

The $555,000 Student-Loan Burden - tokenadult
http://online.wsj.com/article/SB20001424052748703389004575033063806327030.html

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arpan888
This is what happens when the government interferes with the free market! The
supply of virtually unlimited, guaranteed federal loans has created a moral
hazard. Loan companies don't care to hand out risky loans because they have
the backing of the federal government. Since students have access to so much
"free" money, they are entering colleges in droves, effectively bidding up
tuition prices for the rest of us. Without such a supply, loan companies would
be much more stringent (tuition would come down) and some students would not
be able to enter college. While this may sound bad, its not because certain
college degrees are becoming worthless anyway and some students have no
business of earning degrees in human resources management from the University
of Phoenix.

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camccann
Given a harmful, self-reinforcing cycle produced by multiple independent
actors making (fairly predictable) decisions, I'm curious why you think it's
correct to single out a particular part of the cycle as being the problem.

At any link in the chain, someone could have said "this is a bad idea" and
stopped--but instead they do what's in their own (short-term) best interest,
and everyone loses.

~~~
dantheman
The harmful part is the distortion of the market -- by the government; all
other private individuals and organizations ultimately have to bear the result
of their choices. The government through force takes money and distorts the
market -- no other actor in the equation has that power.

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TNO
"Dr. Bisutti says she loves her work, but regrets taking out so many student
loans. She admits that she made mistakes in missing payments, deferring her
loans and not being completely thorough with some of the paperwork, but was
surprised at how quickly the debt spiraled." ... "After completing her
fellowship in 2007, Dr. Bisutti juggled other debts, including her credit-card
balance, and was having trouble making her $1,000-a-month student-loan
payments. That year, she defaulted on both her federal and private loans. That
is when the "collection cost" fee of $53,870 was added on to her private
loan."

She's horrible at money, I have no pity. I will agree though that this form of
debt should be dis-chargeable via bankruptcy.

~~~
sokoloff
Be VERY careful what you wish for. The fact that student loans are not
dischargable _directly_ contributes to increasing their availability and
reducing the interest rate charged. (By dramatically reducing the risk of
default.)

Otherwise, why wouldn't someone just run up $300K, declare bankruptcy the day
they graduate, suffer credit-wise for 7 years and celebrate their 30th
birthday completely debt-free without ever paying a dime of the loans?

~~~
rdtsc
But there is the other side: schools have less restraint on raising tuition.
If the government is giving out loans like candy, schools don't mind hiking
the tuition higher and higher every year (well beyond the level of inflation).

I noticed that with my school. I was in graduate and under-graduate school at
the same university. I was there for 7 years. The tuition kept going up at an
enormous pace and the school just stared building stadiums, shopping areas,
recreation centers and other seemingly useless stuff. Incoming students and
their parents had to take higher and higher loans.

I graduated without any loans and we payed my wife's loans in 2 years but that
is definetly not the norm.

Producing graduates that are enslaved to paying back giant loans makes less
able to competitively choose work places (they can't quit a job they don't
like as easily because they have to keep paying another, rather large monthly
bill).

~~~
bretpiatt
Agreed, the whole thing is a death spiral separating the population...

Easy loans lead to higher tuition... ...higher tuition leads to more debt on
graduation... ...more debt on graduation leads to a need for a higher
salary... ...the need for a higher salary increases the prices companies
charge for goods and services delivered by college educated...

A prime example everyone is familiar with is the rising cost of healthcare.

If this continues we're going to stratify the income in the US so far we'll
end up with an aristocratic and peasant class of citizens and the only way the
non-college educated peasants will be able to live is through indentured
servitude to a "lord or lady".

~~~
incomethax
Isn't that already the case?

Just replace "lord or lady" with the name of a large multi-national
corporation (Wal-Mart for example).

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sriram_sun
I am from India, but live in Denver now. Around $100/semester for 4 years. If
I started a year before, I would've paid ~$100 for all 4 years combined. The
private colleges are more expensive. Of course there is a downside. Professors
don't care, assignments are usually copied straight out of a book. If you are
a "senior," the first (un)lucky freshman who walks by might be bestowed honor
of copying the assignment straight from some other "Master copy". Came here
for my Master's. Managed to graduate without any loans. Was lucky enough to
live within my TA/RA salary. The H1-B phase was the most miserable though.
Life's better now.

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elblanco
I can't even imagine paying that kind of money for an education. To make that
up would take most of your career for most people when one of the points of an
education is to increase your average salary over not having bothered. If the
delta between those two doesn't work out for most of your career, you may as
well not bother.

The interesting bit is that, at least in the U.S., one can go to decent
schools relatively cheaply. In-state tuition at state schools is anywhere from
1:4 to 1:12 ratios with private and out-of-state schools (that is to say, a
person could get an entire B.x. and M.x. at a public school for about the same
cost as a semester or year at a private institute).

~~~
robryan
One issue here is though, if you really want to be a doctor, you need this
education, you can't just start as an assistant/ secretary or hospital cleaner
and work your way up.

Whereas say a career as a programmer, there are plenty of back doors and ways
to learn and move up without having to get the formal education. There's still
the reason to get that education but I can honestly say if I don't end up
making back the difference on what I spent on it during my working lifetime it
won't worry me at all.

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sili
Part of the problems is that people who take out these loans are the least
educated in personal finance and how to manage money. Unless you have a good
parent or counselor guidance behind you, it is very easy to make mistakes that
can cost you alot down the road. Maybe it should be a requirement as part of
high school curriculum to teach students about personal finance.

~~~
Jach
It is, at least in the state of Utah. I had to take a class called Financial
Literacy.

It wasn't a bad class (and nicely enough my CS teacher happened to teach it,
also), but unfortunately I think it's worse off than math classes as far as
getting people to care and thus really remember it for later.

~~~
profgubler
That is sad, because you think a personal finance if taught right would be the
most interesting class in school for students. I would think a teacher would
only have tell a student, if you want to be rich this is the only class that
matters.

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Estragon
She's a doctor. Sure, it's a lot of money, but it sounds manageable on a
typical doctor's salary.

~~~
quantumhobbit
The problem with that statement is that established doctors make a lot of
money. Interns and residents who are just starting out don't. Half a million
in debt doesn't sound so bad if you can count on a $200,000 salary. Half a
million in debt is terrifying when you only make ~$40,000 a year for the next
four to eight years depending on your chosen specialty.

~~~
robryan
I have an issue with this kind of thing, the kind of elitism in some fields.
Say someone getting education to become a doctor, after their years of study
it seems that they come out on an initial low wage and an you should be glad
were going you a chance kind of attitude.

Correct me if I'm wrong, it's just the perception I have seemed to get about
some fields from things I have read.

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warfangle
This is making me think twice about taking out student loans to go back and
get a BS next spring. I truly doubt that I would be able to, cognitively, work
and study at the same time - one of the two would suffer.

~~~
elai
Go to another country/state where education is a significantly cheaper? Europe
maybe?

~~~
DrJokepu
Education in Europe is only cheap if you're a European Union citizen. As an
overseas citizen, you won't be eligible to any government subsidy. In the UK,
that would mean about $20K per year for an undergraduate course, which is
still not very expensive compared to some US universities, but not as cheap as
the Home/EU fee (which is around $4800 a year).

Education for Home/EU students from disadvantaged backgrounds is free, of
course.

~~~
elblanco
I can echo that having been invited to study abroad a couple times during my
education -- and unfortunately having to decline due to the very large
financial burden it would have created with minimal payoff outside of the
"cool" factor of studying at a well known European school.

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doug11235
"She maxed out on federal loans, borrowing $152,000 over four years, and
sought private loans from Sallie Mae to help make up the difference. She also
took out two loans from Wells Fargo & Co. for $20,000 each. Each had a $2,000
origination fee. The total amount she borrowed at the time: $250,000."

Am I reading this incorrectly? $250,000 for 4 years? Thats insane.

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zach
Why even provide this benefit to private student loan providers -- letting
them avoid dischargement just like government loans which have lifetime
maximums and other safeguards? I think it's pretty clear the results have been
catastrophic.

