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The Long Road to the Student Debt Crisis

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Re: The Long Road to the Student Debt Crisis

#61

Post by tptacek »

dsfyu404ed wrote: post #55
tptacek wrote: post #38

Earlier 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…

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.

Two responses to this (we're recapping a previous thread at this point):

1. Tuitions were much lower when loans first started to be non-dischargeable.

2. The provision to exempt them from bankruptcy was based on concerns that people were already ruthlessly defaulting on them.

As this article notes: the current disposition of college financing is part of a package of policy changes geared at drastically expanding access to college, and that package is generally viewed as being successful on its own terms.

Re: The Long Road to the Student Debt Crisis

#62

Post by de_watcher »

tlear wrote: post #23
mnm1 wrote: post #5

> After years of projecting big profits from student lending, the federal government now acknowledges that taxpayers stand to lose $31.5 billion on the program over the next decade, and the losses are growing rapidly. Most civilized countries offer free or close to free education for their young population instead of trying to profit off of this segment of the population that barely knows what it wants out of life. I…

Free education only works when you have a selection system where you are tested and then put where you fit(shoveling dirt, laying bricks, trade school, college, university). In US any graduate from HS can go do 4 year degree in “something”. Try that in Germany or Netherlands.

Well, if he's not capable to receive that education then why he's trying to borrow money for something he can't handle?

Re: The Long Road to the Student Debt Crisis

#63

Post by wnmurphy »

Aaronstotle wrote: post #7

I 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.

+1. Community colleges are like a cheat code. You pay a fraction of the cost for the same GE classes, you have far less competition transferring in as a junior than as a freshman, and you're a more attractive applicant because you've had two years to realize you don't actually want to major in electrical engineering.

Many community colleges even have transfer agreements with universities; you just check the courses off the pre-agreed upon list, and you're guaranteed admission.

Re: The Long Road to the Student Debt Crisis

#64

Post by katmannthree »

mooselumps wrote: post #59
katmannthree wrote: post #12

Earlier quoted context omitted.

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…

ISAs are definitely interesting, it's nice to see a system that incentives the school to deliver value to its students.

>It seemed to me like the government subsidizing the market in stark contrast to unfettered capitalistic principles is the root of the issue.

My opinion was apparently unpopular, but I'm not claiming that the government is the cause of the problem. Instead I'm claiming that the government's noble effort is subverted by the fact that the schools care about maximizing immediate profits more than altruistic goals like building healthy strong societies. The cause of skyrocketing costs is, in my opinion, the simple fact that the schools seek to maximize their revenue and since there's no government-sponsored damping (as that would go against capitalist principles) we get a feedback loop as the government tries to educate its populace.

Re: The Long Road to the Student Debt Crisis

#65

Post by creato »

de_watcher wrote: post #62
tlear wrote: post #23

Earlier quoted context omitted.

Free education only works when you have a selection system where you are tested and then put where you fit(shoveling dirt, laying bricks, trade school, college, university). In US any graduate from HS can go do 4 year degree in “something”. Try that in Germany or Netherlands.

Well, if he's not capable to receive that education then why he's trying to borrow money for something he can't handle?

Among other reasons why this would be unlikely to work in the US: there would almost certainly be a racial disparity in who qualifies for higher education, and that would be a political disaster.

Re: The Long Road to the Student Debt Crisis

#66

Post by carlmr »

tptacek wrote: post #61
dsfyu404ed wrote: post #55

Earlier quoted context omitted.

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.

Two responses to this (we're recapping a previous thread at this point): 1. Tuitions were much lower when loans first started to be non-dischargeable. 2. The provision to exempt them from bankruptcy was based on concerns that people were already ruthlessly defaulting on them. As this article notes: the current disposition of college financing is part of a package of policy changes geared at drastically expanding acce…

Allowing for bankruptcy discharge would lead to less predatory lending (since all of a sudden the banks would have an interest in checking credit-worthiness), and that in turn would lead to universities losing many students if they don't lower tuition costs to reasonable levels again.

Not allowing defaulting on student loans was a huge driver in why tuitions are so high without any added value from the universities.

Re: The Long Road to the Student Debt Crisis

#67

Post by carlmr »

telchar wrote: post #32
omegant wrote: post #11

Honest question, why are Universities becoming so expensive? Is because these credits are available? Was estudying a degree cheaper before the credits?

At public schools, state funding cuts are part of it. States have been cutting funding for schools (directly or in proportion to expenses/inflation) for decades. At the same time many more students are going to college than they used to. These things combined increase funding share that needs to be made up by tuition significantly.

>At the same time many more students are going to college than they used to.

In terms of cost this statement doesn't make sense to me. There are plenty of economies of scale in education. One professor can educate an undergrad class of 100 people for barely more than what it costs to educate 10 people. While the effort for checking exams multiplies directly with the number of people, many of the costs are lowered the more students you have.

The marginal costs per student almost go to zero if you have enough students.

Re: The Long Road to the Student Debt Crisis

#68

Post by rayiner »

carlmr wrote: post #66
tptacek wrote: post #61

Earlier quoted context omitted.

Two responses to this (we're recapping a previous thread at this point): 1. Tuitions were much lower when loans first started to be non-dischargeable. 2. The provision to exempt them from bankruptcy was based on concerns that people were already ruthlessly defaulting on them. As this article notes: the current disposition of college financing is part of a package of policy changes geared at drastically expanding acce…

Allowing for bankruptcy discharge would lead to less predatory lending (since all of a sudden the banks would have an interest in checking credit-worthiness), and that in turn would lead to universities losing many students if they don't lower tuition costs to reasonable levels again. Not allowing defaulting on student loans was a huge driver in why tuitions are so high without any added value from the universities.

The only real lender of significance in the market is the federal government, which makes loans without regard to credit worthiness. That policy is not subject to change for policy and political reasons. What credit check is an 18 year old going to pass for a large unsecured loan? Especially 18 year olds from disenfranchised groups?

Re: The Long Road to the Student Debt Crisis

#69

Post by rayiner »

Retric wrote: post #53
rayiner wrote: post #49

Earlier quoted context omitted.

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.

Pre-Obama loans represent a small fraction of all student loan debt.

Re: The Long Road to the Student Debt Crisis

#70

Post by bradleyjg »

mikepurvis wrote: post #57
bradleyjg wrote: post #36

Earlier quoted context omitted.

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.

When the lender is the government and the forgiveness is an intended and advertised part of the program from loan origination, I’d argue it isn’t meaningfully a windfall.

Further, I’d argue that the borrower isn’t the main beneficiary of these student loan programs. Rather they are intended to, and do, enable monstrous cost growth in private de facto for-profit universities.

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