in turn means they'd be on the hook for the debt in the event of your bankruptcy, and/or your bankruptcy would impact them as well.
If there were an easy way to transfer large non-dischargeable balances into dischargeable form, everyone would be doing it. :-)
the next step is simply make it so onerous that politicians step in and relive the debt or pick up more of the tab under some kind of student bill of rights. of course we won't get more and better students but instead even richer colleges. the number of private and state colleges with billion dollar plus endowments is astounding and the costs we spend per student is rarely if ever equal to the education they receive.
this is marketing at its finest, or more dastardly.
$30-40k a year
So one full classroom is possibly a million dollars for 30 weeks of talking, plus textbooks, times the count of the course catalog and all scheduled blocks for the entire school.
Quite the budget, to share what is hardly the undivided attention of a supposedly nurturing instructor.
One could afford to be waited on hand and foot, for four (50 week-long, 40 hour/week) years, for the same price. I'd almost wonder if a private apprenticeship is more valuable, but then again, how to broker selection for who takes you on? Or do internships prove that this is all so much education theater after all?
And this says nothing about how little adjunct professors make (very often less than $30-40k a year), which further compounds any negative interpretation for these kinds of arrangements.
Whether US debt grows in the housing sector, student loans, revolving debt, etc is a function of internal, domestic dynamics (including laws, local economic structure, etc). But the total capital flow into the US exceeds the outflow; that money ends up on a balance sheet somewhere.
It's sort of the flipside to our conventional notion of trade balance, that the capital account must be equal and opposite. The difference is that capital flows are now 4-5x what's necessary to account for trade, so it's really capital movements wagging the trade dog.
The net effect of inbound capital flow into the US is people must consume more than they produce, to absorb the additional capital. That is debt. And that debt ends up somewhere, either on the government's balance sheet, in the corporate sector, or households.
Major hat tip to Michael Pettis for his work describing this. His writings are dense but very digestible (http://carnegieendowment.org/chinafinancialmarkets/).
[edited a typo]
In Canada where we have a similar housing crisis nearing a peak SMB growth actually declined recently.
The thing people often forget with these 'bubbles' is that it's not just risky because people lose money in their investments, but it's a massive misallocation of capital away from productive assets. Productive things like job growth and developing new industries and expanding old ones, to increase job growth and wages... which the US desperately needs, as the whole NAFTA/globalization debate highlighted.
No one is choosing to misallocate capital, which then drives foreign investment. The dynamic that makes more sense to me is: foreign entities want to invest in the US, they deploy capital here, and that creates liquidity (lower interest rates, etc) while also increasing the debt load.
How that capital gets allocated is a function of domestic dynamics (political, economic, etc) -- but the fact that there is capital to allocate is, as I note, exogenous.
It's appealing intellectually; I like small and simple models. I suppose if we see a major dislocation in the Chinese economy in the next 2-3 years, his model will be extra-confirmed. (That's a major point he makes on his blog.)
Pettis doesn't really give a primer; he discusses lots of different issues through the same lens, and his target audience appears to be readers with at least an undergraduate understanding of economics and a passing familiarity with balance sheets (I had neither). Frankly, I picked it up via muscle memory (and lots of context-Googling; Wikipedia helps, and StackOverflow has a surprising amount of basic economics info).
I think the bottom line is this: if you're willing to devote a few hours (maybe low tens of hours) to slogging through his posts, occasionally re-reading them a few times and searching elsewhere for explanation of terms, you'll start to understand his balance-sheet theory of macro. And it doesn't require much context, to be honest: one of the beauties of his framework is it glosses over so much of the complexity of an economy by dealing with clear and clean abstractions at the national level. (It's only an okay source for understanding the internal dynamics of an economy; the blog really mostly focuses on international macro.)
I hope that helps... though acknowledge it might not! (My interest was driven by a burning desire to understand WTF just happened!?! circa 2008; that motivation is probably hard to conjure without context, to be honest.)
Isn't that only necessary in nominal currency ?
That is, theoretically a country could introduce some factor that caused their currency, held by their trading partner, to increase in value to match their new export output ?
The balance sheet would pencil out nominally, but there could still be an imbalance relative to some other value ...
Isn't this difference between nominal and real values on the balance sheet what causes the tension between what dollar assets the Chinese hold vs. what they set their currency to vs. what our trade balance is ?
It seems all these excellent answers actually agree that it's not true unless the money is deposited and re-lent.
That's certainly likely in practice, but far from the implied "Oh silly layman, foreigners can't invest in your business without your country's debt going up, it's physically impossible."
The stronger point, that it's true in all cases, is made by Pettis somewhere deep in his blog... and it boils down to the idea that other edge cases diffuse the allocation of debt, investment, capital -- but the identity must still hold true at the level of abstraction of the nation / currency area. Those edge cases tend to look starker (and harder to explain) in toy models, though.
I can't really do his argument justice, though. Sorry! I'm simply nowhere near sophisticated enough.
But... the case where it's not re-lent, there is still exchange-rate pressure, but the 'missing' capital (say it's not stuck under a mattress, but is instead burned in a furnace) effectively deflates the remaining capital in the economy. The identities still balance. Again, the exact allocation of debt etc doesn't matter to the identity, and it's easy to construct a situation where the capital somehow disappears, or the underlying mechanism (or lack of mechanism) obscures the overall identity.
This all works because currency is effectively meaningless, it's a derivative of actual 'value' in an economy, as measured by the total output of goods and services. I'm going to stop here before I butcher it any worse; but if you find this at all interesting, Pettis is a much better source than I.
It plays out in government spending, household debt, corporate debt, and the exact distribution is a function of internal dynamics. But the entire amounts must balance, and must balance with the US accruing more debt.
If the exogenous capital flow is held constant, then the budget deficit reflects the allocation of debt (driven by capital flows) to the government sector. But you could have a perfectly balanced budget, and the debt burden would fall somewhere else -- likely the household sector, via constant consumption but increased unemployment. (This is because government spending is consumption, and therefore stimulative; government cutbacks to enforce a balanced budget, or tax increases, would result in job losses elsewhere in the economy.)
I think it's easy to get lost in the weeds of how the capital flows are apportioned within the economy. What's appealing about Pettis's analysis is it's rooted in balance sheet arguments, which have really beautiful identities. The exact balancing mechanisms are complex and dynamic, but the overall balance is true by definition. It's a powerful framework to look at international economics.
If you import more 'stuff' than you export then you have to balance that difference with something (ie: stocks, bonds, hard currency, land).
And causality is seemingly a difficult one to track down!
Anything where someone is investing money in the US from outside is a capital flow. They all have the same macro effect. The reason so much capital gets parked in the US is a combination of desirability (stability, etc) and the open capital markets. It's sometimes called 'exorbitant privilege,' and it's not actually good for the US (or at least, US workers). It does make capital cheaper here, though.
The larger effect, though, is money that actually gets deployed in the US. Again, that can happen via purchase of debt, purchase of equities (stocks, or even companies), purchase of assets (homes, etc), purchase of debt itself (buying up US consumers' credit card debt). Because the financial markets in the US are deep and liquid, it doesn't matter where those investments occur; they aren't distorting, because yield-seeking investors will (theoretically) respond to the reduced yield in the particular asset and invest elsewhere. In the meantime, the total flows must still balance, so that inflow results in debt somewhere in the economy.
Hope that helps...
Pettis does a better job of explaining (my previous, insanely-long-winded post is exhibit A), but the net result of unbalanced capital flows is typically an increase in debt, which is often manifested in the unemployment rate for an open economy. That's basically the story in peripheral Europe right now; Greece suffered more from a fixed exchange rate with Germany than from corruption and tax avoidance. At least, if you subscribe to the balance sheet analysis.
[0] http://www.investopedia.com/terms/f/fractionalreservebanking...
Banks are not reserve constrained, and anyone can create as much credit as they wish.
[0]https://www.federalreserve.gov/monetarypolicy/reservereq.htm
Ironically, the debt increases based on what Bob does with the money. When purchasing villager brings $100 in capital, that's an inflow. If Bob turned around and bought a business in village B, all we've done is changed names on titles. No net capital flow. But if Bob keeps the money within his village, it gets deployed locally. If it's saved for a rainy day, it's in a bank account somewhere (or stocks, or whatever), and that money gets redeployed as debt someone else owes to the bank that Bob uses. (If he literally stuffs it in a mattress, that's actually deflationary seignorage -- and that doesn't happen at a significant enough scale to matter to international macro... though you could see the gold market as a strange derivative of that impulse.)
So yeah, the debt is created by the lending-on of Bob's newly liquid capital (while the old, embodied capital of his shop still exists). If Bob spends it instead of saving it, the mechanism is a little more abstract, but a balance sheet analysis is pretty simple: Bob just spent $100 that he used to have; that's $100 of extra consumption that was financed by the foreign capital input of the purchaser... the fact that he's not literally in debt isn't the point, since a country's aggregate debt is just everyone's assets in a country minus everyone's obligations; if a net lender reduces her capital on loan, that's the same as a debtor increasing his obligations...
Let's make this less abstract. Let's say the purchaser is Alicia, and she's from Mexico. Her capital is in pesos (she has stores in Mexico, which transact in pesos, so that's what her accrued capital is in). In order to buy Bob's store, she needs to convert to dollars, which she buys on the open market, perhaps by just changing it via her bank, or some simple forex transaction. (Note that the ease of these transactions is probably part of what has changed internationally, to allow these dynamics to dominate.)
The fact that she has to change currency is exactly what drives the dynamic. If Alicia had a US entity, with US-based, dollar-denominated capital, there's no net flow to account for, just a change in paper ownership (though Bob gets to decide how that cash gets allocated now, not Alicia).
But since Alicia represents a foreign capital purchase, her choice to purchase Bob's store is both an explicit capital inflow and an implied investment in the US economy. The explicit allocation is clear: she has converted peso-denominated wealth to US-based (and dollar-denominated) assets. The implicit investment is a function of the overall capital balance: she has effectively, at the margin, pushed $100 of additional capital into the US, by selling assets (or calling in deposits) in pesos, and using the liquid pesos to buy $100. (Note that calling in a deposit is equivalent to calling in a loan, reducing endebtedness in Mexico by the same amount -- though it's obviously mediated by banks.)
If we think of trade as driving exchange rates, we should see a balancing act, where the 'cost' of pesos relative to dollars just went down; by showing excess demand for dollars (to buy US assets, namely Bob's store) and excess supply of pesos (that she had to sell), Alicia is effectively affecting the relative exchange rates of pesos-to-dollars simply by 'voting' on the relative supply and demand. In a normal, trade-driven framework, the dollar would become stronger, purchasing more on the open market, and pesos would become weaker. That would drive up the implied wage of US workers, making US goods more expensive, and making Mexican wages lower (in absolute terms), so Mexican goods are now relatively, and marginally, cheaper. Over time, those price differences would offset the capital flow, because the pricier US goods would theoretically suffer on the open market, and the Mexican goods would look like a relative bargain, so capital would net flow to Mexico to balance the capital flow represented by the purchase of Bob's business.
And that would be a natural framework to understand the transaction, if trade actually drove capital flows. And that's how we answer toy models. But the dominant dynamic in 2017 is that capital flows move independent of trade; I'm thinking of a statistic that Pettis cited (sorry, don't have it at my fingertips), but the total global capital flows are something like 5x what would be necessary to account for cross-border flow of goods and services.
What? Why? Well, because entities on both sides of every border are busy investing and divesting; Alice and her compatriots are also buying US stocks (with converted pesos), as are Bob and his compatriots, selling dollars to buy assets in pesos, reminbi, won, euros.... Do you have international exposure in your 401k? Okay then, you're participating in international capital flows, too.
So the total volume of capital flows dwarfs trade, and we can't honestly expect trade fundamentals to drive exchange rates and capital allocation. That worked for Adam Smith's toy model about English wool and Spanish wine, but it fails today. No, what dominates today is the capital allocation, which is extremely liquid, very fast, highly leveraged, and untethered from productivity fundamentals (or at least, it's not first-order).
So what is the free variable? If international capital allocation is driven by its own dynamics (capital flight from unstable regimes, fleeing 'financial repression', etc), and exchange rates float, how does the US absorb capital flows from the rest of the world? (Again, note the causal inversion: we have a trade deficit in the US because of international capital flows, not the other way around.)
The balance sheet answer is simple, and obvious: we must consume more than we produce, consume more of the world's productivity, financed by capital flow into the US. And that excess consumption is debt, which ends up on someone's balance sheet: the US government (the deficit / national debt), corporate balance sheets (corporate debt, though that's usually returns-driven, so limited by the potential for near-term investment returns), or household debt.
And household debt can be revolving debt (credit cards, the balances are driven higher because foreign capital is implicitly financing lower interest rates), mortgage debt (because home values are driven up by cheaper mortgages, financed again by capital flows), student debt, automotive debt....
I hope I haven't made things murkier.
I am not going to rehash the (excellent) answers you have already received, but it's worth summarizing:
The debt increase occurs because of banking, and specifically, fractional reserve banking.
Your instinct is correct - if Bob just puts the money in his desk drawer, no new debt is created.
When we say that your scenario ipso facto creates debt, what we really mean is that it creates debt because of course you immediately deposit the funds in a bank.
$600B over 10 years is $60B/year.
There are about 20 million college students [1].
That means $3000 per student per year on average.
If loans are paid back over 10-20 years, this really says that students are borrowing $3000 more per year than they were 10-20 years ago.
The article suggested that borrowing was about $600B total, 10 years ago, so essentially it has doubled. FWIW, CPI inflation over the last 20 years is ~50%, the other 50% is either real increase in borrowing or due to the fact that college tuition rates have been increasing faster than inflation.
https://inflationdata.com/Inflation/Inflation_Articles/Educa...
CNBC has a fun infographic interactive from 2014 to look at where those increases are going.
http://www.cnbc.com/2015/06/16/why-college-costs-are-so-high...
Back in 2008, household net worth (HNW) was about $56 trillion, so household debt was about a quarter of HNW. With HNW at about $93 trillion, reaching $14+ trillion in household debt doesn't sting as much.
https://www.federalreserve.gov/releases/z1/current/z1.pdf
At the same time, interest rates are still near historic lows, and may assets have appreciated because of this. I wouldn't be surprised to see real estate drop a bit as the Fed raises rates, which would take a chunk out of HNW.
IIRC, in $100 bills, $100 million is a ton. $13.6 trillion is 136,000 tons of $100 bills.
But over time debt will inflate the economy and make net worth look like it has been raised, when in fact, it's the effect of the debt itself.
It depends ... if trillion dollar coins only weigh an ounce, that could be less than a single pound of debt:
Student loan debt is dischargeable in bankruptcy, though it has a higher bar than most other debt.
> If it were, banks would be far less likely to issue them
Banks issue less than 10%, by dollar value, of student loans; the vast majority are federal direct loans. Even if banks dropped out of issuing them completely, it wouldn't make the kind of difference you suggest.
Call it a slippery slope fallacy, but it's not fallacious when you realize we are rational beings (for the most part) and this loophole is attractive.
It's easy to be "rational" as armchair economists, but social norms and pride are a very important driver. It's what baffles real economists when they gripe "our models would work, if the world were rational!"
So now, I guess, lenders at least need to consider whether a student is a flight risk. If not, they'll eventually be able to collect, presumably.
We should have a marketplace where the normal incentives exist. Does an educational plan make sense? Does the student have aptitude and work ethic for the chosen career? Will there be a job waiting for this student when they graduate?
If bankruptcy were possible, these questions would be more important.
Because there isn't a way to take back the knowledge/skills/information learned while in college. If you default on a home loan, then can take your house. If you default on a car loan, they can take your car.
What can they do when you default on your student loans?
Time does that anyway, you'd be surprised how much you forget when you don't use it everyday. Plus the knowledge get's stale. A university degree depreciates just like everything else.
The price you pay for that guarantee is that you can't declare bankruptcy. The government is propping up this industry and it has some parallels to the US housing before 08 (encouraging lending to subprime homebuyers)
If you live in LA County, CA:
- about $4,200 in State Debt.
- roughly another $4,000 or in LA County debt.
- $161,000 in federal debt.
- $16,000 in credit card debt on average.
- Car loan, home payment, etc.
And on average your savings are minimal. Most importantly, if this isn't you, its still someone you'll be bailing out through higher taxes and/or some other shared burden.
Ironically, the more indebted we become the more dependent we are on our government to address the problems widespread indebtedness creates. This may explain why efforts to enact economic growth policies that restore 5-6% GDP growth are met with all talk and no action in most state capitals and Washington, D.C. Its almost as if they wish to intentionally drive the the country over the fiscal cliff.
Aside from that - nuclear fusion, space travel and colonization are the only technologies that could possibly give this kind of sustained growth.
The monopoly issuer of the dollar is the federal government. https://www.youtube.com/watch?v=c4sD-JDVwwQ
and for the conspiracy theorists who deny the US government as the monoploy issuer: http://elliswinningham.net/index.php/2016/12/30/ridiculous-n...
In 2008 there was a feedback loop that caused things to spiral out of control. Every house that was foreclosed on hit the market at a lower and lower price. This made it harder for people to refinance their existing mortgages. This was a huge problem because adjustable rate mortgages were all the rage leading up to 2008. The result was more foreclosures and then the loop repeated itself.
That isn't possible with student loans. If the student loan market pops, it will be awful for banks, it will be awful for the stock market, it will be awful for the country as a whole, but it isn't inherently going to make other people's student loans more difficult to pay off.
PS: Inflation only shows up once as "The household debt figures are not adjusted for inflation" but that still renders the headline meaningless.
Basically, the article is rubbish.
The nominal number is big, but 2008 number is today's dollars would have been $14.17 trillion, or 11.3% higher than the current debt reported.
Switch the graph to 10 year. We're significantly lower on the household side, not so on the government side.
http://www.tradingeconomics.com/united-states/government-deb...
Too many people think there's forgiveness light at the end of the tunnel. I feel really bad when they realize there isn't. Except death, maybe. I bet we'll see some of that, too.
https://studentloanhero.com/featured/federal-student-loan-fo...
You are basically given two choices as an average person after you hit over $150k debt: 1) Spend 5-10 years throwing your life away to a job to try and grind away your debt; or 2) Work a low-income job for 25 years and spend your time more meaningfully.
Low income doesn't mean no income, it just means you don't get to participate in consumer capitalism the way those without debt do. You can fault people for their lack of foresight, but honestly if I was in that situation I'd probably opt for option #2 as well.
Most people who have/had private loans did so because they didn't qualify for FAFSA to determine that their federal loans covered room and board, but also didn't have enough saved to offset this cost. I think a lot of people are forgetting that, and a large group of people fall into that category.
I studied in Germany in English and there were a lot of people from all over the world in my course (only 20% from Germany) but there wasn't a single person from the US. Maybe the Uni wasn't as good as Harvard but certainly better than many colleges you'd find in the US.
What keeps US students from coming to Germany and study there? It shouldn't be a visa problem nor language.
Increasingly more Americans are studying in Germany (and elsewhere).
http://www.dw.com/en/leaving-the-us-for-a-german-degree/a-18...
But,
I think you underestimate how difficult it is to move to another country. Language, visas (and other bureaocracy) are indeed issues, as are uprooting one's life and moving to a foreign place; no friends, family, familiarity. Of course studying in Germany or the NL or another country where the education is taking place in English is less of a barrier than moving to a place where that isn't the case, but it is a barrier nonetheless. It can be nervewracking and overwhelming. It's a major step; much more so than simply moving to another US state for college, for example.
I say this as someone who left the US years ago to study. I adapted quite well, but I recognize what a big shift it can be.
In my experience of a couple of CompSci online courses they appear to be as effective (if not more) in imparting knowledge and skills. When employers can identify this and start to treat completion of these these courses with the same level of importance as from a "real" university then maybe things will start to change.
The only thing I can see that will challenge this is the cultural indoctrination that seems to be part of the more esteemed universities. How much of the decision to employ somebody from a Harvard or MIT is knowing that the employee has been indoctrinated to think in a particular way?
A bank's core function is to evaluate credit risk. If a bank can't do that, the people running it should be doing something else.
http://www.fanniemae.com/portal/media/financial-news/2017/st...
https://fred.stlouisfed.org/series/HDTGPDUSQ163N https://fred.stlouisfed.org/series/TDSP
Basically all this 100% chart says is that people are taking out less of a loan for a house.
The article talks a lot about debt with no mention of the income supporting it, which is a glaring oversight for any kind of financial analysis. All I can find quickly are median real numbers through 2015. It's not pretty. https://en.wikipedia.org/wiki/Household_income_in_the_United...
However, they should look at German universities in general because they are practically free for anyone.
Part of the problem is exactly that we're subsidizing many people, forcing more scarcity and leading to higher prices. Using force to make someone else pay for my stuff isn't something I want to condone.
When they wanted me to pay a parking ticket. They had that shit down to an exact science.
"That made last month feel like an opportune time for Caitlin Farrell, 34, and her husband to buy their first home, a 1,500-square-foot, two-bedroom house in Sacramento. Ms. Farrell, who works as an education policy researcher, got her home loan from SoFi, a start-up online lender that moved into the mortgage market last year."
Another stunning data point is that in the wealthiest, most productive society that's ever existed, over 40 million people are on food stamps!
So..plan a career, get higher education, have your plans disrupted, and your life is ruined with no escape. Enjoy the 21st century.
What is really sad is that there is no evidence that colleges are providing a better product. In fact the switch to grad students and adjunct faculty means that the actual delivery of their education should be cheaper. (Of course universities are getting less efficient, so it isn't. But the cost of classroom instruction time is not what is going up...)
- Go to community college and live at home for the first two years
- Work part-time even if it takes you longer to finish
- Don't get a fracking auto loan. A well maintained 90s Japanese car will go a long way. If you can program, basic car mechanics is easy.
- Don't pay out of state tuition
- If your going for an MS, get a basic full time job at a university first (A lot of schools have tuition waivers for employees)
- Don't YOLO on someone else's dime, if you're frugal and modest you can do it later on your own.
America (and the world? I don't feel qualified to say that) has a very odd relationship with debt, and it's driving all sorts of weird societal behaviors, like taking $100k+ in debt to get a college degree. I don't forsee it ending well.
Yeah but this time is different :).
Memo to self: looks like US stock market goes from feast to famine in 10 year cycles. Sell now and buy at 40% discount 1-2 years later. Rinse. Repeat
It's also amazing to me is that total household debt is 12.5 trillion, while the federal debt is just about $20 trillion.
In $12.5 trillion so many people have gotten an education and own a home. What exactly did anyone get with that $20 trillion the federal government has spent?
[0]http://cepr.net/blogs/beat-the-press/tell-the-alarmists-to-c...