<p>"In some respects, the student loan crisis looks remarkably like the subprime mortgage crisis. First, outstanding student loan debt has ballooned: It grew roughly four-fold in the last decade to $833 billion as of June surpassing outstanding credit card debt for the first time." Holy house of cards, Batman!</p>
<p>is-the-college-debt-bubble-ready-to-explode:</a> Personal Finance News from Yahoo! Finance</p>
<p>The only loans that should be protected from bankruptcy should be the federal loans (5-7k per year). This would cause the banks to limit lending private loans. This would force the students to choose lower cost options. In my opinion, it is a large financial mistake for the average student to come out of school with 60 - 80k in loans(or more) for undergaduate school just so they can go to a private school.</p>
<p>Is the college debt bubble ready to explode? Absolutely. </p>
<p>We offer seminars for budgeting, financial aid seminars, etc. We counsel students against borrowing more than they NEED to borrow. Yet I see students borrow without batting an eyelash: “Give me the maximum I can get.” I see students at their $57,500 limit before they are close to being done with their degrees. I read on CC about students considering borrowing $20-30k per year for school. While careful borrowing can be a wise investment, it can also be a huge noose around the neck of those who graduate from college … and those who do not graduate.</p>
<p>How can students expect to pay off huge loans in today’s economy? It just doesn’t pencil out. At all. </p>
<p>Our S2 got a form from his public college in April that only required initials and signatures for him/us to borrow the full Cost of Attendance for the year. Yeah, he and we did have a five minute on line “counseling” web page to read – five minutes for $20 K of debt? I don’t understand how any 18 year old can possibly understand what that sort of load “lives” like. (We declined all but the Stafford). </p>
<p>The role of bankers has changed. It used to be your neighborhood banker didn’t want you to take on too much debt because he wanted you alive and well and paying back on schedule. Today’s banker doesn’t care what he does to you. </p>
<p>Thank goodness H and I had a decade or two of adult living before we went for our first mortgage loan. The banker was willing to loan us $250K based on our decent credit score (important point here: we didn’t have much money – we just had paid past bills on time). We looked at what a $250K mortgage would take out of the weekly paycheck and about fell off our respective chairs. There wouldn’t have been money left for much more than lunch bologna. THIN bologna. </p>
<p>We ended up shopping way under our official loan blessing. Both the banker and the real estate agent kept pushing us “up.” Turns out we were right – we bought what we could afford and STILL have to use coupons and a wood stove to keep afloat. </p>
<p>So, if two experienced adults barely navigated the housing bubble, it doesn’t surprise me a moment that many, many 18 to 22 year olds are signing paperwork that the “adults” are shoving under their noses. </p>
<p>Ignorance plus greed = disaster for the ignorant.</p>
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<p>I think a big part of it is, as you say, ignorance. I’ve seen far too many high school and college kids chirpily declare that “anyone can become a millionaire if they work hard!” They really believe that. Well, with that kind of unfounded optimism you can see where a little thing like $200,000 of student loan debt isn’t such a big deal when they are sure to go on to make a hundred kajillion billion dollars.</p>
<p>When I was in high school, I didn’t have any idea how much $10,000, $50,000, or $100,000 represented in terms of years needed to work to pay it off. I just didn’t have the experience to understand it. In part I think this was due to the fact that when I heard about someone making, for example, $50,000 a year I would think of it as $50,000 in “free money” that could be used on anything, forgetting how much would have to go towards rent or mortgage, food, and so on. I knew those expenses existed, but never having had to pay them before myself, they were easy to forget about.</p>
<p>Ok, I agree with all of the above, but if the bubble implodes, HOW will it implode?</p>
<p>With the housing bubble the banks foreclosed on a lot of homes, and both they and the rest of the housing market took huge financial hits as home values plummeted. </p>
<p>With the education bubble, the government can act to make it difficult/impossible for future students to take out huge private loans, but what can it do about people who have already gotten themselves in a financial hole? I doubt that Congress would just let them walk away from their debts and make the taxpayers bail out the banks (again).</p>
<p>My eldest has over 100K in debt; almost 75% private loans. How did this happen? A very sad combination of me being inattentive (I was too busy shepherding my daughter through an elite gymnastics career while trusting my husband to take care of finances), my husband’s ignorance/lack of involvement/belief that my son new what he was doing, and my son’s immaturity/lack of financial knowledge combined with his school’s f/a office just giving him loans and telling him that it was common for people to graduate from there with a mountain of debt but not to worry because graduates regularly had starting incomes in the 60’s. My son could not afford to finish school and has already defaulted on one loan. We are struggling to help him stay afloat with his other private loans and his federal loans are all in forbearance. He is currently unemployed (just moved back home to try to secure employment as the part of the country he was living in had a very high unemployment rate and he was only working as a waiter along with a commission-only job). Luckily, he is quite entrepreneurial and has been working on a business venture which looks like it should start bringing in some big $$ soon and he will be able to pay off loans in large chunks. Also has several interviews for “steady jobs” lined up. What a mess and it has certainly taught us a lesson for our younger two children. My daughter goes to our state U and has only federal loans which will total less than 15K upon graduation. I do feel like a big part of the blame is on the school for pushing these loans and making them so easy to attain.</p>
<p>The end result is that we, everyone in this country, will suffer together. It will affect our economy, many young people and their family’s life. The bottom line is that it will affect all of us in a negative way. Not a pretty sight.</p>
<p>How will it implode? Probably slowly. An overwhelmed and under employed college graduate will NOT spend money on a car, a house, a vacation – and, very slowly, the car lot, the real estate office and the tourist trap will dwindle and die. </p>
<p>I am afraid our nation may be headed for a long stagnation as the bulk of the population ages and the younger people cannot afford a decent quality of life – and put off marriage and child bearing because of that reality. </p>
<p>The Great Depression lingered over a decade. We may be in for twenty or forty years of decline.</p>
<p>what is the avg amt of UG debt at UG graduation? my hs sr son asked me this today.</p>
<p>here it is , fyi - 24k.</p>
<p>but a comment in the article thinks it is closer to 28k, which is what I thought I heard that it was at .</p>
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<p>[Average</a> College Debt Rose 6 Percent to $24,000 in 2009 - NYTimes.com](<a href=“http://thechoice.blogs.nytimes.com/2010/10/22/debt-3/]Average”>Average College Debt Rose 6 Percent to $24,000 in 2009 - The New York Times)</p>
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<p>No, it’s the result of children born to a generation of parents who believed it was better to have a BMW than a Ford, that a luxury baby stroller was better than a Graco, that believed a 4,000 sq. ft. McMansion was better than a 2,000 sq. ft. bungalow, that private pre-school was better than day care, that $150 jeans are better than $50 Levi’s, that $120 Air Jordan’s are better than $50 Reeboks, a 72" TV better than a 32" TV and that private college was better than public college. </p>
<p>Unfortunately I don’t see a general “will” in the public to save people who made these type of choices and these kids (and their parents) unfortunately are learning a tough lesson, fortunately the kids will “recover” over time. It will be interesting the next decade or two.</p>
<p>keylyme, I thank you for sharing what is a “worst case scenario” for many of us here - a student with high debt who couldn’t afford to finish his degree. I hope that he will be able to finish at one of your state’s public schools…even if it involves working full time to keep up with the interest payments and going part-time to a local school.</p>
<p>I think that parents and students have to heed the wake up call sounding from these articles and threads and realize that they have to say no to the pricier, private school educations if the family can’t swing the cost difference. Yes, sometimes the privates turn out to be the less expensive alternative if the student is particularly attractive to a particular school or the school meets full need without bumping the EFC significantly. But studies have consistently shown (see link below) that most students at private schools (and their parents) borrow at a rate which is roughly double that of those borrowing to attend public schools. </p>
<p>Many parents I know do not insist (as I did) that their kids apply to at least one instate public that matches their academic needs/interests. There seems to be lots of kids here on CC who don’t have an instate public school on their list that they’d really be happy to attend. I have read that some GC’s require students to have a public app, but ours do not and I’m sure this is common. Despite the higher merit awards and grants, many of my kids’ friends are left with a raft of well-gapped FA packages to choose from and parents are not even blinking when their kids have to take on both federal and private loans (or when they have to sign up for Plus loans, take equity out of their homes or reduce their retirement savings). I’m sure some families are using these responsibly, having regularly saved in the past, and are also using current income…one would think parent loans would drop by income level, but that’s not happening. But there are so few restrictions on Plus loans and, for those who haven’t saved for education and do not severly restrict their current lifestyle, how will they afford it now and in the future, with interest, times 4?! That’s what is really scary to me…it’s not only the students that are overloaded and putting their financial futures at risk, but many parents are too!</p>
<p><a href=“http://nces.ed.gov/programs/digest/d09/tables/dt09_343.asp[/url]”>http://nces.ed.gov/programs/digest/d09/tables/dt09_343.asp</a></p>
<p><a href=“http://nces.ed.gov/programs/digest/d09/tables/dt09_338.asp[/url]”>http://nces.ed.gov/programs/digest/d09/tables/dt09_338.asp</a></p>
<p>I agree with momofthreeboys. This level of debt requires a co-signer. If the adult in the equation is fine with the loans, why is the school at fault?</p>
<p>Sk8rmom, the PLUS credit check only covers the most recent 90 days. Folks who frankly should not be borrowing are being approved. It reminds me of when H & I bought a house and the realtor told us the mortgage amount for which we could qualify (along with the monthly payments). H & I laughed & told her we would be in the market for a home many thousands less expensive. Twenty four years later we are very, very happy we said no to the debt we COULD have had. People need to learn to say no when saying yes just does not make sense.</p>
<p>ABSOLUTELY. I think that it’s going to turn around soon, but I think that the college debt situation is going to get worse first. I think that the debt situation is bad, but it has to have a big effect (lots of people with advanced degrees in debt, mass movement to cheaper schools, etc) first before people start to take action to change it.</p>
<p>People think that college is a right, not a privilege. People think that their children HAVE to go to college, so the parents HAVE to pay $200,000 for a college education whether they are able to or not.</p>
<p>Even the wealthy people are hurting in the college debt situation. Top-notch schools have phenomenal financial aid packages, and can give financial aid to over 70% of their students. However, this tuition has to come from somewhere, and the people who CAN pay for college have to pay over $50,000 a year to cover the costs for students who can’t.</p>
<p>Because of this, college gets more expensive, so less people can pay, so it gets even more expensive, and even fewer people can pay. This pattern can’t go on forever, and eventually people will break down and stop paying for such expensive schools.</p>
<p>Banks are also giving out loans irresponsibly. I read an article that a girl was $160,000 in debt from going to NYU, a prestigious school, but was only making $18 an hour as a photographer. She majored in Religious Studies and Women’s Studies. I’m not saying that she doesn’t deserve a loan, but banks seriously need to consider whether the student will have the potential to make the money to pay back the loan. I don’t know what job that a student could get with a bachelor’s in those two majors, but whatever it is it’s probably a rare job or doesn’t pay well (compared to the $160,000 for that degree). I’ve heard that banks are more than willing to give out loans for medical school and law school because they know that the students will be making six-figure salaries and can pay back those massive loans.</p>
<p>I know, Kelsmom, and it’s ridic! Some states are also offering parent loans - NY started just 2 years ago. I have no idea why they thought this was necessary as the interest rate is even higher that on the Plus loans…it’s a waste of money that they could have spent on better educating people on how to navigate the maze of college funding!</p>
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<p>Even full-pay parents won’t usually pay more than half that amount for an undergrad experience, even at a flagship or state honors college.</p>
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<p>No one has to spend $200000 right now, even if they want to live on campus and they take the most expensive meal plan available. Even if you decide that you want to go away to school, every citizen can find a school that doesn’t cost anywhere near $200000. </p>
<p>For the states offering loans – maybe instead of doing that they should rein in the costs of their state schools and provide more funding to their community colleges / junior colleges. Between the federal government and private banks, we already have enough people offering crappy loans to naive people; how about we spend the same effort to try and make it so that more people can afford to take fewer loans?</p>
<p>I sure hope it’s ready to explode. Then the cost of tuition will go down just like the housing market. This whole college tuition thing is all about marketing, any college can substantially lower it’s tuition cost but it does not based on American greed that has gotten out of hand. Maybe the next step is to boycott colleges all around the country, after the first year the tuition rates would drop like a rock. It would only take the first year of lost revenue from lower admission rates to change this problem.</p>
<p>I like huntcollege’s idea! A 1 year national GAP year! See those “tuition rates drop like a rock…”</p>
<p>These sorts of stories seem to keep popping up. $200k is bigger than most mortgages. You kind of have to wonder what these people were thinking. </p>
<p>I appreciate that many bankers are far more interested in their bonuses and profits than the wellbeing of their customers, but ultimately the “banks” are not to blame for these stories–or at least not as much as the people in question are. Everyone is so quick to try and blame others, but ultimately this falls on personal responsibility. Just because a bank offers you a loan doesn’t mean you should take it. </p>
<p>I mean imagine if we applied this attitude towards other financial areas. If one walks into a store should they just buy up everything on the shelves because the store has offered it up for sale and the clerks boast about how wonderful the products are? (OK, well some people do but that’s why they too are typically in a financial mess). Sometimes we forget the power of “no.”</p>
<p>College debt is a fact of life for many students, but it’s soooo important to run some basic calculations about how much and how long it will take back to pay for these loans. One must also consider the opportunity cost at hand too. In other words, it’s not just about how much money you have to pay back each month but what else could you have done with that money if you weren’t re-paying the loan (e.g. save it for retirement, put it towards a mortgage, etc.)</p>
<p>I offer this simple example. Someone is deciding between an expensive private school and a solid public school that costs considerably less. To attend the private school they will have to graduate with $40k of student loans. So how much will this extra private school cost the student?</p>
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<li><p>Many people, including many students, would say “oh, it’s $40k more”</p></li>
<li><p>Some would be smarter and say, “well, you have to pay interest so in the end you’ll pay a lot more than $40k.” That’s true, and if you assume the student gets a 5% interest rate and pays it back over 15 years they’ll end up paying $57k for that $40k. </p></li>
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<p>However, this is still not the true cost of the extra $40k in loans. We must consider what else the student could do with those future monthly payments, like put it in an IRA account. In fact if the student puts $316 per month in such account over 15 years instead of paying back the extra loan, by the time they retire that money would be worth (assuming average 7.5% annual return) a bit over $1 million. </p>
<p>That’s right, that extra $40k loan for the private school doesn’t cost $40k it costs over $1 million in real terms. </p>
<p>Most people don’t think “if I don’t take this extra $40k loan today I’ll get a $1 million check that I can open when I retire to do with as I wish.” …but then again that’s exactly how we ended up with lots of people in McMansions they couldn’t afford and otherwise living far beyond their means. </p>
<p>These sorts of financial calculations aren’t difficult (especially for someone that gets into expensive schools), but it does require one to stop yelling “me me me” “now now now” and take as step back to long at the bigger, and longer term, picture.</p>