13 ms·

Study: Almost half of borrowers will default on student loans in coming years

65 points by SQL2219 8y ago

ehvatum 8y ago
Immediately fire nineteen out of twenty college administrators making more than $125k/yr. The cost reductions would be immense, with negligible impact otherwise. These hordes of millionaire administrators really don't serve any useful purpose.
- amluto 8y ago
  Try it at one college and watch the college fail. Also watch it save very little money compared to the overall operating budget.
bradleyjg 8y ago
For federal loans, which are the overwhelming majority of student loans the REPAYE plan allows borrowers to pay 10% of their income after 150% of the federal poverty line for their household size. As a worked example a single person making $35,000 a year will owe $140/month regardless of total federal debt. After 20 years the remaining balance is forgiven (though the forgiven amount is taxable income). There are certainly situations where ends can simply not be met, but in general it is not a good idea to default on those loans.
- burfog 8y ago
  Nobody should be in that situation. You can make way more than $35,000 a year without even going to college. Doing that after college means that the college degree provided negative value. One can look up jobs that don't need education past high school at https://www.bls.gov/ooh/ https://www.bls.gov/ooh/ and see that there are 9 occupations with income of $75,000 or more, and numerous additional ones in the $55,000 to $74,999 range. You could break $35,000 per year easily in the military. An E-1, the lowest rank, can do that if they get the housing allowance and submarine pay. An E-5, which is mid-level enlisted, can do it on base pay alone. Smokejumpers get about $35,000 per year. The national average for a truck driver is $43,464 or $75,672 per year, depending on who is counting. Either way, it beats $35,000 by quite a bit. Plumbers are about the same. Lots of trades people are doing way better than $35,000 per year. So the answer it seems is to hide the worthless degree. For some of the really nonsense degrees, it might be better to let employers think you spent those years in prison. You'd get paid more if you didn't have the degree.
  - thebooktocome 8y ago
    Both my father-in-law and an uncle ruined their health by truck driving. It seems to be common for truck drivers to not carry health insurance, as well. Therefore, medical bills have seriously eaten into their income. I'd heavily discourage people from choosing the profession.
panabee 8y ago
Assuming the study is accurate, can anyone shed insight on the repercussions and ripple effects if so many people default on student loans?
echevil 8y ago
As a foreigner, it sounds to me the root of the problem is still university being way too expensive. Also, shouldn't the government provide direct financial assistance to low income people being admitted to good colleges without needing them to ever pay back?
- graeme 8y ago
  In reverse: unlimited loans are give that cannot be waived in university. This bids up the cost of university and has schools compete on features rather than price.
- metaphor 8y ago
  In general, private university tuition is extremely expensive. There are certainly exceptions to this rule that keep costs reasonable--e.g. for the financially strapped, Stanford has a "student obligation" program[1] as an element of financial aid--but they're not all comparable. Conversely, I personally think in-state tuition for public research universities of sound rapport are fair. A big issue is when an undergraduate student moves to a different state to study and is charged out-of-state tuition for at least a year before establishing residency; that single-year cost often exceeds what a 4-year student would pay at in-state rates. In some states--like CA--you're pretty much screwed[2] and will pay out-of-state rates comparable to private universities for the effective duration of study. Then there's private student loans issued by banks at gouging rates. They're super easy to qualify for and super easy to get out of control. Anecdotally, I took one out (12.74%!) during my last semester of undergraduate study which amounted to ~10% of my total student loan obligation in the end before capitalization; it was my only option since I didn't meet full-time student status that semester and didn't qualify for federal aid. This was the first loan I paid off and within 6 months of graduating, yet the interest paid on this single private loan accounted for 15% of the interest paid on the 7 other federal student loans that I paid off over the subsequent 4.5 years! It's crazy to think what that one private student loan would have cost me if I had paid it off over 5 years, let alone a 10-year period that federal student loans are amortized over. EDIT: > Also, shouldn't the government provide direct financial assistance to low income people being admitted to good colleges without needing them to ever pay back? Forgot to mention, this takes the form of academic grants[3]. Pell and SMART Grants are fairly common. [1] https://financialaid.stanford.edu/undergrad/how/student.html https://financialaid.stanford.edu/undergrad/how/student.html [2] https://www.ucop.edu/residency/residency-requirements.html https://www.ucop.edu/residency/residency-requirements.html [3] https://www2.ed.gov/programs/smart/index.html https://www2.ed.gov/programs/smart/index.html
_iyig 8y ago
Fun fact: student loans comprise nearly half of the U.S. federal government's balance sheet assets [0]. Of course, the federal government borrows much more than that each year in new debt, though it's at best unclear if this is really a positive. [0] https://www.advisorperspectives.com/dshort/commentaries/2018/09/26/the-fed-s-financial-accounts-what-is-uncle-sam-s-largest-asset https://www.advisorperspectives.com/dshort/commentaries/2018...
- zunzun 8y ago
  If you think the US government borrows money, look at the total amount and ask: who had that much money to loan? That much money did not exist to be borrowed.
  - User23 8y ago
    Being a sovereign user of your own currency is pretty great.
  - jjeaff 8y ago
    It's pretty well accounted for. The money is borrowed from primarily the American people and American businesses in the from of treasury bills, notes, and securities. Printing money does not increase the national debt (I'm assuming that is what you are referring to.) https://www.treasurydirect.gov/govt/reports/pd/mspd/mspd.htm https://www.treasurydirect.gov/govt/reports/pd/mspd/mspd.htm
- bradleyjg 8y ago
  The mortgage numbers on that page are way too small. They must not be including the GSEs.
gersh 8y ago
Many of these schools have run deceptive marketing campaigns to convince students to get useless degrees. Meanwhile, many colleges have hired endless useless administrators, while most classes get taught by underpaid adjuncts. They should get rid of the loan guarantee and instead subsidize the cost of education or just give young people money. The whole student loans system just seems designed to enslave students to debt. It is just a cruel way for elites to control people.
- smegger001 8y ago
  I wonder if it would help college tuition prices if the government were to institute a maximum bureaucrat/administrator to full time professor ratio for federally funded colleges/universities.
  - 706f6f70 8y ago
    Unfortunately those bureaucrats are actually doing work. A good chunk of it is around Title IX since the consequences were so severe if you didn't have enough bureaucrats to handle the extra-judicial pseudo-tribunals to handle any sex-related allegations. Jump forward to the woke 2018s and now you need even more bureaucrats because all of a sudden each group needs a bureaucrat from it's own race/gender/religion/disability. And now we need even more processes because #metoo and #believethesurvivors and how do you handle a scenario like Mattress Girl which is basically a Kobayashi Maru for a university? So now we also need a bigger legal department and consultants to help develop best practices when there is no clear innocence or guilt, but if you don't assume guilt it could go viral and your funding will get hit. And then people wonder why education is more expensive despite teaching staff getting paid less and less.
goldcd 8y ago
Wouldn't the sensible solution be to say exchange your tertiary education for say 25% of your income over the next 20 years? Would seem sensible to align the interests of both the provider and the consumer to the common goal of making you worth more on the market. But then there's the obvious next step of cutting out the middle-man and the government paying for the education and clawing it back with progressive taxation.
- nextweek2 8y ago
  Maybe, maybe not. You'd then see universities working with employers to get you in the workplace on day one after graduation. Sounds great you say. But, now you have someone else involved in your career and choices. They'll be mapping out your career for the next 20 years and your education will be tailored to just that employers practices. Sure you'll be consulted and made to feel part of the process, but there would be a whole set of administration from the university making sure that you sit at a desk and bring in that money. It would be like HR for your life.
hopefulengineer 8y ago
Guide to implement neo-feudalism: 1. Remove all trade barriers, allowing corporations to outsource all low skill manufacturing jobs and ship back the finished product with no consequences 2. Don't enforce border laws, allowing the remaining low skill jobs that weren't offshored to be taken by illegal immigrants with no federal labor protection, forcing native citizens to go for higher education if they don't want to accept 3rd world wages 3. Create a student loan program that doesn't allow debt to be discharged and allows colleges to continually increase prices, resulting in skyrocketing tuition costs, turning your citizens into debt slaves and driving down skilled wages due to the flood of college graduates 4. Enjoy your increased profits as the middle class dies and is replaced by a two tier society of elites and plebes. The current system has been created by corrupt politicians and the rich who have bought them. Productivity has increased but all the wealth is going to the rich because of current broken free trade laws allowing infinite labor arbitrage. Nobody wants to hear it but the only reason people vote for anti-establishment candidates like Bernie Sanders and Donald Trump is because the establishment is failing the people.
- exabrial 8y ago
  #3 could also be solved by not having the government back student loans and allow creditors to decide risk on things like your major, your GPA, or your class attendance record, but that would be insanely politically incorrect. Essentially you're either given an amount that your career will pay for, or you have to choose a major that will pay for an amount that you desire.
  - kevinali1 8y ago
    I'd call this shitty, but certainly not politically incorrect.
  - nickthemagicman 8y ago
    Education is one of the most important things a country needs to keep a free society, educated workforce, and booming economy... Why capitalism is involved I have no idea. Ignorant people favor simple political messages...which is one reason certain groups of politicians put education immediately on the chopping block.
squirrelicus 8y ago
It's easy to criticize federal student loan programs, but there's an even bigger problem: people are choosing majors that aren't valuable in the market, and are later somehow surprised they are worse off than when they started. Weird.
- meko 8y ago
  most of those majors would have been fine choices 10+ years ago.
  - mac01021 8y ago
    Do you have an example?
- Fomite 8y ago
  We're also bad at predicting what's valuable in the market, and lots of just-so stories aren't true (i.e. not all STEM majors are viable or better than some humanities degrees).
- kakarot 8y ago
  Disney Channel told us we could be anything we wanted when we grew up.
  - mac01021 8y ago
    If you never grow up, then the statement is vacuously true.
- brandonmenc 8y ago
  > people are choosing majors that aren't valuable in the market, and are later somehow surprised they are worse off than when they started It's not "people," it's children. Children who are told by every single successful adult they trust that they need to go to college and that it doesn't matter what they get the degree in, just that they have one.
- devwastaken 8y ago
kennyggn 8y ago
Why is this a problem though? They are legally obligated to pay off their loan.
- crawfordcomeaux 8y ago
  What happens when people peacefully revoke their consent to be governed in such a manner? Or leave the country? Or simply the economy? I'm no longer participating in the traditional workforce, choosing instead to meet my needs primarily through decentralized communities founded around giving or trading. I have no wages to garnish. What are they going to do? Jail me? Pretty sure that's no longer considered legal. Even if I'm wrong, what happens when a large collective of people do this? How will investors respond?
  - mac01021 8y ago
    > meet my needs primarily through decentralized communities founded around giving or trading. Care to share any more details? This sounds like an unusual and interesting lifestyle.
    - crawfordcomeaux 8y ago
      The Buy Nothing Project is awesome. Most recent things my wife and I have gotten: a slightly queen mattress, a cosleeper for our 2 week old, a breastfeeding pillow, baby clothes to fit our slightly smaller-than-most-newborn-clothes newborn. We got these things in the past 2 weeks for free. https://buynothingproject.org https://buynothingproject.org When it comes to our friends, we all offer support in various ways to each other, including mediating conflicts between couples or groups. Most of us practice nonviolent communication to various degrees. We orient ourselves around mutual aid and practice asking/offering help on a near-daily basis. Edit: I'll add more later. I'm exhausted and falling asleep trying to type.

65 points by SQL2219 8y ago

Immediately fire nineteen out of twenty college administrators making more than $125k/yr. The cost reductions would be immense, with negligible impact otherwise. These hordes of millionaire administrators really don't serve any useful purpose.

amluto 8y ago
Try it at one college and watch the college fail. Also watch it save very little money compared to the overall operating budget.

bradleyjg 8y ago

For federal loans, which are the overwhelming majority of student loans the REPAYE plan allows borrowers to pay 10% of their income after 150% of the federal poverty line for their household size. As a worked example a single person making $35,000 a year will owe $140/month regardless of total federal debt. After 20 years the remaining balance is forgiven (though the forgiven amount is taxable income). There are certainly situations where ends can simply not be met, but in general it is not a good idea to default on those loans.

burfog 8y ago
Nobody should be in that situation. You can make way more than $35,000 a year without even going to college. Doing that after college means that the college degree provided negative value. One can look up jobs that don't need education past high school at https://www.bls.gov/ooh/ https://www.bls.gov/ooh/ and see that there are 9 occupations with income of $75,000 or more, and numerous additional ones in the $55,000 to $74,999 range. You could break $35,000 per year easily in the military. An E-1, the lowest rank, can do that if they get the housing allowance and submarine pay. An E-5, which is mid-level enlisted, can do it on base pay alone. Smokejumpers get about $35,000 per year. The national average for a truck driver is $43,464 or $75,672 per year, depending on who is counting. Either way, it beats $35,000 by quite a bit. Plumbers are about the same. Lots of trades people are doing way better than $35,000 per year. So the answer it seems is to hide the worthless degree. For some of the really nonsense degrees, it might be better to let employers think you spent those years in prison. You'd get paid more if you didn't have the degree.
- thebooktocome 8y ago
  Both my father-in-law and an uncle ruined their health by truck driving. It seems to be common for truck drivers to not carry health insurance, as well. Therefore, medical bills have seriously eaten into their income. I'd heavily discourage people from choosing the profession.

panabee 8y ago

Assuming the study is accurate, can anyone shed insight on the repercussions and ripple effects if so many people default on student loans?

echevil 8y ago

As a foreigner, it sounds to me the root of the problem is still university being way too expensive. Also, shouldn't the government provide direct financial assistance to low income people being admitted to good colleges without needing them to ever pay back?

graeme 8y ago
In reverse: unlimited loans are give that cannot be waived in university. This bids up the cost of university and has schools compete on features rather than price.
metaphor 8y ago
In general, private university tuition is extremely expensive. There are certainly exceptions to this rule that keep costs reasonable--e.g. for the financially strapped, Stanford has a "student obligation" program[1] as an element of financial aid--but they're not all comparable. Conversely, I personally think in-state tuition for public research universities of sound rapport are fair. A big issue is when an undergraduate student moves to a different state to study and is charged out-of-state tuition for at least a year before establishing residency; that single-year cost often exceeds what a 4-year student would pay at in-state rates. In some states--like CA--you're pretty much screwed[2] and will pay out-of-state rates comparable to private universities for the effective duration of study. Then there's private student loans issued by banks at gouging rates. They're super easy to qualify for and super easy to get out of control. Anecdotally, I took one out (12.74%!) during my last semester of undergraduate study which amounted to ~10% of my total student loan obligation in the end before capitalization; it was my only option since I didn't meet full-time student status that semester and didn't qualify for federal aid. This was the first loan I paid off and within 6 months of graduating, yet the interest paid on this single private loan accounted for 15% of the interest paid on the 7 other federal student loans that I paid off over the subsequent 4.5 years! It's crazy to think what that one private student loan would have cost me if I had paid it off over 5 years, let alone a 10-year period that federal student loans are amortized over. EDIT: > Also, shouldn't the government provide direct financial assistance to low income people being admitted to good colleges without needing them to ever pay back? Forgot to mention, this takes the form of academic grants[3]. Pell and SMART Grants are fairly common. [1] https://financialaid.stanford.edu/undergrad/how/student.html https://financialaid.stanford.edu/undergrad/how/student.html [2] https://www.ucop.edu/residency/residency-requirements.html https://www.ucop.edu/residency/residency-requirements.html [3] https://www2.ed.gov/programs/smart/index.html https://www2.ed.gov/programs/smart/index.html

_iyig 8y ago

Fun fact: student loans comprise nearly half of the U.S. federal government's balance sheet assets [0]. Of course, the federal government borrows much more than that each year in new debt, though it's at best unclear if this is really a positive. [0] https://www.advisorperspectives.com/dshort/commentaries/2018/09/26/the-fed-s-financial-accounts-what-is-uncle-sam-s-largest-asset https://www.advisorperspectives.com/dshort/commentaries/2018...

zunzun 8y ago
If you think the US government borrows money, look at the total amount and ask: who had that much money to loan? That much money did not exist to be borrowed.
- User23 8y ago
  Being a sovereign user of your own currency is pretty great.
- jjeaff 8y ago
  It's pretty well accounted for. The money is borrowed from primarily the American people and American businesses in the from of treasury bills, notes, and securities. Printing money does not increase the national debt (I'm assuming that is what you are referring to.) https://www.treasurydirect.gov/govt/reports/pd/mspd/mspd.htm https://www.treasurydirect.gov/govt/reports/pd/mspd/mspd.htm
bradleyjg 8y ago
The mortgage numbers on that page are way too small. They must not be including the GSEs.

gersh 8y ago

Many of these schools have run deceptive marketing campaigns to convince students to get useless degrees. Meanwhile, many colleges have hired endless useless administrators, while most classes get taught by underpaid adjuncts. They should get rid of the loan guarantee and instead subsidize the cost of education or just give young people money. The whole student loans system just seems designed to enslave students to debt. It is just a cruel way for elites to control people.

smegger001 8y ago
I wonder if it would help college tuition prices if the government were to institute a maximum bureaucrat/administrator to full time professor ratio for federally funded colleges/universities.
- 706f6f70 8y ago
  Unfortunately those bureaucrats are actually doing work. A good chunk of it is around Title IX since the consequences were so severe if you didn't have enough bureaucrats to handle the extra-judicial pseudo-tribunals to handle any sex-related allegations. Jump forward to the woke 2018s and now you need even more bureaucrats because all of a sudden each group needs a bureaucrat from it's own race/gender/religion/disability. And now we need even more processes because #metoo and #believethesurvivors and how do you handle a scenario like Mattress Girl which is basically a Kobayashi Maru for a university? So now we also need a bigger legal department and consultants to help develop best practices when there is no clear innocence or guilt, but if you don't assume guilt it could go viral and your funding will get hit. And then people wonder why education is more expensive despite teaching staff getting paid less and less.

goldcd 8y ago

Wouldn't the sensible solution be to say exchange your tertiary education for say 25% of your income over the next 20 years? Would seem sensible to align the interests of both the provider and the consumer to the common goal of making you worth more on the market. But then there's the obvious next step of cutting out the middle-man and the government paying for the education and clawing it back with progressive taxation.

nextweek2 8y ago
Maybe, maybe not. You'd then see universities working with employers to get you in the workplace on day one after graduation. Sounds great you say. But, now you have someone else involved in your career and choices. They'll be mapping out your career for the next 20 years and your education will be tailored to just that employers practices. Sure you'll be consulted and made to feel part of the process, but there would be a whole set of administration from the university making sure that you sit at a desk and bring in that money. It would be like HR for your life.

hopefulengineer 8y ago

Guide to implement neo-feudalism: 1. Remove all trade barriers, allowing corporations to outsource all low skill manufacturing jobs and ship back the finished product with no consequences 2. Don't enforce border laws, allowing the remaining low skill jobs that weren't offshored to be taken by illegal immigrants with no federal labor protection, forcing native citizens to go for higher education if they don't want to accept 3rd world wages 3. Create a student loan program that doesn't allow debt to be discharged and allows colleges to continually increase prices, resulting in skyrocketing tuition costs, turning your citizens into debt slaves and driving down skilled wages due to the flood of college graduates 4. Enjoy your increased profits as the middle class dies and is replaced by a two tier society of elites and plebes. The current system has been created by corrupt politicians and the rich who have bought them. Productivity has increased but all the wealth is going to the rich because of current broken free trade laws allowing infinite labor arbitrage. Nobody wants to hear it but the only reason people vote for anti-establishment candidates like Bernie Sanders and Donald Trump is because the establishment is failing the people.

exabrial 8y ago
#3 could also be solved by not having the government back student loans and allow creditors to decide risk on things like your major, your GPA, or your class attendance record, but that would be insanely politically incorrect. Essentially you're either given an amount that your career will pay for, or you have to choose a major that will pay for an amount that you desire.
- kevinali1 8y ago
  I'd call this shitty, but certainly not politically incorrect.
- nickthemagicman 8y ago
  Education is one of the most important things a country needs to keep a free society, educated workforce, and booming economy... Why capitalism is involved I have no idea. Ignorant people favor simple political messages...which is one reason certain groups of politicians put education immediately on the chopping block.

squirrelicus 8y ago

It's easy to criticize federal student loan programs, but there's an even bigger problem: people are choosing majors that aren't valuable in the market, and are later somehow surprised they are worse off than when they started. Weird.

meko 8y ago
most of those majors would have been fine choices 10+ years ago.
- mac01021 8y ago
  Do you have an example?
Fomite 8y ago
We're also bad at predicting what's valuable in the market, and lots of just-so stories aren't true (i.e. not all STEM majors are viable or better than some humanities degrees).
kakarot 8y ago
Disney Channel told us we could be anything we wanted when we grew up.
- mac01021 8y ago
  If you never grow up, then the statement is vacuously true.
brandonmenc 8y ago
> people are choosing majors that aren't valuable in the market, and are later somehow surprised they are worse off than when they started It's not "people," it's children. Children who are told by every single successful adult they trust that they need to go to college and that it doesn't matter what they get the degree in, just that they have one.
devwastaken 8y ago

kennyggn 8y ago

Why is this a problem though? They are legally obligated to pay off their loan.

crawfordcomeaux 8y ago
What happens when people peacefully revoke their consent to be governed in such a manner? Or leave the country? Or simply the economy? I'm no longer participating in the traditional workforce, choosing instead to meet my needs primarily through decentralized communities founded around giving or trading. I have no wages to garnish. What are they going to do? Jail me? Pretty sure that's no longer considered legal. Even if I'm wrong, what happens when a large collective of people do this? How will investors respond?
- mac01021 8y ago
  > meet my needs primarily through decentralized communities founded around giving or trading. Care to share any more details? This sounds like an unusual and interesting lifestyle.
  - crawfordcomeaux 8y ago
    The Buy Nothing Project is awesome. Most recent things my wife and I have gotten: a slightly queen mattress, a cosleeper for our 2 week old, a breastfeeding pillow, baby clothes to fit our slightly smaller-than-most-newborn-clothes newborn. We got these things in the past 2 weeks for free. https://buynothingproject.org https://buynothingproject.org When it comes to our friends, we all offer support in various ways to each other, including mediating conflicts between couples or groups. Most of us practice nonviolent communication to various degrees. We orient ourselves around mutual aid and practice asking/offering help on a near-daily basis. Edit: I'll add more later. I'm exhausted and falling asleep trying to type.