Student Debt in the U.S.

[Shindig]

I'm happy about the fact that I still have student loans.  The amount due is small (I worked when in school and only took out the loans I needed;  I also had some luck in the form of a scholarship one year, and work allowed me to not take on any student debt while in graduate school) and the interest rate is lower than the expected inflation.  By signing up for auto-pay each month and agreeing to pay $100/month (the monthly interest accumulation is small, so a lot of this goes to repay the loan itself), the interest rate is lowered a little bit on top of this.  I could write a check and pay it off today, but I'm not averse to holding productive debt.  I hold some bonds that pay more in interest than I'm paying for my loans.  Either way, I'll accidentally pay it off in the next few years, well ahead of the loan agreement. 

I also think most of the discussion of student debt issues focuses on the wrong part -- are the affected individuals better or worse with the loans than they'd be without them?  It isn't what their current income, without having to pay the debt, would be, but what their income would be without the education the debt paid for (and, similarly, without the debt).  Maybe it's that most of the people I talk to about this were METS majors, so I see them as better off with both the education and the debt than with neither.  

I also wonder whenever I see statistics about the total student debt presented in terms of absolute numbers what the right number is.   Erik's article says the average debt is $28,000 per borrower - - that doesn't sound so bad, especially if it includes people like deadbeat number three who borrowed six figures to go to film school and has his oh-so-edgy "I don't like America" thing.  Hard to feel sorry for someone like that.  The next one, Zoe, can complain about how she got a D in a class and lost her scholarship, but that money doesn't disappear:  the foundation can still sponsor a student, maybe one who is going to make better use of it.  Most of us don't want to pay for someone to go to school (except maybe a relative) if they aren't getting good grades.

(it's like the big deal made a few months ago about how much water a particular agricultural crop used, presented as an absolute, without comparison to other uses of the land, including other agricultural crops.  It was hard to tell if the amount used was a bad thing or a good thing)

I also wonder how much of that debt is for professional degrees that probably lead to a boost in income.  A large fraction of the total student loan debt might be productive debt for both the borrowers and society as a whole.

25 minutes ago, imsys0042 said:

However much like the mortgage companies, student loan companies decided to monetize as much as possible and they lobbied Congress to not allow these loans to be discharged from bankruptcy.   Clearing not putting students first.

How would someone be able to borrow money for school if student loans were able to be discharged in bankruptcy?  Unlike a mortgage, or a car loan, or even credit card debt, there's not anything to repossess.  You can't take back the knowledge and the people who would likely default probably aren't using their degrees, so it's not like you can put a hold on that.   Furthermore, most of the students taking loans won't have assets a creditor would go after.  You'd end up limiting it to people whose parents have assets, which is probably the opposite of what we want to achieve.

56 minutes ago, jamo said:

(It's really like 10 years or so. 10 years during which I'd instead love to be actually saving money, as any financial advisor would tell a 20-something with a full-time job to do. Fat chance of that happening.)

Debt repayment is a form of saving money.  It doesn't get you something immediately shiny, like a house, or look as nice as a good sum in a 401(k). but it does get you ahead financially.  

[Mr. Desmond]

2 minutes ago, Shindig said:

 

Debt repayment is a form of saving money.  It doesn't get you something immediately shiny, like a house, or look as nice as a good sum in a 401(k). but it does get you ahead financially.  

Depends on the job market, changes in the law, and the economy. Sometimes, it doesn't get you ahead financially.

[dkolo]

The underlying cause is relatively straightforward: student loans are non-dischargeable in bankruptcy (with extremely narrow and limited exceptions. This creates a huge problem in the education industry. When loan companies know the debt won't get eliminated in bankruptcy, it eliminates any incentive to scrutinize the worthiness behind the loans, so everyone gets access to a massive amount of money without any consideration on anyone's part of whether it's a sound investment. Now the schools see that students will get loans for their tuition, whatever it is, and since the loans are based on tuition as opposed to a fixed number (Stafford loans are capped, but private loans go up to the level of tuition and certain expenses), they have every incentive to raise prices. This is what leads to the extravagant student unions and myriad extracurricular activities. So they keep raising tuition and so does the entire industry because no one really competes on tuition on a large scale. The result is students end up saddled with massive debt on overpriced tuition that they can't get rid of and may not be in a position to repay. 

The solution is to turn off the money spigot. Making loans dischargeable in bankruptcy would force loan originators to run calculations on how much money they can reasonably loan someone at this particular college. It forces the colleges to keep their tuitions competitive and reasonable, as well as incentives them to be more proactive in working on getting their students placed into jobs after graduation. Does this mean some people would have a harder time getting loans? Absolutely. But the industry as a whole needs a massive market correction with respect to how it operates because the current situation is untenable and massively unfair for kids going into it relatively blind. 

[turtleback]

3 hours ago, iacas said:

http://www.vice.com/read/talking-to-american-debt-dodgers-who-moved-to-europe-to-avoid-paying-off-their-student-loans-111

So, the debt problem is getting bad, and some people are moving to Europe to dodge their educational debts.

I had student loans, but paid them off years ago when I re-financed the mortgage on my house, which (except for a 0% interest loan on a car), is the only debt we carry. And it'll be paid off ahead of schedule, and is financed at a pretty darn good rate itself.

Well than obviously a responsible person like you is just the one we can look to to pay off the bills of the irresponsible ones with your taxes.

The best way to make sure that people behave responsibly is to shield them from the effects of their irresponsibility.  Right?

[Mr. Desmond]

@dkolo

I could see the government paying off parts of the loan for public service; and

I could see a limitation on the amount that bankruptcy could not discharge - so if that amount was $75k, you'd probably see loans capped at $75k, and then additional loans given with security or parent guarantees.

[dkolo]

12 minutes ago, Mr. Desmond said:

@dkolo

I could see the government paying off parts of the loan for public service; and

I could see a limitation on the amount that bankruptcy could not discharge - so if that amount was $75k, you'd probably see loans capped at $75k, and then additional loans given with security or parent guarantees.

Maybe. On the one hand, a blind cutoff isn't the worst idea, but on the other I would like to put more responsibility on lenders to actually analyze where they're sending money to do a risk analysis. It would incentivize the lenders to lend more carefully and force schools to justify the soundness of the investment to the lenders. Capping the loans doesn't really force lenders to do that kind of analysis. 

[Mr. Desmond]

2 minutes ago, dkolo said:

Maybe. On the one hand, a blind cutoff isn't the worst idea, but on the other I would like to put more responsibility on lenders to actually analyze where they're sending money to do a risk analysis. It would incentivize the lenders to lend more carefully and force schools to justify the soundness of the investment to the lenders. Capping the loans doesn't really force lenders to do that kind of analysis. 

Right - but it's a student. And many students and/or their parents may have no credit or insufficient credit. So do we take away part of their financing of the education which is usually a combo of grants and loans... and say, "no, you can't go to a reputable school to where recruiters find candidates?" I would guess some would struggle through to the top, while others would be beaten down. No easy answers.

Still like the idea of volunteer public service...

[Abu3baid]

This is my only debt.  I just decided to also increase the amount I will pay to try and get it all done in a coupe years.. I still think 3.5% is too much, but I didn't have much choice when I was trying to finance my Education.  

I worked at a pizza place while I went to school and commuted to cut down on the cost.. My parents couldn't help me, so part of my financial planning now is securing the finances for my 3 kids, but I'm not going to give it to them that easily, I want them to work through college because I think it adds a layer of appreciation they might not be able to gain anywhere else.

[dkolo]

37 minutes ago, Mr. Desmond said:

Right - but it's a student. And many students and/or their parents may have no credit or insufficient credit. So do we take away part of their financing of the education which is usually a combo of grants and loans... and say, "no, you can't go to a reputable school to where recruiters find candidates?" I would guess some would struggle through to the top, while others would be beaten down. No easy answers.

Still like the idea of volunteer public service...

I understand that, and it's something that'd have to be phased in over the course of probably a decade to allow the market to adjust. But ultimately the lenders would be looking at the investment itself to determining the ROI on a loan. So it's less about what assets the student and family have and more about the institution's track record versus its cost. I think a cap would create even more disparity because it would hurt the poor, soak the middle class, and leave wealthy families status quo. This is because I don't think a cap at the level described (or at any level that strikes a balance between repayability and being useful) would push tuition downwards sufficiently. 

[Shindig]

12 minutes ago, Abu3baid said:

This is my only debt.  I just decided to also increase the amount I will pay to try and get it all done in a coupe years.. I still think 3.5% is too much, but I didn't have much choice when I was trying to finance my Education.  

Why are you in a hurry to pay down such a low-interest debt?   Depending on your income level, that 3.5% might even have a lower effective rate. 

[saevel25]

From 1980 to 2012, college enrollment is up 15-20%. 

17.5 million people attended college in 2013. Only 65% of them finished. That means 6.1 million people will end up with debt and no degree. 

 

 

[Vinsk]

4 hours ago, chspeed said:

Another tough topic that can draw deep political and ethical divides, and has no easy answer.

On the one hand, it's hard to feel sympathy for someone that took a big loan and "really doesn't want to pay it back." And while one can argue that the strength of our financial system lies in enforcing these types of loans, the truth is our government has a long history of bailing out both individuals and corporations when it's deemed fiscally or politically beneficial.

My guess is that if the next administration is democratic, we'll see some kind of relatively small bail-out package passed.

Few can match my level of education debt which I acquired getting my MD. Although I take responsibility for making Assanine decisions, a large portion of my debt ballooned out of control dude to beligerent criminal activity on the lenders behalf. Faulty records, forcing me to start paying back loans while still a full time student are just a few of the ways I was hoodwinked. My loans have been bounced back and fourth among different companies and previous agreements lost and unrecoverable. Unless you have tons of money to spend, finding a lawyer to help with this fiasco is impossible. And the government couldn't care less that these companies frauded us. It's a shame. There's such a push for more primary care physicians but nothing is being done to help us crawl from under the Student Loan Mafia.

[Abu3baid]

9 minutes ago, Shindig said:

Why are you in a hurry to pay down such a low-interest debt?   Depending on your income level, that 3.5% might even have a lower effective rate. 

The only reason I could come up with is I want to be debt free.  I'm not sure it's a good answer, but it's the one I have..  You know what I need?  A good financial planner, but my problem is that I have trust issues when it comes to letting someone else make decisions with my money.  

I also don't take interest on my money, but that's a different discussion.

[saevel25]

I wonder if a decent idea would be to grant a refund program. 

If you go to college for your first year and you decide its not for you. You only owe back 25% of your student loan. If you go for 2 years then it's 50%. If you go for 3 years you owe back 75%. If you go for 4 years or more than its 100%. 

 

[mcanadiens]

It's like a lot of things that the Feds choose to involve themselves in. At first, they handed out a bunch of grants (think GI bill). That created the expectation of college. When the grants went away, the Feds started with the loans. Colleges have basically not had to try to control their costs as a result. 

Market economics say the only way to reduce the cost is to allow demand to drop. Otherwise, it will be just another taxpayer funded item (which I realize some here support).

Personally, I'm lucky enough to have gotten thru my four years before tuition really skyrocketed. As such I'm debt-free. 

[Shindig]

9 minutes ago, Abu3baid said:

The only reason I could come up with is I want to be debt free.  I'm not sure it's a good answer, but it's the one I have..  You know what I need?  A good financial planner, but my problem is that I have trust issues when it comes to letting someone else make decisions with my money.  

I also don't take interest on my money, but that's a different discussion.

Actually, wanting to be debt free is a good answer.   I also agree with having trust issues on financial planning -- there are plenty of people who claim to be financial planners who just want to separate you from your money and put it into inappropriate instruments (I know a number of people who made an appointment with a financial planner, only to find out many high-fee bad products later that the person was an insurance salesman).  Furthermore, if you don't take interest on your money, the approach I suggested earlier would be inappropriate.

[Gunther]

19 minutes ago, saevel25 said:

I wonder if a decent idea would be to grant a refund program. 

If you go to college for your first year and you decide its not for you. You only owe back 25% of your student loan. If you go for 2 years then it's 50%. If you go for 3 years you owe back 75%. If you go for 4 years or more than its 100%. 

 

This makes no sense to me.  If you go for 1 year, you only have 1 year's tuition to pay back.  If you borrow money, you pay it back, period.

[No Mulligans]

56 minutes ago, Shindig said:

Why are you in a hurry to pay down such a low-interest debt?   Depending on your income level, that 3.5% might even have a lower effective rate. 

Paying off that loan is the equivalent of getting a 3.5% return guaranteed.  The closest you can get to a guaranteed return is holding a Treasury Bill to maturity, currently a 10 year Treasury Bill yields only 2.02%.