
Nearly 5M Americans in Default on Student Loans - rayuela
https://www.wsj.com/articles/nearly-5-million-americans-in-default-on-student-loans-1513192375
======
japhyr
I'm a high school math teacher. As part of their high school math education, I
encourage all of my students to do one of their projects on analyzing loans.

I ask them to pick an item they might take a loan out for, such as a car, a
boat (we live in a small fishing town in Alaska), a house, or a student loan.
They pick a realistic loan amount, APR, and term length. Then they run the
numbers on the loan.

I demonstrate making a loan analysis spreadsheet, starting with an empty
spreadsheet. Students then get the choice of making their own spreadsheet,
modifying one that I've made with them, or using a loan calculator. By the end
of a session, most of my students have become comfortable using a spreadsheet
to analyze a loan. This lets them understand how all the various factors
interact, and they can play with any loan they become interested in.

Students start out with no idea how banks and lending institutions determine
monthly payments. They end up understanding loans better than many adults.
They move away from "all loans are bad and predatory" and "loans are free
money" to "some loans are fair, some are predatory, and I need to ask myself
if a specific loan sets me up for a better life.

I wish someone had done this for me. When I took out student loans many years
ago, I had no idea what my monthly payments would end up being. I was just
told it would be worth while, and I trusted the people advising me. Students
these days can't afford to blindly trust that student loans are going to make
their lives better.

~~~
oliwarner
I think it's hard to absolutely assess the value of a student loan —however
predatory— without considering the prospects of having a higher education.
Some degrees are worth a dodgy loan. Some really aren't.

You could also say that many students wouldn't be in higher education without
the loan. That is especially true here in the UK. That might not be a bad
thing except that we've gone through an arms race so that every junior post
needs five bachelor degrees and a decade of experience. Experience alone used
to be enough.

It'd be nice to get back there. Our focus on getting _everybody_ into higher
education —and underwriting indefinite liens on lifetime income— has also
meant that universities care more about the number of students than the
quality of teaching. That alone probably isn't news, what has been recently in
the UK is the remuneration of higher management staff.

They can apparently justify the 10-20× bump over _senior_ lecturers (plus
benefits like housing, cars, lunches) to their boards by saying they're the
only people who can attract all the money from the students. It's disgusting
and vicious cycle.

~~~
gbacon
It’s similar in the U.S. people going six figures in debt for degrees that
qualify them for $30k jobs is a problem, but that is a dirt-simple ROI
analysis.

Forcing nearly everyone into the college-bound track is a _huge_ problem.
Politically, vocational training is deemed classist or racist, and such
utopianism creates a sad disservice to lots of young people who could be
learning skilled trades and setting themselves up for comfortable living.

Just like everyone at the university level is not med-school material, not
every high schooler is college material.

~~~
toomuchtodo
It sounds like a partial solution to this is an infographic that must be
provided by each college before allowing loans to be taken out showing:

* The degrees you're interested in

* The total cost of ownership of each of those degrees, based on the dollar cost + interest

* The years you'll have to work to pay off the degree based on the median salary of whatever career requires that degree

* Placement rate _in the career you 're obtaining you're degree for_ after obtaining your education (colleges usually fudge the numbers here by considering a student getting any job as "placement" after going through their pipeline)

Very similar to truth in lending requirements for credit cards and mortgages.

[https://www.occ.treas.gov/topics/consumer-
protection/truth-i...](https://www.occ.treas.gov/topics/consumer-
protection/truth-in-lending/index-truth-in-lending.html)

[https://en.wikipedia.org/wiki/Truth_in_Lending_Act](https://en.wikipedia.org/wiki/Truth_in_Lending_Act)

~~~
mechhrt
You can't expect the college to give you a realistic prospect when they are
the ones who stand to (non-) profit from your matriculation.

At the very least, they will give you a best-case scenario instead of a worst-
case or median-case.

~~~
toomuchtodo
That's why you use the law to do it, _like we do with credit card and mortgage
products_.

------
ikeyany
This did not happen by chance. The answer isn't hard to arrive at--simply ask
why college is so expensive compared to the 1990s, and why states cannot
afford to offset these costs anymore. America is selling out its future by
convincing young people that they should go into debt to pay for "the college
experience".

But why does "the college experience" need to include superfluous staff and
wasteful resources? Follow the money.

~~~
mfukar
> Follow the money

Paint, for those of us with no familiarity with the US system, a picture.

~~~
CaptSpify
Insane administrative salaries, ridiculous sports budgets, new buildings and
amenities that no student needs (
[https://www.washingtonpost.com/sports/colleges/one-
schools-f...](https://www.washingtonpost.com/sports/colleges/one-schools-
formula-for-athletic-success-build-a-lazy-river-and-hope-the-recruits-will-
come/2017/03/31/e1b7f5c8-1568-11e7-833c-503e1f6394c9_story.html) )

~~~
slg
Those things are easy scapegoats but they aren't the biggest cause of tuition
increases. States simply aren't spending the money on colleges like they did
in the past. [1] This is likely because of all the guaranteed loan money
available so the states don't feel the same pressure to fund universities.

For the specific case you linked above, $25m for athletic upgrades is really
not that expensive for a school the size of UCF with over 64,000 students and
an annual budget of $1.5b. [2] If you abandoned building the facilities and
distributed the money evenly among all students you could cut costs for a
single year by 2% for in state students and 1% for out of state students. [3]
That isn't nothing and you can certainly debate whether athletic facilities
are a smart use of $25m, but it is a drop in the bucket compared with the
actual rise in costs.

[1] - [https://fivethirtyeight.com/features/fancy-dorms-arent-
the-m...](https://fivethirtyeight.com/features/fancy-dorms-arent-the-main-
reason-tuition-is-skyrocketing/)

[2]- [https://www.ucf.edu/about-ucf/facts/](https://www.ucf.edu/about-
ucf/facts/)

[3]- [https://admissions.ucf.edu/cost/](https://admissions.ucf.edu/cost/)

~~~
thaumasiotes
> Those things are easy scapegoats but they aren't the biggest cause of
> tuition increases. States simply aren't spending the money on colleges like
> they did in the past. [1] This is likely because of all the guaranteed loan
> money available so the states don't feel the same pressure to fund
> universities.

I have seen the model stated that there are two Official Views on why college
prices are up:

1, the Democratic View: prices are up because states have cut spending on
colleges.

2, the Republican View: prices are up because given the easy availability of
student loans, colleges can charge higher prices.

It's surprising to me that these are considered acceptable rival opinions,
because, if you assume that one is right and the other is wrong, it's very
easy to determine which is which.

#1 says that prices have risen due to a fall in supply. #2 says prices have
risen due to a rise in demand. Both of those things do in fact increase
prices, but a fall in supply causes a rise in prices and a fall in quantity
traded, while a rise in demand causes a rise in prices and a rise in quantity
traded. If you think that one of these things is responsible for high prices,
you can determine which simply by asking "compared to the good times when
prices were low, have college enrollments increased or decreased?"

~~~
jmcqk6
That's an incredibly simplistic view and betrays own biases. For example,
point 1 could better be described as "per capita state spending" and that
completely annihilates your point.

In the same way, for point 2, you would have to calculate the percentage of
funding change per student, not the macro view alone.

------
marcoperaza
Tuition, especially at private colleges, is totally out of control. But class
sizes are up, not down. And the number of full professors is not growing. So
where is the money going?

To an explosive growth of administrative staff. My alma mater has almost one
employee _per student_. There are many dozens of administrative departments,
each with multiple deans and assistant deans and staff, and sometimes
subdivisions each with their own layer of bureaucracy. OPAL, for example, has
a subdivision for each kind of minority on campus, each with its own assistant
dean and staff. You can look at the list of departments:
[http://home.dartmouth.edu/administrative-
offices](http://home.dartmouth.edu/administrative-offices) . Keep in mind that
this is a very small college, with about 4000 undergrads and 2000 grad
students.

This monstrous growth is entirely a product of the last 30 to 40 years and is
almost entirely responsible for the astronomic increases in tuition, currently
$60,000. Even worse, the college claims that its actual cost per student is
double that, with the shortfall made up from the endowment. There is NO
legitimate reason that a college education should cost over $100,000 per year.

The government needs to stop writing a blank check to these colleges in the
form of unlimited loans for their students. The government needs to set a much
lower cap on the number of loans it will give to each student per year. The
colleges will accuse the party in power of trying to deny students the right
to an education, but they will eventually surrender and start cutting the
bloat.

~~~
akkat
What's the reason for that. I know administrative staff like that that are
getting paid, but what would the current one decide to hire more staff? Unless
there was some benefit the staff would prefer to keep the money for themselves
rather than hire more people.

~~~
vkou
Americans colleges expect you to fully insert yourself into college life, and
for you to fully insert them into your life.

It's like having a parent, except you have to pay them.

They expect everyone to live on campus - so they have to play landlord, mayor,
community organizer and mediator, mom and dad, chef and waiter, stadium and
opera house, convenience store and urgent care clinic...

Now, which of these do you think are among a college's core competencies?
Which of these services are provided in a cost-efficient manner?

~~~
marcoperaza
They also have a monopoly on providing those services to students, so no
incentive to keep costs down.

------
ggm
Although by inclination what I want to do is rant about the iniquity of this
kind of robo-debt in education, instead what I am thinking right now, is this:
_how does this compare overall to the rate of default in debt for other
purposes? how does it compare to car loan debt? mortgage debt?_ I ask, because
debt is the same, except in as much as student debt is in principle seeking a
path to be able to repay it. The asset based debt invites a repo man:

you can't suck knowledge back out of a graduates head (ancient egyptian
practices to the contrary)

~~~
djsumdog
"The modern theory of the perpetuation of debt has drenched the earth with
blood, and crushed its inhabitants under burdens ever accumulating." -Thomas
Jefferson

I know I mention this book a lot on here, but _Debt: The First 5,000 Years_ is
the most amazing book I've ever read on the history of debt, money and
slavery.

Debt relief has to come. Every great civilization throughout history has had
to forgive debts. Current student debt is not even remotely payable.
Millennials are the most in debt out of any generation, the lowest paid and
most likely to take unpaid internships[1]. They put up with so much more that
no previous generation would have even stood for.

"A debt is just the perversion of a promise. It is a promise corrupted by both
math and violence. If freedom (real freedom) is the ability to make friends,
then it is also, necessarily, the ability to make real promises. What sorts of
promises might genuinely free men and women make to one another? At this point
we can’t even say. It's more a question of how we can get to a place that will
allow us to find out. And the first step in that journey, in turn, is to
accept that in the largest scheme of things, just as no one has the right to
tell us our true value, no one has the right to tell us what we truly owe."
Graber, Debt: The First 5,000 Years

[1]:
[https://www.youtube.com/watch?v=-HFwok9SlQQ](https://www.youtube.com/watch?v=-HFwok9SlQQ)

~~~
ternaryoperator
> They put up with so much more that no previous generation would have even
> stood for.

This is a rather ungenerous view of the great burdens faced by previous
generations. When I grew up there was a draft. When you got out of high
school, you faced the real live possibility of being forcibly inducted into
the military and sent to an active combat zone--where many US soldiers died,
including high-school friends of mine who were killed before they turned 20.

They would _happily_ have swapped going to war for four years of college and
the long-term debt attached to it if they had had that option.

You might not like the terms today, but please don't ever say you have it
worse than any generation before you.

~~~
gozur88
I agree with this. A lot of what I see along these lines is simple ignorance -
life is certainly no harder than it's ever been and probably easier for most
young people in the US.

------
genzoman
Before the internet, centralized places of knowledge were needed, and you'd
need to attend that place to find said knowledge. Think about how access to
music caused the price of albums to drop. Education had not seen a similar dip
in cost even though the supply is 100 percent saturated.

There's a dying class of professors who got in while tenure was still a thing
that paid probably 1/10 of the cost for education kids are paying now. They
have the rosiest glasses possible because they're making around 100k for zero
competition in their workspace.

The vast majority of the time now a TA teaches the course or certainly grades
the paperwork. Well over half of college degrees obtained will never pay for
themselves.

A philosophy, social science or psychology degree are not important enough to
pay 50k to get. Free college would be a complete disaster, and a massive waste
of money.

The education cartel places liberal , financial shackles on kids who are less
than 1000 sunrises away from going to prom. The liberal arts is a complete
disaster for young people's financial means. So, you get somebody 100k in debt
for something they could learn on the internet and guess what? They'll ALWAYS
vote to raise taxes on the rich.

I worked at a state university for five years, doing research. The waste of
extravagant, totally unsustainable. I was going to grad school free since I
was an employee, dropped out to teach myself software and in four years I make
nearly as much as the Phds. in a physical therapy department. All it cost me
was time.

~~~
phil248
I thought college was an outstanding and irreplaceable experience. I still
have student debt (pushing 40) and if that debt were tripled today I'd still
think it was the deal of a lifetime.

Other than some international trips, going to a university was probably the
best money I've ever spent.

~~~
anonymous5133
Easy solution: have two forms of college and let students pick when one they
want to go to.

Have one system where it is primarily online and low cost.

Then have the traditional system where it is physical classes and high costs.

Let students decide where to go.

------
rectang
The relief of bankruptcy: only for entrepreneurs, not for students.

Another instance of utterly corrupt selective application of theoretically
sound conservative principles. Just like "deregulation" and Net Neutrality.

~~~
lightbyte
There is a reason for that. If your business goes bankrupt it can be
liquidated to settle debts. Once that is done you are left with nothing. The
same cannot be done with an education. You can't "give back" knowledge to your
school, or sell it to someone else.

~~~
rectang
Liquidation of course is often insufficient to pay back all creditors. The
risks which have to be assessed before making student loans vs. business loans
differ by degree, not kind.

The systems of laws in our society are constructed. A choice has been made to
privilege entrepreneurs over students.

------
jstewartmobile
Ex-wife was an english prof at a state university. They had students who came
in with a 16 on their ACT, which really means they should still be in high
school. They'd take remedial classes for a couple years, then most eventually
filed academic bankruptcy.

Finance officer was telling me how for in-state students, the student is only
paying around 20% of the actual tab, and that the state picks up the rest.
Then there was the story from a few days ago where some poor lady ended up
owing over $100k for a < $10k debt due to fees and penalty rates.

Even my own degree, in the "allegedly" hard subject computer engineering,
first day of class would fill an auditorium. After midterms, class size would
drop to just a handful of people.

So taxpayers on the hook for subsidies, former students paying obscene finance
charges on a kind of debt that is almost unshakable, and little of that
culminating in valuable skills and credentials...

Excluding the more selective institutions, higher ed is a racket, and the
financing of it is an even bigger one.

------
danjoc
This is ruining America's future. That's 5M people who can't even qualify for
a car loan now. The penalties for default are punishing. Even bankruptcy isn't
a realistic option.

This is ruinous for these people. They'll be in their mid-30s or early 40s
before they can pay off. Starting that late to build a nest egg, they'll never
recover. There's going to be an entire generation that has no secure
retirement plans. It will also be a baby bust. By the time they are stable
enough to think about starting families, they'll be biologically incapable to
produce. Nobody will be around to fight off invaders. We're seriously toast in
50 years at this rate.

~~~
metilda
Welcome to having America's latest STD! Its bigger than Hepatitis (at 3
million), and costs about the same to cure ($80k to $90k a person).

Relationships are delayed, careers are set back and our economy is slowly
bled. Much like healthcare!

~~~
djsumdog
Don't even get started on health care. I worked in health insurance for three
years and lived outside the US for about the same time. I saw a lot of waste
in our health insurance industry and a foreign market that was superior in
almost every way, even for very serious conditions. I wrote a post about it a
while back:

[http://fightthefuture.org/article/returning-to-america-
and-t...](http://fightthefuture.org/article/returning-to-america-and-the-
unaffordable-care-act/)

------
anon11082016
Let's add another layer of abstraction and diversion, the trusty tax payer! /s

This of course, totally ignoring that government backed (everybody gets one no
matter what) loans got us here in the first place...

------
Camillo
There is a simple and equitable solution, which is to transfer the debt to the
universities where they studied.

~~~
stapleten
I genuinely don't know why I haven't considered this perspective before seeing
as how many colleges treat students as just bodies to stuff their money bags
with. Oh, come to our college, take out $60000 in loans for a degree that will
never pay that off, but we get to pocket it anyways because we have no
decency? Sure thing! And don't forget to donate as an alumnus! I'm not exactly
in this situation, but have seen it enough with people who had no business
being at certain schools for certain degrees that I can't help but think
universities should be held responsible for all this to some extent.

------
ianai
In the US people can’t clear student loans in bankruptcy. It’s a shame, I
think, given the constant upward tick in tuition and lack of resulting
careers. They can even go after the students parents.

~~~
nordsieck
> In the US people can’t clear student loans in bankruptcy. It’s a shame...

Maybe you could explain this to me, because I really don't understand. Why do
you think that it's a shame that people can't just discharge substantial,
otherwise unsecured government loans?

To me, the real shame is high school employees pushing college on marginal
students. One of the few things worse than spending too much money on a not-
particularly lucrative degree is spending the money, but not graduating.

I believe the graduation rate at Bellevue College, the biggest and best
community college* in WA state is around 25%. I'm sure they're not unusual in
that regard.

* It's technically not a community college, but for all intents and purposes, it is.

~~~
metilda
Bellevue College might be the biggest, but its far from the best. They tend to
hire current UW professors to teach one class a quarter, stuff the rest of the
dept with teachers that were able to get canned at the Seattle Colleges and UW
satellites, and hope for the best.

Many of my friends who went there have horror stories about their teachers
which I'd be hard pressed to encounter at Seattle Central College or North
Seattle College.

Nearly every community college in the Puget Sound decided about a decade ago
to shed the community branding and add a handful of 4 year degrees. Problem is
the material you learn in upper level CS classes at UW and its satellites is
quite different than what North Seattle College and Seattle Central College
require (eg: a whole class on SQL Server, C# as the Intro CS class at Seattle
Central rathr than the state mandated Python, etc).

~~~
prostoalex
US is pretty dismal at graduation rates overall - Department of Education is
not even tracking the percent of graduates completing a 4-year degree in 4
years anymore, instead preferring a generous 6-year completion metric for a
4-year degree, which stands at 59%
[https://nces.ed.gov/fastfacts/display.asp?id=40](https://nces.ed.gov/fastfacts/display.asp?id=40)

41% of all US undergraduate students have nothing material to show 6 years
down the road except for the mounts of student debt. The quoted figure of 22%
of those debts being in some kind of default starts looking optimistic.

------
thisisit
It is confusing for me how bankruptcies work.

What happens if a corporate declares bankruptcy? Do they only pay less while
keeping everything they invested/bought using the loan money, for example -
buildings, equipment, stores etc? How does this compare to student loans?

~~~
jacquesm
Assuming the bankruptcy isn't called off:

The bankruptcy is handled by a liquidator or trustee in bankruptcy. That
person / entity will attempt to liquidate the assets and will then pay a
portion or all of the debts in order of preference. _If_ there is a remainder
(unlikely, but it could be) it will be returned to the shareholders. Depending
on the country some creditors will receive automatic preference (such as the
taxman). In some cases, for instance if it is believed the company is viable
but has been managed badly it is possible that such a trustee will even
attempt to keep the company running while they search for a buyer.

If debts are re-negotiated or forgiven it is possible for a company to emerge
relatively unscathed from bankruptcy proceedings, this all depends on what
deals can be made with the creditors.

It compares poorly to student loans because those are individual debts and
unfortunately individual debts are far harder to discharge than corporate
debts.

~~~
basicplus2
It doesn't really matter for corporations, as a company can be burnt and any
debts left will never be paid, and a new company can be created with no debts.

This is what structuring related entities is all about.

The one that owes all the money (particularly the one paying and owing to
employees) had nothing of real value in it.

------
Pokepokalypse
I recently rejected a job offer at a major university, as a software developer
for their IT department.

The position did not pay, what their brochure was promising their computer
science majors could expect to be paid, while at the same time, asking these
computer science majors to accumulate 5 salary-years' worth of debt, for the
honor and distinction of earning this degree. But they don't even pay their
own staff that much.

------
pascalxus
Like so many things here, I think this is another case of monopoly. Accredited
institutions can do whatever they want because there isn't enough competition
and students are being taken advantage of (no one is giving them the right
financial knowledge about interest rates and years of labor required to pay
off the loan).

Let's open up the playing field and allow more cheaper colleges like community
colleges. And educate students about choosing those cheaper schools. Employers
need to do their part too and stop being so elitist. Not every job requires a
Stanford grad.

And let's design the programs so millennials can still work and earn money
durring the day and do some kind of part time bachelors program in the evening
(that doens't take too much extra time). That way instead of going into debt,
they can spend the time breaking even or even building up some savings.

------
tenpoundhammer
Student loans are the stupidest form of loans. Do people need a college
education? Absolutely. What's the best way to provide it? I have no idea.

Here's why student loans are dumb.

1\. They are practically guaranteed to anyone who signs regardless of their
future ability to pay it back.

2\. The majority of people getting them are children and have are terrible at
perceiving future outcomes. Ask any 18-year-old starting college if they will
make more money than average after graduating, most will say yes.

3.College drop out rates are high. This site says 56%
[https://www.collegeatlas.org/college-
dropout.html](https://www.collegeatlas.org/college-dropout.html) . Taking out
a loan to help you make more money and then not making more money puts you at
higher risk not to pay back.

4\. Relatively speaking all majors are valued at the same cost within an
institution. If I get a bachelors degree in computer science I pay the same
tuition and costs as someone who gets a bachelors degree in ancient history,
even though our potential earnings are vastly different.

The entire student loan and college education market is a mess. I suspect this
is a sign that college should be a public good or has been messed with by
folks that think it should be.

------
matt_s
Are there any studies that look at the costs of tuition compared to the rise
in freely available equivalent information?

I wonder if this is common in other markets where the companies recognize that
a lot of their business is commoditized so they keep raising prices to help
offset potential losses.

I don't think student loans can collapse like mortgages because there isn't
property involved. However, if there is a collapse in higher education in
general - a sort of wave where people realize it is not worth it financially
and enrollments drop dramatically, that would cause ripple effects in the
economy.

~~~
carlmr
The problem isn't what you learn, it's whether you can show the piece of paper
proving you learned it.

I learned most of my undergrad education on my own at home from the books
suggested. My education cost me time + the price of the books. However to get
the exams, grades and piece of paper in the end, it costs a lot of money.

If we could decouple certification/exams from private institutions,
autodidactic people could get their Bachelor's degree almost for free. For
Master and PhD degrees I guess the point is more to do research.

------
notfromhere
A big problem is that the gov't is double-dipping on the benefits of higher
education. They both benefit from higher taxes on earnings as well as interest
of education loans.

------
ultim8k
Someone is making good money there. What if People invested on learning coding
instead of spending a fortune just to feed the uni market?

------
yousufmyh
Agreed

------
mrhappyunhappy
Time to get into crypto and pay them off. I know I’m going to get a ton of
downvotes for saying that...

~~~
zeep
probably still the fastest way to double your money...

------
dogruck
Let’s simply tax the new BTC zillionaires, and pay down the student loan
debts.

~~~
AlexCoventry
We could just forgive the debts. We don't need a compensating tax when
inflation is this low.

~~~
gicadin
This would be a slap in the face of some people who went to school and worked
odd jobs to pay for tuition.

~~~
aaomidi
Not doing it would be devastating for the economy in the long run.

It's a hard choice but macro is more important than micro in these decisions.

~~~
sintaxi
Its a mistake in the long run to socialize risk. These former students are
defaulting because the courses they took have no value in the marketplace.

