The Great College Loan Swindle
rollingstone.com
rollingstone.com
While the problem, it seems to me, is entirely one of political choice and justice, and the current situation seems very unfair. Young people from poorer backgrounds seem to be destined for slavery for a large part of their lives, unless they get extremely lucky.
People argue: but his degree is not worth it. On a meta-level that is simply impossible: the guy is a teacher, by definition in his lifetime he will produce much more to society than his education cost. If he can't reasonably pay of his loans the system cannot be fair. He was shortchanged and then punished for it.
Also it seems strange that 10 years after default he still has to pay rehabilitation and his debt is still growing. Is nobody in the US protecting people like him? I know in a situation like that where I live (NL) municipality instances will be all over you and your live will suck for 3 years, but after that your debt will be gone and you can start over.
I understand teachers probably make the lowest salaries in any degree required field, but they can keep their heads above water if they are fully employed. Many family members are teachers, and it's noble but thankless work.
You gotta give Americans a bit more credit than that. American attitudes are cultivated in a very different context. Yes, in a place like Germany, the government mostly pays for your school. The flip side is a lot more government control over peoples’ choices to make the system sustainable. We had an au pair from Germany. Very bright young woman, but a late bloomer academically. She was put into a non-college track in high school, and doesn’t have much in the way of other options in Germany (although, she had a white collar office job because those are attainable without college).
In the US, the government doesn’t pay, but also doesn’t restrict who can go to college, impose quotas on what degrees colleges can grant, etc. If people want to take on a bunch of debt, it’s their choice and they can deal with the consequences.
[0]. https://mobile.nytimes.com/2010/05/29/your-money/student-loa...
So why can't one simply expect from grown-up people to do the same for the degree that ones planes do get?
(I think there's a famous anecdote by Bobby Jindal where his father told him that he could be anything he wanted to be -- any kind of doctor that is)
Heavy-handed? Yes. Effective? Also yes.
Edit: found a reference that says parents must support children until they are 21 or have a profession to support themselves (presumably whichever is sooner -- I hope!).
> Edit: found a reference that says parents must support children until they are 21 or have a profession to support themselves (presumably whichever is sooner -- I hope!).
According to
> https://www.merkur.de/leben/geld/erwachsen-kind-finanzieren-...
if the child studies at a university, the parents have to pay for them until it gets its master's degree (which is typically much longer than up to the 21 years of age). There are exceptions, such as if the parents can prove that the child does not concentrate on his studies or if it changes the degree course "too often" etc. But assume that the normal case is that the parents have to support the child up to master's degree.
They grew up in a world where a bachelor's degree - any bachelor's degree - virtually guaranteed at least a middle class lifestyle, if not an upper middle class one. Many of them can't fathom the idea of graduating from college and then not being able to find a job that pays a living wage. Especially the ~2/3 of them who don't hold bachelor's degrees themselves.
It is not only about finding a job (I believe with a "sensible" degree you will always find one), but about finding a job that pays well enough so that beside the costs of living (which are enormous in some regions) also the college debts can be paid back in a reasonable time.
My point is just that a solution to this problem that requires teenagers and their parents to accurately predict the future of a complex society is not actually a solution at all.
On the other hand, I don't think you can ignore the financials. It's not about "useful vs useless." All courses of study are useful. People are getting saddled with piles of debt that they can't manage, though, and US law doesn't allow you to declare bankruptcy from your student loans, so people can potentially end up screwed for life. Against that kind of a backdrop, to blithely charge students whatever tuition they're willing to pay, regardless of whether or not they can expect to be able to pay it, is heartless.
So then the question arises, how do you increase the chances that nobody gets shackled with unmanageable debt for life? Changing the earning power conferred by different majors is a possibility. But, capitalism being what it is, that's going to require either changing the demand for those skills, or changing the supply of people who have those skills. It's hard to imagine how the former can be managed without some sort of government subsidy.
There are myriad ways you could affect the supply side, though. Doing something to put universities on the hook for how much their students earn, such as having students pay a % of their income to their alma mater for a decade or two in lieu of all or part of their tuition, would certainly do it. Universities would hopefully respond by starting to limit the number of seats available in departments that feed into less lucrative career paths right quick, in order to make sure that every department is financially sustainable. That would, in turn, reduce the supply of people with those skills, which would translate into an upward trajectory in how much it costs to hire someone with those skills.
But what is that kind of approach, if not a distinctly capitalist riff on the idea of "delineating useful vs. useless degrees"?
And if not something like that, then what?
If they advice this, they should put their money where their mouth is, i.e. be willing to pay for a substantial part of the college debt.
Why?
To clarify what I mean: If student loan debt is dischargeable, that means that taking out a loan for college is actually less risky. We should expect more people to do it, not fewer.
There is because there is some point where the ratio between amount of money requested, and expected postgraduate earnings for the chosen degree, would make for a bad deal due to the likelihood of default.
It’s less risky for students, but loan providers won’t want to overextend themselves to accomodate institutions who promise students the moon and demand sums they won’t be able to repay to “give” it to them.
If you want to make the argument that students are mostly picking wrong degrees, make it with one that is actually prevalent. Not the one that is fashionable among rich kids you personally despise.
It undermines the idea that all four year college degrees are worth subsidized financing.
That should be fine and enough because there is value in English; he's a teacher, he's definitely gonna produce a TON of value over his lifetime for society (and, discussion over fair wages for teachers aside, enough money). More than the $35k debt he graduated with.
Or take the lady who has payed $63k towards her $8k original debt.
The problem here is that the student loan debt market is structured such that this value won't actually pay the debt. If they tie you in with perpetual debt, they can essentially "tax" you for the rest of your life, and because student debt is some sort of exception, there's nothing you can do to default out of it. What corporation wouldn't take the incentive for this essentially free, steady monthly income?
I think schools should be required to justify why imparting a gender studies education costs $100k. Apart from professor salaries (maybe $80k/yr for a public uni in a a major metro area) and classrooms/whiteboard markers/projectors (already paid for, but figure equivalent of $15k/year) what exactly is that money going toward?
We in industry can also help by not valuing the university "name" so highly, and saying so loudly and often. If the job market was kinder to applicants from institutions of lesser-renown, we'd have fewer students willing to go into crazy debt to get into a prestigious school. I acknowledge that software is actually pretty good about this but other industries are not.
The real criminals here are teachers, parents, and employers, who have created a culture where people are compelled to get completely unnecessary higher education. Here, you need a college degree to be an administrative assistant in an office. In Germany, in contrast, young people can get many white collar jobs after age 16, plus three years of apprenticeships during which they get paid.
Neither of my parents have a college degree, but they were insistent that their children got one - any one. It's the prevailing blue collar logic and it's hard to shake it when you're surrounded by it.
The article itself explains why teachers and parents and students themselves still seek degree - because alternative is nothing good either.
It is competitions and if you dont compete, you loose for sure.
The wrong move in the game was in my opinion rather to give birth to children if you cannot afford their education.
Then again, if your logic makes you claim that majority of population is wrong for having children (including lower middle class and employed honest workers) then maybe the problem is elsewhere.
Personally, I don't think parents should pay for higher education. I wouldn't have taken mine seriously if I weren't paying for it myself. It gave me a healthy dose of the value of money.
I do agree that our education system is the most at fault, though I would make administrators as criminals before teachers. Administrators are the ones who continually spend their schools' funds on pretty buildings, sports teams, and raising their own salaries. That money could be used to develop better educational methodologies, raise teacher salaries (in the case of K-12 where viable STEM professionals would be taking a giant pay cut compared to industry), and improve the quality/quantity of resources that students really need to succeed (not a new football stadium).
Parents and employers are typically reacting to this environment, not generating it. Employers require more education due to the failures of K-12 and some universities. Parents try to recognize what their kids will need to get a fulfilling career (we hope), though they may lack the understanding to do so effectively.
Lenders don’t have a choice. Student loans are originated without regard to ability to repay. Indeed, today, lenders are just responsible for servicing and refinancing—the federal government handles all loan origination.
It’s the quintessentially American way of solving problems in the most expensive way possible. Instead of actually addressing social and racial injustices. we tell disadvantaged people to go to college and then make it illegal to deny them outrageous student loans on the basis of their financial ability to repay. The primary beneficiaries are, of course, the petit bourgeoisie—school professors, administrators, etc.
I think there are lots of sources of failure that lead up to the problem, but the vast majority are of good intentions. It's not hard to see why the government decided to create special rules. It enabled lenders to all but completely ensure profit on loans meaning that anybody would have access to university, regardless of financial background. And that's a good thing.
Parents and teachers are also acting with good intentions. I would fully recommend college to anybody. I would certainly recommend move to Europe for it now a days, but the value of an education is immense. Access to the resources (physical, personnel, and intangible) of a campus is something that can open up vast new possibilities for an individual. And being around a more competitive group of individuals than you'd experience in high school can help ensure people stand a better chance of reaching their full potential.
And then there are employers. Today in the US it's somewhat paradoxical that we have a genuinely low unemployment rate yet also most decent job offers get more resumes than employers can handle. All other things being equal, a person with a college background is going to be more desirable than somebody without one. So why not require it and cut those CVs down to a more manageable size?
Perhaps the only people acting in bad faith are lenders. But like you mentioned they're just opportunists. And cognitive dissonance is a hell of a drug. They're not exploiting anybody. They're providing equal access to education for everybody in mutually beneficial agreements. At least that's what they'll convince themselves of.
What I'm getting at here is that trying to point fingers at one person or another isn't really productive. Who cares who's fault it is? There's a problem that needs fixing is all that matters.
I care. We can't properly address the problem or learn from our mistakes if we don't know the cause.
We had colleges before federal student loan subsidies. Our parents went to school and paid for tuition with part time jobs. Then we had them, and decades later, the chickens have come home to roost. This is not rocket science--it's Economics 101.
We are letting bad ideas off the hook by not focusing on what the problem is, and as long as we let people pass blame, we can expect to continue seeing it again and again.
- Government giving special laws that are able to be abused.
- Lenders utilizing said laws to maximize their personal benefit
- Universities raising costs far outside of any notion of need
- Students taking out loans they can't repay
- Parents/schools encouraging students to go to college, even for low value degrees
- Employers requiring degrees for jobs that don't really require them.
And while each of these can be attacked, they can be just as easily defended. When you try to attribute blame, it's going to end up being horribly subjective and more like to turn into a witch hunt than anything else. And it's also going to be incredibly partisan. For instance people who chose to not attend university would completely understandably prefer to blame students. Students who went to university would probably prefer to blame universities or lenders. Who's right? There's no objective answer.
What is clear is the cause of the problem -- students are taking out loans that will not be able to be reasonably paid back. And so too are there plenty of solutions. Blame plays no part other than to divide people.
We have to be able to acknowledge when bad ideas don't work well. This is one of those times.
As an example, a large chunk of my classmates did not study after the Abitur (which is the qualification for university studies and can be received with about 18 from the Gymnasium – our highest secondary school). Many went to local banks and became bank tellers and back office workers.
Bank tellers used to have "Mittlere Reife", which you get at the Realschule (in the middle of secondary schools) with about 16. There are still bank tellers with Mittlere Reife, but since the banks can choose to get young people with Abitur, they do so.
Becoming a baker or a joiner used to be the domain of young people who graduated from the Hauptschule – the lowest of the secondary schools. Today, many are from the Realschule.
Still, the apprenticeship system works, even if the standards have been raised.
Even more interesting to young people who think about going to college (because that's the audience we're talking about here) is the "dual system", where they study half of the time, but with lower academic expectations (less theorizing, more practical learning), and spend the other half in a company where they can immediately put their new knowledge to practice. They are paid by the company (enough to move out from home) and are obligated to work at that company after graduation for a few years. It is quite a bit like apprenticeship, but for white-collar jobs.
It is less prestigious than studying at a university, but companies love those students, because they are well-integrated into the company from the beginning, and some of those students do have rather fast careers afterwards.
The standards for these jobs surely have raised a litle - but mostly the standards of Hauptschulabschluss and Realschulabschluss (I don't know how to translate these words into English) have declined. Things that every graduate of a Hauptschule, say, 40-50 years ago, had to know, say, in writing German text or numeracy, can not be assumed anymore. So the problem in my opinion mostly lies in the decline of standards in schools instead of new, harder requirements to become an apprentice.
First is that all colleges are not the same,with some colleges offering next to no marginal benefit vs. a high school diploma. Which means there are huge price discrepancies based on quality (DeVry ~$16k/year online vs Ucal @ ~14k/year on campus (instate)).
Also not addressed is mean salary of entry level jobs in your area of study - is it worth spending 100k to get a an accounting degree from a decent program where you can probably get an entry level job that pays $50k? Probably. Same $100k on a degree in social work where the entry level job is $30k? Maybe not?
1. Always go in-state public funded college and university, it's much, much cheaper. In-state meaning the state the student is currently a resident.
2. If you must go out of state, make sure the student registers as a state resident after their first year (most states require a year waiting period). This way, you only pay out-of-state tuition for a year. Generally out of state tuitions are 4x or so higher than in-state (it's been a while since I've examined this, so it might be higher or lower).
3. The cheapest path is to get your AA degree at in-state public community college, then your remaining 2 years at university. Not only is this cheaper, but this allows the student two years to decide their major after some realistic exposure to the various fields and what they pay.
4. Never attend private colleges without a scholarship, unless you are wealthy. There are two types of private colleges: old and new. The older colleges like Harvard, etc are expensive but bona fide, then new private colleges like ITT Tech, Trump university, etc are generally scammy schools that spend way more on marketing than education. Stay away from these at all costs, they are traps.
5. Make no mistake, a college education is a huge leg up in the marketplace for jobs. It's no guarantee, but not having one is much, much worse, and will be more so in the future. We live in a service economy, and service jobs require degrees for the most part.
6. If your field requires a Master's or Ph.D to be employed, that is a big red flag, and you should consider another field. This requirement generally means the field is supersaturated with applicants so much that employers can require an advanced degree for hiring and it's very difficult to not only land the first job, but also move to different employers. Remember, you have 40 years of work in your lifetime.
7. Outside of perhaps Ivy League, the college you attend doesn't matter. Employers generally want to check a box that says you've earned a degree in your relevant field and that's it.
I sometimes think about taking a year or two off to do that just for the fun of it.
Making student loans exempt from bankruptcy is distorting the loan markets and, in turn, tuition. If restricting the availability of loans creates a situation in which the higher education is unavailable to students without financial means, then the state should make free or very low cost higher education available to offset this. The solutions are so obvious that it's pretty clear that the financing of student loans is a giant con at this point.
to graduate in four years from a state university (paying in-state tuition) costs about $44k. a typical college freshman has close to zero assets and no credit. if they have any income, it's probably a part-time minimum wage job. assuming they don't qualify for any aid, these people need to borrow about $10k each year and likely won't pay any of it back until they get a degree.
now let's pause for a moment. how many ways can you get an unsecured $10k loan with limited to no credit history? they basically don't exist. you would need to build credit for a long time before you got a limit anywhere near that on a credit card, and their whole business model revolves around loaning people more money than they should.
now consider that in the US, about 40% of students fail to get their bachelors in 6 years. obviously these people will not be able to use the degree to obtain employment, and probably will not ever pay down the debt in full unless they enter a lucrative trade that didn't require the degree in the first place. if we assume that the students who graduate are able to repay the loan, they have to pay a significant amount of interest before the lender breaks even on the group of loans. and keep in mind that there's no guarantee that a student who graduates has acquired a degree that actually improves their earning potential.
so tl;dr: it is really hard to offer a reasonable loan of that size to an 18yo with no skills/assets who stands a substantial chance of either not finishing or finishing with a valueless (to the market) degree.
However, that was also when a year of college could be paid for by a minimum-wage summer job. Now it's egregiously expensive AND they've got you by the balls.
I don't disagree that something is seriously messed up in this country's higher education system, but the discharge exemption for student loans is probably one of the few things that keeps the system even slightly economic. like I said above, you cannot just lend huge chunks of money to kids without making any risk assessment and also allow them to default whenever. at least, you can't do this unless your intention is to lose money.
if I had to have a guess, I would say that the main contributor to our outrageous education costs is the government making all these uneconomic loans in the first place.
It could still probably be gamed to some extent but would at least prevent the somewhat disgusting situation of stacking tens of millions yearly into endowment funds while gutting the futures of students by raising tuition
Also, we can expect income-based repayment to become the norm, since most will not be able to afford the payments
I think that's a fantastic idea. For needed professions, it could be X - Y number of years. Inexpensive and attainable education would be a good thing, I should imagine.
In theory, this stops when you pay off your loan, but the most recent estimate I know of[0] predicts that 60% of graduates under the current system will never get there, so while it's technically a loan, it feels more like a graduate tax.
[0] http://www.telegraph.co.uk/education/educationnews/10747315/... (2014)
I don’t think the political implications of a significant fraction of 23 year-olds owing $50,000+ to the Federal government have been fully thought through. For one, it’s a huge policy lever. We’ll forgive your loans or reduce your payments if...
But that is a nit. It is a very real, very big, problem. A country needs an educated work force. But the vultures have turned that need into pure profit, at a great cost to people just trying to have a good life.
I’m not sure to which “deals” you are referring. When I went to college I paid the sticker price for tuition and then some (for housing, books, administrative fees, etc.). I feel like this is another harmful myth that scholarships and grants significantly lower the cost of college when, in reality, for most students they don’t.
My college's web site is an example. https://www.smcvt.edu/admissions/financial-aid-and-tuition/t... (I understand that all schools in the US have to have such a page.) It lists the bottom-line summary of the sticker price and then gives you a link to a calculator that you use to figure what it will really cost you, which is typically much less. For example, overall we give back more than half and I assume that our peer institutions do also.
(And, yes, a loan is different than a grant, which is different than work study. My only point is that the end price is often much less than the sticker price.)
All this is not to say that the point of the article is wrong. It is not wrong. I said it was a nit, and I meant that.
Of course sticker price takes into account that they're granting virtually everyone $500. This was the game in the early 90's; I'm sure it has grown since then.
Aside from the hyperbole, I do think the article has a fair point. And there's a very simple solution. Align the interests of lenders with borrowers. There are a lot of ways to do this. One would be to enable borrowers to declare bankruptcy meaning lenders would not be throwing money around like beads at Mardis Gras.
Another option is to change the terms of students loans to be as special as their permanence is. Require student loans be paid back in terms of x% of income for the x% of years after graduation. This would heavily incentivize loan agencies into ensuring a college education does actually lead to a good job. The reduction in lending would also reduce the cost of education as a whole. As the article mentions, the bloating in tuition and other rates is mostly just a factor of greed. If you offer a product valued as practically priceless, and a consumer's available income is x then your price is going to approach x. 'Mardi gras lenders' push x higher and higher to no end.
Ultimately there are lots of solutions. But I expect we'll do nothing. As the 15% I mentioned above gaurantees that even 'bad loans' are good, from the perspective of a lender. Even if somebody gets stuck working in aggregate $30k jobs (inflation adjusted) for the next 50 years, that's $1.5 million with 15% there equaling out to $225k. That's an extremely healthy profit even on defaults. To New Orleans we go!
Where is the source for this statistic? The only universities which I know to charge that high are small private liberal arts colleges or the Ivies.
'I was going to donate money to Yale. But maybe it makes more sense to mail a check directly to the hedge fund of my choice' - Malcolm Gladwell tweet
https://www.thenation.com/article/universities-are-becoming-...
https://www.theatlantic.com/business/archive/2017/10/midwest...
yes, it has come to this.
How many times have you heard the expression "do what you love, and the money will come?"
The culture in the U.S. is in dire need of a return to merit, as well as drastic changes to our education system; and, no, the answer is not more funding.
Also I believe that government aid should be restricted to degrees with a minimum relative ROI. Education for the sake of culture is no longer useful when you have an increasingly incompetent workforce.