fear of student loans. ex.37665(a)

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Submitted by scaredyclassic on January 20, 2013 - 1:00pm

Submitted by earlyretirement on January 21, 2013 - 12:23am.

If you want to read a great but depressing article on student loans and how difficult student loans are to discharge, read this article from the New York Times from last year.

http://www.nytimes.com/2012/09/01/busine...

While I certainly am not advocating that student loans should be easily discharged in bankruptcy. If so, I'm sure that there would be many deadbeats cheating the system. But when partially blind people are getting turned away, it's depressing.

Student loans are something that is very necessary for people that don't come from wealthy families. I worked all through University and still had to get many student loans. Not just for tuition and books but more so just for living expenses, etc.

My biggest problem is that the system they have in place is basically broken. There is almost NO RISK at all for these lenders. Even social security and disability disbursements can be withheld.

Lenders are all lined up to give tons of student loans without regard to the major that will be received, the type of job the student can expect to get along with their expected salary. After all, it's almost a guarantee that they will get paid back and the interest rates are surprisingly high on them.

And it doesn't matter if the student already has loans out. Students can pile loans on top of one another.

Again, I'm not saying that I'm against student loans because I'm definitely not. I wouldn't have made it out of University without them. But some of the stories i'm hearing now from friends are pretty bad.

My best friend's sister in law graduated a few years ago. She went to some private nothing special school that was very expensive. She got some almost worthless degree. Then she went to grad school but it didn't sound like it was a beneficial degree either.

She has something crazy like $180,000 in student loans and it turns out she has 6 separate loans out. Some with interest rates as high as 8%. She finally had to cash in part of her 401k to pay off some of them as her and her husband couldn't even qualify to purchase a house with all her debt.

Submitted by CA renter on January 21, 2013 - 2:57am.

The student loan situation/bubble will have to be addressed sooner, rather than later. Something is very wrong when young people are taking on six-figure debt for a bachelor's degree.

We need to find out what the heck colleges and universities are doing with all the extra money they've been raking in over the past couple of decades. Like health insurance, tuition costs have been skyrocketing, but there is little (if anything) to show for these increased costs.

Thought this was interesting:

Where's all that college tuition money going?

http://usatoday30.usatoday.com/news/opin...

..............

And there's this:

"But at least at public colleges and universities — which enroll three out of every four American college students — the main cause of tuition growth has been huge state funding cuts."

http://economix.blogs.nytimes.com/2012/0...

................

Like others have mentioned, I also believe that the availability of these huge student loans are behind the increased costs as well. Like housing during a credit bubble, the price of education will rise during a credit bubble as more money is made available to spend on it. Student loans should be hard to get, have very low annual (and total lifetime) limits, and loan amounts should match what a student can be expected to reasonably afford given his/her particular major.

Submitted by earlyretirement on January 21, 2013 - 9:35am.

Thanks for posting those articles CAR. Yep, I agree with you that the ease and vast availability for the typical college student to get these massive student loans is what causes these colleges and universities to keep driving up prices.

These banks and lenders are almost totally protected with the way the laws are set up. And they want to dole out as much as possible.

I also think that students taking out student loans should be required to go through some mandatory class that explains the student loans, understand the payment schedules and interest rates, etc.

So many students are clueless and don't even know what interest rates they are paying on their many loans.

Submitted by scaredyclassic on January 21, 2013 - 10:12pm.

if they required a class like that for student loans, you would screw up the whole system...

you apply for college. you get accepted right about the time you get your financial aid package.

you accept botht he school and the package simultaneously.

then yous how up the fall to sign.

whatare you, going to back out after you've moved up there?

you need to require the class prior to even applying.

which seems kinda crazy cause you don't even know if you need the loans at that point

Submitted by livinincali on January 22, 2013 - 8:23am.

earlyretirement wrote:

These banks and lenders are almost totally protected with the way the laws are set up. And they want to dole out as much as possible.

Exactly. Quickest way to break the college debt bubble is to allow student debt to be discharged in bankruptcy. Nothing will change the behavior of lenders quicker than having having the prospect of default staring them in the face. Want $100K to go to school better have the grades and major lined up that produces a positive return on investment. The non-charge nature of student loan debt came from a couple of high profile cases of doctors and lawyers declaring bankruptcy right after school and then getting a high paying job shortly after.

If you're really worried about doctors and lawyers strategically defaulting right after school and then getting a high paying job after the bankruptcy clears then put a special stipulation in for that. You can put some kind of probationary period on the debt being discharged. If you're income goes up after the bankruptcy during a probationary period (3-5 years) you'll still be on the hook for some or all of the debt. Nobody is going to wait 3-5 years to start their career just to be able to declare bankruptcy and avoid the college debt.

Submitted by scaredyclassic on January 22, 2013 - 8:29am.

no. it would be worth it to wait 3 years to discharge law school debt today.

tuition exceeds 50k, plus living expenses and ins chool interest, that's 225,000 law school debt alone.

divided by 3, that's $77,000 in benefit, tax free income.

i think many would take a 3 year hiatus for that!

5 years, a little tougher, but might still be worth it. dependng on the job market

Submitted by barnaby33 on January 22, 2013 - 1:47pm.

I take umbrage with, "student loans are necessary if you don't come from a wealthy family." That doesn't even pass a basic sniff test, me. I'm po white trash from Valley Center (pronounced with a drawl.) 3 years in JC and 2.5 at Cal State Cap N Crunch and I got a CS degree. I did get some grants, I worked and oh yes, I joined the military.

You don't have to go to an expensive school. You don't have to choose a non-remunerative major (though most do) and you don't have to borrow money. It does make life easier if you want the traditional college experience.

Josh

Submitted by earlyretirement on January 22, 2013 - 5:45pm.

livinincali wrote:
earlyretirement wrote:

These banks and lenders are almost totally protected with the way the laws are set up. And they want to dole out as much as possible.

Exactly. Quickest way to break the college debt bubble is to allow student debt to be discharged in bankruptcy. Nothing will change the behavior of lenders quicker than having having the prospect of default staring them in the face. Want $100K to go to school better have the grades and major lined up that produces a positive return on investment. The non-charge nature of student loan debt came from a couple of high profile cases of doctors and lawyers declaring bankruptcy right after school and then getting a high paying job shortly after.

If you're really worried about doctors and lawyers strategically defaulting right after school and then getting a high paying job after the bankruptcy clears then put a special stipulation in for that. You can put some kind of probationary period on the debt being discharged. If you're income goes up after the bankruptcy during a probationary period (3-5 years) you'll still be on the hook for some or all of the debt. Nobody is going to wait 3-5 years to start their career just to be able to declare bankruptcy and avoid the college debt.

Bingo. Bingo. We have a winner. Totally agree.

barnaby33 wrote:
I take umbrage with, "student loans are necessary if you don't come from a wealthy family." That doesn't even pass a basic sniff test, me. I'm po white trash from Valley Center (pronounced with a drawl.) 3 years in JC and 2.5 at Cal State Cap N Crunch and I got a CS degree. I did get some grants, I worked and oh yes, I joined the military.

You don't have to go to an expensive school. You don't have to choose a non-remunerative major (though most do) and you don't have to borrow money. It does make life easier if you want the traditional college experience.

Josh

Josh,

First of all, thanks for serving in the military for our country. You make a good point that there are other options but the vast majority of people don't want to join the military. I too worked during college but I still had to get student loans.

Yes, there are options for Junior college, etc. But I guess the point I wanted to emphasize is the tremendous cost of University these days. And it's not just special schools that are expensive. Many State Universities when you add up tuition and just cost of living, etc. are $25,000 or more if you're in-state and out of state is more like $40,000 per year. And these are State Universities.

Yes, there are other options but the main point I wanted to make is the cost of a University education these days.

Submitted by CardiffBaseball on January 22, 2013 - 11:17pm.

Kid is thinking of playing baseball at a "traditionally African-American" university. With his HS grades, he gets merit money. Whatever he gets in baseball money could cover a good chunk of the rest. Strange way to go, but most of the team is either white or latino. If it means very little SL debt, what do I care. Not sure how valued the education will be, but hell if he ever applied to law school he'd have an interesting diversity story to tell. Who knows, it's just one of the options available, we shall see. Paranoid as hell about Loan debt since we still owe so much.

Submitted by Blogstar on January 23, 2013 - 1:49am.

Why did I have to grow up in a time when we were supposed to be ashamed of our "diversity stories"? Woe is me.

Submitted by livinincali on January 23, 2013 - 7:28am.

squat300 wrote:
no. it would be worth it to wait 3 years to discharge law school debt today.

tuition exceeds 50k, plus living expenses and ins chool interest, that's 225,000 law school debt alone.

divided by 3, that's $77,000 in benefit, tax free income.

i think many would take a 3 year hiatus for that!

5 years, a little tougher, but might still be worth it. dependng on the job market

You assume that a lender would still let a prospective law student borrow $225K when they could default and declare bankruptcy. That's the key right there. You need to find a balance between the risk of strategic default and what you're willing to let someone borrow. Of course I'm sure that will be seen as evil and mean behavior by the banks. How can you possibly deny a kids dream.

Submitted by earlyretirement on January 23, 2013 - 9:40am.

livinincali wrote:
How can you possibly deny a kids dream.

I'm sure for law students or medical students with good track record, good grades, etc. you will still see student loans even with any possible change in the law.

However, a kids dream of racking up a 6 figure + undergrad degree in Anthropology, Art, History, Philosophy, Drama, Religion, Archeology, etc that has mediocre grades, I think better plan on getting their dreams shattered if there is any change in the law where students can write off student loan debt in bankruptcy.

If so, you won't see lenders doling out this kind of cash for semi-worthless degrees.

Submitted by livinincali on January 23, 2013 - 10:15am.

earlyretirement wrote:

I'm sure for law students or medical students with good track record, good grades, etc. you will still see student loans even with any possible change in the law.

However, a kids dream of racking up a 6 figure + undergrad degree in Anthropology, Art, History, Philosophy, Drama, Religion, Archeology, etc that has mediocre grades, I think better plan on getting their dreams shattered if there is any change in the law where students can write off student loan debt in bankruptcy.

If so, you won't see lenders doling out this kind of cash for semi-worthless degrees.

I agree completely. There will be money for law students and doctors, but it may not be up to $225K. It could certainly be less and if it's less those universities providing those degrees will be forced to compete and likely have to reduce prices. That's the entire goal of changing the way student loans work.

Submitted by AN on January 23, 2013 - 10:19am.

livinincali wrote:
I agree completely. There will be money for law students and doctors, but it may not be up to $225K. It could certainly be less and if it's less those universities providing those degrees will be forced to compete and likely have to reduce prices. That's the entire goal of changing the way student loans work.
Not only will it be less but my bet is, the interest rate would be higher. After all, student loan would then be not much different than any other un secure debt, like credit card. Just because it's a doctor and lawyer doesn't mean they can always easily repay the debt. These are kids who just turn 18 and have no credit history. It doesn't matter how much you make, if you spend more than you make, it'll be just as hard to pay back your credit card/student loan debt.

Submitted by EconProf on January 23, 2013 - 10:41am.

We economists look at incentives resulting from public policies, and there are plenty of harmful incentives built into the emerging college debt bubble. Many have already been described in this thread.
1. Easy credit lures borrowers into too much debt, saddling them forever with non-dischargable loans after gaining non-marketable majors.
2. Colleges and universities budgets are bloated with resort-style facilities (the better to lure prospective students), overpaid and underworked administrators (faculty are now outnumbered by non-teaching staff), and reduced class teaching loads. The easy student loans enabled and incentivized this bloat.
3. Easy majors allow weaker students to coast through college in order for the students (and clueless parents) to brag about their degree. Professors in those weak majors have no incentive to warn their prospective majors about the realities of the job market.
4. Since the college experience indoctrinates students to more liberal viewpoints, the current administration has little incentive to put a stop to the abuse of credit.
There are other negative incentives, and sadly, they were all predictable.

Submitted by earlyretirement on January 23, 2013 - 11:45am.

EconProf wrote:
We economists look at incentives resulting from public policies, and there are plenty of harmful incentives built into the emerging college debt bubble. Many have already been described in this thread.
1. Easy credit lures borrowers into too much debt, saddling them forever with non-dischargable loans after gaining non-marketable majors.
2. Colleges and universities budgets are bloated with resort-style facilities (the better to lure prospective students), overpaid and underworked administrators (faculty are now outnumbered by non-teaching staff), and reduced class teaching loads. The easy student loans enabled and incentivized this bloat.
3. Easy majors allow weaker students to coast through college in order for the students (and clueless parents) to brag about their degree. Professors in those weak majors have no incentive to warn their prospective majors about the realities of the job market.
4. Since the college experience indoctrinates students to more liberal viewpoints, the current administration has little incentive to put a stop to the abuse of credit.
There are other negative incentives, and sadly, they were all predictable.

Absolutely 100% all true. And probably no one can see these things as clearly as someone that is/was in the educational system.

It just seems like a vicious circle that will be difficult to break unless there are some serious changes in the system. As you mentioned EconProf, there doesn't seem to be any incentive for most of the players to want to change the status quo. The banks, Universities/schools, teachers, etc. all have an incentive to keep this going on.

Submitted by livinincali on January 23, 2013 - 1:15pm.

earlyretirement wrote:

It just seems like a vicious circle that will be difficult to break unless there are some serious changes in the system. As you mentioned EconProf, there doesn't seem to be any incentive for most of the players to want to change the status quo. The banks, Universities/schools, teachers, etc. all have an incentive to keep this going on.

The youth and/or the business innovators of this country are the only ones that can break the cycle. The youth can refuse to go to college or select inexpensive options. The business leaders of this community can stop taking the easy way out in selecting candidates and base it on what you know rather than the piece of paper you have. A degree requirement is just an easy way of weeding out a flood of applications. Business leaders should create online applications that test the ability to solve the problems of the business. The cheaters can be weeded out in the interview process.

MOOCs are a cheap way to learn the content. We just have to get the business community to accept them the same way they accept accredited universities.

http://en.wikipedia.org/wiki/Massive_ope...

Submitted by EconProf on January 23, 2013 - 7:15pm.

LivininCali you are sooo spot on.
HS grads are rapidly waking up to the misrepresentations of the entrenched interests, AKA the education industrial complex, lenders, guidance counselors, tenured professors, etc. They know that many of the titans of high tech did not have time for college. They know of too many college grads working as barristas and waiters living in their parents' basements and contemplating their $100,000 debt. And when they throw in lost income from four years (or five, or six) when they could have been learning a trade or building a business, they are rapidly changing their minds.
The employers too are learning that the college degree is devalued and proves little in terms of their productivity. Too many high school grads go reflexivly to college that do not have the aptitude, interest, or finances for it. They go for the social life, or their parents'prestige.
On-line education promises to cheaply and effficiently teach specific courses and skills, and then award certificates after testing and proof of mastery of that particular subject. Job seekers in the future will have to prove certain competencies in line with the employer's needs in order to be hired. No more using a mere college degree as a "signaling system" to hire a dozen college grads and hope that a few turn into long-term employees.
Many of today's colleges and universities will be gone in ten years, and the survivors will be vastly restructured. Learning will be vastly cheaper and more accessible to the poor (esp. in the third world), and the anachronism of tenure will be on the way out. It's all good.

Submitted by The-Shoveler on January 23, 2013 - 7:24pm.

I think it was MIT who put all their courses online for free.

you don't get the piece of paper but...

Submitted by scaredyclassic on January 23, 2013 - 8:22pm.

Still, a college degree is worth something.

Submitted by CardiffBaseball on January 23, 2013 - 8:59pm.

Blogstar wrote:
Why did I have to grow up in a time when we were supposed to be ashamed of our "diversity stories"? Woe is me.

Was I suggesting he be ashamed? We are looking to save a buck and considering other alternatives.

Submitted by earlyretirement on January 23, 2013 - 10:29pm.

EconProf wrote:
LivininCali you are sooo spot on.
HS grads are rapidly waking up to the misrepresentations of the entrenched interests, AKA the education industrial complex, lenders, guidance counselors, tenured professors, etc. They know that many of the titans of high tech did not have time for college. They know of too many college grads working as barristas and waiters living in their parents' basements and contemplating their $100,000 debt. And when they throw in lost income from four years (or five, or six) when they could have been learning a trade or building a business, they are rapidly changing their minds.
The employers too are learning that the college degree is devalued and proves little in terms of their productivity. Too many high school grads go reflexivly to college that do not have the aptitude, interest, or finances for it. They go for the social life, or their parents'prestige.
On-line education promises to cheaply and effficiently teach specific courses and skills, and then award certificates after testing and proof of mastery of that particular subject. Job seekers in the future will have to prove certain competencies in line with the employer's needs in order to be hired. No more using a mere college degree as a "signaling system" to hire a dozen college grads and hope that a few turn into long-term employees.
Many of today's colleges and universities will be gone in ten years, and the survivors will be vastly restructured. Learning will be vastly cheaper and more accessible to the poor (esp. in the third world), and the anachronism of tenure will be on the way out. It's all good.

I wish I could say that I see long-term systemic changes in the college/University cost structure in the next decade but I just don't see that being the case. While some institutions might not be here in ten years, I don't think the costs/fees are going to go down in the next decade.

Unfortunately probably the contrary. This kind of thing is hard to turn around as we've mentioned.

Personally, I don't think you actually learn a whole lot in college. I think you learn much more with real life work experience and on the "street". However, a University degree from a credible/respected University will probably always be a necessity to get a good and decent job (or at least higher paying).

College to me is a necessary "stepping stone" and part of something you have to go through to get a good entry level position of any decent pay while you're young.

I do think more and more people are taking a good look at what they decide to major in. When I went to school, parents didn't really have too much input on what their kid's major was. Now, many of my friends and client's tell their kids if they want to have their college paid they need to have a dual major with at least a degree that isn't fairly worthless.

I wish I was as optimistic as some of you with how the online education will change the cost structure of a college degree but I don't see this happening anytime soon.

My prediction is a University degree from a respected university will be much more expensive 10 years from now as it is today.

Submitted by bearishgurl on January 23, 2013 - 11:05pm.

earlyretirement wrote:
. . . I wish I was as optimistic as some of you with how the online education will change the cost structure of a college degree but I don't see this happening anytime soon.

My prediction is a University degree from a respected university will be much more expensive 10 years from now as it is today.

ER, I agree with this. For-profit online universities such as University of Phoenix charge more than $1000 for one three credit-hour class lasting approximately one month.

They seem to have no shortage of students (who are no doubt deeply indebted with student-loans) who tout how "fast" it is to get a degree from UOP in comparison to "brick and mortar" schools.

I haven't researched the dropout rates of these for-profit online schools. I suspect a good portion of their students run out of $$ quickly when they discover the amounts of their current loan balances, become scared and quit taking out loans.

I think a degree needs to be from an "accredited and recognized" college in order to make the graduate employable in their field of major. I think most employers can see straight thru degrees from online "diploma mills."

And the CA Legislature isn't going to suddenly decimate the CA Education Code as it applies to retirement formulas long ago voted in by the UC Regents and CSU Board of Trustees.

It is what it is.

Submitted by UCGal on January 24, 2013 - 8:21am.

I agree with you to a degree about the for profit universities.

But even public, brick and mortor schools are offering more and more online - My grad school - Penn State, now has 100% online programs.

The issue I have with schools like UoP is that the profit motive seems to outweigh what is good for the student sometimes. They incentivize the admissions staff to line up loans for prospective students... so the staff has no incentive to suggest that a loan might not be in the students best interest... it's about sales.

That said - there can be decent quality education from these for-profit online schools.

I have a family member who teaches nursing for University of Phoenix. She retired from USD's nursing program and she enjoys teaching still. They have a decent graduate nursing program. It's not 100% online, either.

I have another family member who got his business doctorate from UoP. (already had undergrad from UC, and an MBA from back east) He was a road warrier at the time - so online worked for him when he was spending weeks at a time at international job sites. A traditional PhD program would have been impossible with his work demands... but online worked perfectly for him - he had plenty of time in hotels to excel at the course work, work on his dissertation, etc.
Now he teaches for another online, for profit, university.

They are trying to convince me to consider teaching for one of these programs as a part time gig in semi-retirement. I'm considering it - but still have to get past the profit over student's interest piece that bugs me.

Submitted by no_such_reality on January 24, 2013 - 9:51am.

UCGal wrote:

They are trying to convince me to consider teaching for one of these programs as a part time gig in semi-retirement. I'm considering it - but still have to get past the profit over student's interest piece that bugs me.

The students, it is better and faster and often, cheaper. Even if it is for profit.

It'll sort itself out once people realize they need to look at attending school as their for profit activity. Are they investing in something that will get them more money, or are they really, just purchasing entertainment.

Submitted by flu on January 24, 2013 - 10:12am.

Please people, tell your kids not to go to college. Less competition for my kids please....

http://money.cnn.com/gallery/news/econom...

My master's wasn't worth it
MBAs: A dime a dozen?

Submitted by earlyretirement on January 24, 2013 - 10:22am.

UCGal wrote:

They are trying to convince me to consider teaching for one of these programs as a part time gig in semi-retirement. I'm considering it - but still have to get past the profit over student's interest piece that bugs me.

UCGal,

That sounds like a wonderful opportunity for part-time work in semi-retirement.

Absolutely these on-line degrees I'm sure will pick up and become more popular. But quite honestly for me I learned more from college just going through the 4 years and going through the entire experience, dealing with people, living in the dorm my first year, living in a fraternity, etc.

The entire "college experience" was amazing to me. Looking back, I wouldn't have changed anything about the experience. In fact, I want my kids to go through that experience rather than sitting at a desk learning online.

I think many people underestimate the social setting and the lessons you learn as a young adult navigating through that and dealing with so many groups of different types of people.

I think making it through college helps shape a person and makes them who they become as adults. That's part of the reason why I think that colleges and universities will be able to charge what they do. I know many people that have the same opinion.

By the time my kids reach college if someone gives me the option to have them study and get an "online degree" for $X or go to a reputable and respected traditional University for $XXXXXX, I will still choose the traditional route even though it's more expensive.

Submitted by livinincali on January 24, 2013 - 10:37am.

earlyretirement wrote:

Absolutely these on-line degrees I'm sure will pick up and become more popular. But quite honestly for me I learned more from college just going through the 4 years and going through the entire experience, dealing with people, living in the dorm my first year, living in a fraternity, etc.

The entire "college experience" was amazing to me. Looking back, I wouldn't have changed anything about the experience. In fact, I want my kids to go through that experience rather than sitting at a desk learning online.

I think many people underestimate the social setting and the lessons you learn as a young adult navigating through that and dealing with so many groups of different types of people.

I think making it through college helps shape a person and makes them who they become as adults. That's part of the reason why I think that colleges and universities will be able to charge what they do. I know many people that have the same opinion.

By the time my kids reach college if someone gives me the option to have them study and get an "online degree" for $X or go to a reputable and respected traditional University for $XXXXXX, I will still choose the traditional route even though it's more expensive.

How much is that experience worth to you and how exactly is that experience different than moving out of your parents house, moving in with some roommates and getting a job to pay for it. Moving out of your parents house and getting the experience of living on your own is what you describe. Why do you think it takes college to live that experience.

There's plenty of non-college students in their early 20's that live a lifestyle really similar to the college students. They get a lot of those same experiences and they didn't have to pay for college to do it. Now college might feel like a safer place to send your child. It's a more controlled environment and colleges today will help babysit your kid a bit, but it's really not that different.

Submitted by earlyretirement on January 25, 2013 - 9:04am.

livinincali wrote:

How much is that experience worth to you and how exactly is that experience different than moving out of your parents house, moving in with some roommates and getting a job to pay for it. Moving out of your parents house and getting the experience of living on your own is what you describe. Why do you think it takes college to live that experience.

There's plenty of non-college students in their early 20's that live a lifestyle really similar to the college students. They get a lot of those same experiences and they didn't have to pay for college to do it. Now college might feel like a safer place to send your child. It's a more controlled environment and colleges today will help babysit your kid a bit, but it's really not that different.

Oh I'm not disputing that your route produces any less of a "learning" experience. It's just that unfortunately I think the kid in that scenario has far fewer opportunities to enter the job market and get a job.

Hopefully I'm wrong and things REALLY change in the next decade. But I'll continue to save each month as I don't see college getting any cheaper the next decade and I still think in the next decade or so a traditional college experience will still have a better opportunity to get a strong job vs. the online diploma route.

This is one of those times when I'd like to be wrong.

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