Student Loans a Lot Like the Subprime Mortgage Debacle, Watchdog Says • Hacker News Board

Re: Student Loans a Lot Like the Subprime Mortgage Debacle, Watchdog Says

#51

Post by rblatz » Wed, Dec 11, 2019, 4:20 AM UTC

azhenley wrote: post #27

planetzero wrote: post #15

We need to get rid of student loans. The problem is that Universities don't ever need to worry about a student defaulting and can keep increasing the prices of tuition with impunity. If they default, they don't care, because the money is already in the bank. If universities had to worry about students defaulting, they would get rid of bullshit degrees that don't result in an actual job and the prices would come done…

Some universities have started doing income share agreements. They front the tuition cost for a portion of your future income. Depending on your degree program, they will take X percentage for Y years. Purdue was in the news for being one of the first: https://www.purdue.edu/dfa/types-of-aid/income-share-agreeme... Planet Money had a nice podcast about how they work: https://www.npr.org/sections/money/2019/03/29/7081…

How does that work for people who receive a large portion of their compensation in things like equity in a private company that is extremely hard to value?

Would these plans result in the proliferation of odd compensation schemes to get around these repayment plans?

Re: Student Loans a Lot Like the Subprime Mortgage Debacle, Watchdog Says

#52

Post by Ididntdothis » Wed, Dec 11, 2019, 4:23 AM UTC

m463 wrote: post #39

psaux wrote: post #23

My wife and I lived a very simple lifestyle for years (7ish) after college so we could pay off student loan debt. Awesome Ford Tempo car, local honeymoon, Studio apt for first 5 years, limited eating out. She has a masters (more loans), and is a teacher. So that made it even tighter. Is there any data on if folks with student loans are living above their means? I.e new TV’s, new car lease, vacations, ordering out. I…

> Is there any data on if folks with student loans are living above their means? Literally every single friend of mine bought a new car when they graduated from college and got a job. Anecdotal, but I suspect it is more common than people realize. It doesn't mean they were living above their means, but I think buying a new car at the start might be a financial misstep.

I see that too. Most of the young engineers at my workplace never had a cheap car in their life. Their expectations are definitely much higher. I make quite a bit more and drive a Kia Rio. The young people almost all have cars that cost at least $10000 more.

Re: Student Loans a Lot Like the Subprime Mortgage Debacle, Watchdog Says

#53

Post by azhenley » Wed, Dec 11, 2019, 4:25 AM UTC

rblatz wrote: post #51

azhenley wrote: post #27

Earlier quoted context omitted.

Some universities have started doing income share agreements. They front the tuition cost for a portion of your future income. Depending on your degree program, they will take X percentage for Y years. Purdue was in the news for being one of the first: https://www.purdue.edu/dfa/types-of-aid/income-share-agreeme... Planet Money had a nice podcast about how they work: https://www.npr.org/sections/money/2019/03/29/7081…

How does that work for people who receive a large portion of their compensation in things like equity in a private company that is extremely hard to value? Would these plans result in the proliferation of odd compensation schemes to get around these repayment plans?

I'm not exactly sure. These programs are still in there trial phase anyway.

The one program that I looked into had a relatively low cap on it, like $60,000, so they only take a cut of the first 60k. Plus the majority of people (i.e., outside of engineering) don't get equity anyway.

Re: Student Loans a Lot Like the Subprime Mortgage Debacle, Watchdog Says

#54

Post by gwright » Wed, Dec 11, 2019, 4:25 AM UTC

diogenescynic wrote: post #38

rayiner wrote: post #30

All this talk about student loan forgiveness is an unnecessary solution to a problem that’s not really that bad: https://www.nytimes.com/2018/04/02/upshot/an-international-f... Average BA holders in the US graduate with $28,000 in debt, versus $21,000 in Sweden. The Swedish system is basically like our income-based-repayment, which we have had since the 1980s. Except, as you’d expect with Sweden, there is less paperw…

Why was it necessary to change student loans to being non-dischargeable in bankruptcy? That is a recent change and it shifts the burden from banks having to evaluate the loans they are making which would likely mean fewer loans and thus less money earned from interest. It seems like student loans should be treated like any other unsecured loan. And really student loans shouldn’t even be necessary for public universit…

Because it is an unsecured loan. It would be too easy for a newly minted graduate to declare bankruptcy, discharge the loan, and move on with their life. The only entity stupid enough to loan money to students in that world would be the government.

Re: Student Loans a Lot Like the Subprime Mortgage Debacle, Watchdog Says

#55

Post by Guest42 » Wed, Dec 11, 2019, 4:28 AM UTC

rotrux wrote: post #34

People have been talking about this for at least a decade & I wonder when the shoe will actually drop.

I think it will once the media declares it more of an emergency. It seems that the magnitude and exponential nature of the growth is forgotten and that soon enough it will reduce the demand on many products and services.

Re: Student Loans a Lot Like the Subprime Mortgage Debacle, Watchdog Says

#56

Post by hermitdev » Wed, Dec 11, 2019, 4:32 AM UTC

m463 wrote: post #39

psaux wrote: post #23

My wife and I lived a very simple lifestyle for years (7ish) after college so we could pay off student loan debt. Awesome Ford Tempo car, local honeymoon, Studio apt for first 5 years, limited eating out. She has a masters (more loans), and is a teacher. So that made it even tighter. Is there any data on if folks with student loans are living above their means? I.e new TV’s, new car lease, vacations, ordering out. I…

> Is there any data on if folks with student loans are living above their means? Literally every single friend of mine bought a new car when they graduated from college and got a job. Anecdotal, but I suspect it is more common than people realize. It doesn't mean they were living above their means, but I think buying a new car at the start might be a financial misstep.

I think it depends on the car and the job.

I graduated in 2003 and had to buy a car. I was driving an 88 Chevy Blazer that was starting to hit around $750 per month in maintenance. Final straw was when a cylinder was losing compression. This was already on an SUV that had its engine rebuilt and had more than 165K miles on it. It had a Kelly Blue Book value of about $100.

So, couple months out of college, I bought a modest Chevy Cavalier. Monthly payments were 1/3 of what I was paying in repairs, around $240/month. I could afford the car payments, I couldnt afford the monthly repairs.

I didn't buy my first fun car for about another 4 years. By then, had a well paying job, only debt was what lingered on the previous car loan. At the time, didnt have a great salary, probably around $100k, but I was getting generous bonuses. Every bonus I had went to paying off atudent loans before I did anything more than a couple hundred splurge. I think that I had my student loans paid off in the first 3 years at my first salaried, full time job.

I think the key, for me, is that when my income tripled from when I was an intern, I didn't change my lifestyle. I lived the same, with a slightly more expensive so I could be closer to work & public trans. Everything went to paying down debt.

I think this is the misstep for younger people that suddenly come into earning a lot more money: more money in, increase the life style and spend the increase in income. It's an easy trap to make. And no, I'm not ragging on Millenials. Its a problem that has happened to previous generations in the same situation. I think it might be a lack of personal financial maturity (you know, out on your own, gobsmacked with more money youve ever seen in your life), not a generational thing.

Edit: clarification about exspense on the old vehicle

Re: Student Loans a Lot Like the Subprime Mortgage Debacle, Watchdog Says

#57

Post by Mirioron » Wed, Dec 11, 2019, 4:32 AM UTC

sykick wrote: post #42

rayiner wrote: post #30

All this talk about student loan forgiveness is an unnecessary solution to a problem that’s not really that bad: https://www.nytimes.com/2018/04/02/upshot/an-international-f... Average BA holders in the US graduate with $28,000 in debt, versus $21,000 in Sweden. The Swedish system is basically like our income-based-repayment, which we have had since the 1980s. Except, as you’d expect with Sweden, there is less paperw…

When making comparisons with Sweden or other countries the cost of healthcare, housing, food, and transportation should be taken into account. Healthcare and transportation costs are much higher in the U.S. I think too we also have a higher per capita income and I don't know how things balance out. One thing for sure though. I'd rather be poor in Sweden than in the U.S. There is also the fact that many students who s…

Why would transportation costs be higher in the US? Gasoline is two times cheaper in the US than in Sweden. Food is roughly the same price, depending of what you eat.

Re: Student Loans a Lot Like the Subprime Mortgage Debacle, Watchdog Says

#58

Post by deepnotderp » Wed, Dec 11, 2019, 4:34 AM UTC

ahnick wrote: post #2

Let's say that one thinks eventually a large percentage of for profit private colleges will have to close their doors. (think small ones that no one has ever heard of, not your Ivy's) What's the analog to The Big Short here?

Asset backed securities

Re: Student Loans a Lot Like the Subprime Mortgage Debacle, Watchdog Says

#59

Post by swagasaurus-rex » Wed, Dec 11, 2019, 4:37 AM UTC

Mirioron wrote: post #57

sykick wrote: post #42

Earlier quoted context omitted.

When making comparisons with Sweden or other countries the cost of healthcare, housing, food, and transportation should be taken into account. Healthcare and transportation costs are much higher in the U.S. I think too we also have a higher per capita income and I don't know how things balance out. One thing for sure though. I'd rather be poor in Sweden than in the U.S. There is also the fact that many students who s…

Why would transportation costs be higher in the US? Gasoline is two times cheaper in the US than in Sweden. Food is roughly the same price, depending of what you eat.

Cars are required in most cities in the US to hold a job due to lack of public transportation.

Cars are required in most rural areas in the US because there is no other way around.

Re: Student Loans a Lot Like the Subprime Mortgage Debacle, Watchdog Says

#60

Post by zdragnar » Wed, Dec 11, 2019, 4:40 AM UTC

runako wrote: post #50

psaux wrote: post #23

My wife and I lived a very simple lifestyle for years (7ish) after college so we could pay off student loan debt. Awesome Ford Tempo car, local honeymoon, Studio apt for first 5 years, limited eating out. She has a masters (more loans), and is a teacher. So that made it even tighter. Is there any data on if folks with student loans are living above their means? I.e new TV’s, new car lease, vacations, ordering out. I…

I'm curious on the timeframe here. Depending on when you graduated, a couple of things changed: - college pricing increased (duh), so a loan balance for a comparably situated student will just be higher for recent grads - median incomes for college graduates have risen a lot slower than the increase in college costs, so repayment will be more difficult at the median. (Even in engineering, this is true. Starting softw…

Currently, average BA graduates have $28k in debt. $400 a month will pay that off in roughly 7 years, depending on the interest rate on the loan.

Frugal living (aka sharing a studio apartment with a spouse, not eating out or making luxury purchases) makes that entirely doable, probably faster. OTOH, living above your means or lots of unexpected expenses (pet health care, personal health care, car maintenance, etc) can put that out of reach pretty quickly as well.