Should government make a profit off student loan debt?

[Mai72]

Nice reasoning!

On an unrelated topic, what is your stance on the income taxes? Should the government be taking in more money the more productive & successful a person is?


The truth to life (I'm hoping the 74 in your username is not your birth year, because DAMN you should have figured this out by now) is most people become successful and rich by allowing other people to make money off of them, to which you in turn make money off of those who are making money off of you.

It is a good thing.

In the ideal scenario, the money the government "makes" off of you is turned around and spent in ways that help you make more money.

This is a joke right?

What other country has a system where the student is in debt after they graduate? Hmm.. NONE! We are the only country that charges our students hugh tuition fees and then when they attempt to pay back their loan the US government in-turn makes money from them. No other country does that!

Also, I've seen the stories where the person pays the minimum payment and the principal on their loan hasn't even budged. Even after 5-10 years that same person who is paying off their loan diligently hasn't even started to touch their principal yet. They are still paying off the interest! That's $30k student loan is now a $45k student loan. They can't buy a home, car, etc. In turn this is going to have a negative impact on our economy.

So how does the government make me money? This is funny, because the only thing our government does is waste money. I've seen it firsthand. I was helping the computer tech at a local public school install brand new computers. The school must have had 60 desktops and 25 laptops. He told me that they get new computers every year, because if they don't spend the money they will get penalized by the government. There is no ideal scenario when it comes to taxpayer dollars and our government.

I agree. The rich are making money off the middle class, but are the middle class making money? Nope! The middle class has been in a free fall for the last 30 years.

 

[Atreus21]

http://nypost.com/2014/05/25/end-joke-of-non-profit-u/

A fact that I found interesting.



If you want people to successfully contribute to society the last thing you should be doing is making money off them. Am I correct or wrong? It seems that were just making it harder for people to become productive members of society. We need people to spend money, but how is that possible when you're drowning in student debt?

For the government to make money off college students is crazy. I believe that we're the only country that does this. The government and the bankers are making serious money from students who didn't know better. Look at the interest that is leveled against college graduates. When they begin paying off their debt the only thing that they are paying is interest. For the next 10 years that $30,000 loan hasn't budged because they're paying on the interest.

College tuition has gone up over 500% since 1985. Yet, the average college dean makes over $200k. Maybe it's higher. The dean from Rutgers University made nearly $500k last year! They fill the classes with adjuncts and they expect students to pay full price.

Why are people putting up with this madness?

Yes, the government should be able to make a profit off of student loans. They're already priced well below market interest rates. I'd wager the interest rate is below the rate of inflation as well.

 

[nehalem256]

Yes, the government should be able to make a profit off of student loans. They're already priced well below market interest rates. I'd wager the interest rate is below the rate of inflation as well.

Good point. If you loan me $100 and 10 years later I give you back $101 did you really make money off of me?

 

[Atreus21]

However - if you dig into it more there are some fields facing tough times as they are at\have already reached the tipping point. Degrees in STEM, teaching, social work are being pushed out by high education costs vs low pay which many (Like Georgetown's Center on Education and the Workforce) think will cause economic problems down the road once existing degreed employees in those areas retire or growth exceeds available supply.

I've heard that, contrary to popular belief, there is no shortage of STEM graduates in the US. There is allegedly a glut of them.

If you're interested:

http://www.nationalreview.com/article/378334/what-stem-shortage-steven-camarota

 

[CPA]

LOLOL...the government should NOT be involved in student loan debt.

this.

 

[Atreus21]

If you think the government shouldn't be involved in student loans that basically means you believe there should be no student loans.

Disagree. There are still private loans. And yes, they're expensive. So if the government stopped issuing student loans tomorrow, less people would go to college immediately. Do you suppose universities would continue charging high prices once demand plummets?

As you said, the research may only suggest mixed correlation between tuition and student loans, but to me it's the only explanation that makes sense. Since everyone can get a huge loan almost for free, demand has been artificially pumped up. As a result, universities have raised prices because...well...there's no reason not to. Prices rise as long as people keep paying those prices.

 

[Gunslinger08]

I'm pretty sure the accounting for this isn't your typical math for "profit" of a company. It's just (P+I received) - (P paid out). There is much more that goes into it for a for-profit company, including overhead. As someone else mentioned, you also need to account for inflation. Most student loan repayment plans are for 15+ years. Those 15+ year old dollars are worth significantly less now - a quick calculation for the past 15 years is 37-40%.

 

[Cozarkian]

Explain why government debt is bad.

Government debt is citizen debt. Ultimately, either taxpayers pay interest on the bills, notes and bonds issued to finance the debt and/or consumers pay for it in the form of higher prices.

Government debt isn't "bad" any more than student loan debt or mortgage debt are "bad." However, it still has a cost.

If there was no negative consequence to government debt, we could end taxes and the government could give money to every single citizen - just pay for it with debt.

 

[fskimospy]

Disagree. There are still private loans. And yes, they're expensive. So if the government stopped issuing student loans tomorrow, less people would go to college immediately. Do you suppose universities would continue charging high prices once demand plummets?

As you said, the research may only suggest mixed correlation between tuition and student loans, but to me it's the only explanation that makes sense. Since everyone can get a huge loan almost for free, demand has been artificially pumped up. As a result, universities have raised prices because...well...there's no reason not to. Prices rise as long as people keep paying those prices.

Private student loans are only available to people with established credit or cosigners, which means that they are mostly available for people who don't need them.

As for the impact of student loan availability on tuition prices, I strongly suggest you read the Washington post's ten part series called the tuition is too damn high. You would probably find it very informative.

 

[Cozarkian]

They're already priced well below market interest rates. I'd wager the interest rate is below the rate of inflation as well.

Here are the rates: http://www.direct.ed.gov/calc.html

They tend to be comparable (usually slightly higher) than 30-year fixed mortgages and are definitely not below the inflation rate.

 

[Atreus21]

Private student loans are only available to people with established credit or cosigners, which means that they are mostly available for people who don't need them.

As for the impact of student loan availability on tuition prices, I strongly suggest you read the Washington post's ten part series called the tuition is too damn high. You would probably find it very informative.

I still think the private market would fill in the gaps vacated by the DoE if it were to reduce or eliminate the current student loan program.

 

[Atreus21]

Here are the rates: http://www.direct.ed.gov/calc.html

They tend to be comparable (usually slightly higher) than 30-year fixed mortgages and are definitely not below the inflation rate.

We're comparing a student loan to a mortgage?

 

[Exterous]

I've heard that, contrary to popular belief, there is no shortage of STEM graduates in the US. There is allegedly a glut of them.

For clarification I said 'being pushed out' not that there was a current shortage. I even said 'cause problems down the road'. In fact the glut is one of the issues and the problem of studies only looking at current trends. The article you linked doesn't project out, it only looks at current data. By the time wage pressures are eing applied to a field its too late to stop the swing given the 4-8 year lead time in education. STEM is one of the areas predicted to be one of the highest growth degrees through 2020 yet the pressure exerted by low wages\high competition\high cost of education is driving the number of graduates available down below the projected need.

The pressures exerted today are likely going to cause a shortage down the road.

https://cew.georgetown.edu/recovery2020
https://georgetown.app.box.com/s/tlfsn8vah39oyb42tpyi

 

[OCGuy]

The student loan bubble is about to burst, and it is going to cost us money.

The sense of entitlement that you are displaying is exactly why it is hard for younger people to get hired these days.

 

[fskimospy]

I still think the private market would fill in the gaps vacated by the DoE if it were to reduce or eliminate the current student loan program.

How?

 

[OCGuy]

I still think the private market would fill in the gaps vacated by the DoE if it were to reduce or eliminate the current student loan program.

The private market would have to charge rates at the top end of unsecured credit allowed by law.

Although they are tough to BK out of, investors who buy private debt aren't going to go for the deferred payments or collateral-free loan amounts given to young people with no experience earning income, and a very poor job market for new graduates.

 

[nehalem256]

The private market would have to charge rates at the top end of unsecured credit allowed by law.

Although they are tough to BK out of, investors who buy private debt aren't going to go for the deferred payments or collateral-free loan amounts given to young people with no experience earning income, and a very poor job market for new graduates.

Why not, assuming you keep the "tough to discharge in BK" rules?

It seems like the government is making money hand over fist on student loans. At least that is the thesis of the OP.

 

[OCGuy]

Why not, assuming you keep the "tough to discharge in BK" rules?

It seems like the government is making money hand over fist on student loans. At least that is the thesis of the OP.

Because "tough to discharge" doesn't = performing loan.

The government (public) steps in when the private market can't bear the risk. Now if you agree with that or not is a different discussion, but either way that doesn't necessarily mean there is an alternative in the private sector.

I constantly see student loans in default, and they are not taken seriously by many that I counsel on credit.

 

[Cozarkian]

We're comparing a student loan to a mortgage?

You claimed that student loan's are well below market interest rates, but you failed to provide the market interest rate to support that claim? Would you like to provide that information now? If so, do you intend to pull it out of thin air? If not, you'll need to compare the features of federal student loans to features of other types of loans, such as mortgages.

 

[Londo_Jowo]

Sounds like the OP has a lot of college debt and regrets having to take out the loans to get a degree. Somehow I don't think anyone forced you to go into debt.

As for people coming out of college and being job ready, unless they co-oped (working in their field of study) their way through college the majority of graduates are not job ready and must be trained before they're productive.

 

[OCGuy]

You claimed that student loan's are well below market interest rates, but you failed to provide the market interest rate to support that claim? Would you like to provide that information now? If so, do you intend to pull it out of thin air? If not, you'll need to compare the features of federal student loans to features of other types of loans, such as mortgages.

They are absolutely below what they would be naturally. Mortgages in general are completely different animals, but you can make a comparison with Government Insured mortgages (VA, USDA, FHA via HUD) and those with private funding.

Just like student loans, those government mortgages take borrowers who are far more risky, with less collateral, and charge fees in order to cover defaults.

 

[nehalem256]

Because "tough to discharge" doesn't = performing loan.

The government (public) steps in when the private market can't bear the risk. Now if you agree with that or not is a different discussion, but either way that doesn't necessarily mean there is an alternative in the private sector.

I constantly see student loans in default, and they are not taken seriously by many that I counsel on credit.

And yet according to the OP:

According to the Congressional Budget Office, the feds will turn a $127 billion profit off student loans over the next 10 years.

So either this $127 billion in profits is some kind of weird government accounting fiction.

Or despite the unperforming loans banks could make money hand over fist on private student loans.

 

[Cozarkian]

The private market would have to charge rates at the top end of unsecured credit allowed by law.

Really, then why aren't they doing that now? Today's lowest available rates for several Wells Fargo offerings of a $10,000 loan:

Private student loan (cosignor needed): 3.25% Var, 6.74% Fix
Student loan for parents: 3.75% Var, 6.74% Fix
Unsecured Personal Loan: 8.25%

The unsecured loan has a maximum repayment period of 3 years. The private student loan has a 4 year deferment, 6-mo grace, and 15-year repayment. The parent student loan has a 15-year repayment.

If the private market doesn't need to charge max rates for private offerings that already exist, why would they need to do that in the future? The rates do increase with bad credit, so it would make college cheaper for those with responsible parents who maintain good credit, but that is a far cry from making all loans at maximum rates.

 

[OCGuy]

And yet according to the OP:


So either this $127 billion in profits is some kind of weird government accounting fiction.

Or despite the unperforming loans banks could make money hand over fist on private student loans.

Hand over fist is $127billion in 10 years? On around $700 billion in outstanding debt?

Haha.


There is a small market for private student loans, and they like to cater towards the students most likely to pay them back. (Med school, etc)

 

[realibrad]

Wages capture the value of work done. If you are getting 50k a year, its likely due to creating a minimum of 50k value. If school is truly valuable, then a student would be able to pay back a market priced loan. If the private market cannot sell these loans, it likely due to the fact that the education is not bring enough value.

Right now the government is taxing its people, to pay for middle and upper class people to go to college. I have a big problem with the poor paying for those above them.