FC: Student loan debt surpasses $1.5 TRILLION

[bison13]

I think most of the blame goes to the Gov't and HS education system today telling every kid they need to go to college. I'm not just talking about the average kid but also the kid who barely gets through. We have kids who so far below grade level in reading that they have no shot to make it but because our schools need to have 90+% college acceptance rates these kids are not even told about technical or trade schools. Where these same kids that all of us graduated with would go into a constriction job or become a truck driver or warehouse worker, today's kids are told they HAVE to go to college and that these jobs are unacceptable.

One of the reasons I stopped coaching basketball was the fact that all of these kids are told that they need to go to school to play sports, even d3 schools. It was damn near impossible to get a kid or his family to understand that these little schools are basically letting you play for 10-20K a year even after they give you some type of need based money. So if you aren't 100% serious about school, you're better off to just start working and not have the debt.

These kids are also mostly high risk kids who come just so they can say they played college ball but never make it past a year because they dont start as freshmen and their family convinces them the coach is an idiot so they leave. They still have that huge loan amount to pay back and most dont even try. I see 4-6 senior football players at my HS every year who go somewhere small to play and never make it to year two but have 20K+ in loan payments all because their coach and 'people' tell them they need to play college ball.

 

[91Joe95]

With all apologies to mn, this thread has almost gone like a Mack_Daddy thread. I especially love how some posters lament that young people have to have a degree to be successful and happy even as they denigrate certain professions. I hate to break it to them, but that landscaping entrepreneur without a degree probably makes a lot more than they do, and there are a surprising number of professions the same way. But please, continue to perpetuate the same stereotypes you are lamenting. As a wise man once said, the world needs ditch diggers too, and it can actually pay quite a bit.

And please, continue to regale us with tales of how proposing systems that exclude large populations from college and career choices is a good thing.

 

[Nittany Ziggy]

I never said I thought that. I don't think working and paying four years at PSU is attainable today. That's one reason why I have a scholarship I funded. Also why I feel 2 and 2 is the best plan.

This is also why a few years ago when I received the letter from my scholarship winner, and she told me she was attending a 5th year even though she graduated, I nearly fell out of my chair with disgust.

LdN

Funded a scholarship? Very Nice!! Congratulations and thanks!

 

[Nittany Ziggy]

I think most of the blame goes to the Gov't and HS education system today telling every kid they need to go to college. I'm not just talking about the average kid but also the kid who barely gets through. We have kids who so far below grade level in reading that they have no shot to make it but because our schools need to have 90+% college acceptance rates these kids are not even told about technical or trade schools. Where these same kids that all of us graduated with would go into a constriction job or become a truck driver or warehouse worker, today's kids are told they HAVE to go to college and that these jobs are unacceptable.

One of the reasons I stopped coaching basketball was the fact that all of these kids are told that they need to go to school to play sports, even d3 schools. It was damn near impossible to get a kid or his family to understand that these little schools are basically letting you play for 10-20K a year even after they give you some type of need based money. So if you aren't 100% serious about school, you're better off to just start working and not have the debt.

These kids are also mostly high risk kids who come just so they can say they played college ball but never make it past a year because they dont start as freshmen and their family convinces them the coach is an idiot so they leave. They still have that huge loan amount to pay back and most dont even try. I see 4-6 senior football players at my HS every year who go somewhere small to play and never make it to year two but have 20K+ in loan payments all because their coach and 'people' tell them they need to play college ball.

I totally agree on the HS Education system comment you make.

 

[SLion]

"As a wise man once said, the world needs ditch diggers too, and it can actually pay quite a bit."

Yes, college is oversold and agree that lots of landscape folks bank cash but unless you own a ditch digging business, I doubt you want to make career out of it. Hate to see a 50 yo digger. Body breaks down at some point.

 

[Shiniquiet]

What would happen if college loans could be counted as a tax deduction like mortgage interest?

 

[bison13]

But eventually the 50 y/o ditch digger moves up the ladder and can be the supervisor or work in some other capacity for the company.

One of my players was a good kid and decent student and could have played d3 hoops. Knew he didnt want to stay in school and take classes for 4 more years. He worked at Chik Fil A and told me he knew that if he worked hard he'd be the manager and maybe eventually own one. He's 25 now and the manager of the one down the street. Not making 50K yet but he will soon and he doesn't have debt. He used the 4 years time to earn money and work his way up. Not enough kids today have that mentality

 

[wbcincy]

I know. I was purposely trying to “dramatize” the unimportance of the student loan debt numbers in the context of the more important “national economy”.

I’m confident that WB’s post is a perfect example of why stupid people should neither become:

• Parents
• Lawyers

Preferably not both of the above

Congrats, you're a POS.

 

[PeetzPoolBoy]

Congrats, you're a POS.

MehOyVey.

 

[91Joe95]

"As a wise man once said, the world needs ditch diggers too, and it can actually pay quite a bit."

Yes, college is oversold and agree that lots of landscape folks bank cash but unless you own a ditch digging business, I doubt you want to make career out of it. Hate to see a 50 yo digger. Body breaks down at some point.

At that point they've bought a backhoe.

 

[wbcincy]

I'm trying to figure out where you're getting this "economy wrecking" argument.

Total Student Loan debt is $1.5 Trillion. The U.S. GDP is around $20 Trillion per year. Let's assume that (a) 50% of the student debt is held by "high risk" individuals and (b) that they default at a rate of 33% per year. That equates to only $250 Billion dollars of default per year (1.25% of the annual GDP).

You should have taken an Economics course or two while attending this alleged University with a prestigious alumni base.

You're an idiot if you think default rate was the cause for my concern about the economy.

 

[SLion]

But eventually the 50 y/o ditch digger moves up the ladder and can be the supervisor or work in some other capacity for the company.

One of my players was a good kid and decent student and could have played d3 hoops. Knew he didnt want to stay in school and take classes for 4 more years. He worked at Chik Fil A and told me he knew that if he worked hard he'd be the manager and maybe eventually own one. He's 25 now and the manager of the one down the street. Not making 50K yet but he will soon and he doesn't have debt. He used the 4 years time to earn money and work his way up. Not enough kids today have that mentality

You have a good point. You have to know yourself. I was not a good student at PSU. I was lucky to graduate during dot com boom when PSU was still 10k a year. 30k loan debt while getting 30k for first job was good investment. I learned skills and by 26 making 50k then 75k by 30. It does pay off if you get on track with a career. Not for all though. I can't imagine walking out with $125k in debt and getting 45k which where lots of kids are today. What a sham.

 

[PeetzPoolBoy]

You're an idiot if you think default rate was the cause for my concern about the economy.

That’s exactly the argument you were attempting to “Spin”. Any poster reading through this thread would know exactly that’s what you, albeit incorrectly, were trying to do.

Get over yourself, live frugally, and pay off your debts.

 

[wbcincy]

That’s exactly the argument you were attempting to “Spin”. Any poster reading through this thread would know exactly that’s what you, albeit incorrectly, were trying to do.

Get over yourself, live frugally, and pay off your debts.

Great reading comprehension. I am paying mine, I don't need mine forgiven. And I don't even have to live frugally to do it.

My argument, which I stated expressly, was that millions of people having to pay a mortgage to the government instead of spending provately, is a disaster for the economy.

 

[anon_1eeb2b426hv3y]

I'm going to build myself a pool. And then I'm going to buy a new car. If I am forgiven for those loans, it will be good for the economy right? I mean I just built a pool and bought a car!

LdN

Wait, an American car assembled in Canada or Mexico using mostly Mexican and Chinese parts, or a foreign car assembled in the USA still using mostly foreign and some domestic parts?

Your pool, definitely built in the USA since it probably couldn’t hold a drop before they filled it in your yard.

Wait, what are we talking about? The American education costs and student debt? Oh right. Those costs will continue to rise, and student debt with it, for as long as schools can continue to raise rates AND increase the size of incoming classes to fill all the new buildings they’re financing with Chinese money borrowed at insanely low rates. There will be no forgiveness, except perhaps in token cases and government jobs, until there’s concern about all these expanding schools being unable to fill the spaces. Then either those who’ve already paid for their school will be asked to foot the bill again—likely indirectly through tax and spend—or the foregiven amounts will be kicked down the curb to those who haven’t gone to school or the unborn.

How deep will your free pool be? Will it be heated by the clean natural gas we’re fracking to the point of causing earthquakes where they weren’t before?

 

[Nittany Ziggy]

Wait, an American car assembled in Canada or Mexico using mostly Mexican and Chinese parts, or a foreign car assembled in the USA still using mostly foreign and some domestic parts?

Your pool, definitely built in the USA since it probably couldn’t hold a drop before they filled it in your yard.

Wait, what are we talking about? The American education costs and student debt? Oh right. Those costs will continue to rise, and student debt with it, for as long as schools can continue to raise rates AND increase the size of incoming classes to fill all the new buildings they’re financing with Chinese money borrowed at insanely low rates. There will be no forgiveness, except perhaps in token cases and government jobs, until there’s concern about all these expanding schools being unable to fill the spaces. Then either those who’ve already paid for their school will be asked to foot the bill again—likely indirectly through tax and spend—or the foregiven amounts will be kicked down the curb to those who haven’t gone to school or the unborn.

How deep will your free pool be? Will it be heated by the clean natural gas we’re fracking to the point of causing earthquakes where they weren’t before?

You must be the life of the tailgate party EVERY week!

 

[Norm Petersin]

If Bernie would have been elected, this problem would have gone away, free college for all.

 

[BoilerBulldog]

Great reading comprehension. I am paying mine, I don't need mine forgiven. And I don't even have to live frugally to do it.

My argument, which I stated expressly, was that millions of people having to pay a mortgage to the government instead of spending provately, is a disaster for the economy.

And yet you've never explained why...

 

[wbcincy]

And yet you've never explained why...

I've never explained why millions of people having to give all their expendable income to the government is bad for the economy? Christ, I never imagined I'd have to explain something so simple and obvious. Can I follow that up with an explanation of why air and water are important for human life?

 

[Psychedelic_MackDaddy]

With all apologies to mn, this thread has almost gone like a Mack_Daddy thread.

Thats just great. I get blamed when it's not even my fault.

 

[BoilerBulldog]

I've never explained why millions of people having to give all their expendable income to the government is bad for the economy? Christ, I never imagined I'd have to explain something so simple and obvious. Can I follow that up with an explanation of why air and water are important for human life?

Let me rephrase. Why should any debt holding entity forgive a trillion dollars. You seem to think this is play money. -

 

[Psychedelic_MackDaddy]

LINK: Just another milestone

I must admit, I am shocked no one brought up doing porn to pay tuition. Don't laugh, guess who's (ahem) debt free and in Law School?

https://nypost.com/2018/03/12/what-comes-next-for-the-duke-porn-star/

 

[wbcincy]

Let me rephrase. Why should any debt holding entity forgive a trillion dollars. You seem to think this is play money. -

Given how our government treats deficits, is it not play money? The fed govt spent over a trillion in one swoop "getting us out" of the last recession, so let's not pretend it's unprecedented.

 

[BoilerBulldog]

So our President Daniels took over 7 years ago and since then he’s never raised tuition. He believes academia is way too fat. He’s also bought Kaplan U. for a profit option for students who have no business taking on debt. Finally he instituted an ISA (Income Sharing Allotment) program for students who can’t afford debt but have alums wiling to back them.

All Land Grant schools are in the same boat. We should work together to fix this.

 

[BoilerBulldog]

Given how our government treats deficits, is it not play money? The fed govt spent over a trillion in one swoop "getting us out" of the last recession, so let's not pretend it's unprecedented.

I don’t think our government debt is play money, no. You’ve yet to describe the financial destruction that student debt will cause. Please describe in detail.

 

[MtNittany]

That's odd because I employ college students during the summer and they make $15 an hour. Trying to find people for $10 an hour to do actual work, well that's unusual.

I was a waiter. $15 an hour was low. But whatever.

LdN

You can make $25/hour (including tips) cleaning golf clubs - if you have a personality and are willing to get off your ass.

 

[BoilerBulldog]

So our President Daniels took over 7 years ago and since then he’s never raised tuition. He believes academia is way too fat. He’s also bought Kaplan U. for a profit option for students who have no business taking on debt. Finally he instituted an ISA (Income Sharing Allotment) program for students who can’t afford debt but have alums wiling to back them.

All Land Grant schools are in the same boat. We should work together to fix this.

https://www.theatlantic.com/amp/article/519570/

 

[wbcincy]

I don’t think our government debt is play money, no. You’ve yet to describe the financial destruction that student debt will cause. Please describe in detail.

It's self-evident, I don't understand how you need detail. Right now, most of the people driving the economy through spending are able to put their expendable income into the economy. As they retire/die and the next generation comes along to assume that role, they won't be able to put that expendable income into the economy because they'll be giving it to the government instead. If millions of people aren't able to put their expendable income into the economy to replace the millions of people before them who could, it's going to cause a terrible chain reaction in the economy.

Do you believe that replacing people who could spend into the private economy with people who can't won't have a terrible impact?

 

[BoilerBulldog]

It's self-evident, I don't understand how you need detail. Right now, most of the people driving the economy through spending are able to put their expendable income into the economy. As they retire/die and the next generation comes along to assume that role, they won't be able to put that expendable income into the economy because they'll be giving it to the government instead. If millions of people aren't able to put their expendable income into the economy to replace the millions of people before them who could, it's going to cause a terrible chain reaction in the economy.

Do you believe that replacing people who could spend into the private economy with people who can't won't have a terrible impact?

Only if you don’t believe our federal deficit is a problem.

We as a society have to pay off our debt. Public and private. And that will almost certainly result in higher taxes for all of us. And as someone earlier in this thread has pointed out, college debt is only a fraction of the problem. Forgiving College debt only shifts the burden on to private debt. Its not like it magically disappears. What do you think happens if the debt fairy magically disappears your debt?

 

[wbcincy]

Only if you don’t believe our federal deficit is a problem.

We as a society have to pay off our debt. Public and private. And that will almost certainly result in higher taxes for all of us. And as someone earlier in this thread has pointed out, college debt is only a fraction of the problem. Forgiving College debt only shifts the burden on to private debt. Its not like it magically disappears. What do you think happens if the debt fairy magically disappears your debt?

Well, since he government owns it, I assume the governments annual deficit increases. And I agree about our deficits and our needing to be balanced, but maybe I'd be a little more concerned if we weren't giving billions in handouts yearly to others who don't deserve it.

 

[mn78psu83]

Thats just great. I get blamed when it's not even my fault.

Yeah. Thanks a lot d-bag.

 

[91Joe95]

Thats just great. I get blamed when it's not even my fault.

Not all of you.

 

[91Joe95]

Given how our government treats deficits, is it not play money? The fed govt spent over a trillion in one swoop "getting us out" of the last recession, so let's not pretend it's unprecedented.

It didn't exactly work.

 

[mn78psu83]

https://www.theatlantic.com/amp/article/519570/

Purdue is the first institution to take on ISAs since an attempt by Yale University in the 1970s that was, in the words of one higher-education policy expert, “an utter disaster.”

Do you have any knowledge of why Yale's attempt failed? A brief mention within this short opinion:

LINK: The truth about Income Share Agreements

"ISAs have already been green-lit in several pilot programs throughout the country. In particular, Yale University instituted a modified version of the ISA in the 1970s, which ultimately failed because students had to pay back more than their fair share."

The main point is:

"Another downside to ISAs is that they don’t address the main problem with college education, which is that it’s far too expensive. Using an ISA as a creative way to pay for college is just that, a creative way to pay for something that is already overpriced."

 

[BoilerBulldog]

Purdue is the first institution to take on ISAs since an attempt by Yale University in the 1970s that was, in the words of one higher-education policy expert, “an utter disaster.”

Do you have any knowledge of why Yale's attempt failed?

Honestly I don’t. I know our program is in it's second year and I haven’t heard details on how it’s performing other than Daniels saying it’s “off to a great start”.

 

[mn78psu83]

Honestly I don’t. I know our program is in it's second year and I haven’t heard details on how it’s performing other than Daniels saying it’s “off to a great start”.

I had edited my post with some info. In the meantime, I found an article that summed it up well.

LINK: Taking a cut of student's future paychecks has Silicon Valley investors funding education

The first experiment was a failure. In the 1970s, Yale University offered tuition to a group of students in exchange for a percentage of their future incomes. Adapting a 1955 idea by economist Milton Friedman to sell “human capital investments,” the university paid the students’ tuition. In return, the university hoped to recoup its investment by having the group collectively repay it as a share of each individual’s income.

It didn’t work out. Low-earners paid back at different rates than high-earners, leaving frustrated students holding the bag for others. It was, in the words of one higher-education policy expert, “an utter disaster.”

 

[Lyons212]

College loans are a scam for most people. Too many horror stories of people graduating from college with a degree in psychology/sociology/fashion design with 100K in debt. What do you do with those degrees to pay back that money? Why is college so expensive? So observations/comments:

1. High Schools should have a class that teaches such life basics such as how to file taxes, complete job application, apply for a loan, basic finance including the implications of debt
2. Why do colleges require all the general education courses? My daughter is an occupational therapy major, not sure why she needs to take physics classes, no idea who that helps her provide better care to a sick or injured person
3. Colleges have too many administrators, they don't actually educate students.
4. Easy college loans are driving the increased costs of college. The college gets the money from the student all to willing to take the loan that they do not understand. All this money coming in, means more money to build fancy dorms and hire administrators. The college does not care if you can get a job or not, since they are not on the hook for paying the loan back.
5. Actually the college likes if you cannot get a job, they then encourage you to get a masters degree and take on more debt. Research colleges, they like to brag about the number of recent graduates that are either employed or in graduate school (see more debt).
6. The lenders are perfectly okay with providing the student loans. They are not dischargable in bankruptcy, you take it and it is a millstone around your neck.
7. Solution, make student loan debt dischargable in bankruptcy. This would result in lenders evaluating the possibility of the student actually paying the money back. No more large amounts of debt to pay for psychology degrees. Because of the decreased money coming to the college because of less student loans, colleges would be forced to get rid of administrators and stop building fancy dorms.
8. Disclaimer, my daughter will graduate with a debt between 20 and 25K and get a job with a starting salary of 70 to 75K. Not a bad tradeoff for her and does ensure she has some skin in the game. I have 2 kids in college, I have done 2 college searches and have seen fancy dorms, awesome cafeteria's, Olympic weight lifting platforms, electronic stock tickers, free laundry, etc. I survived at PSU living in dorms without A/C, chicken cosmos being fancy food and using the universal machine in White building to lift weights.

 

[anon_xdc8rmuek44eq]

Found this article from Forbes in 2017 when the student loan debt was at 1.4 trillion. His theory is that student loan debt doesn't hurt the economy because when the students get the loans, they spend the money on tuition, books, living expenses, etc. When they pay it back, the lender (gov't.) is able to spend it - so, no big net gain/loss. The (big) assumptions are a) students are able to pay back their loans, and b) the government (or lender) will spend the returned money in ways which will positively impact the economy (ie, not lend to foreign governments, or not spend at all, etc.).

He also makes some other pretty big, bold statements about how student loan debt is good for the economy - have at it.

---

Student loan debt has risen to a record high of $1.4 trillion and this rise has been accompanied by a corresponding mountain of stories about how this debt load is keeping millennials from buying houses or cars and is slowing the economy. Such stories come from sources as varied and impressive as Business Insider, Bloomberg, Time, and even the Chronicle of Higher Education. The evidence on car and home buying is somewhat mixed (see here and here), but it is possible that student loan debt is keeping some millennials from buying homes. The story about student loan debt hurting the economy, however, is completely false and misguided.

The mechanism by which student loan debt might lead to delays in those borrowers buying homes is clear. First, it is harder to save up a down payment while making student loan payments. Second, the student loan payments reduce the amount of disposable income available for mortgage payments, meaning that the person can afford a lower-priced house than without the student loan debt.

It is possible that student loan borrowers manage to offset their student loan payments by cutting other expenses, or by earning more thanks to those college educations, so the effect is not certain, but it is plausible. The idea that student loan debt is hurting the economy in general, however, is not plausible because of the way borrowing and lending money works.

When college students borrow money to fund their educational and related expenses, that raises their spending. That increase in spending by college students (on tuition, rent, food, books, and the like) is exactly offset by the foregone spending of those who lend them the money. In order to lend money, somebody else first has to not spend it (i.e., save it). When a former student later pays back those student loans, the process is reversed. The borrower has less to spend, but the lender is now collecting payments and can increase spending by an exactly equal amount.

Borrowing and lending money do not make consumer spending larger or smaller; they simply change who is doing the spending when. The borrower spends more now, less later; the lender spends less now, more later. A change in who is spending, but not how much is being spent in total does not have any effect on the economy.

So while it makes a good story that debt-laden millennials are dragging down the economy, it is not credible. Making loan payments doesn’t slow consumer spending, it only switches the person behind the spending. Any effect from such a transfer of spending power would be miniscule, based on differing domestic content in purchases.

Indeed, if student loan debt has any effect on the economy it is a positive effect. After all, the knowledge gained by the students taking out loans increases their human capital and should boost the nation’s labor productivity and potential GDP. In the long run, a more educated population should be a wealthier population.

The misconception that student loan debt is depressing consumer spending rests on ignoring the fact that student loan payments do not disappear from the economy, they simply get spent by different people—the ones who lent the money in the first place. Lending simply allows both parties, the borrower and the lender, to transfer their spending across time periods. It changes who spends right now (and later), but not the total spending in the economy. There are plenty of suspects available to explain our slow economic growth, but student loan debt is not guilty.

Jeffrey Dorfman is a professor of economics at The University of Georgia. His last popular press book is an e-book, Ending the Era of the Free Lunch. You can follow him on Twitter @DorfmanJeffrey

 

[anon_xdc8rmuek44eq]

Digging a bit further I found a NYT article about how student loan debt hurts the formation of small businesses (per a paper co-authored by Penn State risk management professor Brent Ambrose) which are of course key players in the growth of our economy. You can find the articles here:

https://www.nytimes.com/2014/05/25/business/the-ripple-effects-of-rising-student-debt.html

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2417676

For one thing, it appears that people with student loans are less likely to start businesses of their own. A new study has found that areas with higher relative growth in student debt show lower growth in the formation of small businesses (in this case, firms with one to four employees).

The correlation makes sense. People normally have only a certain amount of “debt capacity,” said Brent W. Ambrose, a professor of risk management at Pennsylvania State University and a co-author of a preliminary paper on the research along with Larry Cordell and Shuwei Ma of the Federal Reserve Bank of Philadelphia.

When students use up their debt capacity on student loans, they can’t commit it elsewhere. “Given the importance of an entrepreneur’s personal debt capacity in financing a start-up business, student loan debt, which cannot be discharged via bankruptcy, can have lasting effects later in life and may impact the ability of future small-business owners to raise capital,” the study says.

Considering that 60 percent of jobs are created by small business, “if you shut down the ability to create new businesses, you’re going to harm the economy,” Professor Ambrose said.

 

[ThePennsyOracle]

I don’t think our government debt is play money, no. You’ve yet to describe the financial destruction that student debt will cause. Please describe in detail.

Obviously not wbcincy here--I don't think it's hard to see what's going to happen. Millennials are now the most prevalent generation in a rapidly changing workforce. As the last of Baby Boomers and GenX retire, there's not going to be enough Millennials paying into public programs to make up the gap.

Millennials are putting off buying a house, getting married, buying a new car, etc. In this economy, that's going to equal a slowdown in many other areas going forward.

Do I think we're going to see a 2008-style economic crash? Probably not. However, IMO we will see a slow degradation of economic wealth and power. A slow slide, if you will, into even more stagnant wages and disparity between "haves & have nots."

How that's going to play out is anyone's guess. It's going to be interesting to see if Bernie Sanders-style politics (such as the act he introduced this week) can enter the mainstream with Millennials. There's evidence out there that despite union participation rates at all-time lows, Millennials harbor pro-union attitudes. With said unions shifting even more into the social & political realm, it's entirely possible that Millennials will see income disparity as an issue that will lead to civil discourse and deep economic problems.