Student Loan Debt

[Dodecahedron]

I saw this chart being discussed on a news program, but apart from noting this is going up, they missed the key point showed by this graph:  no one is paying off their student debt.  The system should show a plateau, a decline, or a slowing of the mounting debt if anyone was able to pay off their debt.

Here's something people might misunderstand.  I am in the top 4%, but I have made only a tiny dent in my student debt.  I graduated ten years ago.  Yes, I know what you are thinking, I can't manage money, etc., but that's not the point.  If my debt is not decreasing, then no one's debt is decreasing.  In college, they tell you that if you make your scheduled payments, you will have half of your debt paid off in ten years.  How much have I paid off by making the assigned payments on time?  25%.  Yes, I paid enough payments to pay off 50% of the debt, but before interest.

The problem is the terms of the debt.  It is not like housing debt, where if you pay a little extra you save thousands of dollars over the term of the loan because you save on the interest.  No matter what you pay, you always owe the entire amount with interest over the entire life of the loan.  Thus, there is no benefit of paying extra or paying earlier.  It's not just that payers can't make a dent in the debt, they can't even make a scuff on the paint job.

Though my student debt does not affect me that much, I know how much it has to affect people who make less than I do, who in all likelihood have even more debt than I do.

[TheLeviathan]

I can think of 3 trillion dollars for economic stimulus that could have been MUCH better spent for exactly this reason.  It's crushing an entire generation of potential economic spenders.

[Vanimal46]

There’s a really good series on Netflix called Money, Explained. One of the episodes in the short series is about student debt. We’re in big trouble when IIRC 70% of people in the US can’t afford a $400 emergency expense. One of the big issues to deal with is so many people had to default their payments in 2020 and their interest continues compounding. It’s a hole that almost no one can get out of. 

[Dodecahedron]

Here's a bit of the conspiracy theorist in me, but hear me out, I think this nails it.

Rich families really don't want the working class elevating themselves.  They just don't.  College promises the ability for anyone to make enough money to raise their class.  And yes, it works, graduates make more money.

But there a key difference:  Students from rich families can go to school and exit with no student loan debt.  This means their lifetime is spent being able to spend every dollar they earn on whatever they want.

Conversely, those looking to elevate their income and status by paying for college with loans are paying, what, $500+ per month for the bulk of their working lives.  For many people, that's the same amount their income rose by having a degree.  They earn more, but they must spend more just to survive.  Their status, lifestyle, ability to save for retirement, ability to buy a nicer house, etc., barely moves.

Right now, student loans are structured so that a portion of the created income funnels from middle- and lower-class graduates back to the upper class.  Somewhere along the line, someone said, sure, let the lower classes make higher wages by getting degrees by promising to help them pay for it.  We will come in on the back end and take the difference away again.

[TheLeviathan]

I don't think student loans are the rich conspiring against the poor, that's reserved for basically every major piece of Republican legislation.

The student loan problem, IMO, is actually more of the fault of the left.  In my experience, the left often has their heart in the right place but their policies aren't forward thinking enough to anticipate problems caused by overindulgence.  The student loan problem started because we created a no-strings-attached trough of money for colleges.  All colleges had to do was bang the drum of demand (using many of the same arguments you made) to create the perception that college was necessary.  Once demand was high enough they rapidly escalated the prices, dumbed down the admissions, encouraged the process to take longer, invested in non-academic selling points at a much higher rate, ballooned their middle management to handle the student population, and became less an institution of higher learning and more like a Walmart for sheepskins.  

Now we pay more, for much less, and no one seems to have the problem pinned down: available student loans need to be completely reworked.  Starting with demanding that the biggest of the bad actors - the colleges - are held account.  Colleges have exploited young people for about 4 decades now and they continually walk away from these discussions without the proper blame. That's the part you won't hear from Bernie or others who are rightly targeting this issue, but with all the wrong solutions.

[Dodecahedron]

I think that's part of it.  College financing came into earnest in the 90s, and at that time was supplemented with Pell grants.  With Pell grants, the government footed half the bill for every student, leaving the student to get loans for the other half.  All students who were over a certain age or lived on outside of their parents' house qualified for this.

Republicans came in later and stopped this, putting the full burden on the students.  When you say that Democrats aren't good at seeing the future, I think what really happens is Republicans come in later and try their best to gut all the protections and take advantage of the program.  We see this with student loans, Obamacare, housing loan programs, the post office, gun control, etc.

<digress>

This isn't anything new.  Scholars are in agreement about the Great Depression being caused by high tariffs put in by a new Republican majority in Congress.  Why did they do that?  The earlier Democratic majority did away with almost all tariffs.  The revenge streak of Republicans has a long tradition; now that the southern evangelicals joined them we are in some real trouble!

But yeah, I don't think it's fair to say that Democrats are not good at understanding the ramifications of what they do.  What they misunderstand is that Republicans have a long memory and will undo or hinder progress at the first chance they get.  We all saw McCain's thumbs down that saved healthcare for Americans as the other Republicans were united in taking healthcare away.  We also all see HC prices going up the maximum allowed by law every year.  That's not a mistake or a coincidence, nor is it "market driven" other than it's something we simply all have to buy.

It has to be particularly frustrating for Republicans that the one thing they claim to care about the most -- gutting abortion rights -- has been so elusive.  With the last justice appointed to the supreme court -- appointed solely for this reason as she has only been a judge for ~3 years! -- they will probably achieve it.

</digress>

[TheLeviathan]

I am not one to excuse Republicans but they arent the root problem here.  Colleges have an unlimited, unregulated, massive pool of "free" money available to 18 year olds and they are exploiting it for gain.  Essentially, the expansion of student loan lending created a situation where there was basically no cap for what could be charged where demand was ferocious.  The result isnt surprising in that scenario: those that could profit (Colleges and banks) drove up the costs knowing their audience was desperate and wouldn't fully understand the consequences until much later.  Even now they have so thoroughly won the "college is necessary" war that they STILL arent villainized for their incredibly selfish behavior and continue to raise prices even in a five alarm crisis.  Oil companies have more shame.  At least they diversify the age groups they rip off and dont just specialize in the "barely adults" subgroup.

 

This is where progressives, who had true and noble intentions, really needed someone to help them craft a system where access was still achieved but without rolling out the red carpet for exploitation.  They didn't and still seem insistent on ignoring their mistake.

[Dodecahedron]

Yes, that is definitely true.  It is unfortunate that universities raised tuitions when more people could pay.  It's not that universities just sat on that new money -- they used it to invest in their programs, infrastructure, and acreage.  As you say, noble intentions, but built on the backs of the working class.

[TheLeviathan]

I would only quibble slightly - they invested in attracting more 18 year olds to take loans.  The actual quality and value of a college degree seems to be declining at about the same rate tuition is increasing.  

Colleges are acting like corporations at this point.  Their exploitation of young adults - from athletes to students - should be an affront to everyone.  They deserve no protection.

[Brock Beauchamp]

On 5/18/2021 at 7:38 PM, TheLeviathan said:

This is where progressives, who had true and noble intentions, really needed someone to help them craft a system where access was still achieved but without rolling out the red carpet for exploitation.  They didn't and still seem insistent on ignoring their mistake.

The bolded is what makes me reluctant to endorse most free college and debt relief plans. I'm all in favor of a drastic overhaul of how we look at college and how we fund those who attend but without first solving the problem that has no end in sight (colleges exploiting the loan system and ever-increasing tuition), why on earth should I support more of my tax money going to them?

And, unfortunately, the party with which I most consistently align seems willfully ignorant that the solution is not "throw more money at it".

[TheLeviathan]

Not to mention the obliviousness towards the idea that everyone having a college degree will make that achievement have less meaning in the economy or cause colleges to even further dilute the rigor or a variety of other negatives. It's already depressing wages because of competition and forcing people to chase higher degrees to have a competitive advantage in the hiring process.  

We'd be handing billions to a group (colleges) that have been exploitative in ways that would make oil companies blush....but then also so significantly water down the value of a college degree that the trickle down effects would harm an entirely new generation in freshly awful ways.

We've got some sacred cows to slay before we take on this problem.

[KirbyDome89]

On 5/27/2021 at 6:12 PM, TheLeviathan said:

It's already depressing wages because of competition and forcing people to chase higher degrees to have a competitive advantage in the hiring process.  

I walked away from a research position at the UMN a few years ago in large part because the pay & expected hours were atrocious. A year or so later a close friend in a different lab called me about an opening they had, and he set up an interview with his PI. It went really well but the PI opted to go with another candidate because that individual had a MS. Understandable, but disappointing considering my experience level was significantly greater. That candidate lasted less than 6 months because they lacked basic mechanical skills required to perform the job. 

Individuals are sold the idea that a certain level of education entitles them to a specific pay scale. When that dream doesn't become reality, many turn back to higher education thinking that continuing further down the degree hole is the ticket to getting paid. It's a sunk cost fallacy. The end result is a candidate who is under-experienced, overqualified, and drowning in debt. Essentially, they're trapped. I sympathize to a degree. If I had invested in not only undergrad, but also graduate loans, and I was offered low entry level wages I'd balk as well. To boot, some of the experience requirements for jobs are ridiculous as well, particularly on the lower end. It's a vicious cycle.

[Mike Sixel]

Yes, the price of college needs to be fixed somehow, I agree....but I think of loan forgiveness as the government subsidizing the cost of college at the back end, instead of up front. In addition to schools increasing costs because they can, governments also subsidize school less than they did up front......

If I ran the world, we'd forgive some level of debt, with the following rule......any school that raises tuition or other costs for the next 10 years makes their students ineligible for future student loan forgiveness (by law, so that the law would need to be changed for this to change). That's off the top of my head, I'm sure there are better ways to control costs, I just don't know what they are at this point.....without price fixing of a non-voluntary nature.

[TheLeviathan]

On 6/8/2021 at 1:29 PM, Mike Sixel said:

Yes, the price of college needs to be fixed somehow, I agree....but I think of loan forgiveness as the government subsidizing the cost of college at the back end, instead of up front. In addition to schools increasing costs because they can, governments also subsidize school less than they did up front......

If I ran the world, we'd forgive some level of debt, with the following rule......any school that raises tuition or other costs for the next 10 years makes their students ineligible for future student loan forgiveness (by law, so that the law would need to be changed for this to change). That's off the top of my head, I'm sure there are better ways to control costs, I just don't know what they are at this point.....without price fixing of a non-voluntary nature.

Part of the problem with school funding up front at the state level is that so many students are going to college that funding at the same level per student would blow a lot of these state budgets apart.  In the last ten years there has been a dip of about 10% in state funding, but in that same time period colleges rose tuition by 28%.  Cutting from state budgets is part of the problem, but not driving the issue IMO.  (Not disagreeing, just pointing out a misconception that often happens)

 

I dig tying loans to tuition rates.  I'm also game to tie them to future earnings.  A lot of these colleges get people in the door promising future earnings they know are unlikely at best.  Bringing bankruptcy back into the picture might help with this as well.  Make colleges partially on the hook for any bankruptcy costs by their students.  Part of how we get here is the investment by a bank/government for a future doctor is just as risky as it is for a loan investment in an art history major.  That doesn't make any sense and feeds the "free trough of money" problem I believe is at root here.

 

We have a real problem (it'd be nice if the evil bastards called Republicans would recognize that.  Especially as an economic anchor) but we have some really bad solutions out there that need to be checked.  (Looking at you lefties!)  So, in other words, we have a typical 2021 problem with no end in sight.

[Dodecahedron]

I received a notification recently congratulating me for paying off 10% of my student loan.

I have been making the prescribed payments for ten years.

[Richie the Rally Goat]

On 5/18/2021 at 1:34 PM, TheLeviathan said:

I don't think student loans are the rich conspiring against the poor, that's reserved for basically every major piece of Republican legislation.

The student loan problem, IMO, is actually more of the fault of the left.  In my experience, the left often has their heart in the right place but their policies aren't forward thinking enough to anticipate problems caused by overindulgence.  The student loan problem started because we created a no-strings-attached trough of money for colleges.  All colleges had to do was bang the drum of demand (using many of the same arguments you made) to create the perception that college was necessary.  Once demand was high enough they rapidly escalated the prices, dumbed down the admissions, encouraged the process to take longer, invested in non-academic selling points at a much higher rate, ballooned their middle management to handle the student population, and became less an institution of higher learning and more like a Walmart for sheepskins.  

Now we pay more, for much less, and no one seems to have the problem pinned down: available student loans need to be completely reworked.  Starting with demanding that the biggest of the bad actors - the colleges - are held account.  Colleges have exploited young people for about 4 decades now and they continually walk away from these discussions without the proper blame. That's the part you won't hear from Bernie or others who are rightly targeting this issue, but with all the wrong solutions.

I agree with this take that student loans aren’t the rich taking from the poor. Also agreed that throwing money at it may not be the right direction.

https://www.chamberofcommerce.org/student-loan-statistics/
 

10% of all student borrowers (4.7 million) are in default. Half of them have less than 10k in debt, those are people who dropped out early and clearly fall into economically disadvantaged. Clearly this category needs money thrown at it from a debt relief stand point, but it’s only 5% of borrowers and <$24 bil, less than 2% of total student loan debt.

as a recent grad school graduate, I fell into the category of 40% of all student debt is grad school debt. I’m not exactly excited to forgive debt for doctors who make $300k per year, and MBAers making 6 figures.

A bachelor degree doesn’t get you what it used to, but it costs more. The institutions provide less value and use more unscrupulous advertising and recruitment methods. I don’t think throwing money at that solves it. The degree itself should matter on the Federal loan terms, as should where the student works on the backside.

Medicare negotiates with providers on pricing and fees. HUD/FTHB requires home value and appraisal with limits on the loan. Shouldn’t FAFSA as well? X degree is worth X on the open market, the institution can only charge X for the degree/credit.