People aren't rational agents. They suck at making decisions about their long term well being. They're told that the best way to support their future is to go to university, so they take out a loan under the assumption that once they're finished, they'll earn so much that paying it off won't be an issue. And if you're not particularly financially literate, you might assume that this is fine since everyone else seems to be doing it. And you might also assume that they wouldn't lend you money that you couldn't repay.
The reality is there's an information asymmetry in favour of lenders. They know better than you how likely you are to repay your debt. And their incentives are structured to maximise their return, not clear your debt. So if the best way for them to make money is for you to not be able to pay off your debt, that's what they'll try to do. The harder it is for you to understand what you're getting into, the better for them. The less financial literacy you possess, the better for them.
I'm not arguing that the author shouldn't bear responsibility for her decisions. Of course people should understand the things that they agree to and meet their obligations. But there is a calibration problem when the pursuit of an education can lead to three decades of financial hardship.
So what's the solution here? Do people take a test to determine if they are allowed to make their own financial decisions? If they don't pass their parents or the government decides for them? Sure we can tweak the terms, put up special regulations for student loans, or increase education.. However if we accept that some people are incapable of making good financial decisions, potentially for their entire life, this problem will remain? Does this extend out past financial decisions? We could have the human equivalent of processor binning.
I messed up my credit when I was in my early 20s. I was lucky enough to find myself in a better situation in my early 30s.. I'm not convinced I have gotten much better at financial decisions or have just managed to out earn my natural spending habits. Maybe both.
When you get a loan, they tell you the interest as annual percentage rate (APR). That annualized rate plugs right into the simple interest formula they teach you in high school math class. You just calculate each year one at a time, plugging in the amount you owe at the start of the year and you'll get how much is owed at the end of the year.
If you make payments or if the rate changes during the year, you can use the same formula to calculate what you owe at the time of change/payment, and continue on from there. Using the effective annualized rate for less than a year will give you an answer that's slightly off, but it will be very close.
You'd have a very difficult time using differential equations for a real loan. That question has the buyer making an infinite number of infinitesimally small car payments, because a monthly installment would make it a bad differential equations homework problem. The sensible way to solve most real-world problems is just to calculate the result iteratively using basic multiplication and addition.
Here is a top search result for calculating student loan interest. They suggest not to do a yearly approach like you suggest. It even mentions doing a daily compounded function. I added a [LEAP] where the author left the reader hanging.
To understand how compound interest works, let’s look at an example. Consider a Direct loan with a $10,000 balance and a 4.45% interest rate.
First, you figure your daily interest rate by dividing 4.45% by 365 to get 0.012%. On $10,000, that works out $1.20. That $1.20 is added to your loan balance, bringing it to $10,001.20. That’s your new balance, and when interest is compounded the following day, you’ll pay interest on that total amount.
By the end of the year, you’re looking at paying $455.02 in interest, rather than the $445 you’d pay if your interest was compounded just once a year instead of daily.
> By the end of the year, you’re looking at paying $455.02 in interest, rather than the $445 you’d pay if your interest was compounded just once a year instead of daily.
They used the wrong percentage and got $445/year. That's off by $10/year. Still, it's close enough to use for yearly financial planning and for judging if the loan is worthwhile. It should be sufficient to prevent any surprises like the article author's.
I've been out of school for ten years, and haven't used calculus in about twelve. How exactly do you think knowing calculus would have helped here? Be careful assuming everyone learned the subject as you did and knows how/when to apply it to various situations.
Personally, I learned about interest rates in middle school. I used that knowledge, combined with additional research on subsidized loans, to decide to take out loans. I also had the advantage of learning the downsides of debt collection from my brother's mistakes.
Not everyone is a rational economic actor. Children/young adults ages 17-22 definitely aren't the most rational amongst us.
You mean like the people who keep lending money to students who aren't going to be able able to pay it back?
(Somehow -- through mechanisms that are still beyond me -- this is exactly what happened in 2008. Absurd.)
Seriously though it's obviously by design. Ever wondered why they don't teach financial responsibility in school? Give people incentive to work as much as they can to keep economy rolling. Capitalism at it's finest.
When people take the loan it's because they feel like they have to, and when they don't want to repay it, sometimes it's like, "No, look: if the people around me needed this so that I could live, something's wrong, and I don't want to continue collaborating with them."
The U.S.A. may also be experiencing an ongoing violent revolt against compulsory literacy in the high schools, so the problems don't really start with the loans and the college application process.
Add: Please consider the possibility that not knowing when you start school that you may need a high interest loan as a senior in order to finish school is an example of information asymmetry.
Actually, she indicated that the alternatives were not attractive to her (especially the friendship thing is ravingly stupid).
> Of course it would have been better to arrange for all financing before she started school but that would have taken some foresight.
Yep. The ability to divide cost through four years, add a little bit for emergencies. This ain't rocket science.
Liferafts tend to cost a lot more when the flood is coming.
> Add: Please consider the possibility that not knowing when you start school that you may need a high interest loan as a senior in order to finish school is an example of information asymmetry.
I do not think anyone is served by abusing vocabulary to hide the true meaning you implied: it's stupidity and lack of planning, not information asymmetry.
Perhaps it is time to apply the same kinds of rules to loans for education, along with increasing the minimum income at which repayments are required to be made, and the maximum proportion of total income that the repayments are allowed to be.
In addition, require that student loans must be not-for-profit.
Perhaps even consider nationalising the student loan system and having repayments taken out of incomes at fixed low rates, so the incentive is for the state to improve wages?
But I agree with the other commenter about excel sheets and playing around with numbers.
What follows is an institutional critique.
Some content goes here, preferably with citations.
This concludes the institutional critique.
Once the header and footer is in place, the reader is not allowed to make counterarguments based on anecdata or moral speculation about the personal responsibility of the institution's participants.
HN users are perfectly capable of making these distinctions. I'm sure if I post a paper about timing attacks that leverage subnormals, nobody would complain that HTML5 users need to better educate themselves on IEEE 754.
Now that I write that, I'm not so sure-- so please always use the template above when making an institutional critique.
I agree that what the banks are doing is very likely unethical, but I think your generalization about the bigger guy having more responsibility doesn't always hold.
The other problem is that people will generally say that they understand even if they don't. Maybe a mandatory class on basic finance and economics would be a good idea.
I agree that schools should teach about personal finance. My son was assigned a paper to write on the payday loan business, and it was pretty eye-opening for him.
Not really. I've bought and sold houses and cars while knowing relatively little.
The real difference between cars, houses, and educations is that the first two are collateral and lenders do due diligence to avoid foreclosure.
Educations can't be forclosed on -- there is no collateral, and relatedly the loans are non-dischargable.
Oh. It sure isn't the bank's problem. You can't even default on a government backed student loan. The bank is incentivized for you to fail and rack up fees.
The banking institution which created, offered & services the financial instrument you’re describing has about 1 trillion times more data on the risks and the possible outcomes. They should absolutely have the responsibility when offering 5-6 figures to 18-year-olds.
See the problem now?
Sure. But I'm missing your suggestion here.
Others aren't saying "people should know better" to pontificate, but just to say "there isn't a solution outside of personal responsibility."
Do you believe there is a (worthwhile) institutional solution? If so, what?
But, are legally adults, and that’s what that means.
These arguments about students not knowing what they’re doing has only one solution: raise the age of legal adulthood to 25. Which is not as unreasonable as it sounds; it was 30 in Ancient Greece.
In Norway, student loans are granted by the state; roughly speaking, the terms are as follows -
-They're personal; noone acts as collateral. Neither do you need to provide any - however, if you default, they _may_ go for your assets, within reason.
-No interest while you're under education (within reason; if you're delayed significantly, interest may start to accrue.)
-You get approx. $14,000/year, intended to cover living expenses, study materials, beer &c.
-Once you graduate, interest starts to accrue (at the time being: 2.08% per annum; after a few months, you have to make monthly payments.
-If you're unemployed, you can apply for postponement of payments; interest keeps running.
-If you're ill for any significant duration of time, you can apply to have interest stopped, as well.
-If you default on your loan, the lender may go after assets - bank accounts, vehicles, homes &c - but only after a long and involved due process, and they need to try to work with you to find a solution which isn't as drastic..
Edit: Also, the terms, including the caveat that interest rates may rise &c are being spelled out - more or less literally, they go through great pains to ensure you know what you're getting yourself into - and you get an estimate based on the expected length of your studies as to how much your monthly payment will be+when you will have repaid the loan in full.
But I'm not sure which student loans you're talking about, but back when I was studying BAföG was a different beast. You usually don't get much and it all depends on your parents' income and in general I found the bureaucracy very... annoying, because my case worker was extremely incompetent, had to hand in stuff twice all the time, had to point out errors in all the calculations and every time I was there I only heard complaints how my case was so complicated..
That said, it's a good thing and if you find any decent job you shouldn't have too many problems paying it off very soon without a lot of interest payments. (But I also had to pay fees for a few semesters back then, I think they're mostly gone again now...)
Ignoring all the reasons why the rates are going up, the simple truth is that many degrees are not worth their increased cost (in terms of ability to repay the loan with a career derived from said degree) and as a result the program wouldn't work for every major which could lead to the exact situation we are in - private parties offering crazy loans for majors that are deemed not cost effective by others.
We almost have this now in some ways. I've heard of hospitals paying for people to get nursing degrees if they work at said hospital for N years after graduating, so that apparently is a major where it is cost effective. I suspect you could also come up with something comparable for other majors that have a relatively high salary and high job prospects, but it would be much harder for fields where getting a job paying more than $15/hr after college is hard and often requires a PHD.
In most regards, private student loans are student loans in name only, they are much closer to general personal loans in most aspects.
 Notable differences are that only $8.5k year are "subsidized" (they dont accrue interest while in school), and the current interest rate is 4.45%.
I don't know a single person in Belgium that has student debts.
So - most of your student loan is used to cover a roof over your head and food in your belly. (Oh, and beer.)
This US education system, just like healthcare, is something I just can't wrap my head around..
It’s a human right in Scandinavia.
This is the big problem. Calling 18 year olds, kids, is basically saying that 18 year olds aren't old enough to be considered adults. Either you get the freedom of being an adult along with the responsibility or your leader decides what is best for you and you no longer have freedom. Even more so in her case. Her parents are ok the hook for repaying the debt. That means that they (ages 40 I guess) looked at the contact and thought it was a good deal. Is the author suggesting that 40 year olds shouldn't be allowed to get loans?
If that isn't enough she describes defaulting on a loan as something okay. She decides to fly abroad and just assumes that the loan holders won't require her to start repayment.
But even before that, she realizes in the middle of her undergrad that the tuition is to much. But she decides to get a loan on bad terms because she doesn't want to loose her friends. Come on. She decides to get a terrible loan because she is to shy to make new friends.
For poor people, who know how to handle the freedom of being an adult, student loans could be exactly what they need to succeed in life. But for irresponsible people like the author, I don't think any laws can protect her from herself.
I graduated about $40,000 in debt and it was only then that I realised how difficult it is to pay that back. Up until that point, it's just a number on a piece of paper. I managed to pay it back in about 2 years but I was lucky in that I graduated with Comp Sci which is in demand and got a pretty well paying job in my city for someone with no experience.
And I say lucky because choosing my degree was just based on an interest of mine in high school that I thought would be interesting. It's no different than other people choosing to study what's interesting but in my case, comp sci and programming pays well in the economy while history doesn't.
Student loans are a vicious supply and demand cycle. Students can take out loans to cover school so universities realise they can charge more which in turns leads to students taking out more to cover education.
They're old enough to know that $10,000 is real money and that they should be asking for advice and help if they feel over their heads.
You're given a choice of not getting education and having limited job options, or taking a loan with unknown (variable) rate, for unknown amount (uni can raise fees), getting an unknown benefit (who knows what the job market will be like in a few years, maybe there's another global market failure). The lender is happy if you repay, and happy if you don't (the loan is gov guaranteed anyway, this is pre-2010 Sallie Mae)
You say "But for irresponsible people like the author, I don't think any laws can protect her from herself." which is crazy considering one side of this problem wouldn't exist if the laws didn't explicitly enable this. Banks giving student loans risk next to nothing. If you think this person was so irresponsible because obviously she can't repay, what is your comment on the bank. Surely they know the market even better and reviewed her family finances - why would they give her a loan in the first place? Are they irresponsible adults as well?
The bank knows exactly what they are doing. The partial repayments are enough to cover the initial principal and a good margin. The bank basically makes money on defaulting.
The abusive interest accrues too fast to ever be repaid. The loan will last for as long as the person live. This is only possible because loans cannot be discharged.
TFA's author goes on about how her father tried (unsuccessfully) to talk her out of taking a loan with "abusive interest" but that didn't stop her.
My mom was pretty unhappy I tricked her into letting me sign up for the army at 17 but that doesn't mean there's anyone to blame but myself.
Loans that will take decades to repay are arguably things that we shouldn’t expect younger adults to fully grasp.
Maturity, experience, and knowledge are all complicated. Nothing magical happens to you when society deems you an adult; you still need to learn things. That's why there should be laws and regulations to protect people from situations like this, because you shouldn't be able to get into this kind of debt, and especially not at the beginning of your adult life.
> She decides to fly abroad and just assumes that the loan holders won't require her to start repayment.
I think you shouldn't be so dismissive. She went to grad school overseas. A lot of people come overseas to US grad schools and that's great for us, and a lot of our students go overseas to foreign grad schools and that's good for us too. Diversity of background, experience, and culture are important, and we all benefit from it. It should be a fundamental part of education.
Furthermore this isn't her point. She couldn't get a deferment because Navient's software systems didn't have a key for overseas grad schools. That's so mind boggling to me I don't even know where to begin: Navient couldn't add a row to their DB, and it cost her over $7k (more, after it keeps getting compounded).
> But even before that, she realizes in the middle of her undergrad that the tuition is to much.
It's more likely she hit the cap on her government loans. Pretty much everyone does, which is why we have loan corporations like Navient and Great Lakes. If you look at her balance sheet, there are a lot of gov't loans for small amounts, then a couple big Sallie Mae loans.
> But she decides to get a loan on bad terms because she doesn't want to loose her friends.
Unless you're in a pretty lucrative program (like CS or engineering) or you're pre-professional (pre-med, pre-law), often one of the most valuable things you get from your college experience is a social network of professors, administrators, and fellow students. I pretty much owe my entire career to a few of my professors in college and if I'd had to leave that behind it would have cost me dearly financially.
> But for irresponsible people like the author, I don't think any laws can protect her from herself.
I do think she was irresponsible. I think private universities are generally a terrible deal unless you get a scholarship or you're in a top-10 school, I think going overseas for grad school and defaulting on her loans because she couldn't get a deferment was a bad move, and I think she probably should have taken a gap year and worked. I also think she should live somewhere cheaper with a better commute -- although it's really hard to get a job when you need to relocate, and again with that network thing.
But I also think everyone is irresponsible, and that the penalty for being irresponsible in this way shouldn't be essentially a lifetime of debt. If Sallie Mae weren't legally allowed to lend her that $24k, she'd be remarkably better off. We have all kinds of laws that prevent people from entering into extremely bad deals (can't sell organs, can't agree to work in super hazardous conditions) because we recognize the power of institutions and society to coerce people into making these choices. We need to realize that the loan industry is one of these things that needs similar regulation.
But we'll let a 17 year old join the military.
It's all about priorities.
Why did she go to private university? There's no shortage of public universities with substantially better financial terms unless you get a FULL RIDE to a private institution.
When she had $67000 she decided to take another $24000 loan? With a variable interest rate? In the year 2010, 2 years after the financial crisis of 2008 she didn't understand how a variable interest rate was disastrous? I need to either suspend disbelief to entertain that idea or deduce that the author was beyond clueless -- she was actively disinterested in her future.
There is zero useful introspection on lessons learned or things she could have done better. Her takeaway in all this:
> If I can appreciate anything about this struggle, it’s that it was ultimately in the pursuit of something bigger than I would have achieved if I had taken a job just out of high school in the Bronx.
I think many of us here agree there is an issue with predatory lending and student loans. The problem I have with this article is that it sets the debate back. For the civil rights movement, the NAACP very carefully considered and skipped a number of people to challenge segregation laws until Rosa Parks. This woman is no Rosa Parks.
I had friends who went the private school route and honestly I felt jealous that first year or so. As time went on of course I felt better as all my fears of public school being worse than private were simply over exaggerated. And now I am so relieved I was pushed in this direction by my parents. I can’t imagine the financial position I would be in if they weren’t as frank as they were back when I was deciding schools.
If there’s one big takeaway from this piece it’s that even though we are told we’re adults when we’re 18, there is definitely a wide range of maturity levels you can fall into at that age, and if you haven’t matured or gained financial experience by that age, you could easily screw yourself for the next 40 years or so just by being naive.
I agree. Fun fact: you can say the same about the prison system, but people's reactions to that same comment will be vastly different due to demographics.
But there's no hint of a solution in this article. Should we raise the age to be an adult? Regulate private university marketing? Improve marketing of public universities? Allowing people to abdicate responsibility is a non-starter.
While there are clearly issues with student loan practices and the cost of higher education, predatory lendors did not conspire to force all of these truely terrible decisions onto this poor woman. If she put the same amount of effort into a budget/financial plan as she did into this creative blog post, she'd already be on her way to a student debt-free existence.
I'd much rather have read a post describing all of the terrible financial decisions the author has made over the last decade and how they've put together a painful, realistic plan to get their financial life back on track. Perhaps with some lessons learned for people facing some of the same decisions. Instead, the author justs rails against the unfairness of it all without actually taking any responsibility for figuring out a solution.
That's exactly the problem, not contemplating the consequences of our actions. I do believe in second chances and forgiveness, but also in thinking ahead and realizing that actions are not just for the moment but a permanent part of a life-long story.
I've seen so many people in low/middle income brackets with upper class cars/houses/spending habits. It's not because they earned these things but because they got a loan and want the reward before they've earned it.
It's hard to do when many people around you are getting these same things, but I do take solace in having little debt versus going to the best college or owning the newest car.
In 1988, Bill Clinton signed the Higher Education Amendments which made student loans NON-DISCHARGEABLE. Essentially, he handed the students to the bankers on a silver platter. These loans should be dischargeable and forgiven, because in my opinion they are FRAUDULENT.
I don't think you realize the amount of damage this has caused to US society as a whole. There is an entire generation of kids whose lives were ruined because they were told to get a university degree which turned out to be worthless and expensive.
Essentially you are saying she should have known better. I read your comment and you say that she is clueless, and I cannot help but think that you are also clueless because you also do not understand how the financial system actually works. But you are not alone, because all of the "expert economists" also do not understand, everybody is clueless.
Believe me, this is a crisis that will be felt for generations.
What? Clinton was a governor then. And, looking up the referenced act, it was signed into law in 1992, before Clinton took office.
Doesn't substantially change your comment but that detail threw me.
> Congress Amends 523(a)(8) to Eliminate Seven-year Discharge Provision for Student Loans
Your opinion about fraud is also unsupported. Even the author conceeds she didn’t read the contract, nor did she express any understanding of how her interest rate is set.
Frankly, she still doesn’t seem to understand the basics of how loans work.
“I will have paid nearly $170,000 to my original $95,000 loan.”
The above quote is meant to express her outrage, but it’s meaningless. She’s missing the time component.
I pity her and I think the student loan business is in a terrible state, just remember who the politicians were who got us here and what they said these laws were for.
The road to hell is surely paved with good intentions. Which is why it’s better think selfishly rather than altruistically.
The whole concept of interest on lending was to insure against defaulters, that is before bankers wanted their cut of the pie.
I fully agree that this debt should be dischargeable, and universities (both public and private) should be on the hook.
My point is that the author is NOT the Rosa Parks of the student loan crisis; there are far better standard-bearers out there.
I’d suggest taking yourself a little less seriously and having a bit of empathy rather than raining down criticism. Soft skills are important, too.
I didn’t come from a wealthy background, my parents didn’t go to university, i had debt...but i sure though long and hard about its impact to my life and how i would return it to the lender. I think most of our problems could be solved by simply not over extending ourselves, and when people do it i often am left thinking how inconsiderate they are. This person took nearly $100,000 in debt and had next to no income, how is that sane or responsible?
Good soft skills can certainly land this point better, but at some point someone’s needs to tell people to stop doing stupid things and it won’t feel great hearing it.
I exaggerate, but while I get your point this article irks me because I know it is an issue, but the author's situation is not typical and she goes to great lengths to distance herself from her own decisions. Here's how I could stomach this better: "I screwed up in not realizing 100k is a metric shit ton of debt to take on even as my mother told me it was a horrible idea. This is something we as a society can improve by....."
They're students... of course they don't? Lots of adults don't even understand things like this.
And I don't see how you're arguing for public universities as if they're the obvious, common sense solution, when private universities are an extremely popular option (and really, more often the 'default' for a lot of people).
The best way to turn the high price of student loans around is to deny the student loan industry their future earnings.
The best way to reduce the prices at private institutions is to not go.
If it were culturally and economically more appropriate to go to university when you're 21-25 then a lot of these mistakes wouldn't happen. Maybe offer educational programs, where you can only apply to the program if you have x amount of work experience doing any job. Or the US could try to emulate European countries in university cost. Or it could be something else entirely, but it's fairly clear that something needs to be done. If not for this generation then for the next one.
> I wouldn’t have been able to afford college without a student loan provider.
This sentiment is echoed by millions of students in the US, myself included.
The author's biggest issue is NOT her loan provider. The author's issue is that she made a stupid decision to go to a private university and pay it off with loans. For-profit universities are the bigger criminal in her story, but she either has not realized it or is unwilling to admit it because she had fun in college.
Incidentally, she did NOT attend a for-profit college!! She attended a private college, i.e. a non-profit that happened not to be run by the state and get state funding. I mean, there's issues there too, but for-profit colleges are a whole other deal.
The horror that you and other commenters show to variable rates makes me wonder if they work differently in the States to here in the UK. Here, "variable rate" typically means a fixed number of percentage points above the base rate set by the Bank of England (analogous to the Fed). The base rate is connected to inflation (although it's not exactly the same), so in some ways it's a actually less risky than a fixed rate, because it's value is more stable in real time. The fixed markup over the base is negotiated when you take out the loan, analogous to the differences between rates of fixed-rate loans.
In the US does "variable rate" mean something different? If it just means "the lender can vary it to anything it likes", how is that even legal - what's to stop them jacking it up to 1000%?
She has to stack up and pay it off in large chunks to beat the interest rate. Unless this is impossible for her, in which case I think a court would look favorably upon her protest.
Henry David Thoreau turned down his $5 vellum diploma from Harvard, and was one of the most important abolitionist thinkers. He would probably characterize the student loan practice as farcical, advocate for its abolition, and describe default as a moral imperative (note that defaults are punishable under Law in many states). He might have even described it as illegal, though he did not strictly believe in Law, unlike Abraham Lincoln.
Not to devalue the contributions of myself & other college graduates. I think higher education is necessary, like we play the role of The Giver in Lois Lowry's book, maybe. Its high price is commensurate with the social price of holding on to things like history, philosophy, and chemistry.
No one should go hungry or without work for not attending the University. Probably no one should be working or supporting the institution of debts, technically speaking. But there are many people who cannot read, cannot live without electricity, do not have fuel or agricultural land, etc.
If my daughter would have had to take out student loans to go to public university, she would have likely been on the hook for around $30K a year factoring in room and board. With a part-time job, she may have been able to reduce that loan debt to $20K a year. At four years, that would have been between $120 to $80K in student debt, just to go to a public university.
 $30-$60K year https://www.cbsnews.com/news/the-cost-of-a-nation-of-incarce...
I think the problem is the opposite, college as presently exists is something we value far too much. Lots of people go to college and learn essentially nothing.
I'd fully support free tuition if and only if college was actually hard and rigorous. Instead for most people it's daycare and I don't think we should subsidize daycare for 18 year olds.
From reading the headlines it's easy to think that graduating with 100k in debt is normal, but the average is "only" 37k. And the median is lower still (media loan payments at ages 20-30 are $203 vs average $351).
Which basically says to me that the issue with student loans isn't so much how expensive college is in general, it's that we have a segment of the population, like the author falling into a trap where they graduate with far more debt than they should.
You're pretty spot on about your comments on state support though, FiveThirtyEight had a good piece on how tuition costs at public universities have largely been due to a decrease in government funding: https://fivethirtyeight.com/features/fancy-dorms-arent-the-m...
Coming from Australia it's also a bit odd that so many students move to go to university. Most of the people I knew at university were still living with their parents. Partly this is just the concentration of the population in a few major cities, but I think it's also the general trend of building universities close to population centers, and maybe less strong differentiation between university profile sin different regions.
I literally made money while attending Georgia Tech for my engineering degree. 100% of my tuition was paid for by the state
Disclaimer: Hope recipient
Nothing about the lotto is compulsory or based on income. I don't think its fair to say that its a "tax on the poor".
This scholarship has been great for the state overall and was a smart move. Georgia Tech is now a top 5 engineering school in the us, and top 10 worldwide. UGA became a highly ranked University. The tier 3 schools became tier 2, and tier 2 schools tier 1.
If it wasn't for this scholarship you'd have overall worse schools, and a brain drain on your hands.
> If it wasn't for this scholarship you'd have overall worse schools, and a brain drain on your hands.
I mean, if you're OK with this kind of redistribution (FWIW I am too, it makes a lot of sense) then I think we should ask the richest of us to foot it, not the poorest of us.
I think a game (quoting Powerball here) where your odds are 1:292,201,338 is by definition a fleece. All that happened here is the state is reserving that right for itself, justifying it as taxing a vice. This is a common theme -- look at cigarettes and alcohol -- but in basically every case it's lower income people who are shelling out.
> The modern, state-run lotteries just provide an outlet for gambling that would happen anyways.
This is a common policy argument (see cigarettes/alcohol above or legalizing drugs), but does this even make sense? White collar crime is pretty rampant, so what if we legalize it and make an embezzling tax? Or human trafficking is a persistent scourge, what if we legalize it and tax it?
Furthermore, these vice taxes are regressive flat taxes. If we start legalizing things and replacing the criminality with a tax, really that only opens it up to people with means. It's still ruinous for lower income people to engage with it. Which is -- you probably won't be surprised to hear -- another reason the lottery preys on lower income people.
I think we should just admit that this stuff is discriminatory -- a lot on class but at least a little on race.
From what I've seen from places that have legalized various vices, it seems to always end up doing more good than criminalization.
I dislike this line of reasoning because it leads us naturally to the conclusion that vice taxes (etc.) are the best we can do because some people are very incorrigible and many people are a little incorrigible. While I think we'll never eradicate "vices", I do think most of them have root causes and the most effective thing would be to treat those. If we think Behavior X is unhealthy to the self or societally damaging, sure taxing it is a way to balance out the damage to society, but that does nothing for the person. If we spent time fixing smoking, for example, we'd save so many lives and so much money that it's kind of bewildering that we haven't done it.
I do think legalization in general is better than criminalization -- but only because the US criminal justice system is deeply harmful. It would be better if we treated the more serious users of vices instead of imprisoning or aggressively taxing them.
What right do you have to say whether the enjoyment someone finds in a vice is offset by the damage it does to their health or finances or social life? And for any given vice, usually the ill effects are a function of how heavily one uses the vice. So does a full ban to save the few who overindulge balance against depriving the rest of the option to make small trades against their own lives for some pleasure? Should we ban alcohol to save the alcoholics at the cost of everyone else being able to unwind with a beer? We tried that and it didn't go very well.
Evidence seems to point to education and access to treatment being far more effective than bans. And it's very difficult to get any kind of long term results by involuntarily treating someone, so I'm not sure there's much to be gained by criminalization with enforced treatment instead of just punishment.
At the end, you pretty much have to let people make their own informed decisions. Anything else sounds like a step toward an authoritarian state dictating everything you do.
You're right, this is tricky. But consider China's opium epidemic in the late 19th century. A lot of legalization advocates argue that drug use is a victimless crime, but in that epidemic 13.5 million people were addicted to opium. That has a huge social cost. Or US prohibition in the early 20th century: alcohol was leading to awful domestic abuse and it caused women to be the strongest supporters of the 18th amendment.
In fact the prohibition case is interesting because I think we went about it entirely the wrong way, which was the point of my parent post. If we simply criminalize the act then we're essentially saying whomever commits the "vice" is incorrigible and has to be separated from polite society. One step better is to tax the act so society can in some ways be reimbursed for the cost of the behavior. But the best step would be to discover why so many people are abusing alcohol in the first place and solve that problem. We'll only have the justification to do that though, if we recognize that the people who fall victim to those vices deserve our support, rather than just being abandoned as morally weak or fundamentally lower than us.
The cool thing about that is then we don't need to have some weird arbitrary line between, "oh 2 drinks is OK, 4 drinks you're going to jail". And we help people who fall victim to alcoholism or whichever vice we're talking about. It's a win-win, if only we can get over our preening moralism.
But in general you're right, there's not a lot of daylight between an act and a crime because not everything we regulate has a moral underpinning. But that doesn't mean those regulations can't do good, and it certainly doesn't mean that just because we enact some regulations we're inevitably headed towards totalitarianism. That's just a slippery slope fallacy.
No, it isn't. The odds from an individual ticket are irrelevant. Only the ratio of expected value to price matters when if you want to call it a fleece. The state lotteries offer many different variance options with Powerball being among the largest. And while the lottery is, in nearly all cases (there have been some exceptions), negative EV, it's not so much so that you'd call it fleecing.
Remember, the original lotteries were unregulated and those selling tickets would pick the winning numbers based on the numbers that gamblers had chosen to minimize the number of payouts. That was a fleece. It wasn't until they developed a system where the winning numbers were determined by the results of horse races that there was some semblance of fairness to the system, but operators still found ways to minimize winners winninga.
Nah. If it paid off at a billion to 1, I would buy some tickets ;-)
I really think coercion discussions are interesting. You might remember when SCOTUS was debating the constitutionality of the ACA, and essentially said everything was fine except the funded Medicaid expansion. The opinion of the court was that the subsidies were too "coercive" and that no state could reasonably decline them even if they had other good reasons for doing so (whatever they might have been... let's stipulate those good reasons exist).
The reason I think coercion discussions are interesting is that they tend to reveal bias. It's fundamentally a discussion about whom you have sympathy for. If you have sympathy for lower income people who are burning their money in hopes of the slimmest chance at a better life (honestly though, more like the dopamine high of imagining a better life and escaping their stressful life for 15 seconds at a time) then you'll see the system as coercive. If you think they should wise up and not be so obviously scammed, then you'll think they get what they get.
Or in the ACA case. If you have sympathy for the states who are philosophically against the welfare state and you see the Medicare subsidies as an irresistible corrupting (politically speaking, declining Medicaid subsidies when people in your state are dying from lack of medical care is a tough sell) device, then you'll see the system as coercive.
There's a middle ground here.
I used to feel the same about the lotto being a game for "consenting adults", but it's a game that the state has a monopoly on and markets primarily to the least educated and most in need of hope. That should make recipients uncomfortable.
Someone smarter than me once said "the lottery is a tax on those who are bad at math."
Which has some pretty good wisdom behind it.
I got into GT out of state for CS but I'd end up paying like 40k/year so I decided against it.
Through cheaper (than other states) tuition and programs like the hope it rose in rankings
Even with college as expensive as it is, there are literally an order of magnitude more college students than prisoners in the US (22m vs 2.2m). Making it cheaper would of course further alter that.
Naturally, education is important. But there's no way to hand out college educations without (1) significant changing what the average education is or (2) significant lowering the average standard of living.
These articles are always about people who wanted to go to very expensive private schools (see item 1). There are tons of reasonably priced universities.
I went to
1. University of Florida (public school) which even without one of the easy Florida scholarships is $3200 per semester tuition.
2. Brigham Young University (religiously affiliated private school) which even without one of its academic scholarships is $2800 per semester.
Without savings, scholarships, tax credits I could literally cover one year full tuition with a 40 hr/wk $10/hr summer job.
Looks like 18.5k$, which is still about 8.5k$ higher than most other states.
Frankly if you look at only the numbers, then 170,000$ total on a 95,000$ is what you'll get for a 20 year loan with 6.5% interest (give or take). From what I can tell from the article she will be paying it for roughly 20 years.
If you take a fixed-rate payment (I.E. paying the same amount monthly for the entire loan, rather then paying the same percentage of the remaining loan every month), this is exactly the situation you'll get - I.E. the first few years your payments go almost entirely to interest and only later years you pay for the principal.
These are very common financial instruments that you can get from a bank or credit company. Especially if your parents are cosigned.
I think the main takeaways are rather these:
1. How in the world is a variable interest loan based on LIBOR (which the article alludes to) gets to 11% interest? that's prime + 8%, at least. That's practically loan-shark territory. How is a government led (and financed) aid program have such an insane interest rate?
2. When you take a loan for investing (such as education, or starting a new company), I.E. leveraging, you should always consider whether the future value of the investments is higher then what you borrowed. I'm assuming she studied for jobs that don't pay well.
3. American education is insanely expensive. It's probably cheaper to just study abroad for a few years and come back (like she did for her master's degree).
Home loans can be cheap because they are secured by the value of the house: if you default, the bank thinks it can sell your house and still make a profit.
Unsecured loans yield nothing when they go bad, so they have absurd interest rates whether the loan is for education, business, or whatever. That’s why many people choose to eg take out a second mortgage when starting a business: better interest rates, because it is secured, but you lose your house if your business fails.
The US government now owns a non-performing loan which they then sell for 10%-15% of what they bought it for to - you guessed it - Sallie Mae loan recovery. Since this loan can't be discharged by bankruptcy, part of every paycheck she ever earns will be garnished, every tax refund will be seized until Sallie Mae gets their money.
I don't think Sallie Mae is providing financial aid. According to Wikipedia it's providing private student loans.
I thought she took one of these, though maybe she took just a regular private loan? but those aren't usually referred to as student loans (and will banks actually give those when there are guaranteed ones available?)?
Federally guaranteed loans have limited interest rates and criteria for what schools they can be used at (etc.); private student loans aren't bound by either of those and have been offered largely for that reason.
Where did you get that? From what I read in Wikipedia, the only difference with a regular private loan is that they are not easily discharged through bankruptcy thus the interest rates are quite low compared to a regular unsecured loan for a person with no credit history and no income.
And young people seem to feel a kind of pride in knowing jack nothing about loans and interest calculations and "only the payment matters" because hey, math is hard and is not "cool". And "nobody told us how to calculate that" well, it's not like there are no ways of finding out.
But it seems the smart way is to default on this (as long as it doesn't affect the co-signer, or the co-signer should default on it - if possible - as well)
Don't even think they bother to send a bill anymore since they'd have to fight with the IRS to (not) get money out of me.
And for the universities.
And then what?
Lenders usually sell non-performing to a collection agency where you can negotiate a discount or they can try to execute it in court (where they need to prove they actually own the loan - for a lot of home loans this was not the case )
Not so for student loans; in the U.S. they typically cannot be reduced in bankruptcy court. So the choice becomes a simple one of cooperate=1, defect=2. Well, okay, it's not that simple. We don't yet have hereditary debt, so the debtor can still choose defect by killing themselves, reducing the amount the lender can collect. Debtors usually consider the cooperation strategy the better one.
Well that escalated quickly...!
The author never discusses the degree they got for all this expensive private education! That is critical point.
She doesn't discuss what her own parents suggestions beyond her father correctly pointing out the idiocy of these loans! I find it hard to believe they pushed for a degree that gets you an office job at $20K? That makes no sense if you know working class or first gen immigrant families.
The only angle here is the big bad system doing her in.
Seriously working class parents are generally focused on solid white collar jobs. Ie, nurse, accounting, construction management up to doctor. First generation immigrant families - even more intense in this area
Even a masters in something boring like accounting or nursing (blue collar white collar jobs) pays way better - you should expect $100K within a few years accounting side and RN's can easily do $74/hr - which is reasonable. You'd be starting at 40 - $50/hr.
In European system, much of education is free, but access to courses depends on your performance in high school. The germans here will know of the "Abitur", high school graduation and university entrance degree all rolled into one. And for selective (high cost to state) upper education - the bar is not low to get into programs! The European model also has a lot more vocational training and its not looked down on as it is here. So it's a different model.
I went to private school -> and picked the one that gave me those most financial aid by far! I ALSO applied to state universities. For those who thing the University of Michigan, University of California, University of Virginia etc isn't "good enough" for them - get a grip.
School is what YOU make of it most of the time and sometime I wish I'd gone to a state university
For example, we had like 3-4 chef schools nearby - 100K in tuition?!? That is a totally false dream, those "degrees" do not get you anywhere!
But my point though was - the article left out what HAD to have been some feedback from parents AND what her degree was. How we can read this whole article without some context about her degree.
It's not that someone else would say your first gen so do a practical degree, I'm saying that a first gen immigrant family - they are talking at the family level about this. And practical degree can mean doctor, it can mean computer programmer - so it's still shoot for the moon. But these are degrees with big and growing markets.
The article I keep re-reading is this one from the highline -
If the author had made the exact same college/career choices 20/30yrs ago - the outcome very likely would have been much different.
The college I attended churned out graduates headed to both careers, both costing the same. Had my sister gone to the quality of school that I attended, she would never have been able to pay her loans. She probably would be more qualified to teach the next generation, but an education major at Ivy League College would still be a "dubious program".
I realize that isn't what you're intending to say. However, college pricing is generally (thought to be) correlated with quality of education, not with return on investment of that education. The result of targeting the "dubious program" ends up simply devaluing low-pay jobs.
It shouldn't be this hard to find a good, affordable education.
It's not exactly a shocking recent revelation either: https://www.nytimes.com/1987/02/18/opinion/our-greedy-colleg...
'ACCOUNTING FOR THE RISE IN COLLEGE TUITION' [PDF] http://www.nber.org/papers/w21967.pdf
The experience of living in a dorm, and socializing with people... That was the best time of my life. I wouldn't trade that away, if I could help it.
Why isn't there enough competition to provide "live at a good, affordable college"?
If I earn over $54,000 AUD in any year, I will pay a few extra percent in income tax per year until it's paid off.
If I never earn over $54,000, or pay it off so slowly it will never actually get finished, then so be it, and that's fine.
I think everyone in the Developed would outside the USA sees that when you make things for-profit (Health, Education, etc.) the result it always more profit.
The EU has plenty of problems (and funny enough, I really, really miss junior colleges; they're great!) but the day my daughter's EU passport arrived I felt a huge sense of relief.
I wish the high school kids were taught more about career and finance. Obtaining higher education is not a goal that should be achieved by any means, it is simply an optional tool for building the career.
School is too expensive now. Its a travisty fof the next generation.
Community college, on the other hand, is a wonderful learning institution--my local CC has continuing ed classes that are basically free for city residents, and anyone can learn nearly anything there, without going into life-altering debt.
The purpose of the university has changed as our society has changed. But we are using the old, unscalable model to try and scale a university degree for the many.
PoC are less likely to get a college education, so requiring a degree helps to restrict the labor pool without bringing the EEOC down on the company.
Anyone involved in teaching university students these days has an ethical responsibility to emphasize the price the students are paying to be there, and the implications that will have for their future revenue needs.
Fortunately I didn't get stuck in something this ugly, but i definitely could have.
Our schools do a VERY poor job of educating students on fiscal responsibility. It's actually something I think every high school should have as a required course.
I think it's actually that the nation is trying to do away with money, probably since before the Civil War, and up through the abolition of the Gold Standard. The reasons for declining literacy and numeracy (especially financial numeracy) are probably as simple as, "A really good job is being done & many find no use for these skills."
Then, for those more-or-less willfully literate, for many years analogies were used as the assessments for entrance to the Universities. That baffles me for obvious reasons.
I think the point of the article is that we shouldn’t have predatory loan companies that are going after kids who are trying to get higher education.
You perceive a high risk and demand a 100% yearly interest rate. He accepts.
Did you make the right choice as the lender?
Lending has a ceiling on the capacity of the borrower to default. The issue with student loans is that the lender has no downside to giving defaultable loans.
How, in this way, are student loans different than other forms of loans? The students feel strongly compelled to take the loan?
Lawmakers could have fixed this with a longer discharge period, or rules to forcibly shift the loans to income-based repayment, or something that gave the judge discretion to decide what value you got in exchange for that debt. Instead, they just made the loans impossible to discharge in all but the most extraordinary circumstances. "No downside" was an exaggeration, since you can't get blood from a stone; but student loans are certainly easier to collect, since you have the borrower's entire lifetime to squeeze.
ETA: And yeah, some (but not all) student loans are government-guaranteed but issued by private companies. There, the "lenders" were basically just brokers, taking zero credit risk and collecting a commission for any loan they could convince the guarantor to accept. The biggest program for that (FFEL) ended in 2010, not sure if any other exists.
It's a shitty situation, to be sure, and I definitely think there needs to be some fixes put in place for outrageous student costs, but this article just doesn't help the case.
She chose a college she couldn't afford, and when the warning sirens were blaring in her face she doubled down.
Since I graduated 15 years ago, the public University I went to has increased costs significantly and massively improved student amenities. Baristas and rock climbing walls and whatnot. Why? It improves rankings and people will still pay for it, subsidized by student debt. If, say, people actually had to be able to afford the bill, I bet all the expensive nonsense and massive staff beuracracy would shrink in no time and the schools would go back to costs being classrooms and books.
Not sure which is best. The move the fee paying/state loan has seen the salaries of University managers rise significantly. The part time degree sector has been significantly reduced in volume.
I do personally think that the classrooms + books + dorm/shared house route with subsidy for less affluent ones has benefits.
> classrooms + books + dorm/shared house
I think we can notice what's going on here. I do not know about the UK, but if you look at education costs in the US, it becomes painfully obvious. It's not books, classrooms or dorms the students are paying for. I mean, think about it. Which books can cost 100K over a bachelors degree, where most knowledge has been known for centuries already? Classrooms have been built years ago in the most places, and their marginal costs of maintenance is negligible. Dorms are not that expensive to run either, not to the tune of tens of thousands per year per student, unless you're talking about luxury which most people neither need nor can afford. So subsidizing those necessities should not cost much. Something else is driving the costs up.
For example giving 150k of loans to an engineer is a sound investment. Engineers at the low end make 50-60k/year. And most likely pull 100k/year after a few years.
That's the point.
> giving 150k of loans to an engineer is a sound investment
No it is not. I've pretty good education (one can claim I maybe over-educated a bit even since I've studied tons of things I never use), I earn six figures, and my education did not cost even close to 105k. And I would be terrified to take a loan of 100k+ even with my current income level, stable job and some assets I've accumulated over the years of work. The only thing I would take such a loan on is a house, but definitely not because I want to attend nicely-named social gathering group that by the way also gives degrees. How a person can take such a loan with no income, no specific job prospects, no savings, no clear perspective of how it would be paid off - just boggles the mind. And it's not like community colleges do not exist...
Moreover, it is absolutely clear to me that the most of 100k is paying for services the students do not need and for the fact they got the coveted paper. Education per se does not cost that much, you can clearly see it in price dynamics and administrative vs. teaching staff dynamics. It's not like professors are known for being billionaires either. The costs inflation is happening elsewhere. And these loans enable it and drive it - what's the incentive to cut costs if the students will just get another government loan, never refused, each time you raise tuition?
Not really even that. Try to get an un-secured loan for 150k and see how happy the bankers would be without government backing to hand it to you and what the rates would be. You need a heck of an income to support such a loan, or mortgage-like duration. Even for 10 years, at 6% - which is very good for an unsecured loan, that's what secondary secured loans charge now, if you're lucky - it's $1660/month. On top of your other expenses, like mortgage or rent. And 10 years is a long time, what if the debtor changes her mind or something happens to her? Now add to that the fact that it's not even know if the debtor is going to actually finish the degree...
I've got 3 kids to put through college, the first just finished freshman year. It's fine-- he broke his hump studying for a good ACT (this led to good scholarships), he's working internships over the summers to raise cash. My wife and I cover what's left, it's not too much to bear.
My son's room-mate is doing even better. He's in Army ROTC, his school is completely paid for.
We're not wealthy and college is not breaking us. If there's a college debt emergency, it's an avoidable one.
But then I really think back to when I was just graduating from high school and figuring out how to pay for college. I didn't understand much about finance, or about loans. I had no idea how repayment worked, or how the majority of each payment would go toward interest for a long time. I didn't know how much in total I'd pay, or even how to figure that out. My parents (who co-signed some of my loans) tried to help me, but their understanding certainly wasn't all-encompassing either. There's pretty much no such thing as "financial education" in K-12 schools in the US. They don't even teach you how to balance a checkbook, let alone tackling the concept of debt.
I was lucky. I was lucky that my interest rates were low, and stayed low. I was lucky that I got a stable, well-paying job (with regular raises) after college and was able to exceed my monthly payments. It was all luck. I could have just as easily ended up in a bad situation. If I had ended up in a bad situation, I hope I would have been mature enough to accept at least some of the blame for it.
But that doesn't mean predatory lenders are off the hook. That doesn't mean it's ok to avoid telling a potential customer exactly how repayment works, ahead of time. That doesn't mean it's ok to charge exorbitant fees and penalties that make it harder to repay. That doesn't mean it's ok to make someone jump through hoops to access and understand detailed information about their loan accounts. And the lack of up-front, plain-language transparency is disgusting.
If you're not swayed by that, let's talk about outcomes. We're raising a generation of new adults who will be crushed by debt well into their 30s and often later. These people can't meaningfully participate in the consumer side of the economy while they're forking over half or more of their paycheck to lenders. If there are massive defaults, that will be a huge drain on resources: economic, financial, and educational. And the next generation of students just won't bother being students. They'll see what happened, and forego higher education. In some cases, that will be ok, and they'll be financially better off for it. In most others, though, it will just weaken the level of education in the US, which hurts science, engineering, research, technology, everything. Even if you have no compassion for the students with crushing debt, at least consider the scope of the problem all this causes, and be pragmatic about it.
One of our economy teachers explained: "As students you can get a loan from the state with no interest. You're stupid if you don't take it and keep it for some extra interest." I calculated the interest this would generate and decided that it was too much hassle for few extra bucks. And I didn't want the temptation either.
The fact that her first job paid $20,000/year is telling. At one point she says "what should I do, transfer to a public school" and the answer is holy hell, yes you should. She didn't. I don't think my position is justifying predatory lenders, because it doesn't. But she has to share in the responsibility to a great degree, because she made a decision to go into insane amounts of debt to stay in private school.
Its this kind of stuff that enables the rich to just get richer. I'd assume ppl with 10mil+ of net worth can get way better rates & loan amounts than I.
However you could easily refinance that loan and get a better rate these days.
I just did it a few months ago to do some renovations and put a new heating system in my house.
But I would assume she has looked into that.
I think as the article pointed out we might've different standards in referring to what is compound interest.
But my original point is that I thought consumer loans would not incur interest-on-interest (as in if you're late in payments for your car loan, the interst "compounds" due to higher unpaid principal, but the missed interest would not add to the principal), which seems not be the case for student loans as per the author.
Of course, with this view, some sort of moderate compromise seems necessary. However, I wish I had more I could say about the issue with confidence.
While it is true that high school definitively needs a "basic finance" class (where taxes, these loans, how to save, how banks work... are explained) she got a TON of warnings, and she took a loan.
1) I mean average, not your dream job in SV for example.