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Student Loan Spinoff - Increasing student debt
Posted on 1/14/15 at 10:39 am
Posted on 1/14/15 at 10:39 am
Mark Cuban recently said what others have been saying for a while, we are building a student loan bubble.
Kids are coming out of college with $100K+ student debt. Instead of creating value, we are creating indentured servitude. Grown adults are living with parents because they are so indebted. They have much less expendable income and no savings, and therefore it's hurting the economy as a whole.
Let's assume these things are true, and we do have a massive debt bubble.
My question is this...since student loans are nearly impossible to discharge in bankruptcy, how does this end? Can the bubble even burst? The loans can't really default, right? They just accrue more interest and become a life long obligation for some.
Kids are coming out of college with $100K+ student debt. Instead of creating value, we are creating indentured servitude. Grown adults are living with parents because they are so indebted. They have much less expendable income and no savings, and therefore it's hurting the economy as a whole.
Let's assume these things are true, and we do have a massive debt bubble.
My question is this...since student loans are nearly impossible to discharge in bankruptcy, how does this end? Can the bubble even burst? The loans can't really default, right? They just accrue more interest and become a life long obligation for some.
3
Posted on 1/14/15 at 10:42 am to juice4lsu
See the separate thread on loan forgiveness...too many people shouldering large loan burdens don't understand that certain kinds of employment qualify them for loan forgiveness. Basically, working in government, for a nonprofit (any kind, regardless of mission, like a university, school, hospital, etc), teaching, etc. Insufficient publicity has been given to these repayment reduction and loan forgiveness programs.
Posted on 1/14/15 at 10:49 am to hungryone
quote:
Insufficient publicity has been given to these repayment reduction and loan forgiveness programs.
I agree 100%. But these relatively small programs compared to the amount of outstanding debt in my opinion won't solve the problem in the long run. Tuition will continue to increase and students will continue to be sold a bill of goods in regard to career and out of college expectations in this job market.
Most colleges try to tell you that because you have a degree you can make $60K-$70K with benefits right out of college. They tell you this because it is good for business, but it is a lie.
Posted on 1/14/15 at 10:56 am to juice4lsu
We had a good thread about this topic a few weeks ago. But that one was more based on the effect on schools.
I don't know if you will ever see a "burst" of a student loan bubble, because like you said, they are so hard to get rid of. You will see a drag effect on other sectors of the economy, and this is happening already. Household formation is starting later, less disposable income, etc.
Where you might see a "burst" is in the schools themselves, if at some point, a limit is placed on borrowing.
I don't know if you will ever see a "burst" of a student loan bubble, because like you said, they are so hard to get rid of. You will see a drag effect on other sectors of the economy, and this is happening already. Household formation is starting later, less disposable income, etc.
Where you might see a "burst" is in the schools themselves, if at some point, a limit is placed on borrowing.
Posted on 1/14/15 at 11:00 am to juice4lsu
quote:
Most colleges try to tell you that because you have a degree you can make $60K-$70K with benefits right out of college. They tell you this because it is good for business, but it is a lie.
At the university where I work, we try to be realistic. I would disagree that "most colleges" are telling students they are making $60-70k right out of college. Society is telling them that.
For example, I counseled a student that was a graphic design major. She was convinced that she was going to make at least $60k out of college, because some website said so. When I showed her the real data that said entry-level graphic designers make around $35k, she literally got defensive. To this day, she blames the university for "not adequately preparing her."
There is still a large segment of the population who either think college = getting paid, or they had responsible parents that were college educated and got their careers on track before having kids, so they never saw the "getting on track" part - they just saw the $500k house as a 6 year old. These kids believe a college degree entitles them to the same lifestyle their parents have.
Lots of narcissism in this current crop of college kids doesn't help matters.
Posted on 1/14/15 at 11:08 am to anc
I'll add that I hate seeing kids take on a ton of debt for a useless degree. There are limits set, but there are loopholes. For example, a student can only borrow $19,500 in their first three years of college. However, they can declare independence their fourth (and fifth year) and borrow basically unlimitedly.
Declaring independence is simply not being able to be counted as a dependent by your parents. You'd be surprised at the number of students who borrow responsibly their first couple years, learn this loophole, and quadruple their debt in 18 months.
I wish we could close that loophole for one thing. I would also like to see a component of career counseling put in for freshmen that uses real world data instead of outlier extremes. Yes, that guy got a general business degree and makes $100 million a year - because he started a booming tech company, not because of his degree.
Declaring independence is simply not being able to be counted as a dependent by your parents. You'd be surprised at the number of students who borrow responsibly their first couple years, learn this loophole, and quadruple their debt in 18 months.
I wish we could close that loophole for one thing. I would also like to see a component of career counseling put in for freshmen that uses real world data instead of outlier extremes. Yes, that guy got a general business degree and makes $100 million a year - because he started a booming tech company, not because of his degree.
Posted on 1/14/15 at 11:11 am to anc
quote:
Lots of narcissism in this current crop of college kids doesn't help matters.
Also very true. The participation trophy children are finding that the real world isn't sunshine and rainbows.
And you are right, there are good informed people in the industry who give realistic outlooks to students. But you still didn't really answer my question and as someone in the industry I would like your opinion. What do you believe is the solution? Will the public wise up and enrollments go down? The federal money isn't going away any time soon.
ETA: Nevermind ANC. Thanks for the opinion on closing the loopholes. I wondered how students were able to basically borrow unlimited amounts.
This post was edited on 1/14/15 at 11:18 am
Posted on 1/14/15 at 11:14 am to LSUFanHouston
quote:
Where you might see a "burst" is in the schools themselves, if at some point, a limit is placed on borrowing
I think we might also see a lot of parents dissuading their kids from going right to college after high school. My wife and I have started talking about that, especially if we feel they're not ready for college or don't have a definitive plan on studies/career. Even with a 529 for both of them with a fair amount in them, I full anticipate them both having to take loans out to make it work financially.
The most likely sector to be impacted though is the housing market. The younger generation is already showing an interest in moving back towards city centers and revitalizing blighted areas of large cities. Many are content to just rent a space close to all the action rather than buying a starter home in the suburbs.
Posted on 1/14/15 at 11:19 am to juice4lsu
quote:
For example, I counseled a student that was a graphic design major. She was convinced that she was going to make at least $60k out of college, because some website said so. When I showed her the real data that said entry-level graphic designers make around $35k, she literally got defensive. To this day, she blames the university for "not adequately preparing her."
This times 1000X. I'm in the higher ed field as well, and see students every day who fundamentally misunderstand the point of a college education. It is NOT job training (despite the legions of b-school faculty & alums who try to turn it into such), it is EDUCATION. Coursework should expose you to the breadth and diversity of human thought, should teach you to be critically analytical and thorough....you should be able to sift truth from fiction, to see an argument from many different perspectives. You enroll for an education...not to get a job.
If you want a well paying job, go to trade school. My plumber earns more money than I do, as does a good finish carpenter.
If you want to develop your mind, then apply said developed mind to make your way in the world, go to college.
Posted on 1/14/15 at 11:25 am to juice4lsu
quote:
But you still didn't really answer my question and as someone in the industry I would like your opinion. What do you believe is the solution? Will the public wise up and enrollments go down? The federal money isn't going away any time soon.
We are preparing for a downtick in enrollment. Not every school is doing so. Regional publics like Southeastern, UNO, McNeese are going to struggle, as well as most HBCUs. I don't think it will be massive, but you will see some campus consolidation if not outright closure of these schools.
Flagship universities will notice a downtick as well, but its easier to stop building $40 million dorms and $30 million football office buildings than to worry about how you are going to make payroll.
Obama and the "free" community college promise isa trow away issue. Find me someone who actually paid tuition for community college and I will find you a sucker. They give full scholarships to any recent high school grad that attends, and anyone making minimum wage that wants to better their lives by going to community college can get full Pell grants.
But it is a perception issue. The attention that will be given to those words will result in an uptick of community college enrollment among adult learners. The average age of a community college student is 28. I expect it to be 30 or older by 2020.
What I would like to see as a solution (I doubt it happens on a widespread level) is these new community college students going into a trade program rather than an academic program. Its better for the student, and better for society. Jennifer spread her legs through high school, got her GED and works at McDonalds for 10 years. She's not ready for College Algebra or a Nursing program. But she could probably handle a Cosmetology workload, and if she works hard, she can make good money.
Same thing with Marcus. He played football in high school and didn't care about academics. Lets put him in Biology 101 and a pre-med academic program. No, let him learn a skill, like plumbing, and he can charge suckers like me $125/hour.
And guess what, Jennifer and Marcus have good paying career opportunities after two years - and should have zero debt. Now, we're putting Jennifer and Marcus in academic programs, or worse yet, at for-profit schools that don't teach anything. They "graduate" from University of Phoenix in four years and still can't do the basic math they need to do to calculate their payment on $100k in student loans.
Bottom line, we have to get away from the thought that college is the ticket to solve all of your problems. And as college administrators, we have to serve the student instead of the building contractors or the football coach.
This post was edited on 1/14/15 at 11:38 am
Posted on 1/14/15 at 2:37 pm to anc
quote:
Bottom line, we have to get away from the thought that college is the ticket to solve all of your problems
And when all these kids go to trade school and trades are overloaded similar to alternative teaching certification programs, what then?
I get that trades should be developed more and more. Some majors in college should be job training IMO. Engineering, accounting, etc.
For the HS student who grew up poor and wants to be an accountant, what can he do other than take on debt?
If he goes to work and saves up enough money (near fricking impossible with tuition rates these days) unless he puts his entire life on hold and has no wife, no gf, no kids, no family) he can go back to school at 30 and become an accountant. Soudns good, right?
Except that the 22 year old recent accounting graduate got to go to college straight out of HS, start with a Big 4 firm, and get his CPA by 25-26 years old.
That's the kids he'll be competing with to get a job. Who would you hire? The 34-35 year old just starting out or the 26 year old with Big 4 experience and his CPA? The Big 4 certainly isn't hiring an old frick with a family over a young kid they can work into the ground.
I'm not a socialist, but there is an inherent issue of no middle class anymore. I'm not an economist, so I can't begin to explain why, but the rich only getting the opportunities (for the most part) is a huge issue that everyone is ignoring and the libs think the answer is to just give the poor money, which breeds an even worse attitude of entitlement.
I've got a gen. biz degree. I fricked up. I was young, first in my family to go to college and I was told to go to law school. Well, I saw the fricking price tags at law school when it was too late and bailed out and went into the business world. Now, I've done well for myself, but if my company lays me off, it'll be hard to find another job in a tight economy. I've got loans, my wife has got loans. If I lose my job, what then? The system of tuition being ridiculously high is a contributing factor.
This post was edited on 1/14/15 at 2:39 pm
Posted on 1/14/15 at 2:43 pm to lsusteltz16
I know you're just using an example, but perhaps the accounting one wasn't the best one to use. A mid-30's accounting grad can do very well for himself without going the Big 4 route. Lot of small and/or mid-size firms would gladly hire him and in 3-5 years he's just as marketable as the mid-20's guy that went Big 4. Sure, there are some companies that only look for CPA's from the Big 4, but there are plenty that look for the best candidate for their needs, and ignore the pedigree of the candidates.
But I did get your overall point.
But I did get your overall point.
Posted on 1/14/15 at 3:48 pm to The Spleen
Another factor feeding into loans: today's average traditional age college student has a far higher standard of living than back in my day (20 years ago). We didn't have computers, cell phones, or cars (yes, we actually rode bikes around Baton Rouge, how quaint). I lived in a dorm w/no AC to save money.
In some cases, escalation of college debt is not really about tuition: it is about the material goods & lifestyle some students perceive is their entitlement. Economic sacrifice is a completely foreign idea to many middle/lower middle class students today.
In some cases, escalation of college debt is not really about tuition: it is about the material goods & lifestyle some students perceive is their entitlement. Economic sacrifice is a completely foreign idea to many middle/lower middle class students today.
Posted on 1/14/15 at 3:49 pm to The Spleen
quote:
trade schools
I agree with this and if I had it to do over again I would have gone to trade school...I got to church with a couple of guys who do trading for a living and they are extremely rich.
Posted on 1/14/15 at 3:59 pm to juice4lsu
Just to continue the discussion.
Certain loan "forgiveness" programs have a very interesting tax bomb when they expire. After 20/25 years (depending on program) of lowered payments, the rest of the loan is forgiven. However, currently, that forgiveness is counted as income, whereas for public sector forgiveness it isn't. Add on to the fact lowered payments equates to the loan growing over that 20/25 years...watch out.
We're going to have an interesting situation when you consider these programs were devised to help those that can't pay back their loan, and now are going to have a brand new debt to repay.
Will be interesting to see if full actual forgiveness or partial forgiveness where taxes aren't paid on the first XX amount will be introduced or not.
Certain loan "forgiveness" programs have a very interesting tax bomb when they expire. After 20/25 years (depending on program) of lowered payments, the rest of the loan is forgiven. However, currently, that forgiveness is counted as income, whereas for public sector forgiveness it isn't. Add on to the fact lowered payments equates to the loan growing over that 20/25 years...watch out.
We're going to have an interesting situation when you consider these programs were devised to help those that can't pay back their loan, and now are going to have a brand new debt to repay.
Will be interesting to see if full actual forgiveness or partial forgiveness where taxes aren't paid on the first XX amount will be introduced or not.
This post was edited on 1/14/15 at 4:01 pm
Posted on 1/14/15 at 4:49 pm to hungryone
quote:
today's average traditional age college student has a far higher standard of living than back in my day (20 years ago). We didn't have computers, cell phones, or cars (yes, we actually rode bikes around Baton Rouge, how quaint). I lived in a dorm w/no AC to save money.
Indeed. My nephew is in college, drives a brand new F-150 and his apartment has nicer furnishings than my house I've been in for 12 years.
Posted on 1/14/15 at 5:03 pm to Tiger Ryno
quote:
I got to church with a couple of guys who do trading for a living and they are extremely rich.
Baseball cards?
Posted on 1/14/15 at 6:48 pm to hungryone
I totally agree with this.
I'm in college, paying for it all myself. I am completely independent (financially) from my parents and have been since 20 yrs old. If I couldn't afford to have a cell phone I wouldn't have one.
I wouldn't just charge the bill to my credit card and leave it there like some of my naive friends.
I'm in college, paying for it all myself. I am completely independent (financially) from my parents and have been since 20 yrs old. If I couldn't afford to have a cell phone I wouldn't have one.
I wouldn't just charge the bill to my credit card and leave it there like some of my naive friends.
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