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

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

#61

Post by swagasaurus-rex »

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…

Nobody else is saying it so I will: Non-dischargeable loans have resulted in spiraling student loan debt.

Lenders have no reason not to give out these loans as they will be repaid even if it is sub-prime.

Schools have no reason not to jack up rates because students are given largely unlimited access to loans.

Both parties have been repeating this and raising their incomes for decades ever since student loans have become non-dischargeable.

Instead of ranking loans based on repayability, lenders have divorced themselves from financial reality because government intervention.

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

#62

Post by swagasaurus-rex »

gwright wrote: post #54
diogenescynic wrote: post #38

Earlier quoted context omitted.

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.

The missing wisdom here is that maybe the government should take on a high-risk, societally high-reward investment like education.

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

#63

Post by ponsin »

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…

Why? If I take out a loan in order to go on a cruise, the cruise company is not responsible if I default. In fact, with almost every purchase that involves a loan, the company offering the loan is different than the company offering the product / service. If responsibility fell on the university, then they could just refuse to accept people who take out loans. The result being that only rich people could go to college.

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

#64

Post by azhenley »

rhino369 wrote: post #47
diogenescynic wrote: post #38

Earlier quoted context omitted.

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…

>Why was it necessary to change student loans to being non-dischargeable in bankruptcy? To keep interest rates on student loans low and to make sure the loans are available to 18 year olds with no credit history. There was a real problem with medical students racking up huge sums, declaring bankruptcy when they were making low money during residency, but then making 6 figure salaries a few years later. >It seems like…

But federal student loan interest rates aren't low. Undergrads' loan options are determined by their parents' income, regardless of whether their parents are providing financial assistance. Graduate students can't take out subsidized loans at all anymore, even if they are on food stamps.

My loan rates are 6.55%. After 10 years of continuous school, that really, really adds up. I even had scholarships but they wouldn't cover my dorm, the mandatory meal plan, or summer classes so that I could finish undergrad faster. I looked to refinance with 3-4 different companies, like SoFi, but the lowest they offered was around 7% despite my very good credit score.

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

#65

Post by zdragnar »

psaux wrote: post #36
jrs235 wrote: post #26

Earlier quoted context omitted.

A lot of people got loans for degrees that don't pay. Or went a few years then dropped out. I went to a college known for its recreation management program. Cool industry. Not a lot of good paying jobs. I know a few universities with amazing turf programs... Only so many golf courses and turf fields that need someone with that kind of knowledge and that pay well. Most jobs in turf are mowing and applying chemicals th…

I have read that, thank you for posting. Schools are good at selling the vision for sure. Sister did photography, and is amazing at it. Just doesn’t pay the bills. In that context, we do need future poets and artists, and I am sure their jobs will not cover their loans, major loss.

> we do need future poets and artists, and I am sure their jobs will not cover their loans, major loss

Do poets and artists need four+ year degrees, or degrees at all? Everything I've heard from friends who have gone to various programs have said that they actually really make it harder to be a good artist- whether from undermining your individual muse to cramping your style, or simply putting your mind in the box of what is "good" art.

For that matter, does society need full-time artists and poets who have not yet proven their abilities to the point where they can sustain themselves at a level they are comfortable living with? Maybe, maybe not. There are jobs related to art (say, visual design or writing copy) that can be done on full or even limited part time basis.

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

#66

Post by runako »

zdragnar wrote: post #60
runako wrote: post #50

Earlier quoted context omitted.

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) ca…

> sharing a studio apartment with a spouse

That reminds me, I forgot the other big item. Housing costs have risen tremendously. (Yes, even in places that are not the biggest cities and/or on a coast.)

Basically: all the financial factors that changed, changed against new graduates. I'm struggling to think of a meaningful expense that is relatively lower now than it was in 1996, and I can't think of any.

I'm not saying it's not doable at all. I'm just saying that 20 years ago that $28k in debt might have been $14k instead, the $400 might have been $200, housing + other expenses would have been lower, and the graduate's relatively higher salary would have made the arithmetic easier.

Put another way: if one had to share a studio apartment with a spouse to make the math work in 1996, consider how much worse the picture would be today for e.g a person unfortunate enough to graduate college single and unable to share a studio with a spouse.

As you point out: there's less room for error now, which aligns with more people speaking and writing about the topic.

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

#67

Post by swagasaurus-rex »

ponsin wrote: post #63
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…

Why? If I take out a loan in order to go on a cruise, the cruise company is not responsible if I default. In fact, with almost every purchase that involves a loan, the company offering the loan is different than the company offering the product / service. If responsibility fell on the university, then they could just refuse to accept people who take out loans. The result being that only rich people could go to colleg…

This appears to be the primary difference.

Lenders are no longer on the hook defaulting student loans. These loans are not dischargeable in bankruptcy, and it reflects on the sheer amount of loans given to sub-prime borrowers.

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

#69

Post by gwright »

swagasaurus-rex wrote: post #62
gwright wrote: post #54

Earlier quoted context omitted.

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.

The missing wisdom here is that maybe the government should take on a high-risk, societally high-reward investment like education.

That sounds nice but it requires there to be a definition of "societally high-reward education". That is difficult. Even if you find some methodology to identify the quality programs that have an appropriate "societal reward" you have to deal with the problem that the costs for those programs will inevitably rise in lock step to the amount of tax dollars used to subsidize them. (See https://www.newyorkfed.org/medialibrary/media/research/staff...)

I would suggest the federal government get out of educational loans entirely. Let the private loan market evaluate and take the risks, probably with an income based repayment contract that favored degrees/programs that are likely to lead to reasonable incomes.

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

#70

Post by WizardAustralis »

rotrux wrote: post #34

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

I forgot who said it but "bubbles grow far bigger than is rationally thought possible, and fall far faster than anyone expects".

These bubble can go on for decades but once it bursts, the bottom of the bucket drops out and all the water goes with it.

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