What angers me the most about debt like this is people often take on far more debt than they need for a degree. For example, going to a university in a different country/state where they cannot get any of the scholarships intended for residents. Another one a lot of my friends have done is going to a university that is substantially more expensive for very little gain. Another common one is renting student housing when it is perfectly feasible to live at home and commute. While the debt still may be excessive, it can be substantially reduced.
Also, a specific thing for anyone working on a degree (particularly an undergrad), check out CLEP exams. Very affordable per credit hour and you don't need to spend a semester listening to a professor [1].
people often take on far more debt than they need for a degree
I suspect it's the same thing as when buying a house. The numbers are too big and become just numbers, without a corresponding value. 10K more or less doesn't seem to matter all that much, while in other cases one might agonize over a $50 price difference.
Student loans should be dischargeable in bankruptcy after 10 years post-graduation (and not fully guaranteed past a certain amount, say $10K or $20K) -- hear me out.
The common reason student loans are NOT allowed to be dischargeable is because, in the minute after graduating and without collateral, the student can declare bankruptcy with no effect (the vast majority are not buying a house within the time it would take for their credit to repair).
This has the side effect of blunting market forces. It is the same amount of interest and same approval process to get 200K for medical school as it does for an art degree, despite market forces suggesting that the former are vastly more needed (ok, granted, there's the AMA, but that's another discussion). It doesn't matter to the bank -- after all you can just repay a little bit until you're 70 years old.
Allowing things to be dischargeable 10 years after graduation would reintroduce market forces. You want 200K for medical school (maybe we change the post-graduation length a bit to account for residency / fellowship)? Great! Almost guaranteed well-paying job out the other end.
But 150K for an expensive art school + MFA? You better be prepared to have your credit looked at under a microscope. Application rejected.
What would this mean? This would mean that schools would actually have either a) provide more value to the individual, b) charge less or c) accept much smaller classes. It would mean they would probably have to focus most of their energy on education + job placement rather than funding more school athletics and building a fancier dorm.
What you, the author, and some other posters don't seem to realize is that student loans can be forgiven after 20 or 25 years, with payments up to that point capped at 10% of discretionary income: https://studentaid.ed.gov/sa/repay-loans/understand/plans/in...
No one should be paying "until they are 70 years old".
There isn't much of a market for market forces to act upon. The overwhelming majority of student loans are made directly by the government with terms and underwriting (or lack thereof) set by Congress, not competition.
It isn't specifically said, but I assumed that the parent was implicitly suggesting a switch back to private loans with market mechanisms instead of the current government loan mechanism.
In a complex system there are multiple reasons for every event. I'd say these are both factors. Globalization and driving force of capitalism is the context, and proportional investment in primary education is an obvious step that we're not taking.
Outrageous student loan debt, and the lack of means to pay for them after spending, has been an issue for at least 10 years now and has been thoroughly documented. It shouldn't be a mystery to anyone at this point, and it's baffling why people are still taking on these large debt loads for degrees and programs which don't have a snowball's chance in hell of paying off the debt in a reasonable amount of time.
My own personal experience with bad debt was my own fault, so I have a habit of blaming the person who willfully enters into debt; I opened a credit card as a young man without understanding the system, racked up huge balances, was eaten alive by interest and was forced to go into collection and settle. That effectively crushed my credit for 8 years. I did however learn a ton and was able to rebuild my credit. My children won't have to learn the hard way, unless they choose (operative word) to ignore the lessons I had to endure.
So without blaming the author for their own actions and writing it off as a "you should've known better"; Is the greater problem these days of a predatory nature by lenders, ignorance (willful or not), or a complete lack of education about an education? Or perhaps D. All of the above.
How is it baffling when you literally did the same thing with credit card debt? People are generally bad with financial decisions because they are abstract and because good decisions typically require significant delayed gratification. Realistically, many sound financial decisions require putting off gratification forever, which is a hard pill to swallow.
I ended up with a decent bit of debt for stupid reasons (e.g. never filed for residency so essentially paid double for college), but was able to dig out pretty easily due to high income. Most people who make stupid decisions can’t dig themselves out easily.
> How is it baffling when you literally did the same thing with credit card debt?
I entered college when credit card companies were just starting to practice predatory sign-ups on campus and at college events. And many of the tactics they used back then have since been outlawed. That was also at a time when the wealth of information we now have in the internet did not exist. Given the myriad of channels to learn these days, it's baffling. Hell, how many different reviews do we read before making a decision on where to eat, or where to get our oil changed?
Honestly the dangers of high interest rate debt have been known for millennia, anyway. This feels like a lack of self awareness. “Other people’s mistakes are their fault. My mistakes are other people’s fault too.”
Now imagine the same about drugs. Sure you an blame people for taking bad decisions and ruining their lives, but some systems or laws seem to prevent people from taking those decisions, or limit their impact. While other do the exact opposite. The US system seems to encourage people taking those bad decisions right now. I think the combo super easy loan + no bankruptcy + expensive university + "american dream" mentality is financially deadly.
As much as it's tempting to blame the author for the predicament she finds herself in, the reality is that those who offer these finance arrangements know that they're offering them to people who will be beholden to them for most of their lives. This is legal, but morally abhorrent. I don't know how to stop this trend, other than to tell a whole bunch of young people that they can't afford to learn further in the US educational system.
> other than to tell a whole bunch of young people that they can't afford to learn further in the US educational system.
There are tons of alternatives to funding a very expensive university through debt. Work part time, pick a cheaper school, get a bunch of credits at community college, or do all 3. And that is all without a single scholarship - of which there are many you may qualify for.
It’s irresponsible to just throw your hands up and claim that there’s no other way around it...
Ok but what about the people who already work one or two part time jobs, already picked the cheaper community college, already aren't buying $5 coffees from Starbucks daily, already don't eat out all the time, already don't pay for cable, already didn't buy a new iPhone this year?
Assuming everyone's already well off and just living above their means isn't very helpful when education itself is the thing that's costing above most people's means.
Surely one can make an argument that having to do all of that, or rely on scholarships to get a tertiary education isn’t a great state of affairs for the future of our countries?
This is accurate. All the talk about how to fund college ignores the fact that some degrees are not worth it in terms of financial cost/benefit. What does an MFA get you in actual earning potential? If the benefit is extremely low, no method of funding will make financial sense except if you can convince someone else to pay for it.
If you pick up $200k in student loan debt from an Ivy League school but leave with an engineering degree, you’ll probably be fine, even if that’s not really the cost effective option. If you leave school with $50k in loans and a degree that doesn’t get you a decent-earning job, crippling debt is now your life.
Awesome post :) There's a lot of victim blaming in the student loan debt world. Let me attempt to explain how we can fix the system.
1) Education is too expensive (especially relative to the value it delivers).
2) But, that money isn't even going towards the underpaid adjuncts who teach the classes. wtf??
3) Tuition expenses mostly go towards administrative salaries, very very old established professors, and buildings and services. This needs to change.
4) But it can't change, because you can't just open a college and get it accreditted easily. This is a regulated industry, just like the health insurance industry. You have to do the song and dance for months in front of regulators, who have their own interests in keeping competitors out.
So, all in all, the student gets screwed, the company that hires them receives questionable value add, and the college administrators and banks make a killing.
It is a massive wealth transfer that delivers little value.
> Tuition expenses mostly go towards administrative salaries, very very old established professors, and buildings...
At many (most?) universities, established professors make only slightly more than new hires because the budget simply isn’t there to pay significantly more and so the salary range compresses. And honestly, instructor pay seems like a good place to be spending money.
On the other hand, administration costs are out of hand. Some universities have crossed the 50% threshold and now spend more on administration than everything else combined.
We agree, I promise. Administrative costs are far and large the major problem, as well as needless capital and operational expenses like multi million dollar landscaping and etc.
However, I seriously must qualify your statement. There are adjuncts making 20-30k per year, with no benefits. Then there are tenured professors who barely do any teaching anymore making upwards of 200k per year. Some also hold simultaneous administrative positions.
So you have to tread carefully. I think what you are trying to say is that paying a tenured associate professor 60-80k per year is a reasonable expense. I agree with this statement.
> I think what you are trying to say is that paying a tenured associate professor 60-80k per year is a reasonable expense.
Depends on the field. You aren’t hiring PhDs in computer science with that salary. They’ll leave for industry immediately. You’re also not hiring qualified instructors in CS at $20k for the same reason.
Oh wait ... if only we had a university system for a few thousand years before student debt, that might provide insight into an alternative ! Oh wait ! We do !
Problems student debt tried to solve:
1) these systems do not let many people learn at all. Maybe 1-2% of the population gets higher education.
2) there is a large difference between institutions. And society's classes arrange around specific institutions one way or the other (price, geography, ...) (by which I mean the rich go to one school, the poor to another, with of course vastly different prospects). The institutions attended by the wealthy get the best professors, the best reputation, and their alumni get an advantage in the workplace.
(and let's just ignore that this is exactly the part that specific countries saved, and kept separately from whatever funding system they otherwise use for education: the part that worked best for the rich, like France's Ecole Nationale d'Administration, London School of Economics, and Germany's Bundesbank Hochschule. That's just peachy. Most of these schools you can only be referred into, you can't apply (or can't apply successfully), and they lead directly to the government's upper echelons)
3) There were much, much less study directions. Essentially anything you couldn't convince your parents to fund you learning for 2 or 4 years for could not sustainably be a university department. This resulted in much smaller arts, social studies, philosophy, archaeology, language, ... departments. Many people want to study those directions, but few feel like funding them.
4) Universities had perpetual funding problems, because everybody feels like regulating education. So the growth of administrators actually started before student loans were started. Whilst I don't agree with most idiots putting up this argument, there is a grain of truth to the idea that regulation forces universities into many unnecessary costs.
5) even the richest university directions, like economics departments in huge cities, weren't exactly swimming in cash. Therefore they focus on what brings in the bucks (more or less outsourced R&D for huge companies, creating spinoffs and some recruitment) ...
6) unwillingness of these departments to grow to the size people would like, and being pretty selective as a result (famously civil engineering and of course medicine)
Every proposal here essentially boils down to forcing education to be a reasonable investment, which will re-cause much of the above problems. If we're willing to do that, sure, but ... I don't think so.
In the US, do student loans need collateral?
I recently went through the process in India and was quite surprised at the amount of rigour - the bank requested a lot of information including grades since high school, discussed potential earnings and requested that the familial home be hypothecated to the bank.
Not at all. You can spend six years get a degree in photography and museum curation at an expensive art school, get 130,000 in student loan debt, then live with your parents while you pay 20% of your income in perpetuity. (A friend of mine’s real life situation)
In the USA, government and private student loans are easily available. I have never heard of anyone who couldn't study becuase they couldn't get loans, though I'm sure it happens. I have heard of many people who accumulate huge debts for degrees that offer a low increase in potential future earnings. Like an MFA frankly.
This is mostly becuase USA student debt is a special debt that follows you for life. It cannot be discharged in bankruptcy. You can enslave yourself with a bad loan. Your soul is the collateral.
In the US student loans are for the major part unsecured and guaranteed by the government.
The idea behind is that a better educated population is more productive and pays, on aggregate, higher taxes. Part of this tax surplus can be used to pay for the debt defaults.
The reality is that the loans in too many cases are too high and will be paid back only in minimal part.
The debt in this case was self imposed, and I'm completely confused about that. To follow a passion, why not take classes at a community college? I may be leaving empathy here, but but the decision seems inexcusably foolish.
Relatedly, I remain confused about why, in another common case for further education, parents are allowed to take these loans out on behalf of their children. College at this point serves a couple of purposes in society, but the financial driver is probably that it is a sign of successful parenting. If a parent can't afford to send their children to college, they should have to do so with a collateralized loan, not one they can saddle upon their child.
When people like Gillette take on debt, why is there never minimal cost-benefit analysis? Or do they ignore it? It's refreshing to read a reflection like hers.
Of course not. A huge portion of the population has essentially no understanding of finances, which is why they need to do things like call to ask why their loan balance is going up. Worse, there is a feeling of helplessness when finances seem like a mystery, hence in this case actually needing someone else to tell them to call and ask.
This is why the cries of “free market!” when, e.g., discussing caps on usurious rates at payday loan companies are missing the point. People get trapped in debt with no way and no understanding of how to get out.
So more education is probably the answer. Too bad that home economics (as well as civics and other useful life-skills classes) have been systematically removed from the US education system. A class like home economics would be precisely where I'd expect to be educated about things like personal finances and debt.
That's what bankruptcy is for. It's actually an elegant solution for uncontrolled personal debt. The problem is that we haven't figured out how to properly apply that tool (or an alternative) to higher education.
I keep waiting for an article wherein the author details their move overseas and renunciation of US citizenship to start a debt-free life in Germany or Australia.
Keep in mind that under current law that forgiveness is taxable income to the borrower. So he'll still be left with one quarter to one half the forgiven principal, which by that time may well be greater than the original principal even in real terms.
Either we figure out a way to fund education properly like taxes (which we already pay so it's a matter of relocating money at the government level only) or we end up in a system with millions of stupid people unprepared and unable to contribute to society enough to survive, let alone enough to give something back. We're already most of the way there and the society that we're creating, a society that values stupidity over knowledge yet feels entitled to all the benefits of knowledge and the technology knowledge creates, is frightening. The anti-intellectualism is frightening. The stupidity and almost inevitable poverty and violence that follow are even more frightening. You'd think the government would be more concerned about such a situation and would want to fix this, but like most political issues in our stupid-first society, this has become a partisan issue. I hope we figure out how to stop being a stupid-first society and figure out how to advance in the world before we turn the whole country into the third world shithole most of rural America has already become.
Good for her writing openly about her struggles! Sharing is often hard, but can have an immensely positive effect on others who may be stumbling on the same path.
Reminds of the story of a theater student who was swindled by the "Nigerian mafia", left penniless, and turned that calamity into performance art.[1] The irony of analogizing a swindle to debt from an MFA is rich, of course.
MFA in creative writing and professional software developer here. I took out nearly twice as much as Gillette did to get my MFA over the course of a two-year program.
A lot of the people I spoke to in school decided to fork over that much cash because they'd been brainwashed into believing that there was value in the pursuit of your dream and that that value was intangible. Some of that started when we were kids when our parents told us we could be anything we wanted to be. We grew up expecting we would do whatever we wanted simply because that's the way we imagined the world should work and that if we did it well enough we would be successful.
Of course in reality we'd most likely never be able to make the kind of money that would allow us to repay those loans and live comfortable lives and retire at the modest age of 65, but there would be value despite that. You can't possibly quantify that value sufficiently enough to compare it to anything else before you dive in. My school happened to be fairly upfront about the downsides of their six-figure (over two years) tuition and would regularly advise that if you could not support yourself you ought to drop out. But so many students consciously decided to ignore the hardship they were going through because they thought it was temporary.
Some of the younger students got funding from their parents and never thought twice about the finances. Many of the older students, myself included, had saved up for the experience and had done an honest, sane calculation of the costs and whether they could bare it. We knew we'd return to our careers afterward and we'd make good money and be perfectly satisfied in our literary obscurity. Some got modest financial aid. Some got free rides. A select few got lucky and received six-figure book deals shortly after graduation. But others, who had only just begun their careers, who weren't talented enough for scholarships, who had not received the kind of financial education I and many others had, who didn't have the career prospects, are bludgeoned every month by their spectacular debt.
I own a small apartment and make good money as a software developer. My wife also works and we are very comfortable, but I look at my debt every day and think about all the things we could have had that might have been more valuable. I began school thinking I would never marry and would never have a kid because I didn't really want those things for myself. But I unexpectedly met my now-wife and we chose to have a kid and I realize that my two-year indulgence could have been my kid's college tuition. Or a good chunk toward private school. Or a down payment toward a house in the burbs. And I would happily trade in my degree for that if I could.
Every time I get together with my writing friends, we always talk about selling our books and making good money for them. It seems possible because we see our lucky few classmates have done it. It's a strange illusion, but it's one of the few things that makes the burden a bit more bearable.
The absurdity in my mind continues to be that any of us saw that much value in the degree in the first place. It's easy to say in retrospect that it wasn't a good financial decision, but there's a lot of pressure at the outset to pursue an idealistic vision. It's something people say they wish they'd done and when you have the opportunity and the gumption to do it you feel like you're doing something right. It feels heroic. Not a lot of people are willing to talk you down from it.
I'm pretty certain an MFA as a degree doesn't need to exist, but it's a cash cow for art schools, so the economics make sense for them. But it should be more than a debate about student loans. Adjuncts are underpaid, students are overpaying, and the people who run the programs continue to present the illusion of value. I'm not sure that more financial education is a perfect solution either because the system is exploitative.
College degrees have different values - an engineering degree has a very different value than a history degree. Since the tuition at four year schools for both degrees is (largely) the same but the financial value after graduation is different, I would argue that one of those degrees is a luxury degree while the other is not.
If you're arguing "the middle class should be able to afford college tuition without debt", that's a slightly different argument, but I'm not sure it has any merit (given the above that students make _choices_ about what degree to seek and that some degrees are luxury degrees).
College tuiton by itself with help from federal and state aid, yes. Housing+food costs if you can't get an apartment, that matches tuiton in my state. It should be that you work a part time job to pay rent and be able to make your own food, that way you get good living conditions and don't pay back an absurd amount after college. But lots of universities around here are designed to not even have much housing around them. You have to drive and pay for a $150 a semester parking pass, which is not guaranteed to have a spot.
It troubles me that topics like this usually turn into FUD about the 1% instead of recognizing government interference and subsidation as the problem.
The parable of the scorpion and frog [1] is exactly relevant. I wish Americans would stop shouting for more government to fix problems the government created in the first place.
The only way these companies can reclaim the money that they've lent to students is through the backing of the government, and the legal mechanisms that have been provided to them to use the state to collect money.
Isn't cancelling debt a form of less government interference, where the government will no longer allow its resources to be used to go after another person's property?
The article is about student loan debt, and my claim is that it's the government's fault.
My link is purposefully not on topic - that's the purpose and definition of a parable.
This must be the perfect HN content free libertarian retort.
The text is 100% generic. You could post it below any article that is somehow about a problem that is at least somehow, somewhat, just maybe, slightly caused by the government.
Your comment adds precisely as much to the discussion as a blank "Hi! I'm a libertarian!" would.
I think you have an outdated model of student loans. There's no longer a government guaranteed bank issued student loan model (FFEL ended in 2010). Instead the overwhelming majority of student loans are made directly by the Department of Education. For better or worse the student loan issue is almost wholly about government action, not banks.
Incidentally the same is true of mortgages post-2008. Again for better or worse, the US at the present time has a highly socialized credit sector when in comes to individual debt.
I did not know that but it doens't really change the conclusion. If the government left the banking sector alone then banks would have to handle loan and security as a matter of self preservation.
Looking from a historical perspective we are really running late on a dept-reseting event. Usually a civil war or bank run caused a reset on the economy once in a while but the latest period of government banks, global banks and banks too large to fail has so far been protected by government interference from the same fate. The result is that there is a lot more unsecured debt in the economy than a strict market based economy with no government interference would allow.
The article should be titled “The Absurdity of Useless Degrees”. It’s a very different calculus for someone taking out loans for an engineering degree.
An engineering degree is arguably by far even more absurd in cost. Significant class loads that make working a part time job unrealistic, making you rely upon dorm and food plan costs which match that of tuiton yearly. A significant amount of dorms have living conditions that universities would argue any other commercial enterprise shouldn't be able to call 'housing'. Not even an oven to be found.
Just don't pay. It is shocking that people feel compelled to repay crooked loans issued by crooked banks run by people who are just playing a game of who can steal the most.
If you don't pay, it destroys your credit rating, which in many areas means you won't be able to rent a place to live from anything but a private party. I believe they could also potentially get an injunction against you and garnish your wages, but I'm not certain about that. Your college also may withhold your transcript, which can impact some employers who require that.
Lots of ways they can make your life just as miserable for not paying.
True. There are always consequences. But if you refuse to pay then you learn how to survive all of the threats you mention which is worth the cost. The point is that the vast majority of debts are legally invalid and unenforceable. They are just a con. Whether you chose to be a mark or not is up to you.
You’re being downvoted for what I suspect is a combination of moral disagreement and disagreement that one can practically do this without dire consequence.
But, this is an interesting thought exercise. I read some of these stories, and think to myself that living overseas for the rest of my life doesn’t sound too bad comparatively. I could even imagine a country seeking skilled immigrants might even pitch a citizenship path for people looking to start over.
That doesn’t work when they’re government backed loans. It doesn’t matter if you’re right or wrong, the government is the one with the guns and they’re going to make you pay one way or the other.
The absurdity of the comment (which is being rightfully down-voted) is astounding. What's shocking is the complete lack of personal responsibility on display.
Also, a specific thing for anyone working on a degree (particularly an undergrad), check out CLEP exams. Very affordable per credit hour and you don't need to spend a semester listening to a professor [1].
[1] https://www.elearners.com/education-resources/finances/savin...