Student Loan Scam

Why are today’s poor subsidizing tomorrow’s rich?

The interest rate for the main federal student loan program was set to double on July 1, from 3.4 percent to 6.8 percent. Even in this contentious election year, there was one thing everyone in Washington could agree on: The rate hike should be avoided at all costs. The only disagreement was where to extract the $6 billion annually that would be needed to make up the difference.

But extending the lower rate, which was instituted by the College Cost Reduction and Access Act of 2007, is foolhardy. By keeping student loan rates artificially low, the federal government is contributing to the rapid increase in college tuition and forcing today’s workers to subsidize the educational choices of tomorrow’s big earners.

According to the latest data available from the U.S. Department of Education’s National Center for Education Statistics, 39 percent of all undergraduates at four-year colleges had student loans in 2007–08. For full-time undergraduates the number was 53 percent. The overwhelming majority—93 percent—of these loans are subsidized by the federal government. And even the 6.8 percent rate that Democrats and Republicans were determined to avoid would still represent a significant subsidy; the rate on similar loans that students obtain in the private market is about 12 percent.

There are many other ways to help pay for a college education: You can work through college, choose to attend a cheaper state school, or take time off to earn money before or during school. So the decision to take on student debt is a personal choice, and the reward from getting a college degree is also personal. People making this choice have a responsibility to understand the costs and risks.

While aggregate student debt has reached $829 billion, which is higher than the country’s collective credit card debt, the burden faced by individual students coming out of college is relatively small. According to the Department of Education, the typical college graduate who borrows money for attendance ends up owing about $22,000.  The standard repayment period is 10 years, but terms can be renegotiated if needed, especially by people who choose to go into public service or teaching. According to the repayment calculator at Mapping Your Future, an online resource sponsored by student loan guaranty agencies, it would cost $253 a month over 10 years to repay $22,000 in principal at a rate of 6.8 percent.

Everyone wants to borrow money at the lowest rate possible. But it is important to keep in mind that today’s student loan recipients are tomorrow’s big earners. Using the most recent data from the Bureau of Labor Statistics (BLS), the editors of the economics policy website e21 compared the earnings of the most successful college graduates with those of the most successful high school graduates. A worker in the top 10 percent of bachelor’s degree holders earns an average of $2,310 a week. That’s 1.8 times as much as the $1,316 earned by the average worker in the top 10 percent of high school degree holders. 

The gap between typical workers in those education categories is even more significant. BLS data show that the weekly earnings of the median worker with a bachelor’s degree is $1,051, compared to $450 for the median high school graduate. 

That means federal student loans force lower-income taxpayers to subsidize the education of future U.S. elites. Why should a grocery store clerk pay taxes to help the store’s owner send his kids to a selective out-of-state school? 

This burden is not trivial. As e21 noted, “since 2008 the Federal Government has effectively socialized the student loan market by enacting laws to eliminate private lender participation in administering Federal loans.” As a result, e21 notes, the amount of outstanding student loans owned by the federal government has grown from $111 billion at the end of 2008 to $425 billion in 2011, a compound annualized growth rate of 56 percent. 

Unfortunately, taxpayers probably will have to pay a significant share of those outstanding loans. In a September 12, 2011, press release, Secretary of Education Arne Duncan announced that the share of federal student loan borrowers who default within the first two years of repayment is 8.8 percent. The overall default rate for those receiving a federal student loan is 23 percent. That’s huge.  To put this number in perspective, at the peak of the housing crisis in May 2009, first-mortgage default rates reached 5.7 percent; the default rate for second mortgages reached its high-water mark two months earlier at 4.7 percent.

There is another reason to look twice at the massive subsidies for education loans. As it did in the housing market, free or reduced-priced money has artificially inflated the price of a college education.

Federal student aid, whether in the form of grants or loans, is the main factor behind the runaway cost of higher education.  As Cato Institute economist Neal McCluskey explained in an April 2012 article for U.S. World & News Report: “The basic problem is simple: Give everyone $100 to pay for higher education and colleges will raise their prices by $100, negating the value of the aid. And inflation-adjusted aid—most of it federal—has certainly gone up, ballooning from $4,602 per undergraduate in 1990–91 to $12,455 in 2010-11.”

Thus begins a classic upward price spiral caused by government intervention: Subsidies raise prices, leading to higher subsidies, which raise prices even more. Yet this higher education bubble, like the housing bubble before it, will eventually pop. Meanwhile, large numbers of students will graduate with more debt than they would have in an unsubsidized market.  More important, taxpayers face two equally bad outcomes: They are subsidizing millions of dollars in interest for student loans that they shouldn’t have to shoulder, and they likely will pick up the tab for underpaid student loans. 

Given that President Barack Obama and his presumptive opponent, Mitt Romney, agree that the student loan rate should not rise, it is unlikely that Congress will let the rate float back up. But the whole enterprise of federally subsidized college loans is dysfunctional and should be ended. American taxpayers —especially today’s working poor—should not have to subsidize tomorrow’s big earners while pricing themselves out of a better education.

Contributing Editor Veronique de Rugy is a senior fellow at the Mercatus Center at George Mason University.

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  • Raven Nation||

    Ah, but you forget how the minds of higher education. Most academics I know would argue for "free" college tuition, paid for by "the rich." Just raise taxes on the wealthy to pay for college.

  • ||

    Why are today’s poor subsidizing tomorrow’s rich?

    They aren't. Those who are currently poor are being robbed, as those who are better off, and those who are wealthy. Everyone is getting robbed. Some of that loot is being handed out. But that subsidizing is being doing by individuals in the government with their stolen money, not by the poor they stole some of it from.

    Try this: a mafioso robs me, and makes it clear he intends to do so in the future. He spends some of the money on a call girl. Did I hire a call girl for him?

    P.S. * no *

  • Mr. Soul||

    yep, the only ones making on the deal are the academians and administrators. Unfit for most work, they sell their approval to the insecure for a living.

  • Bill||

    Most of the money does not go for more professors (at least where I work). And some professors even at the same school make 2-3 times as much , but sadly, it is not related to their productivity or true worth in the market. Tenure tends to limit the effects of market forces and politics/institutional organizational history at the university level determine which colleges are favored at that institution. Federal regulations cause universities to hire all kinds of lawyers, homeland security experts, financial aid personnel, and racial equality experts.

  • bugmenot1234||

    You say "You can work through college, choose to attend a cheaper state school, or take time off to earn money before or during school."

    This was true 20 years ago, it is not true now. Without a bacheleor's degree, most companies won't even look at you for even *clerical* work for more than $15/hour. $30,000 a year (before taxes) is hard to even live on, let alone save any money for college. Add to that the difficulty of finding work after graduation and the bias against those without a degree or a steady job in today's workplace, and you have a system that is set up to force the young into debt slavery if they ever even want to get a degree in something such as teaching, where the young people have 50-60k in debt for a salary of $30,000 a year.

    Wealthy businesses no longer offer job training to their employees, simply expecting their employees to go into massive debt so they can have the privilege of making the crony capitalists even wealthier.

    Blaming the victims of collusion between rich academia and the wealthy business classes is not constructive.

    While I agree with the solutions, the problems here come from the collusion between government and the wealthy, not because individuals are making bad decisions - they are being forced into those decisions, else they end up even worse off.

  • Whiterun Guard||

    When those 'victims' continually clamor for more abuse, and pull the lever for the husband who beats them, I think there's enough blame for them too.

    Their illiterate nattering keeps the 'crony capitalists' and those they are crony-ing to in power. So if you can't blame them, then why can you blame those in power for wanting to stay in power?

    The 'victims' are getting exactly what they're asking for. Good and hard.

  • ||

    If you can't live off of 30,000 a year as a young single person you are doing it wrong.

  • some guy||

    Damn straight. I went through college in the previous decade living off less than 10k$ a year. Living cheap is easy if you don't have a sense of entitlement.

  • NotSure||

    Considering that that $30 000 a year is more than most countries have as their GDP per person, this does not sound terrible at all. This is nothing more than the need for instant gratification, a big salary should be worked for, nobody should expect to earn it as soon as they start working.

  • ||

    Agreed. I lived on about $12000 last year, as I finished off my degree.

    $1000/ month =
    $450 rent
    $300 food/groceries
    $70-100 utilities
    $70 phone/internet
    And a bit of left over spending money for lunch and entertainment

    What you have to give up is:
    1. Dining out
    2. Living alone (unless you can find an uber-cheap 1BR apartment)
    3. Car payments (buy an old car private party and maintain it).
    4. Cable television, cell phone contracts, etc.
    5. Travel, exotic vacations, expensive hobbies, sporting equipment (buy a cheap bike used and maintain it).

    It's super easy to do away with cable and cell phone contracts these days. And if you can manage to find an old car in decent shape #3 is not hard either. I found 1, 2, and 5 kind of difficult. It does kind of suck not being able to go on things like a weeks vacation to go scuba diving in belize.

  • Rasilio||

    Um, first off $1000 a month take home is somewhere around $18000 gross income. So getting a "part time job" making that much means working somewhere around 25 hours a week at around $15 an hour.

    Jobs that only require 25 hours a week typically pay $12 an hour or less.

    second, while your budget may work for a year or maybe 2 it is in effect "eating your seed corn" because it is leaving out fairly large but irregular expenses, for example...

    Clothes/Shoes - While it can be done cheaper for a while over any extended period of time an adult will need to spend on average $50 a month of Clothing/Shoes (and this assumes extensive use of 2nd hand stores)

    Car Maintenance - While you comment on the need to maintain the beater car you advocate buying you don't allocate any money in your budget for it. Even basic maintenance (Oil Changes, Brake Jobs, New Tires, and Tune Ups) will average around $25 a month over time and this is still ignoring the inevitable breakdowns.

    Some other expenses you left out...

    Car Insurance, Irregular taxes/Fees (License renewal, New Plates, State Inspection, Excise taxes, etc.), Medical expenses, Replacement/maintenance of household items, Gas for your vehicle, etc.
    --continued--

  • KPres||

    Fuck you. My brother just finished supporting his wife through 6 years of med school on $12/hour or less. That's two people. And I know for at least a while he was only making $7/hour.

    Also used to work with a guy who supported his wife and their two infants/toddlers on $12/hour for at least a few years. And they bought a house during that time.

    People like you are so full of shit.

  • goneGalt||

    Disclaimer: I'm not calling bullshit on anybody. I'm trying to learn.

    I often see these assertions made. But rarely does anyone take the time (Kudos Hazel!) to detail how they pull it off.

    I simply don't see how, in this tax-happy, government distorted economy of ours, a person can raise a family or put a spouse through school. Using real numbers, like Hazel did.

    Maybe I live in the wrong part of the country (rural New England) and should move.

    I work two jobs and gross $3900 per month. I am living the Hazel Meade lifestyle, yet I am losing ground. Where am I going wrong?

  • goneGalt||

    BTW, I can eat for less than Hazel's $300 and I can beat her Internet bill too. I simply steal access from neighbors and employers. Yup, I'm a thief!

  • ||

    Also, there's a tremendous amount you can get through freinds and neighbors. Car maintainance-there's always a friend who has a friend who is into fixing cars. Clothing - someone's always clearing out their closet (and I'm pretty sure my clothing bill averaged more like $10/month. The country is flooded with used clothing that people no longer want.) House parties are a good substitute for going out for drinks - some generous friend who makes more than you will magnanimously bring a couple of 12-packs to share. Or a box of wine.

    Yes, it's all very low class. But it's not just trailerpark rednecks who do this, it's also urban hipsters and college students.

  • goneGalt||

    All good suggestions. And you've filled in some of the gaps I saw in the original $1000 budget. Thanks.

    I guess I'm just a little grumpy. I had hoped I wouldn't have to work two jobs and live like a starving artist at this stage of my life. (I'm in my 50's.)

    I've been back to school twice to improve my skill sets. Paid off the loans too!

    Is it OK if I blame BushBama?

  • ||

    Rent can be brought down to $250 or so if you share accomodations.
    I didn't. I wanted a 1BR apartment cause I don't like roommates.

    Also my situation was temporary, so I could hold off on maintainance or DIY.

    But if you have roommates, that leaves plenty of room for all of the above.

  • Rasilio||

    Now of course it is possible to lower a lot of these costs to $0 for a while by simply ignorning them and some of your estimates could probably be pared back a bit in all but the most expensive cities (For example you could probably do better than $520 a month for rent/utilities on a shared house in most places) but in the end the ability of a single college student being able to get by on $1000 a month while going to school full time have more to do with luck than any other atribute of that students. Basically you need to be lucky and have NOTHING go wrong because your budget will be scheduled pretty much to the dollar with no room for unexpected expenses.

  • KPres||

    Basically you need to be lucky and have NOTHING go wrong...

    Honestly, dude, that's not luck. For the vast majority of people, nothing goes wrong. If it does, you take a semester off and work full time. I know tons of people who did that.

    Seriously, the majority of people I know put themselves through college exactly like Hazel described.

  • goneGalt||

    Again, I'm NOT calling BS. But how? The numbers I see are a start, but not complete. I really want to know because I may NEED to go back to school! On $12 bucks an hour.

  • ||

    Well, it'll pay the rent, but not your tuition. Grad students get funding, often a tuition waiver and a stipend.

  • amelia||

    "Grad students get funding, often a tuition waiver and a stipend."

    Waiver? WTF?

    I guess you're not making that up, but most people who want to attend graduate school better not count finding a program that offers waivers.

  • ||

    Right, I spent $450 / month on rent because I had a 1BR apartment. That was my one luxury.

    But ... you also need a buffer. Keep $1000-$2000 in the bank for unexpected car maintainance and replenish it.

    Most people aren't that disciplined. They will eat through any savings they have partying. $1000 in the bank = new stereo, clothes shopping spree, Iphone, trip to belize or what have you. And then they bitch and moan about how broke they are the second their car break down.

    Stupid. Society doesn't teach basic financial management anymore. When I was a teenager, they taught me rules of thumb like always keeping a nest egg around for emergencies, never spending more than 1/3 your income on rent (though I broke that), and not going into debt for anything that doesn't equal more money in the future.

    But it does seem like most people my age, or younger, havn't got the slightest idea how to budget or plan financially. They live on the edge of bankruptcy, and mostly because they havn't got the discipline to not spend every penny the instant it comes in. And sicne your going to say they have to I call bullshit on that too. They just doesn't want to lower their living standards to the point that allows them breathing room. Which is a choice, not a necessity.

  • ||

    Agreed. I managed at around $1000/month during grad school.

    Buy an old car outright so you don't have payments.
    Don't dine out.
    Don't have cable or cell phone contracts (prepaid, streaming, and bootlegging works).
    Live with roommates.
    Don't spend money on expensive hobbies or sports.

    A lot of this SUCKS ... but it's doable.

  • Bill||

    What? You couldn't go to Starbucks 2-3 times a day?

  • goneGalt||

    Buy an old car outright so you don't have payments.

    Check, I have a 16 year old Honda, paid off long ago.

    Don't dine out.

    Check, I can eat on $5 to $7 dollars a day.

    Don't have cable or cell phone contracts (prepaid, streaming, and bootlegging works).

    Pay-as-you-go cell phone, no landline, stolen Internet.

    Live with roommates.

    I have two, though we are to ditch one. A deadbeat who simply isn't paying her share.

    Don't spend money on expensive hobbies or sports.

    I work two jobs, what's a hobby?

  • goneGalt||

    Dinner break is over. I may check in after shift. Otherwise, tomorrow.

  • hotsy totsy||

    gG you should either move or try to get promoted. At least in one of your jobs. I truly doubt this will last.

  • amelia||

    Just like that! Get a promotion gG!

  • goneGalt||

    I truly doubt this will last.

    From your lips to God's ear.

    Just like that! Get a promotion gG!

    Well, one can always hope. And I NEED to!

  • dinkster||

    Well, that completely depends on the purchasing power parity of the location of your university. Ironically, a student needs to apply ($$) and be accepted (time) to a university before the cheap money starts flowing, location locking them into a bad scenario for at least a year or longer. Poor people that live in a high cost area wanting to move, go to university to get the job skills to make more money so they can move. There are scenarios where a loan is your only choice.

  • Sevo||

    "Without a bacheleor's degree, most companies won't even look at you for even *clerical* work for more than $15/hour."

    Find a company that will, and quit whining.

  • The Lantern||

    I worked full time during undergrad earning $22 an hour. I was in the US military before undergrad and used the GI bill to pay for part of undergrad and grad school. I went to state schools for both undergrad and grad school. I even spent 3 of my undergrad years at a regional campus of a state school to keep costs down. I have approximately $120,000 worth of debt. I'll be able to pay it off, so I'm not complaining about it, but to pretend that taking on student loan debt is a "personal choice" is flat out ridiculous.

    I'm sorry that my mommy and daddy aren't lawyers/doctors and they couldn't give me a cent for my education. Of course, some foreigner with a handful of degrees from elite European universities can tell us normal folks what the real world is actually like though.

  • The Lantern||

    Forgot to add that I worked 2 part time jobs while in grad school for approximately 20 hours a week along with every contract job I could handle. I also worked full time during every summer... I'm sure the abuse and accusations that I am a liar will be here within a minute or two.

  • The Lantern||

    The last thing I add. My grad school was one of the cheapest in the nation for my field. It cost approximately $30,000 a year (10 years ago it cost less than 1/3 of that...). It costs me approximately $10-17,000 a year to live in an apartment with roommates, feed myself, and pay for gas, etc. (the low end is when I lived in a rural area for undergrad and the high end was for grad school in a big city). Even when I was working full time, I was only making around $26,000 a year, and that was WAY more than most people my age would be able to make going to school full time. Yeah... I am just one person's anecdote, but I would imagine I'm probably one of the fortunate ones since I am healthy, didn't have any sick/elderly parents to take care, etc.

  • ||

    There are many ways to help pay for a college education: You can work through college...

    That's a way to help pay for your books and perhaps some of your room and board, but I had a part-time job throughout college (and a full-time job in the summer) and was never able to have a penny go to my actual tuition.

  • Rasilio||

    Not to mention if you did this you very quickly eliminate yourself from getting any non loan subsidies.

    They put you in a catch 22, each dollar you earn reduced your grants by about a dollar so "working your way through school" ends up being significantly more costly and difficult than just going into debt for it.

  • Rasilio||

    One little problem with this.

    The Poor in the US pay very close to no taxes. Something like the bottom 48% of taxpayers pay no income taxes and around 25% are net tax consumers (they get back more in refundable credits than they contribute even including payroll taxes).

    This means that the "poor" are not subsidizing anyone.

    Second it completely ignores the 2 biggest problems with subsidizing college educations.

    1st) It encourages people who have no business going to college to take on debt to do so. Those people then drop out and are left with some level of debt to pay off but no correspondingly higher income with which to do so. Sure, for the college grad earning $50K a year paying off the $250 a month for his loans is an inconvienence but for the guy who dropped/flunked out after 3 years with $17,000 in debt the $180 a month payment is a disaster on his $20K a year salary.

    2nd) It is the prime driver of credential inflation (or is it delfation?), where you once needed a high school diploma to be able to land a good paying job you now increasingly need a degree, even for jobs which have no rational need for requiring a degree, just to get your foot into the door.

    The article would have been significantly more effective had it taken the space devoted to class warfare and instead devoted it more to the real problems with government subsidies for education.

  • SIV||

    This means that the "poor" are not subsidizing anyone.

    If the "poor" buy lottery tickets in GA they're subsidizing college educations for the middle class.If they are paying FICA they're subsidizing the retirements of old white and Asian ladies.

  • joeloliver||

    Ahh, while the poor may pay no tax, and actually receive some transfer payments from the federal government in this country. $0.40 out of every dollar the government spends it creates, and that currency inflation robs us all blind.

  • Rasilio||

    While this is true once again that money creation mostly impacts those who actually have savings.

    Using a reasonable description of "poor" being the bottom quintile of income then the overwhelming majority of them have no savings so the inflationary impact on them is negligable and no matter how you choose to count it, even adding in embedded taxes in the goods/services they pay for they would personally consume at least as much in government services than they actually pay for.

    Realistically you would have to rise well into the middle income range, possibly even close to the median income before your tax contributions exceeded what you actually use for yourself.

  • SIV||

    If you can earn enough to work your way through college you probably don't need a degree.

  • goneGalt||

    ^^^THIS!^^^

    Even live at home state college students need to come up with $8K tuition, plus books, plus transportation. If I can generate that kind of annual surplus while pulling a full course load, screw college. I'll spend my class time working and saving instead.

  • MRK||

    Article is misleading: You actually cannot default on a federal student loan. Even after bankruptcy, you have to continue to pay the student debt. You can default, but you still owe the money and will be forced to pay it back. The reason is unlike a house or a car, you cannot repossess an education.

    A solid argument can be made that subsidized student loans pay for themselves via increased tax revenue from the higher income that education brings. But of course congress is unwilling to raise taxes to pay for these subsidized loans.

  • KPres||

    A solid argument can be made that subsidized student loans pay for themselves via increased tax revenue from the higher income that education brings.

    Except that education doesn't bring higher incomes in the aggregate, it's just a screening tool. If more people go to college, then incomes from degrees will fall.

  • Tagalog||

    Partial solution: Limit government-subsidized student loans to those who are getting degrees in science and technology.

    All others: get bank loans or pay for it yourself.

    You wanna build bridges and highways? Engage in valuable research? We taxpayers will help you; you wanna read a lot of good books and learn about the Civil Rights Struggle? Pay the price of that yourself.

  • ||

    Under that system, you'd see a ton of people major in "science" in majors that are so watered down as to be meaningless. The universities will get their money, you betcha.

  • Nicholas Card||

    This is sad, but true.

    Already, many schools do offer watered down science majors. There's a growing stigma against "non-technical" degrees, so you see schools providing easier technical degrees to fill that demand. If you tie the loans to specific degrees, you'll only exacerbate the problem.

    If we stopped mucking about with education, and treated universities like a business, we wouldn't have all these problems. Ultimately, a school's job is to provide you, the student (aka consumer), with a product (education). However, that product is useless to the consumer if it's useless to the consumer's potential employers. And if the schools can offer better products, then they'll get paid more.

    We see this today. Top-tier schools are more expensive because they provided a better product. However, since everyone can now "afford" college, there's a new baseline. Even crappy schools can still charge exorbitant rates.

    If we got government loans out of the school market, then no one in their right mind would pay for a worthless degree from a worthless school. This would re-level the playing field, and significantly lower the cost of education for everyone. And for those people doing work that has no need for a college degree, they wouldn't have to get one.

  • freeAgent||

    It's gotten to the point where it is impossible for almost anyone to work their way through college and end up with little or no debt. The economy is crappy, so it's hard to find a job in the first place. That's especially true without a degree.

    The jobs that do exist for students pay around $10/hour. There's no way you'll get close to paying for college on those wages. The biggest slap in the face is that the subsidized loans have made college so expensive that it's hardly worth it to work at all during college as the added income is tiny compared to the amount you have to pay for living expenses and tuition.

    I would like to go to graduate school, but right now it's just too expensive. The only way I see myself going is if I either lose my job (which pays pretty well) or the bubble collapses. I've got a mortgage already. I don't need another one.

  • ||

    By keeping student loan rates artificially low

    6.8% is just as artificial as 3.4%. This is, after all, the federal student loan program, and it is artificial in its entirely by (our) definition. Comparing it to private loans makes no sense, since private loans cover amounts borrowed beyond the subsidized limit. We don't know what the interest rate on private student loans would be.

    So the decision to take on student debt is a personal choice, and the reward from getting a college degree is also personal.

    The decision for a lender to participate in the federal student loan program is also voluntary, as are the loans they extend. Furthermore, the money they lend is created from nothing. If those lenders make foolish bets, those lenders are just as much to blame as the students, and probably more, considering their expertise. Why are you giving the lenders a free pass on their folly?

    Everyone wants to borrow money at the lowest rate possible. But it is important to keep in mind that today’s student loan recipients are tomorrow’s big earners.

    Not really. The rich don't take out student loans. It's the poor and middle class who do, and few of them end up being rich. There are exceptions, but not terribly many. This also ignores the people who don't finish college and still have loans to pay, many of whom are poor.

  • anon||

    We don't know what the interest rate on private student loans would be.

    Also, since the rates are manipulated by the federal government to allow access to funds that may or may not be otherwise available, there's no way to account for the inflation of college tuition simply due to the excess supply of money for tuition.

    Yeah, college students are gonna get fucked in the very near future.

  • ||

    But the federal government guarenteees the loans, so there's really no reason not to particiapte.

    Besides, the loans are now directly provided by the federal government - one of the lesser known provisions of the health care bill.

  • Mr. Soul||

    the market solution is to stop going to college. Sadly, few of us has the cajones.

  • 16th amendment||

    Why should a grocery store clerk pay
    taxes to help the store’s owner send
    his kids to a selective out-of-state
    school?

    Your analogy does not hold water. A grocery store clerk makes so little that he probably does not have any federal income tax. True, he pays social security, but in theory that's earmarked for social security benefits only.

  • Tagalog||

    I bet you $20 that grocery store clerk pays withholding even if he doesn't have a tax obligation at the end of the year. But then, with the Earned Income Credit, he'll probably get a refund.

  • 16th amendment||

    He can file a tax return to get a refund of all tax withheld. The EITC gives an even bigger refund.

  • Mr. Soul||

    the arguement still holds. Since we deficit spend the clerk will be paying when his income matures. All of us own a share of the debt.

  • daveInAustin||

    You are missing a slam-dunk statistic. The debt piled on every American family due to federal spending in the last 4 years is is more than $15,000. That's just for being an US taxpaper. At least with student debt, you get a degree.

  • ||

    We ought to privatize the student oan program entirely.

    But we can start by making it behave more like a bank. Decide loan eligibility by the likelyhood of repayment, according to the average expected earnings upon graduation, by major. That includes both likely earnings in a given field, and the chances of being employed in it.

    In other words, stop subsidizing education in usless subjects.

  • Nicholas Card||

    While I agree with the sentiment, it will never happen.

    As soon as you begin subsidizing a specific degree or field, you weaken that field. Schools will adjust their curriculum to enable the maximum number of participants, and therefore the greatest profit.

    If you instead give loans based on the individual (a merit based loan, for example), you are now not being fair. And, as everyone knows, you gotta play fair. "Just because little Adam 'isn't a good test taker', she should still get the same benefits as little Suzy who got 2400 on the SATs."

  • Bill||

    A girl named Adam? That's cruel.

  • ||

    I don't think the country would be worse off for having an oversupply of STEM graduates.

    Even if they never get hired, it's possible a few of them might invent some new technologies and start their own businesses.

  • The Derider||

    Because tomorrow's rich will subsidize the retirement of today's poor by paying taxes.

  • Tagalog||

    Ain't it the truth. And don't forget Medicaid and Aid to Families With Dependent Children.

  • Kroneborge||

    Wait, the government can borrow for 10 years at 1.5% right now, if it can lend at 3.4% that's still a pretty good margin IMO. And since it's almost impossible to get out of student loan debt I imagine most of that ends up getting paid back eventually. So I'm curious where the 6 billion really came from (poorly structured program I imagine).

  • Nicholas Card||

    You're missing the problem that, even though the loans are guaranteed, they don't always get paid back in full. People who get a loan and go on to get a degree in abstract art don't usually make much money in their lifetime. In fact, after basic living expenses, they may never have enough to pay back the $60,000+ loan they were given. In order to cut their loses, the government often accepts settlements for pennies on the dollar.

    I mean, look at the IRS. People end up owing hundreds of thousands of dollars, and the IRS settles for a few thousand because fighting for the money "isn't worth the cost."

    Sure, if you default on your student loans, your credit will probably be toast for the rest of your life, but it's not like you need a lot of credit when the government toes the line for the poor.

  • Kroneborge||

    My understanding is that it's almost impossible to default on student loans, even in bankruptcy. Although I agree not all of them will get paid back.

    On the flip side, I can definitely see making sure that the degree can normally support that level of student loans.

  • Rasilio||

    It is actually very easy to default on a student loan, just don't pay on time and bingo you are in default. However it is essentially impossible to avoid paying them off eventually through any means short of death (with no assets in your estate). What you can also do however is to negotiate to settle the debt for less than the total owed on it because like any other creditor they recognize getting something is better than nothing and if you have no assets and the debt is large enough then simple math will show that you could never pay it back.

    Also, frequently (as is the case with many debts) once you go into default the debt is written off as a loss and sold to the highest bidder who pays pennies on the dollar but can still collect the full value of the debt. This gives them another incentive to negotiate a lower settlement, because they paid maybe 15% what you owe to get ownership of the debt, so if they can get you to agree to settle for 50% both parties come out ahead. However the original lender is still on the hook for 85% of what they lent you.

  • Peter L||

    You all seem to be forgetting that there are programs where the government allows you to pay a tiny fraction of what you owe, and then if you have paid that tiny amount every month they forgive the rest of the debt. Income based repayment plan, and you just stop paying after 20 years. So not everything the government gives out it will get back.

  • Mordiac||

    I went to school in Hawaii, one of the most expensive places to live. I didn't buy a car. 6 of us shared a nice three bedroom apartment out of town. I bought a $35(really)bike and bus pass. I'd eat very cheaply in Chinatown or off the 'dollar menu', or at free club events. I only drank free water never bought alcohol. At home I bought groceries with my room-mate. We analyzed meals on a cost basis and only bought the cheapest things and when they were on sale. A frozen pizza which we could share would fluctuate in price from $6 to $3. I'd buy packs of cheese on sale and slowly work them into grilled cheese sandwiches getting those meals down to $1.25. Utilities were split by 6 people so it was relatively cheap. I had a family plan with my cell phone which allowed 4 people in my plan to split the price. I painted on the weekend for $10 an hour and had a non-paid internship at a brokerage firm. Clothing was second hand or from discount stores. I remember I bought sandals for $1 which lasted a year. For entertainment I read in the library, used the internet, watched TV and movies at home with my friends and roommates, and went to club events. I went to a dollar movie. I shared books or bought used. For exercise I hiked, walked everywhere, and went to the beach.

    200 for room
    80 all utilities
    15 transportation
    150 food
    15 clothing.
    10 Entertainment

    That's the equivalent of $2.50 an hour.

    Looking back I could have gone way cheaper.

  • Mordiac||

    After school, I got even more crazy about saving money. I moved to Taiwan and took up teaching English since the economy was horrible. I was living in the back of an old warehouse in an old industrial district on the second floor that the family wasn't using anymore. They charged me $60 in rent and utilities including internet. They also fed me sometimes. I got a cell phone for $5 a month with free incoming calls and free network to network calls. The kindergarten I worked at paid me $2300 a month and provided me free breakfast and free lunch if I ate with the students. I bought a new bike for $50(could have gone way cheaper with used) and occasionally rode the bus into the city.

    I was SAVING 2150 a month before student loan payments.

    Saving money is not enough though, in 4 years I have used that money to buy three houses, open an import business, and buy a ton of stock during the crash a few years back. All of which have made even more money. The idea that people can't live on thousands of dollars a month is a huge joke. How many people living in trailer parks have satellite TV, regularly get pay per view TV, and live on food stamps?

  • amelia||

    We don't know, you crazy man. Why don't you go find out how about receipt of satellite TV, pay-per-view, and foods stamps among trailer park dwellers? I'm sure it would be easy for a crafty guy such as yourself. Easy like saving 93% of your take-home income because your employer also feeds you for free!

  • Mordiac||

    There are 100 ways to save 50% of your income at least, just the poor want the rich life now. Look at the average savings rate in poor countries. In China, people save 30% on average, and that is with cost of living being higher for them in terms of income.

    If you saved half your income and made a 10% return(I make 25% on my houses) after 12 years you'd make your more money in interest than working. If I saved half my income and continued to make 25% on these houses, and kept reinvesting after year 20 I'd be making 45 times my starting income. Start with 60K, save half, 20 years later you are making 2.7M. I'll be the first to admit diminishing returns are larger amounts of money though.

  • goneGalt||

    Your Hawaii budget intrigues me. I may end up having to live that way in retirement.

    But I have a question. How realistic (and sustainable) is a 10 - 25% return on real estate. In what geographic markets? What restrictions on foreign ownership exist in these foreign markets. What foreign and/or U.S. taxes are you liable for. If you renounce U.S. citizenship, what is the exit tax on assets and/or how does one avoid?

    The Taiwan budget gives you a monthly surplus of $2150. But only if you pay no school loans or income taxes. In four years that becomes $103200. A great stake! But three houses, an import company, and a ton of stock? I'm missing something here.

  • goneGalt||

    I ask these questions because I am investigating expatriate living in Latin America. I am learning that my country of birth will continue to have its claws in me one way or another.

    Just ask any foreign based U.S. citizen with a bank account!

  • air max chaussures||

    The overwhelming majority—93 percent—of these loans are subsidized by the federal government. And even the 6.8 percent rate that Democrats and Republicans were determined to avoid would still represent a significant subsidy; the rate on similar loans that students obtain in the private market is about 12 percent.

  • tee shirt pas cher||

    But extending the lower rate, which was instituted by the College Cost Reduction and Access Act of 2007, is foolhardy. By keeping student loan rates artificially low, the federal government is contributing to the rapid increase in college tuition and forcing today’s workers to subsidize the educational choices of tomorrow’s big earners.

  • شات عراقنا||

    thank you

  • tipuasher||

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