Student Loan Bubble - Latest Comments

Re: Student Loan Bubble

ageofknowledge — Sat, 07 Apr 2012 13:43:06 -0000

Join the Student Loan Resistance of America: http://www.facebook.com/#!/Stu...

Re: Is student loan forgiveness the answer?

kwikcash — Thu, 22 Mar 2012 07:57:33 -0000

The final benefit of student loans is that they are deferred. This means that as long as you are in school taking a minimum of 6 credits during each semester, you will not need to repay your loans. Once you graduate you are given a grace period of 6 months where you have the ability to find a job that will support your loan repayment. In this way, student loans allow you to focus on what's important: your education.

Re: Student Loan Bubble

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Re: Student Loan Bubble – “As of now, our dreams of owning a home and having a family are gone”

Student — Thu, 08 Dec 2011 15:41:13 -0000

Thanks for sharing, B. For the next generation, we need to make sure our public universities are well-funded, excellent, and affordable by students. For the current generation, bankruptcy reform is the strongest way to cut off predatory student lending.

Re: Is student loan forgiveness the answer?

conativejj — Mon, 24 Oct 2011 18:32:44 -0000

Fair enough Student, here is another issue I see however. How will the forgiveness be treated? Will it be treated like other loans where that amount is considered taxable income for that year? So if the government buys up these loans and refinances them at a lower rate but still requires payment - that's a little different than outright "forgiveness" where the bank writes off the loss (or the government - basically whoever holds the note) and the borrower has to pay taxes on that amount - in a lump sum.

That's a cure that may be worse than the disease for many of these students.

My original proposition under #2 was more along the lines of their academic history would substitute for their lack of credit history. It would add an additional rational step to the borrowing process and place a higher burden on the lending institution as to whether they are willing to lend massive student loans to a student that perhaps hasn't shown he or she is ready for college, or that their choice of school/program won't have a high enough Return on Investment to make it worth the while of the bank to make the loan.

That's not to say that banks should predatorily lend to these students, but even if the idea was they made NO profit at all (like a credit union for example) they still want to know that they will get their original loan amount plus interest back. If I'm going to loan someone $200K to go to school, I want to know that they will complete it and that they will reasonably make enough upon graduation to afford the monthly student loan payments.

In regards to this situation making education largely unaffordable, I agree. If you give someone "free" money with little to no requirements, they will raise their prices because they have a guaranteed stream of income that doesn't immediately impact their customer. The 18 year old doesn't really think about what it means to be $200K in debt 4 years from now, all they think about is they will get $25K a semester for the next four years.

To make college more affordable, we need to think about supply and demand. A couple of suggested steps:

1. Eliminate federally subsidized loans for higher education, phase it out over several years. You can probably keep need based federal grants to an extent, but this will still push up the demand curve raising prices. Of course private scholarships and grants wouldn't be touched at all.

2. Institute my previous #2 proposal above for all other aid.

3. Encourage more employers to hire based on skills and experience rather than education for those positions that don't really require a BA or higher. Receptionists and Secretaries do NOT need a Bachelors Degree in any field.

That last point goes back to my idea that college isn't for everyone. We will always have a class of individuals in this nation not prepared or able to complete the rigours of college. The solution isn't to shoehorn them into a 4 year program they can't complete and get their false hopes up and leave them with a massive debt. You don't need a degree for almost every trade out there and a good majority of service jobs. For these individuals, why don't we encourage them to improve their skills in those specific fields - leaving open the possibility that if they later choose to change fields and go to college that they might be better prepared at 30 than at 18 to handle what is required to complete their degrees?

We can't be a nation of only Doctors, Lawyers, Accountants, Bankers, Network Engineers, Chemical Engineers, Clinical Researchers, etc. We will still need mechanics, plumbers, electricians, janitors, data entry clerks, receptionists, secretaries, retail clerks, grocery store stockers, etc. We shouldn't encourage those people who are going for a job paying $10/hr to get $200K in debt. So again, this goes back to my suggestion #3 - it all starts with the employers.

Re: Is student loan forgiveness the answer?

Student — Mon, 24 Oct 2011 17:03:42 -0000

@ conativejj: Thanks for your comment; it's really thoughtful. On the face of it, this suggestion sounds really responsible:

2. Have the banks that do these student loans treat students like anyone else seeking a loan: you have to have references and collateral. So you have to submit your GPA, test scores, degree program sought, anticipated career when complete, and which school you want to go to.

Here is the conundrum, as I see it. We already know that minors don't have credit histories. I was 17 when I got my first $15k loan. I had to jump through all sorts of hoops to arrange guarantors, which mostly involved my parents and the state government signing on the loan with me. So, while your suggestion would give banks the tools to offer responsible loans, there really aren't many students who could responsibly receive those loans.

The point of my original article is this: banks face no downside for engaging in irresponsible lending. Students cannot default, and the bank is guaranteed their repayment. With no risk to the banks, there is no reason to not engage in predatory lending, and we have seen students (stupidly) accept private, variable rate loans to finance their education. These loans are dumb for the student but good for the bank.

However, as the housing bubble has demonstrated, it is not good enough to say, "this is a matter of personal responsibility; let them be damned." The reason we can't do that (even though it feels like the right thing to do) is that opportunists capitalized on the housing bubble, and made the bulk of us honest people suffer unnecessarily. We cannot permit a situation like this to dupe a generation of naive minors (by which I mean, "people under 18").

So, the threat of forgiveness is enough to force banks to consider a downside. Currently, there is none.

All of this is beside the point, however. What I truly advocate for is diverting government funds into state university systems. I strongly disagree with your quip that college isn't for everyone. That's mostly wrong. Anyone with the brain needs to go to school. The US isn't the same industrial power it once was. We need to invest in a generation of knowledge workers, and we are already publicly spending so much money to underwrite private loans for financing education; I simply suggest spending that same money to improve our state universities to make them affordable again.

The vision is to create an affordable, high-quality state university system where students can reasonably pay their own way through their degree.

In my situation, I could not have afforded my university without loans. I worked the whole way through, but my income was only enough to pay for books, computers, some lodging, food, and recreation. Tuition was paid by my parents while enrolled, and afterwards, by myself through loan repayments. I went to a great, private university, but the deciding factor was that out-of-state tuition for the great, state university I wanted to attend was just a few thousand cheaper. I saved money by living at home and attending the private one. The state school should have been affordable - even if I would have attend "out of state."

Back to the forgiveness idea, we have been giving banks too sweet a deal; have we learned nothing from the housing bubble? When there is no downside, banks have no reason to NOT become predatory. Default is "real" but we have legislated it into oblivion. Loan forgiveness would create a risk for banks, because realistically, we all know it exists.

Re: Is student loan forgiveness the answer?

conativejj — Mon, 24 Oct 2011 16:32:54 -0000

I don't like this forgiveness idea. I took these loans on of my own volition. No one forced them on me, and I could have easily chosen to work extra jobs or skip school all together. I have about $50K in loans, I'm paying for my MBA out of pocket now, and I intend to pay off my loans in 7 years. My BA is completely unrelated to my field now (banking) and I had zero experience in banking before I got into it. I decided to get an MBA because I want to advance in this field, and I'm taking the steps that anyone can take in any field to move up, make more money, and pay their obligations.

If the government were to do anything I would recommend two things:

1. Allow everyone to consolidate their loans to a lower interest payment and structure a payment plan that works for their situation (I believe they already do this)
2. Have the banks that do these student loans treat students like anyone else seeking a loan: you have to have references and collateral. So you have to submit your GPA, test scores, degree program sought, anticipated career when complete, and which school you want to go to.

If you want to get a loan for $200K to go to Fancy Junior Ivy University for a degree in Underwater Basket Weaving and you anticipate that your income at graduation will reasonably be $40K a year, then the bank should deny your loan. If you're HS GPA was 2.0 and your SAT scores were barely sufficient to go to college and you want a degree in Biochemistry and Pre-Med, the bank should deny your loan unless you can prove you have the ability to stick with the tough program and graduate, maybe by going to community college a few semesters first and paying for it out of pocket.

College is not for everyone and we have to quit treating it like it is. We let employers treat a BA like the new HS diploma because as a society we treat a BA exacly like a HS diploma. It shouldn't be that easy to get a BA. It should be only for those students who have the drive and ambition and ability to stick with it for the 4 years necessary to complete their program without needing a year of remedial classes or risk of dropping out with massive debt and still working a $8/hr job paying off $700/mo in student loan debt.

Re: Is student loan forgiveness the answer?

cpascal — Mon, 13 Dec 2010 17:52:22 -0000

I strongly support student loan forgiveness. If the government found billions of dollars to help banks
which screwed up, the least they can do is to help people who made a serious effort top improve their lives.
You need a college degree in order to be considered for most careers in America. In many other countries, job
training is provided at low cost or even free by the government. The US is the only country I know of in which
young people have to start out in life with loads of debt.

Re: The lifetime earning myth: go to college, make $1 million extra. The reality: recent college grads annually earn $7,415 more than high school grads.

Student — Sun, 01 Nov 2009 18:11:54 -0000

@Chuck: Sorry for the delay in responding. I think you are onto something: it used to be that publicly funded, technical schools for high-school aged kids would prepare students for valuable professional jobs, and it now seems that technical schools (AKA vocational schools) are virtually non-existent.

Nowadays, it seems like people are trained for technical jobs either at college, or through private, post-secondary schools that grant "associates degrees." In other words, people still get trained for that sort of job, but they must somehow pay for it up-front, before they have a career.

Like you said, most high school students face some sort of pressure to consume student loans, because there is no publicly funded option for anyone to enter a skilled profession.

Re: The lifetime earning myth: go to college, make $1 million extra. The reality: recent college grads annually earn $7,415 more than high school grads.

Student — Sun, 01 Nov 2009 18:00:31 -0000

@Dave - thanks for your comment. You are correct that these numbers do not reflect inflation; instead, they are reported in constant year-2000 USD. This is not an oversight.

In fact, the term "adjusted for inflation" means to convert inflationary currency into constant-value currency. Your comment suggests performing the opposite conversion, which will result in dollar values that are not comparable over time.

Have you ever heard stories about early 1900s "movies that cost a nickel?" This is not because movies were cheaper then; the inflation adjusted cost of movies has stayed relatively constant, but the value of our currency has changed. I hope this helps to explain why it is important to take inflation out of the equation.

When making longitudinal comparisons, it is critical to use a single unit of measurement. If you will reread the excerpt from Forbes (in this article, quoted above) you will notice that their figures are also based on current dollar values. The Forbes article is explicit about where the $1 million figure comes from, and it has nothing to do with inflationary USD. Once again, in order for my numbers to be comparable to the Forbes numbers, we must all use constant-value dollars, instead of dollars whose value is not constant.

I do appreciate your thoughts on the matter, but I encourage you to read the Forbes article if you are still unclear as to where the $1 million figure comes from. Inflation is not part of the $1m calculation, nor is it part of the $750k calculation, and these numbers are correct.

Re: The lifetime earning myth: go to college, make $1 million extra. The reality: recent college grads annually earn $7,415 more than high school grads.

Dave — Fri, 30 Oct 2009 17:09:43 -0000

Um... you miss a critical variable in your numbers. Ever heard of a little thing called inflation? Adjusted over a lifetime of work, the highschooler according to your graph, the income is linear. College is more exponental (but still reasonalbly flat). Adjust for inflation and I'll bet the numbers come closer to $1m than 750k.

Re: The lifetime earning myth: go to college, make $1 million extra. The reality: recent college grads annually earn $7,415 more than high school grads.

chuck wintner — Sun, 21 Jun 2009 23:15:23 -0000

A very important missed point here is training to become tradesmen: plumbers, carpenters, mechanics, air conditioning repairmen, bookkeepers, etc. When I was in high school (50 years ago), students and their parents had the choice to follow a college preparatory track, or a vocational track. There were two different high schools, right next to each other.

Before higher education became the huge industry it is today, people recognized that aptitude mattered, and that not everyone was cut out for academia. In vocational school, students learned to become tradesmen, and as a result ended up earning excellent salaries and living excellent lives as professionals in their trades.

In the 1970's, the feminist educational establishment led to the virtual abolition of vocational high schools, sending the same boys into the streets as dropouts rather than training them to become apprentices for jobs suited to their abilities.

The growing gap between the college educated and the not college educated has less to do with the value of a college degree than it has to do with the devaluing of people better suited to trades, mostly boys, and the gearing of high schools only toward pencil-pushers, mostly girls. Today all high school students are pressured into becoming consumers of student loans, for sometimes meaningless degrees. More than 60% of all college students today are girls. More than 90% of all incarcerated juvenile offenders are boys.

Re: The lifetime earning myth: go to college, make $1 million extra. The reality: recent college grads annually earn $7,415 more than high school grads.

Student — Fri, 22 May 2009 15:03:46 -0000

@rfox - I agree with some of your points, and disagree with others. More than anything, I really appreciate your comment.

Regarding the 1 million-vs-750k, I'd like to refer you to the schedule for when these benefits are received, which is graphed in this post. Critically, income doesn't rise until after the loans are paid off. Recent grads might expect the $17,000 extra you mention (which they won't receive until they are 30+), which leads them to make a bad financial decision to acquire more student loan debt than they will be able to pay off.

Regarding the mean-vs-median statistics, I think you missed something. It is the mean (AKA average) that would skew the results in the "Bill Gates scenario," but I am using the median. The reason the census data reports the median (which I based my data on) instead of the mean is exactly as you described, but you were incorrect to attribute that error to my figures. Let me clarify: the reason the student loan industry claims it is $1 million is because they use the mean data (the "Bill Gates scenario") and the reason I claim it is $750k is because I use the median data (the US census data).

But to address your main thesis, I COMPLETELY AGREE that college is worth it. Sorry for the caps, but I have to say that I learned so much in college I can't quantify it. Also, I was lucky: I paid for 1.5 years with pure debt, and my family paid for 2.5 years. This left me with the equivalent of "a luxury car-worth" of debt, which is tough to pay off but doesn't take me out of the game. It has held me back, and I have been forced to sacrifice many opportunities to make critical investments, but I do believe that I got a major leg-up by attending what is unarguably one of the finest schools in the world.

That said, the point of the Student Loan Bubble is that many students took on more debt than they could responsibly repay, which is very analogous to the housing bubble. This is not to say that college is bad (just like home ownership is not bad), and I thank you for your comment especially because I now realize this is something I should clarify. Where does this leave us? Well:

1) college (and education in general) is good
2) excessive debt is bad

therefore:

3) students should go to affordable schools

I have identified one reason why students go to schools that cost more than they can afford: it is the $1 million myth. This myth is not based on fact, and it has been used by the finance industry partially to delude students into believing they can borrow more than they should. Students (and their parents) are unable to make the right decision when it comes to student loan debt because they are being fed bad data.

One reason why enrollment might rise alongside joblessness is that student loan debt is artificially cheap, due to federal legislation, and a job is not required in order to qualify for this type of financing. This is another topic covered on Student Loan Bubble, but the brief is this: artificially cheap student loan debt leads to tuition inflation, which is unsustainable, and is the second critical factor that makes the Student Loan Bubble analogous to the housing bubble.

Regarding other socio-economic factors like rural-vs-urban, that's interesting. The census data are really rich, so I'd like to look into that.

Thanks for your comment, and please check back in with Student Loan Bubble!

-Student

Re: The lifetime earning myth: go to college, make $1 million extra. The reality: recent college grads annually earn $7,415 more than high school grads.

rfox — Thu, 16 Apr 2009 17:21:12 -0000

Some of the comments here are laughable. Its not a million its only $732,576. Do you know anyone who would scoff at a mere $17 to $18 thousand extra dollars per year? that's a nice mortgage payment AND a car payment each and every year for 40+ years of work. Don't forget, it is also about where you live. If you live in suburban and rural areas where factory line jobs have disappeared, especially in the northeast. When state governments go on hiring freezes, those without educations can't even use civil service to their advantage. Not only are your wages lower than before, you may have no income at all. Your using Bill Gates as a skew to the numbers misses the point. Example: the average Pennsylvania teach makes between $35-$40,000. Not Bill Gates territory, but do require Bachelor degrees. That's $17-$19 per hour (Masters degrees are required to be paid even more $$). What's minimum wage? $7 and change? What's Wal-Mart paying per hour? $8? I still see double the average salary with the degree. A bookkeeper may get $15 per hour with service time and experience, but a CPA makes at least $60-$80K per year. Bachelor degree required. Thats $28-$38 per hour. Why do schools enrollments increase in times like today? Because the High School diploma just doesn't cut it when you want to get a real job and make real money. Sure, there are some high school grads who live in major metros who make more than suburban college grads, but don't compare those 2, make sure you compare them to their urban professional counterparts. Again, as a rule, its no contest...

Re: The Lifetime Earnings Myth Part II: College Grads only earn $732576 more than High School Grads

Kwame — Sun, 15 Mar 2009 00:20:46 -0000

I applaud your efforts to provide a new view on the Education Financing system that is generating economics slaves at a startling rate. The mantra of get a education, has been used to deceive and enslaved countless millions of Americans, as the Corporations continuously seek cheaper labor, yet require the most educated. This forms a paradox where education eventually leads to enslavement to debt.

Re: The lifetime earning myth: go to college, make $1 million extra. The reality: recent college grads annually earn $7,415 more than high school grads.

Student — Fri, 13 Mar 2009 16:33:10 -0000

Thanks for the criticism - I will probably revisit this in a future article, where I will talk about the median lifetime earning potential. The data are available from the Census for how different professions fare, but if you'll just click on the Census link, you will see that in 10 years, the median income is increased by about $10000.

Re: The lifetime earning myth: go to college, make $1 million extra. The reality: recent college grads annually earn $7,415 more than high school grads.

skeptic — Thu, 26 Feb 2009 16:48:03 -0000

I don't buy it... what about 10 years after they graduate? what about the earning potential of the degree? art history isn't going to earn as much as electrical engineering, so maybe the lesson is that people should only get loans for certain degrees