<p>"Hear that sound? It's the collective freakout of students across the nation as it comes time for them to finally pay up on those student loans. But while student loan debt is a big issue, at over $1 trillion total, experts are telling everyone to take a deep breath and calm down, because it's really not that bad.</p>
<p>Please, convince us, as we stare into the bottomless abyss of sending away chunks of change to various lenders every year for the rest of our lives! CNNMoney talked to a few smartypants people who say student debt won't hit our economy as hard as say, the mortgage crisis. This, in contrast to other experts who warned that student loan debt is a ticking time bomb. ..."</p>
<p>"Total student loan debt has topped $1 trillion ... but there's no need to panic.</p>
<p>Most borrowers have a reasonable amount of debt, and the total balance is not likely to cause major damage to the economy like the mortgage crisis did, experts say.</p>
<p>'I don't think it's a bubble,' said Mark Kantrowitz, publisher of Finaid.org, a financial aid website. 'Most students who graduate college are able to repay their loans.' ..."</p>
<p>The problem is that easy-come-easy-go student loans raise the tuition big time for the rest of us… If colleges knew that they would get a quarter of the loan dollars they used to get, it’s not likely they would jack up the cost by 10% a year…</p>
<p>I wish it were the case. I don’t see it. The private loans people are taking will take a toll on families who didn’t fully understand that they have to pay up if the student can’t. Federal loans have a lot of leeway but when they end, a lot of folks are going to be hit with PLUS payments in their old age that will put a heavy gauge on Social Security payments. </p>
<p>As for the kids, I don’t know too many in the ten years that my oldest has been out of school that can make hefty payments on their loans. Even the full Staffords are being deferred, never mind the private loans.</p>
<p>CPT, I agree. And for those of us who have been cautious, we, imho, we as taxpayers will bear part of bailout. </p>
<p>We should all be DEMANDING that Congress stand up to lobbyists from the for-profit colleges and that standards be enforced, and kids not be taken advantage of. If schools can not meet standards for 6 year graduation, then their loans should not be bankruptcy proof, imho.</p>
<p>For kids graduating from reputable, top-tier colleges, an average debt load in the $15K to $25K range is not unmanageable. </p>
<p>I start to worry, though, about kids coming out of NYU (for example), where the average debt load is now over $40K, which probably means a non-trivial number of kids are coming out of there with debt in the $60K to $70K range as undergrads, and sometimes double or triple that by the time they finish an advanced degree that qualifies them for a real career as something other than a Starbucks barista. And the farther down the college-quality scale you go, the less you’re buying in exchange for all that debt, until you get to the for-profit colleges, some of which in my view are little better than scams for bilking gullible kids out of their borrowed money. I don’t think colleges at that end of the market, or perhaps even mid-market, are doing a good job of policing themselves, which to my mind calls for a strong dose of consumer protection regulation.</p>
<p>There is an article in the May issue of Consumer Reports called Student Debt: Your Threat. A graph in the article shows the average debt for graduating seniors (data from 2008) as </p>
<p>Public University Students - $20,200 in debt
Private Nonprofit University Students - $27,650 in debt
Private For-Profit University Students - $33,050 in debt</p>
<p>I feel as if it more to do with credit cards, which can add on to your debts. Also something lower than let say $30k is not a horror show. If people graduate with good-paying jobs they can make more then this amount. With this, a debt of $100k is also manageable, although it is much more harder and take more time.</p>
<p>Awful as the mortgage crisis was, an continues to be, it has a foreseeable conclusion as upside down borrowers slowly work their way through the short sale/foreclosure/bankruptcy process and begin again. Not a desireable situation for anyone, but with an end in sight.</p>
<p>The student loan problem is much, much worse imho because it is a much slower and less recoverable financial collapse. Large student debt will financiallly cripple thousands of students who will delay marriage and raising children, they will be renters living from pay check to paycheck whose children will be even less financially prepared to pursue higher education. There isn’t a bubble to burst here - it’s more of a long slow leak of talent and resources turning an unacceptable percentage of our youth into debt slaves.</p>
<p>The first wave of truly unacceptable consequences that we can see at this point are those kids who’ve spent big bucks at for profit schools that lead to little better than minimum wage jobs in often unpredictable markets (graphic artists, culinary schools and animation for example). We see a still relatively small percentage of kids who sign on for far too much debt to go far from home to their “dream school”. The real problem is that while we recognize this as foolish, the upward trend in cost for the state U. that current “dream schoolers” turn their noses up at will, if unchecked, become just as financially unrealistic for most middle class families as the current dream schools of today.</p>
<p>There are no easy answers to this…in the short term I think the best answer is to increase awareness so that students and families make the best financial choices open to them. We have to make sure that marketing doesn’t win out over common sense in educational decisions.</p>
<p>I see the Federal student loans as only part of the problem. Private student loans are not nearly as deferrable as the Staffords, and they are eventually turned over to hammer-down collection agencies. I highly doubt that some of these students (or the parents that co-signed for them) read the fine print.</p>
<p>What will be far worse is when a lot of the PLUS loans blow up. Parents that easily obtained these loans for cost of attendance beyond the students’ Stafford loans really did not have to verify that much info, just salary. If you had little assets but decent credit, you were OK. Still might be the case.</p>
<p>Maybe the Government will be more lenient towards deferrals/forbearance knowing that these loans cannot be discharged in bankruptcy, only by death. But they are not going away, not by a long shot.</p>
<p>That number is deceptive because it doesn’t take into account discounting and return on investment. Assume that the 650k is earned in equal intervals over 40 years (this is going to skew our results to make education look better, since educated incomes tend to be higher in later years, which means they are discounted more). </p>
<p>Assuming investments earn 5% and loans have 5% interest, this gives the lifetime earning difference between college and non-college graduates a present value of 274k. For 10% interest, this goes down to 152k. </p>
<p>To give a ballpark estimate of how delayed college earnings might affect the analysis, I did a linear model where I assume that college and HS grads start out at the same income but college grads earning advantage has linear growth. You might think of this as the High School generous version of the calculation. This gives 195k for 5% interest and 74k for 10% interest. </p>
<p>One important fact that I left out is that college grads have lower unemployment. </p>
<p>This still suggests that college is a winning investment, but it’s present value is nothing close to “650k”. It is closer to 200k. Students going to good schools or majoring in difficult subjects are likely seeing above average returns while average students and students attending weaker schools are seeing much smaller returns.</p>
That last thing the government should do is any sort of loan forgiveness plan that involves taxpayers (or government borrowing) to pay off the loans. The only consequence of this would be for colleges to continue to spend and raise tuitions without a second thought, because the students can be sold on the idea that there are no serious consequences to having large debts. </p>
<p>When students, and their co-signing parents, realize the consequences and balk at taking large loans to satisfy the high tuition colleges to the point where they can’t fill their classes, you’ll begin to see attempts to rein in costs.</p>
<p>I have noticed that the families most willing to take on unreasonable debt are those who did not attend college themselves - they are over eager to give their children the things they didn’t have and turn what should be a reasoned decision into an emotional purchase.</p>
<p>Credit cards and mortgages can be forgiven in bankruptcy. Student loans can not. Not that I think she is golden, but Suze Orman advises people if they can, convert any private student loans to CCs or other debt. This difference in bankruptcy treatment may be resulting in lower defaults on student loans, even thought the debt is still causing great hardship.</p>
<p>Dad of 3, I am NOT advocating any type of loan forgiveness, don’t know how my statement could have been interpreted that way. All I was saying is that the government will probably remain constant in their allowance of borrowers to defer in hard times.</p>
<p>I am in total agreement with understanding the responsibility of signing a note to pay back a loan. On the radio I just heard that the administration is considering a ‘write-down’ of some underwater mortgages. I’m above water, but not by much. I’ve done all the right things. I didn’t overextend myself to buy a house I couldn’t afford at the top of the housing bubble. Is my loan going to be written down as well?!</p>
Where is the crisis? Yes, these are averages, but that means for every horror story of a student taking out $60K in debt there is another one taking out 0. These are manageable numbers, about the cost of a new car. That is also close to the Stafford Maximums. In 1960 the cap on federal student loans was $5K which inflates to $38K today. That seems comparable to me.</p>
<ol>
<li><p>Does this include all loans, or just federal loans?</p></li>
<li><p>Does it includes students who do not graduate?</p></li>
</ol>
<p>Yes, it is an average. The kid with no debt probably has well off parents, who can support the kid while he/she looks for a job. Loan the new grad a car, let him/her live in basement. OTOH, the kid with the 60k loan is likely on his/her own after school. </p>
<p>IN 1960, PRIVATE LOANS WERE DISCHARGEABLE IN BANKRUPTCY. PLEASE STOP IGNORING THIS CHANGE.</p>