Playing devil's advocate, isn't it fair to remove the ability to discharge student loan debt and in term the default risk due to the fact that there is no collateral? Unlike a car loan or a mortgage, a bank can't repossess your education.
Furthermore a cheap college degree might be so inexpensive that the hit to your credit isn't worth the expense dodged. Banks can loan on cars worth as little as $5k even though their cost to repossess and auction it might approach the cost of the car. For small debts the shame factor can't be underestimated.
From this what can we conclude? Prior to the change in the law college had to be fairly cheap so that banks could make uncollateralized loans for people to go. Because students could only afford so much, colleges had to figure out how to deliver an education for that amount. If a college wanted to charge more, it had to pull risk out of the loan to the student so that a bank would issue it.
This is the fallacy of comparing the upper classes of one period with the masses of another. A far smaller fraction of people went to college in the century before 1976, and those who did go from lower-class origins often did so through direct scholarships like the GI bill. The college loan market was not very viable at this time. None other than Milton Friedman discusses the problem in his 1962 book Capitalism and Freedom. Actually, he proposes some form of legally undischargeable debt as a solution.
I've heard plenty of people talk about working their way through school by having a summer job to pay for room and board and tuition and that it was possible to do it that way, even if it was uncomfortable. That really sounds great but maybe a little bit too great: it's a good narrative about how things were better back in the olden days when things were still good and not fucked up. I WANT to believe it but I'm not sure that I should. And it's all anecdote, no data.
I did some searching for pricing and I found this: http://www.collegeview.com/admit/?p=1858 It looks like a decent summary. In 1960 the minimum wage was $1.00/hr and the cheapest tuition I'm seeing is $960 for the University of Texas. If you made minimum wage for three months of summer that's a total of 40 * 4 * 3 * $1 = $480 pre-tax. So definitely not enough to pay for a whole year of school from just the summer job. At an Ivy League school you're at about 1/4 of your yearly total.
Today if you work a minimum wage job for a whole summer you'd get 40 * 4 * 3 * $7.25 = $3480 (pre-tax of course) which wouldn't even pay for your tuition (nevermind room and board and other expenses, that's another $5k per year at least) at the University of Florida, arguably the best deal in college tuition in the last decade. Comparing it to an Ivy League these days, it's not the 25% it used to be but rather about 10% if you go to one of the cheaper schools.
A few things about your calculations. First back then, unlike now, no college degree didn't mean automatic minimum wage job. Second, he worked while in school, not just over the summer. Third small scholarships back then actually made a difference. Today if you get the national merit scholarship for doing well on the PSATs, it's meaningless at $2000. Back then he got a $500 a year regents scholarship and it really helped.
So if you work 15 hours/week during the year and 40/week during the summer and take the winter break completely off that would be 40 * 4 * 3 + 15 * 4 * 8 = 1140 hours. If you manage to bring in $2.00/hr that would be enough to pay your way at Harvard.
That sounds doable for a person who isn't a genius and willing to sleep only three hours a night or otherwise make really big sacrifices. Truly exceptional people will always be able to bootstrap. But one thing I think is important is to make it possible for those who are talented but not insanely talented (I don't know what the percentages are) to get a degree and learn enough to be useful to society. It's remarkable that people really could (at least in some cases) do that without going into debt.
Harvard's tuition back then adjusted for inflation is around $18,700. Assuming 10 classes a year an using an average class size of 40 students (which is what Harvard reports), that's a budget of $74,800 per class. You should be able to run a college on that, even taking into account some overhead for libraries and such. Yet Harvard today charges more than twice that.
The issue is, after the most endowed schools ($/student), there is a steep drop where schools suddenly aren't able to provide the same opportunities for their low-income students, but still compete for students capable of paying in full. This leads to escalating costs, as schools construct nicer gyms, study areas and dorms, pricing out the mid-to-low income students.
Furthermore, you are letting them completely off the hook for exploding expenses. Check out the administrator to student ratio changes from 1960 to today. College payrolls are now stuffed to the gills with deanlings and deanlets with no educational purpose whatsoever.
http://ofr.harvard.edu/site/policies-issues/financial-aid/
So that seems to me to say that if a family is in the bottom half of average household income, Harvard is free.
I just don't think we should be using Harvard as an example of the high cost of a college education when it seems to me that they are committed to making it affordable for their students.
There are a few things that have changed since back then:
* College tuition has gone up faster than anything else in the economy. Anything. The UC system was a great deal at $1500/yr, but back then you could go to Stanford for $13k or so. The increase has been driven mostly by easy money from student loans, but also by administrative bloat related to government dictates. Books have become an extortion racket - $150 for a stack of unbound pages?
* Almost 20 million illegal aliens have entered the country since I went to college, completely wiping out the low end of the job market. My 1986 summer job is now done by illegals in their late 20s, and they're making about $0.50 more per hour than I made 25 years ago. My old employer doesn't pay more because he doesn't have to.
* The rise of unpaid internships. You work a summer for free so there's a chance you can get a job when you graduate. I think this is another consequence of easy loan money. If you offered me (or my classmates) an unpaid internship we would have declined - we needed to get paid so we could afford to go to school in the fall. Between the low wages and easy loan money today you can almost see the wheels turning - "What the hell. It's not like a job at Burger King will make a dent in my debt."
A half-decade ago, Stanford waived tuition for students from families of income less than $100k [1]. Median household income in the country is roughly $57k.
[1] http://www.reuters.com/article/2008/02/21/us-education-stanf...
Where is the citation for the amount students pay hasn't gone up? College tuition was already past the "this math doesn't make sense" mark when I was in school a decade ago. One of my room mates couldn't borrow anymore money and had to drop out half way through. $90 textbooks back then are $150 now. And so on.
In other word the insurance covers the cost.
If that is the case, where is the debt?
1. US Healthcare is too expensive. Two weeks after I first came to the states, my wisdom teeth (all 4) started growing. I had to pull them out. That was a $2,000 bill and a good lesson to get insurance asap. If you get into a car accident and you don't have insurance, your bill might be about $25K. More if you need continuous care and more surgeries.
2. Doctors are doing unnecessary tests and operations. Sometimes, I feel like they just want you to test for every single disease with a similar symptom. What a joke.
3. Some patients are stupid. Why on earth do some people need to call ambulance for flu. Even if they don't have a ride, just find it, use a cab, or use a bus if you are that broke.
Common sense is like deodorant. People who need it most, never use it.
Probably because you would rightfully have a slam-dunk malpractice suit if they didn't test you for diseases with similar symptoms and missed a diagnosis.
But I agree, ortho/cosmetics is a different beast to deal with.
FWIW, I have no student loan debt so I'm relatively neutral on this.
With student debt its different, if you went to undergrad at MIT then did an MBA at Standford - you are probably looking at north of $100k in debt. If one year after college you defaulted and it was discharged, you would still retain the 'asset' (your education). You could go out the next day and get a nice job at google and continue to earn income from your asset. The bank has no recourse to prevent you from continuing to use the asset they loaned you money for. This is one of the main reasons that you can't discharge student loan debt. No one is going to come take your degree away from you if you don't pay.
I realize the loan in these cases is not directly from the university.
I went to Harvard, its just I lost the degree in bankruptcy, so they claim I didn't go. Just call my references (which are actually burner phones held by my brothers)
Interestingly higher ed already requires all bills to be paid to graduate... they don't care if you default on your credit card the week after graduation, but you aren't getting the diploma until the library fees and tuition are paid off by "someone, somehow". Once its the loan servicers problem, they don't care and you get your diploma. I vaguely recall having to get a slip from some different offices proving I owe no money to the school, in order to graduate, and threats they wouldn't provide transcripts to students in collections, etc.
I'm not saying the judgement / assumptions would be correct, but it's quite possible some employers would act this way all the same.
Therefore it's a big incentive to pay your money back.
Plus, if the potential employer checks your credit history and sees you defaulted on your student loan, they may make assumptions about your behavior or character, having a definite impact on their hiring decision.
Call it professional courtesy.
Regardless of the students' situation, that money going to get paid, come hell or high water.
Late billing fee: $10,000 Processing fee: $1,500 (Etc)
edit: My point in the post above was simply that _if_ it is possible on average for an 18 year old to have a 'good' credit rating, _then_ credit ratings are practically without meaning.
In carrying out its fiduciary duty the firm that issued the loan came to the conclusion that the person would be reasonably able to pay the loan back with interest. Of course, since the risk of default is off the table with student loans, why not hand out a bunch of money that will get paid back with some accrued interest before it is discharged, if it ever is at all?
In a world where fake private schools didn't accelerate the loan bubble, and one that probably treats student loans like any other debt, it would be a different story. Boils down to whether or not they think the prospect of their client finding gainful employment after school is worth taking on the risk of the client defaulting.