Something needs to be done with the current system. It is predatory and enslaves so many young people with debt that will never get paid back. Onerous debt prevents home purchases and family formation which is destructive to society.
The simplest step would be to once again allow student loan debt to be discharged through bankruptcy, but I have no problem spreading the pain between all of the parties that have benefitted from this unscrupulous system.
Numbers stated in the media indicate that total student loan debt is about $1.5 trillion owed by about 44 million people. On average that is about $33,000-$34,000 per person. If that is a problem in terms of repayment, then we should re-think our college process.
Making the loans dischargeable will result in a lot of people being denied for loans. Most of those denied will be from lower socio-economic backgrounds. If that is what we want, fine but that doesn’t make sense to me.
Kids who drop out will have issues with debt. We should look at the reasons for that.
Kids who graduate with high paying professional degrees are not an issue. And there are outliers who do dumb things like going into $150k of debt for degrees with no financial payback.
@saillakeerie - $30,000+ in debt is an anchor for many students. I’d be curious to see the percent of students that owe more now than they did when they graduated. We created a generation of debt slaves
Retroactively fix the problem and stop creating more.
The low income issue is a legitimate problem, but I am sure that can be addressed by expanding existing government programs.
According to the site below, men with bachelor’s degrees earn about $900,000 more in median lifetime earnings than men with high school diplomas. For women its about $630,000. Using a 4% discount rate, present value of the earnings difference is $260k and $180k respectively.
https://www.ssa.gov/policy/docs/research-summaries/education-earnings.html
If $30k is a problem, I think it makes sense to ask why. And given the increased earnings, I am curious to know why we are supposedly creating a “generation of debt slaves.”
Remember that interest is always accruing so that initial debt is much more.
Someone making $400 monthly payments over 10 years is $48,000.
The kids that take the plus loans are the ones that really get in trouble because they take on more debt at a higher interest rate.
Try getting married and saving for a house and kids if one or both parents is essentially making a car payment for a school loan on an entry level salary.
The kids can’t take out the Plus loans though. Those are for the parents. I guess the parents could turn around and tell the kids they have to pay them, but they aren’t legally obligated to. Private loans with a cosigner is the way students typically borrow more than the Stafford limits.
@cshell2 - good point, you are correct.
If we really want less student debt, we should just stop lending. A big reason for tuition inflation is the perception of easy money through loans.
Students (and their parents) are the marks, on the hook for money going from lenders to colleges.
If student loans are forgiven en masse, expect a huge increase in next year’s loans and a big spike in college costs.
Back in the 90s, I graduated with 35k$ in student loan debt. I had no problem paying it back within 10 years even though I had an average paying job. I didn’t buy a new car or new furniture or take lots of expensive trips like I see so many young people today doing. But salaries in the 90s were lower than they are today. Kids today need to learn how to budget.
To discuss the “system” first we need to parse the numbers. And first cut is to separate grad vs. undergrad. (No fair in including med and law school loans which can total hundreds of thousands and skew the averages.)
Attached is a link of debt by state by college. For many, attending state publics, 4/5 year debt is ~$20k. OTOH, debt for private school grads can be 2x that amount. However, that fact is easily buried in gross numbers and easily lost in the cry for free college tuition. (Why tuition should be free for 1 percenters is beyond me.)
No, that just limits lower SES kids from attending sleep-away private colleges. (yeah, I get that PA is an outlier since its public prices are outrageous, but then PA residents can easily fix that issue.)
https://ticas.org/posd/map-state-data#overlay=posd/state_data/2018/ca
Lenders and educational institutions need to share the pain if they are putting out graduates with huge debt and a worthless degree. Ranking systems that show the percent of an institutions grads that declared bankruptcy would be a motivating factor for institutions. And any private lender will be much more conservative about lending an 18 year old $50,000 if they can lose it through bankruptcy, so I think college prices would have to come down.
@chb088 - to your point about young people needing to learn to budget, look at this. Yikes!
The amount for professional students is higher.
@tpike12 Yikes! Ridiculous. I also got married in the mid 90s in a very nice ceremony with 100 guests for about $10k. People today spend far too much!
I suspect that people who take loans for their weddings are more likely to overspend than those who do not. Same is true for college. Forgiving loans won’t help that and will, as noted above, make it worse.
@tpike12 Lenders and educational institutions each provide a product. They are not responsible for people who are purchasing their product after the terms of the transaction are met. Borrowers have choices. No one is required to take massive loans. No one is required to go to a sleep away college. No one is required to get the “college experience”.
Where do you feel the line for personal responsibility for the choices people make? Why are businesses responsible for their customers choices?
I see young graduates adults in my work all the time. Many want quality experiences (destination bachelor parties, elaborate birthdays, designer clothes, food festivals, travel, adventure, craft beer, organic food delivery, luxury apartments, top brands, new tattoos, $25+ t-shirts, etc…) and are not content to tighten the belt and live lean for a few years. They feel that they work hard and they deserve nice things. Used furniture, eating in, carpooling, sitting on the couch with netflix, hiking or camping, saving up for new purchases are beneath them. They want the benefits of life that they see with their middle age parents who have worked for decades and have larger salaries to support the higher quality of life.
College graduates should be used to living lean, and should be able to continue this life while entering the working world to pay back their dept. This sets them up to continue to save money and live beneath their means throughout their life. Too often many of these young people lived large in college - spring break trips, meals out, parties, new clothes, specialty coffees. late night snacks, music festivals-- much of it financed through debt or on their parents’ dime. They wanted those quality experiences of beautiful campuses, stocked rec. centers, parking garages and campus transportation for convenience,etc… All of this takes money. Many young adults have grown accustomed to getting what they want when they want it. At some point they need to realize that the bills need to be paid and they are responsible to pay it. They received the benefit, they need to uphold their end of the bargain and pay the debt.
I am not for loan forgiveness. With income driven repayment plans, loans can be repaid at a fraction of the borrower’s current income … and forgiven after 20 or 25 years, depending on the plan (although that tax hit on the amount forgiven will be a bear). That seems fair to me.
I get the responsibility argument, but we told our kids that they had to go to college, then set up a predatory system where banks and colleges could raise college costs and give ever increasing loans without the institutions taking on any risks. It is unsustainable and to continue down this path is crazy.
Bankruptcy has to be an option for all forms of debt.
You told your kids they had to go to college? Well…if that is the case, you also should have been working with them on affordable options.
But student loans are not like other forms of debt, because in case of default there are no assets to recover. This is very unlike defaulting on a home loan or car loan.