
The Delinquent Borrowers Leading a Student Loans Revolt - petethomas
http://www.bloomberg.com/news/articles/2015-10-01/the-delinquent-borrowers-leading-a-student-loans-revolt
======
karissa
Hey! Glad to see this on HN. I'm a volunteer developer for this group, and we
are looking for more hands. If you're interested in helping us out, feel free
to reach out to me on GitHub (karissa) or Twitter (captainkmac).

Here's the list of issues (signup/login related) that I'm working on now:
[https://github.com/debtcollective/debtcollective-
web/issues/...](https://github.com/debtcollective/debtcollective-
web/issues/56)

Here's a taste of the future: "Harnessing user data (and combining it with
data gathered automatically from creditor websites and public data sets)" \-
[https://www.newschallenge.org/challenge/data/entries/debt-
co...](https://www.newschallenge.org/challenge/data/entries/debt-collective)

------
tomohawk
Borrowing money is risky, and includes risks beyond a straight up cost/benefit
analysis. It also makes the borrow more vulnerable (not just to the lender,
but to others as well). It should never be entered into lightly.

I sympathize with these folks who have gotten themselves into this situation,
but they did make the choice of their own free will. If they didn't do a
proper analysis ahead of time, it doesn't seem fair to shift the cost of their
decision onto others who did, or who are responsibly shouldering the burden
that they took on.

There is a definite moral hazard in the current system (it encourages
indebtedness and inflates the cost of education), but that doesn't make it
right to create another moral hazard in trying to correct it.

~~~
m_fayer
For those trying to escape poverty, disadvantaged teenagers must choose
between debt and the permanent surrender of their hopes and dreams. Hardly a
situation where the borrower can be expected to make a dispassionate
calculation, nor is it a situation where there's a clearly correct course to
be found.

~~~
Rainymood
Education used to be 'free' here in The Netherlands (certain amount of money
each month for students). They recently turned this into a full fledged loan.
Although the interest is very low it dramatically changes how students
approach studies and immediately start to think in terms of ROI ... I fear for
the future of Dutch education. I'm glad I just wrapped up my undergrad and am
currently borrowing as well for my Master's but thankfully (I'm one of the
few) who have 'great' career prospects.

The American system is really really screwed up if you are trying to escape
poverty.

~~~
seibelj
I think in the USA college is too expensive, but I'm not convinced it should
be free. I like the idea of students actually having some skin in the game.
Also I don't want tax dollars to pay for someone to study poetry for 4 years
for free. You'll get into a situation like Norway, where it takes a master's
to get a foot in the door, and no one gets a job until they are 30.

~~~
pvaldes
Take in mind that music industry could not exist without poetry. A successful
song with fine lyrics can have a huge impact in the economy.

~~~
overdrivetg
Imma let you finish, but [http://seatsmart.com/blog/lyric-
intelligence/](http://seatsmart.com/blog/lyric-intelligence/)

------
douche
I have to be honest, if some kind of student-loan amnesty ever goes into
effect, I'll be a little pissed that I prioritized paying mine off with my
earnings for the first half-dozen years out of school. Just imagine what I
could have done with those tens of thousands of dollars instead...

------
WBrentWilliams
I like the way that these articles and the comments ignore the elephant in the
room: The cost of living while attending college.

Here is a data point for my local State University. I happen to work there, so
I can verify that these numbers are pretty much correct. You can pay cheaper
rent, but you'll pay back the difference in car mileage and/or roommate drama.

Tuition is (roughly) 40 percent of the cost. What really drives up the student
debt is the cost of living. If we really wanted to do something about student
loan debt, I think we'd do better to apply the same political pressure to the
cost of living as we do to the rate of tuition.

Indiana University [1] Tuition: $10,388 Room and board: $9,794 Books and
supplies: $1,230 Transportation: $1,030 Personal Expenses: $2,096

[1] [http://admissions.indiana.edu/cost-financial-aid/tuition-
fee...](http://admissions.indiana.edu/cost-financial-aid/tuition-fees.html)

~~~
saturdaysaint
The "books and supplies" section would be interesting to break down. How much
of it is due to needlessly churning out new editions to cut off the used book
market? In the age of the iPad, shouldn't someone be producing first rate,
open source textbooks in core subjects?

It's a pittance of the total, but that $1,200 (x4) could still add up to a lot
with interest.

~~~
WBrentWilliams
Let me answer that with a statement and an anecdote.

The statement: The proportion of costs I outlined, from my point of view, have
always been true. I finished my first degree in 1997.

The anecdote: All the professors in my computer science program (I'm not going
to name-drop, but I had some great teachers that insisted that I learn scheme,
then Java, then C, then assembly) either had no required text or gave syllabi
that referenced several versions of their listed texts. The context was that
we were free to get the best deal possible on the texts.

------
cheriot
There's two problems when students choose an institution:

1\. Poor and too often manipulated information about a school's job
placements.

2\. Students are short sighted about debts and schools don't care because the
money is government guaranteed.

Solvable problems! Have an independent party collect and report on job
placement. Then tie a school's loan eligibility more closely to the ability of
recent graduates to pay.

~~~
evanpw
It seems like it would be even better to tie eligibility to the borrower's
major. Return on education expenses are more closely related to what you study
rather than where you study it:
[http://www.economist.com/blogs/graphicdetail/2015/03/daily-c...](http://www.economist.com/blogs/graphicdetail/2015/03/daily-
chart-2)

~~~
cheriot
If we do both then both the school and student are incentivized! (I was
thinking of the for profit schools owned by hedge funds)

------
SixSigma
Those numbers are horrific. My entire UK degree debt will be about $60k at 3%
and I won't have to make any repayments until I earn about $30k pa.

For my degree it should be a net profit for me. For less well paid occupations
one is insulated against low wages. I am happy that I contribute to the
advancements in non vocational learning.

My fellow students and I are said to contribute $40m pa to the local economy
which is much needed in this deindustrialised part of the country - all
accommodation is provided by third parties.

But $45k per year is an outrage. It surely can't be based upon the cost of
provision.

~~~
karissa
You're right, it isn't. It's largely a for-profit industry, even the 'non
profit' colleges. Most teachers, especially adjuncts, make very little in
comparison to what the students are paying -- look at NYU, 50k/year per
student in a class of 20 where the teacher is paid 5k/class. The math doesn't
add up.

~~~
keithpeter
Would a self organised University be possible in the US system?

A group of teachers using cheap space and online communications to provide
lectures/support/assessment with students then taking exams accredited by
another institution? Possibly with sponsorship/organisational support from a
voluntary sector organisation?

That is basically how most Universities outside
Oxford/Cambridge/Edinburgh/Aberdeen started in UK in the Victorian period. The
University of London was set up to validate degrees provided by various
constituent colleges in the regions. There was a strong non-conformist
(Baptist/Methodist) input on the funding and organisational side.

~~~
derpud
Faculty would love to disintermediate the ever growing administration.
Accreditation is an issue, and overcoming the importance of brand. Competing
with the for profit niche might work though.

------
Camillo
The absurd student loan system is what fueled tuition inflation in America. It
needs to be abolished.

~~~
cheriot
Do poor students not get to go to college anymore or do you have another
system in mind?

~~~
nemo44x
Work and save money before you enter a University. If you work and save for 2
years after high school you gain many advantages:

1) You will save some money to pay for school. 2) Because you are a bit older
a new world of grants are available to you since you are returning to
education. 3) Because your income will probably be fairly low you will qualify
for more grants due to this fact. 4) Gives you time to figure out what you
want to go to school for and possibly make you take it more seriously when you
start.

Another option is to join the military and qualify for a lot of additional
grants that way. 4 years of service opens a lot of doors. There are many non-
combat roles available.

There are many ways for the poor to advance themselves and not cripple
themselves financially for the next 40 years.

~~~
cheriot
I like your reasoning, but I worry that the math of minimum wage jobs can't
put people through school any more.

------
littletimmy
One way to deal with the student loans crisis is for a nationwide student loan
bailout. You don't have to erase the loans, just refinance them at a much
lower interest rate. Currently the rate is 7%, which is just insane. For a
virtually no-risk loan, which cannot even be discharged in default, that is a
terribly high rate.

Refinancing will be a transfer of wealth from the rich to the poor. Good for
the economy, shores up consumption, and all that. Has the added side-benefit
of freeing indentured slaves.

~~~
evanpw
If the current interest rate is high compared to default risk, why hasn't some
private company come in to undercut the government and make a killing? I don't
think it's because the banks aren't greedy enough. My guess would be that it's
because of the extremely high default rate on student loans, and the extremely
favorable repayment terms that government loans offer: payments capped at 10%
of discretionary income, and forgiveness after 20 years (10 if working in non-
profit or government)[1].

[1] [https://studentaid.ed.gov/sa/repay-
loans/understand/plans/in...](https://studentaid.ed.gov/sa/repay-
loans/understand/plans/income-driven)

~~~
littletimmy
If that were true, why would private student interest rate be 7% also? It has
no such favorable repayment terms.

~~~
evanpw
It's my impression that there isn't much private student-loan industry left,
having been driven out by federal loans. What's left probably targets a
different demographic from the usual one, like borrowers who have already
maxed out their federal loans, which might be a riskier group.

------
icewater0
I think part of "the system" involves learning and lending institutions
informally forecasting what the lifetime return on a student's education will
be, and then attempting to maximize the return on the student loan(s) as an
investment on those future earnings.

The learning and lending institutions clearly fucked up big-time in their
forecasting, along with everyone else who was irrationally exuberant in their
optimism about the future economy.

Now they are stuck between students on one hand (who have been sold a bill of
goods and are seriously pissed about the pittance left over after their loan
payments, if they're able to pay back at all), and the investors on the other
hand (which includes not only evil bankers' money but also people who have
been sacrificing in good faith for decades to contribute to their retirement
accounts).

So the stage is set for a nice messy society-destroying generational war that
should distract everyone from the forecasting mistakes.

------
UserRights
Free Education is the primary attribute of a free and cultivated society. If
you are living in a primitive country with no free (+higher) education, all
available resources should be focused on reaching this goal as the most
important evolutionary step.

Many underdeveloped societies and failed states can be identified by looking
at the education situation. In the worst cases education is held hostage by a
leading group of brutal oligarchs that are raping education into a "business-
model" \- these societies will need a lot of help from other nations to
overcome the dark neandertaler age they are stuck in and it is important to
teach them about the basic abilities of Homo Sapiens Sapiens - solidarity,
compassion and love.

Good Luck!

~~~
evanpw
Education is never free; it always consumes some resources. The question is
who should pay the cost: the student or everyone else?

In cases where basically everyone needs the education to succeed in society
and the positive externalities are large (e.g., teaching young children to
read), I think that the case for "everyone else" paying is pretty strong. In
cases where the education is mostly consumption (i.e., the benefits all go to
the student), the case for subsidizing is weak (e.g., a trust-fund kid getting
multiple PhDs in impractical fields to have something to do).

So the main issue becomes: where does a Bachelor's degree lie on this
spectrum?

1\. Fields of study are very heterogeneous. Some majors have a much larger
return on investment than others, so subsidizing all "higher education"
equally probably doesn't make sense.

2\. Even in Western Europe, college attendance rates are only around 1/3\. Is
it right to have that 1/3 subsidized by the 2/3 who don't go to college, and
who on average have lower income?

3\. (More speculative) To some extent, the payoff to a college education is
not because of what you learn, but in signaling that you're a smart,
conscientious, perseverant person. In that case, a degree becomes less
valuable the more people that have them, and the case for subsidizing what has
become an arms race becomes a lot weaker.

4\. If we spend a lot of money and effort propping up the current, very
expensive, forms of higher education, we might discourage better ways of
educating from emerging. One example is something like Coursera, where the
marginal cost of adding one more student is basically zero, and everyone can
learn from the very best educators in the field. Another would be separate
institutions for education and for testing / accreditation. This would help
with grade inflation, bring back the focus in the educational institutions to
teaching rather than credentialing, and provide more accountability (% of
graduates passing a common exam is a lot easier to compare than future income
of graduates, and is less confounded by things like socio-economic status of
students).

------
WeAllDieByBan
Don't pay it and default.

You'll only have to pay the income tax on the defaulted loan.

It's not like you need credit anyways since almost no one in this generation
is going to be able to afford a house down payment.

~~~
evanpw
If it's a federal loan, the government will garnish your wages [1] and
eventually your social security payments [2], and will withold any tax
refunds. And since student loans usually can't be discharged in bankruptcy,
you'll have bad credit for literally the rest of your life.

Also, you pay income tax on forgiven loans, not defaulted ones.

[1] [https://studentaid.ed.gov/sa/repay-
loans/default#consequence...](https://studentaid.ed.gov/sa/repay-
loans/default#consequences)

[2] [http://money.cnn.com/2014/08/24/news/economy/social-
security...](http://money.cnn.com/2014/08/24/news/economy/social-security-
student-debt/)

