
How Student Debt Reduces Lifetime Wealth - SQL2219
http://www.demos.org/what-cost-how-student-debt-reduces-lifetime-wealth
======
hiram112
Lifetime wealth might be a good way to aggregate the results, but the
practical consequences of student debt are far more insidious.

If half the educated population is still paying off loans in their late 20s
and even 30s, this delays and reduces family formation and population a.k.a.
child free.

This will eventually destroy the housing market, especially in the sprawling
suburbs. If suburbia goes, it takes down the auto industry and the conspicuous
'big-box' retail industry, which we are already seeing.

Next comes the bankruptcy of Western social programs - social security,
medicare, pensions, general retirement in one's mid 60s - all of which is not
actually based on any sort of 'savings' but instead are paid for by the
younger generation, which must always be larger the previous, in true pyramid
style.

I'm guessing that the collapse of the big school loan bubble, originating in
the US, and now cloned in the Anglosphere and beyond, William make the housing
bubble look like a cake walk. School loans are further down the chain than
mortgages being backed by the government itself.

~~~
Y7ZCQtNo39
The cyclical pattern you mention is concerning. Our government should be
mandating cheaper housing and encouraging child rearing. Otherwise, we'll end
up like Europe with flat or negative population growth. Our path forward
mostly depends on having more people than before (which in itself is not
sustainable indefinitely), unless we see radically new policy, like UBI.

------
dkarapetyan
So don't go into student debt. Go to your local community college and then
transfer somewhere affordable. I've now worked with grads from all over the
place. I honestly can't tell the difference.

~~~
Y7ZCQtNo39
Some curriculum is specialized from the get-go. I don't think I wouldn't been
able to get the same quality introductory foundational computer science
courses -- into to programming, data structures & algorithms, & object-
oriented programming at a community college. Possible observation bias, but a
generalized community college education will only take out liberal arts
classes. And you weren't spending those semesters building up your hard skills
necessary for industry. For a bachelor's, that would leave you with just 2
years to really refine the craft. And I think most people need 4 years of
academic programming experience before going into industry. You need to see
enough and have established a basic level of experience to make quality
judgment calls when working on enterprise software.

~~~
austenallred
Community college is a great way to get the stuff that won't ever affect your
career out of the way. If you want to go to a top engineering college it's
pretty insane to keep paying $20k/semester for the mediocre liberal arts
portion as well.

~~~
dkarapetyan
Exactly. The lower division requirements can be done at any community college
and they are on average much better taught at a community college than a
research university.

------
Mz
_Though a college education remains the surest path to a middle-class life,
evidence has begun to mount that student debt may be far more detrimental to
financial futures than once thought, particularly for those with the highest
levels of debt: students of color and students from low-income families.

•The wealth loss will be greater for households with larger-than-average
levels of student debt: students from low-income families, students of color,
and for-profit students. _

Well, that sucks. The behinder you are, the behinder you get. Ugh.

~~~
abalashov
The ultimate the-behinder-you-are-the-behinder-you-are debt is IRS debt, of
which I have six figures' worth. Paying back-tax debt out of future income
that is itself taxable leaves you with the ability to, in the _best_ case,
_maybe_ pay _some_ of the interest and penalties on the back principal +
future taxes.

Unless you win the lottery or somehow experience a meteoric/extraordinary rise
in earnings, of course. And that comes with tax consequences of its own.

~~~
cheez
How'd you get that?

~~~
abalashov
Didn't pay taxes for a few years.

It's not terribly difficult to get into this situation if you bootstrap a
business over a relatively high personal expense base with no savings and no
capital. "I swear, I'mma totally save money for quarterly SE taxes this time.
Gonna get straight with Jesus." But a bad month or two and crappy cash flow
later, paying the mortgage and buying groceries win out once again, as do
certain strategic investments like hiring people (which don't pan out because
all you can afford is entry-level folk in a business model tailored to the
exact opposite). And again. And before you know it, a few years have gone by
like that.

Later, you make more money, but make more dumb decisions that get you even
further away from getting straight with Jesus. Marriage and child, followed by
expensive divorce (note to self: mid-high five-figure legal fees are not tax
deductible and the IRS could give two craps about your divorce). File
separately to protect your wife from your own tax liabilities like some sort
of overly proud Walter White, getting smacked with massive penalties because
you didn't file jointly. On top of that, be sure to do some even crappier tax
planning on the business side, like having an LLC without an S-corp election,
and paying 15.3% SEP tax on everything net of business expenses because you're
too lazy to do a little paperwork or to hire accountants who can properly
quantify the issue and educate you. Do some other stupid shit that a 21 year-
old would do, like buy a condo at the top of the bubble and get stuck with a
-48% underwater value (even in 2015!). Have a foreclosure and a deficiency
lawsuit while you're at it.

It's pretty easy to compound the problem.

Hindsight is all 20/20, but I went out on my own when I was 22 and had little
to no business experience. It took some time to learn to drive the chariot
right and not fly it into the Sun, and by that point I was up to my ears in
tax issues.

Man, what I'd give for the student loan problems typical of my
late-20s/early-30s compatriots... I've been thinking about expanding this
sordid tale into a blog post, but need to find a way to avoid it sounding like
a sob story and focus instead on educational and actionable takeaways for
other precocious young entrepreneurs who get in over their head. That's
challenging from a rhetorical point of view; the optics of this situation
scream "feel sorry for me" more than "here are a few stupid mistakes to avoid
which carry big consequences".

~~~
Mz
Sounds like you could devote an ongoing blog to the subject. Call it something
like "How to Royally Muck Up Your Finances." It could be educational and
therapeutic. And, if you figure out how to monetize it well, might help you
dig out of this hole.

If you start a blog, shoot me an email. I will promote it on at least one of
my sites.

~~~
abalashov
Thank you, I appreciate that.

I'm not sure there's much promise in the monetisation; it's at once
sufficiently niche (of interest largely to other businesspeople), and yet
banally commonplace (I'm certainly not the only one to have dug himself into a
huge hole, with tax authorities or otherwise), that serious ad revenue is
likely off the table. Moreover, I don't think blogging compares favourably to
the economic efficiency of doing what I actually do professionally.

All the same, I do have a blog already: www.likewise.am.

~~~
Mz
I have a BUNCH of different blogs. I mostly talk about me and my life, but
each has a different focus. This has been vastly more successful than having
an Everything blog.

Ad money is generally going down the tubes. Many places that historically were
successful have seen revenues plummet in the last couple of years or so in the
face of what I call The Adblocker Wars.

I have had more success with tip jars than ads:
[http://micheleincalifornia.blogspot.com/2015/11/how-to-
make-...](http://micheleincalifornia.blogspot.com/2015/11/how-to-make-paypal-
tip-jar.html)

Anyway, you can do whatever you want. If you don't want to, no big. But if you
put out specific objections, people will tend to engage those points. Coming
from me, that isn't intended to strong arm you into implementing my one off
idea tossed out on the internet. I'm just here to talk with people.

Take care.

~~~
abalashov
Don't get me wrong, it's an interesting idea and one I'd like to explore
further, as I like writing. I do it infrequently, but as you can see from my
blog, I do do it, and I'll keep doing it whether I get paid for it or not.

But there's no such thing as a side-hustle blog that pays hundreds of
thousands of dollars. One would have to be in the top 0.1% of bloggers, and it
would certainly be a more than full-time job in itself.

~~~
Mz
Before I mentioned money, I said: _It could be educational and therapeutic._

You can pay someone big bucks for therapy. Or you can blog for free to help
you sort things out. That alone can be worth big money, both in terms of money
saved on not paying an therapist and in terms of finally straightening out
your mess.

So, it doesn't have to make significant income to be a very worthwhile
endeavor. But, again, I'm a random internet stranger. It's easy for me to toss
out ideas. But it's actually hard work to make them happen. There is zero
obligation to act on the random suggestion of a random stranger.

~~~
abalashov
re: the latter - I know. :-) There's no need for the disclaimer.

I have no personal experience with therapy, but plenty of vicarious and/or
second-hand knowledge. My conclusion is that therapy cannot help with
objective and concrete issues. Therapists can help with psychological and
emotional issues, perhaps, but not with perfectly normal responses to
objectively stressful problems whose solutions are worldly. Tax debt is paid
with money, not with a different point of view or holistic mind-body wellness
or what have you.

I agree that writing can be therapeutic, though, and perhaps I ought to do
more of it for that reason.

~~~
Mz
I have done lots of therapy. It has its uses. But these days I find blogging
and having a sounding board more useful.

I notice you mentioned an expensive, horrible divorce. My divorce was amicable
and low cost. We did it without lawyers.

I am homeless and paying down debt and improving my income. Your financial
problems are absolutely not worse than mine. On the upside, my last student
loan payment should happen this week and next month my life should be easier
because of that.

So, FWIW, I think blogging about this has a lot of potential to help you sort
things out and get your act together.

~~~
abalashov
That's terrible. Sorry to hear that.

Yeah, it's all relative, of course. Some would say these are luxurious
problems to have in that they seem, at least for the moment, to be removed
from the struggle for basic survival.

That can change in a heartbeat when the IRS starts levying what little you
have in your bank accounts, though. Last September I woke up one morning and
found my checking account at -$1200; they assessed that levy based on some
arbitrary day's balance of ~$1500 or something like that at some arbitrary
point in the past. No rhyme or reason.

And as you probably know, the cascade of consequences that come with that—the
bouncing payments and so forth—are triply punitive if you have abysmal credit
and really can't afford any dings with the landlords who generously let it
slide...

------
carsongross
We need to re-moralize the language around debt and bring back the concept of
usury. There is a reason the European middle ages were so hard on the matter,
it came from the experiences of the late roman empire when debt consolidated
wealth and then destroyed the social order. (Sound familiar?)

Some ancient usury-based systems had the good sense to have a debt jubilee
every fifty years or so to stave off complete societal collapse. Steve Keen
has proposed a modern implementation of such a debt jubilee:

[http://www.ideaeconomics.org/a-modern-
jubilee/](http://www.ideaeconomics.org/a-modern-jubilee/)

Sticking our kids, especially our intelligent ones, in this much debt before
they even have a chance at family formation is deeply dysgenic and is
civilizational suicide.

~~~
johnnyb9
I think even better would be to have the federal government get out of the
student loan business altogether -- it's been shown that as 60% of federal aid
increases end up increasing tuition by that amount.

------
grecy
It is really sad that the wealthiest country in the world shackles it's young
people with crippling debt if they attempt to get an education.

My load from Australia is interest free, I only have to pay it back at a very
low rate when I earn over $45k per year, and it was $20k (TOTAL!) for a 5 year
Bachelor of Software Engineering.

~~~
owengriffiths
College students will have to pay the cost of their college educations one way
or another. Either with loan repayments or higher taxes.

The problem is how much people in the US spend on getting a college education,
not the funding mechanism. (ie living away from home, rather than living at
home like most of us do in Aus).

~~~
boomboomsubban
>College students will have to pay the cost of their college educations one
way or another. Either with loan repayments or higher taxes.

If I'm buying a hundred thousand tuitions, presumably I can negotiate a lower
price far easier than if I'm buying one. Additionally, even if their total
monthly income was the same, not being in a large amount of debt could be a
positive. Many would feel more comfortable taking a loan to start a business
or build a house, and it would be easier to justify spending without needing
to worry about debt interest.

------
CryoLogic
Why not make it so instead of loans, the university gives you 4 years of free
school and than gets say 10% of your next 4 years of income?

Than the school has incentives to improve the academics in your favor.

~~~
madengr
If that's the case you would only need to work 1 hour a day to pay your way
through school, while at school. They would need to take 10% of your income
for a lot longer than 4 years.

------
cryoshon
glad to see this getting attention.

there was one thing which i'll take issue with, which is in figure 5.

nobody that i know who has student loans can afford to pay that much per year,
meaning that this figure is extremely optimistic and likely not representative
of the median case-- which is fine because it still gets the point of the
authors across, but it's missing some context.

anecdotally, 7 years out of college has left me and a few people i know with
scarcely 2k shaved from our principles, with the rest lost to paying off the
6.5% interest. people don't have incomes which rise quickly enough to make
headway against the loans.

thankfully the article comments about the deferred retirements savings caused
by student loan burden.

this is a hugely important issue that requires a jubilee or some other radical
measure... but will likely not have one barring major societal disruption
which the current trajectory is barreling us towards.

~~~
delazeur
> nobody that i know who has student loans can afford to pay that much per
> year

I think that's cumulative cost, not annual cost. Hard to say though; it's not
a very good figure.

------
k__
This is really sad.

I had bad luck studying computer science in the short time when there was
tuition fees of 500€ per semester in Germany.

It "only" cost me 3500€, which I paid back 1 year after. Didn't have to take
any loans, because I worked as a developer on the side, while studying.

Some of my friends were less lucky, they couldn't work on the side and had to
take a loan. We have some subsidised loans here in Germany, where you only
have to pay back half of it and only to a maximum of 10k€, but that's still
rather much for many people, especially if their entry jobs don't pay that
well.

So they starting their "working life" and already got 10 years of debt.

------
qwerty2020
wrote something along these lines a couple weeks ago:
[http://erikrood.com/Posts/college_roi_.html](http://erikrood.com/Posts/college_roi_.html)

The net is to treat your tuition like you would any other investment (while
also acknowledging the non-monetary benefits) -- thoughtfully weigh all
options before blindly heading into college because it's 'the right thing to
do'.

~~~
duckingtest
I think the real difference is much more pronounced than what your analysis
suggests. A significant fraction of people without college-level education
aren't able to pass the non-financial admission requirements, or drop out.
Which almost certainly means that earnings of those who _could_ easily finish
but _decide_ not to are going to be much higher, making the decision to not go
even better.

Sadly, I don't think any relevant statistics exist.

------
BJanecke
Doesn't all debt reduce lifetime wealth?

------
nunez
I'm going to take a contrarian approach and say that I'm actually really glad
that I had to pay my way through college with loans. I started with ~$200k in
undergrad loans and have ~$45k left.

First, without having taken those loans, I wouldn't have been able to go to
the kind of college I did or establish the career that I now have. Full stop.
Tuition and lodging was ~$40k for my first year. My parents definitely
couldn't afford to send us there with cash, and no job or saving would've paid
me enough to pay that note.

I specifically avoided going to my comm college for my first two years despite
it being free because I really really REALLY REALLY needed to leave my house.
I had a ton of issues with my dad that only got fixed after leaving the house.
We're cool now, but I don't think that would have been our outcome had I not
left.

My college (and me learning how to code) was the biggest reason why I went
from graduation to a $125,000/year salary within two years of graduating.
While I might have gotten the same outcome had I gone to a comm college and
transferred, the age of the people I interviewed for my job that did that did
not suggest this. Perhaps I could've gotten a foot in the door by going to a
Hacker school or dogging it on my own; I don't know. My school (stevens tech)
and my course of study (Computer Engineering) made it really easy to get
interviews at top places for great jobs; that's all that mattered to me and
that's all that matters now.

Also, who knows what decisions I would've made in those two years that I
didn't make because I left. I love my folks, but they are pretty bad with
money and don't know anything about my industry. I was also not very good at
socializing with people going into college; moving to NYC and going out and
about fixed that and has helped me immeasurably since. I wasn't good at dating
and kept bouncing back to a relationship with my first girlfriend to avoid
having to look. She was a lovely person, but we had very different families,
life goals and personalities. I am incredibly thankful for the years I spent
earning how to date and branching out to other women; I would never have met
my soon-to-be-wife without that experience. I have college (and the loan that
enabled me to stay there) to thank for that.

The money thing leads me to the second reason why I'm grateful for having
taken those loans. Between trying to pay these loans back, my salary and
reddit.com/r/personalfinance, I learned a SHIT TON about how to manage my
finances. I have a spreadsheet that tells me everything about my money: who I
owe, what I owe, what services I have, how much they are, when they started
and stopped, etc. More importantly, I can copy it, edit some numbers and
instantly have a model for what my finances will look like if I buy a house,
have n kids, buy an additional car, etc. It's paramount in helping me
negotiate salary and helped a lot in predicting what my finances would look
like after moving to DFW from NYC.

The ONLY reason why that spreadsheet (and my financial health, which needs
work) exists is because of student loans.

Now, it would've been GREAT if I didn't pay for college like my peers did. But
I wonder how much money I would've wasted had I been in that situation. I
could've done a wa better job of using the money I made from my time in
cooperative education paying back my loans. Didn't have the financial
discipline. When looked at from that way, I think learning how to manage my
money through student loans INCREASED my future worth because I can now make
better and more confident decisions about how I spend my money.

~~~
austenallred
> I went from graduation to $125,000/year salary within two years of
> graduating

So long as that is part of the story it's a great deal. The problem arises
when it isn't.

~~~
Y7ZCQtNo39
If you apply yourself, and do your due diligence (e.g., see average salaries
for fresh college grads at prominent employers for your college major); then
yes, you will command the appropriate market salary. It's not an exact target:
industry trends could change, the macroeconomic landscape could change, but
overall performing due diligence is 95% of it, since you can't control whether
or not the market enters a correction when you graduate. But if you majored in
underwater basketweaving and expected to feed yourself, I have little
sympathy.

~~~
austenallred
That's easy to say (and I make plenty, I'm not worried about myself), but I
definitely feel bad for the people that never had anyone pull them aside and
explain that to them. If you buy the trope of "do what you're passionate
about" or "follow your dreams" you can get caught in a hole you can never dig
out of by the time you're 20 and before you've ever experienced what the real
world is like. That's pretty brutal.

~~~
Y7ZCQtNo39
I think colleges need to take a responsibility in understanding their pivotal
role in creating middle class workers. People aren't going to college to
"better themselves", they're going to make sure they can survive today. I do
feel bad for those bad people who don't know any better. I was one of those
people that nobody ever pulled aside. I grew up in a working class family. Out
of college, my annual salary was higher than the value of my childhood home.
It's still possible to dig yourself out if you have grit and know what you
want for yourself.

I don't know what set of life events has to instill that in a person, and I'm
not saying because it worked for me, there isn't a problem-- there definitely
is.

~~~
austenallred
I agree, and I actually think incentives should be directly aligned. E.g. the
more someone makes the more they pay in tuition. I know that's not an opinion
shared by many.

------
shmerl
Student debt should have no interest. Better even, there should be free
education to begin with.

~~~
ChrisLomont
If there were no interest, then the loans would be for more money. Getting
someone else to lend you money for your education needs to benefit them also,
or else they stop lending unsecured lenders money.

And there is no free education - someone pays for it. The notion of it being
free means later in life you will pay for it in taxes to fund such an
education. So it may seem free to those that don't understand they're paying
for it in taxes, but it is not free.

~~~
abalashov
Yeah, but as with healthcare, there are both economies of scale and
opportunities for systemic cost reduction when it's paid for by taxes.

Paying colleges with loan-leverage represents a massive inefficiency, and one
that they have undeniably milked in ways written about extensively elsewhere
(the enormous growth of the administration corps and non-academic expenditure
at the expense of instruction and tenure-track positions).

~~~
Goladus
> Yeah, but as with healthcare, there are both economies of scale and
> opportunities for systemic cost reduction when it's paid for by taxes.

How much systemic cost reduction is there, really? Are economies of scale
balanced by the systemic waste that comes along with taking revenue for
granted?

With healthcare, at least, it's hard to argue the utility of the product. The
individual demand for healthcare is trivially explained by the universal
desire for people to be healthy. The public benefit of healthcare is similarly
self-evident. And while the line can be blurry at times, there's a recognition
between essential and vanity services, even when the difference is only
context. Having your personal genome sequenced as part of an attempt to
diagnose a rare illness is not the same as having your personal genome
sequenced because you're curious about who your ancestors are. And where the
line is blurry we have resources invested in trying to distinguish one from
the other. We recognize the problem and are at least trying to solve it.

One cannot say the same thing about higher education. There is no self-evident
utility a degree. While we understand there is a distinction between a useful
education that provides knowledge, critical thinking, and practical skills,
versus a detrimental education involving mere ideological indoctrination, we
have no commonly accepted way to distinguish between the two. Sometimes people
draw that line between STEM and everything else, but that line is not
generally accepted nor is it particularly accurate.

If public money is going to be spent on education, we should have a reasonable
degree of confidence that money is funding _education_ , not ideological
indoctrination. It's one thing to have some waste around the margins. No
system can be perfect. But that's not the situation right now with higher ed.
Until universities sort themselves out and ensure an orientation towards truth
and knowledge rather than political activism, there's absolutely no way I
would support a general increase in taxpayer funding.

For more on this topic, check out Heterodox Academy:
[https://heterodoxacademy.org/](https://heterodoxacademy.org/)

