On the Student Loan Interest Rate...

[jtgain]

Why is there a debate that we should NOT increase the interest rate on students loans from 3.4% to 6.8% in these times of ultra-low interest rates?

My bank gives me a whopping 0.10% on savings. ING Direct gives less than 1%. On a loan that can never be bankrupted, why is 3.4% not a great interest rate for the government?

[lazybratsche]

For a point of comparison, my variable-rate private student loans are currently at 3.8%. Fixed rates tend to be a bit higher; so perhaps if you went out to get a private fixed rate loan it'd be more like 4.5%-5%. Anything above that is essentially price gouging, especially since government loans are supposed to be lower-cost.

[Really Not All That Bright]

Originally Posted by jtgain

Why is there a debate that we should NOT increase the interest rate on students loans from 3.4% to 6.8% in these times of ultra-low interest rates?

My bank gives me a whopping 0.10% on savings. ING Direct gives less than 1%. On a loan that can never be bankrupted, why is 3.4% not a great interest rate for the government?

They're difficult to discharge in bankruptcy, but not impossible. I'm in much the same boat as you, but I'm far more upset that graduate students will no longer be eligible for any subsidized loans. You and I will already be paying 6.8%, because the 3.4% rate is not available to graduate students.

It does seem ridiculous that student interest rates are going to increase at a time when my wife is being offered a refinance on our house at 3%, from an original rate of 6%, despite the fact that our house is now worth approximately two thirds what we paid.

[jtgain]

Originally Posted by Really Not All That Bright

They're difficult to discharge in bankruptcy, but not impossible. I'm in much the same boat as you, but I'm far more upset that graduate students will no longer be eligible for any subsidized loans. You and I will already be paying 6.8%, because the 3.4% rate is not available to graduate students.

It does seem ridiculous that student interest rates are going to increase at a time when my wife is being offered a refinance on our house at 3%, from an original rate of 6%, despite the fact that our house is now worth approximately two thirds what we paid.

Does that apply retroactively to the money we've taken out in the past couple of years, or does it only apply to the money we borrow going forward?

[lazybratsche]

I'm not sure, but I think that change applies to new loans. Here's what one official page on the topic has to say:

Effective for loans made for payment periods that begin on or after July 1, 2012, graduate and professional students are no longer eligible to receive subsidized loans.

Your old loans will still remain subsidized. (I hope... else my next five years of grad school are going to be a lot more painful than I expected...)

[Fuzzy Dunlop]

Originally Posted by jtgain

Why is there a debate that we should NOT increase the interest rate on students loans from 3.4% to 6.8% in these times of ultra-low interest rates?

It's political so there's no rational connection to what rates should actually be. Bohner is already on the record saying they all want to keep the rates low. But they are automatically set to increase so that necessitates extorting something else in exchange for keeping them low.

It doesn't really matter which side you're on - nobody is arguing from the side of what rate rationally makes sense.

[Really Not All That Bright]

Originally Posted by jtgain

Does that apply retroactively to the money we've taken out in the past couple of years, or does it only apply to the money we borrow going forward?

Existing subsidized borrowing remains subsidized. New borrowing post-7/1/12 will be unsubsidized. I borrowed the maximum subsidized amounts ($8500) for each of my first two years of law school, so at least there's that.

What really sucks is that the new subsidy rule and interest rate spike will hit me at the same time as a 40% increase in tuition. You're in private school, IIRC, so you don't have to worry about that, at least.

[TriPolar]

Student loans should have 0% interest, with caveats on who gets them and what they can be used for. But there is no justification in the government charging interest for these loans. The only problems with student loans are the lack of availability, using them for useless education, and using them to pay exhorbitant tuitions from schools who don't even need the money.

[Really Not All That Bright]

What education is useless? What's useful?

[TheMightyAtlas]

Originally Posted by Really Not All That Bright

What education is useless? What's useful?

I just heard someone complaining that they had $65,000 in student loans, and four years after graduating with a degree in English Literature, he only had a job as a legal assistant paying $36,000 a year, which was more than he was making a couple years ago, but still not enough for him to make payments on his student loan.

He would be a lot better off if he got an accounting degree. Both my company and its auditors are still trying to fill entry level spots with people with accounting degrees (and who have passed the CPA exam, in the case of the auditing firm)

I don't know if the education is useless, but it was largely recreational in my opinion. Of course the reason he went into English Lit was that it was easier to get into that program than Accounting or even generic Business Administration.

[even sven]

Originally Posted by TheMightyAtlas

He would be a lot better off if he got an accounting degree. Both my company and its auditors are still trying to fill entry level spots with people with accounting degrees (and who have passed the CPA exam, in the case of the auditing firm)

Unless, he is a terrible accountant. I promise you that no matter how much your company wants to hire accountants, they would never want to hire me as an accountant.

It took me a solid year of studying 2-3 hours a day to get to the point where i could pull a minimally acceptable GRE score. Clearly that wasn't laziness. Some people are not strong enough at math to make a living out of it, just like some people are not strong enough at writing or painting or playing football to do so.

[TheMightyAtlas]

Originally Posted by even sven

Unless, he is a terrible accountant. I promise you that no matter how much your company wants to hire accountants, they would never want to hire me as an accountant.

It took me a solid year of studying 2-3 hours a day to get to the point where i could pull a minimally acceptable GRE score. Clearly that wasn't laziness. Some people are not strong enough at math to make a living out of it, just like some people are not strong enough at writing or painting or playing football to do so.

Isn't the proportion of people going to four year colleges in the US much higher than in other developed countries? I work for a company that is headquartered in Europe and has operations in two very well off Western European countries, as well as two middle income Central European countries. Most of the entry level accountants in Europe do not have the equivalent of four year degrees. But almost all of the ones in the US do. I don't think you really need a four year accounting degree to process invoices, maintain simple spreadsheets etc. But because so many more people go to university in the US, employers will require a four year degree for a $30k-$40K entry level job, and there will be a queue going round the building.

And a lot of people with accounting degrees are bad accountants. My wife was an accounting graduate student at a distinctly second rate university. Some of her classmates weren't really learning Accounting as much as learning how to pass accounting exams. The school was basically engaged in the tertiary level version of social promotion.

I shudder to think what the students who couldn't get into the business school were learning. I got a Comp Sci Masters degree from the same school. It is possible to get a Comp Sci undergraduate degree without being able to write code that writes!

[TriPolar]

Originally Posted by Really Not All That Bright

What education is useless? What's useful?

Even though English lit is pretty useless, I wasn't talking about that. Useless education comes from substandard schools, or programs that don't lead to a degree or useful skill. So an English lit degree program, that provides the kind of rounded education that is supposed to come with a liberal arts degree would be fine, even if it is otherwise useless.

[John Mace]

Originally Posted by TriPolar

Even though English lit is pretty useless, I wasn't talking about that. Useless education comes from substandard schools, or programs that don't lead to a degree or useful skill. So an English lit degree program, that provides the kind of rounded education that is supposed to come with a liberal arts degree would be fine, even if it is otherwise useless.

Well, it's a good thing we'll have you sitting on the student loan board to make these weighty decisions, and not a bunch of politicians who will set up who knows how many rules to pander to whichever interest group is either the squeakiest wheel or has the deepest pockets.

[TriPolar]

Originally Posted by John Mace

Well, it's a good thing we'll have you sitting on the student loan board to make these weighty decisions, and not a bunch of politicians who will set up who knows how many rules to pander to whichever interest group is either the squeakiest wheel or has the deepest pockets.

All I'm saying is that there is a way to distinquish between schools that work on a pure for profit basis without regard for the value of the service they provide and those that don't. It is possible to distinquish between a school with a progran designed to generate profit from government dollars and one based on educational value whether or not you believe in the educational value of any particular field of study. I don't care if you study Engilish Lit if it's part of a program based on advancing education instead of a program designed to extract the maximum amount of government dollars available. Any such program will be subject to arbitrary standards, but taxpayers should know if there's been an examination of the underlying field of study and a determination of the relative value. YMMV.

To be clear, I'm paying for the costs of putting two kids through bachelors program and my wife through a master's program without incurring a penny of debt or public funds for my own post high school education, which may bias my opinions.

[John Mace]

Originally Posted by TriPolar

All I'm saying is that there is a way to distinquish between schools that work on a pure for profit basis without regard for the value of the service they provide and those that don't. It is possible to distinquish between a school with a progran designed to generate profit from government dollars and one based on educational value whether or not you believe in the educational value of any particular field of study.

There is? How? Remember, this isn't going to be a static environment.

[TriPolar]

Originally Posted by John Mace

There is? How? Remember, this isn't going to be a static environment.

I fail to see the controversy here. There are already accreditation processes. You can look at graduation rates and set standards for the teaching staff based on experience and education. You can look to existing organizations like the ACM to judge the value of a degree in computer science. You may end up with a school that believes it's Holistic Medicine degree is worthwhile, but can't meet the required standards. That's what happens when you want to live on the taxpayer's dime. And if you want to buy your way into the old boy's network at one of the major clown colleges in Boston or Philadelphia, do it with your own money, or the same amount available to the guy who gets the same actual education at state schools.

[John Mace]

Originally Posted by TriPolar

I fail to see the controversy here. There are already accreditation processes. You can look at graduation rates and set standards for the teaching staff based on experience and education. You can look to existing organizations like the ACM to judge the value of a degree in computer science. You may end up with a school that believes it's Holistic Medicine degree is worthwhile, but can't meet the required standards. That's what happens when you want to live on the taxpayer's dime. And if you want to buy your way into the old boy's network at one of the major clown colleges in Boston or Philadelphia, do it with your own money, or the same amount available to the guy who gets the same actual education at state schools.

You're whole analysis assumes the schools are distributed in some bimodal distribution with an easily determined demarkation between the two peaks. Where does an institution like The University of Phoenix lie on your scale?

[TriPolar]

Originally Posted by John Mace

You're whole analysis assumes the schools are distributed in some bimodal distribution with an easily determined demarkation between the two peaks. Where does an institution like The University of Phoenix lie on your scale?

Don't know enough about it. What's their graduation rate? Do technical degrees from there qualify someone for a job in that field? I still don't see how this can be difficult to determine. There are standards now for institutions that student loans can be used for. It wouldn't hurt to tighten up those standards. One of the big problems with student loans now is the number of students who don't graduate and then have difficulting paying off those loans. The schools have to be held responsible for this as well as the students.

[Crab Rangoon]

Originally Posted by Fuzzy Dunlop

But they are automatically set to increase so that necessitates extorting something else in exchange for keeping them low.

Why are they automatically set to increase - was this some deal made previously? It seems out of the blue to me.

[tumbleddown]

Originally Posted by Crab Rangoon

Why are they automatically set to increase - was this some deal made previously? It seems out of the blue to me.

Because a few years ago, the Republicans wanted to hike them, in the midst of the recession, and the Dems made a deal to keep them where they were for a few years, then revisit the issue.

Now that deal is expiring, and the GOP is trying to spin this increase as the Dems fault because they didn't make the rate permanent a few years back because the GOP then used this as a trading chit for some other nonsense they were trying to ram through, like more tax credits for Exxon Mobil or something.

Politics politics politics.

[jtgain]

Originally Posted by Really Not All That Bright

They're difficult to discharge in bankruptcy, but not impossible. I'm in much the same boat as you, but I'm far more upset that graduate students will no longer be eligible for any subsidized loans. You and I will already be paying 6.8%, because the 3.4% rate is not available to graduate students.

It does seem ridiculous that student interest rates are going to increase at a time when my wife is being offered a refinance on our house at 3%, from an original rate of 6%, despite the fact that our house is now worth approximately two thirds what we paid.

They are so very difficult to be discharged in bankruptcy that "impossible" is not so much of a stretch. As such, it is almost like a secured debt because the government can hound you for life and garnish your wages. Therefore, 3.4% sounds about right and 6.8% sounds almost usurious.

Talking to my bankruptcy professor, he is astounded at the difficulty in bankrupting student loans. Several years ago, you could bankrupt student loan debt, 1) after 7 years, or 2) in cases of extreme hardship. The new law removed the 7 year provision but retained the same extreme hardship provision.

However, my professor said that under the old law judges would fairly apply the hardship provision and routinely bankrupted student loans. Even though that provision of the law hasn't changed, judges have taken the hardship provision to an absurd level. He regularly represents Chapter 7 and 13 debtors and claims to have never been able to discharge student loan debt after the new law, but did so with regularity under the old scheme, but that provision hasn't changed.

I understand why they got rid of the 7 year provision. Say I graduate with a law degree at age 25 (not me, but a regular student. ). I can pay the minimums or negatively amortize my loans for 7 years. During this time I progress enough in my job to get a mortgage on a nice house and a few nice cars. At age 32, I decide to bankrupt this 6 figure debt. That hurts my credit for 10 years, but it might make sense because I'm banking a lot of coin now and have my house.

At age 42, the bankruptcy is off of my credit report, and I basically screwed the government by paying pennies. But the hardship provision should be enforced like it was before.

[Really Not All That Bright]

Originally Posted by TriPolar

Don't know enough about it. What's their graduation rate? Do technical degrees from there qualify someone for a job in that field? I still don't see how this can be difficult to determine.

What field? Let's say U of P's engineering program qualifies, but its mathematics program doesn't. What happens to the 99% of students who switch majors, and then find their new program doesn't qualify for financial aid?

[What the .... ?!?!]

Originally Posted by tumbleddown

Because a few years ago, the Republicans wanted to hike them, in the midst of the recession, and the Dems made a deal to keep them where they were for a few years, then revisit the issue.

Now that deal is expiring, and the GOP is trying to spin this increase as the Dems fault because they didn't make the rate permanent a few years back because the GOP then used this as a trading chit for some other nonsense they were trying to ram through, like more tax credits for Exxon Mobil or something.

Politics politics politics.

You got a cite for that scenario? Both sides are playing politics now and I'm sure were back then...I heard Pelosi whine hysterically about all the women who would die of women's cancer bcause the Reublicans were going to "pay" for it by reducing some Obamacare slush fund. Apparently she and the Dems voted to reduce that slush fund to pay for one of their own pet issues not too long ago and didn't have the same concerns.

[TriPolar]

Originally Posted by Really Not All That Bright

What field? Let's say U of P's engineering program qualifies, but its mathematics program doesn't. What happens to the 99% of students who switch majors, and then find their new program doesn't qualify for financial aid?

I don't really see the problem here. There are standards now for schools to qualify to recieve student loan money. I think those standards should be stricter, because it's public money, and the taxpayers shouldn't feel that their tax dollars are feeding for profit institutions that aren't providing a useful education. There are a large number of people trying to pay off these loans because they shouldn't have been accepted into a program to start with, and some number of people who have degrees without receiving an education sufficient for employment either directly in a field, or because they haven't acquired substantial general knowledge. Besides 0 interest, I'd like to see more scholarships based on means as well, for useful education. To get there, the issue can't be a political football. There will always be politicians who manufacture issues out of whole cloth, but there are real economic issues to consider which can be argued by reasonable people. The motivation for providing availability of education is that it is beneficial to the country in economic terms, and not just a way to give a 4 year party for high school graduates before they enter the work force.

[furt]

Originally Posted by TriPolar

I fail to see the controversy here. There are already accreditation processes. You can look at graduation rates and set standards for the teaching staff based on experience and education.

You're clearly unfamiliar with the accreditation process: it's basically a joke. (And note that that article only deals with the more stringent regional accreditation; the national accrediting bodies, which are significantly less demanding, are equally acceptable to the Department of Education).

There are literally hundreds of colleges -- including state-run ones -- that only graduate a small fraction of their students, that don't come close to providing Return on Investment to students, and are not in any danger whatsoever of losing accreditation.

[Euphonious Polemic]

Would it not make sense to set the interest rate for student loans at Prime + some figure?

In Canada, student loan rates are set at the time you start repayments. You can chose floating (Prime + 2.5%) or Fixed (Prime + 5%). With prime currently at 1%, that makes the rates 3.5% (floating) or 6% (fixed).

My bank will give a student line of credit at Bank Prime + 1% (currently 3% + 1% = 4%)

[TriPolar]

Originally Posted by furt

You're clearly unfamiliar with the accreditation process: it's basically a joke. (And note that that article only deals with the more stringent regional accreditation; the national accrediting bodies, which are significantly less demanding, are equally acceptable to the Department of Education).

There are literally hundreds of colleges -- including state-run ones -- that only graduate a small fraction of their students, that don't come close to providing Return on Investment to students, and are not in any danger whatsoever of losing accreditation.

I'm not saying the accreditation process is good. I'm saying there is one, and that process, or another one, should have stricter standards. And only in regard to public money. I don't care what anyone spends their own money on.

[Really Not All That Bright]

I think there's some merit to the idea of encouraging study in high demand fields (accounting, perhaps, per the above) the way we do with medicine. The problem is that nearly all bachelor's degrees are essentially equally worthless (or worthwhile). In 99% of entry level jobs, nobody cares if your degree was in business or biology. So, really, this is something that only works at the postgraduate level.

[TriPolar]

Originally Posted by Really Not All That Bright

I think there's some merit to the idea of encouraging study in high demand fields (accounting, perhaps, per the above) the way we do with medicine. The problem is that nearly all bachelor's degrees are essentially equally worthless (or worthwhile). In 99% of entry level jobs, nobody cares if your degree was in business or biology. So, really, this is something that only works at the postgraduate level.

Bachelor's degrees shouldn't be worthless. They should indicate a useful level of skill attained in some field, the ability to analyze, organize, solve problems, and communicate effectively. Too often some of those components are missing. I think there are too many opportunites for schools to operate as degree mills to simply to make money without providing an education that contributes to the economy, or even provides 'higher education'.

There are certainly fields where a graduate degree is necessary, but a bachelor's degree in a technical field certainly should prepare someone for a job in that specialized area better than someone with a degree in an unrelated field. The specialization seems almost pointless otherwise. It is important to achieve a useful level of skill in any field as a means of learning and exercising the skills required to do that, but if you haven't learned enough about biology to have a higher qualification for a job in the field than a business major, I don't think you've really reached that level. That doesn't mean anyone needs to stay in the field they majored in at college, just that there should be a higher standard for achieving the degree in the first place.

[Chronos]

I think there's some merit to the idea of encouraging study in high demand fields (accounting, perhaps, per the above) the way we do with medicine.

We already do that, by paying people in those fields more. Isn't that exactly how the Free Market is supposed to work? What, do you want the meddling government to try to decide which fields are really the important ones and putting their thumb on the scales?

[TriPolar]

Originally Posted by Chronos

We already do that, by paying people in those fields more. Isn't that exactly how the Free Market is supposed to work? What, do you want the meddling government to try to decide which fields are really the important ones and putting their thumb on the scales?

Is that sarcasm? It's not quite your usual tone. I'm not sure what I'm not agreeing/disagreeing with.