A secured loan should be easy and cheap to get, because if it goes bad, the lender can reposes the collateral. This is like your house and the truck; you ran up some debt, it didn't work out, you lost them both, but you also lost the debt.
An unsecured loan should be harder to get and pretty expensive, because it's riskier. If I run up $20k on my credit card paying for a fancy vacation, then can't pay, they can't take that vacation back from me. If I declare bankruptcy, I get a "free" vacation (I mean, not exactly, bankruptcy is complicated and expensive, but...) That's why credit cards run a 16% interest rate.
Student loans are for an education, which you can't repossess, but we also don't want to carefully vet applicants or charge them 16% interest rates. To try and square the circle, we've decided that student loans will be super easy to get and have very low rates, but then to try and avoid abuse we've decided they can't be discharged in bankruptcy. And then to try and avoid people being stuck with massive loans they can never repay, there's a bunch of complex income-based repayment plans and schemes where you can get balances forgiven in some cases.
> Why is it I can ditch close to 90 grand in loans lickety-split but students cant? how is education any different?
Education debt is different due to the combination of being inherently riskier than, say, a mortgage to buy a house, while still being something we want widely and cheaply available.
That being said, your biologist friend may have some better options if she looks into it.
You say that like there was some master central plan, but I doubt that's the case. Would love to know the history of how our whole "system" / tangle of rules etc came to be, timeline of events, etc
The parallel history to this is that the banks lobbied for the "mean" changes to the bankruptcy rules. The politicians were seeking reelection by guaranteeing that everyone could go to college at lower and lower rates, but they needed to keep the bankers happy too: https://www.nerdwallet.com/blog/loans/student-loans/federal-...
Caveat: If you don't live in the US, neither of these histories apply to you.
The rates used to be very low. They are no longer very low. Lower than 16% yes, but 9% is not uncommon.
The much-higher-than-inflation rate turns a languishing undischragable loan into a debilitating time-bomb.
Sounds like you don't want to vet them at all, when carefully vetting would be a good answer.
I'm struggling to understand how you could read my comment and feel like you have any idea what I think should be the case. I am making a positive claim about US politics, not a normative claim about how it should be.
> when carefully vetting would be a good answer.
No doubt you have a citation for this? An example country that has implemented this with excellent outcomes?
> I'm guessing the 'we' breaks down the moment someone defaults on their loan hey?
I mean, we have a major political candidate campaigning in part on forgiving all student loans and making tuition free at state schools, so...apparently not? I mean, she's not doing that well in polling so far, but it's clearly a topic on the table for discussion.
> a bonanza for greedy, rapacious companies who can lump 20 year olds - kids basically - just starting their working lives with a lifetime of indenture that they can never break free from
That's not how it works in the US, as has been discussed a fair bit in this thread. Get into an income based repayment program and you can pay 10% of your discretionary income a year for 20 years, and then the balance will be forgiven.
> It is the ultimate business model! (Of which I'm guessing you're a part).
I don't even live in the US, have never had a student loan, and have never worked for an educational institution or a company involved in making student loans, so perhaps you should try making better guesses. :)
When you initially took your loans, your lender assessed your credit and made the lending decision accordingly. Any individual loan won’t pan out, it on average the portfolio will, because the lender controls what loans are made. Student loans are completely different. The lender (the federal government—which originates almost all student loans) makes loans almost without assessing your credit or ability to repay. (There may be a filter, but if there is it’s extremely lax.) Your interest rate, moreover, doesn’t depend on your credit. Finally, there is no collateral the government can repossess to recoup its loss. It’s nothing like an ordinary loan.
That might be for some loans, but from my understanding everybody is guaranteed a loan, regardless of their grades. The point was the government would back the loans so those who were less affluent could also go to school.
The end result is we tried to help the poor, and screwed everybody else along the way. Not only did the poor get a bad deal, people who could have normally afforded school got slotted into these bad deals too.
People like to blame the schools for raising the prices, but that simply how supply and demand works. Schools can hold X people, if > X people want in then the price goes up. Schools can also only expand so fast.
The fact is, not everybody needs to go to a 4 year school. The process of making it near mandatory lowers the value it brings in general as curriculum is adjusted for a much wider group of people -- generally by lowering the bar. This is in part because you now have a bunch of people given loans who without getting that degree probably won't be able to pay back that first year of school they failed out in -- even more so when that is north of 20k.
Before we started guaranteeing loans it as either your money, your parents money, or somebody loaning you money who truly was invested in vetting candidates abilities to finish school, get a job, and pay the loan back. With prices generally being lower the loans were smaller too.
A much better way to have addressed the issue with poor people would have been to set up grants, vetted students based of merit, and provide grants for those kids who showed promise. The end result is paying a lot less than the mess we have today, and it would have not dragged down those who would have probably been able to afford school on their own accord before this mess happened.
Are you sure? Because the normal way of thinking about "supply and demand" is to suggest that prices will go down if supply grows faster than demand, which is what happened for nearly all of the 20th Century. And if that process has stopped, then we need to ask why. Please consider the data here:
https://nces.ed.gov/programs/digest/d17/tables/dt17_302.60.a...
Try to explain these 3 data points:
(Young people in college)
1970 25.7%
1996 35.5%
2016 41.2%
There was no price surge when youth participation going to college went from 25% to 35% but there was a huge price surge when participation went from 35% to 41%. And the early surge is a much larger surge. So why did prices only go up during the latter era?
Taking the 25 year period from 1971 to 1996 and then the 20 year period 1996 to 2016, the CAGR in the first period was 7.6/6.7% and in the second period was only 4.6%/5.3% for 4-year public/private colleges respectively. Data: [0]
That data shows there was a higher rate of price increase (in nominal dollars) during the first period than the second. Now, general inflation was also higher in the first period (5.1%/6.9% CAGR of wage increases for men/women vs 2.5/3.4% in the latter period).
Taking the mathematically unsound step to average the public and private increases and average the wage increase rates for men and women, and compare the two, it seems that college costs rose 1.1% faster than wages in the first period and 2.0% faster than wages in the second period. Is that effect driven by college costs rising faster or wages rising more slowly?
[0] - https://college-education.procon.org/view.resource.php?resou...
[0] https://studentaid.ed.gov/sa/repay-loans/understand/plans/in...
Because most student loans are to the federal government (~93%) [0]. Generally if you owe money to the government, you're kind of on the hook. And even if you discharge your loans after 20 years of income based repayment, you still owe a tax bill on the amount written off since that's a windfall.
One argument to get the federal government away from making student loans. They offer a one size fit all interest rate regardless of the economic viability of the degree and ability to pay back. Private lenders offer better rates to students with lower risks (better schools and highly lucrative majors, mainly graduate degrees).
[0] https://www.nerdwallet.com/blog/loans/student-loans/student-...
I've never heard of outstanding student loan debt limiting eligibility for food stamps (SNAP) or section 8 housing. Can you point to any resource which can confirm this? My understanding is that both programs are based on household income.
[1] - https://studentloanhero.com/featured/unpaid-student-loans-fa...
We seem to have stopped explaining how supply and demand works. Companies have a demand for employees with certain skills. If you can supply those skills, they will pay you. The higher the demand for those skills, the more they pay (IT, medical, many trades). If you have a skill that nobody has a demand for (say, theatre, or russian literature), you're in trouble.
Of course if you have a degree that isn't in demand, there's a way out. Find a way to take the skills you have and turn them into someone that companies want to pay money for. Turn your english degree into a career in copywriting, or your degree in theatre into a career in... something.
Is this somehow Bob's fault for being born into the wrong circumstances? Obviously not. But if the aspirational messages that we provide to all people in society are only true for a privileged few, then the communication of same to a larger mass of people for whom it is not is a form of fraud perpetuated on those least able to detect it.
At the end of the day, free college is not going to solve the problem, and I firmly believe it would make matters worse. With no skin in the game, people will get all manner of ridiculous degrees, and the universities will be more than happy to give them to them.
That is not something a lender can repossess.
But of course, they wouldn't get to take back any of that valuable knowledge and human capital you acquired there /semi-s
(Even if you have criticisms of the credit score as it exists today, most at least see the merit of “hey, other lenders, this person doesn’t repay loans, proceed with caution.)
Revoking degrees would be equivalent to burning down houses in foreclosure. Such destruction of value is obvious madness.
While I agree with your larger point, I think this particular bit is a little weak.
A revoked degree can easily be un-revoked, while a burned down house needs to be re-built from scratch. This is why it is socially acceptable for schools to withhold transcripts for students who owe money to the school.
https://en.wikipedia.org/wiki/Bill_Cosby#Rescinded_honorary_...
However, both the government and the schools do not treat college this way. If the government was wisely investing, they'd decide STEM Folks can get huge loans due to the long-term need for them and their relative scarcity, but "luxury" degrees such as art, history, music, etc majors can only take out tiny ones due to the lack of economic utility, with quota's set for each so that you do not over-supply the market with more labor than it can absorb. You need both long-term and short-term feedback systems and you need to fail people in programs who are unsuitable early on.
Furthermore, because college is about "building character and life skills", there's no control on accredited institutions that do not provide economically viable candidates. Which college students in what programs repay their loans vs do not? Where's that data? Surely that information is a matter of public record but students go to college courses, get A's, and come out the other end jobless or under-employed.
The net effect is children who's parents have never gone through college or continuing education programs, especially minorities, don't know to ask the above questions or how to navigate the system successfully, and the college administrators in order to make their millions, screw those kids and their families over 9 ways from Sunday as hard as they possible can because it's a dog-eat-dog world and screw em'. Think about it; please fill out your FASFA and tell me exactly how much money you make so I know how much to charge.
It's an unsustainable system and the only thing that gives it a some amount of legitimacy is the fact the loans are given by the government and people are allowed to do what they want with them. It's a system that is begging for regulation.
Federally owned student loans, which are the vast majority, have income driven repayment plans available. There are a lot of details but most are eligible for a plan that requires the payment of 10% of income after 150% of poverty line.
But I want to say this is another TANSTAAFL. You worked, had skills, and otherwise "worked" for your loan.
If loans are "free" like student loans, the costs can end up being even higher.
What will happen is that once there's enough examples like your biologist friend, the government will forgive them with a TARP like exercise. That might be OK if the underlying system changed and we stopped loaning out money to people unlikely to hand it back.
And the money ends up bloating the academic bureaucracy anyway. Not enough ends up improving or providing education.
Of course, in the U.S, the government is involved in a lot of the lending, which means that they'll probably do whatever irrational thing pleases whoever they're trying to please; except this time around when they're doing the thing they are responsible for doing (actually enforcing the terms of the loan agreements) rather than the popular thing.
Here in Canada, I feel the system is pretty unfair to people who did not require higher education; I'm stuck paying for the useless, pompous ignorami who make private life harder and more boring for me with their prefab ideas and vague bloviation, and I've been paying net taxes into it since I was 17.
When I move to the U.S, I hope I'm not paying even more for the same garbage that convinces smart people that they are useless without college, and convinces dumb people that college has automatically made them useful.
[0] As long as the conversation about the tremendous amount of student debt held in the U.S. is centered around loan forgiveness, lenders have no incentive to improve their practices. The federal government can't just steal their property, so they figure they'll get a sweet settlement and a smooth exit, just like the lenders who were publicly scapegoated, and privately rewarded, a decade ago.
All that's missing are weekly whippings...
No private bank would do this so it has to be government. But we want this to cost the government nothing, so the loan is uniquely inescapable.
And we want Universities to charge essentially whatever they want, so the loan required is close to unlimited.
We'd need to change one of those to fix the problem. Forcing private banks to issue unlimited loosing loans, telling universities what they can do or, only alowing the rich into uinversitys are all unacceptable. Which leave one option, the one other developed continues use. Which is hammered with words like "socialist" or the like.
That doesn't mean the loan needs to be unlimited. Pretty much every story you hear about unreasonable loan repayments are from people who went to a private school and spent $50,000 a year on a major that doesn't have good job prospects. I went to a public state school and most of the people there were because it was cheaper than going to out of state schools or private schools and they majored in subject that had good job prospects.
A simple cap on college loans per major would force people to choose cheaper schools (like starting at community college and going in-state) and/or more job economical majors so they don't drown themselves in debt that they cannot pay off.
> Which leave one option, the one other developed continues use. Which is hammered with words like "socialist" or the like.
Except that solution involves subsidizing everyone to go to college despite how economically useful going to college is for each person. For a prime example, see this topic [0] where european colleges were losing all of their top AI professors because they wouldn't pay their AI professors market wages because they got paid at the same rate as un-economically useful majors.
I'd totally support discharging your loans and having your degree placed into some sort of ADMINISTRATIVE HOLD so it has no value until the loans are being paid back. You can easily pick up the payments once you're fully employed.
The reason student loans can't be discharged during bankruptcy is because the value of the degree can't be repossessed by a bank like a house or a car if you default. You attend college to learn and grow, not to pass an HR screening.
I could very easily acquire a job as a developer simply by knowing the material and how to write code - how I choose to come by that knowledge is my own prerogative but if I take out a loan from a bank to acquire that knowledge then they have nothing to repossess.
You don't attend college for a degree you attend it for the knowledge and experience you gain - a degree is worthless, it can't be resold if a bank were to "take posession" of it.
And trust me if banks and financial institutions could create second-hand markets and derivatives for degrees they would, but that would obviously be pointless. I can't just buy and sell PhD's on e-trade.
What? No. I attended college because it let me be hired nearly everywhere with much less hassle than having to "work my way up" - nearly everything I learned was useless or rapidly obsolete (if it wasn't obsolete as it was taught).
>You don't attend college for a degree you attend it for the knowledge and experience you gain - a degree is worthless, it can't be resold if a bank were to "take posession" of it.
Except to HR, which is frequently where it matters the most, in actual dollars
It sure would be nice if a college education was about learning and growth and discovering oneself and all the hoopla they feed you during visits and orientation, but it's a structured credentialing system that involves professors for some reason, and it's effectively mandatory for making an above-median wage.
College is what you make of it. It's 4 years to spend at least half of your waking hours learning new things. You can waste a bunch of that time and still get a credential with vanishing return, or you can invest all of that time in building highly valuable skills (while also getting the credential).
N=1: I was offered a $70K coding job out of high school. I made over 4x that amount at my first software job after graduation. They definitely weren't paying 4x more because of my degree, and most of my graduating class was making less than 100K. But it would have taken me longer than 4 years to get those skills and knowledge if I were working full time. More importantly, I would have had very few options a few years later when I got bored/burned-out with programming and decided to move into research.
College is a space to develop your human capital. The official curriculum is there as a guide and baseline, but it's your responsibility to use your course project time and especially free time in an effective way to build on top of that curriculum. Unfortunately, very few students understand this.
For the record though I don't have a degree myself and I've never been denied for it during the HR screening process, I'm a developer and I use my existing work to market myself. I understand that in other fields this is either very hard to do or near impossible (Doctors, for example, could never do that).
In an ideal world, if we could restructure society, we'd have corporations take on the burden of educating their workforce entirely - for instance perhaps out of high school if you were interested in being an accountant you'd intern or do a 2 year rigorous learning/onboarding process at company X where you'd agree to work for less or stay on for Y amount of years. I think a system like that would work a lot better for a lot of people and ultimately bring the cost of higher education down for the people who simply can't avoid it.
I can see 2 values in a degree: 1 the ability to put the degree on your resume, 2 the knowledge and enjoyment you got from the degree. I don't see how it's possible to remove 2. I guess you could remove 1 by making it illegal to put on your resume, but then how would you become "fully employed" when you can't put the degree on your resume?
But regardless of whether you got any knowledge from your degree, you could still get enjoyment from your degree. And even if you didn't get any knowledge or enjoyment from your degree, if you remove the ability to put it on your resume, how is someone supposed to become "fully employed"?
It would also make lenders want to make your succeed (it is their money)
That having been said, im familiar with debt after the 2008 housing collapse. I lost my truck and my trailer home, partly because of a shady home loan and partly because well, my employer went out of business. That having been said it was relatively easy to discharge these debts. the bank wasnt too upset about the home and offered to help me restructure payments, which I agreed to until I found someone else to buy it from me. The truck I sold back to the dealership...which incidentally also went bankrupt, but they were easy to work with.
I know people in this town with student loans that show up at the local watering hole every week and count their beers in dollars and their tips in change. One of them got her license revoked because she wasnt able to make student loan payments, and had to move back in with her folks. Because she has outstanding student loan debt, she cant qualify for section 8 housing or food stamps. Even her family gets harassing calls about the money she cant pay back fast enough.
She is a biologist, but all of her money goes straight to the loans. it has for 9 years now.
Why is it I can ditch close to 90 grand in loans lickety-split but students cant? how is education any different?