Nearly 5M Americans in Default on Student Loans
wsj.com
wsj.com
I ask them to pick an item they might take a loan out for, such as a car, a boat (we live in a small fishing town in Alaska), a house, or a student loan. They pick a realistic loan amount, APR, and term length. Then they run the numbers on the loan.
I demonstrate making a loan analysis spreadsheet, starting with an empty spreadsheet. Students then get the choice of making their own spreadsheet, modifying one that I've made with them, or using a loan calculator. By the end of a session, most of my students have become comfortable using a spreadsheet to analyze a loan. This lets them understand how all the various factors interact, and they can play with any loan they become interested in.
Students start out with no idea how banks and lending institutions determine monthly payments. They end up understanding loans better than many adults. They move away from "all loans are bad and predatory" and "loans are free money" to "some loans are fair, some are predatory, and I need to ask myself if a specific loan sets me up for a better life.
I wish someone had done this for me. When I took out student loans many years ago, I had no idea what my monthly payments would end up being. I was just told it would be worth while, and I trusted the people advising me. Students these days can't afford to blindly trust that student loans are going to make their lives better.
https://drive.google.com/file/d/1lAG9o3f106qwLBODURsglUChsBs...
You could also say that many students wouldn't be in higher education without the loan. That is especially true here in the UK. That might not be a bad thing except that we've gone through an arms race so that every junior post needs five bachelor degrees and a decade of experience. Experience alone used to be enough.
It'd be nice to get back there. Our focus on getting everybody into higher education —and underwriting indefinite liens on lifetime income— has also meant that universities care more about the number of students than the quality of teaching. That alone probably isn't news, what has been recently in the UK is the remuneration of higher management staff.
They can apparently justify the 10-20× bump over senior lecturers (plus benefits like housing, cars, lunches) to their boards by saying they're the only people who can attract all the money from the students. It's disgusting and vicious cycle.
Forcing nearly everyone into the college-bound track is a huge problem. Politically, vocational training is deemed classist or racist, and such utopianism creates a sad disservice to lots of young people who could be learning skilled trades and setting themselves up for comfortable living.
Just like everyone at the university level is not med-school material, not every high schooler is college material.
* The degrees you're interested in
* The total cost of ownership of each of those degrees, based on the dollar cost + interest
* The years you'll have to work to pay off the degree based on the median salary of whatever career requires that degree
* Placement rate in the career you're obtaining you're degree for after obtaining your education (colleges usually fudge the numbers here by considering a student getting any job as "placement" after going through their pipeline)
Very similar to truth in lending requirements for credit cards and mortgages.
https://www.occ.treas.gov/topics/consumer-protection/truth-i...
At the very least, they will give you a best-case scenario instead of a worst-case or median-case.
Edit: Don't get me wrong, that's still a huge pile of money for a worthless degree, or something you should have learned "on the job"... But it's a long way off $100k+
Doing so results in seeing that a sociology degree from an expensive school means you'll basically never be able to pay off the loan.
Get an engineering degree from a state school, and the interest rate almost doesn't matter. (yes, of course the interest rate matters - I'm just being a bit cheeky in the comparison.)
[1] This is literally the first link under google when searching for "starting salaries by major": https://www.forbes.com/sites/susanadams/2015/07/02/the-colle...
I had an AP English teacher that took us 'off book' after we finished our tests to teach us real-life stuff (how taxes work, credit cards, etc.) for a few days. More students should be getting such a primer before college.
Analysis is great for aggregate decision making. But for the lotto of life. sometimes you can make the best decisions and still get screwed.
But why does "the college experience" need to include superfluous staff and wasteful resources? Follow the money.
There was absolutely no pressure, in my experience from a random boring part of white suburbia, for anyone to do anything but go to one of the states’s relatively cheap public universities.
People who went to places like MIT, Harvard, or expensive liberal arts colleges were a rare exception by far.
Paint, for those of us with no familiarity with the US system, a picture.
For the specific case you linked above, $25m for athletic upgrades is really not that expensive for a school the size of UCF with over 64,000 students and an annual budget of $1.5b. [2] If you abandoned building the facilities and distributed the money evenly among all students you could cut costs for a single year by 2% for in state students and 1% for out of state students. [3] That isn't nothing and you can certainly debate whether athletic facilities are a smart use of $25m, but it is a drop in the bucket compared with the actual rise in costs.
[1] - https://fivethirtyeight.com/features/fancy-dorms-arent-the-m...
I have seen the model stated that there are two Official Views on why college prices are up:
1, the Democratic View: prices are up because states have cut spending on colleges.
2, the Republican View: prices are up because given the easy availability of student loans, colleges can charge higher prices.
It's surprising to me that these are considered acceptable rival opinions, because, if you assume that one is right and the other is wrong, it's very easy to determine which is which.
#1 says that prices have risen due to a fall in supply. #2 says prices have risen due to a rise in demand. Both of those things do in fact increase prices, but a fall in supply causes a rise in prices and a fall in quantity traded, while a rise in demand causes a rise in prices and a rise in quantity traded. If you think that one of these things is responsible for high prices, you can determine which simply by asking "compared to the good times when prices were low, have college enrollments increased or decreased?"
In the same way, for point 2, you would have to calculate the percentage of funding change per student, not the macro view alone.
"The picture is a bit different at private schools, which do not receive state funding but have nonetheless seen substantial tuition increases. At private nonprofit colleges, the spending categories described above — student services and faculty and administrative salaries — together explain most of the tuition increase over the past two decades."
So perhaps this is a case of misattribution - you have people talking about the excesses of private schools in terms of administration and such, but the article is talking about public schools. Are people just talking past each other here? A good question to ask would be if we're looking at the same rate of student loans/defaults on loans. If students in private schools predominantly pay their loans, then this points to the reduction in state funding as the primary culprit, but it could be the other way around as well.
There's also this:
"Among for-profit institutions, it is much more difficult to pin down a reason for tuition increases, though recent research suggests that one big cause is the generosity of federal student aid: Some institutions may be raising tuition in order to capture as much government-backed money as possible."
Since federal money and state money comes from the pockets of the same people, is it not reasonable to suggest that this "generous federal aid" is siphoning off resources into for-profits, where most of the tuition increase is "administrative bloat", instead of going to state-funded public schools, at least to some extent?
One final thing - the article doesn't go into detail as to why state funding has decreased. Is it because the states have redirected education funding into other spheres, or perhaps that the states have to fund way more schools(per capita) than they used to? This is another missing piece of the puzzle.
Something has to give and (higher) education funding is an easy item to cut.
"The current speaker of the house, Joe Aresimowicz, works for the American Federation of State, County and Municipal Employees, an amazing conflict of interest even by blue-state standards."
"The erosion of Connecticut’s suburban tax base is a more dire prospect than the continued weakness of its cities."
Go work in a private uni in the US. You'll be amazed! I worked in a top 20, and on an int'l campus. My very disgusted view of private education is based on 8+ years there.
When education is treated like a business instead of a public good, the costs get passed on to students from wealthy families or to students who take out massive loans.
To an explosive growth of administrative staff. My alma mater has almost one employee per student. There are many dozens of administrative departments, each with multiple deans and assistant deans and staff, and sometimes subdivisions each with their own layer of bureaucracy. OPAL, for example, has a subdivision for each kind of minority on campus, each with its own assistant dean and staff. You can look at the list of departments: http://home.dartmouth.edu/administrative-offices . Keep in mind that this is a very small college, with about 4000 undergrads and 2000 grad students.
This monstrous growth is entirely a product of the last 30 to 40 years and is almost entirely responsible for the astronomic increases in tuition, currently $60,000. Even worse, the college claims that its actual cost per student is double that, with the shortfall made up from the endowment. There is NO legitimate reason that a college education should cost over $100,000 per year.
The government needs to stop writing a blank check to these colleges in the form of unlimited loans for their students. The government needs to set a much lower cap on the number of loans it will give to each student per year. The colleges will accuse the party in power of trying to deny students the right to an education, but they will eventually surrender and start cutting the bloat.
1. Have a problem or a new political goal? Make a committee, open a new office, etc. This is how bureaucracies see the world.
2. Unproductive employees? You can't fire them because of HR policies and unionization, and more importantly, because there's no constraining force creating a culture of efficiency. So just hire more employees.
3. No one who rises to lead an organization then campaigns to diminish it in size. Everyone thinks they are important and that their work is important. Having more people working under you makes you more important. Having fewer makes you less important.
These are problems in for-profit organizations, but the market provides a constraining force. An inefficient company won't be able to compete with a more efficient one and will eventually go out of business. Also, shareholders will demand that expenses are cut so profits, and dividends or share price, goes up.
It's like having a parent, except you have to pay them.
They expect everyone to live on campus - so they have to play landlord, mayor, community organizer and mediator, mom and dad, chef and waiter, stadium and opera house, convenience store and urgent care clinic...
Now, which of these do you think are among a college's core competencies? Which of these services are provided in a cost-efficient manner?
you can't suck knowledge back out of a graduates head (ancient egyptian practices to the contrary)
Car loans and mortgage loans are not comparable. It's possible to simply be unable to pay those debts. So there's every good reason that the student loan default rate should be lower than those.
Dental students in high cost of living areas routinely graduate with half a million in debt
Great question.
No, not all debts are the same: Debts That Cannot Be Discharged in Bankruptcy https://www.thebankruptcysite.org/nondischargeable-debts
The road that the taxes (probably) paid for?
Also, GP said "allows", not "subsidizes every aspect of the most luxurious way for".
Not paying your taxes is absolutely a self-serving sociopathic gamble.
On death all your debts should be paid in full with the exception that the cheque for the funeral should bounce..
https://www.nytimes.com/2017/11/18/business/student-loans-li...
The crapper of it is, it's not just professional licenses, such as nursing or cosmetic licensing, as if that wasn't bad enough. Some states, like Iowa, South Dakota, and Washington, have laws that permit the state to revoke or decline to issue any license issued by the state, including driving, hunting, fishing, and even camping permits.
Basically, those states say that not only will they wreck your ability to work in the field for which you achieved a degree or license (or maybe you didn't successfully complete whatever program and are now working to pay off that debt that resulted in no positive outcome at all), they'll ruin your ability to go places--outside of cities, public transit is a non-entity--or even just have a little recreation while you figure out how to get out of a hole that just keeps getting deeper.
I know I mention this book a lot on here, but _Debt: The First 5,000 Years_ is the most amazing book I've ever read on the history of debt, money and slavery.
Debt relief has to come. Every great civilization throughout history has had to forgive debts. Current student debt is not even remotely payable. Millennials are the most in debt out of any generation, the lowest paid and most likely to take unpaid internships[1]. They put up with so much more that no previous generation would have even stood for.
"A debt is just the perversion of a promise. It is a promise corrupted by both math and violence. If freedom (real freedom) is the ability to make friends, then it is also, necessarily, the ability to make real promises. What sorts of promises might genuinely free men and women make to one another? At this point we can’t even say. It's more a question of how we can get to a place that will allow us to find out. And the first step in that journey, in turn, is to accept that in the largest scheme of things, just as no one has the right to tell us our true value, no one has the right to tell us what we truly owe." Graber, Debt: The First 5,000 Years
Usually great news and desirable outcome for anyone carrying such debt, but not so great news for someone hoping to borrow for college at that exact time when the turbulent debt markets are trying to price in and overcompensate for high default rates. It’s like being a prospective home buyer in late 2008 - no one is returning your calls and if they do, you get the privilege to pay a premium for the other people’s mistakes.
That entire quote reads as completely incoherent to me. I feel like I would have to learn entirely new brands of logic and language to decipher it.
Anyway, thanks for the recommendation!
This is a rather ungenerous view of the great burdens faced by previous generations. When I grew up there was a draft. When you got out of high school, you faced the real live possibility of being forcibly inducted into the military and sent to an active combat zone--where many US soldiers died, including high-school friends of mine who were killed before they turned 20.
They would happily have swapped going to war for four years of college and the long-term debt attached to it if they had had that option.
You might not like the terms today, but please don't ever say you have it worse than any generation before you.
There's a dying class of professors who got in while tenure was still a thing that paid probably 1/10 of the cost for education kids are paying now. They have the rosiest glasses possible because they're making around 100k for zero competition in their workspace.
The vast majority of the time now a TA teaches the course or certainly grades the paperwork. Well over half of college degrees obtained will never pay for themselves.
A philosophy, social science or psychology degree are not important enough to pay 50k to get. Free college would be a complete disaster, and a massive waste of money.
The education cartel places liberal , financial shackles on kids who are less than 1000 sunrises away from going to prom. The liberal arts is a complete disaster for young people's financial means. So, you get somebody 100k in debt for something they could learn on the internet and guess what? They'll ALWAYS vote to raise taxes on the rich.
I worked at a state university for five years, doing research. The waste of extravagant, totally unsustainable. I was going to grad school free since I was an employee, dropped out to teach myself software and in four years I make nearly as much as the Phds. in a physical therapy department. All it cost me was time.
https://www.chronicle.com/article/How-Liberal-Arts-Majors-Fa...
And like the OP said, there is now a glut of humanities degrees higher than the demand for positions.
Their importance in college was really emphasized after World War II, as many of the leading Nazis were seen as non-intellectuals without moral restraints developed by the study of history, philosophy, theology, etc.
Liberal Arts should be cheap you’re right, but it also should be required.
So in a sense, the liberal arts aren't the liberal arts anymore.
Other than some international trips, going to a university was probably the best money I've ever spent.
College can be a transformative experience, and it is for many such as yourself.
But many more are mired in debt and don't experience any increase in their abilities to think critically. For them, it turns out to be one the worst experiences of their life.
Have one system where it is primarily online and low cost.
Then have the traditional system where it is physical classes and high costs.
Let students decide where to go.
Another instance of utterly corrupt selective application of theoretically sound conservative principles. Just like "deregulation" and Net Neutrality.
The systems of laws in our society are constructed. A choice has been made to privilege entrepreneurs over students.
Finance officer was telling me how for in-state students, the student is only paying around 20% of the actual tab, and that the state picks up the rest. Then there was the story from a few days ago where some poor lady ended up owing over $100k for a < $10k debt due to fees and penalty rates.
Even my own degree, in the "allegedly" hard subject computer engineering, first day of class would fill an auditorium. After midterms, class size would drop to just a handful of people.
So taxpayers on the hook for subsidies, former students paying obscene finance charges on a kind of debt that is almost unshakable, and little of that culminating in valuable skills and credentials...
Excluding the more selective institutions, higher ed is a racket, and the financing of it is an even bigger one.
This is ruinous for these people. They'll be in their mid-30s or early 40s before they can pay off. Starting that late to build a nest egg, they'll never recover. There's going to be an entire generation that has no secure retirement plans. It will also be a baby bust. By the time they are stable enough to think about starting families, they'll be biologically incapable to produce. Nobody will be around to fight off invaders. We're seriously toast in 50 years at this rate.
Relationships are delayed, careers are set back and our economy is slowly bled. Much like healthcare!
http://fightthefuture.org/article/returning-to-america-and-t...
This of course, totally ignoring that government backed (everybody gets one no matter what) loans got us here in the first place...
The student loan problem is a result of the generalized "prestige economy" that's driving the problems with journals (and whose failures include that cascade of replication crises). To see this, realize that the only reason so many people are going to university at all is because a good name on your resume is now a requirement for getting any reasonably well-paying job. See the parallels between that and how academics need good names on their CVs in order to compete? It's a prisoner's dillema where the cooperation-case would be that every person who doesn't need their degree for their career would drop out at the same time that every academic switched to open-access journals.
I hadn't heard of pay-to-read journals being an attempt to create a "market-free zone".
Don't forget the swelling of superfluous administration roles and salaries, including bureaucratic roles whose entire job entails manufacturing problems to justify the existence of their position. See: campus diversity officers https://www.theatlantic.com/education/archive/2016/09/americ...
Mind you, this requirement was in addition to all the existing courses you had to take (40 for a BA degree).
Consequently, for most, choosing where and what they are going to study would either be a research project in and of itself, or else they'd just pick one of the few specialties known to pay well. And we didn't even pay for college!
Maybe you could explain this to me, because I really don't understand. Why do you think that it's a shame that people can't just discharge substantial, otherwise unsecured government loans?
To me, the real shame is high school employees pushing college on marginal students. One of the few things worse than spending too much money on a not-particularly lucrative degree is spending the money, but not graduating.
I believe the graduation rate at Bellevue College, the biggest and best community college* in WA state is around 25%. I'm sure they're not unusual in that regard.
* It's technically not a community college, but for all intents and purposes, it is.
Many of my friends who went there have horror stories about their teachers which I'd be hard pressed to encounter at Seattle Central College or North Seattle College.
Nearly every community college in the Puget Sound decided about a decade ago to shed the community branding and add a handful of 4 year degrees. Problem is the material you learn in upper level CS classes at UW and its satellites is quite different than what North Seattle College and Seattle Central College require (eg: a whole class on SQL Server, C# as the Intro CS class at Seattle Central rathr than the state mandated Python, etc).
41% of all US undergraduate students have nothing material to show 6 years down the road except for the mounts of student debt. The quoted figure of 22% of those debts being in some kind of default starts looking optimistic.
If at first you don't succeed... damn well better be an entrepreneur so you get second chances. If you work for a living, no second chances for you!
* requirement for high down payment - perhaps 50 to 75% of the tuition being covered by student or his parents (through home equity loans or retirement account loans)
* frequent and aggressive repayment schedule, starting perhaps 30 days after originating the loan
* high interest rate, perhaps front-loaded into repayment schedule due to higher than normal default rates
* aggressive monitoring of the events related to debt performance, where missed class, late homework, substandard grade or a behavioral citation could result in interest rate boost
* incentives and price control mechanisms enforced by the lender - your computer science class will have a low interest rate, but that music appreciation class or gender studies gotta be out-of-pocket
I think overall that would lower the enrollment rate and force the unbundling of academic offerings. Not necessarily a bad thing, but I can see some people being against it.
Not enough lenders would want to take that risk, unless they have the taxpayer to back them up in case the borrower defaults.
If the borrower's allowed to wipe their debt in bankruptcy, then a lot of students will simply declare bankruptcy as soon as they leave school. The students who play by the rules are burdened with debt, and you're subsidizing people who game the system to their advantage.
The fairest thing to do, then, is either subsidize everybody, and have taxpayer-funded higher education (but that's expensive).
Or subsidize nobody, and let people pay their own way (but that leaves behind students whose families can't afford it).
Or fund the most promising students, and make everybody else pay (but that leaves behind students who don't have good academic record).
Personally I don't like the idea that our society starts its newest members out with a huge debt burden.
What happens if a corporate declares bankruptcy? Do they only pay less while keeping everything they invested/bought using the loan money, for example - buildings, equipment, stores etc? How does this compare to student loans?
The bankruptcy is handled by a liquidator or trustee in bankruptcy. That person / entity will attempt to liquidate the assets and will then pay a portion or all of the debts in order of preference. If there is a remainder (unlikely, but it could be) it will be returned to the shareholders. Depending on the country some creditors will receive automatic preference (such as the taxman). In some cases, for instance if it is believed the company is viable but has been managed badly it is possible that such a trustee will even attempt to keep the company running while they search for a buyer.
If debts are re-negotiated or forgiven it is possible for a company to emerge relatively unscathed from bankruptcy proceedings, this all depends on what deals can be made with the creditors.
It compares poorly to student loans because those are individual debts and unfortunately individual debts are far harder to discharge than corporate debts.
This is what structuring related entities is all about.
The one that owes all the money (particularly the one paying and owing to employees) had nothing of real value in it.
The position did not pay, what their brochure was promising their computer science majors could expect to be paid, while at the same time, asking these computer science majors to accumulate 5 salary-years' worth of debt, for the honor and distinction of earning this degree. But they don't even pay their own staff that much.
Let's open up the playing field and allow more cheaper colleges like community colleges. And educate students about choosing those cheaper schools. Employers need to do their part too and stop being so elitist. Not every job requires a Stanford grad.
And let's design the programs so millennials can still work and earn money durring the day and do some kind of part time bachelors program in the evening (that doens't take too much extra time). That way instead of going into debt, they can spend the time breaking even or even building up some savings.
Here's why student loans are dumb.
1. They are practically guaranteed to anyone who signs regardless of their future ability to pay it back.
2. The majority of people getting them are children and have are terrible at perceiving future outcomes. Ask any 18-year-old starting college if they will make more money than average after graduating, most will say yes.
3.College drop out rates are high. This site says 56% https://www.collegeatlas.org/college-dropout.html . Taking out a loan to help you make more money and then not making more money puts you at higher risk not to pay back.
4. Relatively speaking all majors are valued at the same cost within an institution. If I get a bachelors degree in computer science I pay the same tuition and costs as someone who gets a bachelors degree in ancient history, even though our potential earnings are vastly different.
The entire student loan and college education market is a mess. I suspect this is a sign that college should be a public good or has been messed with by folks that think it should be.
I wonder if this is common in other markets where the companies recognize that a lot of their business is commoditized so they keep raising prices to help offset potential losses.
I don't think student loans can collapse like mortgages because there isn't property involved. However, if there is a collapse in higher education in general - a sort of wave where people realize it is not worth it financially and enrollments drop dramatically, that would cause ripple effects in the economy.
I learned most of my undergrad education on my own at home from the books suggested. My education cost me time + the price of the books. However to get the exams, grades and piece of paper in the end, it costs a lot of money.
If we could decouple certification/exams from private institutions, autodidactic people could get their Bachelor's degree almost for free. For Master and PhD degrees I guess the point is more to do research.
It's a hard choice but macro is more important than micro in these decisions.