Student Loans In America: the Next Big Credit Bubble 768
PolygamousRanchKid writes "In late 1965, President Lyndon Johnson stood in the modest gymnasium of what had once been the tiny teaching college he attended and announced a program to promote education. Almost a half-century later these modest steps have metastasized into a huge, federally guaranteed student-loan industry. On October 25th the Obama administration added indebted students to the list of banks, car companies, homeowners, solar manufacturers and others that have benefited from a federal handout. In response to students burying their obligations in court during the 1970s, anti-default provisions were imposed to make it almost impossible to shed student loans in bankruptcy. There are increasingly loud calls for reform of the system, with demands that range from a full-fledged bail-out of borrowers to a phased curtailment of government lending. The changes announced this week are designed to ease the pressure on struggling graduates. Borrowers who qualify will get payment relief, not debt relief. The administration says these changes will have no cost to taxpayers."
Australia does a simple job here (Score:4, Interesting)
Any student loans are put onto your tax return, the ATO (Our form of IRS) knows about it, and if you can't pay for it, it simply garnishes them from your tax return if you have overpayed or been able to claim tax benefits that aren't taken into account (which most of us are able to do) in your normal PAYG tax payment?
We don't have any problems with student loans going out of control here that I am aware of? Seems a really simple idea to follow...
What is really needed. (Score:5, Interesting)
You know there's something wrong with the job market when almost any job higher than McD worker, cashier, or floor washer requires a degree.
Such breaking of "degree inflation" would reduce the demand on degrees
Should Have Been a Property Developer (Score:5, Interesting)
Student loans though - the one debt that actually might make you more likely to avoid repeating the boom/bust credit cycle - is somehow untouchable.
Re:Buying Votes with Handouts (Score:4, Interesting)
We the People know that govt is supposed to look out for us, so we vote in our best interests. Money is a psychological tool that serves us, we don't serve it. Economics is like a religion with the high priests (bankers, economists) preaching the need for human sacrifice to appease their great god Mammon. Their predictions don't come true, their axioms are flawed, their equations fail to take into account externalities such as innovation, which is where the real focus needs to be. Govt should provide a basic income, and encourage the native spirit of creativity and inventiveness in each of us with challenges.
Re:Australia does a simple job here (Score:4, Interesting)
The Myth (Score:2, Interesting)
First of all the myth needs to be busted that somehow a continued education is magically going to equal success. Nothing could be further from the truth, it can help in certain situations but as all things in life there is no guarantee.
We all are born with certain talents, it is those that can find and monetarily exploit those talents that find success. Unfortunately we where not all born as equals, some will easily find success while others may struggle their entire lives.
Re:Australia does a simple job here (Score:5, Interesting)
Do you have many people graduating with student loan debt that's the equivalent of $250,000 US?
The reason the loan problem is so bad is that higher education in the US is so ridiculously overpriced. A year of university used to be equal to much less than a graduate could expect as a starting salary on a first job after graduation. Today, they are much more.
There is a consumer price index that measures how much prices are rising or falling. Higher education has gone up in the area of 300-400% of the CPI for years now and it's accelerating.
As a retired academic, I really don't see why tuitions have skyrocketed. Faculty salaries have held close to CPI, the buildings are already built for the most part. I guess the energy to heat and light those buildings has gone up but not enough to explain the difference.
The really strange part is that those huge endowments that universities have are now topping out in the billions of dollars. Those endowments were supposed to be used to keep tuitions low. Plus, any of you alumni out there know how you're always being hit up for money. So where's the money going? The campus buildings are being built with donations for the most part and universities are tax exempt. And don't forget the huge money the big athletic schools are bringing in. Why isn't that being used to lower salaries? The tuition at the Universities of Texas and Florida and Notre Dame and other have all skyrocketed. Where's all that TV money going?
When I retired in '07 I was making more than the average tenured faculty is making today. It's not personnel costs, it's not building costs, it's not energy costs, it's not technology costs. So why is it so much more expensive? I know it's nice for universities to have overseas campuses, but I'm starting to wonder if that's part of the problem.
But no, I don't think you can compare your student loans with ours in size.
Re:Another Government Program Gone Wild (Score:3, Interesting)
Republicans have their own entitlements like military spending, oil industry subsidies, multiple forms of corn subsidies, dairy subsidies, a war on drugs, TSA, etc.
It isn't that either side thinks entitlements are bad. They merely disagree on what the entitlements should be.
As a human it is in my best interest to choose entitlements which benefit me as someone whose only healthcare options are medicaid and moving to another country. My Hemophilia is mild but if I get seriously injured, the medication to keep me alive costs $300,000 for the six week recovery. I also have Osteochondroma (bone spikes near joints) that can break off and cause said serious injuries. If I get injured, any company that hires me will see their healthcare plan rates raised up to the point where they either need to let me go or screw over everyone at said company. This does wonders for my employment opportunities in a time when finding jobs are hard.
I choose renewable energy subsidies because I don't want my country to be in perpetual war with any country that refuses to sell us cheap oil for the benefit of US corporate interests. A half a billion loan being defaulted on is peanuts compared to our daily military budget. So we tacked half a day of foreign wars to our budget with that blunder. We're making a big deal out of a tiny leak in a household pipe while the watermain is gushing water down the street.
I dislike the war on drugs because every legal medication that I can take with my Hemophilia either doesn't work or will kill me. Having bone spikes poking my flesh isn't pleasant. I could instead put some Cannabis Indica in a vaporizer and generally feel better, but I'd rather not have paramilitary goons raid my house and then later die from injuries sustained.
I dislike food subsidies as they are because they remove choice. I can't partake of milk products. Why not move the subsidy to the grocery so people can buy subsidized food of their own choice? That way my pseudomilks will be cheaper.
Please tell me how Republican entitlements benefit you. At least make sure you are getting something out of it while they screw me over; other than the joy of knowing they screwed people like me over.
As for Obama, he is the most epic closet republican ever. I wish he'd switch parties so the Democrats can field a real democrat for the position.
Who's to blame? (Score:5, Interesting)
I don't think college grads are entirely without blame. I graduated less than years ago with a Bachelors degree and a relatively modest $22,000 in student loans. In under 18 months, I've managed to pay off $10,000 while making $30,000/yr (that's 45% of the principal in 15% of the 10 year loan period). How do I do it? For one thing, I don't have cable TV, a smartphone and my car has very little beyond the basic options. Not paying for cable TV and a smartphone with data plan every month is another $80 I can contribute to the student loan (that's nearly an extra $1000/yr off the principal and a savings of more than $3000 in interest over the course of the loan). Throw in the fact that I rarely eat out, buy foods in bulk ($100 chest freezer is a great investment when buying beef by the cow) have all used furniture, work extra odd jobs whenever possible and avoid shopping trips that zig zag around town to save gas and it adds up quickly. I'm finding many of my peers that complain about loans do none of those things... they want everything and they want it now. I realize this isn't an option for everybody... but students also shouldn't be off the hook if they get a crap degree in English or Underwater Basketweaving because it's easy and they have a passing interest in it.
Re:Australia does a simple job here (Score:5, Interesting)
Actually the costs of the degrees between the two countries are comparable. Whilst Australia does not have any $250,000 degrees the average degree costs are similar. The highest level of government support is around $100,000 for a degree in Australia. The Australian government currently regulates the prices the universities charge for most places, between about $5,000 to $10,000 a year depending of the type of degree.
The big difference between Australian and US student loans is that in Australia the loans are income contingent. I have never understood why more countries do not use income contingent student loans. As the OP said, the loans are managed through the taxation system. A person has to be making more then $47,000 a year before they have to make any payments. Above this threshold the amount paid is a fixed percentage of income on a graduating scale, for example if you earn above $47,000 but bellow $52,000 you will pay 4%. The maximum rate kicks in if you earn above $87,000 when it is 8%.
Another important difference is that in Australia the loans are provided effectively interest free. They are indexed to CPI each year which is well bellow the interest payments on a commercial loan.
Who says there is a loss? (Score:5, Interesting)
It is possible to writeoff a debt and still have made a profit. Remember that interest and repayments have already been paid on the loan for 20 years. The final total repayment for a loan is always higher than the loaned amount, so the lender breaks even a lot earlier than the point at which the loan is fully paid off. After that it's all profit.
Example:
(Disclaimer: These figures are for a standard commercial loan. I have no idea whether repayments differ substantially for Stafford/Perkins/PLUS/whatever.)
Primer: How student loans - skyrocketing tuition (Score:5, Interesting)
Re:Australia does a simple job here (Score:4, Interesting)
Do you have many people graduating with student loan debt that's the equivalent of $250,000 US?
No. Australia holds on to those quaint notions that education and healthcare serve a general public good and are therefore funded to a large degree out of public coffers. At tertiary level there is a moderate contribution required from (Australian) students based on the course type and subjects, but it is nothing like the charges demanded of US students from what I can see. The University of Queensland guidance for an undergraduate engineering course is AU$6,699 pa (http://www.uq.edu.au/myadvisor/index.html?page=25540). You can pay those fees up front for a 20% discount or defer them until your income exceeds a set level ($47,196 this FY, effectively a low-interest loan). The system dates to 1989 but the scheme is adjusted (aka eroded) routinely, and some want to see a US-style system here (although I cannot fathom why).
Foreign students that come here to study generally pay something closer to the "full" cost of their tuition. The UQ engineering example is $29,575 pa.
Bankers wives - financed by the fed (Score:4, Interesting)
Comment removed (Score:5, Interesting)
why isn't college paid for like high school? (Score:4, Interesting)
This whole discussion seems off to me. We have compulsory education through 12th grade, and we pay for this entirely through taxes. We don't charge minors for their education, though of course there are private schools which are optional. Regardless, the minor does not end up in debt, and is not required through force of law to be gratefully repaying society for suffering their existence and education.
Then suddenly, the high school grads are adults, and the costs of further education is ultimately their problem, because we say so. The only realistic source of money for this very expensive education are one's parents. The pay from most jobs a college student can get is a joke. We've been seeing that going the loan route breaks down when graduates are unable to get jobs. The military way is very costly. Grants and scholarships have so many requirements that they are sometimes in the embarrassing position of not having awarded any money because no one qualified, or they have to bend the rules. I've also seen the kind of scholarship that is merely bait to get a student to attend. Once students have invested a year or 2 towards a degree, they discover that the requirements are too much and they are unable to keep the scholarship, and once lost, it cannot be regained. A requirement that one must maintain a 3.5 GPA doesn't seem unreasonable, until one is victimized by a few bad professors who relish handing out F's to people they just plain don't like regardless of or perhaps even because of merit, or weed-out classes where the game is to be tough on everyone to get rid of the weak students and never mind whether they're being fair with the tough love, or a department that is so afraid of grade inflation that almost no one receives an A even when they have earned it.