The Ripple Effects of Rising Student Debt
nytimes.com
nytimes.com
Apparently this isn't true anymore: http://www.businessweek.com/articles/2014-05-06/you-can-get-...
Personal Opinion:
People lack knowledge of how heavy a burden dept really is. Many of my classmates decided to go to college around 17-18yo, myself included. Many of these classmates never worked a full-time job, top students probably not a part-time job either, because their parents want them to concentrate on school.
Example: There was an article about an NYU student suing the school because it was too easy for her to sign $50,000 loans each year.
Students take loan "tests" now before being able to sign for loans, but they don't really show what this really means. The tests show examples of what a 10 year loan may look like for payment, but really it should show the percentage of your pay it will cost per month. A $100k-$200k loan can easily take away 50%+/month of net income from a person making $40k-$60k per year (hopefully your income will rise substantially over time, but most likely your cost of living too, e.g. apartment/car/family).
Debt is crippling, and if you search online for examples you'll see huge lists of comments of life stories.
EDIT: Adding this link to display spending power over time for Plumbers vs. Doctors vs. Teachers: http://www.bloomberg.com/news/2011-03-09/study-hard-to-find-...
Summary of article: Given everyone lives to 100 years of age, the doctor only has $423 more per year than a plumber. I know this doesn't account for if everyone became a plumber right now.
Here in The Netherlands, I know quite a few people who didn't get any student loans because they wanted to avoid any debt at all cost. And the Dutch student loans are not even 'proper' loans. If you don't have a job, for example, you pay a monthly minimum of around 50 euro (I think).
Of course, the fact that this is possible here in itself is a nice thing, and times are changing here too. But if I had lived in the US, I might've never gone to college just to avoid such staggering debts.
I think it would be hard to avoid college if you had lived here. We are told from a very early age that to be successful a person should go to college. Stats like a college graduate makes $1m-2m more over their lifetime than a person who didn't go to college.
If DARE (Drug resistance program here in the states) ever taught me anything, it's that peer pressure works. If everyone else is doing it, you probably will too. Asch's experiment is a good example of this: http://en.wikipedia.org/wiki/Asch_conformity_experiments
I've known people from European countries that don't have to anything for college education, but their taxes are about 60% (they probably also have universal health care too). I think as long as we see the impact our tax money has, to provide for our basic needs, people are willing to pay these rates. But how governments spends money these days it's no wonder why no one wants to pay taxes.
Taxes here are pretty high, I guess, but realizing the costs in the US for health care and college makes me happy to live here.
And from the brief time I spent in the US I didn't get the feeling that people in my 'class' (first-generation middle-class, white, educated) were living more comfortably than I was.
Yes, I know (now) that there are ways to get out of the catch 22 (get a tiny limit or secured CC) but it was an unpleasant surprise at the time given that it's drilled into you that "you should stay away from debt and credit cards" (which really means CCs on which you don't pay in full each month, and which you must carry).
Is the Netherlands anything like that on credit?
This does not really exist here, and I'm pretty sure that's the case for most of Europe. I'd say at the very least most middle-class-and-above children are strongly imprinted with the concept that debt is bad.
Furthermore, I suspect that at least here in The Netherlands there are pretty strong regulations on credit-style business ventures and advertising (or buying with monthly payments).
Basically, our approach is that if you can't pay for something, you shouldn't buy it. Among my friends, whatever their personal situation, most don't even have a credit card (and I'm almost thirty!). And when they do, it's usually specifically for buying stuff that you can't pay for with a debit card.
In my case, for example, I was pretty quick with a credit card because I was 'internet-savvy', but I specifically got a student version that has a -1000 euro limit and that automatically resets to 0 every month.
Did you mean that there's some particular aspect of credit scoring as it works in America that doesn't happen in the Netherlands?
I was responding primarily to "In the US, if you avoid debt at all costs, you get a rude awakening." As far as I can tell, that's not the case in Holland. It's better to not have any kind of debt if you get a loan. Which seems like a sensible approach to me.
(but I am not well versed in all this, so if you really want to know I suggest you ask a Dutchman who has had experience with loans other than big student loans!)
Alright, but I don't get why you characterized that state as "Ah, the credit score ... that does not really exist here". (Though I was mainly perplexed at the implication that they're no counterpart to it -- i.e. a quantification of the credit risk, even if under a different name.)
And for secured loans, they do look at your situation in the US. It's just that commercial banks use the score as a filter before they bother with that process. If you have no credit (but are otherwise responsible, etc) then credit unions will still look at your situation even despite lacking a credit history.
(It's nevertheless frustrating that official what's-my-score sites will say you have a high score, even as every lender tells you, "Um, no you don't.")
You can build it without taking any debt by applying to secured credit cards first and then eventually get unsecured ones. Never carry balance and you have no debt but have great credit history.
If you started to study over half a decade ago and still fall under the old system, that minimum is 0 euro's. Which is nothing compared to the even older system with it's infamous "eternal students", but let's not digress. Either way, if you haven't paid everything back in the first fifteen years after graduating, your remaining debt is cancelled.
> Either way, if you haven't paid everything back in the first fifteen years after graduating, your remaining debt is cancelled.
I understood that they do extend that period for the time that you don't pay back your loan. Is that incorrect?
That's not a fair summary of the linked article. Student loan debt still cannot be discharged using the ordinary rules of bankruptcy. You still need to prove undue hardship, and that still involves a tough, three part test. What happened was that one court allowed a single mother on food stamps to discharge some student loan debt -- a fact pattern that struck observers as unusual because those circumstances are relatively mild as compared to most successful cases.
This understates the difficulty.
It is so nearly impossible to discharge student debt, that out of the many thousands who try it, only a handful manage the feat in any given year.
It makes the news when this happens, it's that rare.
In 2007, 39% of the people who tried to discharge student loans were successful, 25% full discharge / 14% partial discharge. That is far from just a handful.
The problem is, only .01% that could try to discharge students loans even tried. This may be because they didn't think it was even possible for them to win, advised against trying from counsel, or some other reason. The reason for why a person wouldn't try would be a good follow up study.
The reason for linking the article was to provide evidence that some people are actually able to do it. Didn't mean to imply that everyone was capable of discharging student loans.
Link title...
Why is the education system so broken, at every level, when people are more fixated than ever on the importance of getting a degree? And how do we fix it?
Then again I'm still glad I went, even if 6 figure student loans was part of the result.
* School will be more "fun" in a lot of ways than work.
* I will meet many more people of the same age and interests at university than I would meet / have met in the "real world".
* As much as work experience is looked for on a résumé, a diploma from a legitimate institution looks better and will help me find work.
It's a tough decision – thinking about $60k/year tuition is like staring up at a figurative Mount Everest of impending debt.
This is probably not without risk but saving up to two years' debt @ $60k per year is pretty good motivation.
You're incorrect about the legitimate institution looking better than experience though. No one cares what school you went to, it's all about what you've delivered in the industry. I've never seen anyone hired or promoted based on their schooling.
Also note that public schools make no guarantee that there will be space available in required classes for you to finish in 4 years, and often have quotas for majors, e.g. per https://news.ycombinator.com/item?id=7795041 the University of Washington has 80 CS slots per year, with over 1,500 applicants and a 3.9 GPA required to even be considered.
While I'm not saying they're necessarily worth it, private schools with rare exceptions guarantee you'll be able to finish in 4 years in the major of your choice.
However, I've found incredible value in the connections I made at university, which would've been much more difficult if I had not studied. Assuming you live in a country where you don't amass crippling debt, studying can still be very valuable, for a variety of reasons.
If you're good at the right things, and are motivated, you can do fine with and without college. But college can make a lot of things easier, and more natural.
Of course, it can also backfire and turn you into an undisciplined, alcoholic college-dropout.
tl;dr: I'm not disagreeing with you, but I want to highlight that going to college is a perfectly legitimate option with many advantages (if one doesn't consider the debt).
Dozens of my friends in my senior highschool class went on to do just that. Good grades got them at least a partial in-state scholarship. Then some part time work (often just in the summer) made up the difference. The tuition was fairly low because they stayed in-state. This was in Florida and Georgia in the early 2000's. Have things really changed that much? Or maybe those states were just an anomaly.
Frankly, I think in many ways college is overrated. However, getting a degree with minimal debt in a field with good job prospects still seems like a great option. However, spending big money to study at a "top" school in a field with average job prospects seems like a poor financial decision. It is a shame such a major financial decision is made when people are so young.
It was a spectacular bargain (and still is, but to fewer students), and paid for my degree at Georgia Tech, which is a pretty good school. The system is funded by lottery revenue, though, which brings up some thorny issues. The majority of people who buy lottery tickets are working class, but the majority of HOPE recipients are upper-middle class - effectively a bizarre reverse-welfare program.
In most other states, similar programs don't exist, and even students who are willing to stay in-state and work while they go to school end up with some student debt.
Is this true? Or is the funding situation good?
He thinks Oregon is not good for higher education funding.
Others are correct in stating that having these loans actually makes people more desperate for any job. It's very different in the Silcon Valley where we see a lot of high salaried tech workers. Their skills are high in demand and in the capital of tech. This isn't the case for most fresh grads.
There's also the situation of the last recession where people went back to school to wade out the downturn in the economy. I had fresh MBAs taking offers lower than what they were making pre-MBA.
This makes the situation much worse as students increase student loans, lose 1-2 years of earning, still accruing 6-9+% interest rate on undergrad loan, and then coming back into a market that's overflooded with cheaper undergrads and more master level graduates looking for jobs.
US labor is becoming so cheap that offshoring doesn't make as much sense as it used to 10 year ago.
This value proposition is very hard for new grads though. Most come out of school with little to no work experience, internships included. So it's hard for them to make this case. Not only can they usually not make the case, depending on the role, a new employee is not at optimum productivity until .5-1.5 years on the job. This is one of the main causes of employers always looking for that 1+ years of experience. The first year is most costly to the employer in training and risk the employee just taking a job somewhere else.
H1B just needs to go away and be replaced by a point system, like everywhere else in the civilized world.
"The H-1B is a non-immigrant visa in the United States under the Immigration and Nationality Act, section 101(a)(15)(H). It allows U.S. employers to temporarily employ foreign workers in specialty occupations." --- http://en.wikipedia.org/wiki/H-1B_visa
The very vast majority of jobs we're talking about here aren't specialty. This is about the decades-old mindset that you can take 40k+ debt because a any random college degree guarantees a great job/salary/career. If it's one of those prestige-branded schools, 70k+. You got a bunch of people getting majors in Liberal Arts or Economics with no particular focus on _why_ they're doing it or _exactly how_ they will apply that knowledge. They just hope to show up at Goldman Sachs with diploma in hand and get an opportunity at a lucrative career while being trained on the job. There are too many of these people and these people with little to no experience and student-loans tied to their ankles aren't in a position to bargain.
As far as showing up with an Economics or Liberal Arts degree at Goldman goes - up until the crisis hit in 2009 you could pull up with one of these at any school where they were recruiting and expect to get hired. This is what labour market figures show.
That's thing though, the effects H1B has on STEM is definitely significant. I don't know if it's bad or good yet, but I understand there's a significance in that if H1B visa holders were removed from the STEM pool today there would be a very noticeable impact. I'm talking about the people have _no idea what they want to do in life_ and just randomly get a degree in whatever and go do whatever people tell them is good; like going into accounting or something. I'm talking about the people who have no particular drive other than "My family and friends all think going to school is a good thing so I guess I better go do something". The people who become doctors are the ones that actually make it because that's a lucrative & specialized/focused field. The rest are disillusioned by how hard it has become to find a good high paying job and are held down a debt they didn't expect to have difficulty paying back.
Some reasons you should: - you're more attractive because you are foreign - you're less fearful of starting your own company because you're not in debt - alcohol is dirt cheap and you can legally drink - you can learn another language - you can explore all of europe on weekends because flights in europe are dirt cheap
The reason people don't: they're scared of doing something different.
It only makes some sense for degrees where the university education is a 100% prerequisite to a high paying occupation (for example medicine).
In general US consumers go into debt far too easily. For example it's common place to get a car loan, even though you can't afford a car. In my opinion this is dangerous to your financial health, much better to buy a lower cost car for example and avoid a loan. It only makes sense when the car is necessary for your job and in this case if you can't afford to pay cash for the car you should buy the lowest cost (relatively reliable) car possible.
And unfortunately, many jobs (not just doctors, but simple basic jobs) now require a degree. Sometimes they don't even care what degree.