student loan depressing housing market

[patb]

http://thinkprogress.org/economy/2013/04/16/1873391/student-debt-housing-market/

Two- thirds of student loans are held by people under the age of 40, according to the Federal Reserve Bank of New York, blocking millions of them from taking advantage of the most affordable housing market on record. The number of people in that age group who own homes fell by 4.6 percent in the fourth quarter from the third, the biggest drop in records dating to 1982. […]
The issue is being exacerbated by an explosion in the $150 billion private market for student debt with interest rates for some existing loans surpassing 12 percent. Unlike mortgage holders, borrowers have little hope of refinancing at lower rates.

[desmond]

Student loans are depressing students.

[bearishgurl]

If former students with good jobs wouldn’t keep taking deferments and consolidating their student loans into 20 or 30 years and then missing payments, they wouldn’t have this problem.

When a recent college grad gets a “good job,” it seems most of them immediately buy a new or newer vehicle at a high interest rate (because they don’t yet have enough credit established to get lower rates). Then they rent too expensive of an apartment/condo and/or don’t have enough roommates. This money could have been deflected every month to their student loan(s) while they take their old car to a garage and have it fixed to drive a few more years and keep their lower registration fee and cheaper insurance.

Employers very much DO want to hire college-degreed Gen Y and younger Gen X (the under-40 crowd)… that is, if they didn’t get a degree in art history or underwater basket-weaving. Employers SURELY don’t want to hire the “over-50 crowd,” regardless of experience, (unless they work as a “consultant” or “independent contractor” for whom they will issue a 1099). Often, the indebted former student has to be willing to relocate for that first (or second) “good job.” I don’t know about other states, but many, many CA natives in this group will NOT relocate, especially if they are living with parents or on/in their property (residence or rental property). After living in coastal CA all of their lives, they just can’t quite stomach the idea of Kansas City. But if that is what they have to do to get off the starting blocks of life, then they should do it, IMHO. It’s not for the rest of their lives but just to get them launched in their fields.

Eventually the young degreed worker finds an employer with whom they can have a “career.” By then, a lot of them have one or two “accidental” kids and their pay becomes ensnared for child support or daycare expense. Then they find their tax refunds have been levied for student loan defaults so they file a new W-4 claiming 9 exemptions.

Soon they are 40-45 with a family of five to support or help support and their student loans have barely shrunk from when they were fresh grads of 25-26. Some of their spouses had to buy a home in their name only so the family could have a home. Of course, it was a lesser house in a lesser area than if both of the buyers could qualify for a mortgage.

I’ve seen the above phenomenon with younger lawyers (Gen X) as early as 1990. It was just pathetic as these professionals worked their a$$e$ off every day and had VERY little, if any, discretionary income. They borrowed for college/law school in the ’80’s or very early nineties and their spouses bought houses in the early nineties for their families (when SD housing prices were down).

I can only imagine how hard it must be now. This is why NONE of my kids have ever or will ever take out a student loan.

If you have student loans, they come first, before new vehicles, partying every weekend, personal traveling, etc. The student should endeavor to pay them off as fast as possible, even if they have to get a second job to do so.

Lesson learned. DON’T BORROW FOR COLLEGE. If you can’t afford it and can’t get a scholarship or fee waiver, go to CC or ROP and get an associate degree or trade or join the military until such time as you CAN afford to go. It’s NOT WORTH IT for a young person to mortgage their lives away before they even get them started.

And don’t drag your evil student-loan baggage into a marriage or domestic partnership. It is not fair to an un-indebted partner. And if you are already married or are not but purchased (mortgaged) real property with your partner, then DON’T take out a student loan. Life happens and your responsibility now lies with helping your partner pay that mortgage every month.

That is my personal opinion. I’ve just seen too much. ‘Nuff said.

[end of lecture]

[desmond]

Damn, sounds like student loans are worse than Meth……….

[livinincali]

Student loans will likely be a factor in the housing market moving forward. Right now isn’t that time but sometime in the future when the investors dry up the lower end/entry level will likely be affected. Maybe not dropping prices but certainly stagnant pricing.

[desmond]

The article is just stupid:

“Two- thirds of student loans are held by people under the age of 40, according to the Federal Reserve Bank of New York, blocking millions of them from taking advantage of the most affordable housing market on record”

The reason the housing market is so “affordable” is because few can afford it. If they could than it would not be “affordable”.

[SK in CV]

[quote=desmond]
The reason the housing market is so “affordable” is because few can afford it. If they could than it would not be “affordable”.[/quote]

This makes sense in an opposite universe. Not the one I live in.

[earlyretirement]

BG,

I totally agree with much of your post. It’s so spot on target the part about seeing what major you will go into. I see it all the times including with my brother and sisters which I’ve had heated arguments over the years in the past.

I’m one of those kids that graduated with over $100,000 in student loans (and keep in mind this was a while ago!). It’s actually not hard to do when you’re going to a top school or even a not top school that is private or if it’s a State school and you are paying out of state tuition. Add in room and board, books/supplies, just every day living stuff, fraternity/sorority, etc. Not hard to rack up over $25,000 a year or much more!

Fortunately upon graduating I found a great job and worked to climb up the corporate ladder. I made some pretty phenomenal income and my goal was just to pay off the student loans ASAP in as few years as possible.

All my friends found pretty decent jobs that paid well. Several of them also had student loans. But instead of trying to pay them off early they were buying a $50,000 car out of the gate, living in a super expensive apartment, traveling and just pretty much still living paycheck to paycheck when it is was all said and done. (Kind of how BG mentioned).

I kept the same car I had from college. I lived in a fairly mediocre (i.e. affordable) apartment for a few years, even though I was making amazing money and could afford more. But I know I was the exception not the norm.

It’s wicked the system of these student loans because lenders are lined up to just dole out TONS of student loans. Maybe things have changed today but back when I was going to school it was VERY easy to get student loans. You wanted more? No problem. Because they aren’t dischargeable in bankruptcy the lenders were practically throwing money at you.

And it was NOT just college loans. At the time, credit card companies weren’t barred from coming on campuses and they would pay students to try to get other students to sign up for credit cards. (I believe that is illegal in most states now). Well, I had a part time job at the time. I remember how crazy it was because I kept signing up for credit cards because at the time they were typically giving away some freebie. I think I graduated with something like $100,000 in available credit if I wanted to spend it. I always thought it was INSANE to give someone young with not much income that kind of available credit. I’m sure that doesn’t exist today thank God!

I’m sure today is probably different but I know people that are totally screwed and can’t buy a house and a good example. My best friend’s sister in law graduated from a no name private university (i.e. pretty crappy quality education but extremely pricey). She didn’t get a worthless degree. I believe she got a business degree and works in a bank now.

Nothing high level or anything. I believe she also got an MBA degree (at the same private expensive university). So here is a girl that is in her mid/late 20’s that has over $180,000 in student loans! Keep in mind she didn’t get some worthless Art History, Sociology, Anthopology, Fine Arts, Psychology, Communications, etc. She got a business degree with an MBA degree.

However, she didn’t study to become a doctor or lawyer or another profession where she can make really significant income. She lives in a small town in the Midwest where there are barely any jobs and struggled to get that job.

She has so many different student loans with so many different lenders. My best friend sat down with her and tried to make her understand which she needed to pay off first as some were higher interest. LOL.

I thought it was comical because she works at a bank! Seems like common sense to me. Some of these loans were VERY high which seems absurd for this extremely low/no interest environment that we are in.

And the real kicker and something telling is although she works at a bank, she could only get a VERY small portion of it refinanced at a lower rate. Some of the rates are shocking. Her own employer a bank, didn’t want to touch refinancing it. LOL. What does that say?

She makes ok money and her husband works a restaurant job. They probably won’t be able to buy a house any time in the near future. Not with $185,000 student loans.

Pretty ugly what the trends are with costs of some of these college and universities. I’m just wondering what college will cost in 12-15 years when my kids have to go off.

I don’t agree with BG’s point of “don’t get a college loan”. Not at all. I just think that you have to really take an intimate look at what field of study you will go into, the prospects for employment in that field, how much your education costs vs. typical salary levels in that field.

I’m a good example how college loans can and do work. Same thing with many of my close friends my age that also got lots of student loans (albeit in decent fields like law, medicine, accounting, engineering, etc). NONE of these people could have gone to college and became or achieved what they have in life without borrowing for college.

So the answer is NOT to say, “Don’t borrow for college”.

[bearishgurl]

[quote=earlyretirement]…I don’t agree with BG’s point of “don’t get a college loan”. Not at all. I just think that you have to really take an intimate look at what field of study you will go into, the prospects for employment in that field, how much your education costs vs. typical salary levels in that field….[/quote]

But ER, you have to admit that you didn’t attempt to drag your $100,000 (nondischargeable) debt into a marriage/relationship with your partner, have kids and attempt to get a mortgage to buy real property with them with this debt hanging over your head.

You took care of first things first … even if you had to work MANY hours to do so and only THEN progressed your life the way you wanted it.

Some students from modest means have the drive to retire their student loans expediently, before the lure of consumerism, pleasure and family responsibilities set in. But I believe these former students (who take care of business first) are in the distinct minority, ER. Congratulations. You are a member of that minority.

As it should be.

Note: a student loan follows ONLY the student-borrower until death. Whether taken out before or after a marriage, it is not a “joint debt” in any state that I am aware of. It is solely the former student’s own debt and will not show up on the credit report of a spouse or parent of the student unless they cosigned for it.

[The-Shoveler]

Just my two cents but the only things I have seen crazier than the 2004-6 bubble era home loans are the current student loans.
I have seen people come out of college with 100K debt to become cooks (well OK chefs) and hotel clerks.
Really hard for me to imagine people paying down these loans in those professions without some serious inflation at some point.

I would think this will have the most impact on birth-rates into the future IMO. (not sure about housing, I would think it would just mean they will build a little less).

[Essbee]

I agree with earlyretirement. I completed med school with about 65K in debt and paid that off within 4 years after graduating, despite having a salary of under $40K during most of that time.

I would have had a lot more debt, but both my undergraduate (Ivy League) institution and med school have FANTASTIC need-based financial aid. I could have attended a couple of the UCs for free (Regents Scholarship, etc), but I couldn’t turn down the opportunity to attend this my undergrad institution. It was definitely worth it. I believe that this opened the door to my medical school, and so on… No regrets here.

During college and med school, I was very used to living frugally, probably because of my upbringing. In the late 1990s, I paid about $300/month to live in a dorm during first year of med school with no car in a scary neighborhood with nary a grocery store within walking distance. A few students did this for all 4 years, but for me, this was TOO frugal! After that first year, I bought a used car and rented an apartment for about $450-500 per month in years 2-4, all with roommates. I could have had a one bedroom apartment for about $750, but that was out of budget. I took out as few loans as possible.

During residency (early 2000s), I started earning money (see below). I lived in West LA in a pretty crappy apartment and paid about $700 per month to live in a 2BR/2Ba with a roommate ($1400/month total rent). Other people I knew paid over $1000 per month for a 1 bedroom. These were the same people who had student loans of $150K and higher…

My salary during residency was $36K per year, and rose to about $40K per year by my 3rd year (2003-2004). I actually felt I could live comfortably at this salary. I accumulated some savings and made almost double payments on my student loans. I bought a new car (but it was a Honda Civic with no frills — not even power windows and doors). Then, I worked for 1 year between residency and fellowship, making about $110K, and paid off the balance of the my student loans within that year, and less than 4 years after graduating from med school.

Other people I talk to “defer” their loans during residency and/or fellowship. AFAIK, this defers the payments, but interest accumulates during this time.

My biggest regret is that I probably should have taken that extra loan payment money during residency and started investing in my retirement, rather than waiting until my early 30s to do so. My student loan interest rates were not that high, so it probably would have been a wiser decision.

But, all in all, I think that student loans can be a great tool for people to attend well-known or well-respsected institutions that they otherwise couldn’t afford. I do think it is ridiculous when people use them to attend for profit colleges, etc — the ones that advertise on TV. I’m not sure how valuable those degrees really are, especially relative to their cost.

[SD Realtor]

“This makes sense in an opposite universe. Not the one I live in.”

Clearly you need to watch more Seinfeld reruns.

[flyer]

I’m very glad to read the comments of others who feel the same as I do about young people pursuing dead-end degrees while racking up hundreds of thousands in debt.

We were fortunate enough to be able to take care of our own and our kid’s educational needs without incurring debt, but we made it very clear that they had to have viable career goals in mind.

I can’t tell you how many friends, family, neighbors, etc., I have talked to, who are in complete denial about their kid’s future–especially those who would like to see their children be able to continue to work and live in San Diego after graduating from college.

As we’ve discussed in other threads, at best, San Diego is a tough nut to crack when it comes to career level jobs, and will be almost impossible for new grads who have not majored in very specific fields.

I realize many will want, and will need to leave to find jobs, but I’m talking about those who would like to stay, and build lives here.

Personally, I have no idea of what people are thinking with regard to incurring excessive student loan debt, with no clear application in real life. It seems like they are on a train they can’t get off of, and they just don’t know how to stop it. Sadly, it won’t have a happy ending.

[earlyretirement]

So many great posts.

BG,

Maybe I misconstrued your words when you said, “DON’T BORROW FOR COLLEGE”.
I assumed you meant it in absolute terms, which as mentioned I don’t agree with.

Yes, I was responsible but so are millions of other students over the past few decades. So it wouldn’t be fair to lump everyone in the same category as it pertains to student loans.

To me, it’s akin to telling someone they should never get a mortgage just because many were using them irresponsibly.

The truth is, any type of credit needs to be used responsibly. Whether it’s a mortgage, credit card debt, car loans, personal loans, home equity loan, student loans, etc.

Student loans are so vital and necessary for many people out there. And it is important to note that many are using them perfectly responsibly. Many people are very conscious about their field of study, etc. Sure, many aren’t but I don’t think it would be safe to lump everyone in the same category.

I always like to use real life examples and also see people that I personally know and their situations. Most of my very close friends in life all got student loans. And some younger friends as well. Not too many of my friends had wealthy parents that saved up and paid for their college education.

There WERE a few where their parents saved up a bit of college funds but it wasn’t nearly enough for what it actually cost so they still had to get student loans.

Sure, there are financial aid packages out there or grants, work study, etc. I got a few of those but it still wasn’t nearly enough to pay for everything. It was just the sad reality. Sure, I probably shouldn’t have joined a fraternity and had that type of expense but I wouldn’t have changed things for a second and had a wonderful college life.

I’m not sure if there are any studies or formal statistics to say what the actual percentages are of total number of people that get student loans and default on them or can’t quality to purchase a home due to it.

But I feel very comfortable in saying that people like me, the responsible ones that pay it back and are more responsible aren’t in the minority. I have plenty of friends that did the same thing.

My best friend and lawyer went to Harvard. His family was very poor. He did quality for some financial aid but he still had massive student loans. Then he had to put himself through law school with yet more loans. He was like me and paid them all back on an accelerated schedule.

All my old college buddies that did get student loans. I don’t know a single one that defaulted on their loans. I believe some did defer some when times were tough but the truth is they would have never gotten to where they are now without student loans.

So I AM a big proponent for student loans and using them intelligently and responsibly. But I actually truly believe that the vast majority of kids use them responsibly.

I absolute agree with the others it’s pure stupidity for some of these people out there to go into horrible majors. And I also think it’s highly questionable for older people to go back to school (if it’s expensive) later in life.

A woman that I knew that used to work for my company was making GREAT money for her position. She was an executive assistant and making darn good money (around $75,000) and keep in mind this was the late 1990’s so $75,000 was more back then. I can’t remember how old exactly she was but I’d say 50ish.

My company was really generous and took good care of people that stayed with the company and were loyal. So she would have kept getting raises and we gave bonuses too. Well, one day she says she is quitting as she is just not content with her career. I was really puzzled because she was already in her 50’s. I can’t even remember what she was studying but I believe it was law.

Well, by the time she finished no one would hire her. So it was money down the drain.

There are plenty of examples on both sides of the issue but definitely student loans are very important when used responsibly and intelligently, IMHO.

Sure, it does make sense to go to community college or other State schools, etc. But in life in many fields it DOES matter where you went to school or at least you will have a big leg up vs. other peers with the same degree from worthless schools. It’s sad but just life.

[bearishgurl]

Well, ER, the people I’m referring to that aren’t paying on their student loans or aren’t paying on them regularly are students who graduated in the last few years … some of my kid’s college classmates and kids of neighbors and a friend. Also, the “professionals” I referred to back in the early nineties were newly-minted attorneys who chose to work in govm’t service, which at that time started them at just short of $39K annually! As I recall, there were several of them over 40 with 12 or more years experience and who had gotten promoted one or more times but were STILL complaining of the strong-arm tactics that were used against them when their student loans were in default. They didn’t get paid for “billable hours” or “client referrals to the firm” as private attorneys did. They just got paid a set salary for however long it took to do the job. Being a worker (working just as hard, I thought) who was making half or less as much as they did, I just had a hard time understanding whey they couldn’t retire their student loan(s) and why they still had them 15 or more years later with a spouse and children when they came to us single, fresh from their bar exam results.

I suppose there are people who DO pay them off in a timely manner but I don’t know any. Everyone I ever knew who has them have taken one or more deferrals and is paying only the minimum monthly payments on them.

In addition, I’ve looked at various online blogs and message boards where student-loan debtors post where 90% of the posters are crying wolf, stating they were “scammed” by their school and so they shouldn’t have to pay or they should be “excused” from paying their loans back. Some of them who already graduated are saying they are a “special case” because they can’t work in their field now because they or their parent / grandparent / spouse / kid is now ill and they have to take care of them. Therefore, their student loans should be forgiven. (Does this mean their degree should be revoked also? How can they officially lose the knowledge they gained from their degree program?) A majority of the posters on these boards are over 45 and a majority of them went to for-profit schools and colleges on student loans, mostly on the internet (meaning they never set foot in a classroom). Often, the colleges they “attended” were hundreds or thousand(s) of miles away from their homes. I completely agree with ER that it is foolish to take out a student loan to undergo an occupational or degree program at the age of 45 or older. Unless the older student already has ironclad connections to get a job in a field or their employer is paying for them to get a particular degree to promote them into a particular position, these older students have no guarantee that they will ever be hired in their degree field or in any job at all if they are currently unemployed.

Also, I think some (not all) of the 12-month trade schools (for both young and older students) are a scam, such as programs to learn dental hygienist, computer networking, medical billing, etc. Some of these schools prey on HS grads from low-income families and load them up on loans during enrollment where they make big promises of eventual job placement. These schools often get the (unsophisticated) parents to cosign on their kid’s student loans so they will have 2-3 people on the hook to pay it back. By the time the student finishes the program, they have had little “real” on-the-job training and receive no placement assistance from the school except a suggestion to go to the EDD (unemployment office) to search open positions or are handed a list of medical offices to call to see if they have any openings. Some of these schools in SD have taken students’ student loan money and shut their doors either before the first class meeting or midway through the program.

Case in point: the well-known Kelsey Jenney College in dtn SD, who filed for BK in 2002 and left several classes of business students stranded three months before “graduation.”

If it weren’t for student loans literally falling from trees, these “internet diploma mills” and local “trade schools” with a less-than-stellar local reputation would be out of business.

[Author]

Posts