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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
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.
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.
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?
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 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!
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.
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
I sit on an advisory board at the local community college, and as such I get the chance to rub elbows with others in academia, including faculty and administration at prestigious schools in the Ivy League. It's interesting that when you talk to these people, they make no bones about justifying why they charge so much for an education. As someone from Brown put it bluntly, "If we didn't charge so much, people would not think it was worth anything." Some might argue that the easy access of federal funds has done a lot to exacerbate the problem of rising tuition costs. Just as government contractors and consultants view federal government funds as a never-ending supply of money, colleges view it in a very similar way.
Remember the Alamo, and God Bless Texas...
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.
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.