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Student Loan Interest Rankles College Grads
theodp writes "Like many recent college grads, Steven Lee finds himself unemployed in one of the roughest job markets in decades and saddled with a big pile of debt — he owes about $84,000 in student loans for undergrad and grad school. But what's really got Lee angry are the high interest rates on his government-backed student loans. 'The rate for a 30-year mortgage is around 5%,' Lee said. 'Why should anyone have to pay 8.5%? The government has bailed out homeowners. It's bailed out big businesses. Why can't it also help students?' Not only that, federal student loans are the only loans in the nation that are largely non-dischargeable in bankruptcy, have no statutes of limitations, and can't be refinanced after consolidation, so Lee can forget about pulling a move out of the GM playbook. And unlike mortgages on million-dollar vacation homes, student loans have very limited tax deductability. A spokeswoman for the Department of Education blamed Congress for the rates which she conceded 'may seem high today,' but suggested that students are a credit-unworthy lot who should thank their lucky stars that rates aren't 12% or higher. Makes one long for the good-old-days of 3% student loans, doesn't it?"
Direct loans were cheap, and the consolidation brought them down to ~5% afair. I know the new loans are not as cheap, but thats because some idiot decided having non-direct loans and promising a profit to everyone who serviced them. Doh!
-- dieman - Scott Dier
In India, student loans are 12% compound interest; while the borrowing rate in good banks is as high as 7.5% compunded quarterly.Money makes the world go round...
If you keep throwing chairs, one day you'll break windows....
I worked at a mid size private university in the midwest and tuition rates were astronomical ($30k for undergrad). I think the loans are one thing but tuition rates are a larger issue. I wondered how they stayed in business especially these days.
I think you mean "deductibility", not "detectability", though I'll admit to not reading very closely.
The rate for a 30-year mortgage is around 5%,' Lee said. 'Why should anyone have to pay 8.5%?
Because if you default on the mortgage, they can take your house. Education repossession technology is still in beta. Even when it works it and rarely returns anything of value.
Pay your loan for 10 years... and the government will excuse the rest.
Some restrictions apply...
http://www.nextstudent.com/articles/student-loans-forgiven.asp
You saw the rates when you signed the papers. Not anyone's fault but yours. And no, I didn't want a bailout for GM or the banks either.
My Direct Loans are still around 3%. I wonder why he's paying 8.5%.
Mortgages and car loans are secured loans, where the property or car that is bought with them is pledged as collateral. This makes a big difference for the interest rates. Student loans just ain't so.
Anyway, I've heard complaints like this about student loan rates before, and I've always had the same basic response: you're barking up the wrong tree. You don't really want lower interest rates on student loans; you want the government to spend more on making higher education affordable for those who qualify for it. There's a bunch of countries out there where if you get admitted into a university, the government picks up the tuition bill, period. Those countries ain't richer than the USA.
Are you adequate?
I'm in a situation similar to the person featured in the article - interest accrues on my student loans at a rate of several thousand dollars per year, even WHILE I'M IN GRAD SCHOOL and have no reasonable means to pay down the principal. My tuition, even at a public undergraduate institution, was $30k + per year. I personally know many, many other grad students in my position. It's outrageous that the people the government and banks should be supporting - those who spend nearly a decade earning an advanced education - are being fleeced left and right.
If students are a "credit-unworthy lot" then limit the amounts they can borrow or make it a fixed amount that they must repay. Charging a higher interest rate for "credit-unworthy" people makes it more likely that they'll default, making it a self-fulfilling prophecy. This holds true for all borrowers.
The problem isn't finding a new fangled way for college student to be able to pay the enormous costs of college, it is to find ways to educate them more cheaply tha nwe do now. Online learning, competition, utilisation of open source textbooks... Be creative.
Sigs are too short to say anything truly profound so read the above post instead.
The problem is one of treating education as a business like any other. The country obtains a benefit from having an educated citizenry, and allowing education of this type to be treated as just another profit-center is at best short-sighted, at worst actively hostile to the country's best interests. From this basic problem, everything else flows.
:)
I'm from the UK, and just recently I've been reflecting on the things that I took for granted in the UK that are pay-for over here in the USA. Don't get me wrong, I love living here, I've just married an USAsian who's simply wonderful, but there are things I miss...
Primarily of course, is universal healthcare. The NHS is so far and away better than the situation we have here in the US that it's just not funny. Leaving that argument aside, the other major thing is education. My new wife and I were thinking about where any future offspring might be educated...
If the USA stays the same course as it's currently on, I think my children (as UK citizens by birthright) may be going to the UK for their education. It's a lot cheaper, it'll broaden their minds by travelling, and the quality is generally very high.
Oh how things have changed. I no longer think of the USA as being the gold-standard of higher education. Now I think of it as being just a way of transferring money from rich people to educated people.
As it happens, my wife paid off her student loans (for a JD/MBA) this evening (well, they'll settle on Tuesday). For the cost she just paid, we could buy a small house in the UK. The only debt higher is our mortgage, and living in a nice house in a nice part of the Bay area, that's expected.
I didn't pay for my education (although these days if you don't go to Scotland you pay something in the UK - it's a *lot* less than over here in the US though). I gave the UK about 10 years of higher taxes as a result - probably less than they were expecting - but moved to the USA for the nicer weather
Simon.
Physicists get Hadrons!
Grow up, go to state college, get a job.
The government subsidy on college loans is being able to get a loan in the first place. How else can you get a loan for $30-60k (or more) as an 18 year old with no credit history, no job, and no skills! You're an idiot to place yourself in that much debt with a very clear understanding of the terms and a strong plan on how exactly you're going to pay them off. The job market is weak right now, but companies are still hiring - go train yourself up and find one.
If you can live cheap you should be able to pay off state college as you go. If you do Co-ops or internships all the way through you can pay a quarter work a quarter and graduate with no debt and a better chance of getting a full time job when you get out.
Someone (god only knows why) decided that simply because you wanted to go to college you were worth tens of thousands of dollars at honestly a really low interest rate, compared to if you wanted that money to do anything else (go try to get a signature loan for ten grand from a bank and see what interest they give you, if they don't laugh in your face).
You got yourself in debt and you alone. If you decided to spend that money you acquired on something that isn't going to allow you to pay it back, it's nobody's fault but your own.
Nearly 50% of all fortune 100 CEO's graduated from a state university. There's no reason to think you need any better if you can't afford it.
There are two general type of student loans: direct and non-direct with a dirt cheap and a cheap interest rate. 8.5% is cheap for an UNSECURED loan that doesn't START accumulating interest until AFTER you graduate (actually Govt pays interest till you graduate).
Dude- you got $85K with ZERO collateral. The rate is NOT unreasonable. It is the best investment you can make for your future.
You can always become a teacher in the inner city or work 2 years for Peace Corps or any of the other methods the government has setup for most or all of your loan to be FORGIVEN.
Stop complaining about getting cheap money with no collateral and no limitation, except that you go to school.
The government has bailed out homeowners. It's bailed out big businesses. Why can't it also help students?'
To me this is a tragedy. Young people starting off almost $100K in the hole. I had student loans, so did my wife. Together they didn't add up to $40K and she went to grad school.
On a higher level this kills entrepreneurial opportunities at the time in life you have the most desire, creativity and energy to launch a new business. Many of you are stuck in low-paying, dead end jobs because of student loans...one of the reasons some companies like to hire right out of college. Student loans and health insurance. Wouldn't it be better to turn all that creativity loose developing new businesses and jobs? But how can you saddled with all that debt and no health care coverage?
We have to do something, not just for people in college now but those recently graduating into 9.5% unemployment. Whatever that is, it has to include cost controls on education. The cost of education is running way ahead of inflation and textbook companies are worse than the mafia (at least the mob runs prostitutes). This is crazy.
But what to do about it? If the government tried some kind of forgiveness program, Republicans would scream about budget deficits. Student loans are also a giant bank pork program and you can see what kind clout they have in Washington. So, it's got to be paid for somehow, deficit neutral, combined with cost controls on education and everyone on both sides of the political pork barrel have to STFU long enough to get it done.
That's our life, the big wheel of shit. - The Fat Man, Blue Tango Salvage
Maybe it's because you're borrowing over 80,000 dollars for a college education.
5 minutes with a spreadsheet would tell you how much and for how long you have just screwed yourself, and by borrowing that kind of money you prove that you can't or won't spend even that much effort to think before borrowing.
I think part of the problem is cultural: I was broke back when I went to college, and I needed loans; but I also knew that you should never borrow anywhere near enough to pay your whole tuition bill. That's far too much money to borrow even if you aren't dead broke. Poverty forces you into indebtedness, but it also makes you paranoid about accumulated debt, and you understand that something that costs tens of thousands of dollars will require you to eat Ramen, work multiple jobs, and make affordable choices even if someone will extend you credit.
But now I hear horror stories about students who borrow enough money to buy a house in much of the USA, and use that to pay for an entire four-year degree plus graduate school. It's like the kids don't understand that they're poor; they get a credit line and stop acting like people who have to work for a living.
I was the oldest child of a middle class family of 3. I applied to 2 public and 3 private universities and was accepted to all of them, but with minimal financial aid. I chose to attend a nearby public university that offered a quality education that cost approximately $10,000/year in the late 90's.
Why did I make this choice?
- I could afford to finance about 75% of tuition via savings that my parents had set aside for me.
- I worked various jobs while in school, eventually hitting $15-17/hr, which more than covered the remaining tuition & expenses.
- I didn't want to screw my siblings out of an education or force my parents into debt. In the end, I was able to leave about $4,000 of my parent's savings for my brother or sister.
I have friends who are teachers who decided that they needed to attend small, private New England colleges with tuition and expenses over 350% more than my education. One of those friends and his wife makes $120k combined teaching, but after years of deferments owes over $300,000 a decade after graduation (not including graduate work form a private school which would have been FREE had they gone to the state university) -- my friend and his wife can barely afford rent, and will likely become homeowners when they inherit a house when one of their parents pass.
People don't need bailouts, they need to live within their means and not assume that they are entitled to a specific lifestyle or type of job due to the circumstances of their birth. If you can't afford four years of college, borrow money to go to trade school and work as a plumber, HVAC, electrician, etc. If you really want to go to college, you'll be able to earn the money to do so.
Conformity is the jailer of freedom and enemy of growth. -JFK
... but there are many many different places in the world, some of which are outside the USA. Most of these places have different laws, customs, and living standards. The UK is not Czechoslovakia...
If I didn't care about the state of play in the USA, I'd just up and leave, taking my family and my considerable yearly tax burden with me. I choose to stay and try to influence people as I can...
FWIW, my uncle was recently diagnosed with a heart problem back in the UK, he was in hospital the same day, operated on within 2 days and back home 2 days later. The only real down-side was that he couldn't attend the wedding because of the US insurance costs.
And two weeks before the wedding, my mother was diagnosed with breast cancer. She opted to put off the operation-date offered (1 week after diagnosis) and wait until after the wedding. Since then she's been back and had her operation.
My family is not rich. My father worked on the docks, my mother had a variety of part-time jobs through her life. Excellent, timely medical care is something she (and I, until I moved to the USA) take for granted, without any "recission", or "previously established medical condition" nonsense. If you're sick, see a doctor. Get better with as much or as little help as necessary. No co-payments. No payments (at the point of treatment) at all, and if you need heart surgery or extensive (5 years chemotherapy is being talked about for my mother) treatment, there's no questions asked...
There's no way my family could have afforded the medical insurance that would be equivalent to the care that my mother and uncle have just received. They of course don't consider this to be anything special, it's only when you don't have something any more, that you miss it. Similarly, I don't think americans miss it because frankly they've never experienced it. They just keep on telling themselves they have "the best healthcare system in the world", which (IMHO) is only true for the minority of rich americans that don't really need the insurance companies anyway...
Simon
Physicists get Hadrons!
No they don't. The max is $2500, and the deduction is income limited, i.e., over a certain threshold it is reduced with rising income until it hits zero.
What changed under Obama? Nothing Good
There's a vast difference between the skilled tradesman and what you call morons. Give me a licensed master plumber, master electrician, mechanical contractor, etc and I'll show you someone that truly understands their field and has years of experience under their belt. Sure the variety of assistants range in ability like any job, but to label the actual skilled person as a moron shows you don't understand the field. That'd be like comparing someone who flips burgers to a skilled chef. Also the skilled trades are very strongly union in every major city, unions being one of the strongest backers of the Democrats.
As for continuing education much of the green movement is powered by installation of ultra high efficiency equipments. Pull up a wiring schematic for a 96% boiler and the various pumps and zone valves - it's anything but moronic work.
So what's up with the trades bashing? Watch a few episodes of Dirty Jobs and you'll see some examples of problem solving at the finest.
"Hey, I have a better idea. Let's take just 1% of that trillion dollars per year, and use it to feed EVERY SINGLE !@## STARVING KID THE WORLD OVER. Yes, that's all it would take. A Billion dollars per year could by a handful of rice, corn, or wheat to put into the hands of every single starving kid in the world. Can you imagine just how much goodwill this would cause?"
Ouch. While I'm enormously sympathetic and entirely on the same side of the political fence as you, your numbers here are tremendously screwed up. Pretty embarrassing, actually.
(a) 1% of a trillion dollars is not "a billion" -- it's 10 billion. (b) U.S. already donates over $22 billion per year in foreign aid *. (c) Highly skeptical that another billion (or 10) could feed all starving children -- citation needed. (d) Many locations are documented as not allowing US/UN personnel in, and/or have confiscated food donations in the past from the poor to the army, etc. -- would you be willing to force that with military action?
Get your facts straight and it will strengthen our campaign for social justice in the world.
* Source: http://en.wikipedia.org/wiki/Foreign_policy_of_the_United_States#Foreign_aid
We know where leadership by an anti-intellectual "strongman" who scapegoats minorities and likes boisterous rallies goes
Your post brings up the thing that really bothers me about the 'healthcare is a right' and 'education is a right' crowds.
I am all in favor of helping out people who don't have healthcare, but in order for those people to have healthcare, someone else is going to get screwed. It isn't like this stuff comes from the Universal Rights God, it is from the noodly appendage of someone else's wallet that the benefit must come. Calling it a 'right' kind of hides that fact.
And I am happy to pay for it. I'm happy to help someone out whenever I can. But geez, if you worked hard through high school, isn't the knowledge you gained from that hard work enough? I mean, you're going to college, you are working hard, and YOU are going to be the primary beneficiary of all your hard work. Do you really want to force someone else to pay for it? If you don't think it's truly worth it, don't do it. If you don't want to penny pinch, then don't; go do something where you don't have to. If it is too costly, then it's probably not worth it. Go do something else.
But if it is worth it, then you're clearly getting your money's worth. Good job, keep it up.
Qxe4
Every degree is valuable, you know? Every student must get a degree! (probably because we already watered down the high school diploma by insisting that every student must get one, no matter if they can't effectively understand math usage or the meaning of something they read)
Imagine the outrage if it were suggested that physics, engineering, and math were more worthy than black studies, women's studies, and LGBT studies. We're going to Hell in a very nicely woven handbasket.
Perhaps the worst thing is that this perpetuates the idea that college education is generally worthless. When people see college graduates failing in the job market, they often conclude that education is not worth any effort. The correct conclusion is of course that your field of study matters, but that doesn't generally sink in.
Is their earning potential at the moment is not so much, but they're chock full of organs! And they're hardly even using a lot of them! Perhaps they could turn this organ surplus to their advantage somehow...
I'm trying to teach myself to set people on fire with my mind... Is it hot in here?
Your conclusion fails to follow from your premise. Paying for someone's degree in Advanced Featherbedding just because they want on does little for the nation but produce yet another idiot with a meaningless degree and a sense of entitlement.
A nice soundbite, but nothing else.
Personally, I think a system that makes people work to pay for their education works just fine. It sorts out the those with the skills and dedication to obtain an advanced education from those without - the same skills and dedication they will hopefully employ in whatever career that education prepares them for.
Spoken like someone who cant think beyond their own pocket.
Because proper education systems increase your wealth as well, the same as proper health systems benefit your health as well. Let me ask you this, would you rather have a nation full of highly educated white collar workers or a nation full of barely educated blue collar slobs barely able to swing a hammer?
Well the white collar workers of course, you cannot compete with the third world on manufacturing whilst maintaining a first world economy. Now if education is difficult to afford then you will end up with a large section of your workforce earning low wages, low wages means that their contributions to tax will also be low as well as the amount of money they have to spend or invest. This means that YOU as the middle class will contribute MORE in tax to maintain the same quality of life or YOU will have to accept a LESS fortunate lifestyle.
If you have more highly educated workers you can attract and create high tech industries which pay higher wages and thus contribute more in tax. This means the as a net result of more people paying more tax YOU pay less tax over all. YOU also benefit from OTHERS spending more disposable income or INVESTING that income which in turn creates more wealth and REDUCES the tax burden on INDIVIDUALS.
I suggest you look at HECS, a scheme created by the Australian Federal Government which covers the cost of tertiary education for Australians. This is in turn paid back as it is factored into the amount of tax a receiver of HECS pays (I.E. you pay only for the HECS that you have used) at the end of each financial year. In effect the government extends a near zero interest loan with a flexible amortisation schedule, so the tax taken from mr to pay HECS gets returned in full later in life via a reduction in taxes and economic benefits. It's almost like, well like an investment and an investment that has been working for Australia for the last 20 years.
Calling someone a "hater" only means you can not rationally rebut their argument.
Spoken like someone who cant think beyond their own pocket.
Spoken like someone who doesn't give a shit about other peoples' pockets.
Because proper education systems increase your wealth as well, the same as proper health systems benefit your health as well. Let me ask you this, would you rather have a nation full of highly educated white collar workers or a nation full of barely educated blue collar slobs barely able to swing a hammer?
Would you rather have a nation of workers or of parasites?
Well the white collar workers of course, you cannot compete with the third world on manufacturing whilst maintaining a first world economy. Now if education is difficult to afford then you will end up with a large section of your workforce earning low wages, low wages means that their contributions to tax will also be low as well as the amount of money they have to spend or invest. This means that YOU as the middle class will contribute MORE in tax to maintain the same quality of life or YOU will have to accept a LESS fortunate lifestyle.
The question here is why is education difficult to afford? I think it's because government has been throwing money at education in the form of subsidized loans and overly generous financial aid. If education were free, there'd be two possible outcomes, either everyone would consume as much education as they could, driving costs up even further, or someone would have to regulate consumption. Either outcome is avoided by the third choice, making people pay for their education.
If you have more highly educated workers you can attract and create high tech industries which pay higher wages and thus contribute more in tax. This means the as a net result of more people paying more tax YOU pay less tax over all. YOU also benefit from OTHERS spending more disposable income or INVESTING that income which in turn creates more wealth and REDUCES the tax burden on INDIVIDUALS.
Except that the tax burden and future obligations aren't going down. Education won't fix what's wrong with the US because it's not the cause of the problem, and because the "investment" is consumed by those that had no part in it.
That just got modded "flamebait" by somebody who clearly resents being reminded that some degrees (his own most likely) have nearly zero economic value.
It's an annoying way to stifle debate, but at least I find it amusing. :-/
According to http://www.springerlink.com/content/u380751518251x56/
"Majoring in a scientific or technological discipline, earning good grades, persisting to degree completion, getting and staying married, and not having dependent children are all actions that substantially increase the likelihood of repayment and lower the likelihood of default."
You have to pay to get the full publication I guess, but that first part says what should be obvious: people with nerd degrees don't default.
Because you can't foreclose on someone's education. Next question.
As a student with 10+ years of education, 3 years of actively accepting student loads (which have been accruing interest for the last 8 years), and a wife with 5+ years of loans already in repayment I feel justified in saying "BOO FRIKIN' HOOO"
A college education was never meant to be a guarantee of future financial stability, especially in the short term. We need to get away from this pervasive mentality of "Things didn't go exactly according to the PLAN. The Government needs to save me!!!! WAAAAAAAA".
Of course it sucks trying to find a job in the current market, and I sympathise as I'm currently looking for my next job as I'm going to graduate soon. However, that doesn't mean that the federal government, who already bent over backward in order to help me get the loans I needed in order to persue my education, should be expected to further subsidize me into my 30's. Grow a friggin' pair, and if necessary get a job working at McD's and rent the shittiest appartment you can find to make ends meet. This sense of entitlement to an easy life, simpy because you are college educated is assinine and juvenile. The education is supposed to give you more skills, based on the idea that more skills make you more valuable. However, if you pursue a degree in which those skills are next to useless (I'm looking at you art history majors), or one in which the market is oversatturated, well then you were an idiot and deserve to suffer a little for your stupidity. That doesn't mean that you should be able to get your education for free, just because it took you a little while to find a job.
We need to stop supporting those that have made stupid decisions or else they'll never learn that there are consequences for their actions. I learned that in middle school, my older brother took until after high school, and apparently some have failed to learn the lesson despite being 22 (Bachelors), 24-28 (Graduate Degree), or even older 50-60 (Corporate CEO's that ran their companies into the ground). Maybe I'm just an insensitive clod, but not everyone can be happy all of the time. A little hardship can build character, just as our grandparents.
There are nowhere near as many people suffering as there were in the great depression, all the "Worst recession since the depression" hyperbole aside. If the current hardships mean that it takes you an extra 10 years to buy a house, or that you have to settle for something less than a McMansion I'm not going to be losing any sleep over it. I will probably lose more than a little over my own financial problems, but they are MY PROBLEMS and not the governments. A little more personal accountability on behalf of most Americans would go a long way to improving our collective condition.
Bureaucracy expands to meet the needs of the expanding bureaucracy.-Oscar Wilde