Student Loans: Debt for Life
businessweek.com
businessweek.com
They seem to resemble a tax.
First off you can't default on them. The companies providing them are guaranteed by the government and have obligations to lent to pretty much anyone.
You can defer paying them back if you don't have a job or you're not earning enough.
Finally, they can't be inherited by your estate.
So if you never actually manage to pay them off they're effectively a graduate tax.
It isn't a tax to enforce payback of borrowed funds.
And taxes can be defaulted or negotiatied downward, says the lawyer in the ad on the TV.
I only got to the first two, so I'll attack them directly:
1) Using all diagonal lines with no color and no difference in angle or pattern, beyond a slight amount of thickness, makes it extremely difficult to easily see the dividing lines. The text is tilted all sorts of different ways making it very hard to digest. Why are there additional pie-looking things stacked around with different squiggly lines? The effect is extremely jarring and I wasn't able to garner any meaningful information from it.
2) Again, the text is slanted this way and that way. Why is 27% the largest number? 40% appears the smallest. What does that even mean? The black points seem to point to something, or maybe they don't?
When you're trying to convey information, this is a perfect example of how not to do it.
All-in-all the psychological pressures on the young that build after college due to compounding interest on loans seems to be just as scary for the future of our country than the absolute amount of the debt itself.
This year the interest is 1.39%, and it's my 6th year, so the current low interest situation rates benefits me. My brother on the other hand is stuck with 4.17% until his next 5 year period starts in 2013.
* Table of interest rates over the last 20 years: http://www.ib-groep.nl/particulieren/studieschuld/renteperce...
Some degrees/careers are bad investment choices and some people shouldn't receive loans for them.
All of these kids majoring in creative writing and then protesting wall street because they can't get a job to pay off their loans should garner no sympathy as they made a bad fiscal decision that got them into that mess in the first place. But since they were just kids when making the decision it's hard to fault them entirely...I think the system itself needs to be doing a better job telling people they're being dummies and helping them correct their course before becoming a debt statistic.
I think that's the real problem.
There's nothing wrong with expensive degree programs. Some people drive Mercedes and some drive Honda. But someone who can only afford a Honda isn't going to be approved for a loan for a Mercedes.
I'm not saying people who are truly interested in art shouldn't go to school, but pick a school whose costs are better aligned with your ability to pay, and consider your ability to pay after graduation. Maybe apprenticeship / community college / just starting a business is a better use of your time and money.
The judge of value should be the underwriter. If Bank of America wants to buy some goofy kid a $100,000 sculpting business, let them bear the risk if that plan tanks. They can repo the chisels.
Edited for grammar.
A viable and palatable solution should therefore address the people enabling (or even encouraging) these idealistic young people to make poor decisions.
There is a lot of money in convincing people that getting degrees that they won't be able to use is a good idea. A lot of money for everyone but the student.
I often wonder if the US payed for the first two years of college / vocational school at a fixed rate (say: $15,000 per year or half what D.C. Public Schools spend per pupil) with the condition of an institution accepting the money that it cover tuition, room, board, normal fees (not, for example, airplane hours), and books what would happen? I get the feeling that two tiered pricing would result.
There are a few rough points that would need to be worked out with this sort of system, but the overall intended affect would be to make institutions care about the employability of their graduates. If only half their graduates in a particular major were finding paying work in their field, then the university would be financially pressured to accept fewer students into that major in the future.
Universities with deep enough pockets to pay off the inevitable debt would be free to offer what they please, the idea being that a university is in a better position to make a rational and responsible financial decision in that matter than someone fresh out of highschool. However universities strapped for cash would be discouraged from taking advantage of students by selling them unobtainable dreams. (This I think would be particularly effective at putting a damper on the predatory nature of for-profit 'schools')
And this is where I think you've got a market failure in education. It's not that there aren't any jobs for people with non-technical/non-math degrees, it's that employers would much rather hire someone with average grades from a top school than someone with great grades from a cheaper school. Pedigree becomes like brand names for handbags--inflating the price of education far beyond the cost of education, and almost eliminating competition by reducing the fungibility of the products.
* Very expensive, very wealthy institutions like Harvard, Yale, Stanford, and MIT can afford extensive financial aid for almost every single admitted student. Students at these institutions usually receive enough tuition reductions and scholarships to bring the education into their affordable range before loans come into the picture.
* "Cheaper" public universities have all had their budgets cut by strapped state governments and their associated greedy taxpayers (see: Prop 13 in California). They also have much smaller endowments and little extra income. They've started biasing their admissions more towards out-of-state and international students as much as state law allows them to, because those students pay the full non-resident sticker-price (which includes little to no state subsidy defraying the cost). As a result, the average student at a "cheaper" public university will now pay or borrow a larger price, closer to the sticker-price, than a student attending an elite private university.
* (Of course, the worst-off remain those who went to very expensive private universities/colleges that aren't actually that rich or that good, and who therefore have tens of thousands of dollars of debt for very little education. But they were always screwed.)
In state students get a pretty cheap deal still, only the ones who don't get admitted have cause to complain.
No, they are most definitely not intentionally overpaying. Not all public universities are educationally equivalent. UC Berkeley is just better than the University of Nevada, and I would not say that a student who chooses the former over the latter has justly chosen to hurt themselves financially. They've chosen the superior education, which is supposed to be what matters.
Heck, my wife has an MD (from a top medical school, earned with honors) and a wrist injury from residency that limited her ability to make money for years, and will greatly lessen how much money she'll be able to make in the long run. She'd be in a very tough spot if I wasn't paying her loans off for her.
You'd be hard-pressed to find a job that the public thinks is safer financially than "doctor". Yet even that is not safe enough for the risk structure that student loans impose.
Sure, I agree that there are lots of victims who deserve more than their fair share of the blame. But don't make the leap from that to blaming the victim. The risk structure that financial loans impose is guaranteed to result in many victims who don't deserve particular blame. Bankruptcy exists for a reason, and it is a travesty that corrupt politicians have been bribed into carving out a targeted exemption for a powerful industry.
The people with the knowledge to actually make an informed decision in the matter are the schools (who track employment of their alumni.. and currently only mention it if it looks good) and the financial institutions who know which people are paying back their loans quickly and which people are paying them off slower than interest is accumulating.
I think any solution needs to at least involve one or both of those two parties.
You lay reasonable plans. But shit happens. What happens in that case? Is it really your fault if plans that were 95% certain to work out fail due to forces beyond your control? How are people that that happens to NOT victims?
Take law school for example. At a top school, you've got say a 70% chance at getting a job at a big firm starting at $150k+, and a 30% chance of ending up at a small firm making $45k. The ~$200k tuition for law school is, at least purely financially, generally worth it for the people in the former group, and not worth it for people in the latter group. The expected return, weighted by that 70% risk factor is still positive. Purely objectively, for a risk-neutral person it makes sense to take on the $200k of debt for a degree from a top school.
But it really sucks for the people who aren't in that 30%. They didn't make an irrational decision to attend law school, but they still got badly burned because the process creates winners and losers in a very stark way.
The problem is the educational system. Schools should not be charging as much as they do. The market is supposed to drive costs down, but the cost of a legal education has skyrocketed since the 1950's despite being more or less the same exact process it has been for 150 years. You have seen this across the whole spectrum of degrees.
Also readers should notice the parent post's qualifier "in state tuition".
https://bigfuture.collegeboard.org/pay-for-college/scholarsh...
The amount of the grant depends on the cost of tuition, so this only applies to the most expensive schools.
Of course you already knew this. You say it is "hefty" and covers all of your costs, do you go to a community college and live at home with your parents who feed you? If not, please name your college and describe how you are able to stretch $2250 to cover all your living expenses, tuition costs, fees and books over a six month period. I am sincerely interested since you seem to have brilliant financial management skills that others could benefit from learning.
Your final paragraph is pretty low class. colkassad did not say his/her only grant was Pell, only that it was hefty.
The phenomenon of oppressive student debt in the US is well documented. Articles about the problems with this situation often have posters claiming that the problem does not exist, but with few particulars. I would like to know more about the specifics of both your situations. Sharing such information could help other students. Posting claims with no details helps no one.
Being able to afford college on $2250 per six months is a remarkable achievement and he should be proud of it, and willing to share exactly how he did it with others so they can benefit as well.
Those aren't exactly phrases that scream, "I want to learn". They do tend to be read sarcastically and indicate a lack of belief.
The solution for me was to go to a state school with a good program and work with a financial aide officer that knew what grants were available. I took out some loans, but they were minimum and easy to pay back (more because I traded work-study money for a loan). Many institutions have grants with their price only being a thank you letter to the organization giving the grant.
I should also point out, I received no help from my high school counselor on applying for financial aide or scholarships. He even cost me a $2,000 per year scholarship . With that, I would have had no loans or work-study. So, if your high school is not actually a hinderance, there are multiple sources of income they can help you with.
>do you ... live at home with your parents who feed you
Not the GP, but no.
In Fall 2011 I racked up $3,283 in tuition and other fees. $1,775 of that was paid for by a grant from the state and $1,500 was paid for by a Federal Pell Grant.
Some students are able to get grants or other scholarships to help alleviate some of the costs.
If you happen to be in-state with good schools, then the rates are far more reasonable (though still expensive), as other posters have mentioned.
[1] http://www.bursar.gatech.edu/student/tuition/Fall_2012/Fall1...
[2] http://www.fis.ncsu.edu/cashier/tuition/ugtuition.asp
[3] http://www.emory.edu/admission/financial_aid/tuition_fees/in...
[1] http://www.guardian.co.uk/education/table/2009/oct/08/underg...
This sounds a lot like how it works in Australia now. Adding a minimum salary cutoff below which the debt didn't need to be repaid would make it pretty much the same.
It seems to me if this trend isn't reversed, the "Great Recession" is bound to keep happening simply because people can only borrow so much.
-- Borrow = future obligation to [repay] = future obligation to [Work]
This is why it all makes sense...that is, if you are in a position to profit from the labour of the debtors. Who are these people? (1) Gov't - receives N% of income the debtors are forced to earn to repay the debts; and (2) the Lenders, who receive repayment of the Interest (profit) and principal (capital). In the case of student loans[1] , the profits of (2) are guarnteed by (1).
So, its all makes sense. depending on your definition of "sense". =D
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[1]Edit/Note: and housing mortages share the same logic. The GSAs have implicit government guarantees. http://en.wikipedia.org/wiki/Fannie_Mae . This is why debt-financed asset price inflation is a characteristic of both [housing] and [university degrees], when considered as "asset classes". The massive GSA's at the heart of the housing crisis were put in place to guarantee mortgage debts, precisely so they could be securitized, sold, and traded as liquid financial instruments.
It's when you run into instability (war) or limitations on growth that you have to start deleveraging.
http://dealbreaker.com/2012/08/lets-spot-a-high-yield-bubble...
tl;dr http://cdn.dealbreaker.com/uploads/2012/08/MattKing2-620x439...
Though here in Finland student debt is not as big thing as it is in the US.
Should a society allow a system where a person is allowed to gamble one of their organs for a chance at a million dollars?
The argument against this extreme example would be: society has an interest in keeping people from doing dumb things that gets them in over their heads because one person being really screwed actually impacts the lives of others. The same applies to student loans. Sure, only "dumb" people take out loans without it being a good deal for them. But we have some interest in preventing "dumb" people from screwing themselves up so much it starts to hurt us too.
The government makes no such judgment when lending, for education, mortgages or anything else it decides to "encourage".
And the result is oversupply and a drop in demand, followed by a long drought in the production of the thing the government encourages. A bust.
Government is not smarter than the student. The student will at least learn from his mistake.
Dumb people might be dumb, but very many clever people depend on stupids and suckers for their income. If "dumb people" (in actual fact: anyone who has made a mistake ever) cease to have any money, all those "smart people" lose their incomes too.