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The Student Loan Bubble is Starting To Burst

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Re: The Student Loan Bubble is Starting To Burst

#121

Post by dnautics »

dmckeon wrote: post #96
kilroy123 wrote: post #34

Earlier quoted context omitted.

A large part of the problem is all the shitty for profit schools. They get students to take out large government backed loans, then are defaulting, since they can't actually get a job. I knew several people I grew up with who went to these schools. They took out huge loans, 10k plus, and they never landed any kind of job with their "certificates" / degrees. [1] Half of all defaults are from these kind of schools. [1]…

From that link: "Students at for-profits account for nearly half of all student loan defaults but only about 12% of post- secondary students," In other words, not so much "half of all defaults" but "at 4 times the rate."

it's actually 9 times the rate, if you do the math correctly.

Re: The Student Loan Bubble is Starting To Burst

#122

Post by dnautics »

parfe wrote: post #95
RougeFemme wrote: post #77

Earlier quoted context omitted.

A lot of credit card debt has no collateral either, but that can be discharged in bankruptcy; why not student loans? And I suppose credit card companies could try to re-possess the goods purchased with credit cards (obviously not the services), but they don't. (And it makes sense not to; not worth it financially). FWIW, I have no student loan debt so I'm relatively neutral on this.

Credit cards also carry interest rates based on that risk. Do you think student loans would work with 25% interest?

yes, and if you were offered a 25% interest rate, perhaps based on a poor choice of major, then the signal would be "don't go to college"; or "switch majors"; or "get better grades"

Re: The Student Loan Bubble is Starting To Burst

#123

Post by ams6110 »

msandford wrote: post #16

It's really too bad that the laws surrounding student loans make them artificially cheap. You can't get rid of college debt through bankruptcy so you're basically saddled for life. Normally the interest you pay is the combination of three things: 1. The (inherent) time value of money 2. Expenses the lender incurs to keep up with the debt 3. The average default risk of those taking the loans Student loans only price i…

Predictably, the easy availability of student loans has caused inflation in tuition.

Re: The Student Loan Bubble is Starting To Burst

#124

Post by nchaimov »

msandford wrote: post #16

It's really too bad that the laws surrounding student loans make them artificially cheap. You can't get rid of college debt through bankruptcy so you're basically saddled for life. Normally the interest you pay is the combination of three things: 1. The (inherent) time value of money 2. Expenses the lender incurs to keep up with the debt 3. The average default risk of those taking the loans Student loans only price i…

It isn't quite true that student loans can't be discharged through bankruptcy. Student loans are not excluded from discharge if excluding the debt would "impose an undue hardship on the debtor and the debtor's dependents":

11 USC 523(a) Exceptions to discharge ... (8) unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor's dependents, for -- an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or an obligation to repay funds received as an educational benefit, scholarship, or stipend; or any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual;

Per http://www.moranlaw.net/student_loan_brunner.htm, "undue hardship" means '(1) that the debtor cannot maintain, based on current income and expenses, a "minimal" standard of living for herself and her dependents if forced to repay the loans; (2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and (3) that the debtor has made good faith efforts to repay the loans.'

Re: The Student Loan Bubble is Starting To Burst

#125

Post by rayiner »

I'm not sure JPM getting out of the student loan market means it's about to burst. The government's entering the market means that simply no one is interested in getting private student loans.

Under the government's new program, PAY-E, your payment is capped at 10-15% of discretionary income and unpaid interest capitalization is capped at 10% above the original principal amount. Debt is forgiven after 20 years.

Basically, there is no way for private lenders to compete with these generous terms. For the moment, at least, the government's program is running solidly in the black (indeed, with a big profit margin).

Re: The Student Loan Bubble is Starting To Burst

#126

Post by rayiner »

dnautics wrote: post #117
jlgreco wrote: post #81

Earlier quoted context omitted.

How many people go to real schools, and how many go to fake 'for profit' schools? And isn't the median student debt something like 25k? Not really "much much more" in my book. Anyone with a real degree should be able to handle that sort of debt. What we should be doing is allowing lenders to discriminate by major and school. Good school with a good degree? Lend. Good school with a shitty degree? Lend with extreme cau…

> What we should be doing is allowing lenders to discriminate by major and school. Good school with a good degree? Lend. Good school with a shitty degree? Lend with extreme caution caution. Fake school with any sort of degree? Tell them to kindly fuck off. No disagreement here. I don't want to give the perception that I think "for-profit" higher education is problem-free. I do think they have severe problems, but put…

No, for-profits are a problem. They account for 10-13% of students, but 25% of student loans, and 50% of defaults. They have no academic standards, because they have no concern for academic reputation in the way traditional institutions do, and can seek to enroll the largest possible classes without worrying about keeping up GPA/SAT medians.

Re: The Student Loan Bubble is Starting To Burst

#127

Post by enraged_camel »

msandford wrote: post #16

It's really too bad that the laws surrounding student loans make them artificially cheap. You can't get rid of college debt through bankruptcy so you're basically saddled for life. Normally the interest you pay is the combination of three things: 1. The (inherent) time value of money 2. Expenses the lender incurs to keep up with the debt 3. The average default risk of those taking the loans Student loans only price i…

>>Student loans only price in 1 & 2 because of the near impossibility of not paying the loans back.

That, and there is virtually no way to accurately measure the default risk of those taking the loans.

It would be very interesting to live in a world where your choice of major affected your loan rate. For example, as a political science major you would not be nearly as employable as a computer science major, which would translate to more risk of default. This would ensure that only those who are serious about a political science degree would pursue it, and at a big picture level things would shift so that people would think about the real value of their education much more carefully.

Imagine a situation where you are looking at a list of majors, and next to each item there is a percentage score, which is the loan rate. For electrical engineering it might be 2.5%, whereas for art it might be 9%.

But then you would also have to consider the risk that someone who is not qualified for or interested in electrical engineering would most likely drop out of it. So the formula would also have to take into account the person's background. If they scored high on their SATs and Advanced Placement tests for math and engineering, the loan rate for EE might further go down to 2%. For those coming from a non-technical focus in high school, it might go up to 3.5%.

Hmm...

Re: The Student Loan Bubble is Starting To Burst

#129

Post by acchow »

dnautics wrote: post #121
dmckeon wrote: post #96

Earlier quoted context omitted.

From that link: "Students at for-profits account for nearly half of all student loan defaults but only about 12% of post- secondary students," In other words, not so much "half of all defaults" but "at 4 times the rate."

it's actually 9 times the rate, if you do the math correctly.

(1/12)/(1/88) = 7.33

Re: The Student Loan Bubble is Starting To Burst

#130

Post by astrange »

rprospero wrote: post #35
abdophoto wrote: post #10

Every kid I come across that plans to go to college I tell them to find the cheapest route possible. Start at either a good community college or go to a public in-state school. You can still go to a good college for a reasonable price, but it seems more and more that kids are taking the more expensive route (dorms, out-of-state, etc).

The best college advice I ever received was from my middle school history teacher: Go to the cheapest college you can. Harvard doesn't have a secret extra organ to teach you about. Just about everything in undergraduate education is well established enough that you'll learn the same material anywhere. You'll find variation in the material covered (e.g. Catullus versus Ovid), but it's mostly window dressing on the sam…

Harvard has need based financial aid for 100% of your tuition (aka, perfect price discrimination). If you can get in, you can afford it.
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