Now that student loans are undeniably in bubble territory, the officialdom is starting to wake up and take notice. Evidence that students were taking on so much debt as a group that it was undermining their ability to be Good American Consumers wasn’t enough. A recent New York Fed study found that 94% of recent graduates had borrowed to help pay for their education, and average debt levels among student borrowers is $23,000. Remember, that average includes seasoned borrowers, who presumably borrowed less and also in many cases reduced the principal amount of their loans, so the average amount borrowed by recent grads is certain to be higher. Student debt is senior to all other consumer debt; unlike, say, credit card balances, Social Security payments can be garnished to pay delinquencies. As a result, it has contributed to the fall in the homeownership rate, since many young people who want to buy a house can’t because their level of student debt prevents them from getting a mortgage.
But despite some pious noises about the burden that student loans place on young Americans, there’s been no willingness in the officialdom to do much about it. But that may finally be changing. The latest Federal Reserve data is grim.
Student loan delinquencies are getting into nosebleed territory. The Wall Street Journal, citing New York Fed data, tells us that student debt outstanding increased 4.6% in the last quarter. Repeat: in the last quarter. Annualized, that’s a 19.7% rate of increase* during a period when other consumer borrowings were on the decline. And this growth is taking place while borrower distress is becoming acute. 11% of the loans were 90+ days delinquent, up from 8.9% at the close of last quarter. The underlying credit picture is certain to be worse, since many borrowers aren’t even required to service loans (as in they are still in school or have gotten a postponement, which is available to the unemployed for a short period). And it was the only type of consumer debt to show rising delinquency rates.
This is the new subprime: escalating borrowing taking place as loan quality is lousy and getting worse. And in keeping with parallel to subprime, one of the big reasons is, to use a cliche from that product, anyone who can fog a mirror can get a loan.
The most popular type of loan, Stafford loans, allow undergraduates to borrow up to $57,500, no questions asked. Perversely, this practice, in isolation, looks rational. Look, if you could put borrowers in virtual debt slavery, would you care much about lending standards? All you need to worry about is death and those few cases where borrowers are so clearly unable to ever work for a decent amount of money that they can get their student debt that they can get their loans reduced or discharged.
Things are so bad that each media report seems able to present anecdotes more extreme than previous accounts. The WSJ found a recent graduate of Embry-Riddle Aeronautical University in Daytona Beach whose education loans total nearly $230,000 for a college education that has enabled him to get a job that pays $60,000. And $184,500 of that total was borrowed by his unemployed, disabled mother through a program called Parent Plus.
The Administration’s responses look inadequate given the scale of the problem. From the WSJ:
In an effort to reduce defaults, the Education Department has tightened standards for loans to parents and grad students, prohibited federal lending to schools if more than a certain percentage of its graduates default over several years, and allowed borrowers to postpone payments during periods of “hardship.” The administration also has finalized rules that enable certain borrowers to have their remaining debt forgiven after 20 years, provided that they make monthly payments at 10% of discretionary income—down from the previous standard of 15%.
And no wonder, this Administration is as committed to “affordable education” as previous Administrations have been to “affordable homes“:
President Barack Obama championed easy-to-get loans during the campaign, calling higher education “an economic imperative in the 21st century.” A spokesman for Education Secretary Arne Duncan said the goal is “to make student loans available to as many people as possible,” and requiring minimum credit scores would block many Americans from going to college.
It isn’t hard to see why Team Obama is all on board with student debt peonage. Students have always been important forces in revolutionary movements: they are high functioning, live in dense communities, which facilitates organizing, and are naive enough to believe their actions can make a difference. Inescapable debt greatly increased the risk of fighting the established order; a mere arrest record hurts employment prospects. Of course, Republican criticism of overly generous student lending also has to be taken with a fistful of salt: Conservatives view higher education as indoctrination camps for socialism. So on odd days, they’ll try to rein in student funding and on even days, will blame unemployment on unskilled American workers losing out to the better trained and harder working Chinese. (This is not to deny that the US is in a serious higher education cost bubble, which in large measure is due to expenses that have nothing to do with the quality of teaching, such as much bigger and better paid administration staffs, and lavish facilities, like upscale gyms).
Like buying a house, getting a higher education was part of the American dream, a way to invest to build a secure future. Reckless lending and the costly efforts to socialize the losses are turning both into American nightmares.
*Annualized is NOT the quarterly rate X 4. It’s treated as a compound growth rate. And yes, I checked the WSJ figure against the Fed’s second quarter household debt and credit report to make sure they did mean a 4.6% increase in the quarter, as opposed to a 4.6% annualized rate of increase. This is also the start of a new school term for most students, so one would expect new students entering college to produce a bigger increase than in the other quarters of the year.
Ugh. Just paid off the higher interest part of my 29 year old working daughter’s student loan portfolio and have my stepdaughter loan free in a state school. Lucky to be able to starve the beast.
I told my 13 year old that her goal for college, apart from actually getting an education, was to graduate debt free.
Then I told her that her mother and I can contribute $10k a year for four years. Thats it.
She may have to work through college and that is fine. I think that the whole “college experience” is over rated. Lot of time spent hanging with friends and engaging in counterproductive or even harmful behavior.
Told her she could look at the military academies or enlist for 3 years and get the GI bill or join the National Guard and get assistance to a state school.
Told her she could look at going to a community college for two years to get her distribution requirements out of the way on the cheap and then transfer to a state university to finish up. Save a bundle that way and VA requires that state universities accept all credits from community colleges.
Whatever it takes. Get the education but pay as little as possible and under no circumstance borrow ANY money.
Telling your daughter to go debt free or, alternatively, join the military is like telling someone shivering to build a fire in the fireplace or, alternatively, burn the whole house down.
I have no children, but in theory, I am not so sure about that. Providing one has indoctrinated children into the concept of “borrow zero money for education” and then offer them the realistic menu of choices mentioned in the comment above; it should be possibly to give children the intellectual armaments and ammunition to enable them to figure out how to “trade time for money” to get just enough edu-training to make more money than the cost of the training. And and to use that job-trained-for job-money to then work themselves through further college (if they feel they just simply must) slowly enough to continue incurring zero debt.
The point is to keep them from stepping onto the hamster wheel to begin with. And part of that would be telling them that you ( or I or whomever) would not co-sign for any of their loans under any circumstance whatsoever. Nor would you ( or I or whomever) help them pay back any debts they took out on their own under any circumstance whatever.
If they believe you on that, they may well practice zero-debt lifestyling from adolescence onward.
Why not tell her to consider Peace Corps or Teaching which have student loan forgiveness. Good teachers are hard to come by today and it is a rewarding field. A stinct in the Peace Corp can also offer experience many could never find in the military.
I would never suggest the military for young people as the there are too many drawbacks with death being the worst. You may be a Vet like I am; but, I have always directed young men and women to other avenues.
So far have been able to convince my two teens to hold off on college and not join the ranks of the indebted.
The oldest wants to teach. He’s looking at, at least, $30,000 just for school. After over a year of living at home and saving he’s managed to bank 1/5 of that. At least, this has been good at showing him how hard it would be to pay back a loan(I require him to put $400 a month, he usually does more) and pay for what he needs, let alone be able to afford his own place.
The second is cheaper. She wants to be a dental hygienist and massage therapist. Oddly enough, schooling for the second is more expensive then schooling for the first. She’s only been at saving for a few months but has almost managed to put away $1000. 1/10 of the way there for her.
The latter is unemployed with a guarantee.
I would encourage you to visit the Federal Student Direct Loans and read what occupations offer debt forgiveness. If you teach in blighted areas you are eligible for having a sizeable percentage of your loan forgiven. The same is available for the Peace Corps. It can help the what to be teacher which a profession coming back into vogue again. State schools have fine teaching programs.
Move to Alaska. Live there for a year working at Pizza Hut or whatever to get by. Hurray! You are now qualified for the Alaska Student Loan program (http://acpe.alaska.gov/) and the Alaska Permanent Fund Dividend (http://pfd.alaska.gov/) program (if you promise never to leave).
Go to state school in Anchorage, Fairbanks, or Juneau. Get a four year degree, a teaching certificate, and maybe a quickie master’s degree (in ed if you’re a bit slow but kind, math/science if you can swing it, PE because basketball).
Get a teaching contract in the Bush. http://alaskateacher.org/teaching_in_alaska.php
Get paid well while living in a beautiful wilderness (or rural or small urban) environment with hunting, fishing, and lively culture, and as you work in the bush your student loans are being forgiven while you earn to pay them off.
“All you need to worry about is death and those few cases where borrowers are so clearly unable to ever work for a decent amount of money that they can get their student debt that they can get their loans reduced or discharged.”
They also should worry that the US becomes an emigration land. For people young and properly educated with unsustainable debt, emigration to UK, Australia, NZ or LatAm (for spanish speakers) seems the sensible option to get a life.
Unless of course the US wants to emulate the USSR in all its traits: https://fr.wikipedia.org/wiki/Refuznik_(URSS) …
Will moving out of country actually let you escape the debt?
I’m genuinely curious because I have tens of thousands in student loan debt that I’ve decided just not to pay. I would much rather live comfortably then throw away money at banks that don’t need it and will just misuse it anyway. Yes, it’s tanked my credit, but I’m fortunate to have enough income not to need it, nor am I keen on ever acquiring a mortgage. Renting is fine for me.
I make fairly decent money with an online job that lets me live anywhere in the world with decent Internet access. I’d like to move somewhere in a year or two where I can avoid having to worry about getting my salary garnished later. Moving somewhere with a better social safety net would be an additional bonus. I don’t have terribly strong friend or family connections these days–I am your typical isolated, atomized American individualist–so I’m willing to try just about anywhere for a new start, free of debt peonage.
Does anyone have experience expatriating and escaping student loan debt successfully?
No help for thieves.
You should consider Iran.
While Fred seems to have had a grumpy pill or needs a second cup of the good stuff, I agree with him on the premise of the promise: You received money to pay for an education you appear to now be benefiting from. You need to pay it back. This is quite different than the other choice you appear to have made, which is to NOT borrow money to buy a home. Choices and consequences. Rent a cheaper place, haul down on the debt, and move forward. If you are not anchored to a locale and can tekecommute, there are PLENTY of lovely rural towns with incredible quality of life and great folks where you can live extremely inexpensively. Now, should students be charged 6.99%, like my daughter’s loans, or parents 8.99%, like my parent of student loans? Thats usury in a negative interest fiat economy. I’d say we should lower rates to 2 or 3 percent so real progress can be made on debt service. From the oil patch
OP didn’t give enough information for you to draw this conclusion. If they spent $120,000 on school (very possible as many private schools now charge 28,000+ a year on tuition alone), yet were only making an addition $5000 a year, that’s a net negative.
Speaking of choices and consequences, don’t you think that driving the cost of education up to such stratospheric heights that young people are considering leaving their country of birth(!) to escape it is, itself, a choice that has consequences?
OP should act in the way that maximizes their benefit, regardless of what you think they “need” to do.
Another view of Philo Grad’s attitude toward (non-) repayment of student debt is that education should be free for all students.
But, one might ask, how would society pay for it, and why should we? It does start out free for the students, through high school. Surely it would be in society’s best interest for all citizens to be well-educated, to the limit of each citizen’s ability. Cynically, an un-educated populace of education have-nots is easier to manipulate by the haves. The dominant narrative propaganda wants a working class willing to work for peanuts with no benefits. It was illegal to teach a slave to read and write, lest they get uppity and demand better working conditions, or heaven forbid, freedom. So naturally, the trend is to move away from the ideal of universal public education, toward ever-increasing private sector for-profit schooling, to further separate the classes.
Classes in critical thinking would help to see propaganda for what it is, and therefore will not be condoned for the working class.
Our government could provide loans at very low interest rates, as you suggest at 2 or 3 percent. Better still, our government could refinance existing student debt. Of course the enforcers of the status quo wouldn’t like that. Oh, the defaulting humanity! Oh, the loss of profits! If you look at conservative logic, decreasing taxes would lead to more economic activity (which is a fig leaf covering their desire to dismantle government by “starving the beast”). By that same logic, refinancing student debt at the government’s expense would act like a tax reduction, and surely would free up some money that would then flow into the economy. Win for those with student debt, win for the economy, win for society at large.
Some people advocate that the federal government should spend debt-free money into the economy for long-term investment in infrastructure: bridges, roads, railroads, ports, etc. Education is often mentioned in the same breath.
We could at least alleviate our student debt quandary by refinancing student loans with debt-free fiat, in line with the Fed’s ZIRP, at zero interest. The money lenders would receive only the amount of the original loan, less any payments against the principal made by the borrower. All penalties and add-on fees would be discharged. Make the terms of repayment generous over the person’s natural life, discharged upon reaching the end of life. Write off any default as nobody’s loss.
However, if you insist that borrowers must be punished by a lifetime of debt peonage, if I had my way I would… http://www.youtube.com/watch?v=b5ziIcON2LY
Shorter Fred: “You damn kids get off my lawn!!”
Get a copy of The Debt Resistors Operations Manual by the Occupy Wallstreet people. It is a very good guide of where debt in the USA is and your options. It has a chapter on student debt.
Moving out of the country might let you escape student loan debt, but there are severe consequences. In particular, your social security payments and tax refunds will be garnished.
While countries will often let foreigners work for domestic businesses, they can be much less welcoming of non-working expatriates unless quite wealthy. If you don’t have a job with a domestic company, or a 6 figure bank account, most countries won’t let you stay more than a couple months. Foreigners also aren’t usually eligible for all the benefits citizens are.
Also, you might strain relationships with family in the U.S. because they’ll be hounded by collection agencies. If you had a co-signer on your loans, they’ll be responsible for your debt after a default.
Getting a part time job at an English language school in China would qualify. Also the women are beautiful there–and if he were teaching them English, he’d have access to plenty!
Also creditors will follow you to other countries, depending on what kind of relations those counrtries have with the US. It’s doubtful that attempt that in China though.
Emigrating can be very exciting – and very dangerous! I have a close relative who recently emigrated to a South American country to escape around $150k in debt. She is fortunate enough to be married to a citizen of that country and moving there was painless, but when she moved there the first time (in the 90s) she had to contend with police and state corruption on an intimate level that is totally unlike what we have in the US, and lost some conveniences we take for granted (more or less guaranteed continuous electricity, clean water even out in the boonies). Wages are usually significantly lower, too, so make sure to save a lot or you’ll be fucked if you ever have to return to the States. Still, it’s a gorgeous country filled with wonderful people. I’ve been there almost a dozen times during my lifetime and I can confirm that the people are far more satisfied with life than those in comparable situations here in the United States.
If you think you’ll be able to survive without a $200k house in the ‘burbs and fifteen credit cards then you should give it some serious thought.
Incidentally, I would take Fred and Jefemt’s posts with a grain of salt – I get the feeling that they are folks who’ve already paid off their student loan debt, and seeing someone beat the system brings out their inner Puritan.
That may well be true. BUT!! It doesn’t make their position any less authentic.
Getting a degree back when it was “reasonably priced
relative to incomes” ain’t the same as participating
in a destructive Nash Equilibrium where every student is
fighting for limited slots and overpaying for a degree simply because of ultra-easy-money and loan sizes that
far outstrip the predicted income from the degree.
It’s like buying a house in 1995,
and then claiming someone who bought
in 2005 is no different & should shut
up and pay up. Granted,
they should’ve NOT bought in 2005,
but only a few not-widely followed folks were warning
about the easy-money-housing-bubble whilst
plenty of RE and other professionals were goading
the average numb nut citizen to buy now or
be priced out forever!
This place is run more like a pig farm, than a country.
You are a true hero. I admire you.
They will tap your SS paymnts at 15% if you hope to ever collect it even out of the country.
You’re not eligible for SS after you move out of country for X duration of time anyway. (That’s my understanding.)
No, if you’ve paid into the SS system, you get the bennies no matter where you live.
Did you have a co-signer for the student loans you took?
I’ve known quite a few Americans (and Britons for that matter) who have emigrated to other advanced countries, and the fact that these two are the only nations with outrageous student loans may have been a factor. Actually, most of them I know went to Europe- mainly to countries like Netherlands, Belgium, all over Scandinavia, France and above all, to Germany and Switzerland. That may be because I’m in engineering, and these seem to be the top countries for engineers and scientists- but AFAIK people in other fields (including plenty of humanities grads) have gone there also. These places have been relatively unaffected by the debt crisis since they avoided the housing bubble and have strong manufacturing and tech, which is a solid basis for an economy even in tough times.
Note that you WILL need to learn the languages there at some point, at least if the universal experience of everyone there is an indication. And German seems to have become something of a common language for tech and some non-tech fields. Example- several American and British expats I’ve known working in Slovakia, Russia, Czech Republic, Poland and Hungary all use German for work purposes with each other, I guess because it’s the engine of Europe’s economy and most new projects emerge from there. But you don’t have to be fluent at first, just willing to work and you can learn what you need to while there.
As far as moving somewhere if you’r being strangled by student loans, I wonder if this is also a factor, i.e. I suspect that fellow English-speaking countries like (part of) Canada and Australia will be much easier for debt collectors tr track you down, and there’s likely a stronger infrastructure to coordinate with US debt collectors. Whereas a non-Anglophone country like France or Belgium or Germany, let alone Brazil or Chile or Korea, probably won’t have as much cooperation. I won’t try to be judgmental here as I know the debt burden (and Sallie Mae’s vultures) can be ridiculous sometimes, but try as much as possible to take care of the debt load, but if leaving the country is your only last resort, I guess it’s what you have to do.
Getting a job in a different country is very difficult, especially for someone straight out of school.
The higher education market is a business fueled by loans.
If this is the path you wish to take always check these things –
1) Graduation rate
2) Number of graduates who have employment in their fields
And if possible go to Community College first – usually cheaper, often better, and graduation rate is often higher.
The 2nd point you listed isn’t very meaningful. Since school can take 4-5 years to complete, it is likely that employment rates in certain fields would be significantly different than when they started. Also, since the lists of in-demand jobs are publically available to everyone, it leads to more people to study those areas.
If anything, they should pick things that are considered terrible careers. Roustabout was considered the worst job in america 5 years ago, and I read an article a few weeks back about how their salaries were surging through the roof.
Several experienced people at the DIY Boxxstore I slave away at are leaving to pursue just that option. One of them is a mid level store manager, and so is leaving a 60K per year position. (He might have gotten offered a better gig since he was good at his managerial job.) Those oil field jobs show what a nation can do if they focus on a niche, in this case oil exploration and extraction, and excel at it. (Still don’t hear anything about who decided to use the weaker drilling mud on the Macondo rig.)
Many school are way too expensive for the quality of education they provide. I work for a well known private university that charges about $50,000 annual tuition. We are paid about market rates and it’s a non profit university. Something has to be done on the tuition side too.
Higher education is largely a scam, but you pretty much can’t move up in the survival game without one. What’s interesting is how the scam has changed in the past 40 years. I worked briefly at a well known conglomerate that owned a fleet of commercial ‘schools’ financed by federal loan guarantees. Most of the students were immigrants. They got tuition loans but didn’t bother going to the classes, which were worthless. Somehow, the whole thing unraveled, and the company became a total loss. The suits tried to sell it and one of my coworkers schemed to buy it, although he had no money, so that didn’t work out.
Colleges have always been football and basketball factories floating on beer. They are intended for children of the rich marking time until becoming eligible for decorous business roles or idle coupon clipping. It was the same way in the Sixties, but the tuition was much more reasonable. For ninety percent of graduates compelled to pay with borrowed money, college is just a black hole.
Read Veblen’s essay The Higher Learning in America.
Sounds like sour grapes to me. You can learn a lot in college including how to learn, and the environment still allows for dramatic mistakes to be made and recovered from with minimal harm.
I worked hard and paid a big part of my way through undergrad with no loans and grad school with loans and it has more or less paid off-I get to do what I wanted to do and make enough money to get by and I get to help people and minimize my harm and footprint in the world. Not needing the East Coast Fancypants schools does keep you down a bit but doesn’t have to, and there are other rewards in life that aren’t a result of Ivy League connections and Wall Street wealth.
Surely that was not the case with the Land Grant Universities. Surely that is still somewhat not the case with the Land Grant Universities at least, anyway; even now.
But that was the whole intent – transfer wealth to the loan companies at the expense of the students, and the taxpayers on default. This not a ‘Too Big to Fail’ scam, it is a ‘No Way to Fail’ scam.
Exactly, the goal of the 1% is to increase the debt of 99%. Education is just another tool to achieve that goal, a particularly effective tool. Obama’s job is to move the shells around so that you think you know where the pea is.
That explains why PAID student loan debt is not counted toward one’s credit score rating.
Some professions are for saints only: Master of Social Work for example, requires graduate school for a middle income endlessly looking after those all the rest of society has given up on.
You can also become a psychotherapist with a MSW. Private practice can be quite lucrative.
A tax payer backed debt shouldn’t have such a high interest rate….a high interest rate is supposed to reflect risk,
not the total absence of risk.
Corruption apparently knows no bounds.
The Grad PLUS loans are nearly 8%;
It is essentially a back-door way to gut social security.
The lenders should get something like the current 10 year Treasury rate, and any excess interest above that should go straight to the Treasury to make up for defaults which fall upon the tax payer funded Treasury….the skim should not go
into private pockets while the sun shines…they won’t be there for putbacks when it all goes bust.
My personal antidotal exposure is that many people are taking out the loans and then using the money for living expenses not education. Liar loans? Example I know of a case where$3,000 of a $4000 loan bought new carpet. Criminal? Nah … plain stupidity … or at least there wasn’t intent to defraud. Will the loan be paid back? I doubt it.
Loan standards should be tightened.
What you’re saying is the closest approximation to why I believe a subset of the population is taking on student debt, but not always for as frivolous a purpose as carpets. I know of one example where they have been used to replace a roof.
The fact is that student loans are easy to get, and do not in the short term have to be repaid, if your budget is squeezed they can make an awful lot of sense. The obligatory hours of college credit become little more than a happy or unhappy consequence, depending on your perspective.
There is a tone of doom of the unfathomable burden being placed on the poor student peons to Yves’ article, but it really fails to think through the meaning and possible purpose of recent policy. Income based repayment offers a hedging strategy to those of us uncertain to enter the rarefied air of the employed and fairly remunerated classes.
Essentially the debts will not be paid unless our incomes rise above 150% of poverty level, and the repayment rate is limited above that level. Either we earn tomorrow or we never pay, and at worst a tax of 10% is added to earnings that currently don’t f-ing exist.
Now taking on debt just to get by is a dangerous strategy, policy may well be changed in the future. A snoop around medical and law school forums will reveal significant interest in IBR; it was the defaulting actions of doctors and lawyers that lead to restrictions on bankruptcy for student loan debt.
The use of student loans is especially attractive when it can be used to pay for capital goods such as home repairs, or to pay down mortgage debt. I would suggest that in some of the weak market cities it would take very few students to afford a foreclosed home, at rates that colleges allow in annual rent.
So in the end, to me, it looks like a backdoor stimulus, a palliative for the unemployed, and a budget item which is not currently counted as an expenditure. Lastly, if I was in my 60’s unemployed and saw an opportunity to make through the years til retirement without devouring my savings, I would take it and run with it. There’s nothing else on offer, and there’s no age restriction.
Just for anyone wondering, Public Service Loan Forgiveness is a big crock of bullshit. My wife works for a community college and tried to do this only to find that she saved exactly zero dollars.
DoE is fastidious to check attendance of any institution offering federal financial aid: student attendance is tightly monitored and missing more than 2 classes a semester is grounds to lose funding.
For those who qualify (low income) then student loans will cover some cost of living like housing and food. Those who can live on Ramen noodles and without cable TV and smart phones, restaurants and alcohol will be able to do more with the allowance than others. There is a list of allowable expenses, all related to the education project.
Is that you? Ronnie back as a woman? I was wondering when the Pink Cadillac story was going to creep out.
subprime never grew like this, yves: http://research.stlouisfed.org/fred2/graph/?id=NREVNGOV
Wow. But at least the recession is over, right?
I’m seeing it every where, like giving one last hit of morphine to a dying man.
Skippy… Sub prime opiate dreams….
I am sure this will get worse. There are so many students getting general degrees and jobs are not there after graduation. Even the old stand by of a sales job for the liberal arts student is harder to find and now often 100% commission. The machine of academia is part of the huge money making machines that are the finance industry. This is part of the major transfer of wealth from the 99 to the 1%. There is an article on the transfer of wealth at http://www.consideritsoldlasvegas.com
Just remember, they can only take so much wealth.. once they hit 100% it all becomes just a shell game, move the stuff around so there is the appearance of change.
If the slavery becomes too obvious the people just start burning things in the streets, and while the protestors can and do get hurt from these activities, this is not in the best interest of the controlling masters to have open defiance of the establishment.
“people just start burning things in the streets”
Seems like an odd reaction, burning things of other
indebted people…but I guess the entire problem is
an inability to recognize the enemy and form a coherent
Certainly the consequences of glib choices made early in life are getting less forgiving.
I’ve heard that some people pay off student loans with credit cards and then default on the plastic.
Yes, but you have to be careful how you do that (If you intend to declare BK to get rid of the ccard debt). You need to service the credit cards a while before you default.
“Like buying a house, getting a higher education was part of the American dream, a way to invest to build a secure future. Reckless lending and the costly efforts to socialize the losses are turning both into American nightmares.”
Love the correlation with housing. Looks like the powers that be will do whatever is necessary to keep the dollars flowing, even if that means destroying millions of families in the process. If you are a bank and you destroy your company through greed and outright fraud, you get bailout, a fresh start, and bonus for your fine efforts. If you are a homeowner getting in over your head or a student investing in your future, you better choose wisely because Uncle Sam doesn’t give a shit about low net-worth individuals.
The student loan bubble is what happens when government mindlessly decides to subsidize ‘MOAR EDUMACATION’ with no attention to investment merit. Other places do it differently:
By contrast, our rulers are overwhelmingly white collar professionals who narcissistically insist on manufacturing more clones of themselves. (Can you imagine Barack Obama removing and cleaning a fouled spark plug? Me neither.)
Those with a contrarian bent should be learning practical skills, as these multi-degreed know-nothings drive the economy off the cliff.
My quibble with that scenario is that, while the know nothings drive the truck off the cliff, the rest of us are huddled in the back, like peons being driven to the fields to make another payday for ‘ol massa.’
That article is somewhat misleading. In Holland, for example, you have to pass a test in order to attend college. If you pass the test, your college education is paid for by the state (at least, it used to work that way). You don’t have a choice of university, unless you intend to specialize–such as engineering (Delft or Leiden are the two main engineering schools); you attend the university that is closest to where you live. Also, those who attend technical school receive training in management, accounting and other aspects of business, since it is anticipated that students may want to start their own businesses one day rather than always work for someone else.
I think they still make things in Germany, right? Here in America they just sell things: credit, propaganda, education, sports……
Germans also have work contracts and the company is obligated to pay them and yes even a percntage of pay while unemployed. The comparison is not an apples to apples one.
The student loan debacle can end in one of three ways:
1) dystopia where student loan bill collectors grab debtors and harvest their organs to pay off the loans (see Repo Men);
2) Jubilee; or
3) revolution which will be followed by 2).
The amounts start out high and end up astronomical with fees after default, and with no discharge in bankruptcy, this won’t be pretty.
True, but in this case we are talking about TWO assets. One is the education itself, whatever its value in terms of future income and personal fulfillment.
The corresponding DEBT is the student loans and the growth in those student loans. Debt on the part of the student, ASSET (not necessarily performing) on the part of the lender.
You cannot have an asset bubble with a non-transferable and immaterial asset. I know that this is a metaphor that people think can be applied in all directions at all times, and that it is a very deep thing to say, but the situation is not analogous.
Debt is an asset. You can transfer it to a third party. Loans are assets to banks.
What do you think co-signers were invented for?
Some people like to talk about, “the invisible hand of the market.” Well, to paraphrase Smith’s phrase everyone should be aware of the invisible insurance backstop for mass default: the public.
The debtload certainly enforces labor discipline. 30 or 40 years ago it was normal to graduate with no debt, have some lowly paid summer job, and save up enough to backpack around Europe for awhile after graduation.
Or for those with a professional degree, like law, they could afford to do things that interested them like public interest work. Not anymore.
has anyone read this article arguing against the ‘bubble’ metaphor:
“The government expects to originate, across three major categories, a staggering $121 billion in student loans, of which more than $20 billion, or 17 percent, is projected to default.
The real plan for the education bubble: students will be forced to fill it in.
Twenty billion dollars in defaulted loans sounds like a lot of money for the government to back, but that doesn’t take into account the money defaulted debtors will pay on these loans despite defaulting. Of the $20 billion in dud loans the government guarantees, it expects to recover $22 billion from debtors. If you subtract the $3 billion the feds will pay in collection costs, they still recover around 95 percent of principal from loans that default. When you default on your mortgage, you can walk away from the house, but when you default on a student loan, you can’t give your degree back. All you can do is work and pay. There’s no escape from student debt, and the government and markets both know it.”
Right, it’s not a bubble, it’s a human-rights derogation. The UN Special Rapporteur on the Right to Education is unusual among rapporteurs because they managed to get into our hermit kingdom, in 2002, and report.
They accept individual complaints, and they might be interested in this country’s officially-sanctioned imposition of debt peonage for access to education. The practice is at very least a failure to protect the right to education from predatory lenders and fraudulent schools. The special rapporteur might also notice the total absence of peace, individual development or human rights content, as required by customary international law. America’s standard course of vocational training, war propaganda, and habituation to compliance do not count as education under the law.
Hey, Who else you gonna go to – Obama For America? The closest thing you have to a functioning government is in Geneva.
Somewhat tangental, but I have always been troubled by the “early decision” admissions option of most elite schools.
What I don’t get is how it is legally permissible for schools to contractually bind admitted students, who are in many cases still minors, to attend. As I understand it, the schools take the further step of notifying one another of whom they have given early acceptance to, and the schools mutually agree among themselves not to extend regular admissions offers to any student who has received an early admission offer anywhere. How is this form of restraint of trade legal, and how do the schools get away with contracting with minors in a binding fashion? It’s a mystery to me. It reminds me of the practices of the NCAA.
I am in my tenth year interviewing for Harvard College. As I understand it, Harvard and Princeton’s early admission decisions are both non-binding. Moreover, we are not even permitted to ask students to what other schools they have applied. I am only familiar with other Ivies and engineering schools, but I don’t know of any that fit your description. Finally, Harvard and other elite institutions (including Georgetown, Stanford and UPenn) offer full tuition assistance to admitted students: over the past few year our goal has been that no Harvard undergraduate leaves with massive student debt.
Price in the American higher education marketplace is not a function of demand. Thanks mostly to expansion of the public sector, the price of tuition at American universities has become the function of an ideology: that a university degree is a wise decision because it provides a handsome return on investment. This widely-held belief imposes an upper bound to the price, namely that it must be a fraction of the benefit attributable to it. In other words, the degree bearer must be able to argue the return.
Premium brands benefit from this decoupling more than their competitors. If price were a function of demand then tuition at the Ivies would be 100k or higher and not just 40k. At 100k they would undermine their claim to broadly social relevance, a claim that is fundamental to the notion of “liberal education”.
My wife recently tried to help out a student who had racked up $40K in debt for a degree with which she couldn’t find a job. She contacted the university and asked to speak to a loan counselor who could give advice on refinancing and discovered there wasn’t one, not one counselor to deal with debt problems but plenty to help students load themselves down with debt. As it turned out, the loan itself contained clauses that prohibited refinancing or consolidation. This country seems to be turning into some sort of mafia financial state.
I’m sitting on about $6,000 from 3 years in Community College (started as carpentry, switched to civil engineering tech. after 1st year). I’ve fallen behind from time to time, due to prolonged unemployment or the need for a (barely) working car to remain in the workforce. Fed. Loans are pretty good about deferring payment in extenuating circumstances, but I don’t know how many students realize that’s an option, and I’m assuming private loan servicers are less understanding.
The thing I find truly disturbing here is this: After thousands of dollars and years of hard work, the degree I earned has only made it harder for me to get entry level work in the field (I hear “overqualified” a lot), and that’s with 5 years of finish carpentry experience. No one wants an experienced carpenter w/ an engineering degree, and no one wants an entry level engineer w/ no experience. I’d actually be better off if I hadn’t spent that money and time in school. Maybe that won’t always be the case, but I’m not exactly in a position to wait it out.
I’ve considered going back to school to finish my 4-yr engineering degree, but it actually looks like that would leave me in even worse shape. At least currently, employment prospects for licensed engies are worse than they are for techs. Switching fields (again) would likely just incur even more debt, and I’m now sorely aware of the chance that it still might not pay off in any tangible way. How far have we fallen when further education becomes a bad idea?
Maybe, just maybe, a bubble-driven economy that expects workers to switch careers every 4-8 years isn’t all that sustainable. NO, it couldn’t possibly be that! It’s all those lazy people looking for more handouts. We blame them for everything else, why should this be any different?
never tell the whole truth
Never tell a verifiable lie
Always use the bathroom when you get a chance
never let them see you sweat
Let a smile be your umbrella
Federal student loans are not the good deal they first appear to be. I had a $5k student loan starting in 2007, with 6% interest. I chose a repayment plan with a low payment that was supposed to be 7 years long. I’ve been paying $50/month for five years. That’s $3000 I’ve paid in. You know what my principal balance is? $4500! How is that going to be paid off in two years with $50 payments? Their repayment plans are shady and misleading. They do not offer an amortization schedule. In fact it is very difficult to get any detailed information about your own loan. Only recently did they change the website so that you can see what portion of your payments goes to principal vs. interest. That’s when I discovered that even now, half of my payment each month goes to interest. That makes no sense. It’s a small enough amount of money that I’m not really sweating it and now that I’ve realized what a scam it is I’m going to just pay it off in a lump sum, but if I had $20k, $50k or $100k in loans like some people? I would be totally screwed.
A Standard 120 month loan for $5000 would be $58/month. A Graduated Paymentwould start off at $40 and work up to $87 in the last two years. I doubt you ever received a Federal Direct Loan for 7 years as the minimum loan period is 10 years. You must have a loan elsewhere. Paying $50 per month to Federal Direct Loans as a “student” would not result in paying back only $500 back of it over 5 years. Think about it . . . your payment each month resulted in a < $1 a month decrease over 60 months. Not likely.
The low payment plan is a 10 year amortization plan, not 7.
Clearly the problem is multiple
1. We are producing more college graduates than jobs (or more graduates with degrees in fields that are already overstaffed).
2. There is an entire industry that exists almost solely to take federally guarenteed student loan money from students who they never really intend to educate. My understanding is that a huge percentage of the defaults are from for profit schools.
3. Real colleges are becoming too expensive as they get into an arms race with each other, and as taxpayer funding (particularly on a per student basis) falls off dramatically.
Really the whole system needs an overhaul. Not lending to schools that don’t graduate their students is a damn good start though.
Eventually the system will collapse, as people will start to realize that its simply not worth the investment.
What, has everyone forgot the wonders our war criminal masters finally passed in 2005?
From the section on Dischargeability:
“BAPCPA amended § 523(a)(8) to broaden the types of educational (“student”) loans that cannot be discharged in bankruptcy absent proof of “undue hardship.” The nature of the lender is no longer relevant. Thus, even loans from “for-profit” or “non-governmental” entities are not dischargeable.”
Oh, and under the section Legislative History:
“The 2005 bankruptcy bill was actually first drafted in 1997 and first introduced in 1998.”
Gee, they’ve been gunning for us serfs for a long time, huh?
Yes, I know we’re all familiar with the law but since it really is the icing on the crap cake I thought maybe we should all just revel in the true hideousness of those who are our elite masters for a moment or two.
So, not only are students going to have to take on un-payable amounts of debt but SINCE ALMOST THE VERY BEGINNING of this scam our masters were looking to directly chain them up for life.
Really, it just needs to be thought about for a second to appreciate how truly evil and effed these people are.
The 2005 law was actually pretty successful in realizing the purpose for which it was enacted. The overriding purpose of the law was to strongly challenge claims of would-be bankrupts that they had no resources with which to pay their debts. Perhaps the law went further than was socially optimal, but it is hard to look at the evolution of personal bankruptcy just prior and then in the years after this was enacted and deny that this tended to work as its sponsors claimed it would. Some critics claimed that you would not get blood from stones, but the stones were squeezed and blood did come out, which is exactly what another class of critics was predicting would happen. File this under the heading that elections do matter.
“The overriding purpose of the law was to strongly challenge claims of would-be bankrupts that they had no resources with which to pay their debts. Perhaps the law went further than was socially optimal..”
Well, golly shucks, then I guess the P.A.T.R.I.O.T. Act is a resounding success, too, as it’s completely protected us from the scary terrorists, right?
Hey, what about warrantless…shhhh, results may not be “socially optimal”.
So, I guess what America really needed was to go after the bankruptcy claims of its individual citizens – parasites that they are – especially students all the while continuing to ignore/promote the “bankruptcy” of multi-billion dollar corporations, eh?
Here’s a nice article from the American Prospect/Kuttner on just this double standard:
Lastly, are you hinting that the finance industry which writes these type of bills and which was already cranking credit out the wazoo by the late 90s didn’t – ahem – have a “hunch” that there was no way that people weren’t going to be able to pay back all of the moneys lent out to them in the coming years/decades? That it was simply just to inject some more “respect” – chortle – back into the credit system?
A quote from the AP article and a link to an Elizabeth Warren/Boston Review 2005 piece which addresses your “points”:
Harvard law professor Elizabeth Warren came to national prominence with her research demonstrating that the charge of frivolous consumer bankruptcies was a red herring. As she demonstrated, most consumer bankruptcies were in fact driven by medical bills that overwhelmed family resources or by other unforeseen financial calamities such as the death or disability of a breadwinner or the breakup of a marriage. She testified in 2005 that during the eight years that the financial industry was promoting a harsher consumer bankruptcy law, the number of bankruptcy filings actually increased a modest 17 percent, while credit-card profits went up 163 percent to $30.2 billion.
Why does the over-consumption myth persist? Why does a story of misbehavior and irresponsibility win out over a story of hard-working people who get caught up in job losses, medical debts, and family breakups? Why is there no acknowledgement that financial misfortune is often a matter of bad luck, and that the long lines at the bankruptcy courts and the high rates of credit-card default have little to do with irresponsible spending?
One explanation is political. High-interest credit-card issuers and sub-prime-mortgage lenders operate only because a careful combination of deregulation and protective regulation permits creditors to charge fees and interest rates that would have landed them in jail less than 25 years ago. If millions of Americans believed that families were losing their homes because of deceptive marketing and oppressive contract terms, there would be a public outcry to change the regulations that favor banks over consumers. But as long as Americans believe that the only people in financial trouble are the spendthrifts, there is no reason to restrict the lenders. Everyone is getting just what he deserves.
Why are you harranguing someone who just told you the truth? He is right. He just did not call them a bunch of blood suckers like you did (which is true too). As far as high interest rate credit cards? Let me refer you to one of the worst Supreme Court Decisions ever made which struck down state usuary laws and was mostly written by Justice Brennan. “Marquette Nat. Bank of Minneapolis v. First of Omaha Service Corp.” State Laws were in conflict with the National Banking Act and SCOTUS rose to the occassion to affirm federal dominance over banking regulation. The date was December 18, 1978 or 44 year ago almost to the day.
” it freed nationally-chartered banks to offer credit cards to anyone in the U.S. they deemed qualified, and more specifically because it allowed them to export interest rates to states with stricter regulations, opening up a race to the bottom between U.S. states in an effort to attract lending institutions to set up shop in their states. Over the next decade, the states accelerated a process that had already begun of repealing or loosening their anti-usury laws, allowing state-chartered banks to compete more equally with national ones. As a result, the use of credit cards has vastly increased, and since the mortgage industry soon followed suit, the issuance of subprime mortgages also increased drastically, facilitating the housing bubble that led to the 2008 housing crisis.”
Brennen expected Congress to act and reassert itself by passing another law to control usury. Instead, Congress sat on its hands. What did come out of this are two states rising to banking prominence; Delaware and South Dakota because of their liberal laws for banking as well as opening the door for bnks to offer other types on loans at varying interest rates.
I believe you will also find in Warren’s words are: “a high school education and a good work ethic was the ticket into the middle class.”
Hey, I’m no fan of Dem players like Warren but she rightly demolished the “credit profligacy” meme which was the expressed mantra of the industry whores for the decades leading up to the bill.
As to my haranguing, Eric seemed a bit too sanguine about the whole process esp. in his bloodless assessment that – oops – it was just “non-optimal” that millions of people were thrown in to debt slavery along with their mythical cohorts the credit profligates.
My analogy to the PATRIOT Act holds.
Gee, ordinary Americans saw their privacy and rights eviscerated and
Voldemort The Borg SkeletorAl Qaeda hasn’t somehow destroyed us yet as a country, huh?
No more Bill of Rights = not-optimal.
Not part of The Borg = whew!! Successfully realized its stated purpose!!
Again, much like how Clinton’s welfare “reform” besides devastating millions of low-income families really hit the welfare-queens with their 12 kids in the backseat of the Caddy the hardest, eh?
Here’s a link to some of Warren’s thoughts on the Marquette decision given to a Sioux Falls paper in 2007 from the wiki citation list.
With all due respect, you are completely full of shit.
The banks fictitiously marketed this irresponsible borrower meme. Studies for years debunked it. I’m not going to waste my energy finding them.
And if the borrowers really were so terrible, guess what? Maybe the banks should have thought about tightening their credit standards! If you are a lender and you make bad loans, shame on YOU. But no, they shifted their credit card business models from charging annual fees (where they made money on each and every customer, including ones who rarely used the card) to a no-fee model where their profits came from loading people up with debt and getting them into the highest interest rate categories possible. And we are supposed to sympathize with the banks when some of those borrowers go tits up?
Let me tell you what drove this: the 2005 bankruptcy reforms allowed banks to wring more money out of people in bankruptcy. And if you look at the budgets people are required to live on, it’s draconian. Many people fail to get through the 60 months because it allows no room for error and it’s punitive. A single person in NYC is supposed to spend only $200 a month on food. I’d like to see YOU get buy on that.
MBNA (big credit card co, now part of BoA) was one of the huge forces behind the bill. They estimated it would enable them to get $100 more a month out of a bankrupt borrower, which would increase their bottom line by $85 million a year.
With all due respect…@Yves
Decided on some stool softener after the feed went out. Good call.
Just for giggles I went back and poked around in the original bill from 1998/1999 and found this gem – emphasis mine:
Bankruptcy is an extraordinary remedy, and it should continue to be perceived as such by all Americans. Individuals who are currently availing themselves of the Bankruptcy remedy without adequate justification bring discredit to the system, and cause the honest borrower to pay more for credit. In her statement before the Subcommittee on Commercial and Administrative Law of the House Committee on the Judiciary on November 13, 1997, Circuit Court of Appeals Judge Edith H. Jones, a member of the National Bankruptcy Review Commission said:
. . . I cannot overemphasize that the time has come for Congress to consider whether the bankruptcy discharge and ”fresh start” are widely being made available to individuals who could afford to repay some of their unsecured, non priority debts. From my experience on the Commission, I believe the discharge is being unjustifiably granted in a significant number of cases. Proportionately, these may not be a large share of overall bankruptcy filings, but taken together, they case disrespect on the system and impose large losses that ultimately must be borne by non-bankrupt consumers.
Statement of the Hon. Edith Hollan Jones, pp. 11–12 (1997).
BTW, this woman almost made it to the USSC:
Make the educational organizations, public or private, fund their own loans. They would then have to consider whether their graduates would be able to repay the loans.
In addition, give scholarships to students willing to accept the time and effort required to study intellectually demanding subjects. I would rather hire smart, capable graduates and teach them my business than to hire business administration or communications graduates.
Heck, I’d be satisfied if they stood behind their own credentials. Instead, they play the academic equivalent of publisher’s clearinghouse sweepstakes.
What a racket.
Mostly this is a great post and it’s content should be said over and over again. “There is virtually no escape from student loans unless you die, are disabled, have an income less than 150% of poverty and are willing to wait 20 years or more for discharge; you will be hunted and haunted for the rest of your life including having SS garnished at 15%”
I am curious as to why you lay the blame for the present situation entirely at Obama’s feet when much of this has been evolving since 1996 and Obama was the first to provide a path out and into discharge (although it may show as income). Yes there should be alternatives better than this; but, Republicans and many prominent Dems (Biden, Edwards, Bacus, Cochran, Kerry, Sarbannes,Salazar, etc.) have blocked efforts to offer relief to heavily burdened students since the late nineties. Timeline of legislation passed; http://www.finaid.org/questions/bankruptcyexception.phtml The seelout of students has been going on for years.
Student Loans and Parent Plus Loans were always easy to get with little review. Subsidized and unsubsidized Stafford Loans has interest rate controls on them the same as Perkins Loans. Parent Loans could go as high as ~8%. Allowing banks to make subsidized student loans was a give away by Bush which I believe has come to an end under Obama and consolidated under Direct Loans and passed back out to various servicers who have to follow the same guidelines Direct Loans has. Enough said on Student Loans.
It was at “Showdown in Chicago” when Mary Battori and I cornered Senator Durbin (who is presently selling out the Middle and Lower Income Brackets with concessions to the Republicans)> I do not remember wht happened to her words in print; but mine to Durn?
“It would be nice if the Democrats would start to act like the party of the majority rather than the party of the minority they used to be under Bush.” I meant all of them and including the Blue Dogs.
The student loan situation is criminal.
If the lending standards had been tighter and the loan amounts limited then tuitions and rents would not have been able to climb so high.
Old grumpy guys that complain about how they had to pay back their loans and thus so should today’s students did so under much lower real tuition loads and entered the job and property markets at a much more lucrative time.
Not to quibble, but surely the “bubble” is in college tuition rates and not in the lending to pay for them?
It’s important to quibble on economic matters to find as precise an answer or set of answers as possible. :-)
The two are not separate:
Loans are being extended apace.
A willing and able “consumer” (many of them) take on the loans.
The money is spent in heavy volumes at the educational institutions and service providers (like textbook publishers).
Much money chasing a good (education in this case) the price will rise.
The “consumer” sees that the price is rising. What does one have to do? Yeah, of course borrow more money!
It is a mistake to see the two as separate.
Of course, Republican criticism of overly generous student lending also has to be taken with a fistful of salt: Conservatives view higher education as indoctrination camps for socialism.
No, I don’t agree with you on this point Yves. Only the idiot wing of The Republicans actually think that Universities will trot out Marxists. Fools like Limbaugh say that sort of thing. Limbaugh is just a court jester and I’m sure many people in his party privately regard him and people like him as such.
The intelligent members of the Republican party know that they might get a Condoleeza Rice out of some youngun going to school. There’s a demand curve for “evil intelligentsia” just as there is a demand curve for “social justice intelligentsia.” Since this is the case it makes much more sense to influence/control the kinds of professors that staff Universities and the kinds of professors that get or do not get tenure. Additionally, one wants to influence the market remuneration that a student can expect for undertaking one or another course of study.
A court jester like Limbaugh would never understand this, a guy like Rove would. It’s the serious Republicans who craft much of the enduring policy [of their party], the court jesters just move from one sensationalist thing to the next. It’s important to distinguish between the two types.
Bruce Bartlett, who was in the inner circle, disagrees with you:
And Rove’s influence is sure to be sorely diminished having just looted Republican donors.
The article is very interesting. It’s kind of astonishing that the Republican party could turn on someone who is a supply sider.
Your point is that I don’t see that The Republicans have become more thoughtless, and myopic than I imagine, you may be right.
I assumed yves that it goes without saying that when the bailout happens, the banks will be the ones who get the cash windfall while millions get screwed and are forced to continue to pay these debts (like the scheme of ‘hardship deferral’. A good Obama scam for this would be for debtors to defer payments for awhile, while interest still accrues, and have the govt pay the lenders the payments the debtor isn’t making but not have those payments credited on debtors’ accounts. So banks get paid to not take people’s payments and charging them interest.)
I know you mention lavish facilities, which helps attract students (student housing still remains in the stone ages of course). But, it is quite often mentioned by the sports persons that their programs don’t make money (it’s a lie, but go with me on this). So often is it that new stadiums are built or renovated. Now, I want to bring up another observation. High schools brag in reverse of this. They state their sports programs bring in excess funds that support the school itself.
Yves, everything has become an extortionist racket. Look into the cost structures and budgets for building new schools. Contractors in my area fight tooth and nail for those jobs because normal pricing goes out the window. Door handles on garbage receptacles can reach into the thousands in price.
The “hamster wheel” of student debt peonage will just keep on a-turnin’ until all Americans recognize the fact that we need to have most jobs paying a genuinely adult-supporting wage be available via the education we get for free — PERIOD. This means that high school needs to be more than enough to fully qualify all graduates for these jobs. As others have remarked, all developed, civilized nations on Earth offer this to their children. The US and UK forfeit their claims to the titles “developed” and “civilized” until they can return to this standard. Student debt slavery is no more ethical or right than it’s predecessor, race-based slavery. And that’s all that there is to it — no other factor matters.
I’ve been saying this since the late 1970’s. Now others recognize these facts. It’s about damn time!
Student debt is stunting the growth of the economy. Student loans have increased by 275% over past decade. As the next generation graduates from college, they are plagued by insurmountable debt that places demands on their income, limiting their ability to spend their earnings in ways that stimulate the economy.