There have been warning cries of a student debt bubble for a few years now. I have only an amateur’s understanding of a “bubble” and it is based on what happened with the mortgage crisis back in 2008. I’ll summarize this understanding: Everybody and their mama was buying houses, causing prices to spike. Banks were loaning everybody and their mama money so they could buy these houses, regardless of mama’s credit or whether the homes were really worth what they were being sold for. Then the global economy went into the toilet and a whole lot of people lost their jobs. There were massive foreclosures and people walking away from “underwater” homes. Society is still reeling from this fiasco.
So I’m trying to picture how it will look if/when the student loan bubble bursts. It’s not like lenders can repossess your degree. But they can garnish your wages. Defaulting on a loan damages one’s credit. Not having money or credit means more people living in the basement, both literally and figuratively. These are horrible things for an individual to face. But it doesn’t leave the same tragic impression as an entire family sleeping in a homeless shelter because the sheriff kicked them out of their home does. Having $300 taken out of your paycheck for the next 20 years sounds like hell. But then again, being able to study whatever you want for four-five years sounds like heaven. Everything has a cost, right?
I’m wondering how will we know when the bubble has burst? What is the sign that will tell us unequivocally that we’ve officially hit a crisis? Right now it just seems like everyone who isn’t directly affected (like myself) is either indifferent or lacking in compassion (“That’s what they get for majoring in philosophy!”)
“Having $300 taken out of your paycheck for the next 20 years” is the best case scenario. The people who can afford it aren’t the ones we should be worried about. It’s the people whose degrees weren’t worth the investment they (and the bank) made who will be defaulting on their loans. And bad credit is bad for poor people. It means they’ll be closed off to many of the decent jobs they would have been able to get if they had decent credit.
We need to make student loans more like regular loans. If my house isn’t worth the loan I’m asking for, the bank will refuse. But banks will happily lend the same amount to theater majors as engineering majors. Partly because those loans are guaranteed by the government and because bankruptcy is not an option for student loans. And 18 year olds have no credit history, so banks don’t know who to give loans to and who to pass up.
At the risk of making a bachelor’s degree worth even less, I think we’ll be forced to provide free post-secondary education to citizens in addition to the publicly funded K-12 we have now.
I agree that it doesn’t make sense for lenders to loan out cash to everyone who wants to go to school, regardless of what and where they are studying, or their ability to get a job after graduation. Maybe students would make wiser choices if their lender told them, “We aren’t paying for that underwater basketweaving class, yo!”
But I don’t know how this would work practically-speaking. A student who majors in English may be a future Starbucks barista or they may be a best-selling novelist. And it won’t take long for engineering degrees to become “worthless” if the only loans out there are for engineering degrees.
Yeah, I don’t get this ragging on English majors and what have you. Sure, an engineering degree is a good path to a good job, but an English major needn’t be an invitation to McDonalds. I think it’s more about the person than the degree. And our colleges and universities should be more than jobs training programs anyway. Not to mention that there are plenty of folks with good jobs show don’t have college degrees.
It’s worth noting (and I bring it up every time) that new federal student loans are eligible for seven different repayment plans, including plans that are capped at 10% of disposable income. All are eligible for generous hardship deferrals, and eventual dismissal.
The student loan situation isn’t great, but it shouldn’t be leading new graduates into intractable poverty.
If a course is not useful, you shouldn’t go into debt to do it. Spend six months at a community college learning to produce art if you like, but don’t go into tens of thousands of dollars in debt unless you can afford it, or it will put you in a position where you are more capable of shouldering that debt.
This is the case for the college/university I went too. But sadly the bar is set very low, I think you only have to meet a 2.5 GPA to graduate in my department, and if you scored lower for a few semesters that is fine. As long as you brought it back up to the 2.5 at the end. In my field, it is very portfolio based and I can tell you people that did not have a GPA over 3.4 probably will never find a decent paying job in what I study because their work shows it. But then again I could be wrong.
I recently watched this documentary, which is specifically about people who have fucked-up lives because of private student loans. According to this cite, 20% of college students take out private loans.
I’m not ragging on humanities degrees. They’re absolutely worthwhile if you can afford it. But you shouldn’t take out a $60k loan to “expand your mind”. People take out loans specifically to invest in their financial future. If it doesn’t provide a return on investment, it was a poor financial decision on the part of both the student and the bank.
And you’re right about some people making good money with humanities degrees or none at all. That’s why I additionally pointed out that banks can’t tell at 18 whether someone is a good credit risk or not. Since we don’t know that, banks can’t use it to make a decision. But we do know the average salary of new grads based on their major, and on average engineering majors make far more than theater majors.
I’m not telling anyone not to major in what interests them. I’m saying don’t go into 5 or 6 figure debt for something you don’t good reason to view as a sound financial investment. And while I don’t expect 18 year olds to fully understand that yet, institutions that lend large sums of money absolutely know it, and have for centuries. But government policies have specifically exempted them from any consequences for poor lending practices in this particular domain. And that’s what I disagree with.
Additionally, there is no reason tuition for an art major should be the same as the tuition for an engineering major. But Universities don’t like to have “value degrees” so they price them all the same. If an engineering degree cost $50k and an art degree cost $10k, that would go a long way towards alleviating the problem. They’re already paying the humanities instructors less, they should charge less for those classes as well.
Housing and student loans are both a bubble of sorts, but the two situations aren’t identical. As others have said, the key thing about student loans is that the government dictates everything: how much money is loaned, the interest rate, who gets a loan, and the repayment plans. This leads to all kinds of bad decisions. Students take out big loans without considering whether they can repay. Lenders give loans to students who aren’t credit-worthy.
The housing bubble fell apart once the market could no longer sustain absurdly high home prices. The student loan bubble could theoretically continue as long as the government pours the taxpayers money into the system and doesn’t put any reasonable limits on borrowers or lenders. Of course, the taxpayers may eventually rebel at paying for for-profit colleges that are frauds and supposedly good schools that do stupidthings. If the taxpayers elect representatives who stop the flow of money, then the bubble will burst in truth.
The key ones are the income-based, income contingent, and pay-as-you-go plans.
What plans you are eligible for depend on when you took out your first loan (the more generous ones are more recent), but I’m pretty sure every borrower is eligible for some income based plan.
Changing plans is simple- it’s a form that you fax over once a year. You can change to any plan you are eligible for at any time.
Of course, slower repayment plans will accrue more interest. I think all are forgiven after 25 years of payments, with the forgiven amount being taxable. Government employees and those working for non-profits are eligible for a non-taxed forgiveness after 10 years.
even sven is correct that there are many options for paying back student loans and protections to avoid financial ruin for those who are unemployed or in other bad circumstances.
On the flip side, the actual amount a person pays may not be the worst part of it. There’s also the effect on credit ratings, which can easily be large enough to stop a borrower from getting a home or car loan.
The repayment plans only apply to federal loans, not private loans, btw.
Also, the article does not mention which are the degrees that were most sought after, or does it? What were the highest producing majors, and how does that correlate with the deb accumulated?
Easy to say “It’s the English majors fault for studying that”, but I would like some confirmation. Perhaps the bigger loans are given to those studying engineering, or nursing, or education, or physics, at least during undergraduate studies.
I’d also be interested in seeing some data. Is it really as simple as saying “Don’t study X if you are going to take out a student loan!” Or is it really more like “Don’t study X and take out student loans if you are going to be attending Y University and you are just an average student who doesn’t have a career path in mind.”
There’s insurance for everything nowadays. I wonder if there’s “buyer’s remorse” insurance for students who have done everything “right” and are unable to get a good job (however you want to define that) five years or more after graduation. Something like that could soften the blow if one should find themselves unable to pay back their student loans–at least their private ones.
Regulating federal loans so that they are harder to get will only make private loans seem more attractive. As long as college is held up as the gateway to the middle class, people are going to borrow money to go to school. Free public colleges/universities seem like the obvious solution, but I don’t know how realistic that is with a miserly Congress.