Are the rising costs of college tuitions together with the stagnation of wages leading us to a position where we’ll see massive defaults on student loans?
Inspired by this diary on the DailyKOS
http://www.dailykos.com/story/2009/11/18/800460/-The-Education-Bubble
Generally the only way to default on your student loans (government loans, at least) are to die or get horrifically injured. So let’s hope we don’t see a lot of defaulting.
Ok, so maybe not defaulting but a general inability to pay them back. On a long enough timeline people will die, so if you can’t default you continue to accrue interest right?
But generally what does it mean that tuition price increases are occurring while wages are stagnating?
I wish.
I am not a financial expert, but I believe that mswas’s usage of the word ‘default’ is more accurate than yours. Perhaps we could say that government student loan debts are not able to be “discharged” through normal bankruptcy; only death, disability, etc.
I think it means any number of things:
[ul]
[li]Students aren’t aware of the disparity between tuition inflation and salary inflation[/li][li]Students are aware of the disparity but still value college enough to justify the expense[/li][li]Students are aware of the disparity but collectively believe it to be a short-term trend[/li][li]Students are aware of the disparity but give it no regard, valuing college for reasons beyond the anticipated boost it will provide to their salaries[/li][/ul]
hobscrk777 I don’t think it’s a matter of whether or not they value college, but whether or not college is seen as an essential stepping stone toward entry into the job market AT ALL. Its value is that it has become a requirement even for jobs that do not practically require a degree.
From above:
But that doesn’t even respond to what I said in any way. Student perception of value is completely irrelevant to the topic.
Why is that? You said:
Who sees college as an essential stepping stone?
If it’s (prospective) students, then they certainly place value on a college education if only for the sake of filling an employment criterion.
If it’s employers, then this perspective becomes known to prospective students, who decide to attend college (even if they may not have otherwise). Thus, they place value on a college education.
I think this is very relevant. Both of these cases exacerbate an education bubble.
Well actually it’s really the employers who see it that way. Students are doing it because they are FORCED by the market into it. But still what point are you making? I don’t know where you are going with this.
If students become incapable of paying their student loans what will that do?
If students cannot discharge their responsibilities via bankruptcy, won’t the banks simply carry the loan on the books until such time as the student earns enough to pay it off? Or perhaps the student "“merely” pays interest for the rest of their lives. Sounds like a pretty sweet deal for a bank to me! Customer cant pay the principle, can’t get rid of debt through bankruptcy, and pays me the interest forever!
In an extreme situation, I guess the bank could write off the value of the loan, but I don’t see that happening enough to warrant the term “bubble”.
I was offering that as one possible answer to your query “But generally what does it mean that tuition price increases are occurring while wages are stagnating?”'t tackled the iss
I haven’t tackled the issue of students being unable to pay their loans yet.
Right, I am just not getting what you are saying for some reason. Student value of course is an important factor, but I am asking what happens when cost exceeds the benefit in a macrocosmic sense, not what happens to the individual student.
From my memory of how my federally guaranteed student loans worked, if you are following the income contingent repayment plan, and have not been able to pay off the loan after 25 years, the remaining loan balance is written off. Which, I guess, means the Feds would be on the hook for it (as they would be if the borrower died or was permanently disabled). No idea how private loans work, but I imagine a) it’s in the loan documents somewhere, and b) the banks have made sure they will get their pound of flesh.
One other thing on that. The written-off portion is counted as income and thus subejct to income tax.
I assume by “Feds” you mean US taxpayers, right?
Semantics. Value in the sense it was used is appropriate.
Forced?
No, they desire (value) a certain form of employment, this happens to require a college degree. Ergo they value obtaining said degree.
It seems there was some misunderstanding on my part, then. I read your initial question (quoted below),
“But generally what does it mean that tuition price increases are occurring while wages are stagnating?”
as meaning, “what are some possible reasons to explain this phenomenon?” not, “what happens when students are unable to pay back their loans due to stagnant, or deflating wages relative to their tuition costs?” Apparently you meant the latter.
I think there is a private college bubble.
Public colleges, by and large, are still affordable. You hopefully plan for them and hopefully your parents saved for them, and you might need a little aid in the form of grants, loans, or work study - but two years of a public college costs about what a middle class family would spend on a new car - and people manage to afford cars. The public university I hold my degree from is still only $6k a year - its kind of a crappy state school, but it is affordable.
Private liberal arts graduate degrees are increasingly problematic. $200k in loans to have a degree in English Lit? That isn’t something that middle class families can afford. The thing is - I’m not sure the private liberal arts colleges were ever meant to be something the middle class could afford.
Here are some things that I’ve heard, but don’t have cites for, so take them with as many grains of salt as you’d like:
Private colleges charge higher tuition because they tend to be tuition-driven, as opposed to public colleges that can rely on tax money and research grants.
The biggest factor (so I’ve heard) leading to increasing tuition rates is the “need” to keep the facilities and technology current and modern: computer labs, smart classrooms, campus-wide internet access, up-to-date athletic facilities, etc. Campuses that don’t have these things will lose students to those that do.
One common strategy employed by private colleges is to set tuition rates high (thus getting as much money as possible from students whose families can afford it), while offering plenty of financial aid (scholarships, grants, etc.) to keep the actual price you pay within reach of plenty of others.