debt

Paying for College
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<p>I spent some time thinking about the analogy while driving today and was trying to figure out what the customer is buying. In the case of a house, there’s tangible property. For the student, the goal is to buy a degree. But sometimes they don’t get it. I have a hard time with buying tuition. It doesn’t really make sense to be buying a service in a bubble as a service is temporary. So I guess the best I can see is the degree. Of course not everyone gets the degree.</p>

<p>With the NASDAQ bubble, you got shares. With a gold bubble, you can take delivery of a 100 oz gold bar (you have to arrange with your broker, exchange and an armored car to have it delivered to a nearby bank). SLs have many of the characteristics of a bubble - but I like to be precise where possible. But I won’t quibble if you or other writers call it a bubble.</p>

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<p>Astute observation, and therein resides the moral issue which is so disturbing. We have set up a situation in which people have to buy their education, and gods help them, they are borrowing in increasing amounts to pay for degrees. And as such they are going into increasing and sometimes impossible debts for what is, as you so concisely stated, is an intangible commodity.
And obviously because it is so intangible, then how is the worth to be accessed? And by what standard is it to be considered a viable investment? Now obviously the academic system tends to quote the old stats about greater earnings for those who do become educated. But these never seem to be show clear correlations regarding the current costs of education to current earnings. So in those terms these stats are often at best platitudes or misleading marketing.
And the issue becomes more problematic at the gateway or vocational schools, insofar as a high proportion of those students will enter lower paying trades or professions. Given years of decreasing amounts of non loan based student aid and the attendant increases in the amounts borrowed for education its improbable that for these populations there is a viable cost to benefit ratio. And as a result we could soon economically lose a very vulnerable population and one which is essential for our consumer economy.
And that moral problem is compounded by schools or programs which may not be credibly providing students with the knowledge they should attain. And that remains a dilemma even if a school tries to do its duty in educating students because the escalating costs combined with a very poor overall economic environment could mean that even a good education may have no pragmatic value.
However if there is a place where moral outrage would most justifiably and correctly be laid heaviest it is upon two groups. The first would be the appointed government officials and representatives who denied higher education proper resources and then permitted certain malevolent elements of the finance industry entry and then allowed those same elements carte blanch to exploit the system and the students within it. Whether these officials did so from misguided political agendas or by outright complicity the effect was the same. And that abrogation of their moral duty to serve the populace rather than being sycophants for vested interests makes any lofty sounding proclamations on their part, haunted and malicious. And it makes the US appear as morally hypocritical in much of the worlds eyes. As a nation we talk about opportunity, but we are one of the few nations who have allowed our students and higher education systems to become a cash bonanza for financiers. Other civilized countries have chosen not to take our route and with good reason.
The second group upon which moral outrage would justifiably placed is upon those financiers who captured educational systems intended for the common good and turned these into something very, very different. To the extent that for many who enter US higher education all their ambitions, efforts and dreams become little more than a hopeless debt to and revenue stream for these same financiers.
And although what they have done may not be properly considered a bubble, whatever it is is going to fail. The population upon which these pressures have been exerted is close to an economic point where the unreasonable burdens of the SL industry will no longer be possible to bear. This is very evident from current economic travails in our economy. It would seem this would be the point that the barons who have enabled and profited from exacting these financial burdens would realize the genii’s lamp of the common people is broken. And very soon no matter how hard they rub, press, or abrade there will be no more coins. But it seems that realization has been delayed as these same companies have recently received great largess from the government. Our government perhaps justifiably did this to stave off another collapse, but they also did so because of special interest lobbying. But our government has forgotten those smaller men who have been caught in that same trap.
Many would wish, as I do, that all these things so expressed were simply the result of exasperation, but unfortunately everything written here has been covered in reputable media or can be observed by anyone watching recent events. But is is hard to fully comprehend how our higher education system was ever allowed to come to such a state.
Perhaps the best conclusion is to paraphrase Blake " O who hath caus</p>

63

<p>Andrew Gillen’s paper on Tuition Bubble.</p>

<p><a href=“http://www.collegeaffordability.net/Bubble%20Report%20Final.pdf[/url]”>http://www.collegeaffordability.net/Bubble%20Report%20Final.pdf&lt;/a&gt;&lt;/p&gt;

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<p>Appreciate the link, everyone should read that paper.
And very disturbing, just the over valued stocks and recent precipitous declines in value of some of these companies heretofore overvalued stocks would be enough to indicate the whole situation is unsustainable. Problem is our leadership will toss a few more millions to the companies who caused this mess. But they seem to be blind to the obvious fact that the millions of people who’ve been adversely affected by the SL industries manipulations also need some remedy, and if they don’t get it the effects on the overall economy could be devastating. </p>

<p>And Elizabeth Warren noted similar issues to Gillan in her report to the Senate. Sometimes I wonder if our policy makers can read anything beyond the special interests donation checks.</p>

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<p>By any measure, Dr. Howard Hammer and his wife, Hope, have a comfortable life. Hammer, 40, has built a thriving practice as an ear, nose, and throat specialist, while Hope, 39, has switched to part-time work as a real estate lawyer after years at a big firm in order to spend more time with Arielle, 7, and Matthew, 9. Home is a four-bedroom house in the Philadelphia suburbs, and between them, they bring in over $300,000 a year. “We can’t complain,” he says. “We’re certainly not struggling.”</p>

<p>But are they wealthy? That’s far more debatable. Hammer, who feels the same pressures squeezing Americans up and down the income ladder, says he’s anything but. Ever-rising prices for gas, health insurance, and other expenses are hitting hard, as are the $3,000-a-month mortgage and the $2,000 he still pays monthly to whittle down his $160,000 medical school debt. A six-year residency gave Hammer a delayed start saving for retirement, so he worries if he’s stashing enough in his 401(k). By the time the couple contributes to the children’s college fund, there’s little extra at the end of the month. </p>

<p>[Taxing</a> the ‘Not-So-Rich’ Rich](<a href=“http://www.businessweek.com/magazine/content/08_24/b4088081624555.htm?campaign_id=rss_daily]Taxing”>http://www.businessweek.com/magazine/content/08_24/b4088081624555.htm?campaign_id=rss_daily)</p>

<p>Feeling sqeezed, even with the big paycheck.</p>

66

<p>This is an issue that is often discussed. No one should have sympathy for those making 6 figures, there is certainly room for downsizing. However, for such families, and really for all families who are able to meet the very basic expenses in life (safe, hygienic housing, good medical situation, healthy food, safe, decent schools, money stashed for emergencies), there is that question of what the priorities are in a given family. WHere does and should educational expenses fall in the equation?</p>

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<p>I’d disagree on sympathy for those making six figures. Debt, where you live, who you have to take care of, etc. can make a pretty big dent in six figures.</p>

<p>Oh yeah, there are taxes, saving for retirement and saving for kids colleges.</p>

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<p>It could be difficult to have that much sympathy for those making six figures. However such people having difficulty is the tolling of the requiem for those of lesser status. And as noted by several influential essayists the cause of these problems has largely been the result of the shift from a productive to a debt based economy. Dr. Elizabeth Warren made that very clear in the paper she presented to the US government. And obviously the student loan industry is a major factor contributing to this problem.
And lord knows enough think tanks have desperately tried to get the government to acknowledge it is a problem. The University of Wisconsin in its 2006 report to the secretary of education made it very clear a disaster was looming. Ms. Spelling chose to ignore their concerns.
From the UW 2006 report;
“As the State PIRGs’ Higher Education Project states in their burden of borrowing report, Paying Back, Not Giving Back, “Loan payments should be manageable for borrowers at all income levels, and student debt should not grow unchecked or last indefinitely.” Low-paying careers that require a degree, such as teaching and social work, are essential to a positive
future for America. Students should not be punished with poverty for wanting to work in these areas. Suggested Solution: Link payment size to income.”
International approaches to student debt:
The governments of other countries use a wide variety of strategies to help student loan borrowers repay their debts and protect them from some of the risks of long-term, unmanageable debt. We believe that the federal government could provide significant benefits to student borrowers by adopting the following loan policies.

  1. Low or no interest loans: The Netherlands charged 3.05% interest in 2004. New Zealand charges a rate equal to the government’s cost of borrowing, but waives it for low-income students. The United Kingdom charges zero real interest, tying loans to the rate of inflation. Starting July 2007, the US will charge a fixed rate of 6.8% interest on most student loans.
  2. No payments until earnings reach a minimum level: Many countries do not
    require borrowers to make payments if their income is below a certain threshold. For a single borrower in Australia, it is $A 35,000 (about $US 26,000). In Germany it is €11,520 (about $US 14,000). In New Zealand it is $NZ 16,172 (about $US 11,000). Other countries use complex formulas to calculate this threshold, rather than a set amount. In the UK, it’s £15,000 (about $US 26,500).
    In the US, borrowers with low incomes have very limited options for delaying
    or reducing payments.
  3. Link payment size to income: In New Zealand, after the borrower’s income
    passes the threshold described above, their loan payments are 10% of whatever they earn above that amount. In the UK’s new system, they pay 9% of income above the threshold. In Australia, the percentage of income a borrower is required to repay per month rises with income: the minimum is 4%, and the maximum is 8%. For most US borrowers, there is no maximum percentage – you just have to pay.
  4. Set a maximum repayment period: In some countries, outstanding debts are cancelled after a certain number of years. That period is 25 years in Sweden and the UK, 15 in the Netherlands, and 20 in Germany. In the US, the government can take money out of retirees’ Social Security checks if the haven’t paid off all their student loans.
  5. Make the process simple: In Australia, New Zealand, and the UK loans in
    repayment are administered through the federal income tax system, so that income can be easily taken into account when calculating rates of repayment. That means borrowers don’t have to fill out extra paperwork and overcome bureaucratic hurdles to prove they need help, like they do in the US.
    For more information on loan programs in other countries, see the study, Global Debt
    Patterns, from the Educational Policy Institute at
    <a href=“http://educationalpolicy.org/publications.html[/url]”>http://educationalpolicy.org/publications.html&lt;/a&gt; .
    Reforming the Current National Loan Program:
    As should be clear, reforming the federal loan programs is the best way to deal with burdensome student debt. The national programs impact millions of students each year and are a cornerstone of the nation’s federal education policy.
  6. Increase need based grants: Increasing the size of the Pell Grant and expanding eligibility requirements would decrease the amount that students have to borrow in order to attend college. This could be paid for by cutting excessive subsidies to private lenders.
  7. Protect borrowers from unregulated private loans: Private loans have high interest rates and no protections for borrowers. First, private lenders that give students misleading information and/or charge predatory rates should be punished. Second, subsidized Stafford loan limits should be increased so that students do not have to turn to private loans."</p>
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<p>A little searching on CC, and googling the interweb, shows the “student loan bubble” meme has been floating around since 2008 - basically since the financial crisis. This fall the meme will be three years old. </p>

<p>How long was the housing bubble meme around before the housing bubble burst?</p>

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<p>“In the case of a house, there’s tangible property. For the student, the goal is to buy a degree. But sometimes they don’t get it. I have a hard time with buying tuition. It doesn’t really make sense to be buying a service in a bubble as a service is temporary. So I guess the best I can see is the degree. Of course not everyone gets the degree.”</p>

<p>You are buying three things 1. Human capital (economic)- higher lifetime earning power 2. Human capital, non monetary (a better life - more intellectual, higher status, whatever - apart from earning power) 3. Consumption - four “fun” years</p>

<p>Lets hold the latter two to be minor, and for now focus on buying human capital in the conventional sense. Its complex cause you dont KNOW the value of the human capital you are buying - you dont know what the labor market will be like - you dont know what your wage will be if you go to a lesser college, or to no college - many dont know what they will major in when they enter - and theres a considerable amount of luck/unpredictability in getting that first job - will you happen to have a good interview the day you see the “right” companty - will you happen to be befriended by the highly networked professor, or by the one who does great research, but doesnt know any employers? etc, etc</p>

<p>Leave those uncertainties and controversies aside. because you are buying human capital, a bubble, in theory, is LESS likely to occur than for a saleable asset. Some folks buy a stock cause they like its long term cash flow. But others will buy it DESPITE doubting its long term cash flow, cause they think OTHER people will like its long term cash flow, and they can sell to them. Thats what creates asset bubbles, from the tulip mania to the dot com boom. In the case of housing, there were folks buying who clearly knew they could not afford to pay the implicit rents for housing services that 2005/early 2006 prices implied, but didnt care cause they expected to RESELL the houses.</p>

<p>You cant do that with a BA (or the human capital created by studying for, and graduating with, a BA). If you spend 200k on it, your salary HAS to cover it (or your parents, or the govt, or somebody). You cant SELL the asset to somebody else who wants it. Even if there are more and more folks wanting BAs from NYU - an NYU grad cant sell his degree to them - only NYU can take advantage of that. </p>

<p>That creates a very different economic dynamic, something that is obscured by using the “bubble bursting” language, which suggests and equivalence between the (quite real) issues and problems of student loans and higher ed finance, on the one hand, and asset bubbles on the other hand.</p>

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<p>one really key point </p>

<p>AFAICT, the difference in expected earnings between graduating college, and attending but not graduating dwarfs any difference between schools. It much more worthwhile to pay more for a college where you are sure you will graduate, than it is to pay more for higher prestige, graduation rate aside.</p>

<p>One of the reasons for the high default rates among for profit schools, is the low graduation rates.</p>

72

<p>

Completely different reaction here. I tried to read those posts, and all I saw was scatter shot free association. Maybe paragraphs would have helped, but I’ll never know - due to the ignor feature. </p>

<p>I did see that s/he “was an academic.” (LOL) Wonderful.</p>

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<p>Interesting that this revenant thread is walking yet again. Brooklynborndad it is quite true the meme about the student loan bubble has been around for several years. However financial collapses do have tendencies to develop over several years, as did the housing and derivatives disasters. </p>

<p>Our new postmodern depression may speed up the collapse of the situation. The amount of US student debt is now at 897 billion which is a amount which will be very unfortunate factor for the future economic stability of millions. And with a real unemployment rate of some 17% it is very likely that defaults are going to increase greatly over the next few years. </p>

<p>Granted since this thread began the Obama administration had partially ended the subsidized loan program. But largely what that move did was shift the problem over more directly upon the federal government. That has made life somewhat more liveable for former students but did not resolve the core problems. And Obama and Duncan did not elect to restore meaninful consumer protections to these loans. Which means that those still bound to the tender affections of SMC, NNC and etc will find themselves on the short end of a long rope. </p>

<p>Unfortunately the move to federal direct has a unintended consequence of sending the student lending wolves into other venues. One of which has been tagging into the often excessive tuitions of disreputable private vo-tech schools. Institutions which do tend to prey upon the classes of our society which can least afford the losses of a worthless or overpriced education. These schools and the associated lenders have clearly been targeting vulnerable populations. For example over the last few years they have been marketing to and even making unsolicited offers to American Indians who have recently moved off from reservations. Due to my old associations with tribal educational systems I do know this is occurring because I have warned tribal members (who had asked advice about these matters) not to get netted by that trap. Looking at that situation it does seem that certain sectors of the student lending industry have no morals, and have no restraint in their greed. </p>

<p>Mister K, Thanks so much for the ad hominem input, but mayhaps discourse on the issue would be more appropriate than personal insults. However I must thank you for taking the trouble to do such genteel things on a thread which expired years ago. It makes one feel wanted…</p>

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<p>Atana, I commend you for waning less educated people about the dangers of excessive or inappropriate student loan debt.</p>

<p>I would also ask you to support HR 5043, a bill which would eliminate the provisions of the 2005 Bankrupcy Act. HR 5043 would provide that private student loans, like any other bank loans, could be forgiven in bankruptcy. See [H.R.5043:</a> Private Student Loan Bankruptcy Fairness Act of 2010 - U.S. Congress - OpenCongress](<a href=“OpenCongress - Track bills, votes, senators, and representatives in the U.S. Congress”>OpenCongress - Track bills, votes, senators, and representatives in the U.S. Congress)</p>

<p>It is supported by many great people and groups (see link) and opposed by the banks. </p>

<p>So many people here talk about students having some skin in the game. So should the banks.</p>

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<p>Sorry, but I have to place some blame on the colleges. I am taking out 15K in Stafford loans to pay for college…simply because even though my family is relatively well off, its a strain to afford college when one doesn’t qualify for aid. Plus, with the growing importance of grad school, who can really afford to pay 300K+ for undergrad and grad out-of-pocket? </p>

<p>It’s scary to be a young adult now. No jobs, loans, recession…I want to think that my future is bright, but it seems I’m entering a world that is on the brink of collapse.</p>

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<p>Sky, I agree with you. I am sick and tired of hearing people say 18YOs should have some skin in the game, but not the banks or the colleges.</p>

77

<p>^ Many colleges offer grants and scholarships. I have no idea why you feel they don’t “have some skin in the game”.</p>

78

<p>Erins Dad, what I am saying is that the colleges do not have any vested interest in students being able to repay debt.</p>

79

<p>“Erins Dad, what I am saying is that the colleges do not have any vested interest in students being able to repay debt.” Kayf </p>

<p>Quite true the colleges only have a limited interest in what happens after students leave and whether or not they can pay the tolls. There is some collegiate reporting back to the USDOE but that tends to be short term, much as it was for the reporting that the sub lenders had done back to the government when their program was dominant. </p>

<p>However there is not going to be much impetus on the part of academe to have genuine tracking or real concern about how well students do with the debts accrued during school. To do that could be a PR disaster for some schools and programs. And very contradictory to the marketing used for much of academe-selling the collegiate dreams of career, learning and socializing would be very difficult if in the back of the college catalog debt rates and defaults were included. This information is available but it is usually not handed out to the public or students. These factors seem to be why the recent proposal by the USDOE and Obama administration to require employment numbers for private vo-techs was washed away. The University and college system was terrified it could be applied to them, so they lobbied along with the lenders, private vo-techs and etc to quash that proposal. </p>

<p>Within academe and within programs the debt issue is there but so is the counter pressure for numbers. As such for academic advisors and faculty it can be very difficult to speak directly about these matters within their professional or professorial venues. And what is terribly frustrating is despite all the money brought into academe by student debt very little of it goes to reforming troubled or weak programs. A condition which will be worsened as state and federal cutbacks make colleges likely to look to student loans as the means to stabilize funding. </p>

<p>But there is one new element which will also drive reform. In this generation there are people who will not be able to pay off student debts before they face retirement. This may be due to inflated student debts, starting second careers, late terminal degrees and etc.
But it will be much harder to blame a collection of impending geriatrics for irresponsibility when they have done all our society expected them to do and still got trapped by lifelong student debt. And that situation will be very difficult for any politico to avoid, especially since hounding the elderly to their graves is less than politically astute. </p>

<p>The basic problem is that academe should never have become a means of cash flow for lenders of any stripe. And that system has been incredibly detrimental to academe, students and society as a whole. The ‘skin’ the lending industry has had in this game, has been largely been acquired by flaying others via an entire range of old sweet heart regulations and laws. Although there have been measures to put these people on a proper regulatory chain it has been difficult due to their incredible ability to buy influence. That is why measures such as HR-5043 (thanks for the link kayf) are so imperative. The situation has become so dire for so many. And made more dire since our new depression which dictates that incremental measures or reforms are no longer viable. Congress and the Executive branch will need to decide whether the ruin of millions can be justified for the preservation of the financial status of a lending system which never should have existed. </p>

<p>Skydancer; Yes these are difficult and troubled times. However depressions often result in major changes-some for the better. The US did survive its last major depression and did so by instituting reforms which re-established some checks and balances. We may be in our very own postmodern version of “The American Jitters” but like the Great Depression generation we will get through. Although if someone were to write a postmodern “American Jitters” student debt would certainly deserve several chapters. And the “Great Recession” certainly deserves its chronicles…</p>