<p>This posting is NOT intended to engender a discussion of the Occupy Wall Street movement, and it is also NOT intended to be a political discussion. </p>
<p>But the student debt problem is a huge one, and it has the same bubblicious issues attendant to the mortgage crisis, except when it comes to student debt, I think the federal Government is a far more obvious culprit than with the mortgage problem, where a fair analyst could point to a number of responsible actors, of which the Government was only one. </p>
<p>The Government's cheap and easy credit policies when it comes to student loans - granted with very little or no underwriting - has permitted universities and their administrations to raise tuition to levels that have vastly outpaced inflation. This if of course a difficult challenge because so many of us want to be able to go to college and higher education. But in many cases, it no longer makes economic sense to attend college, if as is often the case extraordinary debt is what is required. And the debt of course is not dischargeable in bankruptcy. The government policies, under the guise of access to education, are damaging scores of young people. </p>
<p>The young woman in this article has 135k of debt that cannot be discharged? No wonder she is in bad straits. And the schools she attended gladly accepted the loan dollars. </p>
<p>My complaints have nothing to do with ideology or politics. Let's face facts, the access to cheap student credit is hurting us all, and benefiting a class of university personnel who cannot continue to receive these subsidies. </p>
<p>By the way, and this is a compliment, really, this board may not be a good place to address this issue because so many parents here figuratively give their left arm away to minimize debt for their offspring. But I don't this this is the norm, and there is a lot of misery out there. Time to talk openly about it.</p>
<p>I think parents are part of the problem. When there is no price too high, no requirement too stress-inducing to get into A Big Name school instead of going to something you can afford without the loans, it may not be reasonable to think government is “allowing” anything. We don’t buy anything else this way, but believe that an Ivy League pricetag will pay for itself in a reasonable amount of time with a reasonable amount of effort. I don’t think that was ever the case for the majority of graduates, but is even less true today. </p>
<p>I guarantee that if families sent their students to good schools with solid reps and reasonable tuition, the hyper-expensive schools would get the message. But uber-competitive parents don’t want to be the first ones to go there. I don’t get that at all. If your child is so wonderful and driven and accomplished, it’s lost on me why you would bury all that talent under a mountain of debt when you could attend somewhere that won’t require that. S1 and S2 will go where our modest intentional savings (and theirs) will pay the freight, and they will go out in the world unencumbered. I don’t think the name on their diploma will change their life. I think 20 years of crushing debt will, and we planned accordingly (admittedly, we had that choice, and not everyone will)</p>
<p>So many people in this country are financially illiterate. The easy availability of credit makes it so easy to ignore or obfuscate the true cost of things. I really believe that a personal finance class should be a mandatory requirement for HS graduation. Some very smart people have no idea how to make a budget, how to estimate costs, how compound interest works, etc. </p>
<p>Part of the problem is that colleges have no real incentive to control costs as long as students are able and willing to get huge loans. Laudable intentions to make higher ed more accessible have resulted in colleges simply jacking up their tuitions to capture the more available money on the front end.</p>
How does offering total Stafford loans of $27K for undergrad “permit” universities to charge $50K/year? Where you attend school is a choice. How often have we read a post on CC to the tune of “I will not attend a community college”?</p>
<p>It’s true that some people have a foolish sense of entitlement over what kind of school they consider attending. It’s true that no one forces anyone to take out excessive debt. But there are many cultural and economic factors encouraging young people to get stupid with money, particularly those who do not have the advantage of financially literate parents.</p>
<p>I agree this is the next financial problem for our economy. No one twisted their arm to take on so much debt. You don’t get that kind of debt with an undergrad degree at a state school. I don’t think it was reasonable for anyone to take on that much debt. The government should keep them responsible for their decisions. Once you are educated you can not take that away. Unlike other things we buy which we can claim bankruptcy. By allowing them to claim bankruptcy you allow them to not be accountable. Most people would default and take the hit for years. I know I would have had a much better time taking larger loans and not working during college, if I could just get rid of the debt later. Heck I was going to college during the last big recession and it was harder to get a job back then than now in my location. I paid 9% for my student loans. I have no pitty for these people. </p>
<p>I also don’t believe so many of these people should be going to college. For one it water downs the degree and two it dilutes the market for those who do graduate. This pushes the need to differentiate and causes more people to strap themselves with higher loans to get into better colleges.</p>
<p>I think Parent Plus loans and the fact that student loans are difficult to discharge (unlike other types of consumer debt) are probably what mam1959 was referring to. The Stafford loan, Perkins loan, and Pell programs haven’t grown nearly fast enough to account for more than a tiny percentage of the increase in college costs. </p>
<p>The buck doesn’t really stop with the federal government though. No one has to borrow $200k to go to school. Most schools are not that expensive. I agree completely with this post:</p>
<p>
</p>
<p>As long as people are willing to pay a premium to go to a school that is 2 - 3x the cost of their state universities, those schools have no incentive to control costs. It’s reached the point where even lower-tier schools cost as much or even more than HYP (and offer far fewer financial aid / scholarship opportunities, of course). Ultimately, it’s not down to the government to make us make better choices; more parents and students need to seriously consider cheaper alternatives (especially ones with merit-based aid). </p>
<p>(I agree also with the idea that we need more financial education. You don’t need to be an accountant but you should be able to figure out the monthly payments on the loans you have as well as the likely cost of living where you want to be, so you can know if the amount of debt you’re taking on is really worth it).</p>
<p>At some point it becomes difficult to protect everyone from themselves. The inability to discharge this debt makes credit more widely available. Otherwise folks with low income who can’t afford college would never qualify for the loan. Unfortunatly the system is abused by many colleges.</p>
<p>Two things, 1) make student loans bankruptable. Right now the lenders have no skin in the game. These same lenders are incredibly saavy about what they are willing to lend for a car or house. There is no was that they would lend an 18 yo $80,000 for a Mercedes, but will lend twice that to get a degree in latin literature. If the loans became bankruptable, the lending standards would tighten up and the borrowers would HAVE to become more aware of what they are signing up for.
2) There is a portion of personal responsibility. I have heard kids say the $100,000 loan is no big deal because they will pay it off their first year out. Parents, guidance counselors, strangers on the street need to help educate these kids on minimal financial literacy. If parents would not cosign for the loans that they and the kid cannot afford other plans will be made by necessity.
Unfortunately true story. My secretary cosigned for loans so that her son could go to a private middle tier college rather than 1/3 the price for the better state school because they thought “private” meant better. No interest listening to me since I went Ivy (a million years ago). Now the entry level postion that he was lucky to find barely covers the interest…</p>
<p>$9,000 may not sound like a huge debt but several years ago my niece (my brother is deceased) asked my elderly mother to co-sign a sallie-mae loan for 1 semester at Eastern Ky. U. She left after fall semster and eventually enrolled part time in a local commuter school and is working at a minimum wage job. Every time she is late with a payment, my Mom is notified. I was not included in this decision and recently needed to take over her finances. $9,000 is more than half of what she has in the bank. My SIL would not co-sign, she said she already had too much debt and works 2 jobs herself. A lot of people are dealing with this nightmare, the amount is relative. The answer? Dont borrow. I told my DD that we can pay a certain amount, she may receive merit aid, scholarships but I absolutely refuse to sign loans papers. If we can’t afford where she wants to go, a gap year to me means working full time and earning the money upfront. Added info:my niece has great grades and is college material.</p>
<p>If someone decides that the taxpayers should absorb the cost of forgiving student loans, I will scream! Stretch them out another 10 or 20 years, but do NOT forgive them.</p>
<p>A huge part of the problem is also the mentality (often repeated even on CC) that educational debt is “good debt” and that college should be paid for with “past, present and future income – in other words parental savings, current parental income and student loans” – which I always find amusing – that model will totally fall apart as the current generation of college students, saddled with hundreds of thousands of dollars of debts, faces the need to pay off their own loans while being expected to amass huge savings for the education of their own children. With the possible exception of very well paid professionals, most will have to choose paying their non-dischargeable student loan debt instead of saving for their children’s future education.</p>
<p>Interesting point. The cost of college will go up until the number of students applying goes down. I’m all in favor of sending my kids to the state universities that I am already paying for with my tax dollars. I can see the point of HY…, but I don’t see the point of the middle tier. I also don’t see the point of the non-career focused - mind broadening <em>education</em> route of the liberal arts majors. Sorry, Engineering, Nursing, Teaching, or an MBA. I don’t want to hear about how your art major is 200k in debt and you didn’t know that he/she would not be making enough money to pay it off. Fine you want to be an art major. You go get your MBA after that and go into advertizing. I think the bank giving the loan should be asking about expected salaries upon graduation as part of the qualification process. That would be the responsible thing to do.</p>
<p>Well, I will admit, that in dealing with DS college choice, I learned from many past threads such as MomfromTX, who had children attend less prestigious schools on full-tuition. At the time (posts pre 2009) many parents were calling her irresponsible to nto pay good money to give children better opportunities. We are a family in financial need, so DS has applied everywhere possible it seems and is willing to be in th top 5% of his class if the money is right. We, as a family know taht we will not be borrowing anything other than the EFC and his contributions if we have a shortfall. ust as I didn’t buy too much house for my budget, I won’t put myself in debt when I know that he is smart enough to get the most out of school wherever he goes.
I disagree that the degree itself should be geared toward professionals. After all, we don’t know what the jobs of tomorrow will be. In my area, nursing students fresh out of school can’t get a job, nor can new pharmacists. Engineers out of school 15 years are getting laid off and later replaced with new grads. I don’t begrudge someone a liberal-arts education, especially if critical thinking and written communication skills were gained.</p>
<p>I agree that this has to concern all of us, whether our kids are full pay, full scholarship, or saddled in debt, because just like the housing crisis, this affects the flow of money. And there’s a lot of money that’s being loaned out right now. </p>
<p>I do agree that lenders should be more scruptulous about how it’s going to be repaid. Banks took a huge loss during the houising crisis that’s still being tallied, but the biggest problem in the housing crisis is what happened with Freddie and Sallie Mac. The government took over and nearly defaulted. Is that what’s going to happen with all these student loans, especially if bankruptcy is allowed? Actually allowing for bankruptcy (aside from that comment) isn’t the solution either: too easy! </p>
<p>These kids should never take on that kind of debt in the first place. That’s where colleges, guidance counselors, and parents need to be wise about the true magnitude of the consequences. Kids should be encouraged to go to community colleges, public universities, and lesser-known colleges as a standard first consideration and stop the nonsense they “deserve it”. If that means some end up “missing opportunities” at big name colleges, so be it. That’s a whole lot better than filing for bankruptcy or wallowing in debt in the long run.</p>
<p>Another scary point of view that is also frequently repeated on CC is that EVERYTHING should be done to “make it work,” no matter how perilous the student & family financial situation is and regardless of affordable good options available. </p>
<p>Neither banks, nor students nor families are being realistic when they allow undergrads to take on HUGE debt loads of 6 figures, no matter what they intend to major in and follow as a career. There are MANY unemployed folks in all fields that COULD be earning mid to high 5 figures or more. Debt is crushing and limits so many options for everyone involved.</p>
<p>Allowing for student loans to just disappear would be devastating to our economy. Extending the loans or reducing the interest wouldn’t be the end of the world, but the US governement would need to step in to buy that debt, and that isn’t likely in this economy. So what if the US governement buys all the existing student loan debt from all colleges, banks, etc. and reduces the interest to Fed Fund rate or Treasury rate. Colleges would still be paid, the debt would still be paid, but the private companies would no longer have either the profit or the exposure. That would free up money from the banks to loan to businesses, the government would not be losing money (but it wouldn’t be making a profit like it did with TARP funds) and the borower would nto be off the hook. The terms fo teh loan could be altered to forgive some for military service, community jobs and the loans could be extended or adjusted to cover changes in the economy. </p>
<p>That said, future loans could be restricted so that those mid-tier schools would need to lower tuition or go out of business.</p>