The Student Loan Problem

[Jhhnn]

In purely coincidental news, the average young person also has a very expensive smart phone with a generous data plan and a wardrobe worth several times that of his parents, in addition to financing pizzas for twenty years.

Being an average person in most any age group sucks ass. Luckily, being average is always optional.

In reality, most young people have cheap phones bundled into a multi year contract & a wardrobe of jeans & t shirts.

When you want the slur to be racist rather than age-ist, you'll go on about 20 inch rims instead of cell phones.

 

[Exophase]

Is 30K on avg of student debt really a national problem? A lot of new cars fall into that range. Yet nobody is running around claiming cars are un-affordable and their owners are saddled with debt. 30K for a lifetime of much higher earnings seems like a pretty good value to me.

From what I can understand, that 30k average debt figure:

- Is voluntarily self-reported by universities, so may be a low estimate due to selection bias
- Doesn't include for-profit schools at all, who are well known to have higher tuitions and probably much less in the way of scholarships and grants
- As an average, is heavily skewed by the people who got partial or complete funding from somewhere else; great if you have it but you shouldn't take the number to mean that you can expect to owe $30k regardless of what you can pay upfront
- A lot of the debt these days is private and has high interest rates
- Car loans will actually likely deny you if they think you can't pay it back, at the very least you need some income stream to be approved
- It includes debt from graduating with associates degrees from much cheaper community colleges that are also much less useful for employment

Everyone who goes to college should pay very close attention to what their debt will be when they graduate (and even consider that they may not graduate when they think they will, or possibly not at all) and think very carefully about whether or not this is realistic. There need to be financial advisement services that do this if there aren't already (and if there, people need to start using them)

 

[LegendKiller]

I would agree that the average college graduate can handle that, yes. I think student loans are a fundamentally unsound way to fund education, but $30k isn't the end of the world.

There's a few things.


1. A lot of that debt is from students who do not complete school.

2. Of those who do complete school, it is higher.

3. We do not get to see the breakdown of the number of borrowers, or total debt, or stratification of those borrowers by degree, or completion.


Let's put it this way. ~15% of borrowers are in Deferment. 20% are in Forbearance. 15% are in delinquency. 10% are in IBR/PAYE. Unknown % are in school.

So 60% of your borrowers aren't even making a full, or any, payment.

Either the government is actively encouraging people to default or not pay, or the numbers are being untruthfully reported somewhere.

I am leaning towards both. Something doesn't add up. I've said it for about a decade now.

 

[LegendKiller]

Absolutely. The reason for their non-dischargeability is that if they could be discharged through bankruptcy there basically wouldn't be student loans. No bank I know of is in the business of giving large, unsecured loans to teenagers at affordable APRs.

This combination is one of the reasons I think the current student loan situation is an absurd way to fund education.

This is incorrect. That's like saying that if there weren't bankruptcy dischargability there wouldn't be personal loans, or credit cards, or really any debt, secured or unsecured, since the lender always takes unsecured risk if the asset is at a deficiency.

Furthermore, it assumes that the lack of debt would mean the lack of education. The lack of debt would mean education would *have* to become cheaper, otherwise the Universities would go out of business.

This isn't like a car that has better safety features, more gadgets, higher quality...etc. This is people talking to kids about material people have written about millions of times over.

My dad learned the same shit, at the same school, for 1/10th the price with professors who earned only a few times what they do now.

The dead weight comes in the form of buildings and bureaucracy.

 

[werepossum]

$300 smart phone today vs. buying a house at 22 from a blue collar job in the '50-'70s.

Those damn kids today and their "gimme" attitudes!

If you go through a good trade union's apprenticeship program you can buy that same house at 22 today. That's about the only good blue collar jobs left for someone without a ton of experience. Most people however prefer to wait a few years for a nicer house.

In reality, most young people have cheap phones bundled into a multi year contract & a wardrobe of jeans & t shirts.

When you want the slur to be racist rather than age-ist, you'll go on about 20 inch rims instead of cell phones.

Dude, you missed an opportunity to foam about bankers just to pre-accuse me of racism. Your table needs to be re-aligned.

 

[werepossum]

This is incorrect. That's like saying that if there weren't bankruptcy dischargability there wouldn't be personal loans, or credit cards, or really any debt, secured or unsecured, since the lender always takes unsecured risk if the asset is at a deficiency.

Furthermore, it assumes that the lack of debt would mean the lack of education. The lack of debt would mean education would *have* to become cheaper, otherwise the Universities would go out of business.

This isn't like a car that has better safety features, more gadgets, higher quality...etc. This is people talking to kids about material people have written about millions of times over.

My dad learned the same shit, at the same school, for 1/10th the price with professors who earned only a few times what they do now.

The dead weight comes in the form of buildings and bureaucracy.

What other non-secured $30k loans are commonly made to teenagers?

 

[LegendKiller]

What other non-secured $30k loans are commonly made to teenagers?

You do realize that student loans have existed for around 40 years?

Yes, the government made them non-dischargable in the early 80s, but mainly due to doctors and lawyers.

Performance has become much worse the larger the program gets.

Look at it this way. The 3yr default rate on student loans is ~20%. That's equiv to maybe a mid/high 500s FICO.

 

[werepossum]

You do realize that student loans have existed for around 40 years?

Yes, the government made them non-dischargable in the early 80s, but mainly due to doctors and lawyers.

Performance has become much worse the larger the program gets.

Look at it this way. The 3yr default rate on student loans is ~20%. That's equiv to maybe a mid/high 500s FICO.

I realize that. And I'll point out that older people also don't get a lot of unsecured $30k loans with a mid/high 500s FICO.

Come to think of it, I can't recall a single person getting an unsecured loan for anything like that except for college.

 

[LegendKiller]

I realize that. And I'll point out that older people also don't get a lot of unsecured $30k loans with a mid/high 500s FICO.

Come to think of it, I can't recall a single person getting an unsecured loan for anything like that except for college.

You're not quite getting it. It doesn't matter if people don't get a loan. No loan, no college. No college no colleges.

Supply/demand. When demand goes down supply has to find a new equilibrium price.

 

[LegendKiller]

I realize that. And I'll point out that older people also don't get a lot of unsecured $30k loans with a mid/high 500s FICO.

Come to think of it, I can't recall a single person getting an unsecured loan for anything like that except for college.

Check out Springleaf or OneMain.

Interest rate is high but it gets back to my point above. There's a reason why it is high.


Guess you could take the tact that there aren't bad loans, just bad interest rates.

 

[JSt0rm]

Supply/demand. When demand goes down supply has to find a new equilibrium price.

So you are saying this is a good thing...

 

[chucky2]

$300 smart phone today vs. buying a house at 22 from a blue collar job in the '50-'70s.

Those damn kids today and their "gimme" attitudes!

They can still do that, if they can get into a trade like their parents did and not spend like a drunken modern age sailor unlike their parents did and not rack up fantastic loads of debt like their parents did. Of course, it helps a lot when you have multiple avenues into the trades, but we just let the illegal invasion continue so 'they'll do the jobs Americans won't do', of course, after decades of that, now their kids have lots of in's to the trades/businesses. Oh, helps to buy a house like their parents had, like, not something 2500 sq ft. See how easy that was?

 

[LegendKiller]

So you are saying this is a good thing...

It isn't?

 

[unokitty]

Colleges benefit more than students from Federal Education Support according to Federal Reserve Bank of New York

Federal Reserve Bank of New York has a new report out that finds that for every dollar of subsidized federal loans, colleges on average are jacking up “sticker-price tuition” 65 cents. Slightly lower for Pell grants, for which colleges are raising tuition by 55 cents for each dollar of aid, and unsubsidized loans, with a 30-cent increase for every federal dollar.

At the same time:

...states spend billions of dollars operating colleges that are little better than diploma mills in terms of academic rigor, yet manage to graduate few of their students—like Chicago State University, “which has just a 12.8 percent six-year graduation rate.” “Our colleges and universities are full to the brim with students who do not really belong there, who are unprepared for college and uninterested in breaking a mental sweat.” Nearly half of the nation’s undergraduates learn almost nothing in their first two years in college, found a 2011 study by experts like NYU’s Richard Arum, and 36 percent learned little even by graduation. Although education spending has mushroomed in recent years, students “spent 50% less time studying compared with students a few decades ago.”

If the Federal Reserve Bank of New York is correct, the rise in tuition is an unintended consequence of Federal Support Programs...

And that's a problem that forgiving some people's student loans won't fix...

Uno

 

[nickqt]

They can still do that, if they can get into a trade like their parents did and not spend like a drunken modern age sailor unlike their parents did and not rack up fantastic loads of debt like their parents did. Of course, it helps a lot when you have multiple avenues into the trades, but we just let the illegal invasion continue so 'they'll do the jobs Americans won't do', of course, after decades of that, now their kids have lots of in's to the trades/businesses. Oh, helps to buy a house like their parents had, like, not something 2500 sq ft. See how easy that was?

We've closed factories and moved them overseas. It's not that the illegals are taking all of the good blue collar jobs. It's that they just don't exist like they did before "free trade".

Additionally, had worker pay rates increased along side productivity, the previous generation and the current generation wouldn't have taken out as much debt as they have. But hey, the richest people in the solar system have to get all of the money, or they won't give the rest of us jobs. Seems legit.

 

[OverVolt]

You're not quite getting it. It doesn't matter if people don't get a loan. No loan, no college. No college no colleges.

Supply/demand. When demand goes down supply has to find a new equilibrium price.

I understand this by the way, but most people simply do not get it and never will.

We've been on this path for several decades and this is the inevitable conclusion. It was meant to increase access to college, which it did initially. We need to cut the student loan program down to size and start taking the top XYZ percentile of SAT/ACT scores of the people most likely to graduate. Something similar to the way Germany does it, because its actually sustainable. As oppose to letting just anyone bid up the price of college whether they can actually graduate or not.

 

[nickqt]

I understand this by the way, but most people simply do not get it and never will.

We've been on this path for several decades and this is the inevitable conclusion. It was meant to increase access to college, which it did initially. We need to cut the student loan program down to size and start taking the top XYZ percentile of SAT/ACT scores of the people most likely to graduate. Something similar to the way Germany does it, because its actually sustainable. As oppose to letting just anyone bid up the price of college whether they can actually graduate or not.

Honestly, we need more trade schools that give someone a skill set that makes them more economically valuable on day 1. The real problem with college is that it takes 4+ years before someone is "qualified" for some job that the person often has absolutely zero experience for once they graduate. Without an in, they often sit on a relatively valuable degree simply because their lack of experience is a cost for whatever company hires the person.

College isn't hard. Most people don't have a hard time with classes, most people lack the perseverance to stick with it, whether because they have short attention spans, or because life happens and they can't just sit around for another 1-2-3 years waiting to earn a piece of paper that may enable them to make more money later.

I don't think student loans should be limited to top ACT/SAT scores because there are plenty of smart, capable, hardworking people who don't have the money for the prep courses designed to give you a "good" score, while others just aren't that good at standardized tests. Community colleges for the first two years should almost be mandatory for people receiving student loans. In the first two years you're pretty much just taking the 101-level pre-requisite courses and a couple of higher-level courses related to an eventual major. Spending top dollar for 101-level pre-requisites should be limited to people using their own money for school.

 

[1prophet]

Honestly, we need more trade schools that give someone a skill set that makes them more economically valuable on day 1. The real problem with college is that it takes 4+ years before someone is "qualified" for some job that the person often has absolutely zero experience for once they graduate. Without an in, they often sit on a relatively valuable degree simply because their lack of experience is a cost for whatever company hires the person.

College isn't hard. Most people don't have a hard time with classes, most people lack the perseverance to stick with it, whether because they have short attention spans, or because life happens and they can't just sit around for another 1-2-3 years waiting to earn a piece of paper that may enable them to make more money later.

I don't think student loans should be limited to top ACT/SAT scores because there are plenty of smart, capable, hardworking people who don't have the money for the prep courses designed to give you a "good" score, while others just aren't that good at standardized tests. Community colleges for the first two years should almost be mandatory for people receiving student loans. In the first two years you're pretty much just taking the 101-level pre-requisite courses and a couple of higher-level courses related to an eventual major. Spending top dollar for 101-level pre-requisites should be limited to people using their own money for school.

Problem with the trades is that they have been intentionally demeaned by academia as a dumping ground for those that are not college worthy,

and subsequently defunded at the high school level resulting in the elimination of mandatory shop classes that gave students the insight to other paths than just college alone.

 

[nickqt]

Problem with the trades is that they have been intentionally demeaned by academia as a dumping ground for those that are not college worthy,

and subsequently defunded at the high school level resulting in the elimination of mandatory shop classes that gave students the insight to other paths than just college alone.

Academia?

Society, sure. Society is often stupid, shortsighted and counterproductive.

It doesn't change the fact that trade schools that are cheaper now (supply and demand) would provide a lot of people the ability to learn some relatively fast skills that they can put into practice and earn a living with, rather than directing everyone to college.

 

[UglyCasanova]

There is a lot that needs to be fixed in higher ed (doing away with funding collegiate sports for starters), and the argument for "free" higher ed sounds enticing until our schools become extremely watered down and overrun by students that may be well meaning and have good intentions but really don't belong there. Offer free trade school, make them pay for a university degree.

 

[DCal430]

The direct loan program has always existed along side the FFLEP program. It made no sense to keep both programs, since the DLP was much more cost efficient to run.

 

[who?]

If a school, either for or not for profit has students on federal financial aid the school is required to prove the students are attending classes or the school has to pay back the financial aid.

 

[LegendKiller]

The direct loan program has always existed along side the FFLEP program. It made no sense to keep both programs, since the DLP was much more cost efficient to run.

How is it more cost efficient to run? You have to pay servicers who process the docs and service the loans. You have to hire people to manage the portfolio in addition to the Servicers who manage it also. The only place the gov't "saved" money was in funding the loans directly with treasuries. However, the problem there is that they are then direct debt of the US govt and are not funded efficiently. The Servicer's rebated excess interest to the government, barely eeking out a profit on the servicing. The bond owners didn't make a huge profit either since the bonds sometimes even traded *inside* of treasuries.

The "profit" the government realizes is a joke. Everybody who knows anything about student loans knows it is a joke.

 

[piasabird]

I have seen some cases where if the parent cosigner for the student loan, they would take part of the parent's SSN. Employers can fire people or refuse to hire people in default on a student loan.

 

[chucky2]

We've closed factories and moved them overseas. It's not that the illegals are taking all of the good blue collar jobs. It's that they just don't exist like they did before "free trade".

Sure we have, and we've imported 10's of millions of direct competitors to those who won't get college degrees, or who will get degrees but just won't land a higher paying job (for a multitude of reasons). Want to earn some money stripping shingles over the summer and putting new roofs on? Juan is doing that, sorry kid. What, the owner needed 2-3 new hires? Juan knows Pedro and Manuel, owners problem is triply satisfied. Want to do some auto work but don't have a degree? Sure we'll call you kid, right after the guys working here (1/4 - 1/3 illegal / wouldn't be here if we didn't farm out 'jobs Americans won't do') leave. You're absolutely right - they don't exist like they did before, which makes it all the more perplexing why US Politicians are helping to sell out, by intentional inadequate action, US Citizens who won't be getting those high paying jobs. The population has increased and the jobs have decreased - why let 10's of millions in again?

Additionally, had worker pay rates increased along side productivity, the previous generation and the current generation wouldn't have taken out as much debt as they have. But hey, the richest people in the solar system have to get all of the money, or they won't give the rest of us jobs. Seems legit.

That's because Americans just haven't learned to live within their means. They want the 2500 sqft house, the two SUVs, the full cable package, the unlimited cell phone package, latest cell phones, eat out way more than they should, treat clothes as expendable items, and on and on. Technology has made productivity increase, not people. If you think todays people are more productive than yesteryears, I have some oceanfront property in Arizona to sell you.