Let's play out a causal chain:
1. If it becomes possible to get out of student debt through bankruptcy, then there must be additional collateral posted by the debtors.
2. This will cause fewer loans to be made, which will reduce the available pool of money sloshing into higher ed.
3. Enrollment and revenues will fall, forcing universities to:
a. Fight for some other form of government-ensured revenue stream (beyond the funds that state schools already receive). Get the popcorn out for this political rhetoric.
b. Reduce scope and conserve the more limited funds coming in the door. This probably starts with eliminating the endless program offices and initiatives that serve to swell the ranks of non-teaching staff.
c. Compete on price and return on investment by improving quality and employment rates of graduates.
Seriously. The first time I heard about this concept was when I was well in my 20's about a guy in the UK.
It boggles my mind why anyone would think it's a good idea to put people that early in their lives in debt.
The alternative is having the rest of the population pay for your education. Even the ones with a low wage and no or low education. That doesn't seem fair to them.
The ones with low wages don't pay a lot of taxes
This is extremely spurious, especially given that there's a significant fraction of the student population studying things that are fundamentally not terribly useful from a money point of view (think about philosophy and any of the cultural studies).
> The alternative is having the rest of the population pay for your education
The Netherlands does this, and you can easily tell by viewing the discrepancy between yearly costs for someone from outside the EU versus someone from inside the EU. You'll figure out that the money comes from somewhere, and that somewhere is the government.
Oh? Corporations are a thing. An educated workforce is valuable to corporations. The corporation taxes can be increased to reflect the cost of creating that educated workforce.
Lets stop talking about taking people and go after corporations where the real money is. (Esp since the wealthy hide their money in corporate tax structures)
Corporations aren't a thing. They're a legal construct. They're owned by shareholders, who are mostly institutional investors ... pension funds, 401k, etc ... everyday people. So you will be taxing everyone. The same people who already pay income taxes on their earnings. And that's assuming they don't just pass the additional cost down via increased prices on whatever it is they produce.
If you want to tax the wealthy, this is not the way to do it.
It's also not "free" for everybody. How much you pay also depends on situation your household is in (mostly a combination from total income and how many kids you have). It's possible that you have to pay nothing, or in worst case something like €5000/year for university, but then you're in situation where you can easily afford it (healthy upper/mid class double income and only one kid).
But costs in our system are out of control. University of Maryland has only 25% more students than University of Amsterdam (30,000 versus 40,000). But it has twice as many staff (about 5,000 versus 10,000) and triple the budget ($670 million versus $2 billion).
Also, random side tangent, but I doubt you'd be able to convince America to get rid of college sports, it is too big of a thing here..
Times change. Old wealthy white males selecting men based on athletic abilities, big muscles and ability to work hard and then not paying them for their work in return for free housing. We used to call that slavery, now we call it college sports.
It seems like niche, and women's sports would take the biggest hit if we approached it based purely on making money. I know someone that got a full ride for cross-country running. She would not have received that, if it were revenue based.
P.S. Whether "student athletics" is a good idea is beyond the scope of this discussion.
And as a percentage of income, TV revenue is a huge part of the revenue for non-capital expenses. SEC and Big 10 schools get on the low end of $40 million/year on TV revenue along. ACC will get close to that, but not sure because their network just launched. Pac12 could get that much, but that whole conference is mismanaged.
As much as I hate it, in Texas, college Football is a profit center and the only way to get serious research funding from the state.
Personally, I think High School Football and funding is a much larger problem in Texas.
0% interest also helps prevent debt from blowing up here.
And most students having multiple world top 5% universities within 1 hour by free public transport, also helps as students can spend part of their student life living at home, it's a lifestyle choice, not a necessity for many to move out.
Athletic departments operate as separate business entities from the University. What this actually means varies from state to state and university to university. Some are private corporations, some are government entities, some are non-profits. However, in general these things are true: No, the university does not directly pay a football coach 5 million a year. No, the university does not pay half a billion dollars to build a stadium.
Athletics gets it revenue from four main sources. 1) Apparel licensing. Often any piece of clothing with the university's logo often goes to the athletics department, not the school. (again, varies) 2) Ticket sales, concession, and parking sales for sports events 3) Television rights 4) Booster donations. The last two can be a huge, huge part of the athletics department budget. For better or for worse, university athletics is an egotistical playground for rich alumni.
As an example, Texas A&M pays Jimbo Fisher $7.5 million a year to be their head coach. However, we earned $43 million alone from television rights in 2018.
An Athletics Director's job is really to worry about #4. #3 takes care of itself via conference membership. 1 and 2 are the responsibilities of operational underlings.
If done right, the athletics department gives back profits directly to the university. Usually it breaks even, but even then, it's not really a break even. Athletics scholarships is a money transfer from the athletics department to the university for the athlete's tuition. This is typically around 20k per year per athlete. If done wrong, a little money goes from the academic side to athletics. Rutgers University is one of the "most subsidized" athletics programs. That "subsidy" in 2018 was $10 million out of a 1.5 trillion dollar budget. In the big picture things, 0.6% of your budget for branding and facilities use rights isn't that awful.
TL;DR - University athletics operates as a separate legal business entity from University academics. Claims that "you're stealing money from the math department to pay for sports!" often isn't true.
About 99% of schools lose money on athletics and require direct institutional support to survive. That means, yes, stealing money from the math department.
In practice it doesn’t really work out that way. Students just pay more in tuition and get the same education they would have if they paid less. Just look at UNT and what they did a few years ago. Raised tuition to fund a new football stadium.
If you’re looking at this from the perspective of Texas A&M you’re looking from the wrong perspective.
1) "Grant-in-aid" are a large portion of expenses and are scholarships. This is the athletic department paying the market tuition bill for an athlete. This qualifies as an expense, but clearly has direct benefits to academics. For the university and academics, it's a "good expense."
2) "Direct Institutional Support" is the category that you're after. This is money directly paid by the academic side to the school. However, it's rarely a direct money transfer. Most of them are discounts on tuition.
I'd argue these waivers, especially a Title IX waiver, is ultimately a very good expense for the academic side and society as a whole.
Another large revenue is Government support - support from the state government. While this is a direct money injection, you can't claim that the money would have otherwise gone to academics. You can argue that it should but that's different. Further, it's cyclical.
Of course, I'm not going to pretend there aren't other forms of support from the university and student fees. However, those are small compared to the budgets as a whole. Yes, the university often does chip in for stadiums, but the university will get rights to use the stadium like for commencement ceremonies. Money spent by universities usually (should) get something in return besides an investment in branding.
Finally, like it or not, athletics play a huge role in brand awareness and prestige for the school. If you look at the tiers of schools, that is, Ivy's, Tier 2's, etc., there's little movement inbetween tiers, but there is a lot of jockeying within the tier. Athletics is the most visible way of doing so. When Doug Flutie threw a Hail Mary for Boston College, the following year, they tripled the number of applications they received.
Athletics is a money losing endeavor for virtually every college in the nation.
Whether money losing athletics is a net benefit for colleges is an attempt at reframing the argument. There are lots of ways to spend money that may be net positive but that isn’t what is being discussed.
At least 99% of colleges could unequivocally save money by getting rid of their athletic departments.
The most heavily subsidized accusation is often said, so I looked it up on Rutger's budget report. It's there and within the past two years, it has been around 10 million, minus tuition waivers that I described above.
The other comment responder's NCAA report is good, but again, it's wrong to draw conclusions without knowing what those terms are. There's definitely good expenses for academics on both the athletic department side and the university side.
There is way to much added on to American universities in terms of student services and endless beuracracy. We do have the community college systems which are less or free in the case of running start [WA] or IB in other states.
Generally not, they are funded by members and alums.
I also like to think back to what Peter Thiel says about higher education. It could be something similar to the 2008 housing crisis....where people were borrowing money to buy overvalued housing. Higher education to a certain extent could be people are borrowing large sums of money to get degrees that don't hold much value in the market place....so it becomes impossible for these people to ever repay the loans....overvalued assets and leverage spells bubble. I know people who borrowed 100k+ to get a degree in sociology only to realize after the fact that sociology is a worthless major. They then went back to spend another 100k to get a degree in nursing to finally become gainfully employed.
All currency issuers can always pay any debt denominated in their native currency.
Whether higher education is producing a quality product at a fair price is a completely different discussion.
Whether the degrees being produced align with the workforce needs is yet another different discussion.
Whether jobs actually require the degrees that employers specify is yet another different discussion.
And that decision is made when they are legally children, and they're bound to it for the rest of their lives.
Hell, most Uni students are 18, which means they're a legal adult. Most of them have been driving cars and fucking for years before then -- why wouldn't they be able to make choices about a career?
There is a reason why debt in nations is always mentioned as a percentage and not a raw number - the raw number is meaningless.
IMO, I think there is going to be a huge market for software companies that can adequately verify someone's aptitude. If I am an employer, I want the best people I can find in my specific industry. I don't care if they have a degree or not. The problem is how do you find these people in the masses of people out there. If software was created that could evaluate people's skills directly, then that would be huge.
Measuring aptitude isn't hard and we've got firms that have been doing it quite well for decades with high predictive power on future success in the domain for which aptitiude is tested.
But employers don't care about aptitude (capacity to learn a skill), because we aren't in a system of lifetime employment. They care about present skill. And, it's uolely we are going to find good tests for that that don't involve lots of samples of applying the skill, which for simple tasks that can be repeated dozens of times an hour is easy and already readily available, for complex abstract processes that involve a mixture of lots of small task skills integrated through abstract reasoning, a quick easy test would be a breakthrough. But I think there is good reason to think that that is fundamentally intractable, the issue not being in the testing method but the nature of the phenomenon being tested.
there's been a bunch of articles about it, such as https://www.forbes.com/sites/prestoncooper2/2018/01/08/emplo...
As far as software being able to judge people's aptitude... this is certainly interesting and I'm pretty sure I know some startups dabbling in it. The general problem though is hard - it's basically automating interviewing in some form. Which is easier if you let humans' write the questions & evaluation methods, but of course is then only as good as what you are screening for.
Calipari’s ~$9 million a year may seem high for a state employee, but his performance is easily measurable and comparable to others in his field.
- student reviews
- consistency with publishing
- faculty peer review
If a professor isn't liked by the students and is lagging in publishing, there's a good chance they're mostly dead weight. Likewise, if their peers consider the professor's research worthless and teaching ineffective, they could actually be harmful for the University.
In essence, does the professor still fit the reasons they were granted tenure?
That being said, I don't think that's the right place to focus. I heard that there's a ton of overhead that could be trimmed, such as administration overhead (probably dealing with financials). It would be interesting to compare private and public schools to see what their costs look like and see if maybe we can simplify things to cut costs.
I think if you really want to look at how to lower costs you look at how the community colleges do it. Rick Perry (for all that is wrong with that guy) was spot on, when he basically said that it shouldn't really cost much more per year for a 4 year college as it does at a community college. Thats really the key to free college. When people look at Sanders plans, the conveniently forget that we manage to educate these same kids for 13 years without bankrupting the country, adding another 4 years should be a small increase, not a budget busting problem.
Which puts the average at $11k a year (about 1/2 to a 1/3 is overhead outside of first line teachers salaries).
d. Cut cost by reducing the number of teachers, lectures, computers/lab meterials.
I don't think we'd see an increase in collateral as an increase in interest rates, to account for the risk of non-collection. This would likely result in STEM and highly-qualified students lobbying to have interest rates take into account declared major or GPA or some such thing.
But in general, we would still see your #2 as a consequence.
I think you're assuming that lenders care what kind of degree you have. Someone who takes a few gap years to establish savings and credit will end up with better interests rates. As it should be. Kids should rack up a few years in the real world before they drop 80-200k and ruin their lives with debt.
I agree though that if this ruling holds on appeal and becomes the law of the land then we're going to see a lot of debt written off.
"Graduates of Outer Bumfuck University average an annual income of $60,000! We offer tuition at Outer Bumfuck for your choice of:
- $10,000 per semester
- 2% of your income for 10 years, per semester (deferred until your first full-time employment)"
There are obvious holes in this plan (e.g. a short-term cash shortage, the potential for abuse by students), but it seems fundamentally sound. It also provides counter-pressure to inflating the job prospects of graduates, since the university comes up short in cashflow if their stated numbers are wrong.
This system also provides a sort of insurance plan for college students. You'll never be stuck with loan payments exceeding your income, since your total cost is based on your income!
Currently, if you don't pay for college, they just stop you from enrolling in more classes. You don't enroll in classes, you don't get a degree. Very clear cause and effect. In a future income system, the student doesn't pay their fee, and maybe the school files a collection action on them, if they can track them down...
Could you elaborate on this? Would that collateral just be a higher cash to loan ratio on the part of students or are you referring to something else?
Since students basically have zero assets, another commenter pointed out, the more likely scenario is simply higher interest rates due to the increased risk to the lender.
The fraud is that they told the middle class this was their key to financial success, or at least financial security. And yet we're talking about a massive scale debt bubble that is holding back an entire generation of young workers. It was a lie. I believe they knew it was going to be a lie. But they also "knew" the taxpayer would be on the hook, so they didn't care. That's why I think the taxpayer should shove it back on the universities by holding them accountable for selling students a lie.
It's really unfortunate that we changed from an attitude that education is a public good that benefits everyone - e.g. employers getting access to a more educated workforce, the economy being better for everyone, etc - to it being an investment in individual people, that those same people are then expected to pay for up front.
if you think about it, it's really pretty sick. let's soak young people who know nothing about money with nondischargable debt in the name of something that is supposed to be good before they're even eligible for a credit card.
if you ask me, i think people should be losing their jobs and/or going to jail for this sort of predatory behavior.
Non-dischargable debt thrust upon youngsters and carried by them like the burden of original sin for the rest of their lives must come to an end.
(I’m European, fortunately I have never had this problem.)
1. Good faith efforts to repay the loan.
2. Present lack of funds to pay.
3. Unlikely to be able to pay going forward.
A newly minted medical school graduate would not pass any of these tests execpt perhaps #2.
A medical school graduate could declare that they want to pursue a career in music, thus making them qualify for both #2 and #3. #1 perhaps not, but "good faith" is pretty squishy.
Seems like a lazy and made-up excuse to me rather than an actual reason. I don't mind people making lazy arguments - I mind those that accept them unquestionably and even more lazily (because finding fault in other people's words is far easier) much more, meaning not anyone here specifically, but the fact that that argument could spread so far in the first place.
No, exactly the opposite. This is the one case where the item gained in creating the debt both cannot be recovered (or even destroyed) and still continues to have all of its original value to the owner.
That doesn't mean that credit card debt should be undischargeble through bankruptcy.
But I wonder: were people taking on debt that they couldn't handle with the intent of declaring bankruptcy later? Or perhaps was this sold as a way to decrease the cost of lending? What was the case for making this change?
Loans should only be given to those who stand to create more value than the loan itself.
I still believe education is valuable, but not every degree is worth the loan - and with non-dischargable loans, the lender has no incentive to check if the loan makes sense for the degree.
And that'll be no problem at all for middle- and upper-class families where the parents have savings and good credit, but bad for orphans and kids from poor families.
Of course, the current unlimited-loans system that has let costs spiral out of control has problems too, albeit different ones.
That's not necessarily true. In this case, he got a job at a law firm, but chose to quit it because he realized he didn't like the career. Now I don't think he should have been forced to work as a lawyer, but let's not claim that all instances of being underwater are because the university didn't keep the promise of getting you a good job.
It wasn't like judges were handing out debt forgiveness like candy. Yet, the law acts like they were and creates a means test that removes ~50% of the population from being eligible.
There are thousands of really ugly laws like this. This is why I think the democrats are incompetent. Its Obamacare's bad marketing, where if you ask random people what the law did, overwhelmingly most people aren't going to remember the positive things, only the individual mandate and all the negative things being used to reduce its public appeal. The entire democratic party has this problem, partially because they don't have a #1 propoganda channel running reminding people of these failings.
Some of this is because, like with the right, it's easier to push emotional issues than abstract financial ones -- how many average voters understand Glass–Steagall?
A speaker I follow made this one of his predictions for this decade [Source: https://www.perrymarshall.com/52453/10-predictions-for-2020-...]
"A charismatic college grad drenched in debt will stand up and shout: “I’m NOT paying back my student loans. You can repossess my car, evict me from my house, revoke my diploma, throw me in debtors prison… but I’m not paying. EVER. Who’s with me?”
"When the Mall in Washington DC is jammed with Millennials standing together in solidarity, the dominoes of higher education will fall."
"The art of manipulating 18 year olds into non-dischargeable loans leading to dead-end careers has driven tuition into the stratosphere."
"Schools and banks are guaranteed their dinero, even if the student never lands a job, even if the degree is in Elizabethan poetry… and not even bankruptcy gets you out of hock."
"This runaway train WILL crash. The bubble WILL pop… this decade."
The student loan situation isn't great, but this doesn't seem better.
If this becomes common, so will having to secure loans against likely the assets of your family, which a lot of people don't have that as an option.
The current situation of 70k a year college is predatory, but a student accepting that cost should be smart enough to know what that means.
One of the reasons colleges cost so much is because they can. As long as there is easy debt people will take it. As long as they take it they can pay high tuition fees. If they money dries up collages will have to reduce costs and lower fees.
Take this to it's conclusion and this guy is securing his loan against his parents house which gets repoed.
A company's loan is frequently secured against the assets of the owner. The dog fish head brewing in the documentary on it secured his new building against his house, which he would lose if the factory went under.
This guy sounded like he had the option to continue working in a high paying field and chose not to.
That being said, there are some efforts towards equity-financing humans that are in their infancy.
Yes, hence the "almost".
GP said that startups aren't given unsecured loans of $250k, and therefore it would be madness to give unsecured loans of that magnitude to individuals, so they can invest in a college education for themselves.
...except startups do get money of that magnitude that is essentially unsecured. If the startup folds, the investor loses the money, in the same way a borrower loses the money if the lender defaults.
So if there's a way to get unsecured money to startups for risky ideas without the founders having to indebt themselves for eternity, there ought to be a way to do the same for individuals wanting a college education without indebting themselves for eternity.
(And therefore GPs argument was wrong.)
You can't put "almost" on a false statement and make it true. Equity isn't "almost" a loan by any stretch of the imagination, just as going to a movie isn't "almost" "making an unsecured loan to a movie theater" (if you don't enjoy the movie, you still lose your money).
> startups do get money of that magnitude that is essentially unsecured. If the startup folds, the investor loses the money, in the same way a borrower loses the money if the lender defaults.
This is stretching the meaning of debt beyond all recognition (and accuracy). The ownership that comes with seed funding doesn't just involve giving them money like debt does. First off, you're entitled to a _proportion_ to their value/revenue in perpetuity, as opposed to a fixed principal+interest as with debt. Secondly, part-ownership of a company gives you rights to the company you own beyond a revenue stream: which is why seed funders have partial control over the companies that they partially own (eg sitting on boards).
> So if there's a way to get unsecured money to startups for risky ideas without the founders having to indebt themselves for eternity, there ought to be a way to do the same for individuals wanting a college education without indebting themselves for eternity.
As I said in my comment, equity financing for humans is in its infancy, and I've been in support of it for a long time. The comparison to seed funding, however, is ludicrous, since (as I said), rights in perpetuity to income streams are not on the table, and neither is the ability to (partially) make career decisions for the recipient of the funds.
> (And therefore GPs argument was wrong.)
Nope. (see above)
Actually, people are. Income based repayment of student loan debt is already one such mechanism. But there are also universities that are piloting post-payment of college tuition via income sharing agreements.
I find this pretty funny, because equity investments in humans go back thousands of years under the traditional name "slavery".
(Edit: expanding on the point a bit, it is true that legally a slave's owner almost always owns 100% of the equity. However, this is so suboptimal for skilled labor that skilled slaves held equity in themselves, in the form of a "right" (agreement with their owner, though the rate could be set by custom rather than negotiated) to keep a percentage of their earnings. This equity was a gift from the owner, but it boosted his total earnings.)
For example, an equity investment that gives the investor rights to 10% of the student's income for 20 years, capped at $100,000 total, is not at all the same thing as rights to 100% of income in perpetuity (which would be closer to "slavery" as commonly understood). Note that student loans that are large enough to not be effectively payable are a lot closer to the latter than to the former.
"Slavery" also tends to come with legal restrictions of various sorts (on freedom of movement, freedom to make various choices, etc, etc) and inequality before the law (different punishments for the same behavior). Those sorts of things are emphatically _not_ being suggested in modern-day equity financing.
(There are also income-dependent loans, including with expiration dates; in practice those can be hard to tell apart from equity financing with a finite time horizon and a payout cap. The UK has been funding college via such loans along these lines for close to a decade now, I believe.)
Anyway, the most important question here from my point of view is how to properly align incentives. With equity financing, _if_ the student is interested in having a good income it is very much in the financer's interest to help that along (via mentorship, access to professional networks, etc), and incentives align well. If the financer is the university itself, that also provides incentives to produce graduates who can get a reasonable job. Of course if the student's goal is _not_ a "good income" we end up with incentive misalignment; similar if we want a university education to provide more than preparation for productive employment. (This last is already a problem in practice if universities get rated on how their students do in the workplace, by the way.) So I won't claim that equity financing is the right thing in all cases, but there are definitely situations where it would be a lot better than what we have now, and I think people should have the choice of financing their education this way if they want to.
It might be closer to slavery as commonly understood, but it's pretty far away from slavery as practiced.
> "Slavery" also tends to come with legal restrictions of various sorts (on freedom of movement, freedom to make various choices, etc, etc) and inequality before the law (different punishments for the same behavior). Those sorts of things are emphatically _not_ being suggested in modern-day equity financing.
If equity financing happens at all, they will be, as conditions of the initial "loan".
Slavery as practiced looked quite distinct in different places and different time periods. But yes, it was rare to claim 100% of the work product because then the slaves would starve.
> If equity financing happens at all, they will be, as conditions of the initial "loan".
Like I said, as far as I can tell equity financing has been happening for almost 10 years in the UK, without such conditions.
It should be illegal to agree to give away future earnings in this manner, specifically because morally corrupt people like yourself can rationalize your way into it.
First of all, a misconception I really want to correct: I am talking about "no restrictions on what the young person chooses to do" (including what work they do, etc), not "at least they can go where they want". This seems pretty clearly different from "slavery" to me, and I'd really like to understand why you feel differently.
The way I see it, we have an adult who wants to learn a set of skills (and the argument over whether _that_ is the purpose of postsecondary education is a very important one, but the fact of the matter is that attempts at "universal college" seem to be driven by the "it will get you good jobs" motive, not by the "it will make you a more reflective and critical thinker" motive). Yes, they are young, but they are not a small child incapable of making decisions. And yes, I would support guardrails to prevent abusive contracts, not because they are young but because this stuff can be complicated and not everyone involved is in the top 5% in intelligence; those guardrails are sadly lacking in the current college funding setup in the US.
If you disagree on the basic premise so far, I'd like to understand where you disagree.
If you agree on what the goal is (teaching people skills), there are various ways to finance the acquisition of these skills. The ones I am aware of:
1) One could save up enough money to pay for the relevant lessons, then take the lessons. Or be earning enough money while taking the lessons; the "work your way through college" route. This has the chicken-and-egg problem of likely wanting the lessons to increase earning potential (though perhaps just to have a less-uncomfortable job, of course) and therefore lacking that earning potential, and hence ability to save, right now.
2) One could take out a loan to pay for the lessons now, with the goal of using the increased earning power to pay back the loan. This is the current US model, in large part. Especially for socioeconomically disadvantaged students. There are all sorts of well-known issues with this model.
3) One could rely on one's family/friends/whatever to finance the education. This is largely the historical university model pre-20th-century and is a big part of the model in the US for socioeconomically advantaged students. This model basically involves an intergenerational transfer plus an implied "pay it forward" obligation. In some families the obligation may be explicit (e.g. parents finance older children who then promise to help finance younger siblings). This model has obvious inequity problems.
4) One could rely on labor performed as part of the learning process to finance it. This is the historic apprentice/journeyman model. I think it's under-explored in many cases today, though internships _can_ be something along these lines. The mismatch between how much those pay and the actual costs of postsecondary education mean this model doesn't work very well typically.
5) One could rely on "the state" to finance education. This is similar to #3 except (1) it does not rely on accidents of birth and (2) the "pay it forward" obligation is compulsory, via taxes or a period of restricted work options after graduation (e.g. as practiced in the USSR). This model does well on fairness metrics, but I think it suffers from some serious incentive misalignment and resource misallocation issues. It can also be adversely affected by demographic trends (e.g. if the financing structure assumes population growth which then does not happen). Fundamentally, this is in fact equity financing, done by society at large.
6) Equity financing of some sort by non-state entities. This avoids some of the failure modes of option #3, in that financing is not based on parentage. It allows the time-shifting of expenses vs income all the models except #1 manage. It does involve a commitment of part of future income, as does option #2 and option #5 (albeit this last hides that commitment more). I believe it's preferable to option #2 because it builds in things like "your payments won't be too much to bear" by default, whereas option #2 requires hoop-jumping as soon as something doesn't work as expected.
There's an important discussion to be had between option #5 and option #6. I think that discussion is a valuable one, and I _think_ incentive effects can be better with option #6 and option #6 is more likely to lead to more flexible terms that can be better tailored to suit preferences. But I can also see state-funded fairly flexible programs; it really depends on how its set up. I would not be at all surprised if the tradeoff here varies widely by individual and by how non-corrupt and competent your government is.
I do think that option #6 is definitely a much better fit than options #1-4 for modern post-secondary education.
I also think that option #6 can be trialed, and even largely transitioned to, without needing to solve the coordination problems that option #5 involves (i.e. legislation). So even if someone feels option #5 is clearly best here, it may be worth supporting option #6 over option #2, say, while at the same time continuing to push for option #5. Again, I feel that in practice options #5 and #6 are more similar than many people seem to think.
Note that _all_ of these options except #1 can be (and have been), abused in various ways, unfortunately.
Do you see other options for financing post-secondary education? What options do you prefer out of the list above or whatever ones you add? Do you have fundamental disagreements with my characterization of the 6 options above?
I read just far enough to know your argument was going to be "free will to decide what contract to sign".
Except that entire line of thinking can be destroyed with a single observation.
contracts freely signed can and are deemed invalid if they're too onerous. Boom. Your entire argument falls apart.
Allowing a 17-18 year old to sign away their labor for longer than they've currently been alive is called ownership. We do this with corporations in the form of stocks. WE DO NOT DO THIS WITH PEOPLE.
There are things in this world that we as a society do not fucking do, and selling ownership to young adults is one of them.
You're completely ignorant of people and the world. completely. The first thing these companies will start doing is trying to protect their investment, only because it's a human being involved it's going to start turning into control and oversight.
that's fucking slavery.
Uh... That means you literally needed to read one or two more sentences to see that this is not the argument.
If you're going to make claims about me and my understanding of the world, please have the decency to base them on what I say, not on what you guess I am going to say.
> The first thing these companies will start doing is trying to protect their investment
Why are you assuming that the equity financing will be by "companies"? The entities trying it right now are non-profit universities and governments. Who can still fuck it up in the way you describe, of course, just like they have already fucked up debt-funded education.
And there is plenty of "contol and oversight" going on with state-funded education (my option #5) as well, I should note. And I absolutely agree this NOT a good thing.
Assuming all that is true a startup can take money from investors, under a strict regulatory framework, such money which must be spent properly for the benefit of the company subject to oversight by the SEC, among others.
In short, the ability of startups to raise money is highly regulated and highly specialized work.
It’s a very different thing indeed from the essentially guaranteed issue funding which is available in the form of student loans.
But all that aside, the central point is just this. If a bank is making an underwriting decision, then the bank is setting the interest rate and taking the risk. If the loan fails to pay back, well that’s why the bank diversifies.
In the case of a federal student loan, there is no underwriting. There is no sliding scale interest rate - or if there is one it’s more likely to include subsidies for higher risk borrowers than an actual risk adjusted rate.
In return for this, it becomes a sort of super-lien which can’t be discharged. This makes sense from a theoretical perspective and even from a policy perspective as long as a college education provides a strong ROI on average.
The system breaks down when the ROI from attempting to get a degree is a wide distribution which includes a fat tail of people who see zero return on the most sizable investment they ever made or possibly will make.
IMO the solution is 1) that the repayment should always be income based, and 2) the school should have to refund a significant portion of the loan IF the tax returns of the student over the next 10 years don’t support the repayment of the loan. 3) the student pays for 15 years post-graduation maximum.
The fact that student loans are not subject to same market forces as other loans has created this ridiculous situation.
Of course on the opposite end of the spectrum you have Adam Neumann, who engineered his way to being a billionaire with VC money for a company he seemed pretty happy to jettison once it was convenient to do so.
He was forced out. This is not what the word "jettison" means
Many folks rou the kids taking on too much student debt, but I bet there are thousands more kids, like me, that didn't go to the prestigious school because there was no way I could fathom paying $200k (a while ago) in college tuition.
Figure out how to know for sure what you want to do for a living and write us all a book about it.
I know people out of law school who DO want to be lawyers, have lawyer jobs, and are struggling to keep up with their student loans. (No, they are not terrible incompetent lawyers).
If you are a Harvard grad working at a top tier firm, that may not apply.
But lots of people are making only $60-$70K out of law school. With huge debt. If you want to work for government or non-profit, you'll make even less. It's going to take more than 'a few years' to pay off $300K of debt like that.
The friends and family I have that are lawyers and are 5 years and some change out have not cracked 100k yet except for one.
(Yes, yes, I know, that article begins with talking about 'second-class' partners who "can expect to make $800,000 at most" [at the top of their careers], I know, $800K is HUGE MONEY, that's still a top tier law firm and NOT anything like median lawyer salaries,that's not the reason I suggest the article. Check it out though, it'll surprise you if you still have a model of legal careers that's an idealized version of a couple decades ago)
Productivity in human work is becoming less and less important, as society as a while behind more capable of supplying basic needs with less human input.
Happiness is a goal, isn't it?
(Just so long as that other guy isn't happier than me, fuck that guy, she's always had all she needs. Right? Right! /s)
Sure, it’s a lofty goal, but 99% of people do their job because they need money. Even the ones that are paid well.
And productivity is improving, but unless you want our standard of living to free in 2000, improvements in productivity can be used to support a society where most people don’t work.
If you want a more accurate picture of that graph, many well respected authors have pointed out that it was made using various mistakes, such as using different deflators for the time-series involved, not using total cost to employ which tracks cost of legislation and employer paid benefits, and other issues.
Here's one reply that computes the same data including these relevant factors.
Average 2019 college tuition and fees for public in-state is $10k. Private averages $36k/year. Local and community colleges are often cheaper than both these. There's plenty of affordable colleges around.
Where does the 70k come from?
It shouldn't mean debt until death. Corporations are full of smart people, including dedicated finance professionals, yet they can discharge debt in bankruptcy.
And let's be clear: a college student still has a developing brain and intellect, and they are quite naive and unwise, and should be protected by the law from lending predation.
Student loans should not be handed out as easily as they currently are.
I would argue that 'student loans should not be handed out as equally as they currently are' -- in that loan terms are independent of major selection (and career prospects).
By all means continue to mandate that loan terms be familial-wealth blind (and institution-blind), but allow lenders to differentiate with rates on the basis of area of degree earned.
It's a lagging indicator, but it's insane that we specifically break market signals between the actual job market and the primary methods by which students finance their education.
If someone wants to get a degree in medieval plant philosophy, then they can bloody well self-finance that.
This makes little sense in the current system, where many students don't even declare a major for their first year (or two, sometimes). They'd be halfway through college by the time they were able to know which degree they'll earn.
Intended major is just as bad of a metric. I think we all know many people who intended to go into one major and ended up in another.
It’s just an ARM loan, but with adjustments based on your one decisions instead of the greater economy.
I'd be hard-pressed to think of a single person that wouldn't tell an unverifiable lie to get a lower interest rate on 20% of their loan lifetime.
Doubly so for loans with compound interest (as some private student loans are).
Student loan terms (private and public) are blind to neither of these factors.
> but allow lenders to differentiate with rates on the basis of area of degree earned.
Lenders outside of the federally guaranteed system are allowed to do this, as well as to consider all of the other factors you suggest loans should “remain” blind to. The only lender inside the federally-guaranteed system is the federal government itself (and it is also not blind to the factors you suggest it should remain blind to, since both are factors already.) Further any argument for major sensitivity is a much stronger argument for much additional weighting by institution, since all the market factors that apply to majors also apply to institutions.
> Student loan terms (private and public) are blind to neither of these factors.
They are negatively blind, in that I cannot charge someone with family wealth in excess of $1M a lower rate than someone with negative family wealth. Correct me if I'm wrong.
> Lenders outside of the federally guaranteed system
I'm limiting these statements to the federal loan system, because that where a huge chunk of debt is created.
> The only lender inside the federally-guaranteed system is the federal government itself
Apparently this was changed in 2010? Prior to that, this was absolutely not the case via FFELs .
> and it is also not blind to the factors you suggest it should remain blind to, since both are factors already
See clarification about positive vs negative blinding.
> Further any argument for major sensitivity is a much stronger argument for much additional weighting by institution, since all the market factors that apply to majors also apply to institutions.
Not intrinsically. The problem with allowing rate sensitivity is making it outcome-sensitive while avoiding it becoming pre-existing wealth-sensitive.
I think everyone would feel it's unfair if Harvard loans charged 2% interest, while Community College loans charged 25%, because the acceptance demographics and underlying default rates supported that difference.
Private student loans (which, like federally guaranteed loans, have reduced bankruptcy dischargeability since 2006) have no such restriction.
Federal loans do have such a restriction, but that obviously doesn't exist to influence lender behavior, if it ever did, since the entity imposing the rule is also the only lender now permitted to issue such loans.
The US needs public funding for universities. It's not impossible - Germany's universities are all free of charge, most even for foreigners.
Potential college students are 18-ish years old, hardly old enough to have enough mental composure to make the "no" choice in a country that bombards them with the message that going to an elite college is the ultimate goal.
Also, after thinking about it a little, your argument of "they should have been smart enough" pretty much applies to every bankruptcy situation. Homeowners, many of whom are much older than these students should be smart enough to know what they are getting into with that mortgage, et cetera.
So again, we prove our double standard, you can't buy a drug that is harmful, but you can join the military and get killed, or take out loans that will make you an indentured servant for life.
If they aren't responsible enough to take out that loans then they probably shouldn't have the ability to take out these loans. That would make it simple, right? If you're poor and can't get scholarships then no college for you.
At some point, we need to be able to hold people accountable for their actions. Otherwise we're going to lose a lot of privileges in society.
Maybe "at some point we need to be able to hold people accountable for their actions" but the first step might be figuring out an actual age where they can be held accountable. Perhaps the youngest age someone should be able to take out student loans is 21, when they're able to buy a pack of smokes and a case of beer? Or maybe 12, when they're responsible enough to serve life in prison?
Often times admissions has turned into an unregulated used car industry where lemons are legally bought and sold each day.
Students know one essential aspect for the choice - do they want more schooling and are they remotely capable of handling it?
Of course the other myth is that being smart enough is sufficient for the unknowns and bad hands that can make failure a foregone conclusion. What is normally the "smart" choice can bring about disaster and doijg something "stupid" at the right time can bring about success in a very narrow circumstance. Even a brilliant trust fund kis can wind up homeless if they will develop severe schizophrenia around twenty.
Life isn't fair - I don't mean this to justify injustices but to note that it is possible for anyone to be screwed over for reasons beyond anyone's control. Victim blaming for such is wrong both morally and factually.
Are you saying 18 year olds aren't adults?
I was a 17-turned-18 year old who chose a college that was inexpensive. Of course, I also didn't get _into_ an elite college, much like the 80-95% of folks that apply. I'd ask for more sympathy for the 80-95% of us before we infantilize the 1%.
Many students who accept these loans are 17-18 years old. Expecting children to make solid financial decisions regarding hundreds of thousands of dollars is optimistic at best.
So I agree that 17-18 year olds aren't in a position to make solid financial decisions. But its the parents, teachers, and the government encouraging those kids to make those bad financial decisions.
Thing is, most people can't afford a gap year.
Get a job. There, now you can afford a gap year if you save. Spend six months working all the hours you can get, whether it’s in McDonald’s or something better and if you continue to live like a high school student you can absolutely afford six months in South or Southeast Asia.
Youth unemployment, even at the lowest it's been in more than 50 years and even with the low labor force participation rate among youth, is still quite high. So “get a job” is far from automatic with desire.
> if you continue to live like a high school student you can absolutely afford six months in South or Southeast Asia.
But living like a high school student means “fully supported by your parents in their home”, which, if your parents aren't in South or Southeast Asia, you probably can't manage there. Aside from (and because of) that, high school students tend not to have a particularly spartan lifestyle, actually it's often quite profligate, so I'm not sure what you are trying to say here.
Forgive my lack of clarity in writing. If you work a full time job while living at home with your parents for six months after graduating high school, maintaining the same spending patterns as previously you will be able to go back packing for six months, no problem.
I know this is true because one of my friends did that except in Europe, which is much more expensive, and another spent a year doing SE Asia, usually on under $20 a day.
A gap year is affordable for active who can get a job. If Taco Bell is offering $100K a year for managers the labor market must no decent even for unskilled entry level workers.
Are you proposing that we get rid of bankruptcy completely and hold everyone to their loans?
In a subject where there are 500 students in the lecture hall, 1 or 2 of those are paying for the lecturer and building use. What's happening to the other $34M?
According to  the average tuition numbers are closer to the following:
$10k public in-state,
$25k public out-of-state,
In my own personal experience at a large public university, only freshman-level classes have on the order of hundreds of students. But even supposing the average lecture hall contains ~40 students paying ~$20k per year each, that's about $800k per year. Maybe each student has 4 classes, so there's about $200k for each course. Let's say the professor teaches two classes, taking a generous salary of $50k per class. That leaves ~$150k per class unaccounted for! Not as outrageous as your $34M number but still quite unacceptable.
Everybody should just stop paying their student debt. Let the system crumble.
The "Brunner test" that the OP commenter mentioned looks at 3 things:
1) Based upon your current income and expenses, you cannot maintain a minimal standard of living for yourself and your dependents if you are forced to repay your loans.
2) Your current financial situation is likely to continue for a big part of the repayment period.
3) You have made a good faith effort to repay your student loans
In this specific instance the judge ruled the litigant had passed the Brunner test. It may have been a lenient application of the test, but the law remains the same.
Other judges cannot look at this case and abandon the Brunner test, which is what you seem to be implying should/will happen here.
If you want the system changed you'll need Congress to pass a law.
I have one friend who is permanently disabled and spent 4 years trying to get his student loans forgiven. He gave up and fled the USA.
The courts have fought tooth and nail in the interest of their corporate overlords to prevent the Brunner test being invoked.
If more judges do the right thing and allow the Brunner test to actually be applied, it will have a significant impact.
Moving forward, judges can cite this as an example/landmark case without excess research or work in their own decisions. It's a good thing, I think, but definitely not a rubber stamp to discharging loans.
If judges just abandoned it they'd probably be overturned by appellate courts.
I'm not arguing the injustice of it, just reinforcing the OP commenter's point: the law has not changed, and this ruling does not materially affect that.
If colleges cold called prospective students and lied about the cost of education that would be predatory. The borrowers are not passive victims- it is only by their overt choices and actions that they go into debt.
250k for a 40k per year job is a bad investment but simply being a bad investment isn't predatory. A TV is a bad investment, Starbucks is a bad investment- they aren't predatory.
What is it about student loans that makes them predatory?
For those who believe people 18-24 are still developing and need special protection- do you think the voting age should be raised?
I'd be interested to see a world where your degree itself was factored into the equation. Pursuing biology? Nope, we've got too many of those and biologists don't make enough money on average. You'll only get lent a safe amount. Pursuing law? Now that's a safe loan with good payback odds! This would likely incentivize schools to put more scholarships in the less lucrative fields, and potentially keep those fields from becoming overpopulated. Or maybe folks will need to start their education in a community college or state school to build credibility. I'm sure the implications would be more nuanced than that, but I think that the incentive system for lenders is currently not working as intended.
It was a mistake, IMO.
The bargain probably should have been "Cannot be discharged in bankruptcy, until 15 years have passed after loan origination."
Like Prop 13, the overall effects of undischargeable loans have been overwhelmingly negative -- decoupling college tuition inflation from income growth / general inflation, via government underwriting of loans, while removing market influence on guiding students to choose majors with a return on investment.
In Canada, the vast majority of student loans are taken out directly from the government. You can't declare bankruptcy on a government-issued student loan until seven years after the last day you were a full-time student. After the seven year timer runs out, it's treated the same as any other unsecured debt and you can include it in a bankruptcy (equivalent to a Chapter 7 in the US) or a consumer proposal (equivalent to a Chapter 13 in the US).
Private student loans also exist, but unlike government loans they have no special protection - you can go bankrupt on them just like any other type of unsecured debt at any time. For this reason, private lenders almost always require a cosigner for these types of loans.
... federal student loans, which are the largest single source of college debt, representing more than 92 percent of outstanding student loan balances.
The way federal student loans work right now (auto-approved at high interest rates with no cap or restrictions on degree program) basically ensured a generation of Americans were bound to wage-slavery.
That was the instance they were caught for mortgages, but it's happened infamously and recently in auto loans, farm loans, and business loans also. It's unlikely that covert discrimination wouldn't then extend to student loans.
While that likely phenomenon is hidden, what does happen out in the open is that interest rates are higher for people who live in majority-black neighborhoods, which also correlates to a higher default rate. That means one of two things. The intent could be to discriminate against black people by suffusing the loan terms with America's general distrust of black people (and considering the history of racism in lending across all loan types, I don't doubt that this is the case). Alternatively, non-black people in majority-black neighborhoods might be subject to the same high rates; in that case, direct discrimination isn't taking place, but it shows that the banks are setting rates knowing that they'll result in higher interest payments and defaults.
Unfortunately, there's no way to know because the banks refuse to reveal their formulas or allow matched pair testing.
That's also why Obamacare had to be this rube goldberg public/private complication.
Since we only have selfish humans, they'll always work for their own good - whether it's profit motive in an open market, or political power and attached financial benefits.
Jeez, imagine how easy society would be if we could actually create government programs 'purely for the public good'. I'd love to live in a world where everything didn't become as corrupt as it structurally can.
It's ironic that in much of the world this is the case. Specifically, in this thread the Canadian system was mentioned and the Australian system is similar.
I'm not one to toot on the SJW train, but it's likely inefficient (and certainly unjust) if we encode existing economic biases into our primary method of access to educational capital.
I'm really sad that in this view, access to credit is equated to access to education. Sure, in a first degree thinking the goal is achieved, but at the end of the day education is a means to an end rather than an end in itself. Lending people money to attend unaffordable institutions can't be the best way to fix the problem.
Not if loan terms aren't designed to court default, which they often seem to be. Doesn't it seem backwards to require that the people least likely to be able to pay, pay higher interest rates?
I mean, yes. But on the other hand if the ability to payback the loan (risk of default) isn't taken into account these loans might not exist at all (not necessarily a bad thing). Eventually the risk-adjusted rate hits usury limits and loans start disappearing.
(Of course we still get things like payday loans, credit cards, student loans, etc., but these are legal loopholes that should be closed.)
Went in state,
lived at home (commuted 2-2.5~ hours twice a day)
lived cheap (no real spending outside of school bills)
Had scholarships which knocked off 50% of the sticker price.
After all that, and the high interest rates at the time on my initial loans it was north of 200k.
My parents helped with food and rent (living at home) but everything else I took a loan off.
I considered my loans heavily predatory and wish I could have done things differently.
Comparing that to my alma mater (Johns Hopkins), a private university, your loans work out to more than my total cost for tuition for four years (2004-2008). Even looking up their current rates, the average four year tuition after student aid is ~130k. Without any student aid, it hits ~$200k.
Go to public schools, live at home, get out with little debt. It's really not a difficult choice, and it gets even easier if you know about the existence of community colleges.
Stop anchoring impressionable kids to ridiculous tuition numbers.
Edit: the highest average in-state tuition is Vermont with just over $17k. If you're willing to go to a state school, you can do it for under $80k for 4 years.
Granted I should have went to a community college to get my basic classes sorted out.
But being a first generation immigrant and the first to go to college I had little guidance and a high pressure to appease my parents.
At the same time they could not make any payments on my behalf but also did not allow me to go to community college either.
Some would say I should have been smarter, but my parents were sold the "American Dream",
I was forced to foot the bill :)
Really this would have been great to know from my high school advisor to be able to convince my parents to let me consider other types of universities.
That wouldn't make much sense, many students aren't accepted into a major until a year or two into their education.
"Intended major" would also be a poor choice, as I think we all know many people who intended to go into one field and ended up in a completely different one.
Someone else is lending you the money, they can add any strings they want.
Banks deny mortgages for problems with homes all the time. You aren’t able to swap in a different house after the bank approves it.
Not sure how that ended for him, but hopefully poorly?
(The program was originated as that state didn't have a NucE program, so found it cheaper to pay them to go somewhere else than run its own)
I've got no sympathy for someone who deliberately makes unethical choices.
I'm not sure what this has to do with anything I said.
If you're referring to my second statement, I met many people in school who intended to go into engineering or computer science or medicine and had to change their career path once it was clear they weren't going to make it through the first year of introductory classes. I doubt I was alone in seeing that happen.
In theory, non-dischargeability should be _increasing_ pressure on students to choose majors that are worth the monetary investment, no? I guess perhaps your point is that successful insurance companies would be better positioned to make this assessment, but I'm not sure that's true: a student and his advisors/parents have a lot more relevant information about which major they in particular would be most productive in, along with access to the prior for how productive a given major is on average.
Eg, my parents REALLY wanted me to be a doctor, but I knew I'd find medical education intensely boring and unchallenging. Ostensibly, going into medicine may have been more conducive to loan repayment than getting a math degree (and CS, added later), but I had the inside information to know that, if anything, I'd have a tiny (but nonzero) chances of failing to finish a medical education for sheer lack of work ethic. That's the kind of case-by-case information that's not available to insurance companies. If my parents had an incomplete picture of how degree choice played into my loan repayment, an insurance company would be way worse off as compared to our collective decision.
> specifically because 18 year old don’t make good decisions.
I'm sympathetic to this argument because there are _some_ 18 year olds making these huge decisions without any reasonable guidance, but for a big chunk of the population, we're talking about 18 y/os + their parents + their college counselors.
And I'm also not claiming it's black-and-white: people (even adults) do very stupid things all the time, so it may be rational to have insurance cos bear part of the responsibility for measuring risk of a given student trying for a given degree. But
1) Given the extremely asymmetric information, this is an extremely blunt instrument, which will lead to countless hot takes about seemingly-ludicrous-but-inevitable false positives and negatives where a student is charged an absurd rate for something that makes sense in his case
2) It's simply not accurate to claim, as GP comment did, that the market influence is being removed: it's just being shifted from insurance co to student+advisors (who again, is much more equipped from an informational perspective to make this call)
If so, that is a classic intellectual mistake that comes from not understanding any Economics.
If you increase demand by pumping out extra education dollars to students, and the supply doesn't increase accordingly, all you've done is raise prices and give the suppliers a huge windfall profit.
Why the supply of college spots doesn't respond to a demand increase, like most goods and services do, is an interesting question!
...why wouldn't I just borrow every cent I can without even intending to pay it back?
What do you think at the moment stops graduates taking out a credit card, blowing 100k on it on holidays and then declaring bankruptcy? The same fraud laws as would stop you from clearly never intending to pay off your student debts.
It might be possible to declare bankruptcy a year or two before graduating still. Not sure what employers would make of it. Maybe they'd like the mercenary attitude.
This is basically the entire point.
(or this judge's decision won't become universally applicable, or the law will be changed to circumvent it)
Landlords aren't in the business of providing housing for free, and seek restitution for damages and unpaid rent through the courts. A low credit score or bankruptcy shows that a potential tenant could incur significant damages and unpaid rent, and leave the landlord high-and-dry when the bill comes due.
In today's owner's market, there are plenty of other potential tenants without a poor credit history or bankruptcies.
Aka. bankruptcy vs bad credit, not compared to a good credit score.
Many landlords are loath to rent to recent graduates, those with poor credit and a history of bankruptcy. It's an owner's market, and someone who checks all three risky boxes will be skipped over for another tenant who comes with less risk.
Credit card issuers actually target recent bk's since they have no debt. :)
They're also ignoring medical debt, since otherwise a large percent of their applicants would be rejected.
Of course the other two issues are that such a "retributive" system of treating debtors with a scarlet letter isn't productive even if it appeals to a sense of "fairness" to those who pay. Second, the reason banks don't care about old bankruptcies isn't anything high minded but because they like money and can make it if they don't pass them up.
I wonder if this is just a very American thing because the loans are so ridiculously big? In NZ student loans can be forgiven through bankruptcy. See http://www.studentloan.org.nz/options.html
But the loan is only around like $30k anyway and I basically never hear of anyone purposely declaring bankruptcy to get out of it. The whole thing is pretty much a non-issue. People take them out, people pay them back. Some people used to go overseas in order to avoid paying it back but they changed the law, so that you can't do that anymore.
The range is quite wide though. Someone attending a state university or community college with grants and/or scholarships might have zero debt, and someone attending a private school through post-grad with no financial aid might incur $250,000 in debt.
Ending up with $100k+ loans is more common when people go onto professional schools (masters, law, medicine, etc), fields that should have higher earning power. Not everyone finishes, and for law not everyone that finishes gets a high paying job.
Over half of all student loan debt is held by those with advanced degrees (https://wcer.wisc.edu/docs/working-papers/Working_Paper_No_2...). Add in that only 13% of Americans 25+ have advanced degrees, compared to 35% with at least bachelors degrees.
Student loan debt is disproportionally a problem with advanced degrees, but it all gets lumped together when we talk about student loans.
A Bachelor of Science might cost $20,000 NZD ($13,000 USD), extra fees are pretty low, textbooks are not cheap but professors usually try to avoid you having to buy them. In your first year you might get away without having to buy a textbook (in the maths departments at least). A Bachelor of Arts would could a few thousand less.
Fully catered accommodation is expensive. Higher end would be $14,000 NZD ($9,200) for a year. Not many students continue in halls of residence past the first year. Staying in a shared flat would cost a LOT less.
A lot of students also live with parents and commute.
The Student Loan is interest free and covers course costs as well as a portion of living costs. Domestic students also can get a Student Allowance of about $220 NZD/week (or more depending on circumstances). The allowance is welfare, not a loan.
Walking away with a degree and $30,000 - $40,000 NZD ($20,000 USD - $26,000 USD) interest free debt is reasonable. Some people will be more, others will be less because they worked part time while studying.
Repayments are taken out of your paycheck (12% of income over $19,670 NZD, so probably 8-11% of total grad compensation per year). There is no incentive to repay it faster due to the lack of interest. Most students I think would have it paid back in 11 years or less. If you learn less than $19,670, you don't have to make any payments.
The catch is you pay 4% interest if you go work overseas. Salaries are higher overseas so you will still win.
There is little to no incentive to declare bankruptcy. I have never even heard of it discussed.
In NZ the median student debt at end of study is just $17,000 NZD but that includes people dropping out after one year, non-university diploma courses and students whose parents paid for most of it or students who worked while studying and paid as they went.
I always have a hard time understanding these stories of American kids racking up 100s of thousands in debts. Just doesn't seem like a workable system.
Interesting to learn that the average is far lower than the sensationalism makes it out to be.
I think that's correct, however meanwhile the system dramatically changed and now the vast majority of student loans are made by the government without any underwriting.
The largest private sector role is poaching the best risks to refinance. Allowing these refinanced loans to continue to be non-discharable has the net effect of enabling the private sector to more effectively engage in adverse selection against the government-as-lender! It's hard to imagine anyone would actually sit down and design this policy set.
Bankruptcy protection is a general mechanism for helping people move past debt. (The theory is that it’s better to pay claims for pennies on the dollar and resolve everything at once than to have debt hanging over the person indefinitely.) But student loans are different enough that it’s entirely reasonable for the government to decide a different regime should apply to student loans.
Your third point seems to suggest you may not be fully aware of the parameters of income based repayment and its many gotchas. People who rely on it, through no fault of their own, regularly find themselves paying 10x their monthly payment through paperwork malfunctions. Additionally many of the benefits of taking jobs that qualify for perks, like loan forgiveness, under income based repayment systems are out the window under the DeVos regime.
Based on this, I really don't see how your conclusions follow from your premises. If anything, your argument works against you. People who are allowed to take out hundreds of thousands of no collateral loans at ages like 18 should be able to move past them through bankruptcy. It's downright predatory.
The reason is so that these loans are low risk (no risk?) to those providing the loans. This was done in an effort to provide everyone that wanted an education but couldn't afford it could get a loan. Obviously the mechanism used to reach the goal here backfired and people have just doubled down on the bad decision.
They aren't, particularly; they are low risk to those buying the loans, not to the issuer (even with the difficulty on discharging them) who is, after all, the guarantor.
Well, except in the sense that the issuer can literally just fiat dollars into existence whenever it chooses, so essentially all dollar-
denominated debt is zero-risk.
If the American government is going to print money so people can go to college, why not print money for everything? The idea is much worse than an income tax because with money printing nobody knows who is losing out. We know by raw balance equations that someone who would have gotten something real now isn't but there is no way to identify who or what.
That level of confusion can't possibly be a good idea. "Just print money and solve the problem" is a dangerous approach and really better dropped from the conversation. Playing word & number games to pretend something real didn't happen is a bad direction to take politics.
Hypothetically, there's no reason the US government couldn't structure its loan program thusly:
(A) Originate loans for existing fiscal year, (B) bundle multiple loans together / blind desired loan details (e.g. lendee race, etc), (C) auction off loans on the open market, (D) require budgeting for next fiscal year loan program on the basis of previous year's auction.
You'd get the benefit of price / cost discovery while controlling for unfairness as desired?
There'd need to be some legal papering to deal with the outcome lag, but it seems more responsive than the tossing money down a well we do now.
Firstly, leverage. A lack of rules and enforcement allowed unreasonable amounts of capital to amass around mortgage bets. Without the crazy leverage via derivatives, the mortgage crisis would have been "A lot of loans go bad and some people get fired." Limit via regulation.
Secondly, capital requirements. My understanding is that mortgage-backed securities are treated preferentially in terms of where a bank legally can allocate capital. Consequently, as they had to find returns somewhere, they constantly needed to plow huge amounts of money into the market. Inflows of money >> smart money meant that price discovery broke down: those who cared were drowned out. You'd need to avoid structuring taxes, etc to artificially force capital into this scheme.
n.b. I'm not suggesting this is a GOOD system, just explaining the reasoning behind it.
I mean, they kinda do; Student loans are unlike most other loans in that there's no collateral. Mortgages have houses, USDA loans have farms, etc. They could theoretically "repo" your diploma, but that would be a token gesture and wouldn't really make much sense anyway.
In most other contexts to offset this you'd just get charged an exorbitant interest rate (which indeed does happen for many private student loans) or go through a rigorous qualification process, but the government offers low-interest loans and in return says those debts aren't dischargeable (thus removing the 'risk' of default).
The government typically doesn't make those other kinds of loans with no credit check or analysis of how the loan proceeds will be used. The point is that federal student loans are a regime apart from other kinds of loans, which justifies having a separate regime for handling people who cannot pay their loans. (Income-based repayment, rather than bankruptcy.)
> Though I don't know the percentage of gov:private student loans offhand.
As of December 2018, 92% of student loan debt is owed to the federal government.
> Your third point seems to suggest you may not be fully aware of the parameters of income based repayment and its many gotchas. People who rely on it, through no fault of their own, regularly find themselves paying 10x their monthly payment through paperwork malfunctions.
I took out a quarter million in student loans for law school under this precise regime, so I'm well aware of the parameters. It's a perfectly fine system. Everything is on the web, and you can change repayment plans easily through a web interface. The media loves to find a handful of anecdotes of people who screwed up the paperwork, but it is not a difficult thing to deal with for people who are college graduates.
For example, your student loan payment can shoot up if you ignore the emails from your loan servicer and forget to submit your annual income report. But even then, you can fix it in five minutes just by authorizing the loan servicer to pull your's and your spouse's most recent tax filing. It's only marginally harder than paying your utility bill, and much easier than setting up utilities at a new house.
Look. Income based repayment is not some radical concept Donald Trump came up with. Sweden, the U.K., and Australia all have every similar systems for student loans. It requires a bit more paperwork than "free college" but somehow people in those countries manage to do it.
> Additionally many of the benefits of taking jobs that qualify for perks, like loan forgiveness, under income based repayment systems are out the window under the DeVos regime.
Incorrect. If you're talking about the statistics on people having public service loan forgiveness applications being rejected, that's been the subject of some of the most misleading reporting I've ever seen. Almost everyone rejected was rejected on proper grounds. There are a lot of people who have student loans that pre-date Obama's PSLF reform. Tons of those people were filing for forgiveness who simply did not have eligible loans.
I wouldn't exactly call the mortgage lending regime careful, thorough, or prudent.
No bankruptcy rule and many loans would never be made and the ones that would be, would have crazy high interest rates.
> No bankruptcy rule and many loans would never be made and the ones that would be, would have crazy high interest rates.
The government makes almost all of the loans (no other lender can make guaranteed loans any more) and the rates are set by law (and were even when the federal loan programs were open to private lenders); private student loans or
have crazy high interest rates and aren't made in large amounts, especially if you exclude first-party loans by shady schools. The rules don't induce third-party lenders to make accessible loans; even when those could participate in the federal loan program it was the federal guarantee, not the borrower being in the hook after bankruptcy, that was intended to induce private lender behavior, and with the federal guarantee.)
If your logic followed, credit card debt would also be impossible to discharge.
The protections for student loans predate the federal government excluding other lenders from federally subsidized loans; they existed when most student loans were from private lenders, both inside and outside the federally-subsidized loan programs.
> Second, the government makes loans almost without assessing creditworthiness.
It basically does so inversely to creditworthiness, since federal loans require applying for general student aid, and need-based aid is given on factors that correlate inversely with creditworthiness.
> Third, the government has an income based repayment system for student loans.
The government's contacted servicer for such loans actively (and even deceptively) steers borrowers away from such plans and into temporary deferments; this was a point being actively pursued prior to an openly borrower-hostile administration taking office.
I always had to go to my finaid department and beg for the gaps to be filled through various grants that were still available.
One year there were no left over grants and I simply had to drop out mid semester, which I still had to pay for.
If students are allowed to declare bankruptcy from student loans than banks can apply a more realistic risk models to such lines of credit. Students will then have to either pay very high rate of interest or will have to go out their way to prove their financial responsibility. Banks will then be able to create sophisticated models to figure out which young people are responsible enough and who are not. This will incentivize responsible behavior from students as well as institutes and not to mention a competition to reduce fees.
Not to mention, this model will also ensure the folks who should not be in college or will not benefit from it will not be able to go to college. I think this is where politicians disagreed and came with the completely wrong policies with perfectly predictable bad outcomes.
Because society decided that people should have a way out of bad financial situation they've gotten into, quite often for reasons beyond their control (e.g. car accident that leaves them unable to work for a long time, and with huge medical bill to pay).
Lol society should have decided to go with out-of-work benefits and free-at-the-point-of-use healthcare instead.
It'd be better for the creditors as well who wouldn't get left hanging!
This is the 2000's housing bubble all over again.
While this is (was?) especially true for student loans, it applies to all loans - their availability increases prices, because there's more cash in the market. Forcing people to take loans, to the benefit of lenders.
A new graduate with a high priced degree is almost certainly better off declaring chapter 7 the day they graduate. If you want student loans to exist that option must be denied.
Obviously they're not interested to get people off the hook.
Plenty of other unsecured debt is dischargeable, like credit cards.