Student Loans: Debt for Life(businessweek.com)
businessweek.com
Student Loans: Debt for Life
http://www.businessweek.com/printer/articles/70218-student-loans-debt-for-life
69 comments
What tax would charge you $1400 a month if you're earning less than that? I'm very unfamiliar with the American system for student loans, but your comment sounds very different to the examples the article provided.
They don't charge you $1400 a month if you're earning less than that, you can defer. Your interest gets added to your principal in that circumstance. If you model a tax as an infinitely large debt, this scenario makes the loan resemble a tax more.
When you buy milk from the store, do you pay a dairy tax?
It isn't a tax to enforce payback of borrowed funds.
And taxes can be defaulted or negotiatied downward, says the lawyer in the ad on the TV.
It isn't a tax to enforce payback of borrowed funds.
And taxes can be defaulted or negotiatied downward, says the lawyer in the ad on the TV.
The article aside, please take note of the infographics. They are among the worst I've ever seen, particularly for a professional publication. I actually stopped reading the article when I ran into them.
I only got to the first two, so I'll attack them directly:
1) Using all diagonal lines with no color and no difference in angle or pattern, beyond a slight amount of thickness, makes it extremely difficult to easily see the dividing lines. The text is tilted all sorts of different ways making it very hard to digest. Why are there additional pie-looking things stacked around with different squiggly lines? The effect is extremely jarring and I wasn't able to garner any meaningful information from it.
2) Again, the text is slanted this way and that way. Why is 27% the largest number? 40% appears the smallest. What does that even mean? The black points seem to point to something, or maybe they don't?
When you're trying to convey information, this is a perfect example of how not to do it.
I only got to the first two, so I'll attack them directly:
1) Using all diagonal lines with no color and no difference in angle or pattern, beyond a slight amount of thickness, makes it extremely difficult to easily see the dividing lines. The text is tilted all sorts of different ways making it very hard to digest. Why are there additional pie-looking things stacked around with different squiggly lines? The effect is extremely jarring and I wasn't able to garner any meaningful information from it.
2) Again, the text is slanted this way and that way. Why is 27% the largest number? 40% appears the smallest. What does that even mean? The black points seem to point to something, or maybe they don't?
When you're trying to convey information, this is a perfect example of how not to do it.
Came to complain about the same infographics too. I don't even understand why they tried to make the charts look like a bad tetris game. Seems like a perfect example of 'chartjunk'.
Yeah. Perhaps they gave it to the team that does their covers; they've got a 'desperate to seem novel' feeling to them lately that doesn't suit the image of the publication (or the quality of much of the content inside).
One of the bigger problems with student debt is the horrible interest rates students are saddled with. Right now inflation is hovering around 1%, but yet my fiance is saddled with 150k of medical school loans at 7%. At least if student loans could be refinanced easily or had some regulations to pin their interest rates at or below inflation in certain conditions, students could tread water for a few years until their job prospects improved. Or, especially if rates could be lowered below inflation over time, the loan could naturally decrease in value as the likelihood of repayment goes down.
All-in-all the psychological pressures on the young that build after college due to compounding interest on loans seems to be just as scary for the future of our country than the absolute amount of the debt itself.
All-in-all the psychological pressures on the young that build after college due to compounding interest on loans seems to be just as scary for the future of our country than the absolute amount of the debt itself.
I think we need to move the risk management away from the students and back to the banks. Let students default under bankruptcy, let banks charge what they want for the loans. Student defaults will keep the loans close to their fair risk adjusted value.
In the Netherlands, interest on government provided student loans is pegged to the average interest on government bonds with terms between 3 and 5 years. It is calculated each year, and then fixed for 5 years. *
This year the interest is 1.39%, and it's my 6th year, so the current low interest situation rates benefits me. My brother on the other hand is stuck with 4.17% until his next 5 year period starts in 2013.
* Table of interest rates over the last 20 years: http://www.ib-groep.nl/particulieren/studieschuld/renteperce...
This year the interest is 1.39%, and it's my 6th year, so the current low interest situation rates benefits me. My brother on the other hand is stuck with 4.17% until his next 5 year period starts in 2013.
* Table of interest rates over the last 20 years: http://www.ib-groep.nl/particulieren/studieschuld/renteperce...
A doctor or his fiance can't get a $150K loan at 5%?
The issue with student loans is not that they exist or that they have high interest or any of that...it's that they're just given out to any and all college students regardless of degree or career path. Just like a high school teacher on a high school teacher's salary wouldn't be approved for a million dollar loan to buy a million dollar house, a kid looking to go to Harvard to major in Poetry shouldn't be approved for hundreds of thousands in loans.
Some degrees/careers are bad investment choices and some people shouldn't receive loans for them.
Some degrees/careers are bad investment choices and some people shouldn't receive loans for them.
If students were allowed to default on the debt under bankruptcy there would be a corrective feedback loop where lenders would be pricing the risk of default in.
I suppose, but at the end of the day it's still 17-18 year old kids getting handed thousands of dollars to make a big (and most likely extremely uninformed) career choice decision. I think there needs to be a lot more education (irony) targeted at how to make a fiscally responsible degree choice when entering college.
All of these kids majoring in creative writing and then protesting wall street because they can't get a job to pay off their loans should garner no sympathy as they made a bad fiscal decision that got them into that mess in the first place. But since they were just kids when making the decision it's hard to fault them entirely...I think the system itself needs to be doing a better job telling people they're being dummies and helping them correct their course before becoming a debt statistic.
All of these kids majoring in creative writing and then protesting wall street because they can't get a job to pay off their loans should garner no sympathy as they made a bad fiscal decision that got them into that mess in the first place. But since they were just kids when making the decision it's hard to fault them entirely...I think the system itself needs to be doing a better job telling people they're being dummies and helping them correct their course before becoming a debt statistic.
Maybe. But is there any economic reason for a decent liberal arts degree to cost 100k to begin with?
I think that's the real problem.
I think that's the real problem.
possibly. there are a lot of people on the payroll for that degree to be offered. School's cost a lot of money to run.
There's nothing wrong with expensive degree programs. Some people drive Mercedes and some drive Honda. But someone who can only afford a Honda isn't going to be approved for a loan for a Mercedes.
There's nothing wrong with expensive degree programs. Some people drive Mercedes and some drive Honda. But someone who can only afford a Honda isn't going to be approved for a loan for a Mercedes.
Bad example. A Harvard poetry major will make connections and do fine. A George Mason poetry major, maybe not.
Perhaps a student should go to a cheaper school if the profession they have chosen isn't ever going to pay back the money they spent on college.
All of these articles are full of the same stories: 'I spent 100k on a degree in sculpting, and now I owe 100k'. Does a hundred thousand dollar education in sculpting really provide value to you?
I'm not saying people who are truly interested in art shouldn't go to school, but pick a school whose costs are better aligned with your ability to pay, and consider your ability to pay after graduation. Maybe apprenticeship / community college / just starting a business is a better use of your time and money.
I'm not saying people who are truly interested in art shouldn't go to school, but pick a school whose costs are better aligned with your ability to pay, and consider your ability to pay after graduation. Maybe apprenticeship / community college / just starting a business is a better use of your time and money.
On the other hand, 18 year old wannabe sculptors are probably poor judges of value. And why should they be? It's no crime for your talents and experience to be outside business accounting.
The judge of value should be the underwriter. If Bank of America wants to buy some goofy kid a $100,000 sculpting business, let them bear the risk if that plan tanks. They can repo the chisels.
Edited for grammar.
The judge of value should be the underwriter. If Bank of America wants to buy some goofy kid a $100,000 sculpting business, let them bear the risk if that plan tanks. They can repo the chisels.
Edited for grammar.
This I think is a key insight. Young people tend to be idealistic, that isn't going to change, and it shouldn't even be changed. We need that idealism in the world.
A viable and palatable solution should therefore address the people enabling (or even encouraging) these idealistic young people to make poor decisions.
There is a lot of money in convincing people that getting degrees that they won't be able to use is a good idea. A lot of money for everyone but the student.
A viable and palatable solution should therefore address the people enabling (or even encouraging) these idealistic young people to make poor decisions.
There is a lot of money in convincing people that getting degrees that they won't be able to use is a good idea. A lot of money for everyone but the student.
The US govt is underwriting the loans. That is what needs to stop.
This is an example of a case where the correct answer is not a popular answer. The people who need this advice seem to not accept it, only to eventually wish years later that they had.
The other half of the story is that the institutions have no incentive to lower prices. They don't suffer for the lack of jobs and failure to pay.
I often wonder if the US payed for the first two years of college / vocational school at a fixed rate (say: $15,000 per year or half what D.C. Public Schools spend per pupil) with the condition of an institution accepting the money that it cover tuition, room, board, normal fees (not, for example, airplane hours), and books what would happen? I get the feeling that two tiered pricing would result.
I often wonder if the US payed for the first two years of college / vocational school at a fixed rate (say: $15,000 per year or half what D.C. Public Schools spend per pupil) with the condition of an institution accepting the money that it cover tuition, room, board, normal fees (not, for example, airplane hours), and books what would happen? I get the feeling that two tiered pricing would result.
Another proposal I have heard is to somehow (there could be various methods of accomplishing this I think) put the the responsibility for paying off all or part of the loan on the institution if the student was unable to pay.
There are a few rough points that would need to be worked out with this sort of system, but the overall intended affect would be to make institutions care about the employability of their graduates. If only half their graduates in a particular major were finding paying work in their field, then the university would be financially pressured to accept fewer students into that major in the future.
Universities with deep enough pockets to pay off the inevitable debt would be free to offer what they please, the idea being that a university is in a better position to make a rational and responsible financial decision in that matter than someone fresh out of highschool. However universities strapped for cash would be discouraged from taking advantage of students by selling them unobtainable dreams. (This I think would be particularly effective at putting a damper on the predatory nature of for-profit 'schools')
There are a few rough points that would need to be worked out with this sort of system, but the overall intended affect would be to make institutions care about the employability of their graduates. If only half their graduates in a particular major were finding paying work in their field, then the university would be financially pressured to accept fewer students into that major in the future.
Universities with deep enough pockets to pay off the inevitable debt would be free to offer what they please, the idea being that a university is in a better position to make a rational and responsible financial decision in that matter than someone fresh out of highschool. However universities strapped for cash would be discouraged from taking advantage of students by selling them unobtainable dreams. (This I think would be particularly effective at putting a damper on the predatory nature of for-profit 'schools')
You are arguing for price control, which will likely cause a shortage.
The problem with liberal arts degrees is that the job prospects are heavily dependent on the brand recognition of the school. You can have an expensive school with decent job prospects, or a cheap school with terrible job prospects.
And this is where I think you've got a market failure in education. It's not that there aren't any jobs for people with non-technical/non-math degrees, it's that employers would much rather hire someone with average grades from a top school than someone with great grades from a cheaper school. Pedigree becomes like brand names for handbags--inflating the price of education far beyond the cost of education, and almost eliminating competition by reducing the fungibility of the products.
And this is where I think you've got a market failure in education. It's not that there aren't any jobs for people with non-technical/non-math degrees, it's that employers would much rather hire someone with average grades from a top school than someone with great grades from a cheaper school. Pedigree becomes like brand names for handbags--inflating the price of education far beyond the cost of education, and almost eliminating competition by reducing the fungibility of the products.
Problem is, that's not the way it actually works in practice. In practice, the American university system is financially upside-down.
* Very expensive, very wealthy institutions like Harvard, Yale, Stanford, and MIT can afford extensive financial aid for almost every single admitted student. Students at these institutions usually receive enough tuition reductions and scholarships to bring the education into their affordable range before loans come into the picture.
* "Cheaper" public universities have all had their budgets cut by strapped state governments and their associated greedy taxpayers (see: Prop 13 in California). They also have much smaller endowments and little extra income. They've started biasing their admissions more towards out-of-state and international students as much as state law allows them to, because those students pay the full non-resident sticker-price (which includes little to no state subsidy defraying the cost). As a result, the average student at a "cheaper" public university will now pay or borrow a larger price, closer to the sticker-price, than a student attending an elite private university.
* (Of course, the worst-off remain those who went to very expensive private universities/colleges that aren't actually that rich or that good, and who therefore have tens of thousands of dollars of debt for very little education. But they were always screwed.)
* Very expensive, very wealthy institutions like Harvard, Yale, Stanford, and MIT can afford extensive financial aid for almost every single admitted student. Students at these institutions usually receive enough tuition reductions and scholarships to bring the education into their affordable range before loans come into the picture.
* "Cheaper" public universities have all had their budgets cut by strapped state governments and their associated greedy taxpayers (see: Prop 13 in California). They also have much smaller endowments and little extra income. They've started biasing their admissions more towards out-of-state and international students as much as state law allows them to, because those students pay the full non-resident sticker-price (which includes little to no state subsidy defraying the cost). As a result, the average student at a "cheaper" public university will now pay or borrow a larger price, closer to the sticker-price, than a student attending an elite private university.
* (Of course, the worst-off remain those who went to very expensive private universities/colleges that aren't actually that rich or that good, and who therefore have tens of thousands of dollars of debt for very little education. But they were always screwed.)
But out of state students are intentionally overpaying and don't deserve much sympathy.
In state students get a pretty cheap deal still, only the ones who don't get admitted have cause to complain.
In state students get a pretty cheap deal still, only the ones who don't get admitted have cause to complain.
But out of state students are intentionally overpaying and don't deserve much sympathy.
No, they are most definitely not intentionally overpaying. Not all public universities are educationally equivalent. UC Berkeley is just better than the University of Nevada, and I would not say that a student who chooses the former over the latter has justly chosen to hurt themselves financially. They've chosen the superior education, which is supposed to be what matters.
No, they are most definitely not intentionally overpaying. Not all public universities are educationally equivalent. UC Berkeley is just better than the University of Nevada, and I would not say that a student who chooses the former over the latter has justly chosen to hurt themselves financially. They've chosen the superior education, which is supposed to be what matters.
Stop getting degrees where-in you can't get a job that will pay the debt back. Seems obvious to me.
The problem is that there are a lot of jobs, like lawyer, where people think they will be able to pay it back and only discover years later that they cannot.
Heck, my wife has an MD (from a top medical school, earned with honors) and a wrist injury from residency that limited her ability to make money for years, and will greatly lessen how much money she'll be able to make in the long run. She'd be in a very tough spot if I wasn't paying her loans off for her.
You'd be hard-pressed to find a job that the public thinks is safer financially than "doctor". Yet even that is not safe enough for the risk structure that student loans impose.
Sure, I agree that there are lots of victims who deserve more than their fair share of the blame. But don't make the leap from that to blaming the victim. The risk structure that financial loans impose is guaranteed to result in many victims who don't deserve particular blame. Bankruptcy exists for a reason, and it is a travesty that corrupt politicians have been bribed into carving out a targeted exemption for a powerful industry.
Heck, my wife has an MD (from a top medical school, earned with honors) and a wrist injury from residency that limited her ability to make money for years, and will greatly lessen how much money she'll be able to make in the long run. She'd be in a very tough spot if I wasn't paying her loans off for her.
You'd be hard-pressed to find a job that the public thinks is safer financially than "doctor". Yet even that is not safe enough for the risk structure that student loans impose.
Sure, I agree that there are lots of victims who deserve more than their fair share of the blame. But don't make the leap from that to blaming the victim. The risk structure that financial loans impose is guaranteed to result in many victims who don't deserve particular blame. Bankruptcy exists for a reason, and it is a travesty that corrupt politicians have been bribed into carving out a targeted exemption for a powerful industry.
Judging the potential worth of degrees is indeed quite the challenge. Most individuals cannot be expected to accurately do it.
The people with the knowledge to actually make an informed decision in the matter are the schools (who track employment of their alumni.. and currently only mention it if it looks good) and the financial institutions who know which people are paying back their loans quickly and which people are paying them off slower than interest is accumulating.
I think any solution needs to at least involve one or both of those two parties.
The people with the knowledge to actually make an informed decision in the matter are the schools (who track employment of their alumni.. and currently only mention it if it looks good) and the financial institutions who know which people are paying back their loans quickly and which people are paying them off slower than interest is accumulating.
I think any solution needs to at least involve one or both of those two parties.
People who request and get loans are "victims" of "risk structure"? My parents told me "this is what we can afford, the rest is on you. If you earn $xx,xxx then xxx is about how much you can afford to pay per month." Seems to me that a large part of the problem is that we're letting 18-22 yr olds make career and financial decisions without adult mentor/parental input.
The risk structure is a big part of it, yes.
Take law school for example. At a top school, you've got say a 70% chance at getting a job at a big firm starting at $150k+, and a 30% chance of ending up at a small firm making $45k. The ~$200k tuition for law school is, at least purely financially, generally worth it for the people in the former group, and not worth it for people in the latter group. The expected return, weighted by that 70% risk factor is still positive. Purely objectively, for a risk-neutral person it makes sense to take on the $200k of debt for a degree from a top school.
But it really sucks for the people who aren't in that 30%. They didn't make an irrational decision to attend law school, but they still got badly burned because the process creates winners and losers in a very stark way.
The problem is the educational system. Schools should not be charging as much as they do. The market is supposed to drive costs down, but the cost of a legal education has skyrocketed since the 1950's despite being more or less the same exact process it has been for 150 years. You have seen this across the whole spectrum of degrees.
Take law school for example. At a top school, you've got say a 70% chance at getting a job at a big firm starting at $150k+, and a 30% chance of ending up at a small firm making $45k. The ~$200k tuition for law school is, at least purely financially, generally worth it for the people in the former group, and not worth it for people in the latter group. The expected return, weighted by that 70% risk factor is still positive. Purely objectively, for a risk-neutral person it makes sense to take on the $200k of debt for a degree from a top school.
But it really sucks for the people who aren't in that 30%. They didn't make an irrational decision to attend law school, but they still got badly burned because the process creates winners and losers in a very stark way.
The problem is the educational system. Schools should not be charging as much as they do. The market is supposed to drive costs down, but the cost of a legal education has skyrocketed since the 1950's despite being more or less the same exact process it has been for 150 years. You have seen this across the whole spectrum of degrees.
Law school is a cartel controlled by the ABA. That is a special case.
Some fraction of people who request and get reasonable loans will be unable to pay those loans back through no fault of their own. For instance, like my wife, they suffer an unexpected injury and suddenly the career path they were planning on becomes closed to them. What should happen in that case?
You lay reasonable plans. But shit happens. What happens in that case? Is it really your fault if plans that were 95% certain to work out fail due to forces beyond your control? How are people that that happens to NOT victims?
You lay reasonable plans. But shit happens. What happens in that case? Is it really your fault if plans that were 95% certain to work out fail due to forces beyond your control? How are people that that happens to NOT victims?
Insurance is a great way to hedge against career ending injury.
Coming from the UK, $100k plus for a bachelor's degree seems ridiculously high. Is this normal for a degree in the USA?
It is normal if you are out-of-state (that is, you are not going to University in the state of your primary residence, or for most high school students, the state in which your parents reside). I've provided two state schools for reference at different ranking levels: Georgia Tech [1], and North Carolina State University [2]. Private schools, on the other hand, can have some very high tuition rates (see Emory University [3], for example -- $169,000 just for tuition over four years).
Some students are able to get grants or other scholarships to help alleviate some of the costs.
If you happen to be in-state with good schools, then the rates are far more reasonable (though still expensive), as other posters have mentioned.
[1] http://www.bursar.gatech.edu/student/tuition/Fall_2012/Fall1...
[2] http://www.fis.ncsu.edu/cashier/tuition/ugtuition.asp
[3] http://www.emory.edu/admission/financial_aid/tuition_fees/in...
Some students are able to get grants or other scholarships to help alleviate some of the costs.
If you happen to be in-state with good schools, then the rates are far more reasonable (though still expensive), as other posters have mentioned.
[1] http://www.bursar.gatech.edu/student/tuition/Fall_2012/Fall1...
[2] http://www.fis.ncsu.edu/cashier/tuition/ugtuition.asp
[3] http://www.emory.edu/admission/financial_aid/tuition_fees/in...
If you'd been an international student in the UK, it might seem less ridiculous. Three years' tuition in a sciency subject at Imperial College costs just about $100,000.[1] (That was 09/10, I guess it's a little higher now.) Granted that's the most expensive on the list, but factoring in living costs, I'd say $75,000 for three years is common.
[1] http://www.guardian.co.uk/education/table/2009/oct/08/underg...
[1] http://www.guardian.co.uk/education/table/2009/oct/08/underg...
Definitely not. Most public schools have in state tuition of under $10,000 per year with lots of financial aid for those in need.
Where "financial aid" means "Loans you must pay back with interest which can not be discharged in bankruptcy." An odd definition of "aid" to be sure.
Also readers should notice the parent post's qualifier "in state tuition".
Also readers should notice the parent post's qualifier "in state tuition".
All of my financial aid was in the form of grants which I don't have to pay back. However, I am the sole supporter of my family so I get a hefty Pell Grant every semester.
The maximum possible Pell grant right now, for an entire school year, is $5500. That is $2250 per semester.
https://bigfuture.collegeboard.org/pay-for-college/scholarsh...
The amount of the grant depends on the cost of tuition, so this only applies to the most expensive schools.
Of course you already knew this. You say it is "hefty" and covers all of your costs, do you go to a community college and live at home with your parents who feed you? If not, please name your college and describe how you are able to stretch $2250 to cover all your living expenses, tuition costs, fees and books over a six month period. I am sincerely interested since you seem to have brilliant financial management skills that others could benefit from learning.
https://bigfuture.collegeboard.org/pay-for-college/scholarsh...
The amount of the grant depends on the cost of tuition, so this only applies to the most expensive schools.
Of course you already knew this. You say it is "hefty" and covers all of your costs, do you go to a community college and live at home with your parents who feed you? If not, please name your college and describe how you are able to stretch $2250 to cover all your living expenses, tuition costs, fees and books over a six month period. I am sincerely interested since you seem to have brilliant financial management skills that others could benefit from learning.
Not OP, but I too got Pell and OTHER grants (Pell isn't the only one). Many schools (UND in my case), have institutional and national grants that are tapped into for students.
Your final paragraph is pretty low class. colkassad did not say his/her only grant was Pell, only that it was hefty.
Your final paragraph is pretty low class. colkassad did not say his/her only grant was Pell, only that it was hefty.
There's nothing low class in my post, I resent the implication.
The phenomenon of oppressive student debt in the US is well documented. Articles about the problems with this situation often have posters claiming that the problem does not exist, but with few particulars. I would like to know more about the specifics of both your situations. Sharing such information could help other students. Posting claims with no details helps no one.
Being able to afford college on $2250 per six months is a remarkable achievement and he should be proud of it, and willing to share exactly how he did it with others so they can benefit as well.
The phenomenon of oppressive student debt in the US is well documented. Articles about the problems with this situation often have posters claiming that the problem does not exist, but with few particulars. I would like to know more about the specifics of both your situations. Sharing such information could help other students. Posting claims with no details helps no one.
Being able to afford college on $2250 per six months is a remarkable achievement and he should be proud of it, and willing to share exactly how he did it with others so they can benefit as well.
"do you go to a community college and live at home with your parents who feed you?" and "since you seem to have brilliant financial management skills that others could benefit from learning"
Those aren't exactly phrases that scream, "I want to learn". They do tend to be read sarcastically and indicate a lack of belief.
The solution for me was to go to a state school with a good program and work with a financial aide officer that knew what grants were available. I took out some loans, but they were minimum and easy to pay back (more because I traded work-study money for a loan). Many institutions have grants with their price only being a thank you letter to the organization giving the grant.
I should also point out, I received no help from my high school counselor on applying for financial aide or scholarships. He even cost me a $2,000 per year scholarship . With that, I would have had no loans or work-study. So, if your high school is not actually a hinderance, there are multiple sources of income they can help you with.
Those aren't exactly phrases that scream, "I want to learn". They do tend to be read sarcastically and indicate a lack of belief.
The solution for me was to go to a state school with a good program and work with a financial aide officer that knew what grants were available. I took out some loans, but they were minimum and easy to pay back (more because I traded work-study money for a loan). Many institutions have grants with their price only being a thank you letter to the organization giving the grant.
I should also point out, I received no help from my high school counselor on applying for financial aide or scholarships. He even cost me a $2,000 per year scholarship . With that, I would have had no loans or work-study. So, if your high school is not actually a hinderance, there are multiple sources of income they can help you with.
>>However, I am the sole supporter of my family
>do you ... live at home with your parents who feed you
Not the GP, but no.
>do you ... live at home with your parents who feed you
Not the GP, but no.
My tuition rate is $273 per credit hour (in-state).
In Fall 2011 I racked up $3,283 in tuition and other fees. $1,775 of that was paid for by a grant from the state and $1,500 was paid for by a Federal Pell Grant.
In Fall 2011 I racked up $3,283 in tuition and other fees. $1,775 of that was paid for by a grant from the state and $1,500 was paid for by a Federal Pell Grant.
No, "financial aid" is a broad term which includes loads and many other things which do not have to be paid back. There's a reason the term "financial aid" is used instead of just saying "loans".
I guess I'd have to agree with some of the other comments here then, if the option of a less expensive education is available then getting yourself into that amount of debt is a gamble if you have no other means of repaying it.
The note bene here is that employers in the US are far snobbier about the pedigree of your school than in say Canada (I don't know about the UK). It's much less common in other Anglo countries to move halfway across the country for school when you have a cheap public school nearby.
I'm finishing my CS degree at a state school at around 25k, which includes the two years I spent at community college. A lot of that was paid for by grants.
>"The National Consumer Law Center, in a July report, said “pursuing the most vulnerable borrowers until they die” is inefficient and imposes “significant costs to taxpayers.” To help debtors avoid defaulting in the first place, the center advocates placing them automatically in repayment plans that make the payment a percentage of the borrower’s income rather than a certain dollar amount. Under this “income-based repayment,” which the Obama administration has pushed, any outstanding debt is forgiven after 20 or 25 years."
This sounds a lot like how it works in Australia now. Adding a minimum salary cutoff below which the debt didn't need to be repaid would make it pretty much the same.
This sounds a lot like how it works in Australia now. Adding a minimum salary cutoff below which the debt didn't need to be repaid would make it pretty much the same.
What is fascinating is just how much of the US economy is debt financed. Some of the biggest industries - education, real estate, banking, construction, retail (via credit cards) etc. are all basically financed by huge amounts of debt taken on by either the government or individual citizens. So in effect, the current economy is built on the future economy's ability to pay for itself.
It seems to me if this trend isn't reversed, the "Great Recession" is bound to keep happening simply because people can only borrow so much.
It seems to me if this trend isn't reversed, the "Great Recession" is bound to keep happening simply because people can only borrow so much.
It's the result of stability and growth. The country is so stable that people feel comfortable making the long-term commitments that accompany debt. At the same time, debt enables faster growth so long as there is room to grow. If you think there is a market for trucks, it makes much more sense to take a loan to build a truck factory, then pay it off with the sales into this new market, than it does to just save up money until you can build the truck with cash.
It's when you run into instability (war) or limitations on growth that you have to start deleveraging.
It's when you run into instability (war) or limitations on growth that you have to start deleveraging.
This would be a great theory, if the facts in anyway supported it. The counter-examples in the data are not hidden, however: US government @ $1T per year in defecit. Fed in third phase of QE (money printing). These policies are meant to prevent debt write-offs (reductions in par value). And are a giant subsidy to lenders at the expense of debtors and taxpayers. Business risk currently has only orthogonal corrleation with debt pricing (or, by extension, pricing any part of the capital structure...including equity). See for example:
http://dealbreaker.com/2012/08/lets-spot-a-high-yield-bubble...
tl;dr http://cdn.dealbreaker.com/uploads/2012/08/MattKing2-620x439...
http://dealbreaker.com/2012/08/lets-spot-a-high-yield-bubble...
tl;dr http://cdn.dealbreaker.com/uploads/2012/08/MattKing2-620x439...
simply because people can only borrow so much
-- Borrow = future obligation to [repay] = future obligation to [Work]
This is why it all makes sense...that is, if you are in a position to profit from the labour of the debtors. Who are these people? (1) Gov't - receives N% of income the debtors are forced to earn to repay the debts; and (2) the Lenders, who receive repayment of the Interest (profit) and principal (capital). In the case of student loans[1] , the profits of (2) are guarnteed by (1).
So, its all makes sense. depending on your definition of "sense". =D
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[1]Edit/Note: and housing mortages share the same logic. The GSAs have implicit government guarantees. http://en.wikipedia.org/wiki/Fannie_Mae . This is why debt-financed asset price inflation is a characteristic of both [housing] and [university degrees], when considered as "asset classes". The massive GSA's at the heart of the housing crisis were put in place to guarantee mortgage debts, precisely so they could be securitized, sold, and traded as liquid financial instruments.
-- Borrow = future obligation to [repay] = future obligation to [Work]
This is why it all makes sense...that is, if you are in a position to profit from the labour of the debtors. Who are these people? (1) Gov't - receives N% of income the debtors are forced to earn to repay the debts; and (2) the Lenders, who receive repayment of the Interest (profit) and principal (capital). In the case of student loans[1] , the profits of (2) are guarnteed by (1).
So, its all makes sense. depending on your definition of "sense". =D
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[1]Edit/Note: and housing mortages share the same logic. The GSAs have implicit government guarantees. http://en.wikipedia.org/wiki/Fannie_Mae . This is why debt-financed asset price inflation is a characteristic of both [housing] and [university degrees], when considered as "asset classes". The massive GSA's at the heart of the housing crisis were put in place to guarantee mortgage debts, precisely so they could be securitized, sold, and traded as liquid financial instruments.
I find it insane that the interest rates are so high (capped at 8.5%) for a loan that is next to impossible to avoid repaying, and is government guaranteed.
I started collecting the past month debt from studying for the first time, about 300 euro's per month for the next 2 years.
Though here in Finland student debt is not as big thing as it is in the US.
Though here in Finland student debt is not as big thing as it is in the US.
For those talking about "don't borrow if you can't pay":
Should a society allow a system where a person is allowed to gamble one of their organs for a chance at a million dollars?
The argument against this extreme example would be: society has an interest in keeping people from doing dumb things that gets them in over their heads because one person being really screwed actually impacts the lives of others. The same applies to student loans. Sure, only "dumb" people take out loans without it being a good deal for them. But we have some interest in preventing "dumb" people from screwing themselves up so much it starts to hurt us too.
Should a society allow a system where a person is allowed to gamble one of their organs for a chance at a million dollars?
The argument against this extreme example would be: society has an interest in keeping people from doing dumb things that gets them in over their heads because one person being really screwed actually impacts the lives of others. The same applies to student loans. Sure, only "dumb" people take out loans without it being a good deal for them. But we have some interest in preventing "dumb" people from screwing themselves up so much it starts to hurt us too.
Private lenders don't loan money when the business plan makes no sense. When the education won't increase a student's earning power enough to pay back the money, a private lender is not likely to lend to them.
The government makes no such judgment when lending, for education, mortgages or anything else it decides to "encourage".
And the result is oversupply and a drop in demand, followed by a long drought in the production of the thing the government encourages. A bust.
Government is not smarter than the student. The student will at least learn from his mistake.
The government makes no such judgment when lending, for education, mortgages or anything else it decides to "encourage".
And the result is oversupply and a drop in demand, followed by a long drought in the production of the thing the government encourages. A bust.
Government is not smarter than the student. The student will at least learn from his mistake.
We can make a stronger macroeconomic argument for keeping always-recoverable debts very, very low. And it's a simple one: the larger the amount of guaranteed-recoverable private debt in the economy, the less available aggregate demand to actually purchase goods and services and thereby run the actual economy.
Dumb people might be dumb, but very many clever people depend on stupids and suckers for their income. If "dumb people" (in actual fact: anyone who has made a mistake ever) cease to have any money, all those "smart people" lose their incomes too.
Dumb people might be dumb, but very many clever people depend on stupids and suckers for their income. If "dumb people" (in actual fact: anyone who has made a mistake ever) cease to have any money, all those "smart people" lose their incomes too.
relevant: data on tuition inflaion. http://project.wnyc.org/college-costs/
They seem to resemble a tax.
First off you can't default on them. The companies providing them are guaranteed by the government and have obligations to lent to pretty much anyone.
You can defer paying them back if you don't have a job or you're not earning enough.
Finally, they can't be inherited by your estate.
So if you never actually manage to pay them off they're effectively a graduate tax.