Yes, ultimately everyone is responsible for managing their own finances, and it seems like the author acknowledges that and her own part in their mismanagement.
But expecting young people to make rational, fully-considered choices about taking loans in order to receive education is a tough sell. Higher education is often - sometimes unfairly - seen as an essential requirement for making progress in many careers. And in a situation where so many people are struggling with unmanageable debt, it seems that “every individual is responsible for their own choices” is a less useful position than “what is wrong with this system nationally and how can we fix it”. It’s kind of like US healthcare: participants are almost obliged to participate in the system, and for various reasons can’t be considered fully rational consumers.
There are lots of things that can be done, though. A change in culture making college education less essential; better loan programs; excision of bureaucracy; single-payer education systems; the list goes on.
The answer is a lot more complex than “college students need to make better decisions”.
These loans are ultimately guaranteed by State and Federal governments (meaning the banks take zero risk beyond servicing costs) and yet they magically generate billions in profit. Where do you think those billions come from? What do you think actually happens when this woman effectively defaults on her loans? Who really loses when this woman can't afford to start a family or start a startup because she's paying thousands of dollars to banks and collection agencies who, again, took zero risk?
Really, the American tax payer might be the dumbest type the planet has ever seen. The genius of the student loan racket[1] is that Americans are paying billions to the government to steal billions from other Americans and then give those billions to banks -- who are working full-time to further undermine American democracy. It's a scheme whose boldness goes beyond the outright slavery and peasant-bondage paradigms of the past. The elites have actually tricked their victims into paying for their own chains.
[1] https://abovethelaw.com/2010/09/the-student-loan-racket-now-...
It's a many many billion dollar industry versus some (mostly) naive kids. I'm on the side of the idiot kids on saying that the moment in time we are living through is brutal. I hope we find a fix for future kids.
HN expects one to add to the discussion rather than simply quoting and liking, but it's hard to add anything to that quote :-)
The american education and health system needs reform desperately, but not because of financially irresponsible people can shoot themselves in the foot, that will always be the case unless you start completely dismantling the financial freedoms of the individual.
We could ban loans altogether on the grounds that some people cannot handle the financial responsibility that they bring about. Or only allow loans to people who are 50 years old+ but what sort of world would that put us in? The solution she wants is for someone to say “you don’t need to pay any more money, you already payed enough so we’ll let you off the hook” the actual solution would have been someone telling her before “you don’t have the money to take the education you want, go find a 9-5.
What I read in that article was something like: “I made some bad decisions about financing, but the wider system is a problem for the following reasons.”
You’re right that from a technical point of view nothing was done wrong. A college student signed up to a loan, agreed to the terms, and was subsequently shocked by the extent to which it was difficult to pay it off. I disagree that she’s asking to be “let off the hook” but is instead using her case to highlight the wider problems in this system.
There are wider-ranging options than banning loans or restricting them to older people. Making college more affordable, or regulating interest rates, or providing a government-backed system for college funding are all alternatives.
At some point, if a huge number of people are struggling with a system, it’s reasonable to ask how it can be reformed - because this isn’t an isolated case. The focus on individual decisions risks missing out on a discussion about how that wider problem can be solved - that students feel the need to get into this debt in the first place.
Banks get to create the principal that they loan out of thin air[1], lend it at ridiculous interest rates to students and have it guaranteed by tax money...they do not have my sympathy!
Risk usually dictates interest rates. Meaning that there must be a chance for you to lose the money, but that is not the case with most student loans. Yet they still charge high interest rates.
It is criminal that zero-interest (or near zero) loans are not available for students from the government. I am fine with hounding them for life the principal and even not letting them discharge it with bankruptcy, but the interest is practically evil considering the banks take no risk at all.
There is literally nothing we can invest our tax money in that will return bigger gains than education and healthcare.
[1] https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
"Their money" is where we have a disagreement.
They get to create that money (nearly) out of thin air.[1]
[1] https://www.investopedia.com/articles/investing/022416/why-b...
I’m not sure how you get this from your reference - people deposit money at a bank, and the bank lends (gives!) some of that money out to (e.g.) students. The “creation” comes from both the depositor and the borrower thinking they have the money.
People deposit money at a bank and the bank lends out 10 times as much!
Granted the "new money" is destroyed as the principle is paid back, but its new money out of thin air -- and the interest is real money!
Here is a more easy-to-read version[1]
[1] https://www.investopedia.com/articles/investing/022416/why-b...
Why?
> Education is costly in the USA, this is horrible and wrong.
I mean, there are straight forward ways to pay very little money for a degree in a high earning field. That people people decide not to take this path tells me a lot.
A decision is only bad in so far as the consequences are (expected to be) unpleasant.
> In the ideal world she could have been denied the loans on the basis of her lack of ability to manage her own financiancials.
This is where her parents failed her (and I suppose, themselves, since they are on the hook as well).
Can you give some examples?
There are a few instances where going to an elite private school can pay off (e.g. MBA from a top 5 ivy league school), but for the most part, there is no measurable benefit of going to a private university when compared to a public one.
Programs like Running Start[0] can drop this cost even further.
Attending Community College can be seen as déclassé, but looking at a university degree purely as an investment, it seems like a pretty reasonable decision.
I understand that not everyone wants to treat college purely as an investment, which is fine. Life is not purely about making money. However, the further away from treating college as an investment a person gets, the more painful the post college experience will be.
It's generally fine to get a degree in a low earning field (e.g. philosophy) as long as you don't spend too much on it. It's also fine to spend a lot of money to get into a high earning field (e.g. dentistry). It is a toxic brew to spend a lot of money on a low earning potential credential (e.g. MFA in dance from a private university).
[0] http://www.k12.wa.us/OSSI/K12Supports/CareerCollegeReadiness...
Just because it's legally ok, doesn't mean it's morally right.
And as far as I remember, the big bad industry was saved after the crash...
A car can be a necessity, in that case a Tesla is a luxury. An education is not a necessity in any case, but for the sake of argument lest pretend that it was, a that you would die a quick death if you did not at minimum have a degree in something. Then choosing the cheapest available option would the the necessity and choosing to take variable rate high interest loan in order to stay "with your friends and the teacher you know" is a luxury.
Then with a huge pile of debt, and a finished degree, to decide to pursue graduate school abroad instead of getting a job and dealing with your debt is an insane luxury.
Don't get me wrong, I'm not saying that anyone who takes an education is buying themselves a luxury, but in a market with varying costs and opportunities, if you decide on your own to go out and put yourself in huge debt to study above your means, then you are choosing a luxury. And saying things like "but community college sucks/My kids can't be successful without expensive private schools/etc." Does not suddenly make it societies responsibility to magically make it possible for you to live above your means.
> And as far as I remember, the big bad industry was saved after the crash...
Yes, the government went in and invested in the industry when it was at the lowest and no one else had available capital to invest. Those investments are paying off today(https://projects.propublica.org/bailout/), and the industry is at a better place, where among other tings it can provide loans to students who would otherwise not be able to pay for their education. What is your point? Should they start printing free money to students like this who can't manage their finances, gets whiny when it comes time to pay back the money they loaned?
I would agree if the only way to get educated was a private university. As it turns out, that's not the case. For starters, state universities are about 90% cheaper per credit hour as compared to their private competitors.
Legally you _do_ get more sympathy given that you are at least able to discharge those loans in bankruptcy.
This is literally an extremist statement (i.e. either you cannot get loans or you can) and as such an impossible oversimplification. Clearly it's more nuanced than that. The difficulty of discharging loans in bankruptcy certainly does affect the market of available loans though it's not black and white.
The statement is also obviously false. Students received loans before they couldn't be discharged in bankruptcy.
On a final note, who is "we" exactly? I don't remember conversing with you in the past.
I find that most times when people say, "You cannot," or, "You can," what they're actually saying is, "The probability of you being able to is very low/very high." Surely this is the case for my claim. If it helps, please read it as such.
> Students received loans before they couldn't be discharged in bankruptcy.
Other variables were different then. Particularly, the variables of cost and expected compensation relative to the baseline. (Cost has, infamously, been rising, while the expected compensation of graduates relative to the baseline has been falling.) You may be right that under current circumstances banks would be equally willing to lend. That strikes me as absurd, but I've been wrong before. Shall we roll the dice and find out?
That's still a worthless statement honestly. A useful statement would be saying that by making it very difficult to discharge loans in bankruptcy (under certain specific terms), the number of loans increased by 15% and the terms changed by blah blah. Personally I've never heard such numbers. In fact, I've never been able to find any sources that showed that students declaring bankruptcy was ever originally a large problem.* (Why would it be? It's not like bankruptcy is some harmless thing even if you don't have assets.) It doesn't surprise me that this reason would be trotted out by the lending industry however. What part of the loan industry wouldn't want the government to enforce this against borrowers?
> Other variables were different then. Particularly, the variables of cost and expected compensation relative to the baseline. (Cost has, infamously, been rising, while the expected compensation of graduates relative to the baseline has been falling.)
So in other words the loans are _worse_ deal. Yet you don't want to revisit why the government is effectively subsidizing them by removing their risk? Why?
> You may be right that under current circumstances banks would be equally willing to lend.
When did I say they would be equally willing to lend? Why would we even want that? There are many examples of people that are extremely in debt for dubious payout. Would it not be a _good_ thing if they were not in that debt due to the inability to be granted a loan under such terms?
> That strikes me as absurd, but I've been wrong before. Shall we roll the dice and find out?
Wow such humility.
* Edit: For example, here is a quote from a write up that indicates it was not a problem:
> D. Protections Against Abuse
> One of the most common reasons legislators give for excluding student loans from discharge is the need to prevent abuse of the bankruptcy system. 135 The 1976 Bankruptcy Code included a five-year waiting period before student debts could be discharged because lawmakers were skeptical of new graduates discharging their debts while they still had few assets and then going on to more lucrative careers. 136 As stated earlier though, this fear of post-graduate abuse was baseless when the provisions were put into effect because, even then, student debt abuses accounted for less than 1% of all filings, and this fear remains baseless today. 137 Even if abuse of the bankruptcy system posed as large a threat as legislatures believe, existing anti-abuse measures can sufficiently curb abuse without having to resort to the harsh measure of exempting private student loans from discharge. 138
> Currently, the Code has independent abuse provisions, most notably the means test in § 707(b), which sets an objective and straightforward standard for a judge to detect and prevent abuse of the system. 139 Also, even if an individual’s filing passes the means test, a court can still dismiss the case if it finds that the filing was made in “bad faith,” or if “the totality of the circumstances . . . of the debtor’s financial situation demonstrates abuse.” 140 In addition, many student loans by private lenders today require a co-signing party to help ensure that the bank is secured in the event of abuse. 141 Together these protections effectively safeguard against abuse in the bankruptcy system, which this Comment will argue makes the exemption of student loans unnecessary.
http://law.emory.edu/ebdj/content/volume-32/issue-1/comments...
I'm afraid I don't have enough information to make such a specific statement. :(
> Yet you don't want to revisit why the government is effectively subsidizing them by removing their risk?
I don't object to the government stopping their subsidy. I'm just saying what I expect the result to be: either loans would stop being issued overall, or they would only be issued to certain majors, which the public would find unacceptable.
The government could certainly choose to subsidize those students explicitly by providing loans on better terms itself. It's not like there are no other solutions.
Regardless, we as a society should get beyond some bizarre idea that there is no other way to provide university education without allowing the loans to be dischargeable. That's exactly how it used to be in the US. Furthermore, many other models are used elsewhere in the world. We should call it what it is: a government supported subsidization of the loan industry taking advantage of naive students. Of course it works out well for some people, but there should be recourse for those it does not. That's exactly the point of bankruptcy.
Sorry if I gave the impression that I was trying to exhaustively enumerate the solution space. I was not! Thanks for the discussion.
Well, maybe it would have been better this way.
This way universities would be forced to be affordable, and use the money for teaching instead of today's tuition costs that goes 50% for a new stadium, 45% "administrative costs" 5% teachers and TAs
I don't deny it. There are considerations in both directions. You could also imagine a system of universal rate setting, where you can only offer loans to potential engineers if you do so to art students as well. You could imagine genuinely allowing a free market in student loans. There are a lot of possibilities, each of which would fall at different places on the multi-dimensional optimization problem that we've got in front of us.
But I argue that if you want folks to offer student loans, and don't want lenders to discriminate against certain majors, and don't want interest rates >10%, and want principles on the order of >$100k, you probably need to prevent discharging the loan in bankruptcy. You can't get all those other things and dischargeable loans at the same time.
If you could dischharge student loans you would have to sign over the rights to any future financial gain you would have from your education to let them reduce their loss. This is essentially what happens when they garnish your wage to reduce the loan, but ofcause not in a clean cut bankruptcy like process.
They should be protected against this stuff, not put into debt because the baby boomers want to spend tax dollar on pensions instead of education.
She had already done 2 years of schooling -- to drop out at that point would leave her with no degree, and a massive mountain for existing debt. She was effectively forced into taking a horrible loan, which she understood was horrible (just not how horrible).
Purely from a financial standpoint, dropping out would be been the better choice or to at least change majors.
no?
>When I finally got my first full-time office job at the start of 2013, it paid less than $20,000 a year
I'd say that is the problem in the US education system as well. US colleges and universities are ridiculously expensive and getting more and more expensive every year. And there's no reasonable explanation, why.
But it never worked like this - there are literally zero downsides to charging maximum amount, so every university does it - and the students don't care because they are guaranteed a loan by the Student Loan Company anyway, and none of the students I've interacted with ever asked themselves "is this degree worth about £50k once I'm done" - they just want to go to uni, the cost is just a magical number no one looks at. The only good thing about the UK system is that the loan repayment is means based and if you don't make more than ~£22k/year you don't pay anything, and if you do you only pay 10% of your salary above 22k towards your student loan(so the more money you make the faster it will be paid off). If the loan is not paid off in 40 years it's automatically forgiven.
But from my point of view - it's completely nuts either way. Higher education should be completely free to the student, no matter where or what they study.
Any system that forces someone to graduate with significant amounts of student debt, is in my view, bad. It's not really going to benefit society, unless your view of society is modern slavery and chaining people as a slave to their debts.
Mind: that doesn't mean that certain schools aren't worth the tuition (Stanford, Columbia, Oxford, Cambridge, etc). But part of the "value offering" comes from the network you build up there.
That all said, while university can be a good part of your development as an adult, maybe more people will eventually realise it's not necessarily the best option anymore.
The writer of this article might have gotten a similar "education" (perhaps not in the formal sense -- but on an intellectual level) had she gone and lived abroad in a new environment doing something useful for a few years when she was in her late teens / early 20s. But it's a very personal situation that very much depends on the individual.
If you and I agree that you will sell me your left kidney, or that I can punch you repeatedly next Saturday for fifty quid, noncourt will enforce those contracts because you are agreeing to harm. And that history has shown that people in adverse conditions will sell their organs/children/dignity whenever offered (and frequently at below market rates)
Usury Contracts like this are another form of harm and we just need to decide where the line gets drawn.
She’s a fool who complain that her principle hasn’t gone down when she never actually paid anything towards it. And yes she knows that and yes they and her parents, old teachers, friends and any advicers she has ever talked to explained that the basics of a loan are that you pay it down and pay interests on it.
She’s mortified that a variable rate interest loan has a rate that varies.... and sure as hell she remembers them telling her that, she’s just playing dumb to sound the victim.
Oh and ofcause they make the details of the loan “almost impossible to find!....” in a tab called details on their website....... or if in doubt you know, you could call them. What sort of black hole level of entitlement is she living in?
Education is costly in the USA, this is horrible and wrong. But hell Tesla’s are costly too, you’d get no sympathy if you buried yourself in debt to buy a Tesla and then didn’t pay off the principle for years.
In the ideal world she could have been denied the loans on the basis of her lack of ability to manage her own financiancials. But then it would not be the land of the free, and she would just have been complaining about that instead.