^ This past point brings me to a great article: http://www.theatlantic.com/international/archive/2016/07/nordic-american-dream-partanen/489032/
Americans like to think that they have more freedom and choice than in a nanny state like Finland, but the reality is that Americans are actually more stressed out and beholden to circumstances outside their control than Finns. A generous welfare state actually is more freeing to many people.
I could have income based repayment without having my wages garnished in the US (I don’t happen to have a loan, but when I did, I sent in the coupon and check every month). It’s a program available without involving the employer, just between the lender and borrower… Some of the lenders even give a % off (usually .25%) the rate if you set up automatic payments, but that still leaves the control with the borrower who controls the bank account.
If I moved to Finland, I might like it. Everything is paid through taxes. I don’t live in Finland, I live here where most expenses aren’t paid through taxes. I don’t know if most Finns work for the government or an employer (fewer small businesses?) but being an employee makes it easier to garn I would not like a system where some of it is paid, other things aren’t. I like having control. I pay T-Mobile and other bills every month online, but I want to look at the bill before they take it out of my account. I want to click ‘pay now’ when I’m ready. Too many horror stories of the electric company paying itself a $1400 bill when it should have been $140. Oops, no big deal - unless all your other checks bounce.
Sorry, Titan, but I don’t know enough about the Aussie program to opine if it is better or worse, or just different. However, I disagree with the premise of the title in that I do not believe the US program is harsh or antiquated. Instead, I would call it too generous, which creates a moral hazard and enables folks to “wreck” their lives (using your term).
An easier solution, IMO, is to: 1) make private loans subject to BK court. Voila, the risk goes onto the lenders, and not the taxpayers. Sure, we still have some risk with federal loans, but since undergrad are capped at $31k, I’m ok with that amount of risk.
If the private loans are subject to bankruptcy, it will be the same as it was and private lenders will not make the loans without a government guarantee (like the old GSL). I agree that’s how they should be, and the program will end. There will be a lot of complaining that it isn’t fair that only rich people can afford college, but that’s a choice.
I’d say do both 1 & 2. Basically eliminate private bank lending by making the banks actually qualify people for the unsecured loans under a regular banking underwriting process, and cap the total of student loans - government issued including Plus, and private or state loans. One total cap. But again, low income families will feel the pinch a lot more than wealthier families. We have to recognize that by capping the loan and preventing some people from borrowing huge amounts, we might be preventing some people from finishing college. Some people make for-profit colleges work and do pay back the loans, and those people might be hurt. I accept that downside (and I think most of the ‘good guys’, both colleges and students) will figure out a way to make it work even with new restrictions.
Exactly. That is my intent. Not sure why taxpayers should pay for sleep-away colleges.
Mostly complaining from the private colleges & training programs that feed off of the debtors (and by politicians who are grads/supported by those colleges.)
Should major/job prospects be taken into account in granting private loans (amounts and interest rates)?
if loans are subject to BK, then its up to lenders on who and for what to lend.
Nice dodge. 
If you are a lender, would you consider major/job prospects in making student loans?
Feds may well be involved in setting parameters for banks.
No dodge, let me try again:
Just to be clear, there would be few private loans available, at least not without a co-signer. Thus, major/job prospect is not relevant.
Furthermore, nothing for the feds to be involved with.
Feds (and states) have a lot to be involved with loans banks make now. And to the extent consumers are involved, there are more regulations (fed and state). More so since 2008. Are you saying private student loans should be exempt from fed/state regulations?
The banks can only lend under the supervision of their regulators. Dodd Frank Act has many new requirements.
Maybe someone wants to check this, but using a 3.8% interest, 27k paid over ten years adds to about $32,500.
Spreading that out over 30 years: cumulative payments, about $45,300, Total Interest Paid: $18,300. That’s 67% of the principal.
itsgettingreal, your advisor may be saying not paying off a relatively lower interest loan is not so “worth it” to pay this one off early, compared to paying off higher interest loans. But it’s still one big nut in long term addl costs.
That’s a fast look. Even if you play with the calculators, interest grows over time.
Depends what you would do with the money that you would now use to repay low interest debt. You would be better off if its now being used to repay higher interest bearing debt. Would also be better off it you are getting a higher return (on an after tax basis) than the interest you are paying on the low interest debt.
Some people like paying smaller debts first so you can knock one off the list (even if it may be lower interest). To me that is more psychological than anything. As relative interest rate difference increases, that benefit makes less sense.
Right, if paying off higher interest debt. But we’re talking burdensome student loans in the context of kids whose ROI is limited. Not those CC kids aiming at medical careers, IB or the uber entrepreneurs.
The solution has been made to make student loans dischargable in bankruptcy after a certain number of years, but then to require the educational institution receiving the funds to reimburse the government for a certain percentage of that amount, say half. That gives the college an incentive not to admit students who are not likely to complete a degree in a major that will make money.
But is making the institutions responsible when the institution has no say in who gets the loans fair? The school doesn’t qualify the student for borrowing, only for admission. Some schools have a much lower SES than others, and they might become responsible for a lot more bad debt even though the school didn’t do anything other than admit the student. The school could follow all the rule, lending caps, SAP rules, and just because the students take longer to graduate and some drop out and default.
Now the schools serving the poorer populations would have to make a credit assessment for admissions, because if the student is admitted that student would be entitled to a Stafford loan.
The colleges do need to certify the loans.
@twoinanddone The whole point of making the educational institution partially liable for repayment of the loan is that they shouldn’t admit the student and accept the money if they don’t believe the education they are providing is going to provide him with the skills to repay the loan. Right now colleges are just letting students in who can’t do the work (or encouraging them to major in things in which they cannot make a living) and taking their money.
On the proprietary end it is a chamber of horrors, with these poor people being absolutely scammed by trade schools that are assuring them of jobs once they complete their training program, and then when they go to the companies they have been told are desperate to hire, they just get a blank stare. And so these poor, working-class people are toting around a bunch of debt that they can never bankrupt out of.
Only special regulations. Any college loan made without a federal guarantee would be unsecured and therefore part of the bank’s unsecured portfolio of assets. Whatever general rules/regs (nondiscrimination, payment terms, etc) apply to the bank’s unsecured book of business would apply to loans used for college attendance.
Of course, few lenders would make the loan in the first place, so it shouldn’t be a big deal. Or, if they do make the loans, the rates would be high to compensate for the bad debt, which is no different than offering credit cards with high interest rates to those with no/poor credit. And yes, the feds should not regulate the interest rate.
I disagree that:
" The solution has been made to make student loans dischargable in bankruptcy after a certain number of years"
I suspect many would put their loans on income based repayment and then declare bankruptcy at the end. Under this idea, it would be financially prudent to borrow as much as possible since your repayment schedule is not tied to your loan amount and you know you will have limited obligation to repay. Many with no other options to pay for their dream school would see this as a practical solution. Under this system, all schools would cost the same. Basically 10% of your income for X years.
I know the bankruptcy rules are harsh but one of the reasons that they were put in place was that people were abusing the system. This idea appears ripe for abuse.