10 ms·

Student Loans: Debt for Life

18 points by 001sky 14y ago

aleprok 14y ago
I started collecting the past month debt from studying for the first time, about 300 euro's per month for the next 2 years. Though here in Finland student debt is not as big thing as it is in the US.
randomdrake 14y ago
The article aside, please take note of the infographics. They are among the worst I've ever seen, particularly for a professional publication. I actually stopped reading the article when I ran into them. I only got to the first two, so I'll attack them directly: 1) Using all diagonal lines with no color and no difference in angle or pattern, beyond a slight amount of thickness, makes it extremely difficult to easily see the dividing lines. The text is tilted all sorts of different ways making it very hard to digest. Why are there additional pie-looking things stacked around with different squiggly lines? The effect is extremely jarring and I wasn't able to garner any meaningful information from it. 2) Again, the text is slanted this way and that way. Why is 27% the largest number? 40% appears the smallest. What does that even mean? The black points seem to point to something, or maybe they don't? When you're trying to convey information, this is a perfect example of how not to do it.
- tdicola 14y ago
  Came to complain about the same infographics too. I don't even understand why they tried to make the charts look like a bad tetris game. Seems like a perfect example of 'chartjunk'.
- CrankyPants 14y ago
  Yeah. Perhaps they gave it to the team that does their covers; they've got a 'desperate to seem novel' feeling to them lately that doesn't suit the image of the publication (or the quality of much of the content inside).
harlowja 14y ago
Stop getting degrees where-in you can't get a job that will pay the debt back. Seems obvious to me.
- btilly 14y ago
  The problem is that there are a lot of jobs, like lawyer, where people think they will be able to pay it back and only discover years later that they cannot. Heck, my wife has an MD (from a top medical school, earned with honors) and a wrist injury from residency that limited her ability to make money for years, and will greatly lessen how much money she'll be able to make in the long run. She'd be in a very tough spot if I wasn't paying her loans off for her. You'd be hard-pressed to find a job that the public thinks is safer financially than "doctor". Yet even that is not safe enough for the risk structure that student loans impose. Sure, I agree that there are lots of victims who deserve more than their fair share of the blame. But don't make the leap from that to blaming the victim. The risk structure that financial loans impose is guaranteed to result in many victims who don't deserve particular blame. Bankruptcy exists for a reason, and it is a travesty that corrupt politicians have been bribed into carving out a targeted exemption for a powerful industry.
  - jlgreco 14y ago
    Judging the potential worth of degrees is indeed quite the challenge. Most individuals cannot be expected to accurately do it. The people with the knowledge to actually make an informed decision in the matter are the schools (who track employment of their alumni.. and currently only mention it if it looks good) and the financial institutions who know which people are paying back their loans quickly and which people are paying them off slower than interest is accumulating. I think any solution needs to at least involve one or both of those two parties.
  - engrsrce 14y ago
    People who request and get loans are "victims" of "risk structure"? My parents told me "this is what we can afford, the rest is on you. If you earn $xx,xxx then xxx is about how much you can afford to pay per month." Seems to me that a large part of the problem is that we're letting 18-22 yr olds make career and financial decisions without adult mentor/parental input.
protomyth 14y ago
Perhaps a student should go to a cheaper school if the profession they have chosen isn't ever going to pay back the money they spent on college.
- alanctgardner2 14y ago
  All of these articles are full of the same stories: 'I spent 100k on a degree in sculpting, and now I owe 100k'. Does a hundred thousand dollar education in sculpting really provide value to you? I'm not saying people who are truly interested in art shouldn't go to school, but pick a school whose costs are better aligned with your ability to pay, and consider your ability to pay after graduation. Maybe apprenticeship / community college / just starting a business is a better use of your time and money.
  - Daniel_Newby 14y ago
    On the other hand, 18 year old wannabe sculptors are probably poor judges of value. And why should they be? It's no crime for your talents and experience to be outside business accounting. The judge of value should be the underwriter. If Bank of America wants to buy some goofy kid a $100,000 sculpting business, let them bear the risk if that plan tanks. They can repo the chisels. Edited for grammar.
    - jlgreco 14y ago
      This I think is a key insight. Young people tend to be idealistic, that isn't going to change, and it shouldn't even be changed. We need that idealism in the world. A viable and palatable solution should therefore address the people enabling (or even encouraging) these idealistic young people to make poor decisions. There is a lot of money in convincing people that getting degrees that they won't be able to use is a good idea. A lot of money for everyone but the student.
    - Evbn 14y ago
      The US govt is underwriting the loans. That is what needs to stop.
daledavies 14y ago
Coming from the UK, $100k plus for a bachelor's degree seems ridiculously high. Is this normal for a degree in the USA?
- shoota 14y ago
  Definitely not. Most public schools have in state tuition of under $10,000 per year with lots of financial aid for those in need.
  - daledavies 14y ago
    I guess I'd have to agree with some of the other comments here then, if the option of a less expensive education is available then getting yourself into that amount of debt is a gamble if you have no other means of repaying it.
  - droithomme 14y ago
    Where "financial aid" means "Loans you must pay back with interest which can not be discharged in bankruptcy." An odd definition of "aid" to be sure. Also readers should notice the parent post's qualifier "in state tuition".
    - colkassad 14y ago
      All of my financial aid was in the form of grants which I don't have to pay back. However, I am the sole supporter of my family so I get a hefty Pell Grant every semester.
      - droithomme 14y ago
        The maximum possible Pell grant right now, for an entire school year, is $5500. That is $2250 per semester. https://bigfuture.collegeboard.org/pay-for-college/scholarships-and-grants/what-is-a-pell-grant https://bigfuture.collegeboard.org/pay-for-college/scholarsh... The amount of the grant depends on the cost of tuition, so this only applies to the most expensive schools. Of course you already knew this. You say it is "hefty" and covers all of your costs, do you go to a community college and live at home with your parents who feed you? If not, please name your college and describe how you are able to stretch $2250 to cover all your living expenses, tuition costs, fees and books over a six month period. I am sincerely interested since you seem to have brilliant financial management skills that others could benefit from learning.
r4vik 14y ago
Are student loans actually debt instruments any more? They seem to resemble a tax. First off you can't default on them. The companies providing them are guaranteed by the government and have obligations to lent to pretty much anyone. You can defer paying them back if you don't have a job or you're not earning enough. Finally, they can't be inherited by your estate. So if you never actually manage to pay them off they're effectively a graduate tax.
- Flimm 14y ago
  What tax would charge you $1400 a month if you're earning less than that? I'm very unfamiliar with the American system for student loans, but your comment sounds very different to the examples the article provided.
  - r4vik 14y ago
    They don't charge you $1400 a month if you're earning less than that, you can defer. Your interest gets added to your principal in that circumstance. If you model a tax as an infinitely large debt, this scenario makes the loan resemble a tax more.
- Evbn 14y ago
  When you buy milk from the store, do you pay a dairy tax? It isn't a tax to enforce payback of borrowed funds. And taxes can be defaulted or negotiatied downward, says the lawyer in the ad on the TV.
gfodor 14y ago
One of the bigger problems with student debt is the horrible interest rates students are saddled with. Right now inflation is hovering around 1%, but yet my fiance is saddled with 150k of medical school loans at 7%. At least if student loans could be refinanced easily or had some regulations to pin their interest rates at or below inflation in certain conditions, students could tread water for a few years until their job prospects improved. Or, especially if rates could be lowered below inflation over time, the loan could naturally decrease in value as the likelihood of repayment goes down. All-in-all the psychological pressures on the young that build after college due to compounding interest on loans seems to be just as scary for the future of our country than the absolute amount of the debt itself.
- michielvoo 14y ago
  In the Netherlands, interest on government provided student loans is pegged to the average interest on government bonds with terms between 3 and 5 years. It is calculated each year, and then fixed for 5 years. * This year the interest is 1.39%, and it's my 6th year, so the current low interest situation rates benefits me. My brother on the other hand is stuck with 4.17% until his next 5 year period starts in 2013. * Table of interest rates over the last 20 years: http://www.ib-groep.nl/particulieren/studieschuld/rentepercentages_leningen_na_1_1_1992.asp http://www.ib-groep.nl/particulieren/studieschuld/renteperce...
- dman 14y ago
  I think we need to move the risk management away from the students and back to the banks. Let students default under bankruptcy, let banks charge what they want for the loans. Student defaults will keep the loans close to their fair risk adjusted value.
- Evbn 14y ago
  A doctor or his fiance can't get a $150K loan at 5%?
programminggeek 14y ago
What is fascinating is just how much of the US economy is debt financed. Some of the biggest industries - education, real estate, banking, construction, retail (via credit cards) etc. are all basically financed by huge amounts of debt taken on by either the government or individual citizens. So in effect, the current economy is built on the future economy's ability to pay for itself. It seems to me if this trend isn't reversed, the "Great Recession" is bound to keep happening simply because people can only borrow so much.
- 001sky 14y ago
  simply because people can only borrow so much -- Borrow = future obligation to [repay] = future obligation to [Work] This is why it all makes sense...that is, if you are in a position to profit from the labour of the debtors. Who are these people? (1) Gov't - receives N% of income the debtors are forced to earn to repay the debts; and (2) the Lenders, who receive repayment of the Interest (profit) and principal (capital). In the case of student loans[1] , the profits of (2) are guarnteed by (1). So, its all makes sense. depending on your definition of "sense". =D ______________ [1]Edit/Note: and housing mortages share the same logic. The GSAs have implicit government guarantees. http://en.wikipedia.org/wiki/Fannie_Mae http://en.wikipedia.org/wiki/Fannie_Mae . This is why debt-financed asset price inflation is a characteristic of both [housing] and [university degrees], when considered as "asset classes". The massive GSA's at the heart of the housing crisis were put in place to guarantee mortgage debts, precisely so they could be securitized, sold, and traded as liquid financial instruments.
- rayiner 14y ago
  It's the result of stability and growth. The country is so stable that people feel comfortable making the long-term commitments that accompany debt. At the same time, debt enables faster growth so long as there is room to grow. If you think there is a market for trucks, it makes much more sense to take a loan to build a truck factory, then pay it off with the sales into this new market, than it does to just save up money until you can build the truck with cash. It's when you run into instability (war) or limitations on growth that you have to start deleveraging.
001sky 14y ago
relevant: data on tuition inflaion. http://project.wnyc.org/college-costs/ http://project.wnyc.org/college-costs/
joe_the_user 14y ago
For those talking about "don't borrow if you can't pay": Should a society allow a system where a person is allowed to gamble one of their organs for a chance at a million dollars? The argument against this extreme example would be: society has an interest in keeping people from doing dumb things that gets them in over their heads because one person being really screwed actually impacts the lives of others. The same applies to student loans. Sure, only "dumb" people take out loans without it being a good deal for them. But we have some interest in preventing "dumb" people from screwing themselves up so much it starts to hurt us too.
- stretchwithme 14y ago
  Private lenders don't loan money when the business plan makes no sense. When the education won't increase a student's earning power enough to pay back the money, a private lender is not likely to lend to them. The government makes no such judgment when lending, for education, mortgages or anything else it decides to "encourage". And the result is oversupply and a drop in demand, followed by a long drought in the production of the thing the government encourages. A bust. Government is not smarter than the student. The student will at least learn from his mistake.
- eli_gottlieb 14y ago
  We can make a stronger macroeconomic argument for keeping always-recoverable debts very, very low. And it's a simple one: the larger the amount of guaranteed-recoverable private debt in the economy, the less available aggregate demand to actually purchase goods and services and thereby run the actual economy. Dumb people might be dumb, but very many clever people depend on stupids and suckers for their income. If "dumb people" (in actual fact: anyone who has made a mistake ever) cease to have any money, all those "smart people" lose their incomes too.
dchuk 14y ago
The issue with student loans is not that they exist or that they have high interest or any of that...it's that they're just given out to any and all college students regardless of degree or career path. Just like a high school teacher on a high school teacher's salary wouldn't be approved for a million dollar loan to buy a million dollar house, a kid looking to go to Harvard to major in Poetry shouldn't be approved for hundreds of thousands in loans. Some degrees/careers are bad investment choices and some people shouldn't receive loans for them.
- dman 14y ago
  If students were allowed to default on the debt under bankruptcy there would be a corrective feedback loop where lenders would be pricing the risk of default in.
  - dchuk 14y ago
    I suppose, but at the end of the day it's still 17-18 year old kids getting handed thousands of dollars to make a big (and most likely extremely uninformed) career choice decision. I think there needs to be a lot more education (irony) targeted at how to make a fiscally responsible degree choice when entering college. All of these kids majoring in creative writing and then protesting wall street because they can't get a job to pay off their loans should garner no sympathy as they made a bad fiscal decision that got them into that mess in the first place. But since they were just kids when making the decision it's hard to fault them entirely...I think the system itself needs to be doing a better job telling people they're being dummies and helping them correct their course before becoming a debt statistic.
- lukev 14y ago
  Maybe. But is there any economic reason for a decent liberal arts degree to cost 100k to begin with? I think that's the real problem.
  - dchuk 14y ago
    possibly. there are a lot of people on the payroll for that degree to be offered. School's cost a lot of money to run. There's nothing wrong with expensive degree programs. Some people drive Mercedes and some drive Honda. But someone who can only afford a Honda isn't going to be approved for a loan for a Mercedes.
xiaoma 14y ago
>"The National Consumer Law Center, in a July report, said “pursuing the most vulnerable borrowers until they die” is inefficient and imposes “significant costs to taxpayers.” To help debtors avoid defaulting in the first place, the center advocates placing them automatically in repayment plans that make the payment a percentage of the borrower’s income rather than a certain dollar amount. Under this “income-based repayment,” which the Obama administration has pushed, any outstanding debt is forgiven after 20 or 25 years." This sounds a lot like how it works in Australia now. Adding a minimum salary cutoff below which the debt didn't need to be repaid would make it pretty much the same.
salem 14y ago
I find it insane that the interest rates are so high (capped at 8.5%) for a loan that is next to impossible to avoid repaying, and is government guaranteed.

18 points by 001sky 14y ago

I started collecting the past month debt from studying for the first time, about 300 euro's per month for the next 2 years. Though here in Finland student debt is not as big thing as it is in the US.

randomdrake 14y ago

The article aside, please take note of the infographics. They are among the worst I've ever seen, particularly for a professional publication. I actually stopped reading the article when I ran into them. I only got to the first two, so I'll attack them directly: 1) Using all diagonal lines with no color and no difference in angle or pattern, beyond a slight amount of thickness, makes it extremely difficult to easily see the dividing lines. The text is tilted all sorts of different ways making it very hard to digest. Why are there additional pie-looking things stacked around with different squiggly lines? The effect is extremely jarring and I wasn't able to garner any meaningful information from it. 2) Again, the text is slanted this way and that way. Why is 27% the largest number? 40% appears the smallest. What does that even mean? The black points seem to point to something, or maybe they don't? When you're trying to convey information, this is a perfect example of how not to do it.

tdicola 14y ago
Came to complain about the same infographics too. I don't even understand why they tried to make the charts look like a bad tetris game. Seems like a perfect example of 'chartjunk'.
CrankyPants 14y ago
Yeah. Perhaps they gave it to the team that does their covers; they've got a 'desperate to seem novel' feeling to them lately that doesn't suit the image of the publication (or the quality of much of the content inside).

harlowja 14y ago

Stop getting degrees where-in you can't get a job that will pay the debt back. Seems obvious to me.

btilly 14y ago
The problem is that there are a lot of jobs, like lawyer, where people think they will be able to pay it back and only discover years later that they cannot. Heck, my wife has an MD (from a top medical school, earned with honors) and a wrist injury from residency that limited her ability to make money for years, and will greatly lessen how much money she'll be able to make in the long run. She'd be in a very tough spot if I wasn't paying her loans off for her. You'd be hard-pressed to find a job that the public thinks is safer financially than "doctor". Yet even that is not safe enough for the risk structure that student loans impose. Sure, I agree that there are lots of victims who deserve more than their fair share of the blame. But don't make the leap from that to blaming the victim. The risk structure that financial loans impose is guaranteed to result in many victims who don't deserve particular blame. Bankruptcy exists for a reason, and it is a travesty that corrupt politicians have been bribed into carving out a targeted exemption for a powerful industry.
- jlgreco 14y ago
  Judging the potential worth of degrees is indeed quite the challenge. Most individuals cannot be expected to accurately do it. The people with the knowledge to actually make an informed decision in the matter are the schools (who track employment of their alumni.. and currently only mention it if it looks good) and the financial institutions who know which people are paying back their loans quickly and which people are paying them off slower than interest is accumulating. I think any solution needs to at least involve one or both of those two parties.
- engrsrce 14y ago
  People who request and get loans are "victims" of "risk structure"? My parents told me "this is what we can afford, the rest is on you. If you earn $xx,xxx then xxx is about how much you can afford to pay per month." Seems to me that a large part of the problem is that we're letting 18-22 yr olds make career and financial decisions without adult mentor/parental input.

protomyth 14y ago

Perhaps a student should go to a cheaper school if the profession they have chosen isn't ever going to pay back the money they spent on college.

alanctgardner2 14y ago
All of these articles are full of the same stories: 'I spent 100k on a degree in sculpting, and now I owe 100k'. Does a hundred thousand dollar education in sculpting really provide value to you? I'm not saying people who are truly interested in art shouldn't go to school, but pick a school whose costs are better aligned with your ability to pay, and consider your ability to pay after graduation. Maybe apprenticeship / community college / just starting a business is a better use of your time and money.
- Daniel_Newby 14y ago
  On the other hand, 18 year old wannabe sculptors are probably poor judges of value. And why should they be? It's no crime for your talents and experience to be outside business accounting. The judge of value should be the underwriter. If Bank of America wants to buy some goofy kid a $100,000 sculpting business, let them bear the risk if that plan tanks. They can repo the chisels. Edited for grammar.
  - jlgreco 14y ago
    This I think is a key insight. Young people tend to be idealistic, that isn't going to change, and it shouldn't even be changed. We need that idealism in the world. A viable and palatable solution should therefore address the people enabling (or even encouraging) these idealistic young people to make poor decisions. There is a lot of money in convincing people that getting degrees that they won't be able to use is a good idea. A lot of money for everyone but the student.
  - Evbn 14y ago
    The US govt is underwriting the loans. That is what needs to stop.

daledavies 14y ago

Coming from the UK, $100k plus for a bachelor's degree seems ridiculously high. Is this normal for a degree in the USA?

shoota 14y ago
Definitely not. Most public schools have in state tuition of under $10,000 per year with lots of financial aid for those in need.
- daledavies 14y ago
  I guess I'd have to agree with some of the other comments here then, if the option of a less expensive education is available then getting yourself into that amount of debt is a gamble if you have no other means of repaying it.
- droithomme 14y ago
  Where "financial aid" means "Loans you must pay back with interest which can not be discharged in bankruptcy." An odd definition of "aid" to be sure. Also readers should notice the parent post's qualifier "in state tuition".
  - colkassad 14y ago
    All of my financial aid was in the form of grants which I don't have to pay back. However, I am the sole supporter of my family so I get a hefty Pell Grant every semester.
    - droithomme 14y ago
      The maximum possible Pell grant right now, for an entire school year, is $5500. That is $2250 per semester. https://bigfuture.collegeboard.org/pay-for-college/scholarships-and-grants/what-is-a-pell-grant https://bigfuture.collegeboard.org/pay-for-college/scholarsh... The amount of the grant depends on the cost of tuition, so this only applies to the most expensive schools. Of course you already knew this. You say it is "hefty" and covers all of your costs, do you go to a community college and live at home with your parents who feed you? If not, please name your college and describe how you are able to stretch $2250 to cover all your living expenses, tuition costs, fees and books over a six month period. I am sincerely interested since you seem to have brilliant financial management skills that others could benefit from learning.

r4vik 14y ago

Are student loans actually debt instruments any more? They seem to resemble a tax. First off you can't default on them. The companies providing them are guaranteed by the government and have obligations to lent to pretty much anyone. You can defer paying them back if you don't have a job or you're not earning enough. Finally, they can't be inherited by your estate. So if you never actually manage to pay them off they're effectively a graduate tax.

Flimm 14y ago
What tax would charge you $1400 a month if you're earning less than that? I'm very unfamiliar with the American system for student loans, but your comment sounds very different to the examples the article provided.
- r4vik 14y ago
  They don't charge you $1400 a month if you're earning less than that, you can defer. Your interest gets added to your principal in that circumstance. If you model a tax as an infinitely large debt, this scenario makes the loan resemble a tax more.
Evbn 14y ago
When you buy milk from the store, do you pay a dairy tax? It isn't a tax to enforce payback of borrowed funds. And taxes can be defaulted or negotiatied downward, says the lawyer in the ad on the TV.

gfodor 14y ago

One of the bigger problems with student debt is the horrible interest rates students are saddled with. Right now inflation is hovering around 1%, but yet my fiance is saddled with 150k of medical school loans at 7%. At least if student loans could be refinanced easily or had some regulations to pin their interest rates at or below inflation in certain conditions, students could tread water for a few years until their job prospects improved. Or, especially if rates could be lowered below inflation over time, the loan could naturally decrease in value as the likelihood of repayment goes down. All-in-all the psychological pressures on the young that build after college due to compounding interest on loans seems to be just as scary for the future of our country than the absolute amount of the debt itself.

michielvoo 14y ago
In the Netherlands, interest on government provided student loans is pegged to the average interest on government bonds with terms between 3 and 5 years. It is calculated each year, and then fixed for 5 years. * This year the interest is 1.39%, and it's my 6th year, so the current low interest situation rates benefits me. My brother on the other hand is stuck with 4.17% until his next 5 year period starts in 2013. * Table of interest rates over the last 20 years: http://www.ib-groep.nl/particulieren/studieschuld/rentepercentages_leningen_na_1_1_1992.asp http://www.ib-groep.nl/particulieren/studieschuld/renteperce...
dman 14y ago
I think we need to move the risk management away from the students and back to the banks. Let students default under bankruptcy, let banks charge what they want for the loans. Student defaults will keep the loans close to their fair risk adjusted value.
Evbn 14y ago
A doctor or his fiance can't get a $150K loan at 5%?

programminggeek 14y ago

What is fascinating is just how much of the US economy is debt financed. Some of the biggest industries - education, real estate, banking, construction, retail (via credit cards) etc. are all basically financed by huge amounts of debt taken on by either the government or individual citizens. So in effect, the current economy is built on the future economy's ability to pay for itself. It seems to me if this trend isn't reversed, the "Great Recession" is bound to keep happening simply because people can only borrow so much.

001sky 14y ago
simply because people can only borrow so much -- Borrow = future obligation to [repay] = future obligation to [Work] This is why it all makes sense...that is, if you are in a position to profit from the labour of the debtors. Who are these people? (1) Gov't - receives N% of income the debtors are forced to earn to repay the debts; and (2) the Lenders, who receive repayment of the Interest (profit) and principal (capital). In the case of student loans[1] , the profits of (2) are guarnteed by (1). So, its all makes sense. depending on your definition of "sense". =D ______________ [1]Edit/Note: and housing mortages share the same logic. The GSAs have implicit government guarantees. http://en.wikipedia.org/wiki/Fannie_Mae http://en.wikipedia.org/wiki/Fannie_Mae . This is why debt-financed asset price inflation is a characteristic of both [housing] and [university degrees], when considered as "asset classes". The massive GSA's at the heart of the housing crisis were put in place to guarantee mortgage debts, precisely so they could be securitized, sold, and traded as liquid financial instruments.
rayiner 14y ago
It's the result of stability and growth. The country is so stable that people feel comfortable making the long-term commitments that accompany debt. At the same time, debt enables faster growth so long as there is room to grow. If you think there is a market for trucks, it makes much more sense to take a loan to build a truck factory, then pay it off with the sales into this new market, than it does to just save up money until you can build the truck with cash. It's when you run into instability (war) or limitations on growth that you have to start deleveraging.

001sky 14y ago

relevant: data on tuition inflaion. http://project.wnyc.org/college-costs/ http://project.wnyc.org/college-costs/

joe_the_user 14y ago

For those talking about "don't borrow if you can't pay": Should a society allow a system where a person is allowed to gamble one of their organs for a chance at a million dollars? The argument against this extreme example would be: society has an interest in keeping people from doing dumb things that gets them in over their heads because one person being really screwed actually impacts the lives of others. The same applies to student loans. Sure, only "dumb" people take out loans without it being a good deal for them. But we have some interest in preventing "dumb" people from screwing themselves up so much it starts to hurt us too.

stretchwithme 14y ago
Private lenders don't loan money when the business plan makes no sense. When the education won't increase a student's earning power enough to pay back the money, a private lender is not likely to lend to them. The government makes no such judgment when lending, for education, mortgages or anything else it decides to "encourage". And the result is oversupply and a drop in demand, followed by a long drought in the production of the thing the government encourages. A bust. Government is not smarter than the student. The student will at least learn from his mistake.
eli_gottlieb 14y ago
We can make a stronger macroeconomic argument for keeping always-recoverable debts very, very low. And it's a simple one: the larger the amount of guaranteed-recoverable private debt in the economy, the less available aggregate demand to actually purchase goods and services and thereby run the actual economy. Dumb people might be dumb, but very many clever people depend on stupids and suckers for their income. If "dumb people" (in actual fact: anyone who has made a mistake ever) cease to have any money, all those "smart people" lose their incomes too.

dchuk 14y ago

The issue with student loans is not that they exist or that they have high interest or any of that...it's that they're just given out to any and all college students regardless of degree or career path. Just like a high school teacher on a high school teacher's salary wouldn't be approved for a million dollar loan to buy a million dollar house, a kid looking to go to Harvard to major in Poetry shouldn't be approved for hundreds of thousands in loans. Some degrees/careers are bad investment choices and some people shouldn't receive loans for them.

dman 14y ago
If students were allowed to default on the debt under bankruptcy there would be a corrective feedback loop where lenders would be pricing the risk of default in.
- dchuk 14y ago
  I suppose, but at the end of the day it's still 17-18 year old kids getting handed thousands of dollars to make a big (and most likely extremely uninformed) career choice decision. I think there needs to be a lot more education (irony) targeted at how to make a fiscally responsible degree choice when entering college. All of these kids majoring in creative writing and then protesting wall street because they can't get a job to pay off their loans should garner no sympathy as they made a bad fiscal decision that got them into that mess in the first place. But since they were just kids when making the decision it's hard to fault them entirely...I think the system itself needs to be doing a better job telling people they're being dummies and helping them correct their course before becoming a debt statistic.
lukev 14y ago
Maybe. But is there any economic reason for a decent liberal arts degree to cost 100k to begin with? I think that's the real problem.
- dchuk 14y ago
  possibly. there are a lot of people on the payroll for that degree to be offered. School's cost a lot of money to run. There's nothing wrong with expensive degree programs. Some people drive Mercedes and some drive Honda. But someone who can only afford a Honda isn't going to be approved for a loan for a Mercedes.

xiaoma 14y ago

>"The National Consumer Law Center, in a July report, said “pursuing the most vulnerable borrowers until they die” is inefficient and imposes “significant costs to taxpayers.” To help debtors avoid defaulting in the first place, the center advocates placing them automatically in repayment plans that make the payment a percentage of the borrower’s income rather than a certain dollar amount. Under this “income-based repayment,” which the Obama administration has pushed, any outstanding debt is forgiven after 20 or 25 years." This sounds a lot like how it works in Australia now. Adding a minimum salary cutoff below which the debt didn't need to be repaid would make it pretty much the same.

salem 14y ago

I find it insane that the interest rates are so high (capped at 8.5%) for a loan that is next to impossible to avoid repaying, and is government guaranteed.