
Student Debt Payback Far Worse Than Believed - prostoalex
http://www.wsj.com/articles/student-debt-payback-far-worse-than-believed-1484777880?mod=e2fb
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Inconel
I never went to college, I'm too dumb, poor, and undisciplined, but whenever I
would visit friends at UCI, UCLA, UCR, etc, I would often be shocked at how
nice many of the housing and general facilities were. Even the dorms, which I
had always imagined as being run down were actually very pleasant. Some of the
common facilities were down right luxurious, I imagine some high end resorts
would be jealous.

I certainly don't think students should be living and studying in squalor or
unsafe conditions but I wonder how much of the increased costs in education
are a result of the kind of spending that goes into some of these facilities.
Have universities, particularly public universities, always spent this
lavishly on their campuses or is this a more recent thing?

And have any studies been done on how much of the increased costs are due to
increased administration numbers and nicer buildings?

~~~
a2tech
Disclaimer: I work for a large and pretty prestigious University that has been
undergoing major work in the last decade to update facilities and add
buildings.

Almost all of the building budget has been paid for through our endowment and
donations from wealthy families so all the building activity hasn't really
touched our bottom line at all. However, year after year the state has cut our
funding which has directly led to the rise in tuition. The University already
runs as lean as possible with staff-our total compensation is a joke (even
factoring in generous retirement bonuses) because of this many years long
death by a thousand cuts that the federal and state government has pushed on
us. EVERYONE has to justify their jobs every year-and this includes faculty.
If a faculty member isn't publishing, teaching, and doing community outreach
on behalf of the University they won't be getting tenured.

~~~
ensignavenger
These endowments and donations might be covering the capitol costs of all this
building, but are they also funding operational and maintenance costs?

Also, that money would, in theory, be available for scholarships or other
programs if it wasn't being wasted on unnecessary things.

~~~
a2tech
These buildings are replacing elderly buildings/adding capacity so we can
serve more students. So the operation/maintenance costs should fall
dramatically for the buildings that are being replaced, and new revenue from
more students pay for the new buildings maintenance/operations.

~~~
ensignavenger
But if the building is much 'fancier' than needed, it becomes a lot more to
maintain than a simpler design/finish.

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lunchladydoris
This doesn't surprise me at all. I'm not in the US, but the picture I get from
abroad is that Americans are pushed to go to college, without really making
sure that this is actually what they want to do or is in their best interests.
And once they get to school, many will party and play video games instead of
studying, ending up either dropping out or with a low GPA and a general degree
of no real use. Neither of these is going to help the college-goer get a job
that helps them repay their debts.

I remember reading shortly after the start of the Great Recession how student
debt was going to be the next big ball to drop. I wonder how far we are from
that.

~~~
samsolomon
In the U.S. it is mostly assumed that students go straight to college, if that
is an option. I think it's very shortsighted.

Four-year colleges are far to expensive to use it to figure out what you want
to do. I think it would be much more valuable to try and find
internships/shadowing opportunities with different businesses and people.
That's what I would do, if I were going to do everything again.

For those who do want to go straight to college, taking random classes at a
community college is the right way to go. Typography, Geology, Pre-law—use
those classes to get an idea for what you want to study.

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kneel
This is going to be a problem. Student debt cannot be discharged in
bankruptcy, debtors simply garnish wages.

Terrible things will happen with a young overburdened workforce slaving away
for their debt. Politicians are already trying to figure out how to squeeze
more social security taxes out of them.

This is bad for the economy, likely to cause extreme class warfare and social
upheaval.

~~~
charlieflowers
Actually, as long as they don't revolt, it's _great_ for the economy. (It's
unethical to dupe a whole generation into indentured servitude ... but great
for the economy).

These people will have to work. No sabbaticals to find themselves, or time off
to spend with a newborn. They'll have to put up with every pointy haired boss
and dysfunctional workplace they encounter (at least until they can find
another job).

Every day of their lives will boost the GDP. (But it sure sucks for them that
their culture didn't steer them down a smarter road when they were 18 and
didn't know better).

~~~
imron
It's not that great for the economy.

Economies go great when people are spending money. If a large part of your
discretionary income goes to paying off student loans instead of spending on
other things, and you put off buying a house or having children due to
financial insecurity caused by student loans, then the economy suffers.

~~~
tedsanders
Your comment is full of assertions, but not evidence or explanation.

My own assertions:

(1) GDP measures production. If debtors are incentived to produce more, GDP
rises.

(2) The spending of debtors doesn't fall. It is just directed toward different
sectors (education and financial products instead of housing, etc.).

(3) Every dollar lost by a debtor is a dollar earned by a creditor. These
dollars don't disappear from the system. And even if creditors tend to churn
money less than debtors, inflation targeting by the Fed should fully counter
any changes in the aggregate velocity of money.

Now, it's possible you're right and I'm wrong. But I think it takes a much
more sophisticated (and justified) argument than what you are asserting.

~~~
19238998191
I agree that a sophisticated argument would take longer.

Regarding (3): The money does not disappear, but what is done with it? Already
excess money in the hands of the 1% is just going into real estate, the stock
market and stupid VC companies. All this is not particularly good for the real
economy.

~~~
tedsanders
FYI, this is a fallacy. Money cannot "go into" an asset, in aggregate. Every
buyer is always matched with a seller. For example, I have heard people say
that in the crash of 2008 there was more selling of stock than buying of
stock. But that would have been impossible. Each time a dollar was collected
from selling a stock, there was a dollar spent buying that stock. They exactly
equal. Money cannot go into assets, in aggregate.

This is of course different from personal experience, where exchanges are
essentially one-sided, not two-sided. An individual can exchange money for
property. But a closed economy cannot.

~~~
RobertoG
True. But that only describe the private actors in an economy. In the same way
that money come from the state it can disappear there. The state can decide
that "running deficits" is bad and start to destroy money running a surplus,
frequently, when what you need is the opposite, like currently in the Euro-
zone.

~~~
tedsanders
Running a budget surplus doesn't mean that money is destroyed. Also, the claim
that the Euro-zone needs deficits is a highly contentious point, and not at
all obvious or a consensus. Asserting it rather than arguing it does a
disservice to the subtleties.

~~~
RobertoG
"Running a budget surplus doesn't mean that money is destroyed."

What it means, then?

~~~
tedsanders
It means the government takes in more money than it spends.

Depending on the policy of the Fed (or other issuer of fiat currency), the
money supply may be increasing or decreasing at the same time.

~~~
RobertoG
Sorry, you are right. I forgot that the central bank in the States is not part
of 'the government'.

The 'other issue of fiat currency' sounds mysterious.

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patio11
_The new analysis shows that at more than 1,000 colleges and trade schools, or
about a quarter of the total, at least half the students had defaulted or
failed to pay down at least $1 on their debt within seven years._

I think this might be a matter of framing -- "failed to pay down at least $1
on their debt" might include students with a deferment who are planning on
having the debt forgiven. That is, for better or worse, public policy of the
United States; it seems weird to conflate that with default.

For example, if you have a Perkins Loan, you can defer during a period of
service at any employer where 10+ years would get you loan forgiveness. That
list is... rather expansive?

[https://studentaid.ed.gov/sa/repay-loans/forgiveness-
cancell...](https://studentaid.ed.gov/sa/repay-loans/forgiveness-
cancellation/public-service)

Would I expect people graduating from e.g. a teaching college to largely make
principle-decreasing loan payments given that this is our policy? No, I would
not; it would require that they receive terrible financial advice.

~~~
wtvanhest
In order to qualify for those deferals you still need to pay 10% of your
income. This means factually that all of those people cannot cover their
interest with 10% of their income. In my opinion, that should be considered a
loan in default.

They can get out from under the loan in 10 years, we still have to pay for it.

It is failed policy to allow college to get to expensive due to inflation of
prices through loose lending. IMO, that is the real bubble.

~~~
projektfu
It's 10% of discretionary income, which is the amount that excess 150% of the
federal poverty level. Nonetheless, the law also allows for hardship
forbearances that allow people to stop paying without defaulting. Personally,
I think the law is a backdoor subsidy done in the worst way. It increases
stress on families who can't afford the tuition for 20 years to give a subsidy
to the university. It incentivizes high tuition and keeping students on the
treadmill, with no concern for quality. I don't particularly mind if tax money
helps pay for an esoteric major, but I expect it to produce a capable scholar
in that field.

------
lunchladydoris
"A spokeswoman for the Education Department said that the problem resulted
from a technical programming error."

I would love to get the story behind this. The cynic in me wants to say it was
an Excel screw-up.

~~~
charlieflowers
Probably an Access database that was used waaay beyond when it should have
been put out to pasture.

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overcast
Finally paying off loans this year, I really feel sorry for anyone who didn't
land a good paying job right after school.

~~~
theandrewbailey
That's great.

The school I was going to closed the new branch I was going to after one
quarter. They paid for most of that, and offered a tuition-free ride at the
main campus across the country. Suddenly my ~$100,000 college bill was about
$25,000. Graduated 2009, fully repaid December 2014.

~~~
overcast
I'm jealous!

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aszantu
There's always the option of sucide - pretty tragic, but dept ammounts to all
kinds of additional pressures.

~~~
polarcrilex
That won't work. The majority of student loans are taken out with a parent or
a relative as co-signers. So if you die, your co-signer will be responsible to
pay off the loan. It will not be forgiven.

The correct way to do this is to first consolidate your loan under your own
name, so your parent, loved ones, or whomever the co-signer won't be ones
trapped with the debt.

However, in order to place the loan under your own name, you'd have to first
make consecutive payments to show you are able to pay off the loan w/o the co-
signer. This means you'd need to have a job with steady income first;
something difficult to do for the debt-laden grads in the first place.

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reader5000
I really dont understand a society forcing 18 year olds to sit in classrooms
for 4 years at 6 figure cost for a 50/50 shot at a 5 figure job. Theres gotta
be a better system.

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baking
[https://collegescorecard.ed.gov/data/changelog/](https://collegescorecard.ed.gov/data/changelog/)

"After identifying an error in the code that generates repayment rates, the
Department fixed the error and recalculated all repayment rates and replaced
the previously published repayment rate data values with revised values. The
error was a technical one in the coding that caused undercounting of some
borrowers who had not reduced their balances, and therefore inflated repayment
rates for almost all schools. This revision includes all repayment rate data
values in all of the merged data files and all versions of repayment rates
including repayment rates for each repayment rate cohort, the 1-, 3-, 5-,
7-year repayment rates, and all repayment rates disaggregated by demographic
category (e.g. first-generation status, gender, etc.). The relative
difference—that is, whether schools fall above, about, or below average— is
modest; over 90 percent of institutions on the College Scorecard tool do not
change categories from the previously published to the new rates. However, in
some cases, the nominal differences are significant."

------
rm_-rf_slash
A couple reforms I think would genuinely fix this system:

1: Cap interest rates, especially for private loans. Education pays itself
back several times over to society when people have good jobs and disposable
income.

2: Federal student loans should not be serviced by private corporations. Way
too many redundant services add unnecessary cost and nobody in society
benefits from this system but the loan companies. If I have a federal loan I
should pay the federal government. Simple as that.

3: Expand the earned income tax credit to subsidize apprenticeships. Whether
you're a welder or a programmer, it would be a lot easier for your employer to
get a wage subsidy and train you into the role, instead of gambling on each
prospective employee to be "the best" without them leaving in a few years to a
higher paying job so they can pay off their student loans.

My only concern is the people like me who have loans - not too much but a lot
- who are capable of paying them back and see those who got useless degrees
with 6 figure debt being bailed out. What will the reaction be? If the Obama
Administration's history with Wall St is any indication, it won't be pretty.

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atemerev
I really do not understand what this fuss is all about.

I started working as a software engineer back in 2001. It was a no-brainer to
steer to higher-paying areas (from Perl to Java, and then to software
engineering in banking, then to quant finance). I didn't get my diploma until
2014 (when I thought it would be a good idea to eventually get a PhD).

For all these years and career steering, I've been asked about my degree
_once_. When applying at a position in a huge telecom company, not even my
first (or second) choice. The rest of employers were happily ignoring the lack
of degree.

Ironically, I was never good in managing personal finances. However, if
someone told me back when I was 18 that I had to spend tens of thousands
dollars to get my degree, only to get zero work experience and start with a
junior position, repaying my debt for many years — I would have laughed in
their faces.

~~~
themgt
Not to be a jerk, but I have trouble understanding how someone obviously
intelligent can make such an oblivious statement. To be a successful self-
taught software engineer and quant you likely have a IQ a couple standard
deviations above average and work in one of the few fields where someone can
succeed through intelligence and hard work with little need for credentials.

"Quit school and become software engineer" is good advice for probably about
1-3% of the population. Granted the alternative shouldn't be dropping $200k on
a humanities degree, but what is your "no brainer" solution for everyone else?
A degree has long been a pathway to the middle class / white collar work.

~~~
BoorishBears
Trades? I'm a self-taught programmer who started getting paid at "market rate"
for mid-level dev a year before my colleagues graduated. For me coding is
pretty much a "trade" and boot camps are like "mass apprenticeships".

I'd imagine other trades have similar avenues of employment as well. Maybe if
we stop trying to convince people that a 4 year college is the only
prestigious career path (even 2 years of community college + 2 years of a 4
year gets a stink eye sometimes!) they'll stop trying to force themselves into
inescapable debt.

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msfries
Besides the initial cost of tuition,books,room and board, etc.,the money
borrowed has to be paid back eventually. No matter how nice thw college
campuses are,I feel for those, like myself, who were taught to get an
education, then start a career and life won't be hard. However, I never saw a
future of working not only without using my degrees costing into six figures,
but working a job that only requires a high school diploma, pays more than the
few job placements I had that required a degree and still having to pay back a
debt that I am not using and that is putting a strain on my income/finances.
GOING TO COLLEGE WAS THE WORSE DECISION I EVER MADE!

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cryoshon
great, now that we've identified the problem, let's get some robust public
spending on loan forgiveness in order to stimulate the economy be removing a
substantial debt burden from people who are in their prime earning years.

this isn't rocket science. people keep more money after their essential bills
= people spending more money

the alternative is that we let this debt continue until the students
eventually riot or kill themselves-- to be clear, i believe this is the most
likely outcome

~~~
umanwizard
I'd feel a bit cheated. I really wanted to go to Carnegie Mellon or U. of
Illinois, but I didn't because it was too expensive, so I went to U. of
Arizona.

If the government gives a big subsidy to people who made what I consider to be
a serious financial mistake by buying an outrageously overpriced luxury good,
why don't I get a subsidy too? I'm left with no debt, but also no outrageously
overpriced luxury.

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TheCondor
I'm an advocate for simplifying and flattening the tax code, but with what
we've got would it make sense for some sort tax insensitives? Like funds to
repay student loans could be tax free like 401k contributions or maybe
employers could get a tax break for helping to repay the loans. Gosh, assuming
this stuff doesn't already exist.

~~~
theandrewbailey
Interest on student loans is tax deductible. Can't say the same for the loan
principal.

[https://www.irs.gov/taxtopics/tc456.html](https://www.irs.gov/taxtopics/tc456.html)

~~~
overcast
Tax deductible, until a certain tax bracket. There definitely became a point
where I no longer received deductions.

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ohstopitu
Atleast for Software Engineers/ CS Majors...what was your out of school loan?
(I'm curious - I'm a 2016 SE grad from Canada, and it cost me ~70k total -
which includes tuition, dorms etc.).

I didn't go to UW or UofT, but I'm sure their total cost is ± 30k at most.

So I'm just curious how students manage to have loans of around 35k/yr.

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fapjacks
Yeah, no shit. Who at the WSJ actually believed that students were by and
large capable of paying back enormous student loans on time?

~~~
ThrustVectoring
Implicitly, everyone with a pension fund.

~~~
fennecfoxen
You misspelled "the taxpayers". Student loans are almost exclusively federal
affairs these days.

As this WSJ piece from December on the matter of the GAO estimating $108
billion in writedowns (probably a low figure, as they admit their accounting
on the matter is crap) puts it:

"To help pay for ObamaCare, Democrats simultaneously federalized the student
loan market and projected fictitious savings, all while adding more than $1.2
trillion to the federal balance sheet... then cited the government “savings”
to peddle the fallacy that the feds make money off student loans—a pretext
they then used to sweeten debt forgiveness plans that have helped keep default
rates artificially low."

[http://www.wsj.com/articles/obamas-giant-student-loan-
con-14...](http://www.wsj.com/articles/obamas-giant-student-loan-
con-1480640259)

~~~
projektfu
Things may be changing, but the recovery rates on defaulted student loans used
to be 120%, meaning that the government was collecting an additional 20¢ on
each dollar in default. This is in comparison to programs like SBA that have
recovery rates around 50%. When you factor in an already high interest rate,
this state of affairs is profitable.

~~~
antisthenes
Do you have a source for that? A 120% recovery on defaulted loans seems
insane.

~~~
projektfu
I'm not sure what year I read that, or what article it was in, but after some
cursory searching, in 2014, the recovery rate was 103-111%. Recovery rates are
much higher in student loans because they cannot be discharged. So 120% is
certainly not out of the question some years.

[https://www2.ed.gov/about/overview/budget/budget14/justifica...](https://www2.ed.gov/about/overview/budget/budget14/justifications/s-loansoverview.pdf)

In FY 2016: 100-112%
[https://www2.ed.gov/about/overview/budget/budget16/justifica...](https://www2.ed.gov/about/overview/budget/budget16/justifications/r-sloverview.pdf)

