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US Household Debt Surpasses 2008 High

nytimes.com

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Re: US Household Debt Surpasses 2008 High

#141

Post by white-flame »

velodrome wrote: post #97
conanbatt wrote: post #68

Earlier quoted context omitted.

> Gov intervention is probably needed. The government interventino has been the problem, as you just exposed. Let people default on their student debt with 5 years of bad credit, and colleges will fix themselves.

> Let people default on their student debt with 5 years of bad credit, and colleges will fix themselves. How can the colleges fix themselves? They are not the one's giving out the loans. Maybe that's how it should be... It forces the colleges to have a vested interest in their students' future.

Sure, they're not the ones giving out loans. They're just the ones who artificially and astronomically inflated tuition to absorb all the available loan increases.

That is what needs to be corrected, by making the high loan-driven tuition levels no longer a reasonable offer in the marketplace, to force the prices back down to more service-oriented fees instead of a profit center.

Re: US Household Debt Surpasses 2008 High

#142

Post by vkou »

koolba wrote: post #126
theptip wrote: post #102

Earlier quoted context omitted.

> Considering that those loans don't even go away with bankruptcy What? How does that work? Edited to add: this link suggests you can make it go away, but you need to do some extra work: https://studentloanhero.com/featured/student-loan-bankruptcy...

The rationale is that you can't take away an education the way you can repo a house or car. That and something about doctors borrowing a couple hundred K, then declaring bankruptcy to discharge it after graduation.

And yet, nothing prevents me from maxing out my credit cards, and spending it all on whiskey and limousine rides... Or totaling my car (While only having liability insurance).

Lenders charge a premium over the prime interest rate because of the risk that they will never get their money back. Student loans are backed by the federal government - there is zero risk for these lenders. They seem to be under the impression that they should be getting paid for risk that they don't have to shoulder.

Why on earth should 18 year olds be entering financial transactions over hundreds of thousands of dollars, where they, but not their counterparty, get to shoulder all the risk? One would expect that the lenders should be sophisticated enough to know how to deal with it, and price accordingly.

Re: US Household Debt Surpasses 2008 High

#143

Post by int_19h »

lbearl wrote: post #88
conanbatt wrote: post #68

Earlier quoted context omitted.

> Gov intervention is probably needed. The government interventino has been the problem, as you just exposed. Let people default on their student debt with 5 years of bad credit, and colleges will fix themselves.

I hear that argument all of the time, but in reality the colleges aren't the ones giving out loans. What will probably happen is that loans will start being more difficult to get, which in turn will make getting into college even more difficult for people who already struggle to pay for it.

The argument is that the colleges are basically building their business model around those loans, because government regulations guarantee easy access to those loans, with no collateral and no barriers on obtaining one (http://www.collegescholarships.org/loans/guaranteed.htm). This means that anyone can get it, and that in turn makes it viable for college to demand that everyone does (by charging exorbitant amount of money).

From this it follows that if government gets out of the business of such loans, then a lot fewer people would be able to get them - which would mean that colleges would suddenly get a lot less applicants, sending their revenues plummeting. Which, in turn, would force them to lower the prices.

It's doubtful that it would bring them to the point where a loan wouldn't be necessary for most students, and it would still exclude quite a few who cannot afford such a loan, or wouldn't qualify for it. But one could argue that it's better to not be able to take such a loan in the first place, then to be able to take it only to be saddled with a mountain of debt with no hope of repaying it, and no ability to discharge it in bankruptcy.

IMO, if we want universal high education, the government needs to be in the game, but instead of providing traditional loans, or underwriting such from private parties, we should have a system whereby a loan is unconditionally provided in exchange for a share of future income, with a progressive bracket system (i.e. you don't pay anything below $X, including if you aren't working; and you pay a percentage off anything earned above $X). Percentage would be variable depending on how much income, on average, is expected to be earned by holder of a given degree, based on the current job market - this is to avoid subsidizing too many "worthless" degrees that never pay anything back.

Also, I would expect such system to emphasize trade schools over "real" college - and that is a good thing.

Re: US Household Debt Surpasses 2008 High

#144

Post by slackingoff2017 »

Meekro wrote: post #118
ryandrake wrote: post #104

Earlier quoted context omitted.

I don't know, maybe it's different now, but my generation (went to school in the mid 90s) was not told to "just go to the best college no matter what": We were also advised to consider the cost and carefully choose a major so as to produce a positive expected ROI. Obviously nobody has a crystal ball and you can never tell when huge, industry-wrecking changes are coming, but it was well understood that majoring in Und…

My experience was similar to yours. I immigrated from Russia at a young age so we had very little money. I attended a great college mostly on scholarship. My mom had always taught me to work hard and pick a major carefully, taking into account ROI. Thanks to merit-based scholarships and need-based aid, I graduated with minimal debt, despite attending a private college with a $45k per year sticker price. Thanks to a p…

Going to college without debt is not always possible. I tried everything to get scholarships to no avail. Picking a major with a good ROI is definitely possible.

Assuming everyone can do what you did is foolish because there's not physically enough scholarships to go around. There's probably a much greater number of people equally puzzled why they have to go to community college because they couldn't get a scholarship.

Re: US Household Debt Surpasses 2008 High

#145

Post by labster »

austenallred wrote: post #137
Meekro wrote: post #118

Earlier quoted context omitted.

My experience was similar to yours. I immigrated from Russia at a young age so we had very little money. I attended a great college mostly on scholarship. My mom had always taught me to work hard and pick a major carefully, taking into account ROI. Thanks to merit-based scholarships and need-based aid, I graduated with minimal debt, despite attending a private college with a $45k per year sticker price. Thanks to a p…

I'd venture a guess that helpful and savvy parents matter as much as (if not more than) coming from money

You need luck or connections or wealth to succeed. Connections can include parents, friends, etc. But something has to break your way -- simply attending college is not enough to tilt the odds in your favor.

Re: US Household Debt Surpasses 2008 High

#146

Post by geogra4 »

Analemma_ wrote: post #23
NTDF9 wrote: post #14

Leave it to America to make children a pseudo-slave right when they enter adulthood.

It's how you can tell we have so much freedom and economic liberty.

Freedom in capitalist society always remains about the same as it was in ancient Greek republics: Freedom for slave owners

Re: US Household Debt Surpasses 2008 High

#147

Post by malandrew »

lz400 wrote: post #139
manacit wrote: post #10

I don't know if it's a "bubble" (I am not qualified to say that), but I can't imagine that the current trend with student loans will continue. Looking at the numbers for someone entering college in 2017, it feels nearly predatory what a good portion of private and out of state colleges are charging. Even with financial aid, $30-40k a year for 4-5 years is insane. I was fortunate enough to have parents who made saving…

I truly don't understand the USA sometimes. Don't you guys know that in Europe higher education is free? Well where I'm from there was a very low nominal cost but my father was a public servant so cost was waived, I literally studied CS for 0 cost. And these countries are able to afford it all! Magic! I don't understand how people in USA are not aware of this and literally rioting in the streets. At the very least sw…

> Don't you guys know that in Europe higher education is free?

Nothing is free. Someone is paying for it.

Re: US Household Debt Surpasses 2008 High

#148

Post by treyfitty »

johnmarcus wrote: post #116
treyfitty wrote: post #55

Earlier quoted context omitted.

Largely because of the perverse incentives to declare bankruptcy immediately upon graduation. Think about it: no major purchase on the horizon, such as a mortgage- why not just ditch the loan if it's only going to hurt your credit file temporarily? Call it a slippery slope fallacy, but it's not fallacious when you realize we are rational beings (for the most part) and this loophole is attractive.

lol. for the 50 years prior to the law change (~2007) people weren't declaring bankruptcy after college to avoid the debt - but of course the debt was a reasonable amount back then compared to income and other debts. It's not that strange tuition has close to doubled after 2007, while only increasing near inflation before.

Also, (I'm speculating here, since I wasn't alive back then) but bankruptcy was very stigmatized. I won't know the extent, but the way my parents talk about it, bankruptcy just didn't seem like an option. They say it was akin to paying a vet to euthanize your dog rather than suffocating it- it's cheaper one way, but the outcome is the same.

It's easy to be "rational" as armchair economists, but social norms and pride are a very important driver. It's what baffles real economists when they gripe "our models would work, if the world were rational!"

Re: US Household Debt Surpasses 2008 High

#149

Post by int_19h »

masterleep wrote: post #28
manacit wrote: post #10

I don't know if it's a "bubble" (I am not qualified to say that), but I can't imagine that the current trend with student loans will continue. Looking at the numbers for someone entering college in 2017, it feels nearly predatory what a good portion of private and out of state colleges are charging. Even with financial aid, $30-40k a year for 4-5 years is insane. I was fortunate enough to have parents who made saving…

The more the government subsidizes higher education, the more expensive it becomes.

It's the exact same story as with healthcare. If you try to implement welfare by throwing money at the private industry to make their product more affordable, the prices simply grow up (which is basic supply and demand stuff - more people with money = more demand).

For this to actually work, you need to either regulate prices, or have a public-owned, government-run nonprofit with an explicit mandate to keep the prices as low as they can be, regardless of demand - and throw subsidies only at it.

Re: US Household Debt Surpasses 2008 High

#150

Post by kcanini »

ced wrote: post #131
ryandamm wrote: post #20

An alternative view, and one I happen to subscribe to: a balance sheet analysis shows that US debt must go up over time to support exogenous capital flows. Whether US debt grows in the housing sector, student loans, revolving debt, etc is a function of internal, domestic dynamics (including laws, local economic structure, etc). But the total capital flow into the US exceeds the outflow; that money ends up on a balanc…

I'd like to understand this better. There's two villages. A businessman from village B comes to village A and buys a store from Bob for 100$. Bob keeps the money for a rainy day. Where is debt increasing?

In this case, the net capital flow is zero. $100 is transferred from B to A, and a business worth $100 is transferred from A to B.
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