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."
Just sell your house to pay off your student loan.
-- I ignore anonymous replies to my comments and postings.
Nothing new here!
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
This means that after 20 years of you making income-based payments, they forgive the remaining debt. In order to qualify for income-based payments, you can be making no more than 150% of the poverty line. In that case, you payments are no more than 10% of your income.
The reality is, there are very, very few people who actually accrue student loans who can't pay them back over 20 years. Not only that, but are living around the poverty line for 20 years.
There are other paths to loan forgiveness in exchange for service. Details are here.
Learning HOW to think is more important than learning WHAT to think.
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/
"The reality is, there are very, very few people who actually accrue student loans who can't pay them back over 20 years."
That was the reality; not anymore.
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.
Do you have many people graduating with student loan debt that's the equivalent of $250,000 US?
The reason the loan problem is so bad is that higher education in the US is so ridiculously overpriced. A year of university used to be equal to much less than a graduate could expect as a starting salary on a first job after graduation. Today, they are much more.
There is a consumer price index that measures how much prices are rising or falling. Higher education has gone up in the area of 300-400% of the CPI for years now and it's accelerating.
As a retired academic, I really don't see why tuitions have skyrocketed. Faculty salaries have held close to CPI, the buildings are already built for the most part. I guess the energy to heat and light those buildings has gone up but not enough to explain the difference.
The really strange part is that those huge endowments that universities have are now topping out in the billions of dollars. Those endowments were supposed to be used to keep tuitions low. Plus, any of you alumni out there know how you're always being hit up for money. So where's the money going? The campus buildings are being built with donations for the most part and universities are tax exempt. And don't forget the huge money the big athletic schools are bringing in. Why isn't that being used to lower salaries? The tuition at the Universities of Texas and Florida and Notre Dame and other have all skyrocketed. Where's all that TV money going?
When I retired in '07 I was making more than the average tenured faculty is making today. It's not personnel costs, it's not building costs, it's not energy costs, it's not technology costs. So why is it so much more expensive? I know it's nice for universities to have overseas campuses, but I'm starting to wonder if that's part of the problem.
But no, I don't think you can compare your student loans with ours in size.
You are welcome on my lawn.
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.
Actually the costs of the degrees between the two countries are comparable. Whilst Australia does not have any $250,000 degrees the average degree costs are similar. The highest level of government support is around $100,000 for a degree in Australia. The Australian government currently regulates the prices the universities charge for most places, between about $5,000 to $10,000 a year depending of the type of degree.
The big difference between Australian and US student loans is that in Australia the loans are income contingent. I have never understood why more countries do not use income contingent student loans. As the OP said, the loans are managed through the taxation system. A person has to be making more then $47,000 a year before they have to make any payments. Above this threshold the amount paid is a fixed percentage of income on a graduating scale, for example if you earn above $47,000 but bellow $52,000 you will pay 4%. The maximum rate kicks in if you earn above $87,000 when it is 8%.
Another important difference is that in Australia the loans are provided effectively interest free. They are indexed to CPI each year which is well bellow the interest payments on a commercial loan.
From what I've one of the major reasons prices have risen at public universities is because states contribute less to them. This has been the case for the last 10 years. There are many sources to cite but here is a good one: http://www.highereducation.org/reports/losing_ground/ar2.shtml . Inflation and stagnant wages make it even worse.
Reduced state aid, stagnant wages (for the last 30 years as compared to inflation), a more competitive job market, and stricter borrowing are all conspiring to make college much less affordable for the upcoming college-bound generation and the last one.
Chance favors the prepared mind.
Perfect is the enemy of good.
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.
On the one hand, this seems entirely fair, on the other, it sounds like a ticket to four cheap years at party U for people who intend to loaf and/or earn their income illegally / off grid for the next 20 years.
I think the number of people willing to live at poverty levels for 20 years so they can get 4 years of partying at a university, and that will actually follow through on it willfully, are very, very low. 150% of poverty level isn't a lot of money, you can't live high on the hog with that kind of income, not even single. And the type of people who'd actually consider living it up on borrowed money and then reneging just aren't the type to then go 20 years of scraping by so they can do so. Yes, there probably will be a few idiots out there who'll try it, but I think most will end up tempted by life itself to change in ways that bump them up past the 150% of poverty income. (Deciding they're sick of living on so little money, falling in love and getting married and/or deciding to start a family, etc.)
Making it impossible for those who end up in bad situations through no fault of their own to get out from under their student loan debt just to prevent a few idiots from doing something like you suggested isn't a good solution. That's part of the reason we're having this mess now, we overreacted to the people who intentionally declared bankruptcy to get rid of student loans they never intended to pay and made it so people who were legitimately struggling could no longer get out from under them short of dying. Instead of being at either extreme, we need some middle ground.
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.)
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
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
Who's to say what's a useable skill? Go to the Nobel Prize web site and look at the biographies of the winners in biology and chemistry. Many of them were liberal arts majors, like Eric Kandel who studied history and literature http://en.wikipedia.org/wiki/Eric_Kandel#Early_years
The scientists and techies who made this country great in post-WWII America were often Europeans who had a strong tradition of a well-rounded education, including English/art/history, and taught it to their students. It basically teaches you how to think. Scientists have to know how to think. You want to prepare yourself for a world in which there is no security and people always have to find new careers? A liberal arts background is what you need to face that brave new world. Of course it also helps to know how to think when you have to decide who you and your fellow citizens should vote for in the next election.
OTOH there are engineers who can't get jobs when the industry of their engineering specialty goes into a down cycle. There are accountants who can't get jobs.
But everyone seems to be missing the REALLY NASTY little problem nobody is talking about...the for profit 'colleges' like De Vry and Remington and ITT. I went to ITT, basically got it free through rehab grants and only went to give HR a piece of paper (since I already had the contacts) but I got to see first hand what they were doing to the poor kids and it wasn't even funny. Basically everything out of the recruiters mouth was a bold faced lie and these kids didn't have a clue they were being scammed until they were left with a piece of paper that was only good for making a airplane out of. I actually talked to a couple of the kids after graduation (tried to help the smart ones where I could, but there was only so much I could do) and the "job placement" basically just picked a couple of ads out of the paper to send them to as their "prospects" and one was even a pyramid scam!
So if you want to know what is gonna cause the bubble to burst its all these scam colleges that are feeding on the poor like check cashing services and all the other scum that prey on the weak and leech off the government. I'd love to see the placement rates of these places, i bet not a single one gets above 3% and I don't even want to know what they are charging the government for their "services".
ACs don't waste your time replying, your posts are never seen by me.