
More Than 40% of Student Borrowers Aren’t Making Payments - prostoalex
http://www.wsj.com/articles/more-than-40-of-student-borrowers-arent-making-payments-1459971348?mod=e2fb
======
sh1ps
A big takeaway from this article (for me) is that people are surprised that 17
year old kids don't understand what they're doing when they take out that
college loan. Shock and astonishment despite there being little to no
preparation for this kind of financial understanding previously in their
education. That surprise and shock shocks and surprises me.

Honestly it kind of reminds me of the whole Yelp minimum wage thing. Person
knowingly takes a minimum wage job in the most expensive city in the world and
is surprised a year later when that wasn't very much money and they're
struggling. The simplest cost of living calculations would have said "moving
to that city and taking that job is a really bad idea."

This isn't to say that there aren't things that need to change. Education
reform is necessary as well as a living wage, but I'd also argue that basic
financial literacy is _also_ a requirement for being an adult and should be
treated as such.

~~~
AJ007
A big problem is that at age 17, all of the adults are saying go to college &
take out these loans. Guidance councilors, teachers, parents. The most
compliant high schoolers will just do what they are told without thinking
about it further.

I imagine this will start changing. When I was a kid, that group of adults had
the benefit of cheap degrees. Today, now that group of adults is us and we did
not go to school cheap (personally I don't fall in to that category out of
personal choice, but most of my friends do.)

~~~
pmiller2
> A big problem is that at age 17, all of the adults are saying go to college
> & take out these loans. Guidance councilors, teachers, parents. The most
> compliant high schoolers will just do what they are told without thinking
> about it further.

> I imagine this will start changing. When I was a kid, that group of adults
> had the benefit of cheap degrees. Today, now that group of adults is us and
> we did not go to school cheap (personally I don't fall in to that category
> out of personal choice, but most of my friends do.)

This rings true for me. The main reason I even went to college was because I
bought the story that "if you do well in school and get a college degree,
you'll get a good job and be set up for success in life."

Yeah. That didn't quite work out as planned. I enjoyed school and the things I
learned from my degree were cool, but I use literally 0% of it on the job now,
and it doesn't even help get me interviews very often, because it doesn't have
the magic letters "CS" in it. Thirty years ago, a bachelor's degree might have
been a ticket to a decent professional job, but those days are long past.

I'm not sure what I would have done as an alternative plan, but I'm sure it
would have been a hell of a lot cheaper. Not starting out behind a very
expensive 8-ball could have possibly helped me a lot.

~~~
industriousthou
Non-college grad here (well, AA from a community college, but that doesn't
really count). I get the impression that that some kids did really challenging
programs or went to prestigious schools and that paid off really well, but a
lot of kids bought into the "college = success" mantra. Every authority figure
they knew was telling them that this was the only way to be successful and the
schools were jacking up tuition to pay for more and more amenities. Indoor
kayaking! Rock climbing walls! Extend your adolescence for four years and
you'll magically be successful and pay it all off!

This is really a shocking dereliction of duty on the part of teachers and
guidance counselors. It was just easy to go along with conventional wisdom and
not apply any critical thinking and they ended up really screwing a lot of
kids over.

All that said, I wish someone would have shown me the value of a really high-
end education and helped me attain one.

~~~
pmiller2
> I get the impression that that some kids did really challenging programs or
> went to prestigious schools and that paid off really well, but a lot of kids
> bought into the "college = success" mantra.

Challenging programs have relatively little to do with it. It's almost 100%
about the prestigious schools and the networks that come along with them: the
old "it's not what you know; it's who you know," deal.

> All that said, I wish someone would have shown me the value of a really
> high-end education and helped me attain one.

Education is always valuable. It's schooling that's not always worthwhile.

~~~
madaxe_again
I went to a prestigious school and studied physics - place was ranked best in
the world for the subject at the time.

The degree is worthless. The wretched right-wing connections are even more
worthless.

~~~
pc86
Are you working in physics or a related field? It seems odd that you would
associate the political beliefs of what is surely only a portion of your
collegiate network with the science degree you got.

------
rdtsc
> The Education Department has assembled a “behavioral sciences unit” to study
> the psychology of borrowers and why they don’t repay.

Ha! There is a bit of a hypocrisy there -- if big banks / companies piss away
money and choose to strategically default then (and some even get bail-outs),
it is just business. If people do it for whatever reason, well clearly the are
immoral, deficient somehow, their psychology needs to be studied by a special
committee.

> Some borrowers aren’t repaying even when they can.

Yap, makes sense. They see banks get bailouts, why shouldn't they get
bailouts. Now maybe they shouldn't have been allowed to borrow to start with.
But maybe so shouldn't have banks and insurance companies been allowed to
leverage to unsustainable levels.

> The singular goal of our student loan program is to help all students get a
> degree that sets them up for success

One a separate note, that needs to be reviewed and re-evaluated. There are
deeper issues here. Simply handing out billions of dollars for degrees like
Masters in Basket Weaving from Phoenix University cannot possibly be seen as
solution to anything (except well, handing out tax payer money to Phoenix
University...)

~~~
letitgo12345
The TARP bailout was not money just handed out to banks. It was loans to
banking and other industries which was repaid in full overall. And in fact it
was the auto industry which failed to repay the loan, not the banking
industry.

I'm not a fan of the financial sector but let's keep the facts straight here

~~~
kaonashi
It was backstopping shitty loans with the full faith & credit of the gov't.
Note that the person who _received_ the shitty loan still got foreclosed on
and lost their equity. The persons responsible, who made the loan, don't have
to take a loss.

~~~
oldmanjay
What sort of belief should I start from to be able to decide that people
taking a loan they can't afford bear no responsibility? I imagine it's the
same sort of thinking that leads to calling a property they never actually
paid for theirs but I am not sure and when I am not sure, I ask.

~~~
kaonashi
They both bear responsibility, but only one party got the bailout.

~~~
iambateman
I hear what you're saying, but bankruptcy is most certainly a bailout relative
to debtors prison.

~~~
sk5t
That's an interesting perspective, but the U.S.A. does not have debtors'
prison. Only bad loans that are not repaid.

~~~
nkurz
_the U.S.A. does not have debtors ' prison_

While true in theory, this may not be true in practice. There are several
loopholes, one main one being that failure to pay fees and penalties assessed
by the justice system itself can be a criminal offense. In some states a
significant percentage (as high as 20%) of current prisoners are being held
for failing to pay these LFO's (Legal Financial Obligations).

Here are a couple ACLU reports about the practice:

    
    
      In for a Penny: 
      The Rise of America’s New Debtors’ Prisons
    

[https://www.aclu.org/files/assets/InForAPenny_web.pdf](https://www.aclu.org/files/assets/InForAPenny_web.pdf)

    
    
      Modern Day Debtors Prisons: 
      The Ways Court-Imposed Debts Punish
      People for Being Poor
    

[https://aclu-
wa.org/sites/default/files/attachments/Modern%2...](https://aclu-
wa.org/sites/default/files/attachments/Modern%20Day%20Debtor's%20Prison%20Final%20\(3\).pdf)

~~~
pc86
> _failure to pay fees and penalties assessed by the justice system itself can
> be a criminal offense_

Which doesn't have much of anything to do with the real estate market, right?

~~~
nkurz
Correct. I hoped from context that it was clear that I was responding only to
the line that I quoted (which said that the US "does not have debtors'
prison") and not to the main thrust of the argument.

------
igetspam
My wife is one of these borrowers. She has a master's degree in teaching. It
cost her over $100k to get and she can't find job that would pay her enough
that she'd be required to pay anything back. I've seen her loan repayment docs
and her minimum payment due is $0 every month. While I think her decision to
get a masters in education was a bad one (before we were married) I laugh at
an institution that would loan her money for a field that doesn't pay, ask her
to pay at least $0 a month and then complain that the loans are not being paid
back. I just paid Navient the outstanding $18 they've been bounding her for
and plan on paying them nothing again until my houses are paid off.

~~~
henshao
Don't teachers usually have loan forgiveness programs after X-years? I think a
lot of government associated jobs offer a perk like this.

I'm not sure if this is state specific or not though.

~~~
devonkim
They are conditional with having employment in the first place as well as if
the government entity they are under has approval for such forgiveness. My
wife doesn't qualify under most programs and given the glut of newer grads or
veterans (she's been beaten out by veterans for 10 positions with 100+
applications referred - none of which were non-veterans according to the
hiring committee we managed to find out) she's competing against that can
accept the $12 / hr wages I basically have to pay the residual myself instead.
That's marriage for you.

~~~
tsunamifury
We all bare our burdens... you should be so lucky that your burden loves you.

~~~
tostitos1979
Heh .. my wife also had a mountain of student loan debt. We saved like hell
and deferred major purchases (specifically, no house). We're about to payoff
the last of her loans and really happy about it. The challenging things are:
(a) we were talking about getting a new car. Even though a car loan is nothing
like a student loan (interest rate is much lower) and we do need to change our
car, we're super queasy about getting back in the red , and (b) we're in our
late 30s and property is unaffordable where we live. We're not keen to take a
600K mortgage (for a starter home) so will wait it out. We're both well-paid
professionals but even then one person's loan made a big dent in our financial
security. Also, the fact that we didn't own property before the real-estate
boom/bubble, means we'll likely be financially stunted for life. Cest La Vie.

~~~
devonkim
I bought a place in 2007 after the start-up I was at exited. That was a very
expensive lesson that you didn't have to learn at least. I can't think of an
actually positive outcome to this lesson fundamentally that I couldn't have
just learned with some Youtube videos. The emotional scarring is what's worse
than the financial scars. We can always make some more money when we've got
some time in life left, but life experiences are something nobody takes away
from you no matter how much you want them to go away.

------
tyre
We have set students up to fail.

On the one hand, we tell them that everyone has to go to college and that more
education is better. Regardless of whether more education has any financial
return. Is that the only metric? Absolutely not, but there is a point at which
education is a luxury.[1] My entire high school education was focused on how
to get into the "best" college.

On the other hand, in order to get that education, they have to take out
significant loans. At 17 or 18, they have little to no understanding of—let
alone, ironically, education—about personal finance.

So financially uninformed take on large amounts of debt with no gauge of
whether that is a positive investment. Sound familiar? We did the same thing
to uninformed mortgage buyers until they started to default in 2007.

[1]: I say this having majored in Philosophy. It was a luxury that,
coincidentally, is immensely valuable. At the time, however, I didn't know
that, I was just interested.

~~~
serge2k
> My entire high school education was focused on how to get into the "best"
> college.

and? The alternative is closing doors.

~~~
tyre
> The alternative is closing doors.

No, it isn't. That assumes college exclusively opens doors, which is not
always the case. Many Americans are leaving college with more debt than they
are able to pay off. Crippling debt is not a door everyone knows they are
opening, nor what that actually means or _feels_ like.

Furthermore, the "best" college by rankings does not translate to the best
college for that individual. The "data" around college rankings and binary
maxims like "go to college" hide the nebulous benefits and individual
circumstances.

------
guelo
There's a simple solution, the Feds should cutoff loans for schools that don't
get their students jobs. The government are the only ones that are able to
accurately calculate which schools are completely worthless. In fact they
should take it one step further and advertise to the whole world what
percentage of students get jobs in their studied field and the average
starting salary. That would finally put some market pressure on schools to do
their damn job and teach useful skills.

~~~
twinkletwinkle
Must the value of an education be purely the salary you can get afterwards?
The true roots of liberal arts (which used to include everything from
astronomy to mathematics to botany) lie in creating a well-rounded, educated,
sophisticated person. We can't all study STEM, and we as a society shouldn't
demand that.

~~~
Rangi42
Not everyone wants or needs to get a well-rounded liberal arts education. The
problem is that undergraduate degrees are more and more a prerequisite for
getting any job, so there's pressure to make it easy for poorer people to earn
a degree. Towards that end we have loans, grants, scholarships, subsidized
city colleges and state universities...

~~~
alanh
I am afraid you are wrong there. It’s a myth that the reason we have public
funding of higher education is to help people get nice jobs.

We have public funding of higher education because a better educated populace
is a better democracy and a better public.

It's an intrinsic value.

See also:
[http://www.salon.com/2014/06/08/colleges_are_full_of_it_behi...](http://www.salon.com/2014/06/08/colleges_are_full_of_it_behind_the_three_decade_scheme_to_raise_tuition_bankrupt_generations_and_hypnotize_the_media/)

~~~
Pinckney
If that were the case, why can't you get federal aid as a non-degree seeking
student? Do I need credentials to contribute to a better democracy?

~~~
alanh
I can only imagine that limiting loans and aid to the pursuit of an accredited
degree makes the difference between financing a lifestyle and financing
something that is guaranteed worthwhile (if we believe accreditation).

------
manav
It would be interesting to explore what kind of short positions are possible.
The majority of student debt is federal, so you would probably be looking at
the big private issuers like Nelnet and Sallie Mae/Navient
([https://www.navient.com/about/investors/debtasset/](https://www.navient.com/about/investors/debtasset/)).

I don't know if there is much of a CDO/CDS market anymore for student-loan
debt because subsidies ended some years ago. Lending standards have probably
tightened as a result, but it's possible that there are some student-loan
backed securities out there with a high probability of default.

I've thought about shorting Navient/Sallie Mae directly, but their ties to the
federal government make me think that they could possibly benefit from a
government bail-out or takeover if it came to it.

There's also the possibility of taking a short position on the for-profit
education industry. Institutions (or rather Companies) like DeVry and
University of Phoenix probably have some of the highest debt and default
rates. If they lose federal funding, their future is grim.

------
nothrabannosir
_The Education Department has assembled a “behavioral sciences unit” to study
the psychology of borrowers and why they don’t repay._

 _“We obviously have not cracked that nut but we want to keep working on it,”
said Ted Mitchell, the Education Department’s undersecretary. He said many
defaulted borrowers dropped out of school and are underemployed._

This is surreal. Could they be any more patronizing?

~~~
DanBC
"behaviour sciences" sounds like they're looking at nudge-like approach to see
if they can make more people repay, rather than just being clueless about the
fact that unemployed people have no money.

------
sooper
In New Zealand the Government has started to arrest defaulters at the
border[1]. This may not work as well for US as I am not sure of the percentage
who travel outside the country versus NZ.

[1]
[http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objecti...](http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11616227)

~~~
Daishiman
Wow, modern-day debtor's prisons making a comeback. Welcome to the Middle
Ages.

~~~
magicGLASSman
Most our tax dollars go to pay down the interest on our countries debt and you
go to prison if you don't pay your taxes. Crazy Days

~~~
paulmd
Absolutely false, interest payments make up only 6% of Federal spending.

[https://www.nationalpriorities.org/budget-basics/federal-
bud...](https://www.nationalpriorities.org/budget-basics/federal-
budget-101/spending/)

------
kdamken
Not surprising. Lots of kids are holding out hoping that someone will get
elected and wave a wand to magically erase the money they borrowed.

~~~
KZeillmann
I think it's more complicated than that. It's a huge, broken system. 17-year-
olds can't fully grasp the burden of their debt when they take it on, and
they've been told all their lives that they need to go to college to be
successful.

You've got a great potion for disaster here: 1) You can't be denied an
education loan. 2) Education loans can't be wiped out in bankruptcy because 3)
You can't repossess an education. 4) Because of the above factors, there's
little incentive for colleges to keep cost of attendance low.

I have no idea what the solution should be, but this problem can't continue
indefinitely. It's a more complicated issue than just, "Millennials are just
looking for handouts and don't want to pay their debts."

~~~
prostoalex
> 2) Education loans can't be wiped out in bankruptcy because

One can opt in for an unsecured personal loan, which are wiped out in
bankruptcy, but those come at higher rates to compensate for the risk. The
reason for low(er) rates on student loans is their legislatively mandated low
rates of default.

~~~
Pinckney
And 5-6 figure unsecured personal loans are available to 18 year olds with no
assets or credit history?

~~~
prostoalex
Good point. Most creditors would be aghast at 100% LTVs that student loans
seek, so it would have to be a combo of a significant down payment, parents'
HELOC (or other secured credit facility) and finally unsecured credit card
debt.

------
thearn4
If graduates had the option to discharge their student loan debt in bankruptcy
in exchange for revoking their degree, I wonder how many would end up taking
that option.

~~~
nly
How do you 'revoke' a degree?

~~~
thearn4
The scenario that I proposed was entirely hypothetical, but I image that they
are revoked in the same way that any credential is revoked: if asked to verify
that an individual holds it, indicate instead that they don't.

I mean, this has happened a number of times to doctorate degree holders when
it was later discovered that they falsified research for their dissertation.

~~~
nly
Yeah, but publishing a statement that announces that you're a cheat, and that
your education is a sham, _actually_ damages your reputation and your career.
Cutting up some paper so you can be debt free would just show that you're not
a complete nit.

Even if you actually needed that paper to prove that you are in fact
qualified, an entire industry would appear overnight dedicated to providing
certified copies. The free market ultimately decides what credentials to
trust.

------
Shivetya
Sorry, but when there is no testing to determine if they borrowers can even
complete the course of study they have chosen why should we expect any other
result? If you wanted the best example of why college education should not be
free this is it. I am all for community style colleges that could be free or
heavily discounted but the idea that people can simply choose ask for their
degree be paid for without first demonstrating that it is course with a
worthwhile career the country needs, they are capable of completing it, and
they are also capable of holding a job, doesn't work for me.

It isn't a right. When you become an adult you make choices, choices that come
with responsibility to your self and others. This does not include demanding
others support your flight of fancy, let alone one that may never pay out or
benefit anyone other than the person taking the money

~~~
jonah
Isn't the idea of the college admissions process (ideally) to determine
whether "they can even complete the course of study"?

Also, couldn't we set the number of (free) admissions to certain areas of
study based on the national need for those professions?

~~~
LeifCarrotson
Ideally, yes; practically, no.

The point of admissions has become to determine that admitting a given student
will do one of three things: Benefit the school through future press from
stand-outs, alumni donations, and better GPA, SAT, and ACT stats in the
various rankings (all leading to more enrollment in the future), benefit the
school by paying to attend and not really affecting rankings, or whether they
can pay and not really hurt ranks that badly.

And the number of free admissions to most areas of undergraduate study is 0.
Full-ride scholarships are usually athletic, not scholastic, but most partial
scholarships are based on test scores and apply regardless of the course of
study.

------
robbiet480
To everyone complaining about the paywall, try hitting the "web" link at the
top of this page (to the left of the story comments link)

~~~
ars
That doesn't work for me - it hasn't in a long long time.

~~~
shampine
Worked fine incognito for me.

~~~
ars
I tried incognito - still did not work.

They don't like my IP :(

Even stories linked from Google News homepage don't work for me - I wanted to
complain to google about why they even include them. But I guess it's just me.

~~~
metasean
It's not just you.

------
hibikir
The student loan system lies in the special place that brings in the worst of
private and government sectors.

General loans work pretty well out there: Loan costs are aligned with loan
risks, because nobody wants to loan money to those that can't pay. But student
loans are guaranteed by the government, so for all intents and purposes,
anyone can get a loan, whether they'll be able to pay it or not. At the same
time, it never goes away, and it's given to people who probably still live
with their parent. They bear a bigger risk than I do with my mortgage, but
they might get tens of thousands of dollars in debt without deciding on a
major first!

What really makes this pernicious is that, since everyone gets access to the
loans, in practice, this means college can be far more expensive than it'd be
otherwise: Without all the loans, most colleges would have to be cheaper. Same
thing if colleges also bear the risk of non-payment. And it's not as if this
money is being spent enriching teachers: It's mostly administration and
facilities.

So now we have a system where everything is very expensive, and most students
get huge loans that they can't afford, and where ultimately, the taxpayer will
end up having to foot the bill: The only winners here are the universities
themselves.

Just think of what this is doing to medical schools and law schools: They know
that even the poorest student will be able to max out on their loans! So
dropouts, and in the case of law school, graduates that went to the wrong
school end up in a worse situation than they would have been 30 years ago.

The country must choose: Either stop giving money to private colleges, and
just focus on good, cheap, no loans, public universities, or let people pay
for their own college with no guaranteed loans: Less people will even go to
college, but those that do will afford it, because colleges would have to
adapt to lower budgets.

Guaranteed loans to pay for expensive, private universities? This just makes
sure that millennials will end up worse off than their parents for the first
time since the industrial revolution.

~~~
gambiting
Well there is a way that combines best of both - look at UK.

Basically you have a similar deal like the US, so everyone is guaranteed a
loan no matter which university they are going to, but at the same time, the
government has limited how much universities can charge per year. So it
doesn't matter if you go study at Oxford or a some tiny university no one
heard about. The maximum you have to pay is 10k a year. And you don't have to
pay anything back unless you make more than a certain amount per year after
graduating.

------
relaytheurgency
I made a comment to this effect as a reply, but I don't understand why the
government charges so much interest on these loans (and then only lets you
deduct a small portion of it from your taxable income in some cases).

Let's assume you actually do end up bettering your life by taking out student
loans and getting a degree. Although it seems almost memetic these days that
you'll sink 100k into a school and wind up flipping burgers, in my situation
it was actually the opposite. I was a cook for a catering business making very
little money such that my federal tax burden was virtually nonexistent. After
finishing school I make quite a bit more money, but I'm paying very high
student loan payments (not complaining really, I was aware this would be the
case) and the interest on my student loans is higher than on my mortgage!
These are federal loans as well, not private.

By providing me a loan the government has essentially won! They've turned a
tax burden into a source of revenue. My lifetime earning potential is much,
much higher than when I did not have a degree and was working as a cook. Why
are some of these interests rates as high as 6%? It seems insane!

------
quantum_nerd
As someone who has been paying upwards of 20% or more of my monthly take home
pay to student loans, I am surprised the figure of delinquent payers isn't
higher. I count myself one of the lucky ones(CS degree, gainfully employed...)
and I have college friends making close to minimum wage, with more students
loans than I and struggling to make payments.

Who thought a $25,000/year(and rising) public university education was a good
idea ?

------
gtrubetskoy
"About 1 in 6 borrowers, or 3.6 million, were in default on $56 billion in
student debt"

I thought "default" is technically impossible with respect to student loans,
your solvency matters not, you're obligated to pay it off even if takes your
entire life (and/or life's earnings)?

This problem would get fixed very quickly if students were allowed to actually
default on the loan and stop paying it, at which point it becomes a loss to
the lender, like it is with any other loan. Then these loans wouldn't be
handed out like candy to people who are not mature enough to understand what
it takes to pay off $100K and thereby ruining their lives.

~~~
phdp
Default just means to not pay back what you promised when you promised. You
are confusing this with the fact that, except in relatively rare
circumstances, one cannot shed the debt in bankruptcy.

------
codeulike
Thats how its supposed to work, in the UK at least. Student Loans are like a
distributed tax that only gets paid by the grads who earn enough to repay.

edit: Also, in the UK, once you do earn enough, payment is automatic via
deductions from payslips.

~~~
gozur88
That's a terrible system, IMO. Why should we be rewarding B-Ark people while
at the same time punishing people who get degrees in Engineering and Medicine?
I can understand the logic for tax-supported universities (not necessarily
agree, but understand), but this just seems... intellectually dysgenic.

~~~
codeulike
Because perhaps there's a view that its worth something to society for people
to study things that dont necessarily lead to a high salary?

~~~
gozur88
I can't think of anything that would be as valuable to society as engineering
or medicine, say, and still wouldn't land you a remunerative position.

Anyway, that's an argument for taxpayer-supported universities, not for
universities paid for by the students who choose to learn skills other people
will find useful.

------
gatsby
Full text if you don't want to deal with google/paywall workarounds:

More than 40% of Americans who borrowed from the government’s main student-
loan program aren’t making payments or are behind on more than $200 billion
owed, raising worries that millions of them may never repay.

The new figures represent the fallout of a decadelong borrowing boom as record
numbers of students enrolled in trade schools, universities and graduate
schools.

While most have since left school and entered the labor force, 43% of the
roughly 22 million Americans with federal student loans weren’t making
payments as of Jan. 1, according to a quarterly snapshot of the Education
Department’s $1.2 trillion student-loan portfolio.

About 1 in 6 borrowers, or 3.6 million, were in default on $56 billion in
student debt, meaning they had gone at least a year without making a payment.
Three million more owing roughly $66 billion were at least a month behind.

Meantime, another three million owing almost $110 billion were in
“forbearance” or “deferment,” meaning they had received permission to
temporarily halt payments due to a financial emergency, such as unemployment.

The figures exclude borrowers still in school and those with government-
guaranteed private loans.

The picture has improved slightly from a year earlier, when the nonpayment
rate was 46%, but that progress largely reflected a surge in Americans
entering a program for distressed borrowers to lower their payments.
Enrollment in those plans, which slash monthly bills by tying them to a small
percentage of borrowers’ incomes, jumped 48% over the year to 4.6 million
borrowers as of Jan. 1.

The Obama administration—worried about taxpayer costs and the prospect of
consumers damaging their credit by defaulting—has stepped up efforts to reach
borrowers and offer options to enroll in the income-based repayment plans. In
some cases, the government is garnishing wages and tax refunds of borrowers
who refuse to pay.

But officials acknowledge that a large pool of borrowers have essentially
fallen off the radar. Loan servicers—companies the government hires to collect
debt—say they can’t reach such defaulted borrowers despite hundreds of
attempts through phone calls, text messages and emails. The Education
Department has assembled a “behavioral sciences unit” to study the psychology
of borrowers and why they don’t repay.

“We obviously have not cracked that nut but we want to keep working on it,”
said Ted Mitchell, the Education Department’s undersecretary. He said many
defaulted borrowers dropped out of school and are underemployed.

Carlo Salerno, an economist who studies higher education and has consulted for
the private student-lending industry, noted that the government imposes
virtually no credit checks on borrowers, requires no cosigners and doesn’t
screen people for their preparedness for college-level course work.

“On what planet does a financing vehicle with those kinds of terms and those
kinds of performance metrics make sense,” he said.

Some borrowers aren’t repaying even when they can. Research from Navient
Corp., which services loans for the government, shows that borrowers
prioritize other bills—such as car loans, mortgages and heating bills—over
student debt. A borrower who fails to pay down an auto loan might have her car
repossessed; with student loans, there is no such threat.

Kristopher Mathews, 38 years old, is in deferment on about $11,900 in federal
student loans. During the recession he earned a certificate at a Michigan-
based for-profit college that teaches media arts, but he wasn’t able to find
the well-paying job in radio that he hoped for.

Mr. Mathews now works as a logistical analyst for a U.S. auto company, making
$46,000 annually. He says he devotes his income to caring for his family—he
and his fiancée have three children—and then paying off two credit cards and a
car loan. “With all the other necessities in life I just don’t have” funds to
pay the student debt, Mr. Mathews said.

Once his deferment expires, he isn’t sure if he will feel obliged to pay down
his loan. “They promised me everything,” he said of his for-profit college.
“And I honestly have nothing to show for it except a piece of paper that
doesn’t really do me any good.”

Most borrowers who have defaulted owe relatively little—a median $8,900,
according to the Education Department.

Advocacy groups, some members of Congress and the federal Consumer Financial
Protection Bureau have faulted loan servicers for not doing enough to reach
troubled borrowers to offer repayment options. But the picture is more
complicated.

Navient, which also services private loans, says it attempts to reach each
borrower on average 230 to 300 times—through letters, emails, calls and text
messages—in the year leading up to his or her default. Ninety percent of those
borrowers, which include federal borrowers as well as those who hold private
loans, never respond and more than half never made a single payment before
they defaulted, the company says.

The administration maintains that the student-loan program, as a whole, will
generate a profit over the long term, but the risk is rising that the revenue
won’t meet the administration’s projections.

Even many borrowers who are current on their loans are paying very little.
More than a third of borrowers on an income-based repayment plan had monthly
payments of zero because their incomes were so low, according to a Navient
survey last year.

The Education Department, through private debt-collection agencies, garnished
$176 million in Americans’ wages in the final three months of last year for
student debt, federal data show.

The administration’s pursuit of troubled borrowers is drawing criticism from
student advocates and their allies in Congress. Last week, the American Civil
Liberties Union and the National Consumer Law Center sued the Education
Department, accusing it of blocking public access to data on the agency’s
debt-collection efforts. The groups suggested that the companies collecting
debt for the department might be discriminating against black and Hispanic
borrowers.

Dorie Nolt, a spokeswoman for Education Secretary John B. King Jr., said the
agency is reviewing the groups’ public-information requests.

“The singular goal of our student loan program is to help all students get a
degree that sets them up for success, and we take the treatment of our
borrowers—particularly historically underserved students—very seriously,” Ms.
Nolt said in an email.

~~~
nickpsecurity
Great comment. Most people I know with this problem are just not able to get
hired. Businesses reject them as underqualified or overqualified for every job
unless offered minimal wage. Unfortunately, minimum wage doesnt pay cost of
living plus minimum $1000-2000 loan payment.

So, I blame several parties in event loan was for kind of degree that
should've paid off. The market for doing everything possible not utilize
talent properly. Colleges and high schools that oversell the value of and
overcharge for degrees. As Im for universal college, I'm less worried about
credit checks so much as blaming government or lenders for allowing majors
with low likelihood of repaying. The minimum payments are pretty ridiculous,
too, with a progressive scheme making more sense.

So, many factors involved. Yet, there's no shortage of college-educated,
enthusiastic, hard-working people aiming for all kinds of jobs. Just little
willingness to hire them for a fair wage or at all.

------
Overtonwindow
A serious problem with student debt that is not talked about enough is the
inflated cost of classes, schoolbooks, and the pile on of all of these extra
classes that university forces you to take and pay for, that are there only to
pay graduate students. It's crazy how many pointless labs you are forced to
take now, classes that have never had labs before. I think we need to
dramatically reduce the number of classes that students are required to take
to get a degree.

------
bbarn
This is a problem that only this generation, and maybe part of the one after
it will need to face. The answer is simple, and we're on the cusp of getting
there.

Like any other industry, education needs to be unbundled. The idea that you
need to live in a dorm, in a psuedo-society, for four years, taking a broad
set of courses is dated and helps nobody but those offering that experience. I
predict in a generation we'll have the people making hiring decisions more and
more jaded about the value of these educations and less likely to keep
perpetuating the myth that you need a degree from a school to do a job.
Instead, we'll see more and more certification programs, or micro-degrees,
specializing in subjects that matter to the student.

I believe it to already be happening - I don't look at education except as an
afterthought when reviewing resumes. I don't have a degree, and I'm doing well
in my field. The types of jobs where I've ever been discriminated for not
having a degree I don't think I would have enjoyed anyway. Working at a 5000
person company that cares more about your score on an HR system than what you
could really offer them? No thanks.

~~~
poorleno111
Micro-degree are already a student... they're called an associates..

Nurses used to really only need an associates, however some hospitals are now
requiring RNs to obtain a bachelor of science in nursing.. Getting a tad
ridiculous.

------
Abundnce10
Can somebody compare this (let's call it a Student Loan Bubble) to the
Subprime Mortgage Bubble? I'm trying to get a sense of how big the problem is
by comparing it to the last bubble we just experienced.

~~~
jpmattia
You can get a sense of the scale for the subprime/Alt-A market here:
[http://bp3.blogger.com/_pMscxxELHEg/RxzD0s_7EYI/AAAAAAAABB4/...](http://bp3.blogger.com/_pMscxxELHEg/RxzD0s_7EYI/AAAAAAAABB4/ljDSXZhMG3o/s1600/IMFresets.jpg)

That graph shows you the size of the actual loans, but there was also a
sizeable amount of money tied up in derivatives of those loans, which
multiplied the effect.

------
ausjke
We have 47 million on food stamps, that's about 15% of the whole population.
47% does not pay a penny for tax, now even for those who are luck to have
college educations that 40% of the borrowers are not paying back, I'm just
wondering, where will the money come from to fill up the holes?

Adding on the military expense etc, the country is so totally financially
broken. How sad.

~~~
nkurz
_47% does not pay a penny for tax_

That's not actually true. The (mostly) correct version is that 40-some percent
of the adult US population does not pay federal income tax. The number of
"working age Americans" who actually pay no net federal taxes is actually less
than 5%: [http://zfacts.com/47-percent](http://zfacts.com/47-percent)

When you factor in state taxes the number drops even farther. Include sales
taxes, and it's probably zero. Saying that "almost half don't pay federal
income tax" is still striking, but should be kept in context.

------
mathattack
My impression as someone who went to a large public state school for
undergrad, and an expensive private for grad...

Most undergrads (more than 50% less than 80%) spend 4 years doing enough to
get by, and do a lot of socializing. This is cheap at in state publics,
expensive otherwise. The people who get in-demand majors are fine no matter
what. Those with other majors who really apply themselves need grad school and
more debt to break out.

An English major at Yale or an in state school is fine. The Yale student will
manage no matter what. The in state person got off cheap. Everyone else he an
expensive lesson in literature.

Despite that, life in most fields is much tougher without he degree.

The guidance counselors are partially wrong in suggesting loans for overpriced
schools. They are also wrong for suggesting soft majors at mediocre schools.

------
jamesblonde
For a really interesting take on student debt, read commentary by the
financial historian, Russell Napier, such as this:
[http://moneyweek.com/russell-napier-give-everybody-in-
china-...](http://moneyweek.com/russell-napier-give-everybody-in-china-a-
credit-card/) He believes that deflation is coming (along with a recession)
and the solution to deflation will not be monetary stimulus (negative interest
rates or bond-buying), but rather political. First on his expected list of
measures is a write-off of student debt in the US, to help reflate the economy
:)

------
Overtonwindow
I wonder if there is any school that shows students how much money they are
expected to earn after graduation for their selected major, compared to the
amount of debt they will have. I work with several people who have large
amounts of student debt, but when I ask about their studies at college, the
average income for their degrees pale in comparison to any salary they might
ever earn that will help them conquer that debt. I think students should be
made aware of a cost benefit analysis for their chosen majors.

~~~
roymurdock
[http://www.payscale.com/college-roi](http://www.payscale.com/college-roi)

------
surds
That is a sad state of affairs, though I must say I have seen worse numbers
back in India. Last time I talked with them, I was told that I was one of the
3 active accounts out of 20 granted ones that was repaying the loan.

That's 17 out of 20 in default - a massive 85%. Some of them were actually not
in a situation where they could pay back the loan. Others didn't want to. This
was the situation at that single bank branch. Don't want to imagine how large
the total default amount must be.

~~~
thearn4
I'm curious, how does the cost of higher education in India compare to the
U.S.?

~~~
surds
Highly varies by the program and university. When I started my graduation
program in 2013, higher education from good universities in India would have
had a fees of around 20k to 30K USD, or even more.

Of course, graduating from a good university here meant a lot more fees.

Unfortunately, and it is something that I really hate is that, the education
loan system in India can really use an update - at least in terms of the loan
amount that is offered to prospective students. As the bankers told me, there
is a limit of roughly 25K USD that can be allowed for education within India.
For those who want to get the loan for international programs, the limit is
roughly 33K USD.

Now, for local education, that is a decent amount, though might not be
sufficient in many cases. For international education, it is NOT sufficient.
This restriction applies to government banks and they usually follow it.

Private banks have made a lucrative business out of this, and offer much
larger loans to students at nasty, and often floating, interest rates (17% or
so would be average.)

That becomes a hell of a loan to pay back even if you are earning in USD and
returning in INR.

------
khnd
it's these 'for profit college' they have to go. i suspect most are total
trash. also - with all these coding bootcamps popping up nowdays, im not sure
if people are able to get govt student loans for these or what but it sounds
like trouble. ppl are desperate to jump on the coding gold rush and the great
salaries and job market. ppl are going to get fucked over big time.

first time i saw this[0] all kinds of warning bells went off. im sure there is
a way forward so that people can learn and share the value created from
software development job market but i think we should move fwd carefully. ppl
will definitely get fd over.

but yea most of those 'for-profit' colleges are totally shady.

do they have everest college in the US? perfect example of this kind of bs. in
canada they got shut down, but not before screwing over tons of people out of
their money for years[1].

[0]: [http://www.inc.com/maria-aspan/max-levchin-affirm-better-
stu...](http://www.inc.com/maria-aspan/max-levchin-affirm-better-student-
loan.html)

[1]: [http://www.cbc.ca/news/business/everest-college-closure-
no-s...](http://www.cbc.ca/news/business/everest-college-closure-no-surprise-
to-some-who-call-it-a-scam-1.2969513)

~~~
brbsix
At least the coding bootcamps are subject to market pressures that keep
tuition (and subject matter) within the realm of economic reality. The fact
that guaranteed subsidized loans are not available for them is probably of
massive benefit.

------
dv_dt
I this comes out of the flawed meme of private enterprise efficient/gov't
inefficient. Thought it's true in some areas, in the area of funding education
in society, it's terrible.

The loans push money to unsophisticated buyers (kids and their parents), who
use it to make a huge amorphous transaction which is only performed once in
their lives and plays out over years. There's insufficient buyer information
to provide price discrimination for the asset being purchased - so it's just
inflating college prices.

On the other hand, if we took the same amount of money and goverments directly
funded public schools - there's a lot of attention over time and many
transactions that can be administered by a gov't department to provide funding
discrimination and control over the quality of what is provided. (BTW this is
how many low cost public schools were funded in the boomer generation... at
least in California)

Edit: BTW, Does any reader here know of any interesting economic theory on how
to predict if a market will act efficiently? I'm imagining there must be some
way to model the structure of a given market with information, quality and
quantity of transactions between nodes representing
persons/companies/institutions in a market.

~~~
prostoalex
That strategy seems to work for Year 1, but what happens when (a) universities
expand to cover this newly created demand, thus requiring larger budgets, (b)
people enroll only to find out that the classes they are interested in are
full?

To quote [http://www.theatlantic.com/magazine/archive/2015/05/the-
upwa...](http://www.theatlantic.com/magazine/archive/2015/05/the-upwardly-
mobile-barista/389513/)

"When it comes to college, the central challenge for most Americans in the
21st century is not going; it’s finishing. Thirty-five million Americans now
have some college experience but no degree. More Americans than live in Texas,
in other words, have spent enough time at college to glimpse the promised
land—but not enough to reap the financial bounty. Some are worse off than if
they’d never enrolled at all, carrying tens of thousands of dollars in debt,
not to mention the scar tissue of regret and self-doubt.

President Obama’s recent proposal to have the federal government and states
pay for two years of community college is elegantly simple, and would surely
prompt more students to enroll. But community college is already close to free
for most low-income students, and still only 4 percent of all community-
college students earn a two-year degree in two years. (Yes, 4 percent.) Money
is just part of the problem."

~~~
douche
Community colleges are, in many places, already straining at their capacity. I
know a large number of people that I graduated high school with who got sort
of bait-and-switched by the local community colleges - they enrolled in a
program, then it turned out that there weren't enough slots in that program,
so the community college said, "Here, take your core classes this semester,
we'll fit you in next time." Then next semester, the classes they needed to
take the previous time aren't offered, so they do more useless "core" classes.

Maybe the second year they get into _some_ of their original program courses,
but now they are slated for at least a third year, because they can't take
their 2nd year fall courses (in their 2nd year), before they take the 1st year
fall and spring courses they got squeezed out of.

------
kin
I also noticed while doing taxes that if I borrow money, I'm going to pay
interest on that money I borrow. One of the incentives to this self investment
is that I can deduct the interest that I pay.

However, apparently, if your salary is above a certain threshold, you don't
qualify for education deductions and credits.

It's a first world problem, I know, but I just found out and it kind of
sucked.

~~~
Unklejoe
The same thing happened to me. I think they phase you out of the student loan
interest deduction after you pass $65,000 taxable income. I'm actually going
to increase my 401k contribution to try to retain more of that deduction.

~~~
relaytheurgency
I did not know this. I guess I will be doing the same or starting an IRA.

------
partycoder
Around the world many institutions use factoring.
[https://en.wikipedia.org/wiki/Factoring_(finance)](https://en.wikipedia.org/wiki/Factoring_\(finance\))

This converts receivables into cash by selling them a third party at a
discount. This doesn't prevent the educational institutions from getting their
cash.

Not sure how it works in the US.

~~~
jff
The Department of Education sold my loan to a private company within a year or
so of graduation. No rate change or anything, I just started logging in on a
different web site to pay. Same thing with my wife and with many people I
know.

~~~
tropo
This is terrifying. Did you get registered mail at least? Did the old web site
tell you where to go?

If you don't believe the notice you are given, you fail to pay. If you do
believe whatever notice you get, you are vulnerable to fraud.

~~~
suninwinter
My mortgage has been sold at least 4 times since I got it about 3 years ago.
Each time, I get a letter from the old company _and_ the new company.
Hopefully, that's what happened here.

------
roymurdock
Here is an interesting comment on reddit in response to someone asking how
they could profit from a mass student loan default scenario:

 _You bring up a really interesting point, my buddies and I have been mulling
this over.

Three important distinctions between student loans and mortgages:

Mortgages are backed by an underlying asset (the house) for which there is a
liquid market and transparent price discovery, so it's easy to determine when
the borrower's position is insolvent (i.e.; loan balance > home value;
negative equity)

For many student loans, the Federal government assumes the risk of default;
also, Sallie Mae dominates the secondary market, and shorting them entails
political risk (you're betting against a bailout)

While painful, defaulting on a mortgage is a realistic option for borrowers:
declare bankruptcy, give up the house keys to the bank, have shitty credit for
7 years, and you're out from under it; by contrast, student loans survive
bankruptcy (and the principal keeps growing)

Student loans are far more insidious precisely because it is difficult for the
market to take a natural short position and put downward pressure on prices.
What would a bubble 'pop' look like? For housing, the slow-down/decline in
home prices simultaneously bankrupted hundreds of thousands of over-leveraged
owners.

It's hard to imagine a scenario where a significant portion of student loan
borrowers simultaneously stop paying, and even if they did the loan owner can
chase them through bankruptcy and garnish their wages. That looks like a
recipe for a long, slow, toxic drag on the economy._

[https://www.reddit.com/r/finance/comments/3y39x2/just_saw_th...](https://www.reddit.com/r/finance/comments/3y39x2/just_saw_the_big_short_what_if_someone_shorted/)

------
aosmith
This is a bad situation that's going to get worth. Student aid is great and
all but I see a lot of people with useless degrees. If someone can expect to
make $35k/year after graduation they shouldn't be able to borrow $200k to get
there, it just doesn't make sense.

------
ameyamk
I wonder if there is investment vehicle I can short to make some profit if
these loans do actually go bad?

~~~
chadzawistowski
Not really.

Shamelessly copying a comment by /u/MasterCookSwag on reddit:

THIS is the major piece everyone misses. Mortgages were such a disaster
because banks held the debt securities thinking they were safe assets and they
weren't. This caused a chain reaction of devaluation of balance sheet assets
and paper losses which resulted in the collapse of some major institutions. It
then caused credit to dry up so businesses couldn't borrow and a crisis of
confidence in the fundamentals of the economy.

Student debt won't do any of these things because the underlying structure is
not even remotely similar. What student debt will do is represent a long term
suck on the taxpayer both directly(through payments) and indirectly(through
defaults). This will result in a drag on GDP. There is no way to short this
and there won't be a collapse. That doesn't make it not a bad thing.

[https://www.reddit.com/r/explainlikeimfive/comments/4cj937/e...](https://www.reddit.com/r/explainlikeimfive/comments/4cj937/eli5_if_the_student_loan_bubble_is_so_certain_to/d1j3wwa)

~~~
thegasman
This isn't a strong argument to me. Student debt might not be collateralized
the same way mortgages are (i.e. there's no house to repossess), but student
debt is still an asset on a bank's book. If anything, student debt default
seems to me more troublesome, as defaulted debt without collateral is more
damaging to a balance sheet than debt with collateral.

~~~
nkurz
I think you are missing that the many (most?) student loans in the US are
either made by the government (post-2010 direct loans) or are guaranteed by
the government (pre-2010 guaranteed loans):

[http://www.nolo.com/legal-encyclopedia/types-federal-
student...](http://www.nolo.com/legal-encyclopedia/types-federal-student-
loans.html)

If the student defaults on a direct loan, the government is the one not being
paid. If the student defaults on a guaranteed loan, the government pays the
loan holder. Everyone wins! Except the for the credit blemished student and
the US taxpayer, that is.

------
reuven
I have several reactions to this report.

First of all, I think it demonstrates that American university tuition is way
too high. So much of that money goes toward things like sports teams, climbing
walls, emotional support dogs, and other things that just don't have to be a
part of the college experience. American universities have an unbelievable
amount of staff that isn't about education or research.

The thing is, there's little incentive for universities to cut back, because
no matter what they charge, they have willing customers. And those customers
aren't paying the bills -- not at the time of purchase, and perhaps never at
all (as this article states).

Secondly, the notion of work -- not work-study programs, but real work --
should probably become more prominent among US students. In Israel, where I
now live, most students work at part-time jobs, and juggle both work and
school. It's not ideal, especially since many of them also have families, but
it does help to keep debts relatively low.

Thirdly, I think that it's too easy to take out loans. I took out loans for my
undergraduate degree, and was fortunate to pay them back within a few years of
graduating. I then took out loans for my PhD, and while I've been managing to
pay them back faster than expected, no one ever asked me at the time, "Are you
sure you'll be able to pay these back?" A bit of discussion at the time of
taking out loans, and looking at options, or even giving financial counseling,
might have helped me or others to take out less.

Finally, the notion that you cannot ever get rid of your government-sponsored
tuition loans is crazy. I'm not saying that people should declare bankruptcy
at the drop of a hat, or that there shouldn't be consequences. But people have
issues, and excluding student loans from bankruptcy -- which is intended to
give people a new start -- seems extremely unfair to the people who need this
tool most of all.

No wonder people are just not paying their loans back; if declaring bankruptcy
isn't an option, and they can't pay, then they'll just not pay.

~~~
jawilson2
> So much of that money goes toward things like sports teams, climbing walls,
> emotional support dogs, and other things that just don't have to be a part
> of the college experience.

Just to nit-pick (I agree with everything else), but athletic department
finances are usually separate from the rest of the university, at least in D1
sports. And, having a good football or basketball team will increase
applications and enrollment (e.g. see the 2nd sentence in
[http://www.northwestern.edu/newscenter/stories/2005/02/appli...](http://www.northwestern.edu/newscenter/stories/2005/02/applications.html)).
I think the thought is that if a university doesn't have these amenities,
their enrollment will decrease and be lost to those that do. It is a vicious
cycle.

------
transfire
__FYI Student loans are federally guaranteed. __The original lender does not
loose money. If default occurs, the _tax-payer_ pays them off. The debt is
then sold by the government to credit collectors at a discount, who can seek
the entire principle, plus interest, plus steep fees. So the typical defaulted
student loan, if ever paid back, procures two to three times the original cost
of school. Consequently, the student has no credit, so it is basically
impossible for them to fully function in our highly debt-oriented society.
This includes not being able to go back to school to finish their education if
it not yet complete.

Meanwhile $200 billion is the cost of two-months in Iraq.

------
josephjrobison
Wondering if it would help at all if the parents saved up enough for each kid
to fully fund their private college, and then when the kid hits high school
tell them - when you graduate, you'll get $50k/yr towards your college. If you
go to a private school it will cover it, but not leave much. If you go to a
good public school, the extra $20k/yr is yours. If you get a full ride
scholarship, the $50k/yr is all yours. Would that work? I'm assuming for some
it would.

~~~
meric
>> If you get a full ride scholarship, the $50k/yr is all yours. Would that
work? I'm assuming for some it would.

Bitter personal experience taught me using extrinsic motivation destroys
intrinsic motivation.

The kid will get that scholarship to pocket the $50k/yr. But then the kid
won't be motivated to do much more than that afterwards. Now all he or she's
thinking is how fast they can spend the $50k.

------
taurath
Everyone in my generation is split, those who went to college and now are
paying off ridiculous debt, those who have rich parents, and those who are
trying to make it on their own. College does give you a step up, but its
really screwed a lot of people. Those of us who just want to learn but don't
want to be saddled with debt have to make due outside of our 'institutions' of
learning, which is too expensive to consider when you already have an OK job.

------
orange_county
Unable to read due to a pay wall. Anyways, I wonder if there is a breakdown
somewhere of the amount of debt and by schools. It be interesting to look at.

~~~
stevesearer
I just used the 'web' button below the link and the WSJ article was the first
result without a paywall.

------
jbkkd
We're headed toward a financial crisis. Borrowers not being able to pay
loans.. Awfully sounds like the mortgage crisis.

~~~
shostack
/EDIT/

Would love to know why I was downvoted for pointing out what seem to be very
real differences in the circumstances and asking for some backup in the form
of data as to why this will lead to the disaster that the parent stated
without supporting facts.

\-----

I'm not sure they are equatable.

\- Don't pay your mortgage, lose your house. This partly caused some of the
panic that made a lot of people try to sell when they couldn't make payments.
Don't pay your student loans...give back your knowledge? If I recall correctly
declaring bankruptcy won't get rid of these loans, but it isn't like people
are on the streets.

\- A big factor in the mortgage crisis was how these bad loans were packaged
into all number of convoluted and intentionally misleading securities
products, and then dumped on the public markets where they became a large part
of the portfolios of Main St. and Wall St. investors. Are there similar
securities products around college loans, and is there data that suggests that
repayment issues with them could have anywhere near the same impact?

I'm genuinely curious for some data on this. It ultimately looks like the ones
left holding the bag would be the government (not good, but they have more
flexibility in how they deal with things that doesn't necessarily tank the
economy) and other loan institutions/banks. I don't think anyone will shed a
tear if the banks get hurt as long as it doesn't cripple the economy, which
again, it doesn't sound like it would.

------
NTDF9
The predatory education system basically did the following: \- Find the most
gullible segment of human population

\- Lend them money with false advertising and without making sure they
understand what a loan means

And now they want them to repay? Humans are not rational actors, certainly
most aren't. No 18 year old knows the repercussions of a six-figure debt.

------
Zigurd
It will be interesting to see if this creates economic migrants. When I was
traveling to China regularly, I met a few Americans fleeing debt. They didn't
have much to lose if it turned out to be a bad idea. The plan was typically to
teach English in a 2nd tier city where visa enforcement might be lax.

------
michaelbuddy
Some universities have, and this surprised me, a ratio of student to employee
1:1 On top of that you have the upkeep, all the program costs facilities costs
are insane. This is not sustainable. It simply cannot work when many people
haven't seen a legitimate increase in their wages for years.

------
jeffdavis
1\. College is useful for education. 2\. College is useful for meeting people.
3\. Most of the time and money spent attending college is used to meet people,
and very little on education.

Let's just admit those three facts, and then we can start to have sane policy
discussions.

------
brbsix
And people still say there's no higher education loan bubble.

I suppose it's the same logic that argues the U.S. Federal government can
never become insolvent (as it's the world's reserve currency and can simply
print money to pay off it's debts).

------
vs2370
Read this, been through this and thought about this ..
[https://news.ycombinator.com/item?id=11444810](https://news.ycombinator.com/item?id=11444810)
What do you guys think ?

------
selimthegrim
Cue this recent hit from Baton Rouge:
[https://www.youtube.com/watch?v=JqbXQa05Z6c](https://www.youtube.com/watch?v=JqbXQa05Z6c)

------
chrischen
Taking out massive loans to study, so that you can work, so that you can repay
the massive loans over 20-30 years. Sounds like indentured servitude.

------
20years
Lots are talking about the tech bubble but I feel this is a much bigger
bubble.

~~~
quicklyfrozen
It certainly seems likely to break many of the private-but-not-elite schools
as more students choose state schools. Many seem to cost just as much, if not
more, then the ivies.

------
alanh
I posted this deeper in the comments, but since it’s so directly relevant to
the topic at hand:

[http://www.salon.com/2014/06/08/colleges_are_full_of_it_behi...](http://www.salon.com/2014/06/08/colleges_are_full_of_it_behind_the_three_decade_scheme_to_raise_tuition_bankrupt_generations_and_hypnotize_the_media/)

This Salon article says:

“Tuition is up 1,200 percent in 30 years. Here's why you're unemployed,
crushed by debt -- and no one is helping:

“Reading back over journalistic accounts of the tuition spiral from the ’80s
and ’90s, you get the impression that all concerned felt it was a wee bit
uncouth to dig too deeply into a university’s pricing practices or suspect the
sachems of higher learning who presided over them of anything inappropriate.
These were the journalists’s beloved alma maters, after all: surely they had
our best interests at heart. …

“And so, beginning in the ’80s, university administrators, their words
dutifully transcribed by journalists, blamed utility bills for soaring
tuition. They blamed libraries, which made a certain amount of sense until
libraries went dramatically out of fashion in the Internet age—and yet still
tuition prices went up.

“They blamed professors, of course, since professors are the most visible part
of a university and because it’s easy to hate professors … until the outside
world figured out that universities were actually using graduate students and
adjuncts to teach their courses and yet still tuition prices were mounting at
an insane clip.

“Administrators also blamed tuition inflation on onerous government
regulations … On society … on declining student population …

“Unlike tenured faculty, university administrations actually have grown by 369
percent since the mid-1970s. … But blaming administrators proved difficult for
journalists, perhaps because administrators were the very people journalists
had been going to for explanations in their tuition-outrage stories. Could
their sources actually be the culprits? No way. And so, less than a year after
the Inquirer’s series appeared, USA Today ran its own big tuition-shock tale
in which the blame was pinned on all the familiar blame-objects: Professors,
student demands, technology, gummint regulation. A 1997 cover story in Time
magazine—‘How Colleges Are Gouging U,’ the illustration shouted—barely
mentioned administrators at all.

“What were journalists to do after ringing the alarm bells for so many years
without effect? Well, there was one easy answer to this frustrating situation:
To discover that there wasn’t really any problem in the first place. That the
tuition spiral was entirely reasonable, even if no one could actually explain
it. How so? Well, if you examine what has come to be called the 'college wage
premium'—the difference between what is earned by college grads and high
school grads—it becomes clear that someone who finishes four years at a
university will eventually earn far more than they spent to go there, even at
the crazy tuition prices of recent decades. Today this is a universal way of
considering the situation, always leading us to conclude that going to college
is 'worth it'; that it is a 'bargain'; that it 'pays off.' But it only seemed
to enter journalists’ consciousness in the 1990s, as on the occasion when
Gaston Caperton, president of the College Board, explained matters thusly to
the Los Angeles Times in 1999:

“He said there has been too much focus on the cost of college and too little
on the lifetime returns for four years of investment. Because a college
graduate today earns about twice as much as a worker with only a high school
diploma, he said, ‘a college education is worth about $1 million over a
lifetime.’

“The mind reels when confronted with this kind of smugness. One wonders: Is
there some identifiable aspect of a college education that yields that million
dollar prize—exposure to advanced literary theory, for example? Is there a way
to isolate that particular 24-carat nugget and leave the dross behind—all the
plush dorm carpeting and the many layers of assistant deans? My guess, though,
is that Caperton’s statement meant exactly the opposite of this—that there was
no need to inquire any further about the tuition outrage. What it implied, by
extension, was that since we now know the final value of a college degree (one
million dollars!), the colleges can simply keep raising tuition prices and
student indebtedness until they have extracted that amount from their
graduates—and only after they have hit that figure will we have cause to
complain.”

------
devanti
I suspect the same will happen to all the p2p lending startups soon

------
skywhopper
This headline is misleading. 40% of borrowers "aren't making payments _or are
behind_ ". Those are two entirely different categories.

------
thegasman
so how do I make money from this?

------
tempodox
Debt is the new currency.

------
jlgaddis
At least part of the problem, in my opinion, is that youth receive basically
zero "financial education" in high school.

My girlfriend is 21 years old and just a couple of years out of high school. I
can only recall being taught the basics myself: how to make a budget, balance
a checkbook, etc. She apparently did not even receive that.

I'm much older than her (37) and, while I'm certainly not "rich" by any means,
I'm financially stable and everything I own is completely paid for
(ironically, my only remaining debt is my student loans).

She has only recently became interested in the basics of financial matters,
such as her credit report and credit score, how loans and credit cards work,
etc. Initially, I was amazed at her lack of knowledge in this area. It's not
that she's dumb or stupid, she was just never taught _anything_ about
finances. She is, fortunately, relatively mature for her age and manages her
money well. She has worked since she was first able to and has maintained
steady employment and, for some reason, lately acquired an interest in her
credit score and increasing it (although it's actually pretty decent for her
age).

So we've recently started working on her credit history which, of course, was
completely non-existent until she took out a small loan from her credit union
for a cheap, used vehicle (with her father as a co-signer) about a year ago.
She shops at Victoria's Secret often, so we got her a store credit card from
there with a small ($500) credit limit to help her started. I've explained how
credit utilization, payment history, etc. factors into her score, so she'll
put her purchases (always < $100 for a statement period) on her card and then
pay it off in full every month and I've been looking around recently for a
good "starter" credit card for her to get. I've considered adding her as an
authorized user to one of my high-limit Amex cards (to give her utilization,
payment history, and average age of accounts a little boost) but I've read
recently that nowadays those accounts don't get reported to an AU's credit
report (although AmEx does ask for SSN and DOB when adding an AU so maybe they
still do).

She completed a vocational program in high school and is already a licensed
cosmetologist; we've talked a bit about whether she'll go to college or not
(she's already somewhat "behind", in that she didn't go straight to college
after high school) but not how it will be funded if she does. If or when that
time comes, I'm glad that I'll be around to help her come up with a plan that
won't require her to spend the next 20 years paying for it. I can easily see
how a typical 18-year-old about to go off to college just blindly signs up for
student loans without any true understanding of just what they're committing
to financially and without any idea of how long after they complete their
education that it will continue to them.

TL;DR: I got kinda sidetracked there for a minute but my point was that
today's high school students receive nearly zero financial education or
guidance before heading off to college. I am not surprised at all by the facts
and figures detailed in this article.

------
pilom
Does google get you around the paywall?

~~~
agrot3ra
Googling the article and clicking in from there does get you over the paywall

------
pkulak
Blendle link:

[https://blendle.com/i/wsj-com/more-than-40-of-student-
borrow...](https://blendle.com/i/wsj-com/more-than-40-of-student-borrowers-
aren-t-making-payments/bnl-
wsj-20160406-SB11182712333752343323104581645301231942680)

~~~
650REDHAIR
Queue Xzibit meme "I heard you like paywalls so we put a paywall in front of
your paywall"

------
pink_dinner
We really need to educate students potentially starting college that they
shouldn't major in something that pretty much has no chance of ever paying it
back. This applies to most liberal arts programs.

A college education is a major investment. It's sad that culturally, our
financial education is this poor.

I majored in a science and had all of my debts paid off within 5 years. I have
friends that majored in things like history and still haven't paid their debts
off after 10 years.

The popular thing to to is blame society, the university, or even high school
teachers for recommending someone go to college. But, students need to take
personal responsibility for taking out a loan and being unable to pay it back.

When this happens, we will have less students making foolish decisions.

~~~
whitegrape
Education on the individual level just doesn't work. People are too dumb. (I
had the pleasure of rereading this recently:
[http://www.overcomingbias.com/2009/07/stupider-than-you-
real...](http://www.overcomingbias.com/2009/07/stupider-than-you-
realize.html)) Those that aren't too dumb lack personal responsibility, which
is a separate problem I fully agree is pretty big, so more education might fix
that, but that's sort of something you can't learn from a book, and arguably
the game of chicken at teaching responsibility by making it illegal to
discharge student loans in bankruptcy has just made things worse.

The solutions I think have the best shot are those that involve authoritarian
decrees one way or another (that is, going full free-market or going full
nationalized colleges), but that requires a government with an actual interest
in governing.

~~~
pink_dinner
"Education on the individual level just doesn't work. People are too dumb."

Honestly, If this is the case, drugs should never be fully legalized. People
just can't handle the responsibility. Will addiction be the fault of the
company that sold it to you?

"and arguably the game of chicken at teaching responsibility by making it
illegal to discharge student loans in bankruptcy has just made things worse."

It hasn't really made things worse. If it wasn't illegal to discharge loans,
students would know full well that they most likely would never have to pay it
back and just declare bankruptcy when they graduated. That would be a much
worse situation for our economy. On top of this, banks would never even take
on these loans knowing full well that they would probably never get their
money back.

The student debt problem has been bad for at least a decade. Students continue
to knowingly put themselves in this position and then cry afoul when they
can't pay the debt back. Lack of knowledge is no longer an excuse. Anybody
with half a brain and an Internet connection can clearly see the risks (and
nearly everyone now is connected to the Internet 24/7 through their phone).

I see it more as a millennial problem: the culture is to no longer take
responsibilities for your own actions and blame others for all of your
failures.

"full nationalized colleges"

I can't see this working out with the current climate, unless it completely
ruins the intent of a university.

Fully national colleges aren't based on money any longer, they are based on
making the grade. IE: if you can't pass the entrance exams, you won't get into
school (as seen in pretty much any country with nationalized universities).

The system we have setup now was a response to people complaining that not
everyone has a chance to go to school (back in the 50s, college was a luxury
only the wealthy could afford). Now that pretty much everyone does have a
chance, there are further complaints that some people made an irresponsible
decision. You can't force someone to major in something that will make the ma
decent living.

When I was in college, I met many people that really had no business being
there (didn't care, didn't put the effort in, or just couldn't handle any of
the subjects). With the dumbing down of the SATs and many other measures to
make it easier to get into school not based on academics, it seems we are well
on our way to ruining our institutions. The ultimate form of anti-
intellectualism.

~~~
bitJericho
You don't even know what you're talking about. Just about every sentence you
wrote has some misconception in it.

> Honestly, If this is the case, drugs should never be fully legalized. People
> just can't handle the responsibility. Will addiction be the fault of the
> company that sold it to you?

Clearly people can't handle that responsibility. That's why we have alcoholic
and tobacco quitting programs and taxation to fund those programs along with
education and educational advertising. It's done wonders to get people to
quit.

> It hasn't really made things worse. If it wasn't illegal to discharge loans,
> students would know full well that they most likely would never have to pay
> it back and just declare bankruptcy when they graduated. That would be a
> much worse situation for our economy. On top of this, banks would never even
> take on these loans knowing full well that they would probably never get
> their money back.

Why is that? It never hurt the economy before. Banks stop giving out loans to
uneducated idiots with no care in the world and no intention or ability to be
able to pay it back? Banks not giving out loans for schools that couldn't even
teach a monkey to do tricks? Oh the horror!

> The student debt problem has been bad for at least a decade. Students
> continue to knowingly put themselves in this position and then cry afoul
> when they can't pay the debt back. Lack of knowledge is no longer an excuse.
> Anybody with half a brain and an Internet connection can clearly see the
> risks (and nearly everyone now is connected to the Internet 24/7 through
> their phone).

A decade? You mean the exact amount of time all student (federally or
otherwise) loans have been unforgivable? It's precisely why colleges no longer
care to educate, and instead scam kids of every dime they have. In every
angle, they get scammed, from student apartments (in my town, a shocking 2x
the normal cost of a single bedroom apartment), to book stores, where you
can't buy your books online with your own loan until after classes start,
unless you buy them from the book store at 3 times the Amazon cost, to the
classes themselves. These, by the way, are young kids who have no experience,
and are told by the grownups who educate them that this is some kind of great
deal for them. If course they keep getting scammed, it's a fresh batch every
year!

> I see it more as a millennial problem: the culture is to no longer take
> responsibilities for your own actions and blame others for all of your
> failures.

It's too bad it's the 40+ year olds that have done all this scamming on their
younger generation.

> I can't see this working out with the current climate, unless it completely
> ruins the intent of a university.

Yes, the conservative christian climate.

> When I was in college, I met many people that really had no business being
> there (didn't care, didn't put the effort in, or just couldn't handle any of
> the subjects). With the dumbing down of the SATs and many other measures to
> make it easier to get into school not based on academics, it seems we are
> well on our way to ruining our institutions. The ultimate form of anti-
> intellectualism.

This is entirely caused by the student loan situation and all the
parents/teachers stressing their kids to go.

What have I told my son? that student loans are a real form of slavery, and to
not take them for any reason. Either pay your own way or don't bother going.
If you do go, you'll probably get ripped off unless you go for an engineering,
lawyer, or doctor degree.

