<p>I’m a student of financial markets and have studied long-waves and cycles of generational debt. The formula of debt has worked for some time now but every few generations, there is an enormous burp and the potential of massive deflation. In massive deflation, debtors get killed. In the modern era of finance, we believe that we can defeat long-wave cycles via massive printing. This has worked in the past, but one of the major reasons for that is that the US holds the world’s reserve currency. This is a privilege based on our position after WWII. We are hard at work showing that we don’t deserve that privilege and the world is acting in an according manner.</p>
<p>We had so many in the housing bubble believing that their short experiences with real-estate were natural law. Well there are natural laws but they aren’t limited to our short life-spans.</p>
<p>I’m not going to argue with your FA expertise. I simply know that most diatribes against educational debt on this forum start from the basis of the upper middle class lifestyle–if that’s not important to you, but education is, you can overcome education debt. If you are addicted to consumer debt, which our family never was and TxK says she is not, then you wlll bring problems onto yourself. I don’t think her post reflects naivete.</p>
<p>I was wondering about the issues with China holding so much of our “US” paper…
kwim? </p>
<p>As a nation, we have so much trouble ahead due to that …and
with consumers in debt from the banking and housing issues, as well as consumer issues, and healthcare costs…we are in a perfect storm aren’t we?</p>
<p>There was a post–I think a thread in the Parents or FinAid section where a parent posted the cost to pay off debt–ie the monthly payment to just cover that nut…
never mind taxes, FICA, housing, utilities, food, car, healthcare, etc…
Most don’t realize what it will take to service those loans/debt.</p>
<p>A general lack of budget, money policy etc has hurt several generations…(I worry as a parent of 2 teens)–how my generation is supposed to pay for “the party” of the prior generations and mess I/we inherited, and am at a loss and ashamed when I see what current trends/Congressional policy etc is doing to the future of my childrn and their children… </p>
<p>What is the failure rate of student loan payoffs?</p>
<p>We both grew up in single-parent minority households. My wife grew up in a third-world country. We have no debt. Our home is seven percent of our net worth. Many thought that you could overcome mortgage debt. Education debt can be overcome through sheer effort for some but not when the jobs just aren’t there or when the long-term US income trend is down. I look at aggregates and anecdotes. I live in an area of the country that is highly educated and that’s doing reasonably well through this recession and I also see large numbers of professional jobs being moved offshore.</p>
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<p>We disagree.</p>
<p>But I did know that there was a mortgage bubble when the smartest on Wall St and Main St didn’t. And knew enough to get back into the stock market this year when everyone was selling. And I did sell all of my tech stocks in 2000 before the internet bubble crashed and then went short. And I did go long energy and precious metals in 2001 and short the US dollar. Those things seemed obvious to me. Meanwhile I just shake my head at conventional financial wisdom.</p>
<p>My husband came out of law school with well over $100,000 in student loans, several thousand dollars in credit card debt, no assets, lousy credit, and a great job. I was 6 years out of school, had a great job, had already paid off my $20,000+ in student loans and had a nice chunk of change in the bank (enough to pay off DH’s loans). We had both put ourselves through school with no parental assistance and in my case, with no financial aid. We were used to living like starving students. Granted, DH didn’t have $200,000 of student loans, but this was 20 years ago. I didn’t hesitate to marry DH, even with his debt. I knew how quickly I’d been able to pay off my loans with a law firm job by living very frugally, and even though his were considerably larger than mine, I knew it wouldn’t be a problem for us. We had them paid off in just a few years, and 20 years later, from a financial perspective, at least, I can see I made a good choice. You have to look at the whole picture and the potential of the person with the debt. I would not have been so quick to marry a person with that level of debt and bad credit if he was, say, a Latin major with no job prospects. I think debt is something one needs to take into consideration, but other things factor in.</p>
<p>And FWIW, I don’t think TK is naive. It sounds like she’s thought it through and is willing to take a calculated risk. Good luck to you, TK!!</p>
<p>Go for it, twistedxkiss. You do not strike me as naive. You are acknowledging reality and strategizing to deal with it. Will you have make changes along the way? Undoubtedly. But you are not saying, “We are in love, so everything will work itself out on its own.”</p>
<p>China does have problems of its own. It needs to keep over a billion
people doing something to prevent a revolution. In the old days it was
farming and the military. Today, it’s making stuff to seel to the rest
of the world. Hopefully China starts consuming a lot of stuff made in
other parts of the world someday. One problem that China has with all
of that cash is that we generally don’t allow other countries to buy
our means of production. China probed us with trying to buy a company
many years ago and there was a political uproar so they quietly backed
down. So they go around the world spending their dollars on resources.</p>
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<p>We are in a demographic storm with Japan and Europe too. People are
living longer and longer and the numbers of people to support retirees
aren’t there without immigration. My wife mentioned to me that $5,000
booster add to the 401K plan and I just mentioned that tax rates may
be higher when we retire putting somewhat of a damper on 401K plans in
general. The problems that you mention, and a lot of others, are huge
and our country’s general response to these problems has been to
borrow more. At the moment, it’s getting harder politically to do
that, at least for the President but Congress doesn’t seem to be so
restrained.</p>
<p>Deflation debt bubbles and their bursts are to be expected in fiat
currency systems. There are stories during the 1930s that I’ve read
describing how bad things were for a lawyer. Nobody paid their bills
for long periods of time and there wasn’t a lot of business to be had
at any rate. Lots of small businesses had these problems and lots of
them went out of business. It’s nowhere near that bad today because
our government is printing trillions to try to counteract the loss of
$15 trillion in US household assets. They have made progress on the
stock market and maybe the housing market but they’ve done so by
adding debt. The international response has been a weaker dollar. This
is noramlly a normal response - you borrow too much, your currency
weakens, import prices go up so that can’t buy as much stuff and the
weaker currency means that you attract jobs to the country.</p>
<p>Unfortunately this has been short-circuited by China’s peg of their
currency to the US dollar. This is why we aren’t feeling inflationary
effects even as our currency has been dropping. We buy so much stuff
from China that we can blunt our weak currency. Unfortunately this means
that we still lose to China when it comes to jobs.</p>
<p>One wild thought that I had was that we just print $15 trillion and
hand it out to everyone to spend. Maybe that would get China to
revalue against the dollar. This would kill consumers though.</p>
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<p>Even if they understood, it’s important to remember that those things
can change. Energy costs can go up or down. Taxes can go up or down
(it’s rare to see them go down at the state and local level). It’s
pretty easy to see that we will need far more in tax revenues down the
road at the Federal level.</p>
<p>What’s even more devastating is when wages go down.</p>
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<p>We can’t pay the bill. Ever. Unless we print. And then we can look to
Zimbabwe for the kinds of things to expect.</p>
<p>I have a fundamental problem with managing OPM. I don’t want others managing mine and I don’t manage it for others. Those that manage money for others get paid whether they make money or not and there’s a fundamental tendency towards laziness if you don’t have skin in the game.</p>
<p>I don’t like to manage money. I prefer to build things. But the machinations of Wall St, the banking system and our government require financial self-defense so I’ve invested a lot of time in education. If someone gave me 7% real annual returns, I’d just take that. That’s what everyone wants - an okay return with no risk. The Fed has flushed people into risk assets by their actions on interest rates. It’s despicable but that’s the way the system works.</p>
<p>Now that DS has gainful employment, banking $$, spending $$$$ on hobbies, I would welcome a young lady who has the smarts to catch him, even if she has a high debt load. :)</p>
<p>I know people married to compulsive gamblers, drug addicts, and in one very sad case, a pedophile. He lost his job but due to the miracles of an electronic leg monitor, was released from prison early and his family is grateful. This was a high earning, successful professional with zero debt in case you care. But his house is on the market now so they can pay his legal fees.</p>
<p>So no- in the grand scheme of things, I think that college debt is a very minor wrinkle in life. I am envious of all you folks whose lives, and the lives of the people you love, are so fantastic that the only thing you have to worry about is your kid marrying someone who has college loans to pay off. I am a little astonished that you can easily paint all debt with the same brush- as if a fancy car and a BA degree are the same depreciating asset.</p>
<p>H and I were heavily in educational debt when we married. We started our lives with one simple rule- pay cash only, and when the cash ran out, that was it until payday. We weren’t financial geniuses and cannot pretend to have predicted any of the recessions we’ve lived through. But we paid off our loans early, bought a house (sold it for less than we paid for it, thanks to a job transfer); bought another house many years later after we built up our down payment fund; sent our kids to college with no loans, give as generously as we can to charities that we care about, and have helped various family members through illness, unemployment, unusual child care expenses for special needs situations, parents chronic illnesses, etc.</p>
<p>We are not unusual. But we don’t make good newspaper copy. The millions of other people just like us who pay off their loans and try to give back in order to express their gratitude for their education (our loans were partially subsidized by the Federal government, so thanks to all of you taxpayers out there for believing in me) just don’t sell magazines. And eating macaroni at the kitchen table with your spouse can be just as romantic as a nice dinner out if you have the right attitude.</p>
<p>If there is rampant monetary inflation, then the wiser course of action is to load up on debt because inflation aids the debtor while deflation is the enemy of the debtor. You did your think in a particular generational era where it was financially favorable to take on debt. The period between 1982 and 2000 was one of a secular bull market and all kinds of asset classes went up. It appears that the period after that secular bull is a secular bear with two cyclical countertrend rallies so far. Secular markets are on the order of 10 to 18 years in length and they can be quite deflationary.</p>
<p>That’s the same thing that happened with the mortgage market. We had a period of time that was very good to be in real estate followed by a period where it was very bad. We bought at a good time and we’re still in good shape. That doesn’t mean that I would recommend that others do what we did at this time.</p>
<p>You’ve got to be kidding. When my D is an adult I very much hope that she’ll be able to make these kinds of judgments. Life is not about money. Often at marriage it’s about potential. I think she’ll be able to make the necessary judgment calls without feeling that I’m lurking in the backgrouned with an opinion.</p>
<p>And yes, I don’t intend to put her in a situation with large loans as an undergraduate. But for her graduate work she’s an adult and on her own.</p>
<p>BC, loading up on debt during inflationary times is only good advice if your cash flow is so steady and predictable and risk free that you never have to worry about making your payments.</p>
<p>Given the mortgage rates of 12% we were looking at when we married, and given the terrible job market in the early '80’s, while it may make sense on a macro level, your advice is pretty risky for your typical newlywed couple.</p>
<p>Like I said- nobody is lining up to give me a Nobel prize for economics. But I don’t envy anyone who is house-poor or has to worry about where their next car payment is coming from.</p>
<p>Well, we can’t tell the future but trends in place tend to stay in place for a while. I’m thinking more of inflation from tre traditional perspective where interest rates are low and liquidity is high. Basically when the Fed is trying to stoke inflation but before market interest rates have responded.</p>
<p>BTW, examples of loading up on debt in this manner is the Japanese and relatively recent US carry trades where investors borrow in a currency with a very low interest rate and lend to others with those funds. If the government signals low interest rates for a long time, then you’re playing with free money assuming that you loan it for something with a better rate an high probability of repayment such as other government bonds. If the country continues to print, all the better as you wind up with a capital gain in addition to income.</p>
<p>Both my husband and I have advised our daughter to not marry anyone who chooses to go to an expensive school over less expensive and just as highly ranked schools and goes into excessive debt. Why? </p>
<p>First: our daughter has worked hard to obtain the scholarship money she needs so that we can cover the rest of her undergraduate costs and keep her and us out of debt. </p>
<p>Second: we would hate to see her be responsible for someone else’s debt. </p>
<p>Third: If the potential mate chose to go to an expensive school for undergrad over less expensive, but equally as good if not better academic, choices because he “wanted to follow his dream” I question his ability to make sound financial decisions. Pairing a fiscally responsible person with someone who isn’t could be a recipe for divorce.</p>
<p>Now, if the debt was incurred from graduate school and the person appears responsible to pay off the debt through hard work and a high enough paying job, I would look at that a little differently. Only because I understand that it is more important to choose a highly ranked graduate school than an undergraduate program. In any case, I would still be concerned for my daughter to marry into debt.</p>
<p>“I did not pay through the nose for your expensive tuition so that you will marry a man who is an spiring poet/writer you have to support on your back for an indeterminate amount of time - maybe even forever”</p>
<p>“I did not send you to Harvard at a full pay to see you marry a woman with no gainful career ambition and may become the millstone around your neck”</p>
<p>Of course you wouldn’t say such unsophisticated things. You may say, these examples are not valid at all, since what you are concerned about is the “debt”. However, this is all about a financial discussion, right? If so, wouldn’t you say someone who went to Wharton on a loan, graduating with $200K debt but getting a job in the investment banking at Goldman Sachs, will actually have no problem paying this debt soon? One might even consider this to be a better “financial” deal than a young man with no college debt but wants to become a preschool teacher. Do the net present value analysis. The former looks far better.</p>
<p>I know I am being ridiculous with these examples. I think it’s equally ridiculous to come up with a categorically generalizing statement that runs like “I did not pay all this tuition so that you will marry …”.</p>
<p>Now, if we are talking about a gambling debt, that’s an entirely different story.</p>