NFT: The student loan mess

burst soon enough

are the interest rates on some of the loans. Mine was around 9% which is obscene. But I understood what I was getting into and paid it off after a LONG time.

are particularly competent stewards of their own finances, and whether it is our best interest to subsidize four or more years of "experience" as opposed to four or less years of education. But at the end of the day, we have a system that skews incentives, that makes money for everyone concerned (the banks and certainly the schools) and then leaves the kids to foot the bill under the assumption that they will have the financial means to do so.

.....

think it's a fair situation to have 18 year olds, and 22 year olds (grad school) sign on for debt that can't be discharged in bankruptcy and will stick with them for decades, regardless of whether they have an ability to pay the loan. It's ridiculous that we give bankruptcy protection to basically everyone except student loan debtors.

Personally, I think the solution is two fold. (1) Cap payments to 15% of post-tax income for all federally guaranteed loans (public and private). (2) For loans to be issued in the future, put the risk of default on the schools themselves. Right now, there's no incentive for schools to keep costs down since all of their students have easy access to federally guaranteed loans. The system is out of control. Also, it'd be nice to be able to deduct student loan interest from taxable income.

I don't know how feasible it is, but the schools and local employers (or any employers) could be able to work out a deal with students like a 401k except they'll match your minimum payment (or some % of it) each month to your student loan (instead of contributing to your 401k) as long as you agree to work a minimum # of years or something.

endowments and help pay off the loans. This whole thing is a total sham. I do feel for the kids, but who knowing spends 150K+ for a bachelors degree. It's insane.

they are getting. Someone getting a BS in Electrical Engineering (starting salary ~$64k) is going to be a lot more likely to pay off their debt then someone taking out loans to study music (starting salary $35k).


starting pay - ( New Window )

the interest WAS tax-deductible. Half-way through school, Congress and Reagan eliminated the tax deductibility. Taking out student loans was a requirement of eligibility for financial aid at my college (U Penn).

There was no opportunity to reduce the interest rate once interest rates went down and stayed down, so what started as 4% below the insane interest rates if the late 70s and 80s, ended up being a huge windfall for the banks holding my loans.

I completely paid off the variable-rate PLUS loans I took out for law school, but the gawddamn GSLs have been the monkey on my back, with interest turned to principal in the bad economic times, after I got laid off from my fabulous Wall Street firm.

The schools definitely inflated costs, including tuition, because they knew they had this fire hose of money coming in from loans. There has been zero institutional accountability, and I graduated law school with less than half the debt burden that kids are graduating with now.

system is messed up. As Metnut mentioned, there must be a risk of default somewhere. I am just not sure who should bear that burden.

give the schools some skin in the game, perhaps a 10% responsibility for guaranteed student loans. Also tying rates to grades and the degree program pursued could help encourage good decisionmaking.

You should understand that the main driver for huge increase in tuitions has been the addition of hundreds of non faculty positions on most every campus in America to the point where non faculty and faculty position are near equal in numbers.

like the idea of putting the risk on everyone involved like the schools, the banks and the student. That way, everyone thinks about it when the loan is provided. But at the same time, there will still be good accessibility to loans for those who need.

In comment 12154360 Metnut said:

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Also, it'd be nice to be able to deduct student loan interest from taxable income.

You can, up to $2500.

I like having world class facilities, services and accommodations when I hit up my alma mater.

where these young people are going to have to know exactly what they want before they go to school.

I was lucky. I paid off all my loans (in the Reagan era) because I was able to find some high paying work and I am a freak about not having debt. My son is on a full ride so we are just paying for room and board. He will leave his educational experience with a clean slate,

But so many of his HS classmates are going to schools around the country and they are racking up debt like they were buying a home. I feel for those kids. Because when they graduate, they better be locked and loaded. That's a scary thought...to be 22 and owe $200,000. That is just not sustainable

In comment 12154438 BillT said:

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You should understand that the main driver for huge increase in tuitions has been the addition of hundreds of non faculty positions on most every campus in America to the point where non faculty and faculty position are near equal in numbers.

What is the reason for this trend?

then racking up debt to figure it out while in college probably isn't the best idea. Take a break for a couple years and get some internships in fields you might be interested in. Go to a college that you can afford sans loans or a community college.

each university is trying to create the "optimal" life/college experience. Technology like you wouldn't believe. Dorms that are better than apartments. Extensive eating arrangements. Campus cultural life. Course diversity. Funding sports. It's impressive but it costs money.

if there were some sort of crisis where the masses couldn't repay their loans, the lenders would get some sort of federal bailout and the people who couldn't repay their current loan would get refinanced into some sort of super long term low interest loan.

for decades. Do Colleges and Universities exist for the benefit of students or for the faculty and administration to have jobs?

having worked around it for the past 10 years. There are many bad apples in the bunch with a few excellent exceptions. The market took a particular hit when a school called "Decker College" started by the ex-governor of Massachusetts William Weld (interesting that MA is now suing Corinthian, right?) and his cronies were essentially "selling loans" in places like bus stations. They were tapping into Federal Title IV funding with no ability to train or educate students in their given fields.

In essence, they set out to be a diploma factory - but what they became was much, much worse. They preyed upon the poor, disenfranchised citizens who felt that "going to college" would change their lives. What they ended up with was no diploma, no training, and tens of thousands of dollars of debt which was eventually bad debted. Decker ended up defaulting on $20 Million from my company.

So flash forward to the last few years and the government has made an effort to implement Gainful Employment Legislation. Basically, a checks and balances system designed to ensure that students are being employed in their field of study after graduation and that their income-to-debt ratio is in line with federal guidelines. In other words, the governement created GEL to decrease defaults on payments by students.

I'm extemely leery doing business with some of these "colleges" and after a decade of experience i'm finally able to differentiate the schools that are keenly interested in training and education and others whose sole purpose is to turn a profit at all costs.

It's a shady, ugly deal - but what choice do many people have - particularly inner-city or rural folks who are working full time during the day and needing to go to school at night. Promises of employment, placement rates, etc are all issues that Admissions folks at these schools talk about - sometimes illegally.

i took out loans for a private top 50 school, around 80,000 and in 3 1/2 years it has inflated to 112,000. It just isn't sustainable. They want almost a $1000 in interest a month which is ridiculous. I understand I took out the loan but as a 17 year old kid I had no grasp of the financial impact it would have on me. It is the interest that is the real killer, if it was just a set amount with a 10 or 20 percent fee on top it would be fine, but with the 8.6% interest it is constant pressure and you make no lee way towards the principal. I really hope the government does something to fix this mess, if they can bail out banks they should be able to bail out 17 year old kids who didn't know what they were getting in to.

opportunity to attend college is a powerful, and important, social tool.

Unfortunately, as they are marginal, on average they are likelier to be underwater on their loans, leading to a significant risk of default.

One option is to provide low-cost, state-financed schools that cater mainly to these students, and less so to students outside the area.

A number of the lesser ranked state schools across the country have changed to this mission, which is helping to provide the low-cost educational experience.

When my daughter was looking at colleges in 2007, every campus we went to was in the midst of a dormitory building boom. Each new room brings in $40K per year in tuition, multiplied by 2 to 4 students per room -- you can see why there was such a frenzy to increase enrollment.

Then there's this myth about Financial Aid. The family has to be living in a box under an overpass to qualify for any real Aid. The Interest Rates on the unsubsidized student loans is up there in Shylock territory. You could get better terms from Vinny Boombatz on the street corner.

I thank the Good Lord that I was able to pay for her 4 years without her signing her life away.

sense to me. It gives "marginal" students a chance to see if a 4 year school is in their best interests. Having a free Associates Degree has to cost us less than a kid that shouldn't be in college taking out 50k in loans before he/she realizes it's not for them and we get stuck with their debt when they invariably default

lost in all of this is the myth that every kid's goal should be to go to college. College ends up being the end game.

Meanwhile, 65% of the jobs in this country require a 2-year degree or advanced apprenticeship-type training.

20% of the jobs available require a 4-year degree. That number has not changed since 1950.

If you've had the chance to read the Harvard paper "Pathways to Prosperity" - i suggest you do so. We are doing our young people a huge disservice by pushing postsecondary education at all costs.

What ends up happening is you have 39% of graduating college students in the "mal-employed" sector - meaning they are working outside their field of study and most likely still living at home with their parents because they cannot afford the alternative. On top of that, once they do enter the workplace, they start at a lower wage scale making it more difficult to buy property, get married, etc - i.e. the things that contribute to one's net worth, status as a tax payer and contributor to our ecomomy.

These days kids (bolstered by their parents and ill-imformed guidance counselors who are judged by college placement rates) don't want to work with their hands - it's somehow beneath them. Meanwhile, i know pipe welders making $150K a year, superintendents making $100K (with a company truck) and crane operators earning up to $125/hour!

Just now we're starting to hear about "efficacy" - bullshit. It's always been there, but educational institutions refused to recognize it until they were called out.

We as a society (and not to get overly political - but the government too) focus on advanced education solely for it's own sake rather than the entrepreneurial spirit that once made this country great.

Now - all that said - you've got some great things happening like in Tennesse where they're instituting the "Tennessee Promise" - offering free tuition to any of the two-year or techincal colleges in the Tennessee Colleges of Applied Technology network for any graduating HS senior starting this year. We need more initiatives like this.

In comment 12154460 WhoCares said:

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In comment 12154438 BillT said: Quote: You should understand that the main driver for huge increase in tuitions has been the addition of hundreds of non faculty positions on most every campus in America to the point where non faculty and faculty position are near equal in numbers. What is the reason for this trend?

It's a terrible problem. Essentially there is more and more "administration" every year. I'd also add that there are a lot of professors who barely teach. One class a semester, and often not even that.

The problem is oversight. There is a lot of inmate-running-the-asylum going on and preaching about academic freedom. So long as the schools are solvent (too high tuitions from families that dont know better and are told college = success) and are growing their endowments (donations from alums who do not evaluate the performance of the school beyond academic reputation and athletics), there is nothing to check the out of control spending and misallocation of funds. Trustees are an ineffective check -- most of them just like the prestige of being a college/univ. trustee.

that gives a world class education to a kid from India or China and we kick them out of the country after an 18 month OPT visa to take that world class education back to their native countries and the US gets 0 benefit and home country gets 100 percent benefit

In comment 12154522 Headhunter said:

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that gives a world class education to a kid from India or China and we kick them out of the country after an 18 month OPT visa to take that world class education back to their native countries and the US gets 0 benefit and home country gets 100 percent benefit

You're just upset because many clients won't pay for their H1B visas!

The number of H-1b's are so out of whack with the demand

isn't it reasonable to expect them to do their homework?

I agree that some of the inner workings of the loan system should be regulated to insure that 1 dollar of debt doesn't turn into 100 dollars of debt. But you should know before you sign on the dotted line how much you're going to owe, and how much your profession is realistically going to make, and how likely the school you're going to is going to gain you entry into that profession. Going to college is a serious event. it's not too much to ask the student to do his homework. If he doesn't, why should he get a bail out?

Way back in the day, before they changed the bankruptcy laws, there were a lot of students willingly defaulting and declaring bankruptcy just to get rid of the debt. There should be some middle ground.

Contrary to popular belief, it is possible to get an education without getting saddled with unwieldy debt for half your life. It just isn't as much fun as going away to party, and not work for 4 years.

In comment 12154525 Headhunter said:

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The number of H-1b's are so out of whack with the demand

When i was a headhunter back during the .com boom the number of Java programmers was way down and it seemed like the only ones available needed sponsorship. If we could find a citizen with server-side programming skills it was like hitting the jackpot. Instant offers, bidding wars, and many times no interview needed. Crazy times.

Java, web, mobile, full stack, front end developer and I will place him quicker than it took me to type this. They are like hen's teeth

In comment 12154506 B in ALB said:

Quote:

lost in all of this is the myth that every kid's goal should be to go to college. College ends up being the end game. Meanwhile, 65% of the jobs in this country require a 2-year degree or advanced apprenticeship-type training. 20% of the jobs available require a 4-year degree. That number has not changed since 1950. If you've had the chance to read the Harvard paper "Pathways to Prosperity" - i suggest you do so. We are doing our young people a huge disservice by pushing postsecondary education at all costs. What ends up happening is you have 39% of graduating college students in the "mal-employed" sector - meaning they are working outside their field of study and most likely still living at home with their parents because they cannot afford the alternative. On top of that, once they do enter the workplace, they start at a lower wage scale making it more difficult to buy property, get married, etc - i.e. the things that contribute to one's net worth, status as a tax payer and contributor to our ecomomy. These days kids (bolstered by their parents and ill-imformed guidance counselors who are judged by college placement rates) don't want to work with their hands - it's somehow beneath them. Meanwhile, i know pipe welders making $150K a year, superintendents making $100K (with a company truck) and crane operators earning up to $125/hour! Just now we're starting to hear about "efficacy" - bullshit. It's always been there, but educational institutions refused to recognize it until they were called out. We as a society (and not to get overly political - but the government too) focus on advanced education solely for it's own sake rather than the entrepreneurial spirit that once made this country great. Now - all that said - you've got some great things happening like in Tennesse where they're instituting the "Tennessee Promise" - offering free tuition to any of the two-year or techincal colleges in the Tennessee Colleges of Applied Technology network for any graduating HS senior starting this year. We need more initiatives like this.

We've also done a major disservice to young people by attaching such a negative connotation to the GED. What an advantageous tool we should use be using for kids ready to move onto whatever their interests may be.

Great post all around and couldn't agree more B

the two most important things to securing a future if you want to work.

In comment 12154443 Gman11 said:

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In comment 12154360 Metnut said: Quote: Also, it'd be nice to be able to deduct student loan interest from taxable income. You can, up to $2500.

If you gross over 75k (which I did, barely), you lose that ability, FYI

In comment 12154417 schnitzie said:

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the interest WAS tax-deductible. Half-way through school, Congress and Reagan eliminated the tax deductibility. Taking out student loans was a requirement of eligibility for financial aid at my college (U Penn). There was no opportunity to reduce the interest rate once interest rates went down and stayed down, so what started as 4% below the insane interest rates if the late 70s and 80s, ended up being a huge windfall for the banks holding my loans. I completely paid off the variable-rate PLUS loans I took out for law school, but the gawddamn GSLs have been the monkey on my back, with interest turned to principal in the bad economic times, after I got laid off from my fabulous Wall Street firm. The schools definitely inflated costs, including tuition, because they knew they had this fire hose of money coming in from loans. There has been zero institutional accountability, and I graduated law school with less than half the debt burden that kids are graduating with now.

1. The rules regarding student loan debt were changed for tax years beginning after 1986. At the same time the tax rates were significantly reduced. That was the trade off. And actually, for folks in the 25-50k income bracket rates are probably still lower even with an inflation adjustment.

2. Digging into endowments would only work for 70-100 colleges/universities. And, in fact, Chuck Grassley circa 2005 held hearings with respect to extending the private foundation rules about use of endowments (minimum of 5% of the endowment calculated each year must be spent on operations or else a penalty tax is assessed) to schools. The Ivies, Stanford and Duke suddenly found religion and really jacked up financial aid in order to avoid the statutory requirement. Then 2008 hit, endowments got clobbered and the issue was tabled. It might be worth reviving at this point.

There should be a certain amount of debit forgiveness. I'm of the opinion that if students maintain grades, States should waive the tuition of state colleges.

Students that choose private schools, should be able to offset some of that at the rate their school piers receive.

We all should want the USA to excel at all professions and aim high- be second to none. I don't mind taxing the very wealthy to fund this either. This country's laws helped them achieve their wealth, there's nothing wrong with giving back so the system gets better and better.

As a side note- California does or did allow residents (2 year proof of residency) free tuition to state schools there.

and know how to achieve it. They can use the college experience successfully as a stepping stone. They find careers right away. It's irritating to hear people talk about java programmers etc because not every young person is cut out to be that way.

The real issue is with the middle ground students, whose parents desperately want their kids to be college educated, because they believe it's the only way to carve out a life in America. They are the kids who get saddled with huge debt.

Its the American Dream. Or at least it used to be. For a lot of families it means some incredible sacrifice just so their kid could have something they didn't have.

People I work with went to Georgetown, Vanderbilt, Wisconsin, Brown, etc, etc. Education is what you make of it for the most part. With the exception of maybe 15-20 elite educational colleges I'm not sure why people pay so much to go to these "name" colleges.

Did.

The kids need to have some skin in the game. Make it an interest free loan. Community college does not cost a lot to begin with so it is not like they will be saddled with tens of thousands of dollars to pay off.

Too many kids today just do not take school seriously. If they are on the hook for some of this debt (even interest free), then they may actually study.

The tax payers would end up funding tuition for kids that do not even show up for class.

This is the land of the free...not the land where things are free.

no kid should have more than 100k in loans. That's insane.
The interest rates are ridiculous as well. These need to have a cap as well. Finance institutions are making all the money and then they cry when kids default and the government will end up paying them off. Stupid.

In comment 12154356 Dunedin81 said:

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are particularly competent stewards of their own finances, and whether it is our best interest to subsidize four or more years of "experience" as opposed to four or less years of education. But at the end of the day, we have a system that skews incentives, that makes money for everyone concerned (the banks and certainly the schools) and then leaves the kids to foot the bill under the assumption that they will have the financial means to do so.

^^This^^

And just let me add, it pisses me off, for whatever the hell that is worth (not much)

In comment 12154392 buford said:

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endowments and help pay off the loans. This whole thing is a total sham. I do feel for the kids, but who knowing spends 150K+ for a bachelors degree. It's insane.

^^This too^^

In comment 12154581 EricJ said:

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The kids need to have some skin in the game. Make it an interest free loan. Community college does not cost a lot to begin with so it is not like they will be saddled with tens of thousands of dollars to pay off. Too many kids today just do not take school seriously. If they are on the hook for some of this debt (even interest free), then they may actually study. The tax payers would end up funding tuition for kids that do not even show up for class. This is the land of the free...not the land where things are free.

You're making a very dangerous - and frankly ignorant - assumption that kids who otherwise may not see the possibility of going to college or a technical school would somehow go through the process of taking advantage of programs like Tennessee Promise only to squander the opportunity.

You generalize an entire constituency of student that is now given a chance to shine.

It's not just about the colleges. It's about employers coming in and letting both students and administrators know EXACTLY what they are looking for and EXACTLY what graduating/certified students can hope to earn and accomplish.

This is where programs like TP are ahead of the curve - they're engaging their enrollment base (HS students), while securing placement opportunities by including industry/employers. Both of those work hand-in-hand to RETAIN the student in the program. It's the proverbial "light at the end of the tunnel."

This is something that higher education and the traditional environments have completely missed the boat on and not bothered to implement.

In comment 12154595 B in ALB said:

Quote:

In comment 12154581 EricJ said: Quote: The kids need to have some skin in the game. Make it an interest free loan. Community college does not cost a lot to begin with so it is not like they will be saddled with tens of thousands of dollars to pay off. Too many kids today just do not take school seriously. If they are on the hook for some of this debt (even interest free), then they may actually study. The tax payers would end up funding tuition for kids that do not even show up for class. This is the land of the free...not the land where things are free. You're making a very dangerous - and frankly ignorant - assumption that kids who otherwise may not see the possibility of going to college or a technical school would somehow go through the process of taking advantage of programs like Tennessee Promise only to squander the opportunity. You generalize an entire constituency of student that is now given a chance to shine. It's not just about the colleges. It's about employers coming in and letting both students and administrators know EXACTLY what they are looking for and EXACTLY what graduating/certified students can hope to earn and accomplish. This is where programs like TP are ahead of the curve - they're engaging their enrollment base (HS students), while securing placement opportunities by including industry/employers. Both of those work hand-in-hand to RETAIN the student in the program. It's the proverbial "light at the end of the tunnel." This is something that higher education and the traditional environments have completely missed the boat on and not bothered to implement.

Keep in mind that my comments were SOLELY in response to the idea of providing free tuition for COMMUNITY COLLEGE where the tuition is extremely low. So, we are talking about just a couple/few thousand total. Why should it be absolutely free? Why cant we just provide the financing for free?

Yes, I was making a general statement and I think most people can read what I wrote and understand that I do not think that ALL kids would squander this opportunity if provided for free. However, a significant number would. Plus, we should not have to fund it all with tax payer dollars.

In general, I also agree with most of the statements above regarding student loans in general. It is a scam. Rates are far too high. Tuition itself is too high and quite honestly not worth it. Go to a state school and you will have the same opportunity as the kids who went to an expensive school out of state. Meanwhile, something needs to be done about the costs.

Even the book costs are a scam. No way a book should cost over $100

has plenty of checks and balances - basically steps - to securing the tuition. This includes meetings with the college, the Promise application, the school application, FAFSA filing, and Community Service.

These programs are last-dollar initiatives meant to provide tuition after Pell, HOPE and TSAA are exhausted.

For a student to go thru all of that only to drop out would be a complete shame. So your "significant number" statement is a bit absurd.

I found this website which lists the tuition in various European countries.
Link - ( New Window )