A big takeaway from this article (for me) is that people are surprised that 17 year old kids don't understand what they're doing when they take out that college loan. Shock and astonishment despite there being little to no preparation for this kind of financial understanding previously in their education. That surprise and shock shocks and surprises me.
Honestly it kind of reminds me of the whole Yelp minimum wage thing. Person knowingly takes a minimum wage job in the most expensive city in the world and is surprised a year later when that wasn't very much money and they're struggling. The simplest cost of living calculations would have said "moving to that city and taking that job is a really bad idea."
This isn't to say that there aren't things that need to change. Education reform is necessary as well as a living wage, but I'd also argue that basic financial literacy is also a requirement for being an adult and should be treated as such.
A big problem is that at age 17, all of the adults are saying go to college & take out these loans. Guidance councilors, teachers, parents. The most compliant high schoolers will just do what they are told without thinking about it further.
I imagine this will start changing. When I was a kid, that group of adults had the benefit of cheap degrees. Today, now that group of adults is us and we did not go to school cheap (personally I don't fall in to that category out of personal choice, but most of my friends do.)
> A big problem is that at age 17, all of the adults are saying go to college & take out these loans. Guidance councilors, teachers, parents. The most compliant high schoolers will just do what they are told without thinking about it further.
> I imagine this will start changing. When I was a kid, that group of adults had the benefit of cheap degrees. Today, now that group of adults is us and we did not go to school cheap (personally I don't fall in to that category out of personal choice, but most of my friends do.)
This rings true for me. The main reason I even went to college was because I bought the story that "if you do well in school and get a college degree, you'll get a good job and be set up for success in life."
Yeah. That didn't quite work out as planned. I enjoyed school and the things I learned from my degree were cool, but I use literally 0% of it on the job now, and it doesn't even help get me interviews very often, because it doesn't have the magic letters "CS" in it. Thirty years ago, a bachelor's degree might have been a ticket to a decent professional job, but those days are long past.
I'm not sure what I would have done as an alternative plan, but I'm sure it would have been a hell of a lot cheaper. Not starting out behind a very expensive 8-ball could have possibly helped me a lot.
Non-college grad here (well, AA from a community college, but that doesn't really count). I get the impression that that some kids did really challenging programs or went to prestigious schools and that paid off really well, but a lot of kids bought into the "college = success" mantra. Every authority figure they knew was telling them that this was the only way to be successful and the schools were jacking up tuition to pay for more and more amenities. Indoor kayaking! Rock climbing walls! Extend your adolescence for four years and you'll magically be successful and pay it all off!
This is really a shocking dereliction of duty on the part of teachers and guidance counselors. It was just easy to go along with conventional wisdom and not apply any critical thinking and they ended up really screwing a lot of kids over.
All that said, I wish someone would have shown me the value of a really high-end education and helped me attain one.
> This is really a shocking dereliction of duty on the part of teachers and guidance counselors.
Playing devil's advocate for a second, what if the teachers and guidance counselors still believe it to be true? They're likely from a previous generation or two, where simply having a college degree opened up most doors.
Then again, what if having a college degree really is still better than not? You don't have to spend $300K on undergrad to get a degree- and I think that is what we should be pounding into kids' heads. That's great that you want to go to a private school for undergrad and two more years to get your masters so you can be a teacher, but paying 5-10% on $300-400K and topping out at $65K/year is a shitty economic deal. Go in-state and work while you study. Search for the grants, so many random grants go relatively unclaimed.
It's like buying a car- when you focus on the prospect of a low monthly payment and not the fact you're paying for 95 years, it's easy to hide how much money you're flushing down the toilet.
EDIT:
I took on about $50K in school loans and worked a minimum 20 hours a week through uni. I worked as a motorcycle mechanic, farm hand on a dairy farm, tech support for the college, hardware testing for a lab, and all kinds of contract development work. Sometimes in the same week.
Some days it sucked, most of the time it was tolerable, and it was often pretty fun. I also learned something about my own intestinal fortitude that school never would've taught me.
This makes no sense. Are you telling me high school teachers and counselors are telling students to go to colleges without factoring in costs/financial aid packages/ROI?
They are saying that teachers/counselors are viewing it from their baked-in perspective formed 30 years ago...back when you could graduate with a bachelor's degree, end up in a school job that gave you a life-long pension and healthcare.
I think it is difficult for someone from my parent's generation, who had so many benefits (no offshore competition, defined benefits pensions, lifetime pensions, etc) to understand how tough life is now. You hear about it, but until you struggle with it it is difficult to know.
Some of what you're saying is true, but some doesn't quite work out:
1. Work while you study: why work a part time job for $X and go to school part time, when you could finish school in half the time by going full time and spend the remaining time working for $2X? Work study is generally counterproductive.
2. $65K is still a lot of debt. Lots of my peers have that and $20K/yr jobs.
The truth is, there simply aren't many good options for today's young adults. There are a handful of fields that can pay well with a degree, but then you have the risk that you won't be able to finish. And there are fewer fields where you can work without a degree and get paid well. Even in CS, a field where you usually can get jobs without a degree, I've roughly capped out my pay without a degree at age 29.
The average Computer Engineering degree from my university was completed (at that time) in 5 years. I graduated in 5 years and worked, so it didn't take me any longer than average, and I switched majors from CS to CpE- costing me two terms.
So I didn't give up any potential salary earnings I didn't already give up by going in the first place.
My point is that college can still be a good option for lots of people, they just need to focus on the cost/ROI. The horrors stories that we hear about are typically from a dumb kid who went to an out of state or private school, got a a 'general' degree and had no job qualifications. Then they were shocked people were t just handing them money.
I've yet to hear a story about a kid that did two years at a community college, finished up their BS in engineering, and then had life crippling problems with their debt.
I took a full time class load and also worked part time through college. It wasn't that bad,(in fact it was good) and it was fairly commonplace at the school I went to.
I went to college in Brazil, here the class load is fixed for most universities (ie: you don't choose what classes you will go, they will hand to you a list of the ones you are signed up for each semester).
Although the classes themselves took half a day (started at 7:30, finished at 13:00) the coursework we had to do was incredibly high, teachers never coordinated, they just assumed that you had all free time of the world.
In one semester I had to quit my job, and slept to little that I got incredibly sick, my apartment reeked sugar, because I was drinking coca-cola and energy drinks so fast that empty bottles were piling up near my computer, I slept on average 4 hours per day, and went from 110kg to 125kg
And mind you, this was to do coursework, NOT any kind of paying work, when I finished university my net worth was incredibly negative, right now it STILL is negative, I am living with my parents right now to dedicate 100% of my income to debt paying, and still don't see any perspective of actually paying it (specially because when I consider the past year or two, the average INTEREST I had to pay, was higher than my average income).
The raw loan amount is not high as in US (when you consider USD... for BRL it is comparable if you consider your own income, but even that some people get lower).
But in Brazil you can't ask for bankruptcy, ever... In US Student Loans can't be rid of with bankruptcy, but you CAN make another loan, pay the student loans, and THEN go bankrupt... in Brazil this loophole doesn't exist.
And Brazil has a incredibly high interest rate, credit card interest is 400% year, overdraft and personal credit interest in a bank is 300+% a year, special credit for business with government subsidies are still around 100% per year. (and I never saw anyone that qualified for it).
The effect is that if you are in debt, you are screwed... and if you HAVE money, investing in any business is stupid idea, specially with our high inflation (currently about 11% per year), it makes much more sense to loan to the government (that currently will happily absorb it, and pay interest that is usually at least 14.25% year + inflation), so noone invest in creating business anyway, so you never find jobs, startups are non-existing, creating a startup is bad idea, and so on...
It depends on the rigor of your institution, of the program you're in, and what constitutes "full time."
At the institution I attended, FT was 12-18 credit hours in a semester. You could take up to 21 with permission from the administration and your professors, and up to 24 with permission + paying additionally for the 3 credits.
The difference between 12 credits and 18 in terms of work load and scheduling hassles is astronomical yet both are full time. Our professions always said 1 hour in class = 3 hours outside of class. Assuming that held true (it rarely did on an individual class level but on a semester level it was pretty close), 12 credits = 48 hours a week and 18 = 72.
If you're only taking 12-15 credits you probably should have a 10-15 hour/week job. If you're taking 18 I wouldn't even do work study on campus for gas money, you just won't have the time unless you want no social life.
I pretty much always took 12-15 credits. My school was on semesters and I just went year round whereas most people took summer offer. Summer credits were cheaper and you could cram in a bunch of general ed stuff that didn't need a ton of study.
My engineering classes all preached 4 hours of study for every hour of class- I don't think I averaged two for most classes and graduated above a 3.2 GPA. Except EE courses and physics. I had to buckle down for those.
> I get the impression that that some kids did really challenging programs or went to prestigious schools and that paid off really well, but a lot of kids bought into the "college = success" mantra.
Challenging programs have relatively little to do with it. It's almost 100% about the prestigious schools and the networks that come along with them: the old "it's not what you know; it's who you know," deal.
> All that said, I wish someone would have shown me the value of a really high-end education and helped me attain one.
Education is always valuable. It's schooling that's not always worthwhile.
> Challenging programs have relatively little to do with it. It's almost 100% about the prestigious schools and the networks that come along with them: the old "it's not what you know; it's who you know," deal.
I didn't go to a particularly prestigious school. I didn't know anybody at the job I got as a new grad. I individually made more money in my first year out of university than most families did mid-career. I was not unusual among those in my program.
A degree in engineering pays off in part because it's a challenging program.
Are you working in physics or a related field? It seems odd that you would associate the political beliefs of what is surely only a portion of your collegiate network with the science degree you got.
Many (most?) people can get into whatever the main land grant/public research university that exists in their respective state, even more so after a year of community college. In general, almost all of these schools offer a good quality education, especially if you avoid degree-mill majors (e.g. communications, psych, history, economics, etc...) and choose any critical thinking degree (STEM, Philosophy, maybe English/Lit).
If you aren't going to meet that bar, then it's probably not worth it to go to college because you're probably not going to learn much.
My post was not about getting a good quality education. In fact, my contention is that getting a good education is less relevant than the specific school and major one chooses. For a software developer just out of college, an EECS degree from Berkeley is going to beat a degree in (say) math, physics, or robotics from Podunk State, all else being equal. And, all else is rarely equal, because the Berkeley grad is going to have a way better network than the Podunk State grad.
an associates degree does count. it shows initiative. it's something completed. don't just toss it out, it's not trivial to employers. And you can learn a ton in community college. I know people who enjoyed it a lot more than 4 year universities and had more available to them. depends on the school and the person of course, always.
When people make this kind of assessment they seem to be implying that because a college education is less surefire than it used to be, that it's useless.
This is demonstrably false, and a college education is still the best bet a person can make on his or her future. In the same breath people say "all our manufacturing jobs went to China" and "why not go to a vocational school and pick up welding?"
The problem is that there isn't a significant differential in price between the institutions that it's really worthwhile to have a degree from, and the ones a couple tiers down the influence ladder.
The options I considered were:
1.) Ivy League
2.) Smaller, 2nd tier private college, with incentives for in-state students.
3.) Private military academy, where my Dad went
4.) My main state university.
Since my parents were kind of lower-middle class, #1 was mostly covered by financial aid, so the real differences in cost between that and the state university were only a couple thousand a year. The doors that having that name on the top of my piece of paper opens are well worth it.
Options that would have been suicidal, financially:
A.) 2nd or 3rd tier, out-of-state non-Ivy private school - most are still in that 40-50k price tag range, without the endowments to offer the same financial aid packages.
B.) Out-of-state tuition at another state university - again, price tag in the 30-50k range, no subsidy, reduced prestige
not so much useless, but really just a negative in so many respects. A massive debt right at the time before you've really even had any personal freedom at all. It's terrible.
Though i went to college, I'd recommend people who don't have a wild passion towards a specific subject (if the outlook is cloudy I mean) earn, save and buy a house in cash.
And in regards to passion, I don't mean necessary a love for something, I mean a drive to REALLY get good. If you don't have that for school, then work, earn and make yourself a good situation so you can get education with disposable income when the passion comes.
I went to college for a number of reasons despite already being skeptical of the "party line" everyone was telling me about how important it was to go to college, but ultimately I was able to swallow the estimated $100k price tag at the place I wanted to go the most (which was small, private, and out of state) because I made the calculations that let me be confident that if I made it to the end it shouldn't be too difficult to get even an entry level job in some field of tech I already had experience in (my degree was computer engineering) at $60k/yr which wouldn't be too bad for paying off that debt. Things more or less worked out, I too don't use any of my degree knowledge on the job and the thing that gets me the most recruiter spam is my broad experience working for peanuts on/off at a local startup while I was still in school. Certainly the degree would have been cheaper by going to the state university, or a community college first, but even those figures are starting to rise and when you can't get any job $30k of interest-accumulating debt probably feels about as back-breaking as $100k. I don't know if I would go back and take the safer, cheaper path. I think I did alright given my information at the time, so I don't put all the blame on the system -- too many college students just don't do the steps of calculating the full program cost (including any loans for housing), the desirability of employees with this particular degree over a degree in general, and then figuring out a plan to actually pay back what they borrow for the degree.
There are a lot of people in college who are doing as little as possible to get the degree. They shouldn't be surprised that they find it hard to get a job on graduation.
The value of a college degree is largely up to the student. Chart a course to it that takes the hard courses and masters them, takes advantage of the research and other opportunities there, and the resulting degree will be worth something.
I'm a software engineer now. I majored in math. I've literally had recruiters tell me they couldn't offer me an interview because I didn't study "computers," including once at a college career fair. I wanted to tell that woman about the people who invented computers, but I held my tongue as she threw my résumé back at me.
I work in a big beauraucric .gov. We had a guy who majored in robotics and was one of the best programmers hired in some time. (Iirc, he had some health challenges that made getting underpaid attractive)
He got demoted to some horrible computer operator position because an audit of HR revealed his degree, and the auditors found that robotics wasn't computer sciencey enough.
The union grieved it and he was eventually made whole a few years later.
I am surprised that you would not be well-served by a math degree from a half-decent institution, and very skeptical that your degree has not actually helped you obtain your career, versus not having any baccalaureate degree at all.
I've worked with software engineers senior to myself who had B.A.s or Ph.D.'s in math and no degrees with the letters C and S in them, including a few younger, fairly recent graduates.
I do have the magical letters "CS" in my degree, but I also have a second major in mathematics. While I must confess I hardly use a fraction of the math I studied on a daily basis and have forgotten most of it, it has served me well and there have been numerous times I would have been lost without it.
Pardon, but you seem a little bitter. I suspect you have no idea how good you have it, compared to say, most graduates with a degree in humanities from an expensive liberal arts college.
All that being said, if your intended career path is software engineering, I would tend to agree that studying software engineering is the best education to prepare for it.
They seem extremely bitter with little justification, to be honest.
> I suspect you have no idea how good you have it, compared to say, most graduates with a degree in humanities from an expensive liberal arts college.
Poli Sci degree from an expensive liberal arts college checking in. Ask me how many sub-$40k/yr programming jobs I've taken because they're all I could get with a Poli Sci degree.
This is the problem when the gatekeepers (recruiters) are not your peers.
It's a shame that we've somehow structured our systems so that we clearly do candidates a disservice, even though we keep saying that attracting talent is of the utmost priority.
I have a degree in political science. Today I am the Director of Government Relations and I've been out of college for 10 years. Many of my friends from college are shocked that I am still in the career of my degree. Rather to the point, their shock that I made a career out of my degree. It's only a hypothesis, but I suspect that I was a little more desperate than some of my peers, and that allowed me to work for shit pay for many years as I clawed my way up the ladder.
Replying here because the above comment is too many levels deep: this shows exactly what is wrong with hiring. Especially the HR manager who is so used to getting 100 resumes and trying desperately to find a reason to throw out 80 of them. Some of the best people I ever worked with didn't have CS degrees, and it's sad that HR still works this way at so many places.
(We are working to change it in our niche of Sales, but even there we have these same battle stories).
When everyone goes to college, the bachelor's degree becomes the new high school degree. Then you either split between "good" bachelor's and "bad" bachelor's (depending on the institution), or all the degree requirements increase one step, or a little of both.
You can't just expect to give everyone a degree and have a nation of professionals, with "someone else" (people in foreign countries, immigrants) doing the blue collar work. For two reasons: one, there just isn't enough demand for professional-level work. Two, people differ in innate ability, and education level is often more useful as a proxy for that ability than for what it concretely teaches you. Giving everyone the same degree, even if you somehow get everyone to recite the material, will not give everyone the same level of ability - it will just destroy the degree's value as a proxy.
I wouldn't blame the councilors, teachers and parents too much, though - they have to focus on the individual case. Blame the politicians and thought leaders instead, who should have been able to see the effect at the collective level. If you're advising an individual, it's fine to assume that the market environment will not be affected by their actions. If you're advising a nation, it's not!
I saw taking out student loans as just another hurdle I had I cross. Same with taking the ACT and writing admissions essays.
I'm doing fine now and paying back my loans. But I wish I better understood APRs and monthly payments and what those numbers actually meant in context.
Yea Plus Loans are the worst at 8% interest a year. Do I invest in index funds that average 7-8% or pay down student loans that guarantee you're relieving 8% interest a year. It's very disheartening to see one losing $1k/mo purely to interest. But also a big motivation to just make more money yearly.
In the 90s, some unsubsidized loans where north of 9%.
I was the oldest of the brood, and my parents didn't have any money, so I chose to go to SUNY whatever for something like $8k/year.
Graduated with $1,200 in debt, for my apartment deposit and repairs to my ancient car.
MANY of my friends who went to prestigious private schools got bait and switched on aid in their sophomore year and got stuck with loans that they are paying to this day.
My parents didn't have college money set aside for me either, but even if they did, I don't think I would have taken it.
I would take it if I had a rich father, but mine wasen't.
He liked to brag he was a well paid union electrician, but we seemed to barely get by. After taxes, and my mom's depression shopping. (She didn't spent much, but she needed to buy something everyday. She was clinically depressed before people knew about depression. Later in life when she got a job, the depression went away completely. She is now literally afraid to retire.) My father always said she was the reason he didn't have any saved money. It wasen't the tiny amount she was spending, it was taxes, bills, life, etc. We did have money for emergencies though. I remember the family dog, a dachshund, slipped a disc. My father walked in, and said no to the operation. We all started to cry, and he asked how much. He gulped, and he finally said yes. She lived another 7-8 years?
Oh yea, why wouldn't I take money from him to go to college?
I just didn't want any more stress to succeed back then. I was taking hard courses, but my father was working harder at his job. When he died, he told me thanks for not asking for money growing up. Yea, we had our differences, but I never felt indebted to him for any big decisions in my life. It was a liberating feeling at the time. Looking back, I could have used some help, but glad I didn't take it. I did take the student loans though.
Plus, going to college was easier in the 90's. The courses weren't easier, but the price was reasonable, or at least
I thought. My biggest gripe was the cost of used books, and transportation to school. I still think if I had a reliable vechicle back then, my college life would have been easier.
Later in life, I went to automotive school. One of the reasons was I just want to know how to work on vechicles the right way. It was still pretty cheap to go to a community college in the late 90's.
I got by cheaply by going to a state school, and working security jobs. Actually, my best college jobs were mini-storage assistant manager jobs. These mini-storages are 99% full. You just basically sit in an office, and walk the grounds every once in a while. I would get all my studying done on the job.
Cost of going to school back then was cheaper than today though. I repeated that because I see how you young graduates have been extorted.
And it definetly wasn't a party school. I don't remember one party, but then again it was a state school that was out in the boonies, and most of the students just wanted to graduate.
I still knew the worst day at school was better than working construction.
>I still knew the worst day at school was better than working construction.
I assume you never worked construction? As someone living in a rural area, working outside, staying physically fit (honestly a huge factor for me), working in a different place (all local) every 6-months to 2-years, making a minimum of ~$35K (and more as you learn more skills and management know-how) is not so bad.
I'm not saying education is bad, not at all. I am saying be careful what you disparage...
I have a good friend of mine who moved locally from the Kansas City area. He was a union carpenter, electrician, and framer there, so he approached our union hall. They snagged him up the same day, and was out on site the next.
He has full benefits. 401k, insurance, vacation, sick pay, etc... And he works for the union hall. He decides the radius where he works, and gets paid 38-52k year, depending on the specifics of the job.
Contracts last here from 6 months-2 years, just because there is that much work available.
I've honestly given thought going down that path, purely because everywhere needs construction. It's damn useful for houses to high rises.
I consolidated but I know that some of mine were at 6.8% fixed thanks to this lovely change:
2006-07: Replacement of separate variable in-school/grace and repayment rates on the Stafford Loan with a single fixed rate of 6.8%. Replacement of variable interest rates on the PLUS Loan with a fixed rate of 8.5% (FFELP) and 7.9% (DL).
The consolidation loan rate was the weighted average of the loans consolidated, so it didn't offer any benefit beyond making the rate fixed. I think the rate ended up being ~5.5%.
Consolidation loans also offer a longer repayment timeframe I believe. In this way if you make the payment amount small but pay double, the extra will be entirely on the loan principal.
Back when I consolidated SoFi (and probably others) didn't exist. It might be worth comparing rates and terms with them as well.
When I consolidated my loans, they became fixed at 6.8%. Meanwhile my wife was lazy and did nothing and then the great recession happened and her loans have been at 3% for years and years.
I had a similar problem - I was around 7.8%. I refinanced (with Earnest, though SoFi and others provide similar service) and got it down to 4.71. Increased my payment a bit, and cut my term down by more than a decade. Now, just 117 more payments to go.
These figures shocked me. I'd assumed when Americans said "federal" loans they had a low interest rate.
My British student loan, from the government, is currently at 0.9%. It's never been more than 5%. I have cash I could use to pay it off, but it earns more interest in a savings account. (And may be useful if I want an extra £12000 towards a house at some point.)
6.8% and 8.4% on my grad loans. I believe they eliminated the 8.4% loans after I graduated. There's even a 4.5% "loan origination fee."
My loan balance was $96k when I graduated 4 years ago. I have not made any real payments on it and the balance is now $125k from interest capitalization.
Note, I went to one of the lowest tuition schools in the nation for my grad program and lived at home with my parents the whole time.
Did your parents never talk to you about this kind of thing? I have already had this discussion with my 10 year old. For what it's worth, I never went to college but I understand the importance of compound interest and understanding financial contracts which involve you.
I hope your ten year old has more options available than "go to college and take a gamble on being underwater" or "learn a vocation and hope you retire before it's swallowed by outsourcing or automation."
Despite the statistics, there is no obvious choice here. Why are the wise old people encouraging young people to choose the path their generation just got screwed out of? This generation of students has only ever heard of our parents longterm careers getting vanished by computers or foreigners.
> I hope your ten year old has more options available than "go to college and take a gamble on being underwater" or "learn a vocation and hope you retire before it's swallowed by outsourcing or automation."
There are still many state schools w/ scholarships that are low priced; or upper tier schools if the family doesn't make enough money.
None of which guarantee a job anymore, which is exactly the problem. The average student loan debt for graduating undergrads is somewhere around $30,000.
It's not like they're taking out loans to buy their way into Dartmouth. They're taking out reasonable amounts of money to go to a reasonable school to get a reasonable job.
The "unrealistic idealists" in this situation are the people who think it's the student's fault for planning on getting the job that was more or less promised to them by society. And when they are woken up by the fact that there aren't jobs waiting on the other end, the rhetoric seems to be, "these stupid kids listened to what every adult in the country told them for the first 18 years of their lives!"
It's shameful to act like kids should've known better than to pay for a quality education. What the hell kind of society actually places that blame on children?
Now, the alternative is the same thing. Now adults are telling kids to go to vocational schools. Okay. By the time they get established in those fields, those jobs will be gone too. Then we can blame the kids for listening to us again!
She totally has options available. She has me for guidance! I'm not forcing anything on her. Right now she is interested in everything and I'm just helping her understand how things really work. Things like I mentioned above are critical for success - college or not.
I had this very experience. Everyone I encountered in my schooling and personal life basically pushed me to take out loans and get a degree by whatever means necessary. Even after I explained that I had no idea what I wanted to do (at the time).
Thankfully I thought it foolish to put myself in significant debt for an education I wasn't passionate about and a direction I wasn't sure about. The whole "just go and get it done" excuse is thrown at a _lot_ of young adults and those loans are sure easy to get. Just crazy.
I am from Brazil, and was victim of the same thing.
Worse, I could if I had spent a year studying or so, join a free university, but even that was unnaceptable, the "right thing" to do was take a loan and dive in a expensive course.
I finished college in 2009, I still don't got my first legal job, and I still have debts, I am struggling to buy medicine I need.
Meanwhile everyone I know that ignored the "adults" and did whatever they wanted, managed to actually start a life, and now have house, vehicle, sometimes kids... meanwhile I just have a stupid piece of paper that is not good even to wipe my ass with (the university diploma they gave me is just a normal A4 paper printed in a normal inkjet).
Nope, when they told me my diploma was "ready" and I showed up, the person just walked off, then I heard inkjet noises, and came back with a half-assed official looking normal A4 printed paper.
No seal, also the Rector signature is obviously just a printed JPEG file on what is probably a word document.
This is a profession which needs to be eliminated ASAP. Councilors are absolutely clueless and are misleading millions of youth. They have no experience on the job market and just regurgitate what they are told. They mislead students, have trouble spotting floundering students and are just dead weight in school bureaucracy.
I personally never got that message. I got the "you will go to college" message, but it came bundled with a "don't borrow $40,000 for college" message. In fact, I turned down my first choice school (Rose-Hulman) because I would have accrued $50,000 on loans over four years. That seems to be unfortunately typical now.
I really wanted to go to MIT, but I couldn’t believe my eyes when they were bragging that average student debt after graduation was “only” the price of a brand-new minivan or sports coupe.
Do you think everyone who has gained an education should then be burdened by an inescapable bondage to a particular high-paying career?
What if they decided they would rather be a teacher? A musician and band director? A serial backpacker? What if they are injured and can no longer take the 40, 50, 60 hours in a chair at the office it would require to maintain the level of salary?
Just because a college degree is often a great ROI doesn’t mean that it can justify the expense for all students, or even for all students with a "wise" career in mind at time of enrollment.
If you want to go to a very competitive school like MIT, probably. Generally the "best" schools are those that have better access to good professors, and resources that the brightest can best take advantage of. Now you can be bright and not want to make a lot of money out of MIT, but generally the assumption is that in capitalism if it is valuable it is worth money, and if you go into a job that pays a lot you are doing a more valuable job than if you were doing something that paid less.
If you want to go into a less competitive career, going into a less competitive school can make a lot sense, often because the less competitive schools can have better programs appealing to less lucrative fields because the pressure is less severe than it is for an MIT undergrad.
That rules out the careers of two friends from school, who both studied at Cambridge (UK). One runs an educational charity programme in Congo, the other does cancer research.
Another top-school engineering graduate I know spent 5 years building water facilities (pumps, wells etc) in Africa.
> What if they decided they would rather be a teacher? A musician and band director?
There are literally government-subsidized student loan forgiveness programs for exactly this purpose.
> A serial backpacker?
Most student loans are backed by the government. As a tax payer I have no interest in subsidizing someone's backpacking trip. You can't be a serial backpacker if you have a car payment, rent, or a mortgage either.
> What if they are injured and can no longer take the 40, 50, 60 hours in a chair at the office it would require to maintain the level of salary?
A. Disability insurance exists for exactly this reason
B. You can make the same argument against getting a mortgage. FUD.
I guess I passed the first few screening stages at MIT. They wanted to setup an interview and all that. My father had just gotten a programming job so suddenly, on paper, we were far too high income to qualify for any aid. I never bothered to schedule the interview.
I don't know if it worked out for the best or not but it seems insane that university is so money driven here in the US.
- Oh of course you're going to college, only losers don't go to college.
+ But I have to take out loans.
- Yep, par for the course.
So you're getting peer and parental pressure to get higher education, and in effect make a pretty questionable business decision: it's effectively a modern version of indentured servitude.
Tell them to go to a European university. It's almost free, a lot of countries offer courses in English, they get to see Europe, and even if the living costs are higher, it's not going to be 6 digits expensive/they'd get an education plus a few years adventure for that money.
I agree with your general advice, but I'd add on that university education in the UK is expensive (though not as expensive as the US), so they should be prepared to learn another language (for life outside the University course).
>so they should be prepared to learn another language (for life outside the University course).
Maybe, maybe not. University itself is not uncommonly taught in English and English competency in northern Europe is generally high. If you're just planning to stay for the education then learning the language might not be necessary.
> When I was a kid, that group of adults had the benefit of cheap degrees. Today, now that group of adults is us and we did not go to school cheap (personally I don't fall in to that category out of personal choice, but most of my friends do.)
To some extent people make their own bad choices. I graduated with 30k-ish in debt (canadian). A reasonable sum considering the job options immediately available that wouldn't have been a possibility without a degree.
On the other hand I have a friend who went to the same school, but stayed to do a masters. He owes over 70. Still possible to pay down. While he's worried about that I'm 4 years out of school, 1/3 of the way through paying my loan off. We wound up with comparable jobs in terms of pay as well.
He's was in his mid-late 20s when he started as well. Not 17.
I believe some US high schools were even holding mandatory-to-attend collage finance classes that were actually paid-for hard sell marketing events by commercial banks for their student loans.
This could not be more true. I'm of that very generation, went to an expensive technical school with no clue what I was getting myself into, and managed to flunk out in the first year.
Never even considered that possibility, because high school had been such a breeze, and now I'm stuck with a huge loan and nothing I can really do about it other than make payments. Minimum wage is difficult enough to deal with when you don't have an extra $200 coming out every month that you can't make go away.
Of course I know about all of this now; in hindsight I would never have made those decisions. So, that's a huge lesson learned. It's something I think society will come around on eventually, but a huge number of students bought into the trap blindly, and are now stuck without a good escape plan.
I've managed to get my life back together and I have things under control, but I'll be paying that loan off for the next 20 years if I'm quick about it. The only thing I've really gained is a strong distaste for the college system. I've had to learn to build my portfolio and sell myself to potential employers based on what I can do for them with my current skills, rather than what I have paid to put on my wall.
Yes, 17 year-olds are being indoctrinated into the idea that a degree is the Key To Success, but it's not like the issue of having to pay back the loans isn't brought up.
I went to college not to terribly long ago, and I remember having conversations with various people (guidance councilors, parents, teachers, peers, etc.) about career prospects and the kind of income one can expect. In fact, I switched to Computer Science precisely because of a conversation with a fellow student regarding future income potential.
I also saw many/most fellow students actively ignore or avoid the issue of future debt. Granted, they were supported in their behavior by various authority figures, but they still had a choice.
Of course, the solution isn't to complain about the stupidity of teenagers. Personally, I think the solution is fixing how the banks give out loans in the first place (i.e. allowing them to refuse to issue loans unless they think they'll get their money back).
A compounding issue is that not all kids are made for higher ed. Some just don't have the aptitude, but the conduit towards vocational schools isn't there as it probably was long ago (we don't have the hauptschule/gymnasium system).
Unfortunately, such a system in the US would quickly run into trouble as schools would quickly get accused of funneling 'good' students one way and 'bad' students the other way and there would be accusations of unconscious bias of one type or another.
So we only have the "go to college/university" recommendation, for everyone, even students who clearly don't have the aptitude and would do better in a vocational school.
> A big takeaway from this article (for me) is that people are surprised that 17 year old kids don't understand what they're doing when they take out that college loan.
Student loans are the only legal way to sell yourself into "debt slavery"[0] in the United States. It's not the 17 year olds that are screwing up, it's society as a whole by even allowing this situation to exist.
I agree with this 100%. Student loan debt should not be treated specially. It should just be normal debt that you can discharge through bankruptcy.
At that point, the incentives of schools and the incentives of students would be aligned. Schools would not lend huge sums to students unless they had confidence that the education those students got was adequate to prepare them to repay. And the situation would fix itself. The fixed situation would probably have a lot fewer humanities students, and those students would have better job prospects since supply and demand would be aligned. Degrees would be shorter and less expensive, and overheads would be lower.
I agree that there are a lot of government loans for education-- another thing that ought to stop. The government shouldn't be a loan shark for young people.
It should just be normal debt that you can discharge through bankruptcy.
I think doing that would likely result in no loans for many students or at least higher interest rates. Hell, if I were 22 with $100K in student loan debt to be discharged, I'd be silly not to declare bankruptcy.
> Student loans are the only legal way to sell yourself into "debt slavery"[0] in the United States.
Do you mean that student loans are the only legal way to attain a loan whose collateral is your future earnings potential? Because if so that's very wrong.
What should really be surprising about the Yelp thing is that Yelp didn't understand what would happen. A company that spends money to recruit and train a member of staff but doesn't pay them enough to stay in their job is just throwing money away.
That a company the size of Yelp can't see this really obvious situation arising is amazing. I'm surprised their HR people don't get fired over it.
You're assuming that Yelp made a mistake by spending money to hire (and eventually fire) this person. I disagree. I think that was the plan all along. I used to work for Backcountry.com in Park City, UT in the mid-2000s. Back in those days, BC used its ski town locale and perks like "powder days" to attract gen-Y'ers fresh out of college at rock-bottom wages. Smart young people out of good schools showed up, did some okay work for a year or two, accumulated some experience, and then left for greener pastures in the big city. BC understood this and was happy with it. These hires weren't experienced but they were scrappy and bright and they'd work for almost nothing just to be able to strap on snowshoes after work or go mountain biking on their lunch break. When they left, there was a resume stack full of new ones to take their places.
HR is a profession where you're allowed to believe that someone with a math or robotics degree isn't a good fit for a programming job because there's not enough of that Computer Stuff in their background.
It's part of a very curious corporate phenomenon - above a certain level of power you're defined as competent by reason of your department and job title, irrespective of your actual ability.
You can be breathtakingly clueless, to the point of creating very negative consequences for the company that employs you, but you will never be held responsible for it.
This is insulting. What choice do you think these kids have? A university degree is the only gateway to social mobility available to most young people in the United States, and at current prices, most of them can't actually afford it. What do you expect the kids to do? "Gee, I guess I'll just have to spend the rest of my life in the service industry, making other people rich." Give me a break.
Of course they're going to take on the loans, and of course they're not going to pay them back. This is even more predictable when you realize that plenty of good careers requiring college degrees also don't pay enough to cover basic expenses and make loan payments at the same time.
Blaming the victim for a system that is too big for them to do anything about is the wrong way to look at this. The education system is broken, and I don't blame anybody who simply blows off their creditors in the meantime.
Social mobility means that people who have talent and work hard can get to a higher class even if they were born in a lower class. It cannot possibly mean that the entire population is going to become college professors, while nobody does service jobs any more.
Social mobility should mean that, but doesn't in practice. Most job opportunities involving any kind of "knowledge work", or really most jobs that pay better than subsitence income, that don't formally require college degrees, still have them as a job requirement. Most people aren't goint to college because they want to be professors, they're going because they want to be able to get their foot in the door at firms that require at least a bachelor's degree.
That, as well as a highly linked issue right now that people at the end of their careers are still hanging in the workforce because they can't afford to retire. I think normally if you didn't have 2008, that adage about "just get a degree" might have still rung true. It's not like kids without degrees are making out like bandits in the job market -- it's just that outside of a few lucky / strategic fields, the jobs aren't there.
Which is also why blaming kids sucks for them, because theyre about the least culpable members of society for the macroeconomic conditions that landed them in this predicament.
Is it necessary for the 17-year old to fully grasp what he's getting into and how to deal with it? The point of an education loan is that it will pay to mature the young person and provide him with the capital necessary to become educated about how to handle debt. And more specifically to obtain skills and experience that can be converted to a prosperous career which allows him to repay what he owes.
If a college graduate is not able to keep up with his student debt is it his fault for not being fiscally responsible? Or is it the school's fault for not doing the job it was paid to do?
It is as if we are building bridges that collapse easily then blaming it on the trucks being too heavy when the problem is the engineers are making crappy bridges.
The kicker to me is that you can't drink till you're 21; look at porn, buy cigarettes, or consent to sex with an adult until you're 18... but you can sign a federal promissory note for "super debt" that will fuck up your life and the lives of your next of kin.
Well both are right. Yes, 17 year olds need to fully grasp these decisions, and yes colleges and gov should do more, much more, too.
For example my gf's now doing her 2nd master's to become a teacher, in a field which, surprise, there are no jobs in. Now frankly she mostly knew this, wanted to do it anyway because she's got the resume to get that 1 job that opens up every 5 billion years and she's really passionate about teaching this field. But what struck me was that a few days ago as she was complaining about her job prospects, I said 'your uni has a responsibility here, too', and I went to the website to see if they offered any support. Got to the 'employability' page, and it essentially said the prospects were 'good'. In reality, the employability of this particular degree is probably in the bottom 5%. I mean this is the Netherlands, tuition is $2k a year, it's a 1y programme and student loan rates are currently 0.01% (fixed until 2020, and averaged < 1% in the past 20 years), so it's fine. But for other institutions in other countries, that's blatant false advertising bordering on the criminal as we're talking about multi-year time investments in addition to tens of thousands of dollars. And I see this all the time, but institutions and governments aren't currently willing to be dead honest about job prospects.
Responsible, reasonably intelligent adults are encouraging children to take on this debt. If there is anyone to educate, it is the adults, not the children.
Discriminating against people with college degrees is the last bastion of acceptable racism.
We would look askance at companies that put out ads that advised that people of color should not apply. But there's not nearly the same level of outrage when a college degree is required to be an administrative assistant.
Having or not having a degree doesn't make you a certain "race". College degrees are proxy for skill set and ability. Sure, maybe not a good once, but one that's used. And companies are allowed to discriminate based on skill set/ability.
I'm strongly with you but it's hardly the last bastion of acceptable racism. It's one of very many we still have. Adequate education in any form or at any age, he kind that is crucial for access to college, is flat out unavailable for many people in underserved communities.
There's also a lack of experience dealing with (comparatively) large amounts of money. When I was in high school, a hundred dollars seemed like a lot of money. It's hard to compare the costs of rent, food, transportation, insurance, interest payments against potential income, when all those numbers sound like unfathomably-huge sums of money.
I think you have to live at a certain income level for awhile to really understand how much money you're making and what things cost relative to that. You can make a mock budget as a high-schooler (I was required to do that for one of my classes), but it's hard to know if the numbers you're plugging into your budget are even remotely realistic.
But a lack of knowledge and understanding is a solvable problem by education and advice.
A lack of reasonable choices is a problem that can only be solved by social change of one sort or another.
You could almost say that "you have known better than to get yourself into this" aspect of the situation is a cover for the "you were screwed no matter what by the way things were set up" problem.
> And sure, there are half-way points like entering a trade but the future of those positions is pretty uncertain as well.
I would totally go with welder or carpenter. Or better yet, robot repairman. Things will have to be pretty far gone before robots are able to repair each other.
I was fairly financially literate, and I was fortunate to have a family who supported my education, and grandparents who wanted to do what it took to fund it.
That said, it's a very ... odd process for most people. You're told to go to college, so you jump through the hoops; SATs, applications, etc. You choose a school. Now, hopefully as you're choosing a school, you're aware of costs and whether or not you can reasonably afford it. But, if I remember correctly, you don't have full information on what forms of aid you'll be receiving. Some schools offer much more generous financial aid and scholarships than others, and you don't have all of the info up front (again, from what I remember). You also don't know how much you'll be borrowing.
So then during your orientation you go to a "responsible borrowing" class and sign the paperwork for your loans and find out how much they'll be. It doesn't really feel like you have an option.
In my case, I only had to take out federally backed loans, which (for me) had very low per-year borrowing limits, so we're talking a minimal debt burden; a few thousand a year. I knew I'd be borrowing, and knew it wouldn't be an obscene amount.
But it just feels like the borrowing component is so far down the line that you're already committed to a school before you even get to it. Again, I'm not saying you shouldn't be prepared and have frank discussions before even choosing a school. Just that the system makes it easy to NOT be aware of it until it's too late. Nobody wants to back out of their freshman year in college at the last minute (likely after some money has been put down) because they balk at the loan paperwork.
And once you get that financial info from the schools you really don't have a lot of time to make a decision -- only a few weeks in many cases. Very little time to make a $160K+ commitment. (It took us a year to buy our first house and it wasn't much more then that...)
Financial literacy is important, but honestly most of these loans shouldn't be given out in the first place.
If I take out a loan for a house, I provide evidence that I will be able to pay it back, and there is the collateral of the house in case I don't. Banks won't give out a loan unless there is a reasonable chance that they will make a good return on their investment. As far as I can tell, banks are prevented from making those same kinds of calculations for student loans.
That is the actual reason for the government giving student loans instead of the banks - there really isn't a good way to tell if someone will pay it back, and no one has had enough time to prove responsibility at that age. Most of the private loans require parents or others to co-sign for the loans, and sometimes they don't really understand what they are getting into.
Even the banks rely on a credit score based on how well you've paid back credit cards and other credit. One cannot prove responsibility simply by saving money and paying bills on time and living within one's means - if one does this, they go to the bank for a loan, and despite having saved a sizable chunk of down payment, get told they have no credit.
> That is the actual reason for the government giving student loans instead of the banks - there really isn't a good way to tell if someone will pay it back, and no one has had enough time to prove responsibility at that age.
Fair point, but if it is really true that there is no way whatsoever to establish credit-worthiness, I don't think anyone (government or private business) should be issuing student loans.
Yet, are you sure that just because these kids^H^H^H^H young adults don't have a credit score that there isn't a way for banks to assess the likelihood of repayment? We all have ways of informally assessing a person's likelihood of success (and therefore at least their ability to repay). We look at things like SAT scores, college GPA, the quality of their school, the quality of their choice in major, etc. Banks could make the credit available to a student each year/semester dependent upon whatever of these factors are available. Banks could try out different risk-assessment models and the market would select those banks that have good enough models to produce a return on investment.
And if our current credit score system is the only way to reliably measure credit-worthiness, why not use it? The obvious negative consequences include delaying when people can get a start on their career, and just the general economic chaos that would result from drastically altering the incentives at play. I am skeptical of radical change, but it is not immediately obvious that these negatives (while serious) are less than the consequences of our current usurious system.
Honestly, screw the modern "higher education" system. It's a business, pure and simple, designed to milk out every penny from kids and their parents, as much as humanly possible while still being "legal". It wasn't always so unbalanced, but that's the way it is today, and that's a crying shame.
Many would say that it's actually designed to milk the pennies from the federal government by proxy of the student and parent with a significant markup.
This is somewhat worse than simply taking from individuals because it implies a systemic breakage that someone is taking advantage of, possibly using political influence to keep that breakage from being fixed.
This. Although I am a believer in and a onetime recipient of federal student aid, there's no denying that there exists an educational-financial-industrial complex which needs to churn through new student borrowers as the substrate for keeping uncle sam's cash flowing. Very similar to the Medicare and 401k industries in a way, given their ostensible social goals, the massive government supplied sums involved, and the need to attach these sums to individual names and lives.
Financial literacy is not enough. Lenders are always going to have more knowledge about their own financial products and the ability of the borrower to make payments. For example, in the subprime mortgage crisis, borrowers were blamed for recklessly borrowing money. This makes no sense. Who is more reckless, 1) a working class borrower with little financial literacy taking a loan, or 2) a multibillion dollar, multinational bank with extensive financial knowledge giving that loan to the borrower? It's the same situation with student loans. Don't blame the students, blame the banks.
More victimization of the people who take these loans on. If you can drive one ton of sheet metal 60 miles an hour among peers, you can understand that spending other people's money on something requires you pay it back. The problem is people think it is worth it, not that they are victims.
How many 16 year olds have a clear enough mind to realize how much responsibility driving is? And is there an actual choice for most people? McDonalds used to as on their application if you had transportation to and from work, and public transportation is non-existent in most places, and horrible in many others.
For example: I lived in one city that only had cab service. You could not rely on it to get to work on time. You could not order a cab in advance, and the wait time for a cab could be anywhere from 10 minutes to 2 hours. Many of the city's roads had no sidewalks, and bikers were required to share the road with cars and follow the same legal rules as cars - turn lanes and all. Which might not be so bad on a nice day, but during a snowstorm it would be downright treacherous.
Besides - one must prove, to an extent - that they can drive the cars and know rules of the roads. The same sort of thing is completely absent in schools. The most 'personal finance' training I recieved was in 8th grade - a 6 week course ran by a dude that owned a car dealership. We got extra credit if our parents went to look at a car, and more if they bought one.
Depending on type of degree, skill and country etc it can be even earlier: I had to decide this at 16 and really besides girls, guitars and computers I had no clue what I would be doing later on. I did dev for clients freelance already and thought I might just as well get a degree. Turns out that I would never have needed it as I never had a 'job' (41 y/o now), always had my own companies and that allowed me to pay back my loan (which was not that big) when I sold my first company in my 20s. Besides that I like theoretical CS it never helped me as far as the title is concerned; I have always been the gatekeeper in my companies meaning I help out or pick up slack both hardware and software when needed in whatever tech needed but never had to use my diploma's, grades, minors/majors or title.
If I had done what my parents wanted though, aka work at a big corp, diplomas, grades and titles work imho. Most (maybe all) people I work with at partners or clients (usually banks or big financials) have degrees and would not be at the company they are without I believe.
I find the age or 16/17 way too young though to decide anything like that as you won't probably understand the impact until much later. Better is just fixing the rediculous fees etc.
I think kids are perfectly capable of understanding it, and most of the time they do. They just think to themselves "I'll just get a $100k salary and pay it off in no time, because it's easy and I'm special".
It's unfair to blame the 17 year olds who are told by everyone they know and trust that getting a college education at the best school you can get into is the most important thing in the world. It's also unfair to blame them for not calculating the risk that in four years the degree they've been taught means everything will not be sufficient to get a high-paying job to cover rising housing costs and student loan debt when median wages have been falling.
Not sure this has anything to do with young age (e.g 17 year olds). Plenty go to graduate school, to get MBA, Law degree and end up with insane amount of debt. Even from top tier schools, most are struggling to pay it off.
I actually was taught a lot about personal finance in highschool and was absolutely horrified at the way higher education was financed to the point of avoiding it for years.
Well you can take the job on the risk that you learn something, get promoted and get a better job. But I agree, even for the median wage programmer it is too expensive.
Who is supposed to work those jobs then? Even if Yelp relocated their non engineering staff, paying them minimum wage in some other city won't help them.
Actually, it can. It's not just the payment; it's payment against cost of living.
$9 an hour might afford a house in the suburbs of a small city, or an apartment in a smaller city. It doesn't scratch the paint on the cost of a basic apartment in the Valley.
And that's assuming you can get enough hours to work full time, and also have benefits to cover whatever mishaps may develop. And that you don't have any dependents.
Sure it will help them. Paying a $1200 rent in San Francisco is much harder with a $10 wage than paying a $200 rent in Alabama with a $8 wage. It may not help them enough, but it will help.
I know more about managing debt than most 30 year olds, and I did when I was 17. I think it's just a matter of interest in understanding it; and also people's inability to come to terms with the fact that they can't actually afford the things they're buying.
For what it's worth, I never did go to University or College; never planned on it. I wouldn't understand the motivation for it.
> The Education Department has assembled a “behavioral sciences unit” to study the psychology of borrowers and why they don’t repay.
Ha! There is a bit of a hypocrisy there -- if big banks / companies piss away money and choose to strategically default then (and some even get bail-outs), it is just business. If people do it for whatever reason, well clearly the are immoral, deficient somehow, their psychology needs to be studied by a special committee.
> Some borrowers aren’t repaying even when they can.
Yap, makes sense. They see banks get bailouts, why shouldn't they get bailouts. Now maybe they shouldn't have been allowed to borrow to start with. But maybe so shouldn't have banks and insurance companies been allowed to leverage to unsustainable levels.
> The singular goal of our student loan program is to help all students get a degree that sets them up for success
One a separate note, that needs to be reviewed and re-evaluated. There are deeper issues here. Simply handing out billions of dollars for degrees like Masters in Basket Weaving from Phoenix University cannot possibly be seen as solution to anything (except well, handing out tax payer money to Phoenix University...)
If you think your loans are going to be forgiven, why not stop paying on them? In fact, it's stupid to keep paying them. If I still had student loans, I'd consider the same.
In all honesty, I doubt there's going to be a serious re-evaluation of these programs until the system breaks. There are many degrees that people here consider absurd but there is inertia and programs and efforts to make sure that those are the best protected.
Can you imagine the headlines if a university canceled the "women's studies" degree and shifted the money to something resembling vocational training?
The TARP bailout was not money just handed out to banks. It was loans to banking and other industries which was repaid in full overall. And in fact it was the auto industry which failed to repay the loan, not the banking industry.
I'm not a fan of the financial sector but let's keep the facts straight here
No. They were hand outs. Only some banks got them. PNC got $5 billion from TARP. They then bought National City Bank, a regional bank in Ohio. National City was not allowed to even apply for TARP. PNC bought NC with that $5 billion, then got a tax break for $5 billion for "saving" them.
PNC bought National City for free, using tax payers money. TARP was not a loan. It backed every bank debt 100% (when it should have been pennies on the dollar) and allowed the strong banks to kill all the weaker ones, literally for free.
Had TARP not gone though, the banks would have had to sell mortgages back to debtors at a fraction of the price. Instead, they continued to collect loans on debtors, feed the rich and destroy the savings of the middle class.
It was backstopping shitty loans with the full faith & credit of the gov't. Note that the person who received the shitty loan still got foreclosed on and lost their equity. The persons responsible, who made the loan, don't have to take a loss.
What sort of belief should I start from to be able to decide that people taking a loan they can't afford bear no responsibility? I imagine it's the same sort of thinking that leads to calling a property they never actually paid for theirs but I am not sure and when I am not sure, I ask.
While true in theory, this may not be true in practice. There are several loopholes, one main one being that failure to pay fees and penalties assessed by the justice system itself can be a criminal offense. In some states a significant percentage (as high as 20%) of current prisoners are being held for failing to pay these LFO's (Legal Financial Obligations).
Here are a couple ACLU reports about the practice:
In for a Penny:
The Rise of America’s New Debtors’ Prisons
Correct. I hoped from context that it was clear that I was responding only to the line that I quoted (which said that the US "does not have debtors' prison") and not to the main thrust of the argument.
Conversely, why should a bank should be protected from their stupid decision to make that loan? That's supposed to be why loans charge interest. It's to cover the risk of default. But they didn't even consider what would happen.
Without help from the government, those loans would have never happened at those rates.
If you don't like FAFSA loans, you are perfectly willing to go to any bank (or maybe a rich uncle) and get another loan (or convince your rich uncle to bankroll you). But for the vast majority of people, FAFSA is the only way to pay for college.
And taking out 8% or 9%+ loans from NON-FAFSA institutions is a lot worse than taking a 6% to 7% FAFSA loan. I think funding the loans and keeping interest rates lower is a good thing.
And what of quantative easing where trillions of assets of banks (including junk mortgage backed securities) were purchased by the Fed, relieving banks of the full impact of their actions?
I was going to call you out on conflating TARP with QE, which bought Treasury bonds, but I now see that was just QE1. QE2 and 3 bought mortgage backed securities and bad bank debt. Disgusting.
How about gov do quantitative easing for these student loans. Basically provide contracts and various incentives for companies that are employing these students who have loans. Also to various vendors like house owners etc who provide service to these students. This would create a negative impact on students who did not took loans or got good jobs and paid up in time etc. But that's how largely it was done for QE also.
You can't inject wealth into the system at the demand side like that! The rabble will spend it all on natty ice and chalupas! Gotta give it to the job creators!
Just this morning Ray Dalio commented in an interview on problems with Fed controls via interest rates or injecting money via QE, vs times when the economy might respond better to 'helicopter money' or injecting money directly to the people.
I'm reading further than the Dalio comments, but if one were to implement Basic income with some ratio of "helicopter" injection selectable by the Fed, it would give the Fed another control pedal to better manage the economy. In particular, when investment level injection is just circulating among the financial circles and not making it down to the main street economy which cycles money with buying and selling of more real goods.
If banks can 'pay back' their TARP loans with bad debts, students ought to be able to 'pay back' their student loans with promise of future earnings excess of minimum wage, that was supposed to be enabled by taking on a degree.
It anyway isn't the case that TARP and QE are aimed just at the financial sector. They are aimed at preserving the existing economic order. If insurance companies start defaulting, things get exciting.
Oh please... paying back with little to no interest means it was a government handout.
The banks got rich using that money (giving loans with that money at much higher interest of what they were paying the government, it was a bonanza for them), the taxpayers money at the expense of the middle class.
>If people do it for whatever reason, well clearly the are immoral, deficient somehow, their psychology needs to be studied by a special committee.
Yeah. There's also the marginal utility of money. The banks can piss away billions without really getting that hurt. Their debts are business agreements that can be broken under the profitable circumstances.
Student loan payments each month hurt people far more, yet defaulters are looked down on.
The solution is a mass debt strike, until there's a student loan bailout or other large concessions. Threatening to crash the economy further got the banks their trillions during the crisis, so why don't normal people team up and do the same?
Those that can't pay it, simply can not, but those who can pay it don't want to suffer the individual penalties of doing so. Mess one's credit report up and now an individual has to hope not to get sued and harassed by collections calls and probably give up financing anything for the next 7 years whether it's a new credit card, car, or house.
There's also a small minority of people also savvy enough to pull off defaulting without the legal repercussions. Unless there is a coordinated effort, simply defaulting by one's self would be suicide.
There is also the risk/reward factor. Defaulting on 100-200k loans with no income? high risk, but also a high reward potential. Lawyers know you can extract blood from a stone. Defaulting on 5k worth of loans making 50-60k/year? High risk, low reward. Better to just make the payments for 1-3 years and be done with them.
It seems like you are arguing in favor of people even with the ability to pay back a loan, simply deciding not to because they don't want to. If that's accurate, it is absolutely disgusting.
This is not about TARP. It's not about taxpayer-funded bailouts of whatever industry the royal you happens to dislike today.
There are two completely separate obligations in play.
1. The legal (civil) obligation: There should be stiff penalties for people who decide not to pay back a student loan because "LOL TARP." Especially if it's a loan where the government ends up on the hook. Wage garnishments and sub-500 credit scores seem appropriate. Not to mention the fact that signing a prom
2. The moral obligation: You said you'd pay it back. Keep your word. Despite extenuating circumstances, you're just a plain old bad person otherwise.
None of this applies to people who can't pay back the loan because they're a barista with a law degree. I think we need to look at why they spent the money they did on a degree that is apparently doing nothing for them but regardless they don't have the ability.
But they're in for a world of hurt when the loan is forgiven and they have a 4 figure (or higher) tax bill from the IRS for the income.
> 2. The moral obligation: You said you'd pay it back. Keep your word. Despite extenuating circumstances, you're just a plain old bad person otherwise.
That's exactly the problem. You are applying guilt and morality to people (and not just you, this is a popular PR technique) but when businesses choose to not pay the fines, loans, or choose to continuously violate a law (because paying a fine is cheaper than complying), for whatever business reason, then it is seen "as a business decision".
For example, during the housing crises years, there were a few articles warning about the second wave of housing crisis -- that where wealthy people who see their house under water, would stop paying even if they could. They would choose to mail the keys to the bank and walk away because 7 years of bad credit is better than paying an extra $200k over the value of their house. And that was scaring some economists -- that fact that people will start acting rationally and applying "normal business principles" to their own affairs.
> There should be stiff penalties for people who decide not to pay back a student loan because "LOL TARP."
Where are the stiff penalties for banks and insurance companies pissing away money on shady deals? People were not blind they saw what happened.
I'm going to say something crazy here: A multinational bank with a quarter-trillion dollar market cap potentially going belly up and crippling the US/world economy is a slightly different scenario than someone with $180k in law school debt not paying it back because they don't have a job or someone not paying back their $50k in student loan debt even though they could.
> Ha! There is a bit of a hypocrisy there -- if big banks / companies piss away money and choose to strategically default then (and some even get bail-outs), it is just business. If people do it for whatever reason, well clearly the are immoral, deficient somehow, their psychology needs to be studied by a special committee.
A lot of misunderstanding here. Education department doesn't have any enforcement arm as far as I'm aware. Understanding why students are defaulting on loans is 100% in the realm of what the education department SHOULD be doing.
Yes. IRS. Not Department of Education. IRS is in Department of Treasury, run by Treasury Secretary Timothy Geithner.
On the other hand, a study conducted by the Department of Education, run by Education Secretary John King Jr, makes a lot of sense. and is hardly malicious at all. Department of Education wanting to know the effectiveness of their FAFSA loan program (and why or why not people are able to pay those loans back) is definitely a good thing.
Besides, all the loans are being handled by Sallie Mae (a private company with some Government support). So its Sallie Mae who is officially on the hook with regards to collections and such. The Department of Education is rather removed from the whole finances thing, as far as I'm aware.
So basically, you can assume a malicious force if the IRS or maybe even Sallie Mae began to conduct this sort of investigation. But the Department of Education? Collections isn't their thing. They're likely interested in the state of education, college readiness and the like.
As someone pointed out already, they will garnish your wages. Regular banks, car dealerships and so on don't get to do that. The government absolutely can enforce things like that.
My wife is one of these borrowers. She has a master's degree in teaching. It cost her over $100k to get and she can't find job that would pay her enough that she'd be required to pay anything back. I've seen her loan repayment docs and her minimum payment due is $0 every month. While I think her decision to get a masters in education was a bad one (before we were married) I laugh at an institution that would loan her money for a field that doesn't pay, ask her to pay at least $0 a month and then complain that the loans are not being paid back. I just paid Navient the outstanding $18 they've been bounding her for and plan on paying them nothing again until my houses are paid off.
They are conditional with having employment in the first place as well as if the government entity they are under has approval for such forgiveness. My wife doesn't qualify under most programs and given the glut of newer grads or veterans (she's been beaten out by veterans for 10 positions with 100+ applications referred - none of which were non-veterans according to the hiring committee we managed to find out) she's competing against that can accept the $12 / hr wages I basically have to pay the residual myself instead. That's marriage for you.
Heh .. my wife also had a mountain of student loan debt. We saved like hell and deferred major purchases (specifically, no house). We're about to payoff the last of her loans and really happy about it. The challenging things are: (a) we were talking about getting a new car. Even though a car loan is nothing like a student loan (interest rate is much lower) and we do need to change our car, we're super queasy about getting back in the red , and (b) we're in our late 30s and property is unaffordable where we live. We're not keen to take a 600K mortgage (for a starter home) so will wait it out. We're both well-paid professionals but even then one person's loan made a big dent in our financial security. Also, the fact that we didn't own property before the real-estate boom/bubble, means we'll likely be financially stunted for life. Cest La Vie.
I bought a place in 2007 after the start-up I was at exited. That was a very expensive lesson that you didn't have to learn at least. I can't think of an actually positive outcome to this lesson fundamentally that I couldn't have just learned with some Youtube videos. The emotional scarring is what's worse than the financial scars. We can always make some more money when we've got some time in life left, but life experiences are something nobody takes away from you no matter how much you want them to go away.
Have you looked into the tax burden you'll face whenever the loans are completely forgiven? Just curious, it's something I was wondering about since I am in a similar position.
Most teachers should qualify for the Public Service Loan Forgiveness (PSLF) program, meaning any federal loans (not private) should be forgiven after 120 payments without incurring the tax burden. As far as I understand, the 120 payments could well be "payments" of $0 if the annual income is low and the borrower is on an income-based repayment plan.
By the way, if you file taxes separately, they typically only take the borrowers income (unless you are on the REPAYE repayment plan, instead of the IBR repayment plan).
There are various repayment options available, some incur a tax burden and some do not. The PSLF option does NOT incur a tax burden after 120 payments. It would be smart to research each option available to see what is best for your circumstance.
While she doesn't have a job that pays enough to trigger repayment, is the loan accruing interest? If so, is the interest rate higher than the one on your mortgage? If so, you might want to reconsider your strategy...
Right ... I know many of my wife's friend's making minimum payments. I said no way .. we're paying the loan off first. I won't mention the amount but man, we could have bought a fleet of boats for that (think about what the average med student accrues in debt).
Information asymmetries put the burden of guilt on institutional actors. The educational and lending institutions which have a strong awareness of true costs and actual employment prospects. Over individual young students who don't, and are often relying on those institutions for information and guidance.
Unless the educational and lending institutions are contractually agreeing to the loan on behalf of the students, it's not a p:a problem.
Salary and career signals are publicly available. If a student happens to rack up six figure loans for a career that can't support it, then that is ignorance on their part. At 17-18, they're not exactly minors, and even if you do consider them a minor the fault lay on their guardians (parents).
At 17 a student is precisely a minor. My understanding of current research is that full intellectual maturity is generally reached in the early 20s.
I said P-A was related. Not identical. Again: students are being advised and encouraged by parties with 1) vastly greater access to information, 2) vastly reduced risk (the loans are federally guaranteed in the US), and 3) benefitting from risk diversifictation over large numbers of incoming students.
Final proof: there seems to be rather a problem with the student loans business. Including numerous institutions convicted of fraud, and, if I can find the article somewhere, noncurrent payment rates of 40%. Oh, silly me, that's the very article we're discussing here.
P:A problem isn't that complex and what you're describing is not even close.
You're overestimating the amount of information that educators and loaners have access to regarding job markets, and besides: it's not their job to predict what someone will do in four years. Loans are not tied to specific degrees with specific salaries. You don't lose part of a loan because you pick a major or employer.
Making these life decisions is the individual's (and/or their guardian's) responsibility, and just because some make bad decisions doesn't make it "like" p:a.
I'm curious if you're young enough to have gone through this yourself. The idea that publicly available salary information is enough for a young person who has never supported themselves doesn't really make sense to me. I'm willing to bet that 90% of 18 year olds can't figure out what a reasonable amount to borrow is given salary information. This includes me. The problem isn't an inability to do math, the problem is that there are too many variables that fall under "things you don't know that you don't know." Such as:
What monthly expenses should I expect to pay? (This varies wildly among people I know, there's no easy answer. And knowing rent + utility costs is only part of the puzzle. An 18 year old doesn't appreciate the costs of things that "just come up")
How much money should I plan on NOT spending every month to give myself a buffer against the stress of living paycheck to paycheck?
How much should I expect to be taxed? (Again, the number are out there, but just googling around, I can't find any easy answers that include averages for federal + state + city)
Should I expect to live in an expensive city if I have X career? (Not an easy question to answer for someone who doesn't even know that that career will be)
How much should I really expect to pay for college? (Between yearly tuition increase, variation in scholarships/grants and the differing costs of living on-campus vs off-campus, this is hard to know)
If I have the numbers for the average person in my position, what are the chances that I will be worse off than average?
I guess there's the possibility that I (and many people I know) are exceptionally bad at making personal decisions, despite doing reasonably well in most other aspects of life, but I doubt it.
I don't know about all teachers but in Maryland it's definitely a decent paying profession (50K starting out for 10 months). To me this is almost a state school thing. You can spend like 10k a year on tuition at a great in state school and at least halve some of these outrageous amounts
Man same situation exactly. We don't get $0 invoices though. What pissed me off is that there is no way the university spend $100K educating her. That money probably went to build some palace with some guys name on it.
Certainly agreed that the dollars going in and out of education don't make a lot of sense to me, but there are cheaper schools. If you don't feel the school is worth the money, go to a school that you do feel is worth the money.
On the one hand, we tell them that everyone has to go to college and that more education is better. Regardless of whether more education has any financial return. Is that the only metric? Absolutely not, but there is a point at which education is a luxury.[1] My entire high school education was focused on how to get into the "best" college.
On the other hand, in order to get that education, they have to take out significant loans. At 17 or 18, they have little to no understanding of—let alone, ironically, education—about personal finance.
So financially uninformed take on large amounts of debt with no gauge of whether that is a positive investment. Sound familiar? We did the same thing to uninformed mortgage buyers until they started to default in 2007.
[1]: I say this having majored in Philosophy. It was a luxury that, coincidentally, is immensely valuable. At the time, however, I didn't know that, I was just interested.
> Regardless of whether more education has any financial return.
Interestingly, this is a difficult problem to crack, because it is valuable to have the degree. In 2008, people without a college education were hit the hardest in terms of jobs lost; the jobs for college educated went to basically no growth, but didn't quite tip into job loss.
So if I'm a kid trying to make this decision, do I choose high debt with some chance of having a stable future or a cheap barrier to entry for a job that is likely to crap out as soon as the economy looks bad again?
> they have little to no understanding of—let alone, ironically, education—about personal finance
This is also important to me. Having lived with my parents until college (which I think is the norm), I don't think I would have really understood what it means to pay $500 or $1500 a month on my loans.
No, it isn't. That assumes college exclusively opens doors, which is not always the case. Many Americans are leaving college with more debt than they are able to pay off. Crippling debt is not a door everyone knows they are opening, nor what that actually means or feels like.
Furthermore, the "best" college by rankings does not translate to the best college for that individual. The "data" around college rankings and binary maxims like "go to college" hide the nebulous benefits and individual circumstances.
There's a simple solution, the Feds should cutoff loans for schools that don't get their students jobs. The government are the only ones that are able to accurately calculate which schools are completely worthless. In fact they should take it one step further and advertise to the whole world what percentage of students get jobs in their studied field and the average starting salary. That would finally put some market pressure on schools to do their damn job and teach useful skills.
I think this is well intentioned but would be absolutely disastrous if implemented; it would give large employers de-facto control over what we are allowed to teach in higher education and encourage short sighted investment in current careers at the expense of cutting edge fields. Nevermind the substantial arguments that an education should be more than vocational training, and that job placement in many majors is more a function of the candidate and not their degree; predicting the careers of tomorrow is a hard task best not left in the hands of government bureaucrats or even large corporation's hr departments.
Agreed. Part of the problem is that vocational training is largely a rip-off, and the vocational institutes often demand prices to rival academic institutions. It seems like there is a market for accredited vocational institutes with a more rigorous curriculum (and standards) at a more affordable price. Community colleges are the closest thing to this right now that I'm aware of. Online education is still struggling for validity, and I believe simply does not provide enough structure to push a large number of people through even if these problems are somehow resolved. Is there some middle ground that employers would actually value?
Depends on your definition of "purpose". The purpose of the DMV is not necessarily to enable people to drive, but they are the ones who do the test and hand out the piece of plastic, so we're kind of splitting hairs.
No we’re not! The framing of higher education as a career enabler with positive ROI is the #1 bit of propaganda that has justified and reframed how tuition is evaluated and is directly responsible for the steady and insane yearly tuition hike since the 1980s.
Fighting for the essence and purpose of higher education is therefore not trivial but in fact paramount.
The fact that we are having this conversation in a thread suggesting that the federal government enforce universities as job mills is, I trust, enough evidence to make my point.
You're confusing an organization's stated purpose with its actual purpose.
Whether you or I like it or not, higher education IS a career enabler. No matter how this came to be, it's currently reality. People are willing to go into six figures of debt BECAUSE they believe it is a career enabler. Companies filter out non-college-grads because they believe it is a career enabler. Therefore, it is a career enabler.
It doesn't really matter what higher education's stated purpose is...Its actual purpose (in the real world, the one we live in) is to enable careers.
How is that propaganda? People with degrees make more money. The fact that universities had other goals doesn't mean their effects on graduates' earnings are any less real.
Are you saying we should lie to high school students about what does and does not lead to a high-paying job?
No, GP is saying that the value (societal or individual) of higher education may be orthogonal to the change in job pay of the person educated. The framing of the conversation as being around job pay rates has consequences.
There are real economic effects that happen when new frames of reference / paradigms / conventional wisdom take hold. Think about the ridiculous 2003-2008 house price run-up and how it was concomitant with a mass change from seeing housing as a cost to seeing it as "investment". Positive feedback loop, that. Maybe the same idea here with higher ed.
There's an even simpler solution -- fire the middle managers that are the largest driver of increases to college tuition[1], raise taxes, and provide higher education at low or no cost the same way the rest of the wealthy, industrialized world does. This is a solved problem everywhere else and we should be embarassed in the U.S. that the system we have persists.
Must the value of an education be purely the salary you can get afterwards? The true roots of liberal arts (which used to include everything from astronomy to mathematics to botany) lie in creating a well-rounded, educated, sophisticated person. We can't all study STEM, and we as a society shouldn't demand that.
This is about the dollar cost of the college and university education process.
I'm surprised there isn't more discussion here about ways to educate people cheaply and efficiently, more discussion of supply pricing.
It may be a bad deal to obtain the knowledge required for a degree in Anthropology @ $150,000, but maybe it's a great deal to obtain the knowledge required for a degree in Anthropology @ $15,000.
Not everyone wants or needs to get a well-rounded liberal arts education. The problem is that undergraduate degrees are more and more a prerequisite for getting any job, so there's pressure to make it easy for poorer people to earn a degree. Towards that end we have loans, grants, scholarships, subsidized city colleges and state universities...
> The problem is that undergraduate degrees are more and more a prerequisite for getting any job
That is dependent on the economic cycle. In boom times employers hire anybody with a pulse, in bust times the glut of resumes for a job opening makes employers choosy. If out of all resumes for a retail associate job one candidate stands out due to his MBA and experience, he will likely get the job. That does not imply, however, that all retail associate positions now require MBAs.
Something must be missing from the US formulation of "better democracy through education."
We spend a huge sum of money on "education" in the US, but the two-party, democratic government we have obtained for ourselves has left a huge fraction of the people dissatisfied and impoverished.
I can only imagine that limiting loans and aid to the pursuit of an accredited degree makes the difference between financing a lifestyle and financing something that is guaranteed worthwhile (if we believe accreditation).
How many schools successfully do the well-rounded bit? How many students care? I had a 1.8 average in general studies and a 3.5 average in math / CS, so there's my bias. And honestly the CS and math was poorly taught most of the time. Not a top 20 school (coulve gone to UT, but that's another story), but still a well regarded school.
Meanwhile, my well-rounded education comes from independent study of this and that and places like HN. I guarantee you that I can identify quality information and know more about government than most of my peers.
>> The true roots of liberal arts (which used to include everything from astronomy to mathematics to botany) lie in creating a well-rounded, educated, sophisticated person.
That's fine so long as you actually want to become the person that liberal arts education strives to create. That archetype is a lovely justification for four years and the student loan equivalent of a 2016 Porsche 911.
The instance or the archetype, on the other hand, is not so nice. If somebody ever called me "sophisticated", I would assume that they were being sarcastic or condescending. If I called someone else "unsophisticated", that would make me look like an elitist jerk.
As for being "well-rounded", liberal arts college education is both redundant and contradictory. It's redundant because we already have K-12 education to "broaden horizons beyond one's comfort zone". It's contradictory because the whole idea of college majors pushes students to be LESS well-rounded in favor of a specialization.
At some point, the student is responsible for getting themselves a job. How do you differentiate between a student who is trying and failing to get a job because they were unprepared for their field vs. one who decided they don't want to be a journalist/biologist/whatever after all and backpacks around Europe for 2 years?
> Feds should cutoff loans for schools that don't get their students jobs
They tried that with for-profit schools, who were quick to report very high levels of employment (omitting under-employment, with gigs such as barista or part-time retail) and setting up temp agencies that hired people to do busywork for six months or so.
If their graduates are able to drive, they already pretty much have a job with Uber, for instance.
I also think there's a simple solution, but entirely different from the one you propose. I wish that k-12 would focus on job prep. Most jobs really don't need specialized degrees - If our public schools were worth a damn there's no reason kids couldn't graduate ready to work. Leave university for highly specialized fields and intellectual pursuits. I think it's a shame that our public school system is failing kids so badly that they can't even get jobs without taking on tremendous personal debt.
Just make the colleges partially responsible for defaults. Not enough that they won't take chances, but enough that the steer students away from $100000 teaching degrees.
It would be interesting to explore what kind of short positions are possible. The majority of student debt is federal, so you would probably be looking at the big private issuers like Nelnet and Sallie Mae/Navient (https://www.navient.com/about/investors/debtasset/).
I don't know if there is much of a CDO/CDS market anymore for student-loan debt because subsidies ended some years ago. Lending standards have probably tightened as a result, but it's possible that there are some student-loan backed securities out there with a high probability of default.
I've thought about shorting Navient/Sallie Mae directly, but their ties to the federal government make me think that they could possibly benefit from a government bail-out or takeover if it came to it.
There's also the possibility of taking a short position on the for-profit education industry. Institutions (or rather Companies) like DeVry and University of Phoenix probably have some of the highest debt and default rates. If they lose federal funding, their future is grim.
The Education Department has assembled a “behavioral sciences unit” to study the psychology of borrowers and why they don’t repay.
“We obviously have not cracked that nut but we want to keep working on it,” said Ted Mitchell, the Education Department’s undersecretary. He said many defaulted borrowers dropped out of school and are underemployed.
This is surreal. Could they be any more patronizing?
"behaviour sciences" sounds like they're looking at nudge-like approach to see if they can make more people repay, rather than just being clueless about the fact that unemployed people have no money.
In New Zealand the Government has started to arrest defaulters at the border[1]. This may not work as well for US as I am not sure of the percentage who travel outside the country versus NZ.
I think it's more complicated than that. It's a huge, broken system. 17-year-olds can't fully grasp the burden of their debt when they take it on, and they've been told all their lives that they need to go to college to be successful.
You've got a great potion for disaster here:
1) You can't be denied an education loan.
2) Education loans can't be wiped out in bankruptcy because
3) You can't repossess an education.
4) Because of the above factors, there's little incentive for colleges to keep cost of attendance low.
I have no idea what the solution should be, but this problem can't continue indefinitely. It's a more complicated issue than just, "Millennials are just looking for handouts and don't want to pay their debts."
> 2) Education loans can't be wiped out in bankruptcy because
One can opt in for an unsecured personal loan, which are wiped out in bankruptcy, but those come at higher rates to compensate for the risk. The reason for low(er) rates on student loans is their legislatively mandated low rates of default.
Good point. Most creditors would be aghast at 100% LTVs that student loans seek, so it would have to be a combo of a significant down payment, parents' HELOC (or other secured credit facility) and finally unsecured credit card debt.
Compared to double-digit credit card rates they are. The counter-party risk is still present (as the title suggests, the balance cannot be wiped out, but the payments can still be missed, constituting technical default).
More like... lots of people are making up absurd statements based on their perception of a political candidate. I don't know of a single, single person who is supporting Bernie because they think he's going to post-defacto erase their college debt. Especially since that's not even something he's ever suggested.
But yeah, I'm sure "lots of kids" are holding out for that. You should've thrown in the swear word "millennials" for true effect.
I'm a recent graduate. People don't go to college because they think they'll have their debt absolved. They go to college because an undergrad degree is now the equivalent of a HS degree 30 years ago. It's simply a prerequisite, and every parent/counselor is pushing children towards it.
Besides, the students described in the article graduated long before Bernie sanders arrived on the scene. He was clearly not a factor in their decision to attend in the first place.
He's suggesting that people are refraining from paying off existing debts, not that they're accruing new ones with the hope or expectation that they'll be absolved.
Or, you know, lots of kids can't find work that pays for shelter, food, clothes, transport, and interest on six figures. Despite being young and dumb, and told by most everyone that the only way they'd get such a job would be to, you know, take out those six figure loans.
The post-2008 recovery has been a very poor recovery as far as jobs are concerned. Add in that wages for the less than six figure jobs have been stagnant since most of these people have been alive, and, well, there you are.
Perhaps coming up with an educational system that doesn't indenture students to banks (who have zero risk on their loans - talk about lack of skin in the game!), and doesn't increase in price at a multiple of the inflation rate might be a good idea?
I've noticed that nearly everyone whose reaction to 'the kids these days' on things like this went to school when going to school was actually affordable by the non-wealthy.
Depends on which state we're talking about. Don't know where you are, but by European standards the policy in any U.S. state looks punitive in comparison. In California, the limit is 26 weeks.
It's effectively waving a wand to make their bad loans go away when the federal reserve buys toxic mortgage backed securities from the banks with quantitative easing.
Well it was magic'd into existence so magic it back out. Most degrees are not worth the cost because the cost is set by loose credit, and credit is ex nihilo.
Bernie Sanders' offer of State paid college education. One point is that I've never seen him offer an ex post facto payoff. It is a logical extension of his current platform of making education a right.
If graduates had the option to discharge their student loan debt in bankruptcy in exchange for revoking their degree, I wonder how many would end up taking that option.
Or if students had the option to discharge their debt in bankruptcy at all, how many would do it. I suspect enough that we'd have something resembling the last debt crisis on our hands, but depending on how that gets handled it might encourage lenders to be a bit more careful with who they lend to and how much they're willing to lend in the first place which may then encourage schools to lower costs.
The scenario that I proposed was entirely hypothetical, but I image that they are revoked in the same way that any credential is revoked: if asked to verify that an individual holds it, indicate instead that they don't.
I mean, this has happened a number of times to doctorate degree holders when it was later discovered that they falsified research for their dissertation.
Yeah, but publishing a statement that announces that you're a cheat, and that your education is a sham, actually damages your reputation and your career. Cutting up some paper so you can be debt free would just show that you're not a complete nit.
Even if you actually needed that paper to prove that you are in fact qualified, an entire industry would appear overnight dedicated to providing certified copies. The free market ultimately decides what credentials to trust.
Sorry, but when there is no testing to determine if they borrowers can even complete the course of study they have chosen why should we expect any other result? If you wanted the best example of why college education should not be free this is it. I am all for community style colleges that could be free or heavily discounted but the idea that people can simply choose ask for their degree be paid for without first demonstrating that it is course with a worthwhile career the country needs, they are capable of completing it, and they are also capable of holding a job, doesn't work for me.
It isn't a right. When you become an adult you make choices, choices that come with responsibility to your self and others. This does not include demanding others support your flight of fancy, let alone one that may never pay out or benefit anyone other than the person taking the money
> This does not include demanding others support your flight of fancy
100% this. I presume you're talking about the entities who took a bet on foolishly giving out so much money, now expect to be reimbursed for their bad loans, and wish to invoke criminal enforcement for what should remain a civil dispute.
The point of admissions has become to determine that admitting a given student will do one of three things: Benefit the school through future press from stand-outs, alumni donations, and better GPA, SAT, and ACT stats in the various rankings (all leading to more enrollment in the future), benefit the school by paying to attend and not really affecting rankings, or whether they can pay and not really hurt ranks that badly.
And the number of free admissions to most areas of undergraduate study is 0. Full-ride scholarships are usually athletic, not scholastic, but most partial scholarships are based on test scores and apply regardless of the course of study.
>Also, couldn't we set the number of (free) admissions to certain areas of study based on the national need for those professions?
Philosophically, American universities are meant to 1) search for truth, 2) produce graduates who are educated about the most important findings and methods of the search for truth, 3) contribute to the general or local welfare in the process. Suggest to them that they are workforce training systems and you'll have a mess on your hands [0].
The private ones were doing this among the elite for hundreds of years, the public ones were meant to let the masses join the elite's party. Aside from specifically designed trade schools, neither are intended as (nor do they think of themselves as) servants of business needs for specific kinds of labor. That is why you see people required to take all kinds of "unnecessary" subjects like chemistry, physics, math, art, literature, philosophy, social sciences, etc. and even specialize in those things, regardless of whether they are relevant to career ambitions. And why this proposal is not tenable in the current system.
Part of doing this for the masses is being unselective. If public universities became more selective to decrease their dropout rates, it would be seen as a betrayal of their identities and the very purpose of public education. (For some reason people are a lot more tolerant of their children washing out then of their children getting rejected).
At the time, teenage/minimum wage was high enough in real terms were high and tuition was low enough (partly because public institutions had lower overhead, partly they had a lot more taxpayer support) that this was economically tenable. White collar employers found that college students were useful enough to put to work, even though their curriculum wasn't really designed at the employers' direction.
Even in computing. A philosophically pure Computer Science curriculum (and mine comes close) asks the question, "So we have this model of computation, and these machines that implement it. What does that mean? What can we do with it?" It does not ask the question "How do we best prepare workers for the IT departments of the big local employers?"
And this is why you get students learning things like theory of computation, fundamental algorithms, functional programming, operating systems, compilers, programming language theory and design, networking in the general rather than Cisco sense, etc. - things that re meant to be fundamental and timeless - instead of How To Contribute To Local BigCos Java/Win32 Codebases Right Now.
Maybe we've outlived the usefulness of this notion. It's less present in Europe, but in Germany at least the college liberal arts curriculum is simply shifted into high school and reserved for the academically inclined (Gymansium). It's not that they don't do it, they just do it differently.
Even stories linked from Google News homepage don't work for me - I wanted to complain to google about why they even include them. But I guess it's just me.
Deviation: But why does this technique work? Any idea what is happening in the background that this article becomes readable on clicking the Google link?
The student loan system lies in the special place that brings in the worst of private and government sectors.
General loans work pretty well out there: Loan costs are aligned with loan risks, because nobody wants to loan money to those that can't pay. But student loans are guaranteed by the government, so for all intents and purposes, anyone can get a loan, whether they'll be able to pay it or not. At the same time, it never goes away, and it's given to people who probably still live with their parent. They bear a bigger risk than I do with my mortgage, but they might get tens of thousands of dollars in debt without deciding on a major first!
What really makes this pernicious is that, since everyone gets access to the loans, in practice, this means college can be far more expensive than it'd be otherwise: Without all the loans, most colleges would have to be cheaper. Same thing if colleges also bear the risk of non-payment. And it's not as if this money is being spent enriching teachers: It's mostly administration and facilities.
So now we have a system where everything is very expensive, and most students get huge loans that they can't afford, and where ultimately, the taxpayer will end up having to foot the bill: The only winners here are the universities themselves.
Just think of what this is doing to medical schools and law schools: They know that even the poorest student will be able to max out on their loans! So dropouts, and in the case of law school, graduates that went to the wrong school end up in a worse situation than they would have been 30 years ago.
The country must choose: Either stop giving money to private colleges, and just focus on good, cheap, no loans, public universities, or let people pay for their own college with no guaranteed loans: Less people will even go to college, but those that do will afford it, because colleges would have to adapt to lower budgets.
Guaranteed loans to pay for expensive, private universities? This just makes sure that millennials will end up worse off than their parents for the first time since the industrial revolution.
Well there is a way that combines best of both - look at UK.
Basically you have a similar deal like the US, so everyone is guaranteed a loan no matter which university they are going to, but at the same time, the government has limited how much universities can charge per year. So it doesn't matter if you go study at Oxford or a some tiny university no one heard about. The maximum you have to pay is 10k a year. And you don't have to pay anything back unless you make more than a certain amount per year after graduating.
I made a comment to this effect as a reply, but I don't understand why the government charges so much interest on these loans (and then only lets you deduct a small portion of it from your taxable income in some cases).
Let's assume you actually do end up bettering your life by taking out student loans and getting a degree. Although it seems almost memetic these days that you'll sink 100k into a school and wind up flipping burgers, in my situation it was actually the opposite. I was a cook for a catering business making very little money such that my federal tax burden was virtually nonexistent. After finishing school I make quite a bit more money, but I'm paying very high student loan payments (not complaining really, I was aware this would be the case) and the interest on my student loans is higher than on my mortgage! These are federal loans as well, not private.
By providing me a loan the government has essentially won! They've turned a tax burden into a source of revenue. My lifetime earning potential is much, much higher than when I did not have a degree and was working as a cook. Why are some of these interests rates as high as 6%? It seems insane!
As someone who has been paying upwards of 20% or more of my monthly take home pay to student loans, I am surprised the figure of delinquent payers isn't higher. I count myself one of the lucky ones(CS degree, gainfully employed...) and I have college friends making close to minimum wage, with more students loans than I and struggling to make payments.
Who thought a $25,000/year(and rising) public university education was a good idea ?
"About 1 in 6 borrowers, or 3.6 million, were in default on $56 billion in student debt"
I thought "default" is technically impossible with respect to student loans, your solvency matters not, you're obligated to pay it off even if takes your entire life (and/or life's earnings)?
This problem would get fixed very quickly if students were allowed to actually default on the loan and stop paying it, at which point it becomes a loss to the lender, like it is with any other loan. Then these loans wouldn't be handed out like candy to people who are not mature enough to understand what it takes to pay off $100K and thereby ruining their lives.
Default just means to not pay back what you promised when you promised. You are confusing this with the fact that, except in relatively rare circumstances, one cannot shed the debt in bankruptcy.
Thats how its supposed to work, in the UK at least. Student Loans are like a distributed tax that only gets paid by the grads who earn enough to repay.
edit: Also, in the UK, once you do earn enough, payment is automatic via deductions from payslips.
That's a terrible system, IMO. Why should we be rewarding B-Ark people while at the same time punishing people who get degrees in Engineering and Medicine? I can understand the logic for tax-supported universities (not necessarily agree, but understand), but this just seems... intellectually dysgenic.
I can't think of anything that would be as valuable to society as engineering or medicine, say, and still wouldn't land you a remunerative position.
Anyway, that's an argument for taxpayer-supported universities, not for universities paid for by the students who choose to learn skills other people will find useful.
The threshold for payment is quite low, around £20000 pretty year in salary before tax. I'd expect most people to make some payments, although compared to an engineer the artist might take a few extra years to reach the minimum salary.
At least the lender can make extra considerations. Career choice, academic history, etc. Better than lending any amount to anyone and still have a guaranteed payment.
Right, but just because they're taking on new debt that they're prioritizing over old debt doesn't mean that they weren't financially able to pay back the original debt.
The important piece there is that the new debt has ramifications for non-payment that are much more obvious than the student loan debt.
The Government is (pretending to) do something about this - we've had a huge increase in "apprenticeships", but a lot of those are just shops counting their shelf-stackers as apprentices because it means they don't have to pay the minimum wage.
Full text if you don't want to deal with google/paywall workarounds:
More than 40% of Americans who borrowed from the government’s main student-loan program aren’t making payments or are behind on more than $200 billion owed, raising worries that millions of them may never repay.
The new figures represent the fallout of a decadelong borrowing boom as record numbers of students enrolled in trade schools, universities and graduate schools.
While most have since left school and entered the labor force, 43% of the roughly 22 million Americans with federal student loans weren’t making payments as of Jan. 1, according to a quarterly snapshot of the Education Department’s $1.2 trillion student-loan portfolio.
About 1 in 6 borrowers, or 3.6 million, were in default on $56 billion in student debt, meaning they had gone at least a year without making a payment. Three million more owing roughly $66 billion were at least a month behind.
Meantime, another three million owing almost $110 billion were in “forbearance” or “deferment,” meaning they had received permission to temporarily halt payments due to a financial emergency, such as unemployment.
The figures exclude borrowers still in school and those with government-guaranteed private loans.
The picture has improved slightly from a year earlier, when the nonpayment rate was 46%, but that progress largely reflected a surge in Americans entering a program for distressed borrowers to lower their payments. Enrollment in those plans, which slash monthly bills by tying them to a small percentage of borrowers’ incomes, jumped 48% over the year to 4.6 million borrowers as of Jan. 1.
The Obama administration—worried about taxpayer costs and the prospect of consumers damaging their credit by defaulting—has stepped up efforts to reach borrowers and offer options to enroll in the income-based repayment plans. In some cases, the government is garnishing wages and tax refunds of borrowers who refuse to pay.
But officials acknowledge that a large pool of borrowers have essentially fallen off the radar. Loan servicers—companies the government hires to collect debt—say they can’t reach such defaulted borrowers despite hundreds of attempts through phone calls, text messages and emails. The Education Department has assembled a “behavioral sciences unit” to study the psychology of borrowers and why they don’t repay.
“We obviously have not cracked that nut but we want to keep working on it,” said Ted Mitchell, the Education Department’s undersecretary. He said many defaulted borrowers dropped out of school and are underemployed.
Carlo Salerno, an economist who studies higher education and has consulted for the private student-lending industry, noted that the government imposes virtually no credit checks on borrowers, requires no cosigners and doesn’t screen people for their preparedness for college-level course work.
“On what planet does a financing vehicle with those kinds of terms and those kinds of performance metrics make sense,” he said.
Some borrowers aren’t repaying even when they can. Research from Navient Corp., which services loans for the government, shows that borrowers prioritize other bills—such as car loans, mortgages and heating bills—over student debt. A borrower who fails to pay down an auto loan might have her car repossessed; with student loans, there is no such threat.
Kristopher Mathews, 38 years old, is in deferment on about $11,900 in federal student loans. During the recession he earned a certificate at a Michigan-based for-profit college that teaches media arts, but he wasn’t able to find the well-paying job in radio that he hoped for.
Mr. Mathews now works as a logistical analyst for a U.S. auto company, making $46,000 annually. He says he devotes his income to caring for his family—he and his fiancée have three children—and then paying off two credit cards and a car loan. “With all the other necessities in life I just don’t have” funds to pay the student debt, Mr. Mathews said.
Once his deferment expires, he isn’t sure if he will feel obliged to pay down his loan. “They promised me everything,” he said of his for-profit college. “And I honestly have nothing to show for it except a piece of paper that doesn’t really do me any good.”
Most borrowers who have defaulted owe relatively little—a median $8,900, according to the Education Department.
Advocacy groups, some members of Congress and the federal Consumer Financial Protection Bureau have faulted loan servicers for not doing enough to reach troubled borrowers to offer repayment options. But the picture is more complicated.
Navient, which also services private loans, says it attempts to reach each borrower on average 230 to 300 times—through letters, emails, calls and text messages—in the year leading up to his or her default. Ninety percent of those borrowers, which include federal borrowers as well as those who hold private loans, never respond and more than half never made a single payment before they defaulted, the company says.
The administration maintains that the student-loan program, as a whole, will generate a profit over the long term, but the risk is rising that the revenue won’t meet the administration’s projections.
Even many borrowers who are current on their loans are paying very little. More than a third of borrowers on an income-based repayment plan had monthly payments of zero because their incomes were so low, according to a Navient survey last year.
The Education Department, through private debt-collection agencies, garnished $176 million in Americans’ wages in the final three months of last year for student debt, federal data show.
The administration’s pursuit of troubled borrowers is drawing criticism from student advocates and their allies in Congress. Last week, the American Civil Liberties Union and the National Consumer Law Center sued the Education Department, accusing it of blocking public access to data on the agency’s debt-collection efforts. The groups suggested that the companies collecting debt for the department might be discriminating against black and Hispanic borrowers.
Dorie Nolt, a spokeswoman for Education Secretary John B. King Jr., said the agency is reviewing the groups’ public-information requests.
“The singular goal of our student loan program is to help all students get a degree that sets them up for success, and we take the treatment of our borrowers—particularly historically underserved students—very seriously,” Ms. Nolt said in an email.
Great comment. Most people I know with this problem are just not able to get hired. Businesses reject them as underqualified or overqualified for every job unless offered minimal wage. Unfortunately, minimum wage doesnt pay cost of living plus minimum $1000-2000 loan payment.
So, I blame several parties in event loan was for kind of degree that should've paid off. The market for doing everything possible not utilize talent properly. Colleges and high schools that oversell the value of and overcharge for degrees. As Im for universal college, I'm less worried about credit checks so much as blaming government or lenders for allowing majors with low likelihood of repaying. The minimum payments are pretty ridiculous, too, with a progressive scheme making more sense.
So, many factors involved. Yet, there's no shortage of college-educated, enthusiastic, hard-working people aiming for all kinds of jobs. Just little willingness to hire them for a fair wage or at all.
A serious problem with student debt that is not talked about enough is the inflated cost of classes, schoolbooks, and the pile on of all of these extra classes that university forces you to take and pay for, that are there only to pay graduate students. It's crazy how many pointless labs you are forced to take now, classes that have never had labs before. I think we need to dramatically reduce the number of classes that students are required to take to get a degree.
This is a problem that only this generation, and maybe part of the one after it will need to face. The answer is simple, and we're on the cusp of getting there.
Like any other industry, education needs to be unbundled. The idea that you need to live in a dorm, in a psuedo-society, for four years, taking a broad set of courses is dated and helps nobody but those offering that experience. I predict in a generation we'll have the people making hiring decisions more and more jaded about the value of these educations and less likely to keep perpetuating the myth that you need a degree from a school to do a job. Instead, we'll see more and more certification programs, or micro-degrees, specializing in subjects that matter to the student.
I believe it to already be happening - I don't look at education except as an afterthought when reviewing resumes. I don't have a degree, and I'm doing well in my field. The types of jobs where I've ever been discriminated for not having a degree I don't think I would have enjoyed anyway. Working at a 5000 person company that cares more about your score on an HR system than what you could really offer them? No thanks.
Micro-degree are already a student... they're called an associates..
Nurses used to really only need an associates, however some hospitals are now requiring RNs to obtain a bachelor of science in nursing.. Getting a tad ridiculous.
Can somebody compare this (let's call it a Student Loan Bubble) to the Subprime Mortgage Bubble? I'm trying to get a sense of how big the problem is by comparing it to the last bubble we just experienced.
That graph shows you the size of the actual loans, but there was also a sizeable amount of money tied up in derivatives of those loans, which multiplied the effect.
We have 47 million on food stamps, that's about 15% of the whole population. 47% does not pay a penny for tax, now even for those who are luck to have college educations that 40% of the borrowers are not paying back, I'm just wondering, where will the money come from to fill up the holes?
Adding on the military expense etc, the country is so totally financially broken. How sad.
That's not actually true. The (mostly) correct version is that 40-some percent of the adult US population does not pay federal income tax. The number of "working age Americans" who actually pay no net federal taxes is actually less than 5%: http://zfacts.com/47-percent
When you factor in state taxes the number drops even farther. Include sales taxes, and it's probably zero. Saying that "almost half don't pay federal income tax" is still striking, but should be kept in context.
My impression as someone who went to a large public state school for undergrad, and an expensive private for grad...
Most undergrads (more than 50% less than 80%) spend 4 years doing enough to get by, and do a lot of socializing. This is cheap at in state publics, expensive otherwise. The people who get in-demand majors are fine no matter what. Those with other majors who really apply themselves need grad school and more debt to break out.
An English major at Yale or an in state school is fine. The Yale student will manage no matter what. The in state person got off cheap. Everyone else he an expensive lesson in literature.
Despite that, life in most fields is much tougher without he degree.
The guidance counselors are partially wrong in suggesting loans for overpriced schools. They are also wrong for suggesting soft majors at mediocre schools.
For a really interesting take on student debt, read commentary by the financial historian, Russell Napier, such as this: http://moneyweek.com/russell-napier-give-everybody-in-china-...
He believes that deflation is coming (along with a recession) and the solution to deflation will not be monetary stimulus (negative interest rates or bond-buying), but rather political. First on his expected list of measures is a write-off of student debt in the US, to help reflate the economy :)
I wonder if there is any school that shows students how much money they are expected to earn after graduation for their selected major, compared to the amount of debt they will have. I work with several people who have large amounts of student debt, but when I ask about their studies at college, the average income for their degrees pale in comparison to any salary they might ever earn that will help them conquer that debt. I think students should be made aware of a cost benefit analysis for their chosen majors.
That is a sad state of affairs, though I must say I have seen worse numbers back in India. Last time I talked with them, I was told that I was one of the 3 active accounts out of 20 granted ones that was repaying the loan.
That's 17 out of 20 in default - a massive 85%. Some of them were actually not in a situation where they could pay back the loan. Others didn't want to. This was the situation at that single bank branch. Don't want to imagine how large the total default amount must be.
Highly varies by the program and university. When I started my graduation program in 2013, higher education from good universities in India would have had a fees of around 20k to 30K USD, or even more.
Of course, graduating from a good university here meant a lot more fees.
Unfortunately, and it is something that I really hate is that, the education loan system in India can really use an update - at least in terms of the loan amount that is offered to prospective students. As the bankers told me, there is a limit of roughly 25K USD that can be allowed for education within India. For those who want to get the loan for international programs, the limit is roughly 33K USD.
Now, for local education, that is a decent amount, though might not be sufficient in many cases. For international education, it is NOT sufficient. This restriction applies to government banks and they usually follow it.
Private banks have made a lucrative business out of this, and offer much larger loans to students at nasty, and often floating, interest rates (17% or so would be average.)
That becomes a hell of a loan to pay back even if you are earning in USD and returning in INR.
Depends upon the university, if it is publicly funded or not. Tuition for private universities ranges from $1000-$10000 per year. Public universities - Less than $1000 per year, in many cases no tuition.
it's these 'for profit college' they have to go. i suspect most are total trash. also - with all these coding bootcamps popping up nowdays, im not sure if people are able to get govt student loans for these or what but it sounds like trouble. ppl are desperate to jump on the coding gold rush and the great salaries and job market. ppl are going to get fucked over big time.
first time i saw this[0] all kinds of warning bells went off. im sure there is a way forward so that people can learn and share the value created from software development job market but i think we should move fwd carefully. ppl will definitely get fd over.
but yea most of those 'for-profit' colleges are totally shady.
do they have everest college in the US? perfect example of this kind of bs. in canada they got shut down, but not before screwing over tons of people out of their money for years[1].
At least the coding bootcamps are subject to market pressures that keep tuition (and subject matter) within the realm of economic reality. The fact that guaranteed subsidized loans are not available for them is probably of massive benefit.
I this comes out of the flawed meme of private enterprise efficient/gov't inefficient. Thought it's true in some areas, in the area of funding education in society, it's terrible.
The loans push money to unsophisticated buyers (kids and their parents), who use it to make a huge amorphous transaction which is only performed once in their lives and plays out over years. There's insufficient buyer information to provide price discrimination for the asset being purchased - so it's just inflating college prices.
On the other hand, if we took the same amount of money and goverments directly funded public schools - there's a lot of attention over time and many transactions that can be administered by a gov't department to provide funding discrimination and control over the quality of what is provided. (BTW this is how many low cost public schools were funded in the boomer generation... at least in California)
Edit: BTW, Does any reader here know of any interesting economic theory on how to predict if a market will act efficiently? I'm imagining there must be some way to model the structure of a given market with information, quality and quantity of transactions between nodes representing persons/companies/institutions in a market.
That strategy seems to work for Year 1, but what happens when (a) universities expand to cover this newly created demand, thus requiring larger budgets, (b) people enroll only to find out that the classes they are interested in are full?
"When it comes to college, the central challenge for most Americans in the 21st century is not going; it’s finishing. Thirty-five million Americans now have some college experience but no degree. More Americans than live in Texas, in other words, have spent enough time at college to glimpse the promised land—but not enough to reap the financial bounty. Some are worse off than if they’d never enrolled at all, carrying tens of thousands of dollars in debt, not to mention the scar tissue of regret and self-doubt.
President Obama’s recent proposal to have the federal government and states pay for two years of community college is elegantly simple, and would surely prompt more students to enroll. But community college is already close to free for most low-income students, and still only 4 percent of all community-college students earn a two-year degree in two years. (Yes, 4 percent.) Money is just part of the problem."
Community colleges are, in many places, already straining at their capacity. I know a large number of people that I graduated high school with who got sort of bait-and-switched by the local community colleges - they enrolled in a program, then it turned out that there weren't enough slots in that program, so the community college said, "Here, take your core classes this semester, we'll fit you in next time." Then next semester, the classes they needed to take the previous time aren't offered, so they do more useless "core" classes.
Maybe the second year they get into some of their original program courses, but now they are slated for at least a third year, because they can't take their 2nd year fall courses (in their 2nd year), before they take the 1st year fall and spring courses they got squeezed out of.
I think with that proposal that you're rerouting the money for two years, but keep the same fundamental economic problem of buyers trying to be efficient at selecting what asset to purchase when they only do it a very few times in their life.
Let's put it this way: I give to $5 to go buy a coffee for (and or some other drink if you're not a coffee drinker) - chances are you'll decent value on that cup of coffee. Now, I give you $5M and say go buy a yacht. And oh, no longer than a three hour tour and you have to live on the yacht for the next thirty years... What are the chances that you'll get good value on that yacht? And if the yacht industry is flooded with buyers in your position - what is the chance that the industry will be particularly efficient at providing value to their customers?
I also noticed while doing taxes that if I borrow money, I'm going to pay interest on that money I borrow. One of the incentives to this self investment is that I can deduct the interest that I pay.
However, apparently, if your salary is above a certain threshold, you don't qualify for education deductions and credits.
It's a first world problem, I know, but I just found out and it kind of sucked.
You can only deduct 2,500 dollars of student loan interest (Hilariously, even if you're married this doesn't go up. My spouse has no student loans, but I still can only deduct 2,500 filing jointly). When I went back to school to finish my degree I put my loans into deferment, so now I am paying a bunch of interest back.
Seems like a shitty situation. Before I got my degree I was making less than a third of what I make now, even though I worked more and got paid overtime. That was at a job I had worked at for five years and was likely maxed out of earning potential in that industry. I made little enough to have almost no federal tax burden. By providing loans the government has essentially turned a tax burden into a revenue generator. In just two years I am making this much more money, paying a bunch more in taxes, and my lifetime earning potential has increased significantly. But they still try to screw you from both ends, of course.
The same thing happened to me. I think they phase you out of the student loan interest deduction after you pass $65,000 taxable income. I'm actually going to increase my 401k contribution to try to retain more of that deduction.
This converts receivables into cash by selling them a third party at a discount. This doesn't prevent the educational institutions from getting their cash.
The Department of Education sold my loan to a private company within a year or so of graduation. No rate change or anything, I just started logging in on a different web site to pay. Same thing with my wife and with many people I know.
My understanding is that the Department of Education was never servicing your load, they contract that out from the beginning. If your load gets transferred. It happens because one of their contractors "goes away" and all the loans that contractor was servicing need to be transferred to another contractor.
I wouldn't buzz in on Jeopardy with that answer, though.
My mortgage has been sold at least 4 times since I got it about 3 years ago. Each time, I get a letter from the old company and the new company. Hopefully, that's what happened here.
That doesn't make the problem any less worrisome. Factoring assumes that the company paying for an invoice will have the means to pay off the service rendered eventually (on a net 30/60/90 basis usually). Factoring helps to free up cashflow for the receiver, not necessarily guarantee that a remittance be satisfied. If the core value were the latter, the premiums go up so high that it's not really financially viable for most businesses to use factoring against their receivables. The problem with student debt is default, not cash flow.
Further, the problem isn't the educational institution getting paid, it's the lender (in this case the government, and thus the taxpayers) who lent out money to people without any historical context of their ability to pay off a loan. Hence the quote:
“On what planet does a financing vehicle with those kinds of terms and those kinds of performance metrics make sense,” he said.
Here is an interesting comment on reddit in response to someone asking how they could profit from a mass student loan default scenario:
You bring up a really interesting point, my buddies and I have been mulling this over.
Three important distinctions between student loans and mortgages:
Mortgages are backed by an underlying asset (the house) for which there is a liquid market and transparent price discovery, so it's easy to determine when the borrower's position is insolvent (i.e.; loan balance > home value; negative equity)
For many student loans, the Federal government assumes the risk of default; also, Sallie Mae dominates the secondary market, and shorting them entails political risk (you're betting against a bailout)
While painful, defaulting on a mortgage is a realistic option for borrowers: declare bankruptcy, give up the house keys to the bank, have shitty credit for 7 years, and you're out from under it; by contrast, student loans survive bankruptcy (and the principal keeps growing)
Student loans are far more insidious precisely because it is difficult for the market to take a natural short position and put downward pressure on prices. What would a bubble 'pop' look like? For housing, the slow-down/decline in home prices simultaneously bankrupted hundreds of thousands of over-leveraged owners.
It's hard to imagine a scenario where a significant portion of student loan borrowers simultaneously stop paying, and even if they did the loan owner can chase them through bankruptcy and garnish their wages. That looks like a recipe for a long, slow, toxic drag on the economy.
This is a bad situation that's going to get worth. Student aid is great and all but I see a lot of people with useless degrees. If someone can expect to make $35k/year after graduation they shouldn't be able to borrow $200k to get there, it just doesn't make sense.
Shamelessly copying a comment by /u/MasterCookSwag on reddit:
THIS is the major piece everyone misses. Mortgages were such a disaster because banks held the debt securities thinking they were safe assets and they weren't. This caused a chain reaction of devaluation of balance sheet assets and paper losses which resulted in the collapse of some major institutions. It then caused credit to dry up so businesses couldn't borrow and a crisis of confidence in the fundamentals of the economy.
Student debt won't do any of these things because the underlying structure is not even remotely similar. What student debt will do is represent a long term suck on the taxpayer both directly(through payments) and indirectly(through defaults). This will result in a drag on GDP. There is no way to short this and there won't be a collapse. That doesn't make it not a bad thing.
This isn't a strong argument to me. Student debt might not be collateralized the same way mortgages are (i.e. there's no house to repossess), but student debt is still an asset on a bank's book. If anything, student debt default seems to me more troublesome, as defaulted debt without collateral is more damaging to a balance sheet than debt with collateral.
I think you are missing that the many (most?) student loans in the US are either made by the government (post-2010 direct loans) or are guaranteed by the government (pre-2010 guaranteed loans):
If the student defaults on a direct loan, the government is the one not being paid. If the student defaults on a guaranteed loan, the government pays the loan holder. Everyone wins! Except the for the credit blemished student and the US taxpayer, that is.
I was just thinking the other day, that it would be logical for there to exist something like a mortgage-backed security for student debt. Call it a millenial-backed security. You'd bundle up a bunch of student student loans into a security, then sell shares, paying out the interest as dividends. It'd be like 2007 all over again! What could possibly go wrong?
In a sense, I suppose that's not much different than buying stock in a bank that's heavily invested in student loans. You can invest in or short those as you see fit.
First of all, I think it demonstrates that American university tuition is way too high. So much of that money goes toward things like sports teams, climbing walls, emotional support dogs, and other things that just don't have to be a part of the college experience. American universities have an unbelievable amount of staff that isn't about education or research.
The thing is, there's little incentive for universities to cut back, because no matter what they charge, they have willing customers. And those customers aren't paying the bills -- not at the time of purchase, and perhaps never at all (as this article states).
Secondly, the notion of work -- not work-study programs, but real work -- should probably become more prominent among US students. In Israel, where I now live, most students work at part-time jobs, and juggle both work and school. It's not ideal, especially since many of them also have families, but it does help to keep debts relatively low.
Thirdly, I think that it's too easy to take out loans. I took out loans for my undergraduate degree, and was fortunate to pay them back within a few years of graduating. I then took out loans for my PhD, and while I've been managing to pay them back faster than expected, no one ever asked me at the time, "Are you sure you'll be able to pay these back?" A bit of discussion at the time of taking out loans, and looking at options, or even giving financial counseling, might have helped me or others to take out less.
Finally, the notion that you cannot ever get rid of your government-sponsored tuition loans is crazy. I'm not saying that people should declare bankruptcy at the drop of a hat, or that there shouldn't be consequences. But people have issues, and excluding student loans from bankruptcy -- which is intended to give people a new start -- seems extremely unfair to the people who need this tool most of all.
No wonder people are just not paying their loans back; if declaring bankruptcy isn't an option, and they can't pay, then they'll just not pay.
> So much of that money goes toward things like sports teams, climbing walls, emotional support dogs, and other things that just don't have to be a part of the college experience.
Just to nit-pick (I agree with everything else), but athletic department finances are usually separate from the rest of the university, at least in D1 sports. And, having a good football or basketball team will increase applications and enrollment (e.g. see the 2nd sentence in http://www.northwestern.edu/newscenter/stories/2005/02/appli...). I think the thought is that if a university doesn't have these amenities, their enrollment will decrease and be lost to those that do. It is a vicious cycle.
FYI Student loans are federally guaranteed. The original lender does not loose money. If default occurs, the tax-payer pays them off. The debt is then sold by the government to credit collectors at a discount, who can seek the entire principle, plus interest, plus steep fees. So the typical defaulted student loan, if ever paid back, procures two to three times the original cost of school. Consequently, the student has no credit, so it is basically impossible for them to fully function in our highly debt-oriented society. This includes not being able to go back to school to finish their education if it not yet complete.
Meanwhile $200 billion is the cost of two-months in Iraq.
Wondering if it would help at all if the parents saved up enough for each kid to fully fund their private college, and then when the kid hits high school tell them - when you graduate, you'll get $50k/yr towards your college. If you go to a private school it will cover it, but not leave much. If you go to a good public school, the extra $20k/yr is yours. If you get a full ride scholarship, the $50k/yr is all yours. Would that work? I'm assuming for some it would.
>> If you get a full ride scholarship, the $50k/yr is all yours. Would that work? I'm assuming for some it would.
Bitter personal experience taught me using extrinsic motivation destroys intrinsic motivation.
The kid will get that scholarship to pocket the $50k/yr. But then the kid won't be motivated to do much more than that afterwards. Now all he or she's thinking is how fast they can spend the $50k.
People with the means of fully funding their kids' private educations (even if they've "saved up") don't tend to have student loan defaults by definition, so I don't see how that's even relevant. If even a plurality of parents in America could afford to do that, we'd live in a different world.
Everyone in my generation is split, those who went to college and now are paying off ridiculous debt, those who have rich parents, and those who are trying to make it on their own. College does give you a step up, but its really screwed a lot of people. Those of us who just want to learn but don't want to be saddled with debt have to make due outside of our 'institutions' of learning, which is too expensive to consider when you already have an OK job.
Unable to read due to a pay wall. Anyways, I wonder if there is a breakdown somewhere of the amount of debt and by schools. It be interesting to look at.
Would love to know why I was downvoted for pointing out what seem to be very real differences in the circumstances and asking for some backup in the form of data as to why this will lead to the disaster that the parent stated without supporting facts.
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I'm not sure they are equatable.
- Don't pay your mortgage, lose your house. This partly caused some of the panic that made a lot of people try to sell when they couldn't make payments. Don't pay your student loans...give back your knowledge? If I recall correctly declaring bankruptcy won't get rid of these loans, but it isn't like people are on the streets.
- A big factor in the mortgage crisis was how these bad loans were packaged into all number of convoluted and intentionally misleading securities products, and then dumped on the public markets where they became a large part of the portfolios of Main St. and Wall St. investors. Are there similar securities products around college loans, and is there data that suggests that repayment issues with them could have anywhere near the same impact?
I'm genuinely curious for some data on this. It ultimately looks like the ones left holding the bag would be the government (not good, but they have more flexibility in how they deal with things that doesn't necessarily tank the economy) and other loan institutions/banks. I don't think anyone will shed a tear if the banks get hurt as long as it doesn't cripple the economy, which again, it doesn't sound like it would.
It will be interesting to see if this creates economic migrants. When I was traveling to China regularly, I met a few Americans fleeing debt. They didn't have much to lose if it turned out to be a bad idea. The plan was typically to teach English in a 2nd tier city where visa enforcement might be lax.
Some universities have, and this surprised me, a ratio of student to employee 1:1 On top of that you have the upkeep, all the program costs facilities costs are insane. This is not sustainable. It simply cannot work when many people haven't seen a legitimate increase in their wages for years.
1. College is useful for education.
2. College is useful for meeting people.
3. Most of the time and money spent attending college is used to meet people, and very little on education.
Let's just admit those three facts, and then we can start to have sane policy discussions.
And people still say there's no higher education loan bubble.
I suppose it's the same logic that argues the U.S. Federal government can never become insolvent (as it's the world's reserve currency and can simply print money to pay off it's debts).
It certainly seems likely to break many of the private-but-not-elite schools as more students choose state schools. Many seem to cost just as much, if not more, then the ivies.
“Tuition is up 1,200 percent in 30 years. Here's why you're unemployed, crushed by debt -- and no one is helping:
“Reading back over journalistic accounts of the tuition spiral from the ’80s and ’90s, you get the impression that all concerned felt it was a wee bit uncouth to dig too deeply into a university’s pricing practices or suspect the sachems of higher learning who presided over them of anything inappropriate. These were the journalists’s beloved alma maters, after all: surely they had our best interests at heart. …
“And so, beginning in the ’80s, university administrators, their words dutifully transcribed by journalists, blamed utility bills for soaring tuition. They blamed libraries, which made a certain amount of sense until libraries went dramatically out of fashion in the Internet age—and yet still tuition prices went up.
“They blamed professors, of course, since professors are the most visible part of a university and because it’s easy to hate professors … until the outside world figured out that universities were actually using graduate students and adjuncts to teach their courses and yet still tuition prices were mounting at an insane clip.
“Administrators also blamed tuition inflation on onerous government regulations … On society … on declining student population …
“Unlike tenured faculty, university administrations actually have grown by 369 percent since the mid-1970s. … But blaming administrators proved difficult for journalists, perhaps because administrators were the very people journalists had been going to for explanations in their tuition-outrage stories. Could their sources actually be the culprits? No way. And so, less than a year after the Inquirer’s series appeared, USA Today ran its own big tuition-shock tale in which the blame was pinned on all the familiar blame-objects: Professors, student demands, technology, gummint regulation. A 1997 cover story in Time magazine—‘How Colleges Are Gouging U,’ the illustration shouted—barely mentioned administrators at all.
“What were journalists to do after ringing the alarm bells for so many years without effect? Well, there was one easy answer to this frustrating situation: To discover that there wasn’t really any problem in the first place. That the tuition spiral was entirely reasonable, even if no one could actually explain it. How so? Well, if you examine what has come to be called the 'college wage premium'—the difference between what is earned by college grads and high school grads—it becomes clear that someone who finishes four years at a university will eventually earn far more than they spent to go there, even at the crazy tuition prices of recent decades. Today this is a universal way of considering the situation, always leading us to conclude that going to college is 'worth it'; that it is a 'bargain'; that it 'pays off.' But it only seemed to enter journalists’ consciousness in the 1990s, as on the occasion when Gaston Caperton, president of the College Board, explained matters thusly to the Los Angeles Times in 1999:
“He said there has been too much focus on the cost of college and too little on the lifetime returns for four years of investment. Because a college graduate today earns about twice as much as a worker with only a high school diploma, he said, ‘a college education is worth about $1 million over a lifetime.’
“The mind reels when confronted with this kind of smugness. One wonders: Is there some identifiable aspect of a college education that yields that million dollar prize—exposure to advanced literary theory, for example? Is there a way to isolate that particular 24-carat nugget and leave the dross behind—all the plush dorm carpeting and the many layers of assistant deans? My guess, though, is that Caperton’s statement meant exactly the opposite of this—that there was no need to inquire any further about the tuition outrage. What it implied, by extension, was that since we now know the final value of a college degree (one million dollars!), the colleges can simply keep raising tuition prices and student indebtedness until they have extracted that amount from their graduates—and only after they have hit that figure will we have cause to complain.”
At least part of the problem, in my opinion, is that youth receive basically zero "financial education" in high school.
My girlfriend is 21 years old and just a couple of years out of high school. I can only recall being taught the basics myself: how to make a budget, balance a checkbook, etc. She apparently did not even receive that.
I'm much older than her (37) and, while I'm certainly not "rich" by any means, I'm financially stable and everything I own is completely paid for (ironically, my only remaining debt is my student loans).
She has only recently became interested in the basics of financial matters, such as her credit report and credit score, how loans and credit cards work, etc. Initially, I was amazed at her lack of knowledge in this area. It's not that she's dumb or stupid, she was just never taught anything about finances. She is, fortunately, relatively mature for her age and manages her money well. She has worked since she was first able to and has maintained steady employment and, for some reason, lately acquired an interest in her credit score and increasing it (although it's actually pretty decent for her age).
So we've recently started working on her credit history which, of course, was completely non-existent until she took out a small loan from her credit union for a cheap, used vehicle (with her father as a co-signer) about a year ago. She shops at Victoria's Secret often, so we got her a store credit card from there with a small ($500) credit limit to help her started. I've explained how credit utilization, payment history, etc. factors into her score, so she'll put her purchases (always < $100 for a statement period) on her card and then pay it off in full every month and I've been looking around recently for a good "starter" credit card for her to get. I've considered adding her as an authorized user to one of my high-limit Amex cards (to give her utilization, payment history, and average age of accounts a little boost) but I've read recently that nowadays those accounts don't get reported to an AU's credit report (although AmEx does ask for SSN and DOB when adding an AU so maybe they still do).
She completed a vocational program in high school and is already a licensed cosmetologist; we've talked a bit about whether she'll go to college or not (she's already somewhat "behind", in that she didn't go straight to college after high school) but not how it will be funded if she does. If or when that time comes, I'm glad that I'll be around to help her come up with a plan that won't require her to spend the next 20 years paying for it. I can easily see how a typical 18-year-old about to go off to college just blindly signs up for student loans without any true understanding of just what they're committing to financially and without any idea of how long after they complete their education that it will continue to them.
TL;DR: I got kinda sidetracked there for a minute but my point was that today's high school students receive nearly zero financial education or guidance before heading off to college. I am not surprised at all by the facts and figures detailed in this article.
We really need to educate students potentially starting college that they shouldn't major in something that pretty much has no chance of ever paying it back. This applies to most liberal arts programs.
A college education is a major investment. It's sad that culturally, our financial education is this poor.
I majored in a science and had all of my debts paid off within 5 years. I have friends that majored in things like history and still haven't paid their debts off after 10 years.
The popular thing to to is blame society, the university, or even high school teachers for recommending someone go to college. But, students need to take personal responsibility for taking out a loan and being unable to pay it back.
When this happens, we will have less students making foolish decisions.
Education on the individual level just doesn't work. People are too dumb. (I had the pleasure of rereading this recently: http://www.overcomingbias.com/2009/07/stupider-than-you-real...) Those that aren't too dumb lack personal responsibility, which is a separate problem I fully agree is pretty big, so more education might fix that, but that's sort of something you can't learn from a book, and arguably the game of chicken at teaching responsibility by making it illegal to discharge student loans in bankruptcy has just made things worse.
The solutions I think have the best shot are those that involve authoritarian decrees one way or another (that is, going full free-market or going full nationalized colleges), but that requires a government with an actual interest in governing.
"Education on the individual level just doesn't work. People are too dumb."
Honestly, If this is the case, drugs should never be fully legalized. People just can't handle the responsibility. Will addiction be the fault of the company that sold it to you?
"and arguably the game of chicken at teaching responsibility by making it illegal to discharge student loans in bankruptcy has just made things worse."
It hasn't really made things worse. If it wasn't illegal to discharge loans, students would know full well that they most likely would never have to pay it back and just declare bankruptcy when they graduated. That would be a much worse situation for our economy. On top of this, banks would never even take on these loans knowing full well that they would probably never get their money back.
The student debt problem has been bad for at least a decade. Students continue to knowingly put themselves in this position and then cry afoul when they can't pay the debt back. Lack of knowledge is no longer an excuse. Anybody with half a brain and an Internet connection can clearly see the risks (and nearly everyone now is connected to the Internet 24/7 through their phone).
I see it more as a millennial problem: the culture is to no longer take responsibilities for your own actions and blame others for all of your failures.
"full nationalized colleges"
I can't see this working out with the current climate, unless it completely ruins the intent of a university.
Fully national colleges aren't based on money any longer, they are based on making the grade. IE: if you can't pass the entrance exams, you won't get into school (as seen in pretty much any country with nationalized universities).
The system we have setup now was a response to people complaining that not everyone has a chance to go to school (back in the 50s, college was a luxury only the wealthy could afford). Now that pretty much everyone does have a chance, there are further complaints that some people made an irresponsible decision. You can't force someone to major in something that will make the ma decent living.
When I was in college, I met many people that really had no business being there (didn't care, didn't put the effort in, or just couldn't handle any of the subjects). With the dumbing down of the SATs and many other measures to make it easier to get into school not based on academics, it seems we are well on our way to ruining our institutions. The ultimate form of anti-intellectualism.
You don't even know what you're talking about. Just about every sentence you wrote has some misconception in it.
> Honestly, If this is the case, drugs should never be fully legalized. People just can't handle the responsibility. Will addiction be the fault of the company that sold it to you?
Clearly people can't handle that responsibility. That's why we have alcoholic and tobacco quitting programs and taxation to fund those programs along with education and educational advertising. It's done wonders to get people to quit.
> It hasn't really made things worse. If it wasn't illegal to discharge loans, students would know full well that they most likely would never have to pay it back and just declare bankruptcy when they graduated. That would be a much worse situation for our economy. On top of this, banks would never even take on these loans knowing full well that they would probably never get their money back.
Why is that? It never hurt the economy before. Banks stop giving out loans to uneducated idiots with no care in the world and no intention or ability to be able to pay it back? Banks not giving out loans for schools that couldn't even teach a monkey to do tricks? Oh the horror!
> The student debt problem has been bad for at least a decade. Students continue to knowingly put themselves in this position and then cry afoul when they can't pay the debt back. Lack of knowledge is no longer an excuse. Anybody with half a brain and an Internet connection can clearly see the risks (and nearly everyone now is connected to the Internet 24/7 through their phone).
A decade? You mean the exact amount of time all student (federally or otherwise) loans have been unforgivable? It's precisely why colleges no longer care to educate, and instead scam kids of every dime they have. In every angle, they get scammed, from student apartments (in my town, a shocking 2x the normal cost of a single bedroom apartment), to book stores, where you can't buy your books online with your own loan until after classes start, unless you buy them from the book store at 3 times the Amazon cost, to the classes themselves. These, by the way, are young kids who have no experience, and are told by the grownups who educate them that this is some kind of great deal for them. If course they keep getting scammed, it's a fresh batch every year!
> I see it more as a millennial problem: the culture is to no longer take responsibilities for your own actions and blame others for all of your failures.
It's too bad it's the 40+ year olds that have done all this scamming on their younger generation.
> I can't see this working out with the current climate, unless it completely ruins the intent of a university.
Yes, the conservative christian climate.
> When I was in college, I met many people that really had no business being there (didn't care, didn't put the effort in, or just couldn't handle any of the subjects). With the dumbing down of the SATs and many other measures to make it easier to get into school not based on academics, it seems we are well on our way to ruining our institutions. The ultimate form of anti-intellectualism.
This is entirely caused by the student loan situation and all the parents/teachers stressing their kids to go.
What have I told my son? that student loans are a real form of slavery, and to not take them for any reason. Either pay your own way or don't bother going. If you do go, you'll probably get ripped off unless you go for an engineering, lawyer, or doctor degree.
I majored in history at UNC and paid off my $26,000 in student loans with my first commission check from my first sales job.
One's major and even one's skills are not an accurate predictor of ability to pay back loans. It is entirely a question of persuading other people to pay you lots of money quickly, and the requisite amount of luck it takes to find such a person quickly.
No, we need to change the structure of education. There's zero reason to spend 4 years taking general ed courses at the same cost to pursue a history degree as you would spent pursuing a science degree. Stop focusing on the lettered degrees which are supposed to prove "overall knowledge" and then a specialty, and let people take courses a la carte when it comes to professional preparation.
We need people to be knowledgeable in things like history, the arts, languages, even archaeology - things that pay almost nothing as careers. It's very easy to sit on a high horse with a well paying job in a STEM field and say things like you're saying. Actively discouraging people from pursuing study is not the answer. Changing the program and the institutionalization of education is. We need to stop worrying about how to pay for a program and start worrying about why the program is what it is.
Honestly it kind of reminds me of the whole Yelp minimum wage thing. Person knowingly takes a minimum wage job in the most expensive city in the world and is surprised a year later when that wasn't very much money and they're struggling. The simplest cost of living calculations would have said "moving to that city and taking that job is a really bad idea."
This isn't to say that there aren't things that need to change. Education reform is necessary as well as a living wage, but I'd also argue that basic financial literacy is also a requirement for being an adult and should be treated as such.