San Diego Housing Bubble News and Analysis

CHANGE!

In chinese, there's an expression for this....Probably I'm misspelling it, but it's called "nai pi".
(Ni hen nai pi) (you are very ....)

An expression that conveys the notion that someone is a sore sport. Perhaps someone else can do a better job translating (I flunked the pinyin system).

Anyway, lot of people these day fit into this category. Not living up to one's obligation and taking the legal (but crass) way out.

He should be a politician. He would fit right in: fiscally irresponsible, does not keep word. Perfect.

Come on, I want this guy representing me! 26 years of student loans and he passes the bar on the 4th try. Maybe it's not the debt that's keeping him out.

Side note, this guy must cringe every time he hears an engine. Or maybe he paid someone to run into him both times so he could defer payment?

That's some serious post traumatic stress.

He may have gamed the system, but I find myself hard-pressed to defend Sallie Mae, or the increasingly sleazy student-loan industry in general.

And no, I've never taken out a student loan. Everything considered I'd rather go through life illiterate.

FYI, flu, Zeitgeist, did you really read the article?

I have dealt with student loan organizations. They are a real sleazy group. There is a limit on total percentage of a balance that they can charge as fees. The percentage is 36%. They routinely violate this. Any payments made are immediately applied to the fee portion of the balance before the principal. This way they can then immediately add more to the fees. If you want to pay the balance of an overdue in full, they will drag their heels.. claiming that the account is not 'active' on their system and they need time to get it 'back on their system'. They then wait over 9 months, charging interest in the meantime, until they contact you. If you are out of contact (my case, on business travel out of the U.S.), they immediately forward it to a collection agency.. yet more fees.

This type of behavior started when the student loan companies lobbied congress and got a waiver around normal collection agency limitations. Normally, before garnishing taxes or attaching accounts, the claim has to go before a judge. The waiver is that student loan collection agencies no longer have to go before a judge to prove that the money is owed. If they collect improperly, you have to chase them down and sue them.. and they make that hard.

Don't borrow money then. :)
Don't like a CC card, cut up the card and say no thank you.

if all students everywhere simutaneously rejected student laons, tuition would come down.

his debt is not that unusual. law school is 40 plus k a year x 3 = 120 k, plus living expenses, 200k, plus undergrade, say 100 k, = 300k, then he got dinged with collection fees, 300k in student loans is not some sort of bizarre weird number. that's what things cost nowadays.

i don't think he was 'gaming the system', i think it's the same "things will work out" mindset home borrowers" have; eduation always pays off, it'll wash with inflation, etc.

scaredycat,

"if all students everywhere simutaneously rejected student laons, tuition would come down."

thank you

I read an article recently that said some graduates were leaving the country to escape their huge student loans.

Yes, because student loans are no longer dischargable. They stay with you forever.

People also leave the country to avoid child support and alimony payments. If you can work overseas and earn a good living, there's no need to work in USA. If you get expat income in a low cost country, then you can live better than in America.

You can come back to live or to visit, but if you have no assets or income in USA, then there's nothing to garnish.

I know one guy who works overseas because he's determined not to give a single penny to his ex-wife. Ethical or not, that is not the question. But you can avoid obligations if you try hard enough.

He went to UC Hastings, which does charge 40k/year for non-residents ... but that is well above average among non-elite law schools. If he got into Hastings, he probably would have gotten into BYU, which is comparable, and only costs 18k/year. Not to mention that life in SLC is much cheaper than in SF. Or he could've gone to a lower-ranked school on a merit scholarship.

You could extend that to loans for everything and the cost of everything that is bought with loans.

Ah, screw it. The money is not real any way, it's digital. It's just a collective agreement between the people that make it and the regular folks who are forced to put up with it.

I say everybody stop paying and bring the system to it's knees. Honestly, I'm not very happy with the puppet politicians they give us to decide from.

We don't need them, they need us.

1... 2... 3.. Go!

It is indeed true that the more money is created to support spending on some type of good or service, the more prices rise for that good or service.

When you increase the supply of money for some large sector of the economy by 100%, it seems that the supply goes up by 5 or 10 or 20%, and the price goes up by the rest. In other words, most of the money is wasted.

We have seen this in home prices (boosted by more money from home loans, then ever more tenuous versions of home loans, and by special tax breaks), medical care (with money funneled from Medicare and tax deductions for employer-paid health insurance), and higher education (with money funneled from special tax breaks for college expenses and special easy money loan schemes for students' tuition).

I have come to the conclusion that the only way to encourage more of a certain type of good or service is to subsidize only a small % of the people demanding it, and exercise tough love for the rest. Think about how much the prices of homes, medical care, and universities would drop if only 10% of consumers for each could benefit from any form of government support. They would become much more affordable for most of us, simply paying out of our own pocket.

Don't borrow money then. :)
Don't like a CC card, cut up the card and say no thank you.

First, it is not a credit card debt... read the article. It is $400k in student loans & fees/penalties against the student loans. The actual amount that was student loan debt was $230k. The jump went from $270k to $435k in 4 years.. without any additional loans.. just fees. This is where the problem is. It also violates the law because the amount that is fees is in excess of statutory limit of 36%.

It is fine to be able to enter into an agreement with all eyes open.. but the student loan lenders abuse the system and the students taking out the loans. They violate the terms of the law and of the loan. Students have a hard time defending against this type of practice, they are forced to make a decision to pursue legal action or complete their degree.

Amen! This is exactly why I'd like to see the credit market shrink to a fraction of what it was at the peak.

Cheap credit is NOT a benefit to the average consumer, and it's the enemy of those who try to live within their means. Prices are determined by the greatest fool with the greatest access to credit, IMHO.

I have to disagree with you all, at least with regard to loans for professional schools (law, business, med).

The way things are, all capable students can attend these schools without regard to their ability to pay, poorer and stronger students are offered scholarships financed by money from richer and weaker students, graduates get well-paid jobs and the ability to pay off their loans within years after graduation.

Remove student loans, tuition comes down, scholarship pool shrinks. Richest students benefit because they get to pay less. Poor students lose, because there's less money available for need-based scholarships. The whole system becomes less equitable and produces less qualified professionals.

Please tell all the Friedmanites they have been wrong.
Perhaps Alan Greenspan will serve to moderate the discussion

Maybe he can bargain some of the debt away or go bankrupt. I still side with flu on this, From Shakespeare's Hamlet, 1603:

LORD POLONIUS:
Neither a borrower nor a lender be;
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry.

Eugene, if loans to pay for education expenses were more restricted, then it would have to become more focused on the students who were the poorest and most likely to succeed (as measured by earning enough later on to pay it all back with interest).

I don't see any problem with requiring middle class people to postpone buying a new car in order to pay more for their childrens' college expenses. And I don't have a problem with denying financial aid to a poor person who may not be determined enough or capable enough to put the education they are looking for to good-paying use. Not everyone is smart enough or ambitious enough to justify giving them $100,000 for more education.

He's got between 3-400K in debt and it appears he's been living with girlfriends, etc his whole life.

If he chooses to buy a house the median 2 BR apt in Manhattan is 1.27M
So Figure he's looking at 1.7M in debt service.

That's almost 100K/year in Debt Service.

Median First Year Associate salary was running 170K plus 30K bonus.

with pay down, figure it's 170K now.

add 33% Income tax figure he's looking at making 100K Net.

So i fhe wants an apartment, he's looking at living on 10K.

Even if he rents a place it's still going to be miserable.

The article portrays this guy as a bit of a jerk, and perhaps he is. But I think there is another perspective to consider:

It's not uncommon for people to borrow hundreds of thousands of dollars to start a business. Isn't this guy trying to do the same thing?

Yes, he did default along the way (The article is not clear about to what extent.) But unless his intent was to commit fraud and never pay at all (which is pretty much impossible with student loans anyway), it may be that his decision to press on with the law degree was actually in the best interest of all parties. Getting the degree would provide a huge boost in cash-flow that could enable him to pay back the loan.

Consider this scenario: A restaurant owner borrowed $200K to open a new location that would his double cash flow. Just before the project was completed, the owner experiences some medical problems that delays the opening. He defaults on the loan and runs up huge penalties. At this point, should he just abandon the project and focus solely on paying back the loan?

It certainly wouldn't make sense to yank the restaurant's business license just before it is about to open.

I'm not arguing that the debt should be forgiven. But there is no reason to deny his license, certainly not from a pragmatic point of view. It's just a lose-lose. And as long as he is obligated to pay it back, there is no moral hazard either.

but he does not have to buy a 2 BR in Manhattan. NYC is nice in that it has an awesome public transportation system that allows you to commute to Manhattan from anywhere in the five boroughs and from some parts of NJ under 45 minutes. Raise the limit to 1 hour one way, and he can commute from inner Connecticut (Greenwich, Stamford). An hour commute on a high speed train from Stamford to Manhattan is far more pleasant than an hour commute from Temecula to Sorrento Mesa.

A 2-br aparment in a remote (but still good) part of NYC could cost him 500k or even less.

Now, of course, there's a certain amount of unavoidable miserableness (miserability? what's the right word?) associated with living in NYC when you're 47.

I wasn't suggesting it was a CC card. I was comparing this to folks that take out on a CC without reading the T&C. Anyway, why was he sent to a collection agency to begin with? That's my question. I have to wonder what the other side of that story is.