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The $555,000 Student-Loan Burden (wsj.com)
27 points by tokenadult on Feb 14, 2010 | hide | past | web | favorite | 33 comments

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.

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.

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.

Why should education cost money to begin with?

"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.

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?

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).

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".

Very good description, and I'd even say there are some problems missing from it. Actually, increased salary demands due to student loan balances lead to:

- exacerbated income disparity, since only the elite are hired, which makes the job market extra-tough on all but the most capable new graduates, as well as

- higher professor salaries, since professors and potential professors in the field have attractive non-academic options, but also

- more willingness of students to take on more easy loans, since "everyone knows" that lawyers, etc. make so much money that it's okay to take on a lot of debt.

Isn't that already the case?

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

> contributes to increasing their availability

Increased availability is not always good. This is a clear case where getting the loans was a terrible financial decision, since she's only earning enough to pay off a tiny fraction of the principal. We should be decreasing availability to people who have no realistic possibility of paying off the loans, especially when they don't even have the option of bankruptcy.

The idea that making loans available to people with marginal prospects of paying them back is always helping them is bogus. It removes pressure on colleges to trim their costs to help poor students, as well as encouraging people who financially won't benefit from a degree to pursue one anyway.

I'm saying this as someone who got mired in debt going through college and spent years climbing out of that hole. Things worked out for me in the end, but the loans were so easily available that I didn't consider the alternatives. Now I'm so allergic to debt I don't even want a mortgage.


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.

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).

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.

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.

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.

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.

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

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.

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.

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.

You don't need to go to university to study. In fact, if you're actually motivated to learn, it's almost as likely to get in the way. There are certainly some potentially good reasons for going to university, but if you don't have your goals firmly aligned with such reasons, you'll just waste your time and money.

So--what are your goals? And how do loans and a BS degree program get you to them?

My goals? To eventually get into more AI / statistics / datamining (currently I do primarily UI development) / graph analysis.

I've tried to teach myself the math involved, but I've come to the conclusion that to really learn it I'll need courses in it. It's mainly the math, I think, that I'll have "trouble" (actually have to study) with - not the programming.

Without loans, I'd have to work full time to support myself. This would cause my performance at school to suffer, unless I took a barista/service type job. Which I'm not sure I could support myself with (to be honest, I don't know how the baristas here in NYC do support themselves with it). I've been out of the service industry since my first go-around at college, and have no desire to return whatsoever.

With loans, I'll be able to concentrate fully on the work involved, and perhaps have time left over to build a few cool things that I don't have time for now.

A BS degree program will get me the background in maths (Bayesian theory, calculus, linear algebra, statistics) and advanced computer science (ANNs, GAs, compiler design) that will get me to the place I really want to be: advanced/next-gen datamining and knowledge systems. I'd really like to be working on how to analyze how people connect and predict trends based upon it. (Yes, I understand that many privacy people, including myself, have issues with such a thing. It's something I'm fascinated with, but have moral qualms about implementing. Also, lack of experience/know-how.)

It's mainly the math, I think, that I'll have "trouble" (actually have to study) with - not the programming.

Have you considered finding a study partner for learning the math? Or a tutor--if you live near a university, you could probably find a math major that could use some spare cash.

I'd really like to be working on how to analyze how people connect and predict trends based upon it.

Working where? At an existing company? There's not too many options there, so you'd want to plan toward landing a relevant job (whatever that might take--and a degree alone isn't worth all that much; professional networking is). At a start-up? In that case, debt is probably the last thing you want.

I've thought about using student loans as a cheap business loan if the economy tanks bad enough that I lose my stable job. I sign up for a masters, get loans to live on (with few questions asked), and work 50/50 on school & business. Worst case is that I come out with a failed startup and a masters degree. And loans, but meh...

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

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.

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.

If only I were eligible for dual citizen status (and thus decreased education costs) in any of the countries my family originated from. Unfortunately, said lineage is much too far back (3-9 generations) to make any dual citizenship claims in any of the countries (UK, Netherlands, Lithuania). If any of you know the opposite to be true about that, please let me know.

In Belgium the standard fee is about €530 a year, not including housing and books. If you come from a low income family you pay significantly less and have the option of cheap housing.

"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.

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.

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