4 ms·

I don't totally understand the idea of forgiving student debt. Isn't it fairly healthy to take out a loan to invest in yourself and then pay it back?

by pbreit 7y ago

toasterlovin 7y ago
It should be. The things that fucks this whole calculation up is that student loans in the U.S. can't be gotten out of via personal bankruptcy, so, in reality, a lot of dumb young people rack up way more student loan debt than they really should. And the people lending them that money have no incentive to think about the student's ability to pay the loan back, due to the bankruptcy exemption. Oh, right, and the loans are often guaranteed by the government, so there's yet another thing which screws up the incentives.
- rayiner 7y ago
  The private student loan market is almost non-existent now. The “people lending them that money” is the federal government. And the combination of no credit checks on the front end and non dischargability on the back-end is a deliberate policy to make loans universally available.
  - toasterlovin 7y ago
    > make loans universally available. That's the part that I think is a bad idea.
    - chongli 7y ago
      The whole point of student loans is to make a university education universally available. It's an attempt to avoid the regime of the old days when only the children of nobles and members of the clergy (also usually children of nobility) could go to university. Whenever I hear people advocating for an end (or a severe curtailment) of student loans, I have to wonder what people ought to be expected to do in order to achieve upward mobility.
      - derangedHorse 7y ago
        There’s plenty of trade schools that can give careers to those not fortunate to get a sizeable scholarship and who would need to take out unreasonable student loans. For those few I’d recommend getting a career and saving up some money before trying to pay their way through college instead of having their student loan loom over their heads for most of their lives and potentially ruining their credit score with a couple of missed payments.
        chongli 7y ago
        There are plenty of people who would do well in science or engineering programs that aren't prodigious enough for a full ride scholarship. Telling those people to go to trade school is a huge waste of their economic potential. At the same time, there are plenty of extremely bright people who take a scholarship to study a subject with approximately zero real world applicability. That often doesn't matter though, because they made it through and are now able to signal their status to employers. I happen to own a copy of Caplan's The Case Against Education and I don't buy his arguments for trade schools. People go to school to signal status, mostly because humans engage in assortative mating, and trades offer money rather than status. Besides that, many trades are very physically taxing and tend to cause injuries which result in chronic pain later in life. Who wants that? The epidemic of suicides and drug overdoses in the US is occurring precisely within the populations of older, injured workers who were essentially forced into retirement.
      - deleted 7y ago
        [deleted]
      - toasterlovin 7y ago
        I'm not arguing against student loans, in general, I'm arguing against our specific instantiation of the concept. As others in this thread have pointed out, a university education is not actually that expensive (roughly $10k/year for a state university; but even less for people who can't afford that, since they would qualify for grants, financial aid, etc.). That is surely out of reach for some people, so what should we do about it? In my opinion, the option we have chosen is the most insane option you could choose (or nearly so; providing free university education to whoever wants it would be more insane). There are so many perverse incentives. We've given 18 year olds the ability to take on hundreds of thousands of dollars in debt that they have no way of getting out of. This means that the other party in this transaction (the university) has no incentive to make sure that they're providing an education that A) provides real value, and B) is cost effective. And then we've decided that our children and grandchildren should hold the risk when this whole thing explodes. It's nuts. Especially given that we already have a way for students to earn a free university education by serving in the military. And if we wanted a sane system of increasing access to student loans, it would probably look something like garnishing up to 10% of a student's wages for up to 10 years, after which the student can file for bankruptcy to clear out any remaining loan balance. And get the government out of securing student loans. Students would still carry a significant burden, but lenders and institutions would also have to pay a lot of attention to the economic benefit of their offering, and it would leave me and my descendants out of this whole thing.
- pbreit 7y ago
  But none of this really addresses my original post.
  - toasterlovin 7y ago
    > Isn't it fairly healthy to take out a loan to invest in yourself and then pay it back? I am directly responding to this sentence in your post...
door5 7y ago
That investment shouldn't be made by individuals, it should be made by society as a whole, ie by increasing taxes so tuition is free. The burden of student debt is not shared equally or fairly.
firstplacelast 7y ago
Even for people that study well-paying subjects and do well in school and for whom a 100k loan balance is worthwhile, it is still better to leave school with no debt. Fun anecdote, an ex of mine was admitted to Mayo Clinic Medical School back when we were seniors in college. I don't remember all the details completely well, but they put a huge emphasis on getting students through med school debt-free so they could focus on being the best physicians possible in any area of medicine and for however long it took. My ex ended up with a full-ride with their help and it made it much easier for her to focus on being the best physician possible, less stress/able to buy a small home while in med school/take up additional study opportunities/trips/and again much less general stress (we are still friends 14 years later). It sucks that us Americans are so boot-strapped oriented, but ah-well it makes them easier to exploit.
hbosch 7y ago
Should we be loaning out $100k at 5% interest to teenagers, without making kids pay it down for 4 years, and not being able to discharge it in bankruptcy? Would a bank approve an 18 year old high school grad for a $100k mortgage at the same rates? Say, $0 down, 5% interest, no mortgage payments for 4 years? Why can a high school grad get the first one and not the other? Is an 18 year old even smart enough about personal finance and debt to understand the differences between the two? I was a kid who took out a huge student loan to attend university. At the time, all I knew was that “college was mandatory” and I was encouraged to “study my passion”. Fortunately for me I’ve been able to monetize my passion... but at the time, I had no concept of how much money I’d be needing, or how interest stacks debt on top of debt, or how it would affect my credit when I wanted to buy a house at the age of 30, because no one told me these things and with a verbal agreement my parents co-signed the loan (I never signed a paper myself) for me and now I have this baggage for probably a few more decades. It’s almost impossible to expect an 18 year old in today’s American society to fully understand the crippling punishment of six figure debt and its long term effects on your life. When you have 1 year to figure it out, and the choices are “go to college” or “be a failure” then there is only one way forward — isn’t there? I feel so badly for people in my situation that aren’t working at tech industry wages... and there are many.
- pbreit 7y ago
  College presumably increases the borrowers earning potential. Not so, a house. Average student debt load I believe is much less than $100k. 5% interest accrues very modestly. The bankruptcy thing is irrelevant to this discussion.
  - wpdev_63 7y ago
    >The bankruptcy thing is irrelevant to this discussion. Well if we are talking about the American educational financial system then it's absolutely relevant to the discussion. Cars, houses, credit card debt etc. are all discharged with bankruptcy which keeps the markets in check. Student loan debt is the only debt that cannot be discharged when it becomes impossible for the debtor to repay. As a result we are with in a 1.3 trillion dollar[0] debt bubble. And with the government printing IOUs for the students, the universities/profit education centers take full advantage. If the students were able to discharge the debt then the market would correct itself and education would be affordable and there would be less economic risk. Right now the government is projected to go to a 30 trillion dollar deficit by 2030 with its government job programs and these education 'loans'. Even if you do not have student loans or work in the education system, you should be aware of the large debt bubble that's forming. And if Saudi Arabia, Iran, etc. decide to trade oil on different currencies... well then things will get interesting... It will affect everyone just like the mortgage crisis in 2008.

I don't totally understand the idea of forgiving student debt. Isn't it fairly healthy to take out a loan to invest in yourself and then pay it back?

by pbreit 7y ago

I don't totally understand the idea of forgiving student debt. Isn't it fairly healthy to take out a loan to invest in yourself and then pay it back?

toasterlovin 7y ago

It should be. The things that fucks this whole calculation up is that student loans in the U.S. can't be gotten out of via personal bankruptcy, so, in reality, a lot of dumb young people rack up way more student loan debt than they really should. And the people lending them that money have no incentive to think about the student's ability to pay the loan back, due to the bankruptcy exemption. Oh, right, and the loans are often guaranteed by the government, so there's yet another thing which screws up the incentives.

rayiner 7y ago
The private student loan market is almost non-existent now. The “people lending them that money” is the federal government. And the combination of no credit checks on the front end and non dischargability on the back-end is a deliberate policy to make loans universally available.
- toasterlovin 7y ago
  > make loans universally available. That's the part that I think is a bad idea.
  - chongli 7y ago
    The whole point of student loans is to make a university education universally available. It's an attempt to avoid the regime of the old days when only the children of nobles and members of the clergy (also usually children of nobility) could go to university. Whenever I hear people advocating for an end (or a severe curtailment) of student loans, I have to wonder what people ought to be expected to do in order to achieve upward mobility.
    - derangedHorse 7y ago
      There’s plenty of trade schools that can give careers to those not fortunate to get a sizeable scholarship and who would need to take out unreasonable student loans. For those few I’d recommend getting a career and saving up some money before trying to pay their way through college instead of having their student loan loom over their heads for most of their lives and potentially ruining their credit score with a couple of missed payments.
      - chongli 7y ago
        There are plenty of people who would do well in science or engineering programs that aren't prodigious enough for a full ride scholarship. Telling those people to go to trade school is a huge waste of their economic potential. At the same time, there are plenty of extremely bright people who take a scholarship to study a subject with approximately zero real world applicability. That often doesn't matter though, because they made it through and are now able to signal their status to employers. I happen to own a copy of Caplan's The Case Against Education and I don't buy his arguments for trade schools. People go to school to signal status, mostly because humans engage in assortative mating, and trades offer money rather than status. Besides that, many trades are very physically taxing and tend to cause injuries which result in chronic pain later in life. Who wants that? The epidemic of suicides and drug overdoses in the US is occurring precisely within the populations of older, injured workers who were essentially forced into retirement.
    - deleted 7y ago
      [deleted]
    - toasterlovin 7y ago
      I'm not arguing against student loans, in general, I'm arguing against our specific instantiation of the concept. As others in this thread have pointed out, a university education is not actually that expensive (roughly $10k/year for a state university; but even less for people who can't afford that, since they would qualify for grants, financial aid, etc.). That is surely out of reach for some people, so what should we do about it? In my opinion, the option we have chosen is the most insane option you could choose (or nearly so; providing free university education to whoever wants it would be more insane). There are so many perverse incentives. We've given 18 year olds the ability to take on hundreds of thousands of dollars in debt that they have no way of getting out of. This means that the other party in this transaction (the university) has no incentive to make sure that they're providing an education that A) provides real value, and B) is cost effective. And then we've decided that our children and grandchildren should hold the risk when this whole thing explodes. It's nuts. Especially given that we already have a way for students to earn a free university education by serving in the military. And if we wanted a sane system of increasing access to student loans, it would probably look something like garnishing up to 10% of a student's wages for up to 10 years, after which the student can file for bankruptcy to clear out any remaining loan balance. And get the government out of securing student loans. Students would still carry a significant burden, but lenders and institutions would also have to pay a lot of attention to the economic benefit of their offering, and it would leave me and my descendants out of this whole thing.
pbreit 7y ago
But none of this really addresses my original post.
- toasterlovin 7y ago
  > Isn't it fairly healthy to take out a loan to invest in yourself and then pay it back? I am directly responding to this sentence in your post...

door5 7y ago

That investment shouldn't be made by individuals, it should be made by society as a whole, ie by increasing taxes so tuition is free. The burden of student debt is not shared equally or fairly.

firstplacelast 7y ago

Even for people that study well-paying subjects and do well in school and for whom a 100k loan balance is worthwhile, it is still better to leave school with no debt. Fun anecdote, an ex of mine was admitted to Mayo Clinic Medical School back when we were seniors in college. I don't remember all the details completely well, but they put a huge emphasis on getting students through med school debt-free so they could focus on being the best physicians possible in any area of medicine and for however long it took. My ex ended up with a full-ride with their help and it made it much easier for her to focus on being the best physician possible, less stress/able to buy a small home while in med school/take up additional study opportunities/trips/and again much less general stress (we are still friends 14 years later). It sucks that us Americans are so boot-strapped oriented, but ah-well it makes them easier to exploit.

hbosch 7y ago

Should we be loaning out $100k at 5% interest to teenagers, without making kids pay it down for 4 years, and not being able to discharge it in bankruptcy? Would a bank approve an 18 year old high school grad for a $100k mortgage at the same rates? Say, $0 down, 5% interest, no mortgage payments for 4 years? Why can a high school grad get the first one and not the other? Is an 18 year old even smart enough about personal finance and debt to understand the differences between the two? I was a kid who took out a huge student loan to attend university. At the time, all I knew was that “college was mandatory” and I was encouraged to “study my passion”. Fortunately for me I’ve been able to monetize my passion... but at the time, I had no concept of how much money I’d be needing, or how interest stacks debt on top of debt, or how it would affect my credit when I wanted to buy a house at the age of 30, because no one told me these things and with a verbal agreement my parents co-signed the loan (I never signed a paper myself) for me and now I have this baggage for probably a few more decades. It’s almost impossible to expect an 18 year old in today’s American society to fully understand the crippling punishment of six figure debt and its long term effects on your life. When you have 1 year to figure it out, and the choices are “go to college” or “be a failure” then there is only one way forward — isn’t there? I feel so badly for people in my situation that aren’t working at tech industry wages... and there are many.

pbreit 7y ago
College presumably increases the borrowers earning potential. Not so, a house. Average student debt load I believe is much less than $100k. 5% interest accrues very modestly. The bankruptcy thing is irrelevant to this discussion.
- wpdev_63 7y ago
  >The bankruptcy thing is irrelevant to this discussion. Well if we are talking about the American educational financial system then it's absolutely relevant to the discussion. Cars, houses, credit card debt etc. are all discharged with bankruptcy which keeps the markets in check. Student loan debt is the only debt that cannot be discharged when it becomes impossible for the debtor to repay. As a result we are with in a 1.3 trillion dollar[0] debt bubble. And with the government printing IOUs for the students, the universities/profit education centers take full advantage. If the students were able to discharge the debt then the market would correct itself and education would be affordable and there would be less economic risk. Right now the government is projected to go to a 30 trillion dollar deficit by 2030 with its government job programs and these education 'loans'. Even if you do not have student loans or work in the education system, you should be aware of the large debt bubble that's forming. And if Saudi Arabia, Iran, etc. decide to trade oil on different currencies... well then things will get interesting... It will affect everyone just like the mortgage crisis in 2008.