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<p>Imo, this is just further evidence that something needs to be done about for profit institutions and the scams they are running.</p>
<p>I teach at a community college and our students live at home, pay roughly $1700.00 a semester and then attend our “public ivy” for the last two years at roughly $5000.00 per year. They commute and live at home. Yes they miss out on the “college experience” but if the money isn’t there one should accept it and live at home (if home exists).</p>
<p>My opinion, based only on conversations with my students (some of whom come to us with huge debt from four year schools) is that the borrowed money was often to support the lifestyle that goes with the traditional college experience-dinners out, movies, clothing, weekend trips, cars. </p>
<p>Several of my students financed automobiles (while living on a residential campus) or musical instruments ($5000.00 on a cello) with student loans.</p>
<p>I wish the whole loan business could be eliminated with the exception of parents taking out loans or students paying on a monthly installment plan while they work and attend school. Research on the frontal lobe development of the emerging adult suggests that this part of the brain (that is involved in decisioning and delay of gratification) is not fully developed until age 25. Maturity is a big part of the problem. Many 18 year olds can’t plan ahead very effectively with financial concerns due to brain development. They also lack of the knowledge base to fully assess what they are getting into.</p>
<p>mnmomof2: are you okay living in a world wherein people who are on Social Security have part of their checks garnished for debts accrued four decades prior? Because that is a world without bankruptcy.</p>
<p>I do NOT like bankruptcy, wish it didn’t have to exist, but am aware that in the real world, people sometimes make dumb decisions. Or they make decisions that seemed smart, but ended up going south for one reason or another. The question is how long we want the debt to hang over their heads.</p>
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Your understanding is incorrect. From 1976 until 2005, students could not discharge their debts within the first five years of repayment (so they had to pay for five years), absent undue hardship. Very, very few filed for bankruptcy - it was mostly fear-mongering. Lucrative fear-mongering.</p>
<p>And as I keep saying, if a lender doesn’t think that a kid can repay, WHY is that kid better off with non-dischargeable debt? In what world is that student’s need taken care of with a loan? Is the assumption here that if you have access to a loan and you’re a nice, moral person, then everything will turn up roses?</p>
<p>I feel the need to add that I said this same stuff back in the early/mid-aughts regarding the housing bubble - you’re better off being refused the loan that you can’t repay. At least you can eventually get your mortgage messes cleaned up in bankruptcy, or hand back the keys and walk away. Student loans will be much, much messier.</p>
<p>Taxguy, you said above. “This confirms what I have always said for years and have published numerous posts on this: No matter how prestigious the school, don’t go there if you are going to incur substantial undergrad debt! There is nothing wrong with a state university. In fact, top students might be able to get full or almost full tuition from these public schools…” Thanks for that tip. Taht is a question I’ve been weighing in my mind as a parent who will be paying for a good chunk of the college expenses. That was conclusion I’ve come up with but you confirming it with your work background is immensely helpful. Hard to believe schools are going after kids with Perkins defaults. I wonder what the backstories are in that area.</p>
<p>@ariesathena - as someone who (successfully) went through a chapter 13, I’m OK with having people on Social Security have their checks garnished for prior debts because the alternative is that the rest of us wind up paying for it. Those with high medical bills that discharge them through bankruptcy leave the rest of us paying higher medical costs and insurance premiums. Those with high credit card bills that discharge them leave the rest of us with higher fees and interest rates. SOMEONE ALWAYS PAYS…if it’s not the one that incurrs the debt, it’s the rest of us. I am against discharging any non-secured debt, which includes student loans.</p>
<p>I don’t have a problem with an IBR program because over the 20+ years of repayment the borrow will most likely be repaying all principle. If the govt/lender is earning a little less profit on lost interest, I’m perfectly OK with that.</p>
<p>@hornet - govt backed loans are designed to be manageable and the LARGE MARJORITY of students that borrow money do borrow manageable amounts. For those that borrow excessive amounts most do so through private loans that do require co-signers who have well developed frontal lobes and at least have access to all the knowledge they need to make informed decisions if they choose to seek it out.</p>
<p>I found this interesting (72% of student borrowers owe approximately $50/week, that’s REALLY not excessive…they spend more than that on lunch):</p>
<p>[How</a> Much Student Loan Debt Is Too Much? - My Money (usnews.com)](<a href=“http://money.usnews.com/money/blogs/my-money/2013/01/30/how-much-student-loan-debt-is-too-much]How”>http://money.usnews.com/money/blogs/my-money/2013/01/30/how-much-student-loan-debt-is-too-much)</p>
<p>Your Budget with $25,000 in Student Loans (72 percent of student loan borrowers). While no one wants to pay student loans, $25,000 in education debt is manageable for the average professional earning $30,000 to $40,000.</p>
<p>Depending on a student’s eligibility, most (if not all) of this debt would be in government loans. Based on a 20-year term, installments would be around $150 per month. Looking at consumption data from the Bureau of Labor Statistics, it’s about the same amount the average household pays in a year for a used car. It’s slightly more than one-tenth of the average housing expense.</p>
<p>Your Budget with $50,000 in Student Loans (16.5 percent of borrowers). This is where graduates really start to feel the burden of student loans. Monthly payments are around $450, largely because private loans are necessary above $31,000 in tuition costs.</p>
<p>It would be a tight budget for someone earning between $40,000 and $50,0000. Student loans would be a large portion of the budget. You’d be paying about as much for loan payments as you would for food. Food is usually the third largest category in a household’s budget. Your monthly loan repayment would be about a third of what you are paying in housing costs.</p>
<p>Your Budget with $75,000 in Student Loans (6 percent of borrowers). The average college graduate would probably need to move back in with mom and dad at this point. It’s either that or find lots of roommates.</p>
<p>You would likely be paying about $750 per month in student loans. The average graduate with a four-year degree earns about $43,000. At this income level, your loan payments would be your second-largest expense next to housing, and would be close to what you are spending in food and transportation combined. You would need to take drastic action to make loan payments, probably by foregoing any retirement savings and cutting back on entertainment. Even so, you might not be able to find ways to make ends meet. Someone earning around $60,000 could probably afford this payment more comfortably.</p>
<p>Your budget with $100,000 in Student Loans (almost 2.5 percent of borrowers). If you are taking out $100,000 in loans, you had better be a doctor—or remodeling your old bedroom at your parent’s house on mom and dad’s dime. Monthly loan payments would be up around $1,075 and could easily eat up at least half of the average graduate’s take-home pay.</p>
<p>At this point, you are essentially making a second rent or mortgage payment each month. While you may have a place to live, you have no money for other important things like food, transportation, and clothing. Since it’s a choice between paying student loans or rent—and student loan payments are not optional—you are definitely headed back to mom and dad. Keep in mind, the shortest loan term is 10 years, which means you are going be 32 before you move out.</p>
<p>You’d need to earn between $80,000 and $90,000 to afford this payment comfortably.</p>
<p>Your budget with $150,000 in Student Loans (almost 2 percent of borrowers). Even a third job likely wouldn’t be enough to ease the burden of the average graduate who’d amassed $150,000 in student loans. Monthly payments would be around $1,7000 or most of your take-home pay. You’d easily need a six-figure salary to fit this expense into your budget.</p>
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<p>This is a huge elephant in the room which is distorting the picture. For profit schools generally have less amenities, have questionable academics (in some cases), and are making a profit off these loans (and the pell grants they also collect.) They’re graduating rates are often quite low.</p>
<p>Interestingly, these schools often bill themselves as employment training, lacking the “frou-frou” liberal arts education that is getting short shrift here. Students go to these for-profits for explicit reasons of career advancement–yet it sounds like, once we get beyond the sound-bites that sell newspapers, it is this kind of program, much more than the beleaguered English or philosophy programs, that is driving the huge loan increase–which mirrors the growth of the for-profit schools.</p>
<p>aries - I would prefer a world where there was reasonable borrowing only. Not sure how to achieve that in current system. Maybe having to run the numbers and sign something saying that “borrower understands that a monthly payment of $XX will commence on DATE and last until DATE” would help, but one would hope that information is being considered already! I don’t like the idea of garnishing SS payments at all, but perhaps that is the only recourse that would stop reckless borrowing. Forgiving loans does not make them disappear; someone pays for it; either the government (us) or the bank shareholders depending on the loan. And before this turns into an anti-bank thread, we should consider that most of us own financial sector assets via our investment/retirement funds or index investments (so that is us paying, again). I just don’t get how my wealthy co-worker can “strategically default” on his home. Nor do I get why my middle class peers put off retirement savings/take huge loans to send junior to a private (without merit to bring it down to state U cost).
I do think there should be some form of medically allowed bankruptcy for someone that is unable to work, but I would put the bar very high on that (verifiable, significant disability that disallows any work).</p>
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<p>My understanding is that the lender is required to offer student loans to any student, regardless of perceived ability to repay. So don’t blame the banks/fed. The non-dischargeability protects the banks/taxpayer. The student receives the benefit of a college education in exchange for their promise to repay. That is the need that is “taken care of.” The assumption is that people are responsible enough and bright enough to understand that the loans must be repaid, regardless of their future circumstances. Apparently, this assumption is faulty. </p>
<p>The banks can stop lending. Or the loans can be dischargeable, in which case the banks will reduce lending. In either case, the poor (and others with difficult financial circumstances) will suffer in that they will not go to college, or their educational choices will be severely limited. Is that what you want?</p>
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<p>The problem in this is not the failure of others to repay student loans, the problem is that the Vets and Homeowners in your example have extremely risky retirement plans. If their retirement gets delayed that is a responsibility they need to bear as a result of the risky plan they put in place. Affected by others? Sure. But that’s the path they CHOSE. This is just more of blaming someone else problems caused by one’s own decisions.</p>
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<p>Did he really say this? I’m seriously asking. Because he also proposed raising the Perkins pool from $1B to $8.5B. It seems like he’s talking out of both sides of his mouth. Or have I missed some policy shift?</p>
<p>(And no, I’m not trying to start a political debate. Unfortunately, double-speak like this is what I’ve come to expect from most of Washington)</p>
<p>DesignDad, I’d agree with you about the home equity for retirement. Seeing a massive runup in the value of one’s home over a lifetime is a fairly recent innovation. But small business owners planning on selling their business after a lifetime of investing in the business’s assets is, to my understanding, a well-established part of retirement planning. </p>
<p>My ox isn’t being gored here, so I’m not arguing the point out of self-interest. On the other hand, none of us is a fiscal island. We’re all affected by others, and by others’ mistakes.</p>
<p>And yes, you are starting a political discussion which is going to get this discussion shut down, so let’s steer away from the partisan. Thanks.</p>
<p>ST - I apologize. I honestly didn’t mean to. I guess I just don’t see how it’s possible to discuss this issue without an understanding of the policies in place at the top. I’ll see what I can do to edit my previous post. Sorry. (update: tried but couldn’t due to a 20 minute limit on editing posts)</p>
<p>Regarding the sale of businesses, I completely agree that it’s a well-established method. It is however a risky one because you often end up starting a business depending on the fact that there will be a market for that business 35 years down the road. Really hard to depend on that.</p>
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<p>Yes.</p>
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<p>Yes. You are never too old to pay back what you borrowed. Nor is there a statute of limitations on debt.</p>
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<p>Until it’s paid off.</p>
<p>Ah, DD, sorry for doubting your intentions. :-)</p>
<p>I agree with garland that the for-profits are a big part of the problem. I’m sympathetic to Bay’s argument that making loans non-dischargeable means poor students won’t be able to afford to attend college, but I’d like to see some numbers: of those who took out loans because they otherwise couldn’t afford to attend a non-profit college, what percentage completed their degree program? Within, say, four years after graduation, what percentage of those who completed their degree program are employed in a program requiring that credential?</p>
<p>I don’t like seeing kids take out full student loans for a CC because too often kids are living at home and just using the money for luxury purchases. And since too many never actually get a degree, they end up with $10k+ in debt without a degree-paying job. </p>
<p>I would rather see student loan amounts get reduced for CC goers and then allow them to borrow more once they transfer to a univ.</p>
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Yes - I think that money should NOT be lent to people who are unlikely to repay it. No one is better off for having been given an unsecured loan that they cannot possibly repay. </p>
<p>It beats the pants off VillageMom, who wants to garnish Social Security checks.</p>
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Except it doesn’t - because tuition has gone up even faster since the 2005 changes to the bankruptcy code.</p>
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<p>In the context of student lending, what sort of eligibility requirements do you think make sense for predicting which students are unlikely to repay their loans?</p>
<p>I know this has been brought up in other threads, but for those who are advocating making loans dischargeable in bankruptcy, don’t forget that you do that and interest rates will sky rocket. Student loans, by nature, are risky – you’re talking no collateral, no credit history, and risky default rates. Assurance of eventually getting paid is the only collateral, so to speak.</p>
<p>That, of course, is for private loans. As far as government loans are concerned, that may or may not be a different argument whether the government should take on more risk than a private bank would. Pick your poison.</p>
<p>One other note on colleges suing kids, the colleges are obligated by the government to do everything they can to get the Perkins money back. In most case they make repeated attempts to come to some sort of payment schedule, and are left with no other option. Universities aren’t as evil as people make them out to be. Heck, credit card companies will even work with you to devise a payment schedule, and I trust their motives a lot less than I trust most U’s.</p>