Slashdot Mirror
Student Loans In America: the Next Big Credit Bubble
PolygamousRanchKid writes "In late 1965, President Lyndon Johnson stood in the modest gymnasium of what had once been the tiny teaching college he attended and announced a program to promote education. Almost a half-century later these modest steps have metastasized into a huge, federally guaranteed student-loan industry. On October 25th the Obama administration added indebted students to the list of banks, car companies, homeowners, solar manufacturers and others that have benefited from a federal handout. In response to students burying their obligations in court during the 1970s, anti-default provisions were imposed to make it almost impossible to shed student loans in bankruptcy. There are increasingly loud calls for reform of the system, with demands that range from a full-fledged bail-out of borrowers to a phased curtailment of government lending. The changes announced this week are designed to ease the pressure on struggling graduates. Borrowers who qualify will get payment relief, not debt relief. The administration says these changes will have no cost to taxpayers."
If their debt is forgiven at 20 years instead of 25, who eats the loss?
Any student loans are put onto your tax return, the ATO (Our form of IRS) knows about it, and if you can't pay for it, it simply garnishes them from your tax return if you have overpayed or been able to claim tax benefits that aren't taken into account (which most of us are able to do) in your normal PAYG tax payment?
We don't have any problems with student loans going out of control here that I am aware of? Seems a really simple idea to follow...
Moved to http://soylentnews.org/. You are invited to join us too!
Just sell your house to pay off your student loan.
-- I ignore anonymous replies to my comments and postings.
Nothing new here!
There is a flipping element in Credit Bubbles. NASDAQ stocks were flipped in the 90s. Condos and houses were flipped in the 2000s. How does one flip an education? By getting a job where the hiring manager blindly extends offers to a person just because they have a piece of paper. The student buys into the piece of paper using government-supplied money and then the employer takes on the costs of paying it off without really getting their money's worth.
Is to outlaw unjust discrimination on basis of education. In other words, a job offer can't have education requirements that can't be justified (asking for just "college education" without specifying a degree is right out) , any more than one can hire personnel on the basis of what car they drive. ,and as such cause the obscene prices asked by the universities to drop. Here in England for example we pay far, far less for education than in USA and I don't see it being of worse quality, quite the opposite.
You know there's something wrong with the job market when almost any job higher than McD worker, cashier, or floor washer requires a degree.
Such breaking of "degree inflation" would reduce the demand on degrees
Social Security and socialized medicine are entitlements, it's something that people ought to be entitled for just for being born American citizens. It's a right that people in other parts of the developed world take for granted.
The point isn't that the GOP is trying to take those things away, it's _why_ they're trying to take them away. They're trying to take them away so that they can give to the wealthy, and cut taxes for corporations who in some cases don't pay any federal taxes. But, most importantly it's because if the average worker didn't have to work for a large company to have health insurance they'd be significantly more likely to do crazy things like start a business or work at something that they enjoy.
If you are dumb, go to a state school while working: ~15k in debt
If you are smart, go to a good private school with a huge endowment: ~10k in debt
If you are really dumb, go to a good private school without a scholarship: ~200k in debt
Colleges encourage students to take out massive loans, that are not discharged in bankruptcy, to pay for their education. As if by magic tuition increases rapidly.
While at the same time the NCAA won't allow college athletes to be paid any of the billions in revenue they create for their schools. The money would be bad for them.
Clearly colleges are fine with a student in debt, but not one getting paid. Sad.
It's always seemed rather bizarre that you can be a deadbeat car dealer, subdivision developer, banker - hell just about any "profession" that you care to name --run up unsupportable debts, and then declare bankruptcy and have them disappear with no significant long term harm to you.
Student loans though - the one debt that actually might make you more likely to avoid repeating the boom/bust credit cycle - is somehow untouchable.
Three Squirrels
The problem here is that the costs continue to skyrocket. Any solution that doesn't address that is simply a band-aid.
Why do costs continue to skyrocket? Because the colleges know that effectively any student anywhere can get loans to pay for the cost of college. From the school's standpoint, they can just about charge whatever they want. There's no brake on the price increase.
This is of course compounded by cuts from government support to the colleges. But the bubble has been inflating since long before the current economic trouble. It is certainly making it worse right now, but it's not the root cause of the problem.
And you can definitely see where the money is spent on the campuses. I work with college researchers and had the opportunity to visit a couple of state schools recently. And compared to when I went to college just 15 years ago, these places are absolutely gorgeous. Until there is some means of implementing cost control at the schools - without affecting the ability of students to go to college - this won't change.
You agreed. You signed the papers. You gave them your word and honesty that you would do whatever it would take to pay them back. You took the money from hard working Americans' bank accounts for these financial institutions to invest you in the hopes for interest in return to fund their retirement.
Pay it.
Why should hard working successfull people who paid off their loans be punished by having to pay for your own foolishness? They were smart and worked harder and saved and now should have their reward.
One thing we found out is Americans HATE bailouts. They will not support it and will fight every stance to keep what htey earned. Yes costs are going up but you are an adult and need to take responsibility. I wish home owners couldn't default either to level the playing field. The problem is if you help students, help big banks, then everyone else will want a handout. Ultimately, the government goes broke and end up like Greece all poor and taxed to death with no end in sight. ... FYI this is coming from someone who owes $40,000 in student loans and is living with his parents to pay them off.
http://saveie6.com/
For-profit schools. Shut them down. Period.
The average annual tuition for for-profit schools this year is about $14,000. Public four-year colleges charge, on average, $7,605 per year in tuition and fees for in-state students. What's worse is this: The default rate on student loans from for-profit institutions is 15%, while the default rate at public universities is only 7.2 percent (same source).
For-profit schools are milking the American taxpayer for money. Just walk into any one of these schools, tell them you want to be a nurse / chef / accountant / whatever, and they'll lay down a student loan form for you to sign before you could even say "Herbie Hancock." Because, at least with the present law, once a for-profit school gets their money from Uncle Sam, it's theirs, no strings attached. I'd almost call it fraud, except those students who enroll in a for-profit school actually do get something in return, even if it is a sorry-excuse of a half-ass education. (PBS did an excellent documentary a year back on for-profit schools, particularly exposing the "value" of a diploma one gets from these crooks. You can watch it here.)
What's sad is that there's a really simple solution to all this: require a for-profit school to assume some of the risk. If we required a for-profit school to pay back even just 50% of the loan that was defaulted on, you'd see the default rate decrease overnight.
Republicans have their own entitlements like military spending, oil industry subsidies, multiple forms of corn subsidies, dairy subsidies, a war on drugs, TSA, etc.
It isn't that either side thinks entitlements are bad. They merely disagree on what the entitlements should be.
As a human it is in my best interest to choose entitlements which benefit me as someone whose only healthcare options are medicaid and moving to another country. My Hemophilia is mild but if I get seriously injured, the medication to keep me alive costs $300,000 for the six week recovery. I also have Osteochondroma (bone spikes near joints) that can break off and cause said serious injuries. If I get injured, any company that hires me will see their healthcare plan rates raised up to the point where they either need to let me go or screw over everyone at said company. This does wonders for my employment opportunities in a time when finding jobs are hard.
I choose renewable energy subsidies because I don't want my country to be in perpetual war with any country that refuses to sell us cheap oil for the benefit of US corporate interests. A half a billion loan being defaulted on is peanuts compared to our daily military budget. So we tacked half a day of foreign wars to our budget with that blunder. We're making a big deal out of a tiny leak in a household pipe while the watermain is gushing water down the street.
I dislike the war on drugs because every legal medication that I can take with my Hemophilia either doesn't work or will kill me. Having bone spikes poking my flesh isn't pleasant. I could instead put some Cannabis Indica in a vaporizer and generally feel better, but I'd rather not have paramilitary goons raid my house and then later die from injuries sustained.
I dislike food subsidies as they are because they remove choice. I can't partake of milk products. Why not move the subsidy to the grocery so people can buy subsidized food of their own choice? That way my pseudomilks will be cheaper.
Please tell me how Republican entitlements benefit you. At least make sure you are getting something out of it while they screw me over; other than the joy of knowing they screwed people like me over.
As for Obama, he is the most epic closet republican ever. I wish he'd switch parties so the Democrats can field a real democrat for the position.
I don't think college grads are entirely without blame. I graduated less than years ago with a Bachelors degree and a relatively modest $22,000 in student loans. In under 18 months, I've managed to pay off $10,000 while making $30,000/yr (that's 45% of the principal in 15% of the 10 year loan period). How do I do it? For one thing, I don't have cable TV, a smartphone and my car has very little beyond the basic options. Not paying for cable TV and a smartphone with data plan every month is another $80 I can contribute to the student loan (that's nearly an extra $1000/yr off the principal and a savings of more than $3000 in interest over the course of the loan). Throw in the fact that I rarely eat out, buy foods in bulk ($100 chest freezer is a great investment when buying beef by the cow) have all used furniture, work extra odd jobs whenever possible and avoid shopping trips that zig zag around town to save gas and it adds up quickly. I'm finding many of my peers that complain about loans do none of those things... they want everything and they want it now. I realize this isn't an option for everybody... but students also shouldn't be off the hook if they get a crap degree in English or Underwater Basketweaving because it's easy and they have a passing interest in it.
I am gOing to guess you are either still in school or did not go to college. The gen Ed courses are the ones of real value and I never got that until after I graduated. I am very very lucky I had an attitude of as long as I have to do this, make the most of it while I was in those classes or I really would have missed out. The stuff in your program should be stuff you already know a little about, have some natural facility for and interest enough to learn largely on your own. Gen Ed gives you a foot in the door for the other disiPlines. It ensurese you know the vocabulary and where to find more information if you need it later. It gives you enough comfort to talk to people in those fields to ask questions. You will find if you are doing any real proffesssional level work you don't do it in a vacume and that you need to work with people of other disiplines.
Repeal the 17th Amendment TODAY! Also Please Read http://www.gnu.org/philosophy/right-to-read.html
I could have bought a nice BMW and saved for a house.
Not having just filed bankruptcy, you wouldn't.
it is really hilarious to watch people bitching about everything from dorms that are too nice to too many mac's in the computer labs, but nobody wants to follow the money.
student loan debt is securitized and resold to various investors, just like housing debt was in the housing bubble. its the securitization chain, and the big banks are behind it, along with the corrupt government agencies that look the other way instead of doing their job (preventing fraud, preventing false advertising, preventing misdeeds by the credit ratings agencies, etc)
it is like this never ending pattern when people talk about financial matters. everyone goes off their own personal experience instead of approaching it like a hacker: : : how does the system work? what are it's major pieces? how do they fit together? what is the flow in between those pieces? if people would just ask those basic fucking questions we wouldnt be in this fucking recession.
instead its 'oh no, i graduated and i payed my debt off, these freeloaders / communists / blah blah blah' .. complete and utter red herring bullshit that is in no way helpful to solving the problems of the planet.
pension funds, city governments, people running 401 k plans, etc etc etc.
all you have to do is read some SEC reports really close to find out who has invested in student loan debt. its the same morons who invested in subprime mortgage debt. they are the people who run the pension systems, the 401k funds, the union funds, the funds of funds, etc etc etc. there are also a lot of stupid individual investors, corporate investors, and government investors, people who dont want to do due diligence and prefer to rely on the ratings agencies, even after the greatest financial crash in the history of the planet was directly caused by the ratings agencies (which, for some reason, have escaped any and all punishment, whatsoever, let alone meaningful scrutiny by the government).
and the same people are shorting it (Steve Eisman, of Michael Lewis' Big Short, is now shorting 'subprime education', he made millions shorting the housing bubble at Morgan Stanley).
It is possible to writeoff a debt and still have made a profit. Remember that interest and repayments have already been paid on the loan for 20 years. The final total repayment for a loan is always higher than the loaned amount, so the lender breaks even a lot earlier than the point at which the loan is fully paid off. After that it's all profit.
Example:
(Disclaimer: These figures are for a standard commercial loan. I have no idea whether repayments differ substantially for Stafford/Perkins/PLUS/whatever.)
We are pushing to many people into college and parts of the old model defined in European universities during the Middle Ages that part of are based on just don't fit to day.
Reform the PhD system or close it down
http://www.nature.com/news/2011/110420/full/472261a.html
Now the older college system can be cut down to 2-3 years
community college do the basics and some tech / apprenticeships type stuff. So we can use that as a starting point.
Now as for tech school they do some stuff right (teachers in the industry) (more hands on) (more up to date topics) but other parts not that well.
apprenticeships need to be added to Tech jobs / tech schools / college.
Now a college based CS may be good for high level stuff but for a lot of other IT not so much that lot of people with 4 year CS who are very clueless with IT work.
Now in a tech school you can learn alot about IT work but there should be a apprenticeships system added to it.
Also IT sever, desktop, help desk IT workers should not be forced to have CS level programming. Some stuff like VB is ok and what the tech schools due but in a CS your are taking high level programming and even then that at some colleges lacks more of the programming language part Now at time for people doing sever, desktop, help desk type work is better off doing an apprenticeship.
Does non coding IT work really need Calculus?
Also can get rid being forced to pick major?
see how I'm saying apprenticeship not internships they need to be more trades like with at least mini wage and real work (no you are just a copy or coffee boy).
Also there should be trades like continuing education that is not just Masters or PHD CS. No continuing education on new OS's, systems, and so on.
Most of us understand why the government can't just print more money. The price of everything would just go up. College tuition is exactly the same scenario. The only difference is that in this case, the government is printing a special kind of money -- money that can only be used for one thing. It is no surprise when then price of that thing just goes up accordingly. Subsidies (i.e., cheap loans) increase demand. Increased demand causes the price to rise. Consider: * The US massively subsidizes education. The price of education rises far beyond the rate of inflation. * The US massively subsidizes housing. The price of housing rises far beyond the rate of inflation. * The US massively subsidizes health care. The price of health care rises far beyond the rate of inflation. (Except, of course, the kinds of health care -- like cosmetic surgery or lasik surgery -- that do not typically get subsidized. Costs in these areas have plummeted.) Pointing this out inevitably draws attacks, like by acknowledging this, you are part of a conspiracy to deny education to poor people. And I don't pretend to have an answer to this dilemma. The only really clear thing is that the laws of supply and demand aren't *statutory* laws, that can just be altered with a pen and a lot of hand-waving. They are fundamental natural laws, and well-intentioned attempts to manipulate markets (from student loans to price-control regimes) almost always trigger equal and opposite consequences. The real shame is that important issues like these are so easily demagogued. Even though the system is clearly broken, no politician in his right mind would ever propose changing it. "Look!" people would scream. "He hates poor people!" - AJ
Why, because Greece is so corrupt that half of their businesses don't pay taxes (gee, where have I heard that before), or Spain has something like a 50+% high school dropout rate? European countries have a lot of problems, but their commitment to a healthy populace is absolutely not one of them. France and Germany are economic powerhouses, and both of them have universal health care. For them it's a competitive advantage, just like American bankruptcy laws: people were encouraged to take risks, like starting a business or changing careers, with the knowledge that their families' health is still protected, regardless of the outcome.
Don't forget the 220 million the FED gave to 2 wives of morgan stanley bankers, who had no business experience, to purchase student loans. The agreement also covered them for any losses, while they kept the profit. Sweet! Where can I get a deal like that, free money and no chance of loss.
Note: That report was from 2002, and things have gotten much worse since then. Here's a more current story from the last week: http://www.sacbee.com/2011/10/26/4008283/college-prices-up-again-as-states.html
Another major factor is that -- even though faculty and facilities costs have not appreciably gone up -- the number and cost of non-teaching administrators have dramatically bloated (as part of the corporate-management takeover of universities in the last few decades). Today there are more administrators than teachers in colleges, which was not the case in the past. Article on that in the last month: http://www.washingtonmonthly.com/magazine/septemberoctober_2011/features/administrators_ate_my_tuition031641.php
We know where leadership by an anti-intellectual "strongman" who scapegoats minorities and likes boisterous rallies goes
I assume your parents were rich enough to pay for you to go through further education debt-free, or you had another income source that ensured you would not need to take on debt? Interested to hear your story and your solution.
I can't speak for the USA, but here in the UK, it's likely that students will have to pay 9000GBP a year for course fees, plus accomodation, food, transport, other costs. Some may have access to 10K GBP a year at aged 18 but many won't. So many academically capable 18 year olds need to take on 30K+ debt, gambling that this is an acceptable risk and can be paid off later by the expectation of a higher paid job gained by a university qualification.
People are asking many questions about taking on this debt, some are demonstrating, some are writing to their political representatives, some are deciding not to continue into higher education. I doubt many of them have found ways of creating 30K overnight i nthe middle of a global recession, particularl those who are less well off financially.
My impression is that you were either blessed with rich enough parents that you didn't have to worry about debt, found an alternative income stream (I believe in the US the military pays for some education?), or didn't go on to higher (university degree) education?
I am interested to hear your solutions for those who don't have access to 30K or more....
This whole discussion seems off to me. We have compulsory education through 12th grade, and we pay for this entirely through taxes. We don't charge minors for their education, though of course there are private schools which are optional. Regardless, the minor does not end up in debt, and is not required through force of law to be gratefully repaying society for suffering their existence and education.
Then suddenly, the high school grads are adults, and the costs of further education is ultimately their problem, because we say so. The only realistic source of money for this very expensive education are one's parents. The pay from most jobs a college student can get is a joke. We've been seeing that going the loan route breaks down when graduates are unable to get jobs. The military way is very costly. Grants and scholarships have so many requirements that they are sometimes in the embarrassing position of not having awarded any money because no one qualified, or they have to bend the rules. I've also seen the kind of scholarship that is merely bait to get a student to attend. Once students have invested a year or 2 towards a degree, they discover that the requirements are too much and they are unable to keep the scholarship, and once lost, it cannot be regained. A requirement that one must maintain a 3.5 GPA doesn't seem unreasonable, until one is victimized by a few bad professors who relish handing out F's to people they just plain don't like regardless of or perhaps even because of merit, or weed-out classes where the game is to be tough on everyone to get rid of the weak students and never mind whether they're being fair with the tough love, or a department that is so afraid of grade inflation that almost no one receives an A even when they have earned it.
Intellectual Property is a monopolistic, selfish, and defective concept. It is "tyranny over the mind of man"