Student Loan Debt Is Now as Big as the U.S. Junk Bond Market
bloomberg.com
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We need a fundamental shift in the way college is paid for. Some (many?) would like to see a government funded system, others would like to see the removal of subsidized loans to bring prices back down (and leaving many unable to afford college in its wake).
Another solution is to let you go to school for free and then pay a percent of all your future earnings back to your college, or at least into a pool that pays for the next generation's college. Of course with that system, colleges would bias towards people who are pursuing profitable majors, so you'd probably see a lot more STEM degrees and a lot fewer of everything else, until it got oversaturated, but there is a very long lead time between "too many degrees" and "no one studies this anymore".
In other words, the fundamental problem is that we tell kids that college is the only path, creating insanely high demand for the product, when in reality there would be plenty of people much better served learning a trade or skill instead of four years doing something hate for a useless degree they'll never use.
We could call it income tax :)
Anyone who is properly motivated should be able to go to college, but when I hear cries for a free college education, I can imagine that that would stimulate a huge influx of people who do that simply as an excuse to take a 4-year vacation (of sorts). People who are properly motivated and who have what it takes should be able to go to college, but it needs to cost something... just not as much as it does now.
We used to have this Enlightenment ideal of a Liberal Arts Education. It served as job training, sure, but it also tried to make its recipients better citizens and more adept thinkers and more capable adults and, broadly speaking, more effective human beings in a bunch of socially and culturally important ways. I'm optimistic that free college tuition would be a net gain for the economy, but I also strongly suspect that it's worth doing even if it costs us some economic growth.
Besides, if someone wants to take a 4 year vacation, they're already well within their rights to just not get a job and do whatever they like with their early 20s right now, presuming they can cover their living expenses somehow. Free college tuition doesn't actually allow anyone who wouldn't otherwise be able to to slack off, but it does give them something socially positive to do with their slacking.
In Spain there is a limited number of open position in different studies. You get an test and people is sorted by their grades. The people with higher grades get to the college they choose. It is not perfect as people in better neighborhoods get better education and can get more easily to college. But at least, it is closer to a meritocracy and costs less money.
> as an excuse to take a 4-year vacation
If you don't pass a minimum of credits the first year, you get kicked out. A lot of people doesn't pass this phase.
There is ways of solving the problems, but you need a government with willingness to do it.
If you are right, what data can we rely on to determine when it makes sense for a person to go to college and when it does not make sense for a person to go to college?
"In a report released Monday, the Census Bureau said 33.4 percent of Americans 25 or older said they had completed a bachelor’s degree or higher. That’s a sharp rise from the 28 percent with a college degree a decade ago." [0]
66.6% of Americans don't have a bachelor's degree or higher. So what is the appropriate percentage of Americans to have a college degree? Which other countries in the world are too educated?
[0] http://thehill.com/homenews/state-watch/326995-census-more-a...
The current trend is to run universities and colleges "like a business." In this model, students (and their parents) are the paying customers. The mantra of good customer service is "the customer is always right." This is ultimately the source of much of the grade inflation[1]. If you tell your customers that they are "wrong" by not giving them the grades they prefer or by making them work harder than they would like for those grades, they will react in ways that ultimately hit your bottom line. Undergraduate education should not be like a vacation. Any student who treats it that way should be flunked out after their first term.
Having taxpayer funded "free" (or dirt cheap) higher ed wouldn't fix these problems over night, but it would help remove some of the weird incentives that are currently undermining the core mission of actually educating people.
[1] https://www.insidehighered.com/news/2016/03/29/survey-finds-...
In practice this isn't a problem, at least not in France where my partner studied. Students that qualify for free public education are in the top of their class for the year. In order to keep qualifying for free education they must keep their grades up. So this idea of students graduating high school, waltzing into a university, then screwing off for four years is pure fiction.
Not to mention, money shouldn't be the barrier for entry to keep admissions in check if you want one. Viability should be. Universities already screen for good candidates. Change the screening to suit.
On top of that, you still have to be succeeding in uni to stay in uni
If a few freeloaders get a degree they don't need. Would society have lost anything but money?
One such would be computer science. Until computers came around the underlying algorithm and associated fields were pure math. If people hadn’t been able to study pure math then there wouldn’t have been an entire wing of mathematics available for CS.
It is not like it was a vacation. In most cases, you still have to pay a rent, food, etc ...
And you commit several years of your life to it, that's the most precious resource you can give.
I can't believe I am discussing this to be honest, that's an insane argument.
Really though, people might choose to go to college to see what they are capable of and take on a challenge with the possibility of failure already planned. They might already know they can do an alternate career path as well.
The idea that everyone will have their life planned out before college is silly. I certainly have no idea how well I would do in every college degree program. I could be great, or I could suck.
Educated people are crucial to successfull companies, thereby creating more jobs.
Educated people are crucial to a healthy democracy, where populist politicians have less chance of getting elected.
I would argue that it's probably more important for the entire society for someone to get a good education than for the person himself. Therefor education should be subsidized.
That sounds perfectly healthy on an individual level, and tolerable on a societal level. Perhaps even necessary if you consider the deterioration of discourse in this country.
Also, It's not like food and housing becomes free when tuition is removed.
We don't have to pay tuition to Ivy League to get a better more educated workforce.
So if you can pay for it, you are welcome to take your AA classes at a state 4 year, if not, we'll get you a free transfer degree from a local community college and at that point, you can choose between trade, tech, or a major at a 4 year school.
If we detach, 'everyone gets free school' from the idea that we need a more educated workforce to maintain our standing in the world, we can work toward a solution that is a net positive in society and not just a panacea for people who feel they've been left behind.
If you just subsidize school and not living expenses, then it removes the incentive to treat college as a free vacation. Since if you have no desire to learn, you're not going to waste time taking classes (even if free) and scraping by on a part time job when you could just work full time and have a lot more free time since you're not "wasting" time in school.
* We stopped educational subsidies for students with poor grades (ideally, gradually to give the student a chance to feel the pressure and correct)
* We equally subsidized trade schools (ideally, even college dropouts or older people could access these subsidies at least once)
Then I went to the US to study....
Boy was I wrong!!! Having to pay for university had zero influence on the seriousness of the students I met. In fact I'd claim it was much worse than my experience from different European countries with free University.
What I realized is that if it is not government money it is going to be somebody elses money and that is frequently American parents. American students did not seem to be any more concerned about wasting their parents money than Norwegian students are concerned about wasting government money.
Again I think it is worse. Over the years, looking at this in more detail I think we are completely overestimating the effects of financial incentives. People are not really optimizing homo economicus. A lot of other factors matter equally much or more.
It is also about what society promotes and values. American society offers no respectable vocational training programs, and does not promote or value that path. Look at Switzerland and Germany which values this and provide great vocational schools. A lot more people go down that route and get skills to get well paid jobs without burying themselves in debt.
It is actually half decent in Norway as well since our system is closely modeled on the German system, however we have suffered from being too heavily influenced by the American view on education. Luckily there has been a push to change this and promote vocational training, causing more people to take that route.
However you can't get people in America to make sensible educational choices, when private schools are shamelessly misguiding student to reap more profits and society is pushing the idea that you can't make a good wage without going to college. Never mind the unhealthy American habit of thinking "anybody can be anything." American optimism can be great for launching google and facebook but it can be poisonous to people of average skill and talent who are deluded into thinking they can be anything they want as long as they work hard enough.
I think you got to work both on attitudes, what the school system offers, the values promoted. Financial incentives can be structured in many ways which doesn't need to punish people severely.
E.g. here in Norway you don't pay for school but you have living expenses, so you get a government loan and stipend to deal with that. As you pass classes they convert increasingly larger part of your student loans to grants. This gives a carrot to anybody to attempt to finish the study in reasonable time.
State/national University here used to be 100% free, but now every graduate has to pay, starting 5 years after graduation, until they turn 65, if they make over U$ 1000 - irrespective of whether their employment has anything to do with their career.
So, a 25 year old graduate gets to pay for the next 35 years. Unlike student debt, you never pay it back, and the cost is also adjusted upwards every year - ostensibly according to inflation, but might be higher.
Students that elected to pay their tuition in a private university don't have to pay.
In a way it's more fair because impoverished people have a chance to do a degree, and they even get a scholarship that includes money for living expenses and textbooks, but OTOH most of the graduates don't earn much above U$ 1000 and they have to pay 5 to 8% of their salary for all their working lives - I'm not sure if that's a good deal.
I went to school for such a degree. While I don't use it in my day to day now, I still consider it priceless. There's some inherent value added to a person who pursues to study a bit of humanities, history, philosophy and art in college apart from their major. Scholarly work really helps shape the way you look at life for the better.
Part of this is that you really understand why you need to trust academic work for general human advancement. We have too many people thinking it's okay to discredit scientists and scholars because they don't understand how research works.
And a similar number of people who elevate science to the level of religion, marching in its name and developing a brand of hero worship for scientists when they too know nothing at all about the scientific process. Both are forms of anti-intellectualism that are growing in our polarized political environment.
Are you telling me that for every climate change denier, for every anti-vaxxer, for every creationist, for every chemtrail/tap water/moon landing/flat earth conspiracy theorist there's a rabid scientist who elevates the current scientific consensus to the level of religion?
That's borderline whataboutism IMO.
They're missing the inherent tension in science between a received body of knowledge and the skepticism it takes to produce new knowledge.
Sure, there are plenty of pseudo scientists out there that promote their political or economic agendas, but you can't discredit all science because of that.
Right now "hard" science is the best way to explain things around us and the universe. Sure, often it is wrong as new science gets discovered, but that's how human knowledge evolves.
As for the "soft" sciences (anything social/psyc, etc), that's a completely different matter. They are more prone to trends, fads and more personal biases, hence I would put them in a different category.
The titans of a scientific field still valued arts, and history, and culture. And derived value from it.
Hell, I'm a working scientist and one of the most valuable classes I ever had for thinking about the world was a feminist art history class.
As a member of society I need you to take care of yourself. You are a burden on society if you don't have a productive job paying your own way. We provide a "safety net", but the less who use it the better. Too many people using the safety net will make society break down. We believe is education required to be productive, so we subsidize education to get more productive people in society.
Or to put it simply: If you love art, get an art degree.
You can study Computer Science while also learning a bit of art history, or architecture, or psychology, or the sciences, or business, or...
And doing so might even make you more valuable to your employer, to yourself/your family, and to society.
> You are a burden on society if you don't have a productive job paying your own way... We believe is education required to be productive, so we subsidize education to get more productive people in society.
This mode of thinking is a great way to churn out lots of well-behaved, competent corporate employees. From this viewpoint, it follows that the path to the upper class is reserved for the already-rich.
You are not a burden just by not having a "productive job, paying your own way". You are a burden if you deny people their essential human dignity, by forcing them to conform to your vision of what they should be in order to eat. You are a burden if you take for yourself a surplus and do not use it to supply those with a dearth. You are a burden if you lie, cheat, steal, and assault. You are a burden if you do not respect and appreciate the hundreds of people working in harmony who helped each other to ensure you survived to adulthood with enough education to write your own opinions.
If all you do is sit on a couch with a cannabis vape and a game console, you're no burden to me. Some people keep house cats, and have no problem feeding them without getting much of anything in return. A "non-productive" human may yet do something. It might not be great, but could be at least marginally useful, if we allow them the time for their calling to mature and motivate them to action. Or they could just be a dud for their entire life. I don't really need to make a monkey dance in order to throw it a nut.
I don't particularly need you to take care of yourself. I may even be willing to pitch in with others to take care of you, on the conditions that you first do no harm to others, and then that you give back in whatever way you feel you are able. But that generosity only extends as far as what I think you may need. If you want something extra, you're going to need to give a little more before you get it.
We are way past the era of "no work; no eat" edicts. Thanks to our machines, we don't have a labor problem any more; we have an information problem. The systems in place for connecting creators with consumers, to everyone's mutual benefit, have never been entirely adequate, and haven't scaled very well to a world of 7.6 billion people.
I'm really not belittling your degree. I value such degrees highly. I also don't think they should cost so much, nor that the student-loan bubble should be allowed to facilitate charging you so much for it. Ideally fixing the system wouldn't eliminate such degrees, they would just decrease the cost to something reasonable.
I self taught computer science and programming, so now I have a good salary and a much more comfortable life.
I feel my bachelor's was pretty special since it was a liberal arts degree and my employer seems to recognize the difference between me and someone who didn't go to school and/or just studied STEM exclusively.
I was very lucky to have scholarships, that made it easier on me when I was younger. But wanting to go back for CS made it impossible later in life without getting in debt. And I refuse to get a student loan. It's sad that when someone didn't get lucky with a well off household or scholarships, they have to cripple themselves into debt.
I think a lot of people don't realize how little they will earn with their degrees compared to how high their debt load will be. That's not including people who fail to even finish their degrees.
I always thought this was an excellent idea.
I remember helping my sister with her philosophy home work, and being surprised by the amount of elementary logic and set theory being taught.
It usually saves 2 years compared to doing them separately and you get 2 degrees on the final piece of testament.
I found it tremendously useful as my "humanity" was my Physics degree to complement the Comp Sci. Plenty of philosophy in the hard sciences when you learn the history and where we are going.
> Scholarly work really helps shape the way you look at life for the better.
Like what? What scenario did you encounter and how did your studies help you? Otherwise it sounds like a vague claim that every religious institution would make.
Studying for a degree involves more than just reading a book. A good degree (no matter what major you choose) should leave you with the skills and capabilities to learn and teach yourself new skills. This - not the knowledge gained - is by far the most valuable takeaway that I have from my studies: Oh, I need to learn about the problem space X. How do I start, research, teach myself things about something previously unknown. School teaches knowledge, university learning skills.
> the way you look at life for the better
Do you feel your outlook has improved, or are your life outcomes measurably better, and how?
Additional question: was it worth the $37,000 in debt, and do you think that perhaps we could achieve the same better-ness with less debt?
Yeah it's like when people defend hazing. "Oh it builds character!" No thanks please.
I dont feel this is the case, and I wouldnt say its priceless. its on average ~30k$ + 2 years of extra course work, and honestly, we are getting very little bang for our buck.
it has little impact on my career, but cutting my tuition nearly in half, and giving nearly 2 years back to me would be huge.
I honestly think art schools are going to start running into problems convincing people it's a good idea to pay 60k a year for minimal ROI.
My cousin wants to go into stage drama, and I don't want to tell her to not pursue her dream, but I think it's a lot to ask her to put herself in debt for years for a piece of paper that says she can act.
FWIW I majored in ECE, got a job as a software engineer with 100k salary plus benefits, and I'm ~140k in debt. I definitely overpaid, but my salary gives me a way out. People who came from my alma mater who majored in drama can't say the same.
That's awesome! I wish more people had smart person to sit down and explain these things to them.
Don't worry, your salary gives them a way out too. And I'm not just saying that to be snarky, I think it's very likely what will end up happening: you'll end up paying for their poor choices one way or another. If it's not directly via taxes to pay off their student loans, it'll fund their retirement.
Social Security benefits, without any other retirement savings, puts you right around poverty level. I would not consider that "retirement".
Being a software engineer, who makes more than many other professions, doesn't automatically make you better for doing so. It just means you've optimized for a specific system. Congrats! The world still needs plenty of professions where the pay sucks and college is required (teachers, civil engineers, LPNs), that are arguably far more useful/noble/whatever you want to call real value. Consider that when you're sending your kid(s) off to school, crossing a bridge on your way to work, or are in the hospital being cared for.
A better data point would be to look around entry level or mid level in non development roles (sales, marketing, HR/admin, etc.) and see what majors are represented there.
The unfortunate part about this, is that I believe that if you remove the protections on the loans, many students now WILL default, because they have too much debt and are incentivized to do so, if they are one of the larger loan carriers. I'd say "bite the bullet, and that's what banks get for giving out risky loans" but we know that's not going to play out that way, especially since the gov owns a fair portion.
Making tuition free is nice, but the generation that took out loans isn't helped AND this does not reduce the college price problem. The price was inflated and there is no reason for them to decrease it. Kind of a parallel to health care here. That's the cost. I like this idea, even if I have to pay back my large loans, but I think the fundamental price issue also needs to be solved.
Giving a portion of your earnings is a decent method, but you already bring up the problem with that. And this also doesn't solve the price problem, in fact it encourages the price to keep going up. (We can even tangent into how schools are over charging gov for research, but I'll leave that for another comment)
Whatever we do, somebody is going to lose. And that's the problem with bubbles. We need to, as a society and government, decide who is going to lose. Problem is I think the majority of people think the banks [gov] should lose, for giving out such risky loans. But I don't think many politicians would agree. I wonder what the economists say.
> Making tuition free is nice...
I think it's funny that you have these two ideas so close together... The government owning most of the loans provides a very easy path to enabling free college retroactively: extinguish all the loans. The government doesn't have a profit incentive, so there's no reason that such a path should not be reasonable.
There are a lot of ways of socializing the cost of education, doing it retroactively opens up a whole can of worms.
There are a ton of things I haven't figure out (follow my post history for more detail on what I have)
https://www.nytimes.com/2017/11/18/business/student-loans-li...
Seems bad for both the loan provider (at least in short term) and the student.
https://nces.ed.gov/programs/digest/d16/tables/dt16_322.10.a...
The "underwater basketweaving" so to say, may be at most 10-15% of current college graduates.
I think the solution lies more with reducing the cost of college, open source textbooks, more elearning, etc. Regardless of government funding vs subsidized loans, the cat is already out of the hat on a lot of price increases around campuses nation wide. It isn't going to be just as easy to just change the funding source.
I also sympathize with the trade school argument, but I don't think everyone going to college is a bad idea by any means.
I'm not actually disputing your suggestion that a lot of students obtain the degree as a placeholder--it's a problem--but depending on the university, it's far from easy, and I know lots of students who obtain lots of degrees as placeholders. Students perceive that the degree is easy based on introductory psychology, but in a lot of programs, it quickly turns into statistics, neuroscience, and cognitive modeling with upper-level classes. Students coast for their first year or two and then sometime by their 3rd year start struggling.
Anyway, one of my frustrations after my doctoral degree is the stereotypes about the field. I've certainly had more experience with computer science, math, and statistics than most undergrads with those degrees (math might be different). I've worked with comp sci undergrads, and without meaning anything negative, I felt like I was teaching them about programming most of the time, rather than anything the other way around.
And yet, because of my degree, somehow people just assume that I'm interested in past lives therapy or something like that. What I do is closer to ML/AI/epidemiology than anything else. I've published papers in the areas of information theory and statistics, and coded in a large number of languages across various paradigms.
One shift that seems to have occurred since I was in undergrad is this idea that you are your degree. It's pernicious. The liberal arts philosophy is sort of along the lines of "get a degree in philosophy," take your advanced maths and statistics, and then learn more of it later, because the specific degree doesn't matter. But now we see college as an advanced job training program, and people assume that you are only qualified to do what you got your undergrad in. It's absurd.
I admit there's some limits--I'd wonder if an BFA could get deep experience in computer science, but who knows? I've seen all sorts of art projects that involve heavy coding, statistics / ML, and low-level hardware stuff, and know history faculty who are basically doing signal processing research. Coetzee, a nobel prize winner in literature, used to code.
At some level, the problem isn't these degrees all the time, it's the stereotypes about them and the people getting them.
about 65% of grads are in what I would consider, employable categories. STEM, Healthcare, Business, applied sciences (production/manufacturing type stuff), there are more but I cant remember now
about 25% of grads in what I would consider, employable but less so. Things like psychology, social sciences, histories, social work degrees, etc
then 10% are in the liberal arts/basketweaving area
While I will be the first to admit that degree is not necessarily an accurate predictor of success. I still think it is fair to say that even in the age of abundant student loans, in general most students ARE trying to pursue jobs that will make them employable. Even if they are misguided in some way, or don't hit the mark.
What percentage of mortgages went into foreclosure in 2008? One source I found said 1/54.
In Australia we have a system somewhere between this and a loan.
You go to (heavily subsidized) university, tuition is paid for by the government with an automatic interest free loan.
Once you earn above a particular (somewhat generous) threshold, your employer automatically starts taking a percentage of your income (depends on income) and pays it towards the loan.
There's no interest but the loan amount is indexed against inflation.
I graduated from one of the country's top universities with $24k AUD (~$18k USD) debt to the government and paid it all off early voluntarily. It used to be that voluntary payments got you a 5% bonus but that's gone now.
Also it used to be that voluntary payments got you a discount.
But getting rid of it does make it easier to borrow more money for a house, etc.
Vs open loans which little cost accountability. (well accountability via students for which this is the most extensive, longest term, financially complex, with highly variable ROI purchase they will have made in their life so far...)
Anyway it is a poor metric, especially compared to the US, because small countries are not well suited for consumer oriented tech companies such as Facebook. The home market is too small. Small Scandinavian countries tend to have tech companies in particular niches.
I am Norwegian myself and a lot of high tech here is related to the oil industry, making specialized software, hardware and instruments for it. Norway is world leader in this area, but few people outside the oil industry would know that.
Another problem for small countries is due to the small home market, our tech companies usually get bought by big American multinationals. That means a lot of tech done here happens under umbrella of some American company and doesn't show up as some independent Norwegian company.
Almost every single Norwegian tech company I have worked for has gotten bought out by some big American multinational. Video conferencing, secure authentication systems, 3D modeling of geology etc.
It is not unique to Scandinavian countries. Israel dubbed startup nation suffers the same problem. Few tech companies ever manage to get very big before they get bought by an American multinational. It is an issue that worries government there as being a country only made up of branches is not as profitable as having tech HQs.
Denmark is the home of BlueTooth, ZenDesk, Skype, and a company called Danfoss which you've certainly never heard of but provided microchips and motherboards for a large percentage of the world's tractors, district heating plants, refrigeration centers, and industrial greenhouses. Denmark is a technology powerhouse with manufacturing capabilities that outrank countries a dozen times their size.
This is absolutely not the case. Student loans have caps and they're incredibly easy to hit, especially if you go to a 5-year school where you're expected to pay tuition while doing 6-month internship blocks. Lots of people I knew in college (myself included) had to drop out in the first 2 quarters of year 5 because they couldn't get enough money to finish.
Edit: Just checked to see what the cap was at these days. Back when I was in school, the unsubsidized loan max was 27k. Now its 31k. https://studentaid.ed.gov/sa/types/loans/subsidized-unsubsid...
we all want a successful life, and being good little free-market capitalists, we eagerly buy into the story that we can achieve success by simply buying a degree (hey, i bought three of 'em!) and letting the rest play out like our wildest dreams.
but of course it doesn't work that way because we didn't scrutinize the winding path between degree and successful life, because the shortcut between those two things doesn't actually exist (at least not any more).
colleges and universities have done a good job extracting most, if not all, of the value out of the higher education market, with the help of government distortions (guaranteed interest, unbankruptable debt). it's time to put to bed the idea that a degree equals success (it's also time to get rid of those market distortions). a few of us will get lucky of course, but pretty much everyone will need to create success the old-fashioned way: by working hard for it.
It'd be more correct to say that it's way too easy to get money while at college. An awful lot of college students believe that being in college means that they have a middle class lifestyle. It is cliche, but in my day (1989-1993) students were poor. You lived in a dormitory and ate in a cafeteria. Maybe you'd go to a bar once a month. And 99% of the time you walked everywhere.
I think easy of approvals for student loans combined with the 2008 recession and slow recovery led to a lot of people finding that student loans were a source of income rather than a way to pay for college.
Another part of the problem is that there's really no such thing as a useless degree. A person may never use what they learned from that degree, but the fact that they were able to earn a degree is still used by employers as a bar to judge potential employees.
Being able to get a four year degree does not signal that a potential employee is better than someone that doesn't. Especially the way higher education has gone in my lifetime.
It can't really be a bubble because there are no assets to be bid up in a run away cycle or that can have a sudden collapse. Bloomberg tells you what you need to know in the article but doesn't do it right upfront. The overwhelming majority of this debt is held or guaranteed by the federal government.
A bubble is one way to get malinvestment, but it isn't the only one. Here we have malinvestment but no bubble.
Or 4-5 years getting a piece of paper saying "Computer Science" when they can't do the work, because society says "CS makes money" and the CS department is happy to take it. If people with only a high school degree can't make a living, we need to either make college free, or make companies pay for it.
The two aren't mutually exclusive.
In a compassionate society, we'll encourage people to pursue art or music or mathematics or dance and plumbing or auto repair.
There are enough educational resources to go around; our economy just hasn't found the right shape to make good use of them.
I suspect that it's either because you're not listening or people aren't talking about it. I had 3 years of on the job engineering experience and an established, good credit history when I got denied a loan for my last year of undergrad at a state school. Mind you this was fairly recently and my only loan for school I applied for ever. I could be the freak accident but it doesn't seem all that probable.
We basically already have that system. If you get federal loans (which most people who take out loans do--90% of all loan disbursements) you can sign up for an income based repayment plan.
You pay back 10% of your disposable income (income over 1.5x the federal poverty limit), for 20 years.
If you make less than 1.5x the poverty limit, you pay nothing.
No. It's 20 years. https://studentaid.ed.gov/sa/repay-loans/understand/plans/in...
>the forgiven amount is taxable income.
It's only taxable up to the point of solvency. If you have a sizeable loan forgiven and you haven't made enough money to pay it over 20 years, you likely won't have enough assets to end up owing very much.
Also it's very likely congress will intervene in 10-15 years or so when a huge percentage of voters have this problem.
>income-based plans often result in payments that don't even cover interest, so the debt continues to pile up quickly.
If that's the case, you will never pay it off and we're back to debt cancellation after 20 years.
"'Students and parents have a pretty good idea of what majors pay the most, but they have a poor sense of the magnitude of the differences within the major,' said Douglas A. Webber, an associate professor of economics at Temple University who studies earnings by academic field. He points to one example: The top quarter of earners who majored in English make more over their lifetimes than the bottom quarter of chemical engineers.
But what if you never make it to the top of the pay scale? Even English or history graduates who make just above the median lifetime earnings for their major do pretty well when compared to typical graduates in business or a STEM field."
See https://www.nytimes.com/2017/11/03/education/edlife/choosing...
But then goes onto say the reason for the gender wage gap is not enough women choose STEM majors.
I think this comment here points to the issue of colleges -- most people have no clue what major they want to be or what type of career they want to pursue.
The result is that if they are pushed into a corner they do not want to be in, money would be spent and nothing of value would be gained.
What should be happening before college or at the earlier levels is people taking classes that allow them to explore but also teach them transferable skills.
Ideally, this is where G.E.'s should've worked. However, at the current state, they're just useless extra units that seemed be layed onto college students in order to keep them in school longer, and thus pay more tuition. In addition, most of the things they teach are not transferable - they're too specific / boring and after a semester, it's all forgotten.
Instead, the G.E. curriculum should focus on knowledge shared by every field, or that could be used in any career -- logic, data science, ethics, etc.
An improvement like this could justify the high-cost of a college education.
Being poor, in hindsight, was a blessing.
Depending on how the debt situation falls out, we might already have that. :-\
Next, we automatically bail out everyone with medical debt -> universal healthcare!
Socialise the losses, privatise the profits.
PBSNewsHour did a piece on this concept:
Purdue invests in students’ futures with new model of financing https://www.pbs.org/newshour/show/purdue-invests-students-fu...
"Unlike student debt, it shifts the burden — or the risk, I should say — entirely from the student to the investor."
"That’s because the terms of the agreement, called an ISA, are made well before students launch their careers. So, even if a student ends up in a low-paying job, the pay-back percentage stays the same."
(I don't know how or if any of this could be accomplished.)
This is just another way of wording how you're paying your debt and who you're paying it to.
I've always been prideful about money and don't like people paying for my stuff. So I wouldn't ask my parents to pay or co-sign, so I basically couldn't get a loan given those constraints (at the time, late 90s into early 00s).
I would go a bit further and say it is way to easy to get money for bad college. Looking at some of the ways for-profit colleges pitch pretty worthless degrees as a "path to higher pay" and simultaneously lay down the student loan application reminds me of the mortgage refinance market of 2007.
One of the problems with this legislation (this is now totally my opinion), is that it only addressed the funding side of things and not the spending side.
Right, and people in poor countries stealing money to feed themselves is a "food bubble", with the solution being a reduction in food consumption.
How come there is no "education bubble" in countries where college is essentially free? That would be guaranteed to create the biggest bubble of all.
Median Lifetime Earnings: https://www2.ed.gov/policy/highered/reg/hearulemaking/2011/c...
Cost of School and Lost Earnings vs High School Grad: https://trends.collegeboard.org/sites/default/files/educatio...
BLS on Pay by Education https://www.bls.gov/opub/ted/2015/more-education-still-means...
The National Mortgage Lenders Association defaulted on their mortgage. Many business and corporations, large and small, go bankrupt and discharge debts. Only individual consumers get trapped in non-dischargable debt.
No, the student is supposed to pay back his loan regardless of major.
The reason we have student loans is under the traditional credit system someone without a job and a credit history isn't going to get a loan at all.
The only problem is young people making poor choices (which is partially the fault of elders and predators) and taking out large loans to attend overpriced (for the value) schools/programs.
Because student loans are the one kind of debt that can stick through bankruptcy, so it's a great investment!
I can't speak for the overall society, but I know personally I noticed locally amongst friends and family that when student loans became more widespread under Obama local private companies stopped paying for their employers to get nursing degrees, or other degrees. My sister got her RN and Masters degree through a program at the hospital she worked at, starting as a receptionist when 16. I knew someone who was a dishwasher at a michelin star restaurant and they paid for his culinary degree and worked to develop him. He's running his own joint now. It seems now not many employers are willing to pay the bill for education as the government is there to do that for them. I can't say this is perfect.. it seems any way you cut it people are going to get thrown under the bus.
Personally I paid upfront for college after years of working various jobs, I cherished every class a whole lot more I feel. Sure it's history and political science that I majored in, degrees many would view as useless. I think said studies are more vaulable when you're older, after you start building a life/career as they can certainly add compliment to one's understanding of reality. That said, I'm not advocating people not go into said fields at a younger age, it's a tricky issue. I know I would have hated studying STEM related stuff when younger and even when I went to college at an older age. Now I'm working on aquaculture stuff.. go figure.
> “it seems any way you cut it people are going to get thrown under the bus.”
Incorrect, every other western country at least has a pretty workable system.
- People see college graduates making a lot of money
- Politicians make it a priority to make it easier for people to get loans to go to college
- More people take out loans to go to college
- Colleges realize there is no downward pressure on price and raise tuition.
- Politicians continue to make it easy for people to go to college
- People take bigger loans to go to any school they wish
Until the music stops, things are sort of OK. People's kids can go to any school they can get into, regardless of cost. Colleges can raise their tuition with no consequences.
Politically it's a difficult problem, because the old solution of making more money available is getting out of hand, but what politician wants to stand up and tell people they can't go to the college of their dreams just because they can't afford it?
During the housing bubble, it was the cycle of "people want to own a home" => "politicians say everyone should be able to own a home and make loans available" => "companies make money packaging up these loans" => "prices go up" => "people can't afford homes" => "politicians make more money available". Until the music stops, everything is great -- everyone is making money, everyone is getting what they want. Then it unravels...
It feels like politically acceptable short-termism of shunting education costs onto future generations. No-one's going to 'lose' money over it. Who will suffer? It doesn't look like it will be corporations that will suffer, save some institutions will close when the endless supply of money suddenly dries up. It looks to me like it will be governments, a political ticking time-bomb much worse than the growth of numbers of pensioners vs number of workers. Is it a potential social disaster where a lot of people will end up sent to a new version of debtors prison for a bit? Or will it massively impact future GDP of developed countries, as people won't be able to spend, they'll be paying back this onerous loans. Having the exact opposite effect that it's supposed to, instead of growing GDP by growing skills, it'll be killing it by curtailing worker spending potential. Tax revenues might fall due to higher education instead of grow.
Governments seems to be making these student loans rock-solid backed by government assurances to the detriment of future generations.
I haven't looked into it enough to know and am lucky enough to have paid all mine off as it was much smaller than today's crazy amounts.
From what I can tell, a few entities will suffer, but not in a spectacular fashion.
1. The government may be forced to forgive a lot of debt, thus taxpayers will suffer.
2. Those making whose student debt payments are not proportional to their income will be an economic drag on the US.
So there is no "bubble" to "pop". Rather, it looks like it's going to be a long-term economic drag on the country.
At some point, large amounts of young adults will accept loans that exceed the value-add of college by a significant amount. Then, those who chose not to attend college and pursued a trade will be more visibly affluent. The trend will swing the other way, universities will experience downward pressure on tuition, and trade schools will be inundated as universities are now.
Until there is a political solution, I don't see how the cycle rights itself.
Maybe better information dissemination will give young adults more ability to make the rational choice whether or not to get large loans (or what amount of loans to get). Until then, the feedback loop is too long. Furthermore, for those who chose wrongly, there's no remedy. It's a bad situation.
The root problem (as others have noted) is too many people are encouraged to go to college and even though most majors don't make economic sense students (rightly) feel that they need a college degree to be a competitive applicant for good jobs. Maybe I'm just in an ideological bubble, but it seems like there's pretty good agreement on this issue, but no real way to do anything about it.
Student loans are ignored in bankruptcy and there is no domino if they fail to pay since a degree isn't transferable to another person.
If there were to be a bubble burst, the people impacted are those that can't pay loans back and the institutions that handed out the loans. Sure there could be a backlash but a lot of those loans are from the Fed, right?
So it's terrible for the people involved, but not directly bad for society as a whole (but probably still bad in its second and third order consequences).
Presumably the same politicians that were around when foreclosure mania (a la 2008) occurred and ultimately were forced to change regulations that now make it much more difficult to get away with issuing subprime loans. Or in your line quoted above, substitute "college of their dreams" with "home of their dreams." The net effect, of course, is that those politicians are now telling people they can't get the home of their dreams because, gasp, they can't afford it.
“Delinquency rates on student loans are much higher than those on auto loans or mortgages, due to loose student loan underwriting standards, the unsecured nature of student debt, and the inability to charge off non-performing student loans in bankruptcy,” Goldman Sachs Group Inc. analysts Marty Young and Lotfi Karoui wrote in a note Tuesday. “The substantial majority of student loan default risk is borne by the U.S. Treasury.”
Official numbers can be found at: https://www2.ed.gov/offices/OSFAP/defaultmanagement/cdr.html
http://blogmaverick.com/2012/05/13/the-coming-meltdown-in-co...
https://www.inc.com/mark-cuban/video-student-loans-bubble.ht...
As just one example, the founders of Collegeloan.com made close to a billion dollars each prior to new laws passed in 2008. The founders have since left daily roles but themselves and current execs are still raking in money off student load debt.
This is just one of the founders houses that has been on market for 4+ years. This house was paid for off the false hopes and high interest payment loans the schlepped to kids who have long since graduated and still paying off debt.
https://www.sandiegoreader.com/news/2013/feb/20/unreal-casa-...
https://www.zillow.com/homedetails/14385-Cypress-Pt-Poway-CA...
Another house he sold in Vegas.
https://www.realtor.com/news/unique-homes/ceo-and-poker-pro-...
He also likes million dollar buy in poker. How many interest payments did kids make for him to afford this?
http://www.pokerlistings.com/cary-katz-wsop-big-one-for-one-...
Do some research... this is just one company that was in the upper top 10 prior to 2008 shake up. Many more made far more of the backs of kids in this country. After the shake up the companies adjusted and went back to lobbying to gain back the insane profits they once saw. Obviously by the headline we are back to all time highs.
Most would say the volume of administrators has ballooned due to the increasing number of services universities now provide for the students. Better and more services offered to students should benefit quality of life.
Does the economic impact of modern universities serve as a net positive for society? When we have more and more university staff using their salary to support their families they're contributing to the economy in a positive way. When we have students graduating with tens of thousands of dollars of debt, they're bound to repaying their loans. In order to do this, they must find a career and become "productive" members of society.
This of course ignores the ethical and societal implications of expensive tuition...
The people originating the loans have no skin in the game. So, they don't call NYU or even Northern Essex Community College and say, "look, here's a student who wants to be a social worker, asking for 100K in loans to get the degree. We don't think they'll be able to repay that debt on a social worker's wages. So, no loan."
If the lenders WERE calling the colleges saying that, the colleges would not be escalating tuition as radically as they are.
It's not realistic to expect the kid who just got in to NYU or a community college to play that kind of hardball in negotiating tuition rates. But when the lenders don't play that hardball, it leaves higher-education executives trucking to the bank on the proceeds of those loans.
Though point taken about how hard it can be to get certified for some of those trades
I'll simply say that in all of the relevant words I've read from that school, nowhere was there any allowance for NOT going for some kind of college. It was kind of spooky.
Another one (as perhaps a consequence of the previous fact) is that the average family ends up saving up ~$16K, while the average grad leaves colleges with an average of ~37K in debt.
As most experts in the field agree, the key winning strategy is starting to save as early as childbirth, even if it's a small amount.
When will it start being considered “responsible” to save 10 years before a child is born and if you don’t you’re irresponsible cuz you missed 10 years of growth.
When will it start being considered “responsible” to save for your grandkids college?
Personally, I think the economy would benefit from appropriate government-financed post-secondary education for those students that show an aptitude for it. However, I suspect that a test-based system similar to that employed in Europe or elsewhere is politically untenable here ("I should have the freedom to choose to go $336k* into debt at an elite photography school!")
(*NB: I wish I was making that number up but there was someone that actually made this choice a number of years back.)
I was lucky enough to have kids late in life and I can afford to put money in their college fund now, but most new parents sadly can't.
Better to stuff your retirement accounts full of as much money as you can, buy some gold bars to bury and take a job for a nonprofit that pays peanuts 2-ish tax years before your kids need to go to college.
Maybe not all people in society should be socially required to purchase an expensive good, thus causing demand to be infinite, meaning price can only skyrocket.
Given the number of Masters degrees working minimum wage or starting jobs now maybe we should admit we have a problem.
Passing on wealth is the hallmark of a wealthy society and it's rocket fuel that elevates us beyond destitution. Whether it is debt relief, real estate property, or arcane financial instruments -- passing on wealth to their children is the right of every parent.
The efficacy of master's degrees is unrelated to the social responsibility of post-secondary education funding. You might as well argue we all starve ourselves to pressure the government to do something about it.
The real issue behind student debt growth is payment, and with the US Government as a guarantor then growth potential is effectively infinite. Colleges will continue to feast unabated.
You can read the essay that started the book here: http://www.thenewatlantis.com/publications/shop-class-as-sou...
Having hoops for discriminating simplifies hiring and other decisions. Simple ones like these are going to stick around as long as people think degrees matter more than how a person produces.
[1] https://www.smbc-comics.com/index.php?db=comics&id=2729#comi...
If student loans were subject to bankruptcy banks would be more careful. Instead we have a political system making bank from banks for ruining young people's lives.
Any libertarians care to wade in here and tell me this is a small price to pay for freedom?
With or without the threat of lendee bankruptcy, it isn’t in the interests of lenders to negotiate lower tuition. This doesn’t happen with houses. It’d never happen with tuition.
Instead this is just free money for the banks. Since it guaranteed they risk nothing.
Your no skin in the game is their lack of risk. I blame the lenders because they lobbied for this gift.
I'm guessing the developed version of your proposal would be for the government to step in and make the payments to the banks. But.. that's ridiculous. If you want to throw around government money to reduce education burden, what you do is pay the schools directly by offering grants. You don't prop up the imbalanced loan system by making loan payments with tax dollars.
If it were possible, many people would choose to file for bankruptcy to release the loans, take the temporary hit, and start again. This would burn the treasury and banks who hold the loans, just like they get burned when they loan mortgage money to people who can't afford one and later default on it.
But bankruptcy isn't the ability to "walk away" from a loan. You literally need to be bankrupt: you can't hold any other assets beyond the statutory minums. Most people suffering with student debt aren't literally destitute (obviously some are), they just have a cash flow problem. Bankruptcy won't help them.
No offense, but the banks should take on risk if they're charging interest. Right now, they can have their cake and eat it, too, which is stupid - no offense.
i'll skip the faux politeness of "no offense" and just point out that this is foolish.
even if payback is literally guaranteed, interest is still required, because money now is worth more than money later, due to opportunity costs. the US federal government, which everyone considers the pinnacle of credit worthiness, still has to pay interest.
further, just because the debt can't be discharged doesn't mean its paid off in a timely fashion. the interest rate has to be further increased to account for folks who just don't make payments for years at a time.
>You'd think a surefire bailout would decrease resistance to debtor relief. But investors want timely payments; they fear federal relief programs might slow cash flow from an otherwise "bulletproof asset class." This creates twisted incentives, especially for SLABS players involved in loan servicing: They often have a stake in borrowers defaulting rather than paying smaller amounts over a longer period of time.
It's perverse policy — bankers are pampered because student debtors are hounded and pounded. To help borrowers, the government should facilitate bankruptcy reform and expand federal relief programs. But we have deeper problems: Lenders, servicers, collectors and investors prosper while students suffer because schools increasingly rely on private tuition rather than public funding.
http://www.rollingstone.com/politics/news/how-wall-street-pr...
[1]2015 Study by the New York Federal Reserve - https://www.newyorkfed.org/medialibrary/media/research/staff...
Why shouldn't Americans bail out Americans for the collective decisions of Americans?
which translates to "fewer people getting loans". i'm fine with that, but a huge chunk of the population and >=51% of politicians thought it was terrible that there were people who were denied loans.
I guess we should follow the money and ask whom does the bankruptcy non-dischargeability benefit?
Before loans were non-dischargeable, you'd have students run up their debts and declare bankruptcy. This sort of fraudulent activity had no consequences since student loans are unsecured.
The result was that the private student loan market was small. Nobody was going to loan money they'd never get paid back.
Prior to the change was there a shortage of student loans (with a lot less people choosing university) or did we just shift the loan balance from the government to private industry?
Taking on debt to fund education isn’t inherently bad, but having that debt back a bloated higher education sector is terrible.
The majority cost increase (65%)[1] of higher education in the US over the last couple decades is due to a systematic defunding of government support for schools. It would be nice if we started investing in our country's education again. [1]2015 Study by the New York Federal Reserve - https://www.newyorkfed.org/medialibrary/media/research/staff...
"a majority (58%) of Republicans say colleges and universities are having a negative effect on the way things are going in the country"
We should be continuing to encourage higher education in addition to trade schools. Bachelor Degree holders, on average, earn a million dollars more during their life time than those who only have a high school diploma. Even if you are accounting for lost earning potential, cost of tuition, supplies etc... your still talking about hundreds of thousands of dollars more earned than if you were to not achieve a degree.
Pew Research Poll http://www.people-press.org/2017/07/10/sharp-partisan-divisi...
Figure 2A Lifetime Net Earnings by Education https://trends.collegeboard.org/sites/default/files/educatio...
Figure 1 Lifetime Earnings by Education https://www2.ed.gov/policy/highered/reg/hearulemaking/2011/c...
But will that still hold as the percentage of people getting degrees rises?
In the limit everyone gets a degree, and the average wage for a degree holder is the average wage.
Most of the debt is for graduate, PHDs, law and MDs or undergrads who attend expensive private universities. These people should make more money from that investment.
My point is overall average student loan debt or the overall outstanding amount owed is horrible way to look at it and talk about it. It creates an unnecessary panic.
[1] http://money.cnn.com/2017/11/15/pf/college/tax-reform-paying... [2] https://www.cnbc.com/2017/08/17/student-loan-debt-why-employ...
1) Student debt is much different than normal consumer debt in that it is not dischargeable if the holder declares bankruptcy.
2) For years, many politicians have been calling for the massive increases in the issuance of student loans, presenting the issue as though the only hope for many people to obtain education is to take on massive amounts of debt.
If there weren't lots of bankers, politicians, and lobbyists getting rich off of this bubble, it might be possible to believe that they genuinely think that saddling teenagers with massive amounts of non-dischargeable debt was a good thing for society.
Student loans are the biggest handout to the financial services industry in decades, and both parties are reaping the spoils of these deals.
[0] https://fred.stlouisfed.org/series/ASHMA
[1] Well outside of some political student loan debt jubilee that will probably leave a lot of universities holding the bag, not to mention other private entities that have attached themselves to the student loan system.
Got to give it to the republicans. Get poor people focused on muslims, Mexicans, blacks, gays etc while they let the rich empty their pockets.
A winning formula. You would have thought people had caught on to it by now.
Seems pretty obvious to me which part of schools needs slimming down.
Just look at the top comment concuring, "There is definitely an education bubble".
Universities need to return to their core purpose teaching young minds, furthering science, or preparing them for jobs.
Instead of the corporate universities drowning students in debt.
When that happens, bitcoin will be the only safe haven in the world to protect your wealth. The bubble people will be changing their tune very quick.
Whatever your view of the Fed is they are generally smart and well-read people who have probably also read those articles or the research papers backing them, so I think it's unlikely that interest rates will ever go negative.
We'll see if you're singing the same tune when you're finally confronted with the certain depreciation of your USD holdings. (Will you still reject bitcoin when USD is depreciating at a rate of 5% per year?)
If the next recession takes the form of significant inflation -- resulting in effectively negative interest rates -- you will see flow into bitcoin.
If the next recession is caused by significant defaults on debt, well, bitcoin is also the safe haven asset there.
Bitcoin came into existence as a response to 2008. It's primary purpose is to protect peoples savings from central banks foolishness.
I agree no one knows for sure what will happen. IMO, bitcoin is a reasonable hedge against the monetary policy we have today.
Getting shot at for an education doesn't seem that great. Better off just moving to a better country.
Ceteribus paribus, the military provides stable job, income, and a generous scholarship.
The scholarship is roughly $70-$100k depending on school and a monthly housing stipend. For SF area, that stipend is $4.2k/month
My point being, there's tons of military jobs that don't involve violence. For each job that does require violence, dozens more auxiliary positions are required to support that job.
They have been fortunate. Obviously, in some conflicts, some people in all of those roles end up in postings where they are in hazardous areas. (Also: IIRC drone pilots stationed far from conflict still experience combat-induced PTSD.)
The other feature of the armed services is that in general, once you enlist you don't always get to choose your posting. It's great that some people get to choose plum jobs away from war zones, but (most?) others don't (and this can change for anyone in the military, at any time). A defining feature of a military is orders, and following them.
Military careers can be rewarding for some people. But just as it's wrong to say college is for everyone, it's not correct to suggest that one can embark on a military career without adding additional personal safety risk.
This worked out fine for me, no shooting involved: https://en.wikipedia.org/wiki/35T
It's right to bring up the military and the trades as viable options, but let's not oversell that stuff. The trades aren't just a shoo-in easy crack at six figures like folks spout off. You gotta work for that master-tradesman slot. It'd probably take you 10+ years to get there if you're good enough. The trades are designed to limit the number of people entering them...it's part of why they make so much money. It's also incredibly hard work and tears up your body as you age.
I think the drawbacks to joining the military are pretty obvious and go without saying.
But I agree trade schools need more respect. The kinds of work taught there is necessary and pays well.
That's 10 years old, plus I wouldn't call those voting numbers overwhelming bipartisan support. It passed, but many Republicans voted against it. All democrats voted for it...