Student loans can also be used to pay rent and meals, and living in an urban center is increasingly expensive. My alma mater is tearing down old dorms and building pricey new ones instead of making student life as affordable as possible.
The Long Road to the Student Debt Crisis
51–60 of 79 posts
Re: The Long Road to the Student Debt Crisis
#52Earlier quoted context omitted.
The market is on the other end. Loans are constantly resold after being issued, which is why people regularly get new student loan processors.
I don’t believe that’s the case. My understanding is that the government holds on to the loans but hires servicers to interact with borrowers. These servicing contracts are subject to competitive bids and that’s why people regularly get new processors.
It’s true loan servicing does not always change when loans are sold they are independent.
In 2010 the policy changed, however plenty of older federally backed student loans are still being sold and resold. https://www.investopedia.com/articles/personal-finance/08121...
Re: The Long Road to the Student Debt Crisis
#53Earlier quoted context omitted.
The market is on the other end. Loans are constantly resold after being issued, which is why people regularly get new student loan processors.
Loans are not resold. They stay in the government’s books. The loan processors are just contracted to provide processing services. https://studentaid.ed.gov/sa/repay-loans/understand/servicer... > In some cases, ED needs to transfer loans from one servicer to another servicer on the federal loan servicer team. ED transfers loans as part of its efforts to ensure that all borrowers are provided with customer service an…
https://www.investopedia.com/articles/personal-finance/08121...
There was a change as a rider to the 2010 affordable care act. But, older federally backed student loans are sold and resold.
Re: The Long Road to the Student Debt Crisis
#54The story makes some very good points, but completely misses two other reasons that tuition costs have risen so much faster than inflation:
1) State aid has dried up considerably. Public colleges used to get a a huge amount of their budget from the state. However, cutting funding to higher education has always been more politically palatable when tightening the belt than other areas. When I was in college, the funding was roughly 50%. Now it's about %25, and in inflation adjusted dollars is significantly lower than 20 years ago.
2) For at most of the past 20 years, there's been an arms race amount colleges competing for students. In that pursuit, enormously expensive new facilities from dorms to rec centers have ballooned capital expenses, covered primarily by bind issues that have interest to be paid and therefore necessitate higher tuition. To make ends meet.
These two items, along with easy financing, represent the three legged stool on which massive tuition and increased and student debt sits.
Re: The Long Road to the Student Debt Crisis
#55Earlier quoted context omitted.
There is also a free and fair option, just let people go bancrupt on their student loans. We've already seen politicians bailing out loans to help their reach friends, but saying it's all for the people. Don't let history repeat itself
The problem with allowing people to BK their student loans is that it creates a perverse incentive. If you BK over a car, it gets repossessed. But nobody can take your education back. A BK at 22-23 years of age is not a strong deterrent; you'll still be able to buy a house in your early 30s, which is when a lot of people plan to do that anyways. You can make loans dischargeable, but doing so will drastically change w…
For a long time people were allowed to discharge student loans in bankruptcy. Most people didn't because costs were reasonable and it hit your credit score.
If you suddenly made that allowed again there's be a bunch of initial bankruptcies because of pent up demand and the market racing toward equilibrium but it would almost certainly revert to somewhere near the level it was originally.
Re: The Long Road to the Student Debt Crisis
#56Earlier quoted context omitted.
The problem with allowing people to BK their student loans is that it creates a perverse incentive. If you BK over a car, it gets repossessed. But nobody can take your education back. A BK at 22-23 years of age is not a strong deterrent; you'll still be able to buy a house in your early 30s, which is when a lot of people plan to do that anyways. You can make loans dischargeable, but doing so will drastically change w…
Why could theoretically repossess the certification though. That is make it illegal to report you have a degree you bk’d on and make the colleges respond negatively when asked about your credentials. I suspect that leads to outcomes that are uncomfortable for universities though.
Consider if we required colleges to guarantee student loans.
Re: The Long Road to the Student Debt Crisis
#57Earlier quoted context omitted.
The last point is key. There are so many options that provide relief for those who need it most that don’t bail out New York Times journalists who paid $150,000 for a Columbia English degree or big firm lawyers who paid $250,000 for a Columbia law degree. And given how much of the debt is subject to income-based repayment, there is also a set of options for bringing relief to those who don’t qualify to cap their loan…
The trap with income based repayment is that after 20 or 25 years worth of payments less than the accruing interest the original principal plus all the capitalized interest is forgiven, but that forgiven debt is taxable income to the borrower. So the borrower has replaced a debt to the department of education to one to the IRS.
Surely the taxes on that income are considerably less than what was forgiven?
If nothing else, this seems like an argument for permitting the recipient of this particular kind of windfall to break it up across a few years, possibly retroactively.
Re: The Long Road to the Student Debt Crisis
#58I think a lot of the student debt crisis is self-inflicted. No one is forcing you to attend a 4 year straight from high-school, go to a community college and then transfer to a state school/4 year. (I spent 3 years at a CC, but I graduated from a UC and paid off my student loans within a year) Yes, college is expensive, but there is an existing alternative that everyone seems to forget about and it boggles my mind.
No one is forced to take out any kind of debt; the issue is that typical debt is secured by an asset or dischargeable in bankruptcy. If you make severe mistakes with credit cards, you'll declare bankruptcy and the credit card companies will suffer. This imposes some market discipline on lenders. Banks are (ideally) not eager to make mortgages to people who are likely to become insolvent. Yes, I know about the Great R…
> No one is forced to take out any kind of debt
In practice, I'm not certain this is true. In Massachusetts, a parent can be forced to pay for his over-18 child's college education:
https://www.familyneedslaw.com/blog/2019/03/massachusetts-pa...
I'm unclear as to whether or not the court can force a parent to go into debt to accomplish that.
Re: The Long Road to the Student Debt Crisis
#59Honest question, why are Universities becoming so expensive? Is because these credits are available? Was estudying a degree cheaper before the credits?
Short answer: Because they can. Longer answer, according to the universities: Because modern students demand more than just classes, they also want social services (on-site counseling, bias incident response teams, etc). Longer answer, according to a cynic: Because universities are more or less guaranteed the money from the federal government, they've grown to spend the money on inflated administration. As costs go u…
> I think that the unfettered capitalistic worldview we have here in the US is the root problem.
It seemed to me like the government subsidizing the market in stark contrast to unfettered capitalistic principles is the root of the issue.
Perdue’s income sharing plan mentioned in the article seemed really interesting off the cuff.
I think it would have been really beneficial had I been required to create a pitch deck to get financing for my education.
Re: The Long Road to the Student Debt Crisis
#60Earlier quoted context omitted.
A lot of kids are essentially forced. Maybe not with a gun, but there is strong societal and familial pressure to get into the best school that they can, and that’s engrained into them from a pretty early age. They are taught that their value as a human being is heavily dependent on academic success. Then, the people who raised them, and who they trust the most, tell them to sign on whatever dotted line is in front o…
I mentioned this to my parents and they basically brushed it off. We were told from middle school onward that you need a bachelors degree to succeed. We were even shown graphs about average lifetime earnings. High school students are woefully unprepared to weigh the financial decisions that college requires.
This also changed fairly recently. Cost of living and cost of tuition have skyrocketed over a generation or two, while wages have not (outside of tech, anyway). My parents generation could take out modest student loans and pay them along with a mortgage payment on a starter home with a single income. So what worked out just fine for them is setting kids up for disaster these days.