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Student-Loan Debt Is Crushing Millennials

bloomberg.com

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Re: Student-Loan Debt Is Crushing Millennials

#51

Post by mfringel »

I feel like banks and students should get a choice. A couple of assertions:

A) Interest represents risk as well as the time-value of money

B) A non-dischargeable loan is risk free to the lender.

Given those, there should be two products:

1) Offering a loan dischargeable in bankruptcy, at whatever rate the market will bear.

2) Offering a non-dischargeable loan, with interest capped at the current rate for a 10-Year Treasury Note.

If there's no risk, a bank doesn't get to add it in, and the money is cheap enough that the student can pay it back.

If there's risk, a bank gets to charge whatever they can, and a student has recourse to bankruptcy.

Re: Student-Loan Debt Is Crushing Millennials

#53

Post by clairity »

esotericn wrote: post #18

The normalisation of lending is a huge issue in general. There's a pervasive idea that being able to actually afford things is abnormal. That everyone should just take a loan out for education. For a car. For a house. For a cellphone. Yes, there are benefits to being able to get things 'earlier' than otherwise would be possible. And if everything goes right, the situation a borrower is in at the end of a loan may be…

it’s very reasonable to take out a loan for an income producing asset (like education), as long as the expected return is greater than the cost of the loan.

but those sensible loans have also normalized loans for non-income producing assets, and that’s where it’s better to be able to pay up-front (unless you get an interest rate below inflation or the fed rate).

Re: Student-Loan Debt Is Crushing Millennials

#54

Post by JimboOmega »

skh wrote: post #3

Often times when student loans come up people blame exclusively the borrower. We should keep in mind that in a properly functioning lending market both the borrower and lender take on risk. The lender should not left out of the equation on who to blame. Both parties are at fault. But we don’t have a properly function student loan industry. Lenders assume very little risk in this market but they should not be absolved…

Do we, as a society want to let the free market decide what education is valuable and what education is not?

Giving lenders a lifetime claim on the maximum wage garnishment is undeniably one of the most backwards ways to decide we don't want to let them pick which educations to fund. But if we want lenders to decide what educations are worth funding, and incentivize them to do so, what factors can they consider?

You might find, for instance, that women get denied such loans more often - perhaps because of the degrees they pursue, or perhaps because they tend to get paid less. Is that fair?

Again saddling somebody with a lifetime of debt (that will never, realistically, get repaid) because of an idealistic choice they made as a teenager feels like one of the most idiotic solutions possible to this problem. It encourages constant tuition creep because there's always more money to throw at it.

But there is a lot of risk in letting a small cabal of lenders (as would inevitably emerge if it hasn't already) decide exactly who gets to have what educations.

Re: Student-Loan Debt Is Crushing Millennials

#55

Post by driverdan »

ant6n wrote: post #27
maverick2007 wrote: post #14

Student loans always did feel kind of predatory to me. We're asking 17 or 18 year olds whose brains haven't fully developed the ability to prioritize long term consequences to take on 10s or 100s of thousands of dollars in debt when in many cases, they don't even know their path through college (major etc). Now don't get me wrong, I don't have some sort of magic plan to fix this (maybe allow them to declare bankruptc…

Solution: lower tuition.

Solution: Reduce the amount of debt available. Cheap and easy school loans are what pushed up tuitions. They're not going to decline until the easy money disappears.

Re: Student-Loan Debt Is Crushing Millennials

#56

Post by lilactown »

MaupitiBlue wrote: post #30
skh wrote: post #3

Often times when student loans come up people blame exclusively the borrower. We should keep in mind that in a properly functioning lending market both the borrower and lender take on risk. The lender should not left out of the equation on who to blame. Both parties are at fault. But we don’t have a properly function student loan industry. Lenders assume very little risk in this market but they should not be absolved…

I don’t “blame” anyone. Millennials made a decision based on their preferences. Now they’ve changed their mind and want me to pick up the tab. No thanks.

I would say that many millennials made a decision based on information that perhaps wasn't true, and perhaps was given even in bad faith.

Source: am a millennial and experienced the huge pressure to go to college, especially an expensive one.

Re: Student-Loan Debt Is Crushing Millennials

#57

Post by esotericn »

clairity wrote: post #53
esotericn wrote: post #18

The normalisation of lending is a huge issue in general. There's a pervasive idea that being able to actually afford things is abnormal. That everyone should just take a loan out for education. For a car. For a house. For a cellphone. Yes, there are benefits to being able to get things 'earlier' than otherwise would be possible. And if everything goes right, the situation a borrower is in at the end of a loan may be…

it’s very reasonable to take out a loan for an income producing asset (like education), as long as the expected return is greater than the cost of the loan. but those sensible loans have also normalized loans for non-income producing assets, and that’s where it’s better to be able to pay up-front (unless you get an interest rate below inflation or the fed rate).

The variance is more important than the EV.

An individual human is N=1. It's a single trial. You only live once. ;)

An example would be taking out a mortgage. The highest EV is generally mortgaging yourself to the hilt. But in various circumstances, you'll then lose everything.

Oh, and during the period you've basically given yourself a guaranteed annual cost you can't discharge without potentially taking huge losses on a house. (In the student loan example, you stay for the period, or you get no fancy bit of paper at all).

Re: Student-Loan Debt Is Crushing Millennials

#58

Post by dontJudge »

maverick2007 wrote: post #14

Student loans always did feel kind of predatory to me. We're asking 17 or 18 year olds whose brains haven't fully developed the ability to prioritize long term consequences to take on 10s or 100s of thousands of dollars in debt when in many cases, they don't even know their path through college (major etc). Now don't get me wrong, I don't have some sort of magic plan to fix this (maybe allow them to declare bankruptc…

> bankruptcy would be a start?

Yes. This is the start and the end. Bankruptcy will stop lenders from making predatory loans. It puts risk on both sides.

Tuition costs will naturally (and quickly) drop. Because there will be fewer people able to pay a crazy loan fueled price without a crazy loan given to them.

Re: Student-Loan Debt Is Crushing Millennials

#59

Post by moduspol »

skh wrote: post #3

Often times when student loans come up people blame exclusively the borrower. We should keep in mind that in a properly functioning lending market both the borrower and lender take on risk. The lender should not left out of the equation on who to blame. Both parties are at fault. But we don’t have a properly function student loan industry. Lenders assume very little risk in this market but they should not be absolved…

> Lenders [...] should not be absolved of blame or have less outrage directed at them.

I was with you until this point.

What part do you blame them for? The federal loan guarantees were created for the express purpose of allowing people who otherwise couldn't get the loans to get them. The lenders are doing exactly what they're supposed to, and would be expected.

Lenders should be in the position of determining risk, but it's not their fault federal policy means they don't need to. They're not the ones raising the costs of higher education, they're just facilitating them as intended and expected.

If your outrage is directed at the lenders, you're barking up the wrong tree. Put the lenders back in the business of evaluating risk (like they do for home, auto, business, and other loans) and they'll do that.

Re: Student-Loan Debt Is Crushing Millennials

#60

Post by skh »

JimboOmega wrote: post #54
skh wrote: post #3

Often times when student loans come up people blame exclusively the borrower. We should keep in mind that in a properly functioning lending market both the borrower and lender take on risk. The lender should not left out of the equation on who to blame. Both parties are at fault. But we don’t have a properly function student loan industry. Lenders assume very little risk in this market but they should not be absolved…

Do we, as a society want to let the free market decide what education is valuable and what education is not? Giving lenders a lifetime claim on the maximum wage garnishment is undeniably one of the most backwards ways to decide we don't want to let them pick which educations to fund. But if we want lenders to decide what educations are worth funding, and incentivize them to do so, what factors can they consider? You…

I don’t want lenders at all. Higher education is a public good in the same way k-12 is. I’m in favor of free higher education for qualified people.
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