<p>Bay, the article posted actually doesn’t refer to all borrowers, only to borrowers who graduated from 4-year colleges in 2007-2008 and responded to a survey by the NPSAS. If they had quoted the information as actually presented on Finaid.org, it would have read as follows:</p>
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<p>It’s interesting to note that finaid.org reports that the “average” student loan debt for these grads was $23,186. Obviously, those who graduated in 07-08 were less affected by rising prices and falling incomes during their borrowing period than more recent cohorts. </p>
<p>I haven’t seen “official” debt statistics for those who graduated in 2010 and 2010, but the estimates reported for 2010 grads are that average student loan debt was $24K and, for 2011, I’ve read that the average is estimated to be $26-27K. Since those who are most likely to default on student loans are those who have higher than average debt loads, I used the current undergrad loan limit for dependents which also happened to be the estimated “average” debt for the most recent graduates.</p>
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<p>It’s not often that I hear the term “lower class” used…not sure what that means exactly. Student loans are available for all types of higher education, including vocational training, so I wouldn’t assume that the majority are our future leaders or even white collar professionals. Again, they may be the folks who end up with the highest loan balances and are most often portrayed in the media, but the data doesn’t support the conclusion that they are the group that is most likely to default. I think you’re also making the assumption that those underemployed or lower wage earners have someone else supporting them and they simply choose not to repay their loans. I am suggesting, based on studies that I’ve posted several times, that it’s far more likely that the majority who default have little or no resources to fall back on and don’t have a choice when it comes to keeping a roof over their heads and feeding their families vs. making loan payments. </p>
<p>At this point, the real picture on who all these people are and why they’re in trouble is still fuzzy but it’s clearly not just about the white, middle-class kid who borrowed $90K for a dream school experience and has to move back home with mom and dad.</p>
<p>Yes, and since the article was the very first post in this thread, I assumed that is what we are talking about.</p>
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<p>A couple of times, the OP of this thread referred to the unequal treatment of student debtors vs. corporate/wall street bailees as potentially creating a “class war.” I don’t think college graduates are members of a different “class” than corporate management; rather, they are on the same footing with less experience. They are certainly not part of a “lower class.” That is the point I was debating - the student debt issue can’t be framed as a “class war”, but it may be about eventual wealth accumulation. I can only imagine how mad the blue collar/unskilled crowd will become if the highly educated get bailed out along with Wall Street.</p>
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<p>This is true as far as I can tell, which is why I have never said that it is “just about the white, middle-class kid who borrowed $90K for a dream school experience and has to move back home with mom and dad.”</p>
<p>This is what gets me: “The White House said the changes will carry no additional costs to taxpayers.”</p>
<p>The money that was borrowed is REAL. If it is forgiven, it is never paid back. If the repayment amount is reduced, even less will be paid back. It DOES carry additional costs to taxpayers, just not until the current politicians are out of office … </p>
<p>Actually, what will happen is that many accounts which are now in default will start getting paid. Unemployed or underemployed adults who can’t make their minimum loan payment tend to not make any payments at all. An income-dependent payment plan brings them back onto the rolls of payers, and a loan forgiveness plan that requires 20+ years of being in good standing (even if paying nothing or a minimal amount) is going to bring in a lot of money over time. Interest at rates that are well above current market continues to accrue, so many of those loans that are "forgiven’ down the line will actually have brought in more dollars than those that were paid off early.</p>
<p>The only “forgiveness” in the current Obama plan requires the person to make regular payments of up to 10% of whatever income they have above poverty line for 20 years. For those who are not living in abject poverty, that is a lot of money flowing into government coffers. Those who don’t sign up and don’t pay aren’t eligible for the "foregiveness’. Unless the US economy remains permanently in the tank, it is reasonable to assume that a significant number of individuals eligible for the income contingent repayment terms will eventually start earning enough that it won’t make much of a difference. </p>
<p>For example, consider Bay’s figure of $230/month in payments (amortized over 10 years). Let’s say you have a marginally employed young adult, with an AGI of $18K/year. Federal poverty line is roughly $11K, so that person has $7K in discretionary income, which translates to a monthly loan payment of slightly under $60. If that person was always going to be making only $18K, then he would pay $14K over 20 years, compared to the individual who makes payments of $27K over 10 years, making the full amount of payments. </p>
<p>But the government isn’t betting on the $18K earner being stagnant. The idea is that the person’s income will increase over time.</p>
<p>Okay, I confess that with the busy work week, I didn’t read everything on this thread carefully. I was just skimming through some earlier posts, and I couldn’t believe the quote from Fox News: “Take this example: If Suzy Creamcheese gets into George Washington University and borrows from the government the requisite $212,000 to obtain an undergraduate degree, her repayment schedule will be based on what she earns. If Suzy opts to heed the president’s call for public service, and takes a job as a city social worker earning $25,000, her payments would be limited to $1,411 a year after the $10,890 of poverty-level income is subtracted from her total exposure.
Twenty years at that rate would have taxpayers recoup only $28,220 of their $212,000 loan to Suzy.”</p>
<p>Those of you who know my posts know that I am no fan of student loan bail outs. I was a financial aid officer & saw far too many irresponsible borrowers. I am also a parent, and I am sacrificing to send my kids to schools that I CAN AFFORD. D had to turn down her first choice school for financial reasons. S had to turn down several schools he would like to have attended because he didn’t get the merit aid he would have needed. In other words, I am a mean parent who would not borrow nor let my kids borrow ridiculous sums of money to go to the schools they liked the best. </p>
<p>That said, though, I think articles like the one I referenced above are over the top. Do your homework, reporters. No undergrad student can borrow $212,000 in the kind of loans Obama’s plan covers. The max an independent undergrad can borrow in Stafford loans is $57,500. The maximum an undergrad can borrow in Perkins is $20,000. That means an undergrad would never have more than $77,500 in loans that would qualify. Not that this is a small amount, but it sure is a whole lot less than the $212,000 this igonorant article cites!!</p>
<p>kelsmom, that’s the quote that set me off as well. It’s base on an impossible (and disrespectful) straw man argument. </p>
<p>The point is, even if there are some students managing to borrow up to $77K in combined Perkins/Stafford loans (for independent students) – the federal program obviously is designed based on averages, not outliers. That is, whoever did the accounting to figure out how much the program would cost would have been looking at the average $22K figure. Given that the financial aid system makes it very difficult for youngsters to qualify as independent (and thus borrow the huge amounts), I think it is likely that the high end borrowers tend to be older, with more of a work history, and probably far less likely to emerge at the end of 4 years and find that they can’t get a job. </p>
<p>I also think that the use of the word “forgiveness” is unfortunate, because I don’t think it’s easy for a person to pay out 10% of their “discretionary” income (where “discretionary” is defined as anything over the poverty line), for a period of 20 years.</p>
<p>If there’s one good thing with the publicity about the Occupy folks demanding loan forgiveness, it’s that it shows how misguided & delusional they really are.</p>
<p>Yes, the college pricing system is way broken. But it’s not a moving target. Every year, there is a set cost. And students & their parents have to step up to the plate & make the decision as to whether it’s worth it. It’s a thing called VALUE. Even back in 2003, when we started scoping out schools for D1, I could see that the high-end privates at $45K/year (now new & ‘improved’ at $55k/year!) weren’t going to provide a good value, unless there was an added salary stipend just for an undergraduate degree from Northwestern, for example. But…the economy was rockin’ & rollin’ at the time, and the ability to obtain student loans (I’m not talking about Staffords here) was a lot easier. “Oh, no prob. I’ll be able to pay it back.” </p>
<p>Now, with $150K of student loans accruing by the day, these misguided graduates with a BA in something-or-other slogging away at a $30,000/year job are under the gun. I have sympathy for their plight, but it was their decision & responsibility in the SAME way that underfunded people borrowed to the hilt to buy a house that suddenly & drastically lost a third-to-half its value. Extreme short-sightedness in both cases.</p>
<p>I’ll tell you what–IF there’s a bailout in any form, even though I did the right thing in not borrowing beyond my means for my two D’s educations (that I will be paying back for some time BTW), I want some too. Why should it be that the mistake-riddled people that are in dire straits be the only ones that get help? Same thing goes for the housing thing, because it’s part of the same problem. We’ve lost a third of the value in our home, we’re barely above sea level but I’m still paying my mortgage. Why? Because it’s the right thing to do. It’s all about taking responsibility for your decisions & actions.</p>
<p>FWIW, most loans are forgiven in bankruptcy, but not student loans. In many states, a person can rack up millions in debt, if he’s a “rich” business-person, and then go into bankruptcy, wipe out his debt, and still keep the mansion. A lot of the student loan cash has been collected by the for-profit “colleges” like ITT and the u of Phoenix which exist only to convince the poor to take out loans and then the “colleges” collect that money. It’s not the GWU students who are defaulting the most. So, perhaps we should tone down the moralism.</p>
Are you saying that it’s the duty of banks to lend money to anyone who wants it? For every borrower, there is a lender. For every bad mortgage, a banker said Yes. The lender is supposed to be the one who determines creditworthiness and, if appropriate, says No. The banks abdicated their responsibility.</p>
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Cast your mind back to the mid-00’s, when prices were increasing 20% a year. There was panic in the air, especially for first-time buyers who thought they saw the dream of home ownership slipping away. There was also greed in the air; flipping houses suddenly seemed like the road to quick and near-automatic riches. Into that emotional mix came the bankers, offering all kinds of novel and exotic financing options. I remember hearing radio commercials – lots of them – telling buyers that “No matter what, we can get you into a house.” </p>
<p>And why not? Bankers told buyers that by the time that ARM re-set, their house would probably be worth 50% more (after all, look at what the market has done in the last few years). Bankers told buyers that re-financing would be a snap (after all, look how easy we’re making it for you to get a mortgage in the first place). Bankers encouraged buyers to falsify applications. Bankers in some cases flat-out lied to buyers about the re-set. In short, bankers’ only criteria for making a loan was the banks’ bottom line and their own commission check. The borrower’s ability to repay, which before deregulation was the main consideration, wasn’t even on the list.</p>
<p>It’s easy to say now that it was obviously a bubble, destined to burst. But at the time, the news was filled with expert commentators breathlessly recounting the latest double-digit increase in the market. And the other experts – the bankers – were offering a way to get into the market before the next double-digit increase. All of the experts, all of the market pressures, all of the emotions pointed in one direction: Buy! Buy! Buy! NOW!! I’m not sure how an unsophisticated buyer should have known that the experts were wrong, or lying, or both.</p>
<p>In the SAME way, I’m not sure how students who borrowed 3, 4, 5 years ago should have known that we would still be at 9% unemployment today.</p>
<p>I will agree with you from the respect that it certainly takes two to tango–a greedy banker for every stupid borrower. And maybe I’m the cautious, maybe overly pessimistic sort that–of a different mindset–could have taken an extra $100K in equity out of my house on a re-fi and put in a home theater, master suite, a hot tub or some such foolishness. I was happy to have the equity (which is mostly gone now) but have always been taught to ‘save for a rainy day’. I saw the same idiotic TV commercials that everyone else did & also saw colleagues making–at that time–a mint flipping properties either here in Chicago or in Las Vegas. They ain’t doing so hot right now.</p>
<p>An ‘unsophisticated buyer’ has only himself to blame if he/she doesn’t understand what a signature on the dotted line means. If you’re unsophisticated, realize that you are & seek solid advice. The fact that some of these aggressive lenders/bankers–mostly in the housing sector, not necessarily in student loans–have gotten off basically scot-free really gets my goat too. They should all be in jail for fraud. But a degenerate gambler that has to go to the loan shark at 10% weekly ‘juice’ knows what he’s getting into as well.</p>
<p>The REAL question is, as long as we’re similarly talking about the housing crash & student loans in the same breath is–will the cost at these universities ever come down, like home values have? The only way that will ever happen is when high-priced colleges price themselves out of business, enrollments decline and only then those schools will be FORCED to discount. </p>
<p>That NYU professor in the opening post of this thread admits he’s part of the problem, but I don’t see him resigning his tenured salary of what, $125K, either. That’s probably the most hypocritical part of it all, that university faculty don’t want this bubble to end. They perpetuate the myth that a BA at their university is like Wonka’s Golden Ticket–if their minds were based in economic reality, they’d see that a lot of their jobs are or will be in serious jeopardy.</p>
<p>They did. They talked to bankers. Bankers advised them to borrow before the market went up another 20%. They make the mistake, I suppose, of thinking that bankers were unbiased experts, invested in making WISE loans. </p>
<p>These borrowers knew what their signature meant, but put yourself in their shoes. I’m a young family, hoping to own a house someday. I’m saving toward a down payment. But prices are going up like crazy, and there’s no end in sight. This (many people believed) is my last chance to buy a house, ever. I can get a mortgage. My banker – the person I trust to know about these things – says I’ll be able to re-fi when the ARM resets. Can you understand how so many buyers fell into the trap? Maybe such buyers should have read the WSJ every day for a year before they signed, engaged personal financial consultants, talked to economists, etc. Instead they relied on their banker to tell them the truth, or at least help them weigh pros and cons. </p>
<p>They could not have known that banking had changed fundamentally. Years ago, a banker wouldn’t make you a loan that he knew you couldn’t repay. Now bankers had an incentive to make you a loan, no matter what. And that’s exactly what they did, a million times. They knew they wouldn’t be around to deal with the mess, either at the individual buyer level, or at the global economy level.</p>
<p>The home owner can lose his home. The bank can get bailed out by the taxpayers and make record profits in fees. The for-profit college can collect the student loan money and pay off (sorry, contribute) to various politicians. The student is left with a debt that can never be discharged. </p>
<p>Who do you want to blame? jnm has another scapegoat:</p>
<p>“I don’t see him resigning his tenured salary of what, $125K, either. That’s probably the most hypocritical part of it all, that university faculty don’t want this bubble to end.”</p>
<p>I can tell you, outside of NYC, at least, it’s pretty unusual for a professor to make that kind of money, unless he or she teaches at a medical school, law school or business school, or has his salary paid by his own grants. So I’d find another scapegoat for this mess.</p>
<p>No scapegoats, HouTX. Bad situations all around no doubt, and there were plenty of unscrupulous people with money that were only too happy to draw the naive in so they could make their brokerage fees. That’s a fact. And all I was saying about the tenured professors is that they have some pretty nice deals for themselves & I’ll bet they’re looking very closely at what might happen down the line.</p>
<p>Do the $100,000-200,000 loans that were co-signed by parent/credit savvy adult qualify for the new loan forgiveness program? And has anyone figured out yet if graduate/professional school loans qualify?</p>