The worst, most burdensome kind of debt in U.S. history!
To carry this kind of monster debt during the worst recession since the Great Depression and the worst job market in decades.
Are we setting ourselves up for trouble?
I look at it this way....
91.8% of 2009 college grads living at home and 80% of 2008 grads jobless... Who do we expect to pay into Social Security and pension funds? Who do we expect to pay these inflated home prices when so many of those graduating from college can't even make ends meet?
This all reminds me of what was warned about in that 1990's book The Retirement Myth.
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Well they shouldnt be giving out student loans to everyone, especially the "Cash Back" ones that give kids $$ to pay for "living expenses" which in reality means booze ipods and entertainment.
I know a loser 25yo who just got a $4300 check in the mail today from her student loan. She hasnt paid her rent in 2 months. Think that money will be used responsibly?
Sharp, financially prudent students do not rack up tens of thousands of debt with no prospect of paying it off.
SUCKISSTAPLES said:Well they shouldnt be giving out student loans to everyone, especially the "Cash Back" ones that give kids $$ to pay for "living expenses" which in reality means booze ipods and entertainment.
I know a loser 25yo who just got a $4300 check in the mail today from her student loan. She hasn't paid her rent in 2 months. Think that money will be used responsibly?
Sharp, financially prudent students do not rack up tens of thousands of debt with no prospect of paying it off.
But most of these students are barely 18 and being told to sign a promissory note worth tens of thousands of dollars.
They don't even get Truth-in-Lending disclosure the way subprime mortgage borrowers do. Virtually zero protection whatsoever.
The student loan companies WANT them to borrow as much as possible because they know that they'll get their money anyway, because the students can't ever declare bankruptcy and those who borrow loans backed by the government's guarantee have the government pay in a sum as well. The loan companies carry zero real risk and 100% profit.
It makes no sense that you can't even get a credit card until you're 21 unless you can show proof you can afford to pay it, but at 18 you can take out $22,000- $100,000 in unsecured variable interest debt at rates like 14.7% + 3% fees tacked on with no questions and not even knowing your interest rate upfront.
I dont disagree with that...but no one is forcing these loans on them. And I understand not all of them have parents to tell them to only take out the minimum needed, nor would many want to listen to their parents at 18 years old anyway....
But its part of the maturing proceed...if they are financially and mentally incapable of comprehending these loans and their ramifications, they pretty much get whats coming to them...a lifetime of indebtedness.
I am one of those people who simply dont buy the argument that "I was young and made some mistakes" as an excuse. SOOO many people use that excuse for getting into massive debt at a young age....and they pay for that irresponsibility into their late 20s and early 30s. It seems fair to me, and all those who were responsible enough during our early years NOT to "make dumb mistakes" just bc we were young
SUCKISSTAPLES said:I dont disagree with that...but no one is forcing these loans on them. And I understand not all of them have parents to tell them to only take out the minimum needed, nor would many want to listen to their parents at 18 years old anyway....
But its part of the maturing proceed...if they are financially and mentally incapable of comprehending these loans and their ramifications, they pretty much get whats coming to them...a lifetime of indebtedness.
I am one of those people who simply dont buy the argument that "I was young and made some mistakes" as an excuse. SOOO many people use that excuse for getting into massive debt at a young age....and they pay for that irresponsibility into their late 20s and early 30s. It seems fair to me, and all those who were responsible enough during our early years NOT to "make dumb mistakes" just bc we were young
When I borrowed Direct Loans from the federal government, I was given entrance and exit counseling and clearly read my terms and it was understood just how much I owed, at what interest rate, and that I would have to pay them back. When I approached Sallie Mae for a private loan, they wouldn't even tell me the interest rate. They just wanted me to sign and bragged about how much "Cash Back" I'd get. Thank goodness I decided to pass. I later found out they wanted me to pay 16.9%. And with a 710 FICO!
When I borrowed Direct Loans from the federal government, I was given entrance and exit counseling and clearly read my terms and it was understood just how much I owed, at what interest rate, and that I would have to pay them back. When I approached Sallie Mae for a private loan, they wouldn't even tell me the interest rate. They just wanted me to sign and bragged about how much "Cash Back" I'd get. Thank goodness I decided to pass. I later found out they wanted me to pay 16.9%. And with a 710 FICO! Im showing my age here, bc I dont even remember who told me what about my subsidized loans. But I do remember all the fees were laid out, and thats how I figured I could make money by simply depositing the student loan money into a CD and repaying it after graduation.
If some lenders are not disclosing the APR and origination fees in the docs they sign, and reps are just bragging about the amount of "Cash Back" the student is going to get in their hot little hands, I fully agree with you that those practices must stop.
SUCKISSTAPLES said:I dont disagree with that...but no one is forcing these loans on them. And I understand not all of them have parents to tell them to only take out the minimum needed, nor would many want to listen to their parents at 18 years old anyway....
But its part of the maturing proceed...if they are financially and mentally incapable of comprehending these loans and their ramifications, they pretty much get whats coming to them...a lifetime of indebtedness.
I am one of those people who simply dont buy the argument that "I was young and made some mistakes" as an excuse. SOOO many people use that excuse for getting into massive debt at a young age....and they pay for that irresponsibility into their late 20s and early 30s. It seems fair to me, and all those who were responsible enough during our early years NOT to "make dumb mistakes" just bc we were young
If it was just a question of personal responsibility I might agree, but you and I both know there are plenty of irresponsible people who escape the bullet due to family/background/connections. Blaming students for not being able to foresee the current economic mess hardly seems reasonable.
When I borrowed Direct Loans from the federal government, I was given entrance and exit counseling and clearly read my terms and it was understood just how much I owed, at what interest rate, and that I would have to pay them back. When I approached Sallie Mae for a private loan, they wouldn't even tell me the interest rate. They just wanted me to sign and bragged about how much "Cash Back" I'd get. Thank goodness I decided to pass. I later found out they wanted me to pay 16.9%. And with a 710 FICO! Im showing my age here, bc I dont even remember who told me what about my subsidized loans. But I do remember all the fees were laid out, and thats how I figured I could make money by simply depositing the student loan money into a CD and repaying it after graduation.
If some lenders are not disclosing the APR and origination fees in the docs they sign, and reps are just bragging about the amount of "Cash Back" the student is going to get in their hot little hands, I fully agree with you that those practices must stop.
That's only the start of the scandal. About a year ago, Sallie Mae and several school financial aid administrators got into trouble by the NY attorney general when it was found out that financial aid officers were getting kick backs and vacation trips for closing deals on borrowers and setting up Sallie Mae as their school's "preferred lender".
Don't throw all the 18 yos in the same bucket. I accepted the federally subsidized and deferred loans because I realize what a good deal they were. I reject the unsubsidized and non-deferred loans because they were such crap.
Don't treat the symptoms, treat the cause ... poor financial education. Require a better financial education in high school, or a loan education class before taking college loans.
I honestly believe that the best and only way to fix the student loan problem and the cost of education is to simply do away with all government financial aid. We need desperately to stop the number of people pursuing further education and all the financial aid system does is further inflate college costs while encouraging young people to basically mortgage their lives for an 'education'.
CapEx said:I honestly believe that the best and only way to fix the student loan problem and the cost of education is to simply do away with all government financial aid. We need desperately to stop the number of people pursuing further education and all the financial aid system does is further inflate college costs while encouraging young people to basically mortgage their lives for an 'education'.
#1, you're a complete idiot and your post shows your lack of education.
#2, educate young folks in high school about finances. That's one area where high school does not prepare young adults for life after school.
#3, I just have to remind you that you are an idiot.
That's only the start of the scandal. About a year ago, Sallie Mae and several school financial aid administrators got into trouble by the NY attorney general when it was found out that financial aid officers were getting kick backs and vacation trips for closing deals on borrowers and setting up Sallie Mae as their school's "preferred lender". I actually see a lot less scandalous about this...CC companies come onto campuses to push credit cards, and presumably they pay the campus a fee for this.
Giving spiffs for pushing loans happens in all loan industries...auto home business etc.
But the part about not disclosing the rate or fees on the docs is ridiculous. You cant get away with that in any industry and I am surprised that is happening.
IcemanPk said:CapEx said:I honestly believe that the best and only way to fix the student loan problem and the cost of education is to simply do away with all government financial aid. We need desperately to stop the number of people pursuing further education and all the financial aid system does is further inflate college costs while encouraging young people to basically mortgage their lives for an 'education'.
#1, you're a complete idiot and your post shows your lack of education.
#2, educate young folks in high school about finances. That's one area where high school does not prepare young adults for life after school.
#3, I just have to remind you that you are an idiot.
I'm not sure when you went to college, but it's complete joke. Bonus point, curving all exams, and weighting good scores more continually push average GPAs up year after year. The fact that people actually even consider it to be worth the cost is laughable. A lot of degrees don't even have a positive NPV anymore. Hell, I work somewhere where all the administrative assistants have college degrees for their 30k/yr jobs.
Educate kids about finances all you want, but that won't reduce the debt load caused by the 'need' for kids to go college. Financial aid makes this problem considerably worse, just like Medicad/Medicare significantly increase health care costs for everyone.
ETA: This isn't necessarily the case for degrees that actually require a formal education (ie. engineering, science, and math), but those are the areas where kids aren't going because the other areas are 'easier'.
CapEx said:I honestly believe that the best and only way to fix the student loan problem and the cost of education is to simply do away with all government financial aid. We need desperately to stop the number of people pursuing further education and all the financial aid system does is further inflate college costs while encouraging young people to basically mortgage their lives for an 'education'.
Capex is right even though it's not a populist message. Student loans allow people to make bad financial decisions... like pay $200k for a degree in music.
We read about these posts all the time. That kind of non-sense wouldn't be possible without the government guaranteeing and subsidizing huge loans. Many people would be better off had they never stepped foot inside a university.
Schools competing to offer arbitrary country club services unrelated with education: luxury dormitories, spas, gourmet foods, top of the line sports complexes, etc. It used to be you went to school to get a 4 year education. Now you go to school to get a 4 year vacation.
Education expenses continue to go up 10% a year even though expected incomes of graduates have flatlined and unemployment is on the rise.
Vast sums of reckless lending are paid out to study useless majors that no rational person would ever borrow.
Colleges frequently mislead students about employment prospects and salary surveys, saying there's huge demand when there isn't
There's no easy way to compare the quality of educations provided, so instead people make decisions based on arbitrary metrics like "Prestige". People fallaciously assume that if a school is expensive, it must provide a superior education. People also assume that if a school rejects a large number of applicants, that it is superior to a school that rejects fewer.
A belief that people without degrees should be looked down upon, much like renters during the housing boom. College is part of the "American Dream" entitlement, like housing.
Large amounts of diploma mills(ITT Tech, DeVry, Phoenix Univ.) devaluing degrees and cashing in on the madness. Developing in demand job skills is second to profit.
Plumbers and Electricians can make more money than a lot of lower paying degrees
Long term trends of college educations paying off lead people to believe the intrinsic value of a college education cannot fall. Housing was a good, stable investment for over 100 years, causing people to believe the value of real estate cannot fall.
4 year graduates that can't find jobs return to graduate school, rationalizing the reason they couldn't get a job in their field was because they needed more education, not because there is no demand. This further inflates the bubble. Entry level jobs start to require more college educations because they can.
Why should a potential employer trust the financial judgement of someone who spent hundreds of thousands of dollars in debt to go to school?
Massive amounts of government intervention and programs so people can get educations they can't afford: low interest loans, government guarantees, etc. Similar to the government "assistance" to put minorities and low income families in homes they can't afford.
Depending on the degree, the costs (direct costs and lost income) can be equal or higher (in net present value) to the additional lifetime income derived from having a degree.
The article OP linked to is called Student Loan Sinkhole. It details a SOB story of a student that paid over $50,000 to get a masters in social work, an obviously low paying career.
I think "Student loan sinkhole" is an appropriate term because borrowing money just to flush it down the toilet will always be a sinkhole. She borrowed large amounts of money to throw away on a bad investment, just like real estate speculators. All the student loans did was enabled her bad investment and decision making. If her interest rate on the loan was 0%, it still would have been a bad investment.
I think easy loans inflate the cost of an education. I think private schools are significantly above-market in terms of tuition rates, and I think some state schools are slightly above-market, because there's no downward pressure on tuition, because students have access to easy credit.
CapEx said:IcemanPk said:CapEx said:I honestly believe that the best and only way to fix the student loan problem and the cost of education is to simply do away with all government financial aid. We need desperately to stop the number of people pursuing further education and all the financial aid system does is further inflate college costs while encouraging young people to basically mortgage their lives for an 'education'.
#1, you're a complete idiot and your post shows your lack of education.
#2, educate young folks in high school about finances. That's one area where high school does not prepare young adults for life after school.
#3, I just have to remind you that you are an idiot.
I'm not sure when you went to college, but it's complete joke. Bonus point, curving all exams, and weighting good scores more continually push average GPAs up year after year. The fact that people actually even consider it to be worth the cost is laughable. A lot of degrees don't even have a positive NPV anymore. Hell, I work somewhere where all the administrative assistants have college degrees for their 30k/yr jobs.
Educate kids about finances all you want, but that won't reduce the debt load caused by the 'need' for kids to go college. Financial aid makes this problem considerably worse, just like Medicad/Medicare significantly increase health care costs for everyone.
ETA: This isn't necessarily the case for degrees that actually require a formal education (ie. engineering, science, and math), but those are the areas where kids aren't going because the other areas are 'easier'.
Maybe the real question is where did you go to college?
brettdoyle said: Student loans allow people to make bad financial decisions... like pay $200k for a degree in music. I completely agree, but how do you tell someone it is ok to take on $200k student loans for, say, a medical program ....but not OK for a music program, if their interest is music??
I just think that we're underestimating the impact all of this will have. Most of us figured we'd be insulated from all of those crazy people taking out interest-only subprime loans to buy McMansions, only to see our pensions and 401ks get hit. But, I find this problem to be far more serious. What we're doing here is making an entire generation part of a permanent underclass. It's already a big problem that not enough young people are paying into pensions and Social Security to sustain those Baby boomers ready to retire and keep the system going smoothly. Add this in and I think this deep recession could turn into a depression.
Fewer grads with high enough paying jobs and most of them carrying massive debt means lower tax revenues, a new derivatives problem brewing, and few dollars paid into 401ks and pensions.
I think most people nearing retirement just shrug these conerns off and figure, "We had too had to deal with them student loans. Just grow up and suck it up, kiddo!" But, I think they're in for a little lesson in karma. You see, we're all interconnected, and I don't mean that in some New Age-like way.
oopsz said:I think easy loans inflate the cost of an education. I think private schools are significantly above-market in terms of tuition rates, and I think some state schools are slightly above-market, because there's no downward pressure on tuition, because students have access to easy credit.
I agree. I believe we had this discussion before, but I can't find the thread. It was in relation to this article talking about someone who wanted loan forgiveness because they couldn't pay it back. Read through the comments on the article, you'll see that a lot of people feel entitled to it, the thinking being "if they bailed out the banks, and they bailed out homeowners, why not me?" I'm still not sure whether the "waahs" will come from credit cards or student loans next, though.
As for the "how do you tell the music guy not to spend the money," I think the college student needs to take a good, hard, realistic look at what kind of job opportunities they think they'll have when they graduate, and see if the money is there. Now, that won't stop situations where an entire industry (or the whole economy) crumbles while you're in school, but that's life. If you're going to spend 200,000 on a music degree and you're not realistically in the top 10% (or whatever) in the nation, about how long will it take to pay the money back? Would you be better off going to a school you can afford?
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