The Story of Student Loan Debts

[Docbeans]

Not to introduce politics here, but I found this an interesting read.

[scbunker]

I have not carefully studied the student loan 'crisis', so my views are not firm. However, below are my initial thoughts. I'm curious to hear what others think.

They say the industry has profited 3.5B in the last three years, but total student loan debt is 1.3T. That's 0.27% of the debt profiting the industry (I'm aware that's just three years of profits, but even if they made 3.5B every three years since the mid-90's, you won't get over 2%). So they could return all their profits and not make a dent in the problem. That would seem to indicate that the industry's profits are not the problem.

It says a possible solution is de-privatization, but that also won't solve the problem, as they state: they say it would "take some of the sting out".

There is zero discussion in that article about the responsibility of those who take out the loans, or better financial education of high school students to understand the implications of taking such loans. Jessie Suren chose to go to a private university and chose to take out $76k of loans. Her mother chose to co-sign. Whatever degree she chose didn't get her a job. I see four bad decisions there.

It seems to me that an early cause of the problem is 'education inflation.' The value of a high school degree has gone down, mostly because the quality of public high school education has either gone down or has not kept up with inflation. Thus, you can't get the jobs that our grandparents got with a high school diploma. That forces people to go to college, and many choose degrees with very poor ROI.

Seems to me, the first place to fix the student loan problem (at least for the future generation), is to fix the public school system to provide better education in general that actually teaches job and life skills, with which people can get good jobs without having to go to college. Along with these life skills is the financial knowledge needed in order to properly evaluate the wisdom in going to college and/or taking out loans to do so.

It's a bit irritating when people blame everything but themselves, and no one actually expects people to take personal responsibility for their decisions.

There are indeed people in trouble with loans now and we should help them, but that's not actually solving the problem.

I'd love to hear others' thoughts on this.

[DMFA]

Value is relative to scarcity and utility.  Price, is, well, price.  Cost is the resources that actually go into providing whatever it is.

Idk what the true "cost" of an education has done - I can only assume it's risen - but I know that its price has gone way up and its value (at least for a bachelor's and some master's degrees) is less since, like said before, everyone has one and some of them you can't do much with.

As for student loans, I'm straddling both sides of the line from when interest rates rose >4% on them in 2007.  I graduated undergrad in 2006 ($30k around 2.3%) and started med school in 2007 (HPSP, so no loans); my wife had no undergrad loans from scholarship, but she's on the hook for $160k at 6.6%.  Kinda blows, but we ALL know folks who are in way deeper...

Also with the income-driven plans and PSLF I have NO clue how people *can't* (like actually not able, as opposed to not finding place in the budget for DirecTV, iPhone data, and freemium games) afford to pay their student loans.  So someone only earn $10/hr (extrapolated to $20k/yr assuming 40 hr x 50 wk)?  The payment is capped at like $75/month for RePAYE or PAYE and they'll hardly pay any income tax.  If you spent the student loan money on beer, drink one beer less per day now, that will probably cover the payment.

I sure did enjoy earning my bachelor's degree in history, though...really helped me develop thought processes.  At least, I think it did...

[Zaphod]

My thoughts are its very complex. You have systemic problems and malincentives pushing awkward endpoints that make no sense. This leads to many unintended consequences. You are not going to teach life skills that translate into productive well paying jobs in HS. The world is just not that simple, the exponential explosion of knowledge that has occurred will only exacerbate this going forward.

What we need is an over haul the system to fit better with outcomes and needs of society, with a large focus on shifting towards likely future needs, not just putting something in place and riding that system into obsolescence (our current paradigm). There will likely always be a great need for skilled workers, plumbers, electricians, etc...etc...this is a huge need that could be filled asap that we have really missed the boat on. A dedicated vocational track that is cheap and fast as possible would be great for everyone. For college, some kind of pre entry stats and almost a terms of service agreement that states if you choose x path your likelihood of getting a job and earning y salary is z, and how long that would take in a realistic budget to pay off. Maybe even some standards in education that gives translatable skills for many jobs.

In the end, society has to make a choice, just like with healthcare. There is really no difference from personal finance, you can have it all just not all at once. America has enough money to make education/healthcare more affordable, but we choose to spend it lobbying and building and maintaining an anachronistic military instead. Society does not seem to see the greater overall collective benefit to more education, but it would be great if they did.

I think the hard part is there are many issues and moving parts and its hard to see the true direct causes and easy to be fooled by randomness or correlation. It may even take years to see the effects to know whether the move was wrong or right.

Right now, the easiest and least painful thing to do is simply make all loan payments tax deductible period. Every dollar paid comes off your income. Incentivizes paying it back, is self limiting, puts the risk back on the government and promotes much earlier consumption as opposed to lifelong frugality and early retirement that seems to be taking the nation by storm (great individually but collectively a drag on gdp). One could argue that even the inflated cost of education is worth it when looking at the earnings gap from it, but eventually when it is not people will either not go to college at the same rate or will choose different degrees. This takes the longest but still works.

[ShadowDoc]

I agree with Zaphod that it is a very complex issue.  There are some interesting themes that recur in these stories that I've heard. This article in particular talks about how a murder victim's estate was pursued for his student debt.  Obviously this was a private loan as gov't loans are discharged at death. A person's debts are always weighed against their assets at death...so they just write this to get an emotional response and make the reader think that the lender is evil rather than an inactive participant of someone else's poor financial choices. I don't know the solution but emotional manipulation won't solve the problem. I appreciate DMFA's statement about cost, price, and value. Maybe that's what should be taught in the high schools. Seems to me that the experience and knowledge gained 'the hard way' about debt will hopefully produce the change in financial education in the coming generations.

[Hatton]

College and professional schools are too expensive.

[BIRJU]

What I will say can easily devolve into the old "chicken or the egg" causality dilemma, but it's worth saying

Schools have met this easily available funding with upgraded facilities. The costs, to many students, are irrelevant due to loans so easily being available the belief a fat paycheck awaits them for their future BA in sociology.  The rock climbing gym at NYU may just beat out regular old gym at suny binghamton. Schools should consider a model where they are only providing an eduction, devoid of spa like accruements. Whats the point if the students are going to be debtors until 60 to pay for a bragging right over the course of 4 years of their life? The schools will of course argue that they'll just lose consumerss err students to competitors (they took down the rock climbing wall at nYU?!!, we're going to BC!)

It's also hard for me to see how parents are unable to give any advice to their children about these loans. Research? Talk to counselors? Friends? Family? Maybe high schools should jump in and provide some info. Something guidance counselors can do? Or they can go to community college for a year or two to figure it out?  Are we devolving into sheep where we believe anything someone tells us, especially when there is 100k in play?

Everyone also doesn't have to go to college. Learning to work with your hands is highly sought after and highly paid. I know it wont make you look uber accomplished to say little jimmy isn't going to the alma mater, but maybe being a carpenter will allow him the greatest personal satisfaction and financial success based on his skillset and interests.  I don't have kids and I may turn out to be a hypocrite but I hope I provide a modicum of guidance so my future children dont ever think they've made a 6 figure mistake (by then a 7 figure mistake, who knows).