<p>Most college students should be able to pay back their loans, because the vast majority of them will get jobs.</p>
<p>A $30K federal student loan paid back over 10 years is about $300 per month, over 25 years is about $155 per month.</p>
<p>and under IBR, payment could be a lot less, and after 10 years or 25 years, no mas.</p>
<p>I realize $29k sounds like a lot of money when you’re in high school, but after you graduate and get a job in your field, it is quite manageable<<</p>
<p>Unless your field is art history, or theater, or English, or a dozen other majors where you might make more waiting tables.</p>
<p>Don’t kid yourself, $29k IS a lot of money. You will not qualify to buy a home for many years if you make $40k and owe $29k.</p>
<p>“Don’t kid yourself, $29k IS a lot of money. You will not qualify to buy a home for many years if you make $40k and owe $29k.”</p>
<p>Again this sense of entitlement. We all make choices and should be made to live with them. If a student chooses to borrow 29k and it hampers their ability to own a house (didn’t this use to be the American Dream not an American right?) then they should learn to deal with the consequences. The same consequences of choosing a major that does not pay well.</p>
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<p>Do most people buy a home upon college graduation? I think not. By the time you are 30, your income will be higher, the payments will be smaller (via inflation), the balance will be small and can be paid off with your first mortgage loan.</p>
<p>Bay, you really think you can pay off your loan with your ‘first mortgage loan’? Your loan is for 80% of the price of your loan if you have saved a 20% down payment . Where does the loan repayment money come from?</p>
<p>twoinanddone,</p>
<p>If you graduate at age 22 with a 10-year $30K loan at 3.86%, then the balance you will owe when you are 30 and ready to buy a house will be about $7,200 (assuming you didn’t already pay it off). If your income has increased over the past 10 years, inflation has happened, and you got married, you shouldn’t have much problem wrapping that $7200 into your mortgage loan.</p>
<p>Wrap it from where?</p>
<p>Assume all you listed is true and you only owe $7200 (a 30K loan wouldn’t amortize by more than 2/3rd in 7 years, but we’ll use your numbers). You decide to buy a $200k house, have $40,000 down payment and borrow $160,000. Where does the extra $7200 come from to pay off the student loan? The value of the house is fixed at $200k. You can’t borrow an extra $7200. If you don’t put down 20%, you have to pay PMI if you can even qualify without the 20%.</p>
<p>There is no money back from a first time purchase. I believe you are thinking of a refinance where the value of the house has appreciated and you get $7200 back from the equity and can pay off your loan. Problem is, you have to own a house for it to appreciate.</p>
<p><a href=“a%2030K%20loan%20wouldn’t%20amortize%20by%20more%20than%202/3rd%20in%207%20years,%20but%20we’ll%20use%20your%20numbers”>quote</a>
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<p>You can do the math yourself using an online loan repayment calculator. Payments on a 10-year $30,000 loan at 3.86% are about $300 per month. If you’ve paid 8 years of it, then there are two years of payments left: $7200.</p>
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<p>It comes from the bank, who may happily amortize the $7200 over the life of the 30-year mortgage loan to rid you of a non-dischargeable debt.</p>
<p>FWIW, people graduating now have most unsub loans at a 6.8% rate. The lower interest rate is new this year. </p>
<p>It’s pretty irrelevant but carry on.</p>
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<p>No, the old (pre-2013) subsidized rate was 3.4%. The old unsubsidized rate was 6.8% but is now also 3.86%. I believe the old loans can now be consolidated into the new rate if one desires. Plus, the unsubsidized students are those who did not qualify for FA, so they are less likely to be as needy from the outset.</p>
<p>@Bluebayou - Yes, ‘we’ are the lending entity for most student loans. What is your point?
So what exactly is my straw man argument? My comments were specifically addressed towards DELINQENT balances and the process by which they are handled, not initial interest rates which I agree are reasonable.
Seems odd that we as a nation are OK with allowing individuals or corporations to rack up unsustainable personal or corporate debt which can ultimately be dealt with via bankruptcy if necessary, yet if the same situation arises with regards to student loan debt we are OK with hanging that debt around one’s neck in perpetuity.
@JohnLaw - completely agree.</p>
<p>6lambs:</p>
<p>your post specifically mentioned “lending entities” (plural) when in fact, there is only one, the U.S. Dept of Education. (By using the plural, I assumed, perhaps incorrectly, that you were referring to the big bad banks.)</p>
<p>Your argument is based on what you even admit is a = ‘worst case scenario’, and for which you provide absolutely no facts that such a scenario even exists (besides in theory). Thus, IMO, that is a straw man argument as it introduces a fictitious situation. </p>
<p>fwiw: even if the program works for millions, but fails one (in your worst case scenario), I’m ok with it.</p>
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<p>Exactly! By the time you’re 30, you should have saved away ATLEAST $20-30k. For most people it’s much more than that. </p>
<p>If you’re a poor liberal arts grad working at Old Navy, well… I don’t know what to tell you. It’s your own fault for pursuing a field that has lousy job prospects! But don’t blame the rest of us for your problems, and don’t make us pay for your college tuition.</p>
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<p>Again, at 30, you should have a decent chunk of money saved away (think $20-30k+). You’ll probably also be in a serious relationship with someone, or married, presumably with dual income.</p>
<p>With an FHA home loan (5% down), you put $10k down on a home. That gives you ATLEAST $10k (let’s say $9k after home inspections/moving costs/etc.) for student loan payoff, plus some leftover for cushion. Now that your loan is paid off, you quickly grow your savings with that extra $300 a month coming in. Again, this is calculated conservatively… with dual income it should be much easier to recoupe costs, plus most people will have more than $20k saved away by 30.</p>
<p>bluebayou:
I think you’re making assumptions as to what my ‘argument’ may or may not be. And while I did reference ‘worst case’ scenarios, I am not arguing that any & all borrowers with student debt should be able to discharge said debt in bankruptcy. For that small minority of people who get seriously behind in their debt repayment the system is currently set up for them to fail. While I did not provide any ‘facts’, my assumption was that there are plenty of stories available to read online that describe in detail how some debt situations have quickly spiraled out of control that one could safely assume that for a small segment of students there is in fact a ‘problem’ (at least for them). There is no straw man argument intended.
I do agree with you that the system needs to work for the majority of people, which it does. My aversion is to the escalation clauses built in to the sytem for the worst case scenarios.
As others have mentioned, it would appear that it is time for some type of re-vamping to the student loan industry. Greater risk profile scrutiny, maximum overall student loan caps and interest rates tied to fields of study would all appear to be worth consideration. Until colleges as well as private lenders have more skin in the game, education cost increases will continue to far out pace inflation rates. They currently have no incentive to see the gravy train stopped.
Good thread - many insightful posts.</p>
<p>Revamping the student loan industry - how about having college partially financially responsible if they fail out kids who should have never been accepted in the first place?</p>
<p>The state school I work at accepts kids who haven’t taken college prep, with C averages and SAT scores below 1400. Then the kids fail out. Then they have student loans and no degree.</p>
<p>That is the real risk, kids not graduating and still having student loans.</p>
<p>I agree, risk is essential. Without risk, we ended up with outrageous annual increases in the tuition cost, the decrease in graduation rates, the category in 5 and 6 year students, and the investment in noncompetitive fields.</p>
<p>I don’t know where you people get your home loans. If you buy a $200k house, you owe $200K. You can’t borrow $207,200 to roll your student loan into it. Banks no longer lend at 110% equity. Those ‘bad old days’ are gone. If the house appraises at $200k, it’s likely you’ll borrow 80-90% of that, which still leaves you to come up with $20-40k at closing, not walking away from the closing table with a house and the $7200 to pay off your loans.</p>
<p>Walking away with money to pay off other loans can happen if you are refinancing and equity has accumulated for your home, but not at purchase.</p>
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<p>What would you have the school do? Just give everyone a degree? If we believe that people are smart enough to make choices for themselves then we can’t hold the college responsible for students who fail.</p>