Just how bad are these students loans?

[HeXen]

Colleges don't exactly help to make things cheaper when they spend $10k just on some new landscaping in a small area. I have done work for our local University and it's nothing for them to build a new bicycle rack, all stone walkways and pretty then 6 months later tear it down for something else. Right now their spending $38 million on a parking garage despite plenty of parking but from working there I have seen much worse in terms of what they spend kids money on like heated toilet seats or tossing away a brand new door cause of a scratch. They waste millions and sure much of it is to get more kids to come there or whatever but I think plenty will come just from having a cheaper prices due to less overhead.

Kids don't really need tall fancy glass buildings or stone patio's in dorms. Many colleges and universities would do well to keep overhead to what's actually needed for them to learn and reflect the savings to the kids.

 

[LegendKiller]

There is one thing that the government has that the credit card company doesn't. You can't discharge student loans in bankruptcy. Worst thing to happen is we garnish the wages of those who are delinquent in paying and deny welfare or any government handouts to anyone who is late on their payments.

You can discharge them, you just have to show severe economic hardship resulting from the repayment.

 

[LegendKiller]

Colleges don't exactly help to make things cheaper when they spend $10k just on some new landscaping in a small area. I have done work for our local University and it's nothing for them to build a new bicycle rack, all stone walkways and pretty then 6 months later tear it down for something else. Right now their spending $38 million on a parking garage despite plenty of parking but from working there I have seen much worse in terms of what they spend kids money on like heated toilet seats or tossing away a brand new door cause of a scratch. They waste millions and sure much of it is to get more kids to come there or whatever but I think plenty will come just from having a cheaper prices due to less overhead.

Kids don't really need tall fancy glass buildings or stone patio's in dorms. Many colleges and universities would do well to keep overhead to what's actually needed for them to learn and reflect the savings to the kids.

This.

I believe half of the current problem stems from state funding. As states cut budgets through the housing crisis they also chopped higher education (but initially in the .bombs, but had been going down before). It was easy for states to keep a lid on school's spending, a local person was tracking budgets locally and policing it (somewhat). As states cut funding the schools made up for it through tuition. Since students can't find jobs as easily, they had no other resource than to take out student loans. Schools aren't beholden to anybody for student loans. They charge whatever the market (gov't) will bear and keep on rolling. The US Gov't doesn't say anything to them about budgets and administrators just rake in the dough.

 

[Mai72]

ROFL - do you *really* think the government is going to write off principal balance nearly 2.5x what the *entire* TARP program had in loans outstanding?

We are are talking about over $1TR.

Good fucking luck.

What's the alternative? To let this persist? This has the potential to drag down the economy.

You guys act like you're not going to be affected by this mess. Oh, you are all going to be affected. Maybe not directly. You people are going to have to pay for it in the form of higher taxes.

What happeneds when someone defaults? Who pays for the loan? The taxpayers. Now, this person can't land a job because he defaulted. Who pays for his ass? You do! See... Everybody pays.

You can't get blood from a rock.

 

[96Firebird]

96Firebird, (I guess) owning a house is an admirable goal but I'd knock out the high interest Sallie Mae loans first.

Can you consolidate the federal loans and get a lower rate? 6.8% sounds a bit high but I'm too old to follow Direct Loan rates closely.

I'm hoping the Bank on Students Emergency Loan Refinance Act passes legislation and I can refinance my student loans at the current rate. I'm waiting on that before I do anything. I could pay off both high-interest Sallie Mae loans right now, but I don't want to cut into my home down-payment savings. If the act doesn't pass, then I'll look into other methods to pay them off...

As far as I know, consolidating won't help with my interest rates. They will give me an "average" interest rate, after they take into account the current rates and balances. While this makes it easier to just pay on one loan, it won't be best for me. I like being able to pay extra on the higher-interest loans.

 

[MrDudeMan]

I'd like to think my experience paying for college was typical for most. I went to community college for 2 years, paid that out of pocket (2006-2008). Then went to a private college for the next 3 years, but only paid tuition for 2 (we had to co-op for a year total). Tuition was around $35k/year. I ended up with about $45k in student loan debt when I graduated in 2011. I've been working ever since, except for a couple month period after I got laid off from my first job and started my second job. Right now I owe $27.5k. Here is the breakdown of each loan...

Sallie Mae 1 - 8.0% - Original Balance: $3,394 - Current Balance: $2,867
Sallie Mae 2 - 2.8% - Original Balance: $7,000 - Current Balance: $6,326
Sallie Mae 3 - 10.0% - Original Balance: $10,000 - Current Balance: $2,765
Federal 1 - 6.0% - Original Balance: $5,500 - Current Balance: $4,106
Federal 2 - 4.5% - Original Balance: $5,500 - Current Balance: $4,028
Federal 3 - 6.8% - Original Balance: $2,000 - Current Balance: $1,277
Federal 4 - 6.8% - Original Balance: $7,500 - Current Balance: $4,790
Federal 5 - 6.8% - Original Balance: $2,000 - Current Balance: $1,277

I used to pay extra on the 10% Sallie Mae and the 6.8% Federal loans, but I'm trying to save up for a down-payment on a house now so I don't pay as much extra as I used to. I'm really hoping the law passes that allows me to refinance my student loans to the current rate (3.86%), as that will really help out.

Buying a house with that many high interest rate loans really isn't a good idea...at all.

 

[Mai72]

President Obama to the rescue!!

http://abcnews.go.com/Business/vide...obama-proposes-trillion-student-loan-24055541

 

[jersiq]

Unless you are aiming for a specific job/company that requires a high end college/university I find it's a waste of money, just go to community college, get your diploma in 3 years then get a job. You can then move up in the company over time. You should not try to specialize right out of college, those specialized/higher end jobs tend to be given internally first, then the lower end jobs are what open up to the public. Not saying that's always how it works, but it's typical.

I paid like 4k per year in college including books. Got a job within a few months. Started at help desk, then server tech and now noc tech. I came out of college with profit, since I would have a summer job, and also had a scholarship. Was able to buy a house within a few years of working full time.

Not always true. My company is on a kick where they have contracted with a Talent Acquisition company. If you don't pass the same filters as an external (certifications, degree level) you won't get passed on to the hiring manager.

I was more fortunate to have the GI Bill available to me, however, that was still a poorly thought out program. I went to school after starting my career and family and after I had left the military. So, I was going to school part time, and supporting my family with my full time job. What they didn't mention in the GI Bill was the eligibility. In semester terms, I was only afforded 8 total semesters of work, regardless of my part time or full time status. Once those eight semesters lapse, that's it, you're done. Payments, however, were dictated by your enrollment status. So I would go part time for a semester and get paid a lower rate than someone who went full time. But, we both are subtracted the semester of eligibility. I thought it was hare-brained my part time status didn't extend my eligibility. I haven't looked into the post 9/11 GI Bill, I hope they took those provisions out.

Then, loans were a chuckle. Here I was, a 30 something with a mortgage, and I made too much to get any federal loans. I had to get private loans, which meant much higher interest rates. I was probably one of the more credit worthy students in all my classes, yet I got to pay a higher rate than other students. Made no sense to me.

 

[Linux23]

which is why higher education should be free.

 

[MrDudeMan]

which is why higher education should be free.

It absolutely should not be free. Unbelievable.

 

[96Firebird]

Buying a house with that many high interest rate loans really isn't a good idea...at all.

What's the alternative? Paying the ever increasing cost of rent?

 

[MrDudeMan]

What's the alternative? Paying the ever increasing cost of rent?

If you can afford to save enough for a house, then you can pay those down much faster than making minimum payments. You're paying hundreds of dollars per month in interest, which far outweighs any decrease in rent that you'll save by buying a house. It makes no sense to do what you're doing with that many loans at those interest rates.

List the length of the loans and I'll do the math.

 

[LegendKiller]

What's the alternative? To let this persist? This has the potential to drag down the economy.

You guys act like you're not going to be affected by this mess. Oh, you are all going to be affected. Maybe not directly. You people are going to have to pay for it in the form of higher taxes.

What happeneds when someone defaults? Who pays for the loan? The taxpayers. Now, this person can't land a job because he defaulted. Who pays for his ass? You do! See... Everybody pays.

You can't get blood from a rock.

Ohh, I agree, something needs to be done. But that ain't never going to happen. The best solution would be to allow dischargability, with significant limitations, that will penalize defaulters while making sure they stay honest. Risk-sharing with the schools is a must, they cannot just charge whatever they want and pass the buck onto somebody else. Risk based lending on major and earnings potential is required.

It won't "drag down" the economy but it certainly won't help growth. There is absolutely no political will, no matter who is in office, to forgive $1tr in loans. None. It will *never* happen. Hell, there isn't even political will to do anything meaningful for SLs. You have the dipshit warren going off on jaded political spectacles and the CFPB doing nothing at all. Nobody in Congress has a plan to solve this.

I'm not even for 100% forgiveness and my wife and I still owe a significant amount of money. Why? Because it isn't solving the problem.

 

[96Firebird]

If you can afford to save enough for a house, then you can pay those down much faster than making minimum payments. You're paying hundreds of dollars per month in interest, which far outweighs any decrease in rent that you'll save by buying a house. It makes no sense to do what you're doing with that many loans at those interest rates.

List the length of the loans and I'll do the math.

I don't want a house for the decrease in monthly payments with respect to what I currently pay in rent. Rent that I pay now goes towards nothing. If I buy a house, that money will go towards me owning a house. Something that is (presumably) worth something in the end.

I have never paid minimum on any of my loans. I used to pay upwards of $1000/month towards them, I have since dialed that down to $400/month. That is still well above minimum, at least in the eyes of Sallie Mae and the government.

Like I said, I'm waiting to see what happens with the student loan refinancing act before doing anything.

FWIW - I don't think the government should forgive anyone's loans. The student knew full well what they were burrowing. If they can't find a job with their degree, it looks like they didn't do enough research on job prospects. I worked my ass off to get my degree, worked my ass off to find a job, worked my ass off to network to find a better paying job, and continue to work my ass off to pay down my debt. However, I do think we should be able to refinance our debt at a lower rate.

 

[unokitty]

I don't get it...

According to a new Pew Research report, a record 37% of young households had outstanding student loans in 2010, up from 22% in 2001 and 16% in 1989. The median student debt owed by these young households was $13,000. 5 key findings about young households with student debt.

1. College-educated households with student loans to repay have a lower net worth than those with no student debt.
2. While taking on debt to finance a college education is associated with lower net worth, it doesn’t seem to have an impact on income.
3. Young households with student debt are much more likely to have car loans and credit card debt, too.
4. Debts are growing for households that have student loans to repay.
5. student debt financial satisfactionYoung households that borrowed for college are less satisfied with their personal financial situation than those who didn’t and are less likely to say their education has paid off.

Here is some data from Pew Research. In 2010, 37% of young households had outstanding student loans. Median student debt was $13,000.

Personally, I would like to see schools make more information available concerning loans to prospective students. Things like percentage of graduating class with loans. Percent of alumni that have defaulted. And, I would like to see that information broken out by major.

I also think any solution that makes it easier to borrow money without making the cost of education more economical won't work... But, I suspect that it will become a political issue.

Perhaps the question should be "If you graduate without student loan debt, does that mean that you have fiscal privilege?"

Uno

 

[MrDudeMan]

I don't want a house for the decrease in monthly payments with respect to what I currently pay in rent. Rent that I pay now goes towards nothing. If I buy a house, that money will go towards me owning a house. Something that is (presumably) worth something in the end.

I have never paid minimum on any of my loans. I used to pay upwards of $1000/month towards them, I have since dialed that down to $400/month. That is still well above minimum, at least in the eyes of Sallie Mae and the government.

Like I said, I'm waiting to see what happens with the student loan refinancing act before doing anything.

FWIW - I don't think the government should forgive anyone's loans. The student knew full well what they were burrowing. If they can't find a job with their degree, it looks like they didn't do enough research on job prospects. I worked my ass off to get my degree, worked my ass off to find a job, worked my ass off to network to find a better paying job, and continue to work my ass off to pay down my debt. However, I do think we should be able to refinance our debt at a lower rate.

Then why say this?

What's the alternative? Paying the ever increasing cost of rent?

It's either not about the money or it is, and you're saying both. Not paying off those loans is a waste of money and not a good idea. Buying a house on top of that makes no sense.

 

[unokitty]

Colleges don't exactly help to make things cheaper when they spend $10k just on some new landscaping in a small area. I have done work for our local University and it's nothing for them to build a new bicycle rack, all stone walkways and pretty then 6 months later tear it down for something else. Right now their spending $38 million on a parking garage despite plenty of parking but from working there I have seen much worse in terms of what they spend kids money on like heated toilet seats or tossing away a brand new door cause of a scratch. They waste millions and sure much of it is to get more kids to come there or whatever but I think plenty will come just from having a cheaper prices due to less overhead.

As HeXen mentions, there is a feeling that Higher Education costs lack balance. A lesser know fact is that at the same time that the students have been going into debt the Universities have also been going in to debt. NYTimes had this to say:

Degrees of Debt

The debate about indebtedness has focused on students and graduates who have borrowed tens of thousands of dollars and are struggling to keep up with their payments. Nearly one in every six borrowers with a student loan balance is in default.

But some colleges and universities have also borrowed heavily, spending money on vast expansions and amenities aimed at luring better students: student unions with movie theaters and wine bars; workout facilities with climbing walls and “lazy rivers”; and dormitories with single rooms and private baths. Spending on instruction has grown at a much slower pace, studies have shown. Students end up covering some, if not most, of the debt payments in the form of higher tuition, room and board and special assessments, while in some instances state taxpayers pick up the costs.

I have no idea where all of this debt is going. But I suspect that where ever that is there will be plenty of hurt...

Uno

 

[duragezic]

Maybe other things about them are good, but the interest rate is too high. The majority of my federal student loans are like 6.8%. I could go get a car loan at a much lower rate, which is kind of messed up that a shorter term loan for a car is much lower interest rate than a loan for college.

 

[LegendKiller]

Maybe other things about them are good, but the interest rate is too high. The majority of my federal student loans are like 6.8%. I could go get a car loan at a much lower rate, which is kind of messed up that a shorter term loan for a car is much lower interest rate than a loan for college.

But a car loan has several things going for it.

1. Most car loans at that rate are for prime borrowers where they default less than 1% over the lifetime of their loans.

2. Captive auto loans are supported by the manufacturer (subvention), thus, the cost of the loan is built into the car.

3. How is it messed up that a shorter term car loan is cheaper? Term structure of interest rates dictate that longer termed rates are higher to compensate the investor for the likelihood that rates will increase, plus the longer period the money is locked up. That's why a 30 year mortgage has a more expensive rate than a 15 year mortgage, duh.

4. Car loans are secured. Thus, at the proper LTV, a lender can get most, if not all, of their principal back. Student loans are not secured.

5. Car loans are underwritten to FICO score, ability to repay, and likelihood to default, using statistical modeling, most likely incorporating hundreds of variables such as time-on-job, homeownership, DTI, PTI. Some auto lenders incorporate dozens, if not hundreds, of variables into their scorecards to determine loss rates and set an appropriate down payment and interest rate. Student loans possess none of these factors.

6. Student loans are ultimately far riskier. The current "Cohort default rate" is running at 17%+ and I personally believe that is massively understated. Severely delinquent loans make up ~40% of the loan population, once you adjust for the fact that only 40-50% of all loans are actually in repayment.

By way of comparison, deep subprime auto loans have net default rates of ~25-30% with severities of 50-70%. That means that gross default rates are 50-60%, if not 40-50%. So student loans perform only slightly better than 520 WA FICO subprime auto loan pools.

There is absolutely no reason that student loan rates should be lower.

The 20 year treasury is ~2.18%. Servicing that loan maybe costs 2% per year. That leaves ~2% in "excess spread" pear year. Now, the WA life of the student loan is ~10 years (amortizing loan), that means that the loan will generate ~20% of excess spread for the entire life of the loan. That's assuming that *all* loans are current and you collect all of that interest. It doesn't take into account forbearance, deferment, grace, or anything else that may result in non-collection of interest.

Even at that, for the *entire* life of that loan pool, you only make 3% (assuming 17% defaults) 20% - 17%, of actual "revenue" from the interest/excess spread.

I could *easily* come up with factors that eliminate that 3%, including the aforementioned grace/deferment/forbearance which results in loss of excess spread, delinquent loans which then go defaulted without payment of that interest...etc.

There is no room for reduction in interest rate, unless you recognize that loans are a losing proposition and are ok with that.

 

[SP33Demon]

This is why my kid is going to college in Canada. They have successfully subsidized higher education. Go look up what the average student debt is in Canada and get back to me. There is a reason why their happiness levels > US because personal debt levels are much lower. We need to follow such a system and learn, otherwise tuition gets batshit crazy when unregulated and the student loan mess we are seeing here is the result.

 

[96Firebird]

Then why say this?

It's either not about the money or it is, and you're saying both. Not paying off those loans is a waste of money and not a good idea. Buying a house on top of that makes no sense.

There was a time when renting made sense. When I lived with 4 guys, paying $250 a month for rent and splitting utilities 4 ways was cheap. I was still new at my job, and renting allowed me to stay flexible in case I needed to get up and move one day.

Now I am paying $625 a month for rent and splitting utilities 2 ways. Instead of continually giving my money to someone else's mortgage, I could be paying down my own mortgage.

I'm thinking about what will benefit me long term. Paying an extra $1000 in student loan interest is fine as long as I am not throwing away $7500 in rent for another year.

 

[Wreckem]

96Firebird, (I guess) owning a house is an admirable goal but I'd knock out the high interest Sallie Mae loans first.

Can you consolidate the federal loans and get a lower rate? 6.8% sounds a bit high but I'm too old to follow Direct Loan rates closely.

Direct loans depends on when you started borrowing and what level of school. Grad Direct loans are all 6.8%. Undergrad loans for some(like me) are all 6.8%. Anyone that starts taking out loans for undergrad now get loans with rates at 3.8ish. I do not understand why the govt will not allow people they screwed over during the year 2006 to 2008 to refinance to the lower rates. It will take an act of congress to allow it and so far it is a no go.


I personally got screwed. My undergrad loans were taken out between 2006 and 2009. Right after they changed from variable to the 6.8 fixed. Because I took out loans before 2007 I was always stuck at 6.8.

Thankfully I am on the 10 year pslf program under ibr. Today it was announced people on ibr will be under the same terms as paye starting next month. Again I have no idea why they didn't allow everyone to participate in paye when it was originally passed. And while Obama floated the idea of capping pslf, it doesn't look like that idea is going anywhere, atleast not yet.

 

[Wreckem]

But a car loan has several things going for it.

1. Most car loans at that rate are for prime borrowers where they default less than 1% over the lifetime of their loans.

2. Captive auto loans are supported by the manufacturer (subvention), thus, the cost of the loan is built into the car.

3. How is it messed up that a shorter term car loan is cheaper? Term structure of interest rates dictate that longer termed rates are higher to compensate the investor for the likelihood that rates will increase, plus the longer period the money is locked up. That's why a 30 year mortgage has a more expensive rate than a 15 year mortgage, duh.

4. Car loans are secured. Thus, at the proper LTV, a lender can get most, if not all, of their principal back. Student loans are not secured.

5. Car loans are underwritten to FICO score, ability to repay, and likelihood to default, using statistical modeling, most likely incorporating hundreds of variables such as time-on-job, homeownership, DTI, PTI. Some auto lenders incorporate dozens, if not hundreds, of variables into their scorecards to determine loss rates and set an appropriate down payment and interest rate. Student loans possess none of these factors.

6. Student loans are ultimately far riskier. The current "Cohort default rate" is running at 17%+ and I personally believe that is massively understated. Severely delinquent loans make up ~40% of the loan population, once you adjust for the fact that only 40-50% of all loans are actually in repayment.

By way of comparison, deep subprime auto loans have net default rates of ~25-30% with severities of 50-70%. That means that gross default rates are 50-60%, if not 40-50%. So student loans perform only slightly better than 520 WA FICO subprime auto loan pools.

There is absolutely no reason that student loan rates should be lower.

The 20 year treasury is ~2.18%. Servicing that loan maybe costs 2% per year. That leaves ~2% in "excess spread" pear year. Now, the WA life of the student loan is ~10 years (amortizing loan), that means that the loan will generate ~20% of excess spread for the entire life of the loan. That's assuming that *all* loans are current and you collect all of that interest. It doesn't take into account forbearance, deferment, grace, or anything else that may result in non-collection of interest.

Even at that, for the *entire* life of that loan pool, you only make 3% (assuming 17% defaults) 20% - 17%, of actual "revenue" from the interest/excess spread.

I could *easily* come up with factors that eliminate that 3%, including the aforementioned grace/deferment/forbearance which results in loss of excess spread, delinquent loans which then go defaulted without payment of that interest...etc.

There is no room for reduction in interest rate, unless you recognize that loans are a losing proposition and are ok with that.

I think people feel the govt should not be making a profit off of student loans.

 

[TheVrolok]

Thankfully I am on the 10 year plsf program under ibr. Today it was announced people on ibr will be under the same terms as paye starting next month. Again I have no idea why they didn't allow everyone participate in paye when it was originally passed. And while Obama floated the idea of capping plsf, it doesn't look like that idea is going anywhere, atleast not yet.

The problem with the PSLF program is that the incentive is to pay a little as possible for each of your 120 payments. Which means that your gaining interest like a motherfucker. Now, if something happens in the future and PSLF comes to an end, or gets capped, you've essentially handicapped yourself and now have even more debt.

I'm also on IBR/PSLF, here's to hoping it continues as planned.

 

[Wreckem]

The problem with the PSLF program is that the incentive is to pay a little as possible for each of your 120 payments. Which means that your gaining interest like a motherfucker. Now, if something happens in the future and PSLF comes to an end, or gets capped, you've essentially handicapped yourself and now have even more debt.

I'm also on IBR/PSLF, here's to hoping it continues as planned.

Every proposal capping pslf calls for making the 20 year loan forgiveness non taxable. While capping makes ibr/paye/pslf less beneficial, people wouldn't be outright screwed. If they are smart they'd still come out a head vs standard repayment, they just have debt for 10 extra years.

And crap the change to 10% isn't going to be implemented until Dec 2015.