Don't Sweat Student Loans!

courtesy The Atlantic

Interest rates for new subsidized student loans are supposed to double today, from 3.4 percent to 6.8 percent, unless the government passes a fix (as they've done for a number of years). Obviously, anybody would want to pay a lower rate than a higher one, but the difference in the monthly payments for $25,000 (about the average amount that students who take loans have out upon graduation) is about $40 a month for the typical 10-year repayment cycle. (Go here for a student loan calculator).

Back in the fall of 2011, Meredith Bragg and I released "3 Reasons We Shouldn't Bail Out Student Loan Borrowers" (click to watch). Forgiving student loan debt was arguably the leading plea from Occupy Wall Street. It was a bad idea then and remains one now (for a link-rich argument, go here). The short version: These loans are voluntary, the average payment amounts are hardly overwhelming (especially when increases in lifetime earnings are factored in), and bailouts are never a good idea. 

A college education is an investment - either in terms of future earnings or, as I prefer, in gaining some skills but mostly knowledge about what you'd like to do with your life. If students are attentive shoppers, they can get a great education at a low, low price. That's not being glib, either - it's the simple truth (and one I experienced), given the vast array of types of schools and programs that are available. To pretend that it's tragic or an outrage to have to pay $250 or $300 a month for 10 years for a loan that allows you to earn between $280,000 and $1 million extra over your life is not particularly convincing. Especially when the loan is being subsidized by a government that's already broke.

Interesting: Another year of 3.4 percent rates for borrowers will cost taxpayers $6 billion.

Also interesting: Discover offers private-sector student loans are pretty good rates (between 5.49 percent and 10 percent).

Comments

[sgs]

"A college education is an investment "

No it isn't, it's just a good.

All that other crap you people attach to it is your baggage.

[AlexInCT]

It used to be an investment if you accounted for the fact that you basically spent $X for the education -back when they thought yous oemthing of value - so you could then earn $Y over a period of time. These days, with kids being told to study what they want/love, regardless of its value to potential employers, it is defenitely not an investment anymore. It is highway robbery.

[Brandon]

They also seem to have stopped teaching grammar and spelling.

[AlexInCT]

I am an double engineering major so that stuff don't impress me much. Proof reading would have helped me though, I admit, but that takes time and I have work to supposedly do too.

[kinnath]

. . . a loan that allows you to earn between $280,000 and $1 million extra over your life

Not true for a huge percentage of people that attend college. Many students would be better off learning a trade and working those 4 or 5 years that they would otherwise waste in college.

[wareagle]

comparison based on having some higher ed vs not having it. You are right about trades but those involve community college or some specialized school.

My youngest daughter just finished one of those schools and now has dual licenses in fields where actual jobs exist. No loan, but higher earnings that she would realize absent the schooling.

[AlexInCT]

She sounds like the exception. Most of these idiots get "studies" or other such meaningless degrees that do not qualify them to do anything but ask people if they would like fries with that.

[thom]

If you drive millions of students away from college and into the trades, then college will probably start looking like a great investment again, as wages for college graduates rise and wages in the trades fall. Students will be attracted back to college, and the vicious cycle continues...

[robc]

Or, you know, it reaches equilibrium.

[Brett L]

Wait, the optimum might change over time? There's no one universal right answer?

[Dweebston]

And even if this were true, absent any extraneous factors like heavily subsidized student debt, shouldn't we want students routinely testing the bounds of prospective jobs markets? Especially in high-skill, highly specialized fields where employment most behooves us. Just saying this is a chronic problem with no easy solution doesn't give carte blanche to the solution we're trying, namely, subsidizing bottomless loans.

[MJGreen]

What I always think when I see that video screenshot: If you are drowning in student debt, don't spend your money on horrible shades and pounds of scarves, you fucking hipster idiot.

Though at least he's saving money on haircuts. That's something.

[some guy]

You have no idea how much styling it takes to make hair look like that. You think he just wakes up in that state?

[Dweebston]

I think those are safety glasses. I hope those are safety glasses. I don't want to think this fellow paid real money (funded no doubt through financial aid) for trendy shades that look like a $2 pair of tinted safety glasses.

[MJGreen]

My guess is that he bought it for $10 at a Brooklyn thrift store. And it was a great deal!

[Dweebston]

Dewalt? Is that European?

[RickC]

If Dewalt is the name on the glasses, they are safety glasses and Dewalt is a brand of power tools.

[Doctor Whom]

I remember when 6.8% would have been considered a bargain.

[kinnath]

I think I paid 7%. Then the year after I graduated they changed the tax laws so that interest on student loans was no longer tax deductible.

[Auric Demonocles]

It still is deductible... But only to some income level which I am above.

[Sevo]

I remember walking uphill to school through 8' drifts!

[anon]

Yeah, the worst part was it being uphill both ways.

[Sevo]

You, too?

[Ted S.]

My grandfather went to school with MC Escher. For Grampa, the walk really was uphill both ways.

[Scarecrow Repair]

The road to my house actually is uphill both ways. I enjoy it immensely 🙂

[Auric Demonocles]

My loans are all from 2010. 6.8% was the lowest I got. This "doubling" is going back to the rate from 3 years ago.

[Sevo]

Sorta like the horror of cutting government spending to the days of death and destruction of, oh, 1995?

[Auric Demonocles]

My god. You savage.

[some guy]

It sounds like you just weren't getting a subsidized loan. Are you sure you were in the same program they are talking about here?

[robc]

My first mortgage was at 7.125% and I thought the bank was giving me money at that rate.

[some guy]

Hah. We bought at sub 5%. Once inflation kicks in they really will be giving us money.

[Brett L]

My parents talk about taking over a loan at 14% as a steal.

[wareagle]

or as we used to call it, the Carter years. Before the prime rate went up.

[Brett L]

That would make sense. It was 1982-83, so they probably were taking over a Carter-era mortgage.

[Scarecrow Repair]

I worked with some people in 1988-89 who were ecstatic that their loans were only 21%. So much for Reagan's genius.

[Red Rocks Rockin]

I worked with some people in 1988-89 who were ecstatic that their loans were only 21%. So much for Reagan's genius

The flip side of it is that the housing prices had to be a lot cheaper to compensate. All this cheap credit has been great for people who got into the housing market back in the 60s, 70s, and 80s--it sucks ass now because someone with a median income isn't going to have those same advantages when entering the market.

Sorry, but if people have to take out a 30-40 year loan to pay off a house, that's not beneficial to the consumer. It shouldn't have to take half a lifetime to pay off debt.

[anon]

Nobody ever could have seen this coming, at all.

Well, except everyone that was posting here for about as long as I can remember.

[WC Varones]

Government workers get an especially sweet deal: total loan forgiveness after 10 years.

Private sector suckers? Tough luck.

[Auric Demonocles]

Also true for non-profit workers.

[sgs]

Not really, the requirements disqualify the vast majority of non-profit jobs.

[The Late P Brooks]

Back in the Olden Times, when i was in college, my father took out low interest student loans in my name ("Sign this, Kid.") and invested the money.

I do not believe college should necessarily be a trade school, but I seriously wonder if teh kidz these days learn any useful skills at all, like perhaps the ability to communicate effectively, or skeptically analyze an assertion by a "figure of authority".

[Sevo]

..."but I seriously wonder if teh kidz these days learn any useful skills at all, like perhaps the ability to communicate effectively, or skeptically analyze an assertion by a "figure of authority"."

Some always do, but it's my experience as an old fart is that it isn't and hasn't been a result of going to most classes and listening to the 'authorities' there.

[LynchPin1477]

Some of them do learn useful skills -- even the ones getting liberal arts degrees. The problem (or one of them, anyway) is that they also spend a lot of time learning very specific skills that aren't actually in high enough demand to make them worthwhile. A lot of people could cut huge portions of their curriculum out, get through college a lot more quickly and cheaply, and still land the same jobs as they would otherwise. A lot of people do do that, and then the 4 5 6-year college grads snicker at them for going to "big boy high school".

Other people really do need those more specific skills but could maybe cut out the more general stuff, or just incorporate it into the specific skill classes more directly. But the traditional college takes a one-size-fits-all approach.

[LynchPin1477]

the difference in the monthly payments for $25,000 (about the average amount that students who take loans have out upon graduation) is about $40 a month for the typical 10-year repayment cycle.

This argument only works if people are mainly concerned about the financial burden. I suspect that for many people that is not the case. Last year here in Quebec there were huge student protests and "strikes" organized by student unions because the government was going to raise university yearly tuition from $2,168 to $3,793, over the course of five years. That amounts to an extra $4.45 a day in 2018. Those students didn't voluntarily walk out on an entire semester and make life a pain for everyone else because they couldn't afford to go without an $800 Canada Goose jacket or one less latte per day, they did it because they believe a college education is a "right" that everyone is entitled to for free.

Luckily I don't think U.S. students are that far gone...yet. But give it a few more years...

[creech]

The prog argument seems to be that a college education is what has replaced the high school education of fifty years ago, for which the public paid. So, the public should pay now for free college (through age 26 if necessary). And it would be discriminatory if the public only paid for science and technology degrees. And plumbers and electricians and your kid who is fantastic auto mechanic will just have to suck it up and pay taxes so society can have baristas who can speak three languages and prattle on about womyns' studies.

[Sevo]

creech| 7.1.13 @ 11:38AM |#
"The prog argument seems to be that a college education is what has replaced the high school education of fifty years ago, for which the public paid."

Which leaves them arguing that the high school "education" we currently pay for is worthless.

[Nikkis enthusiastic dissent]

And that it's worthless because they subsidized student loans in the first place.

[sarcasmic]

I knew a woman who at the time was going for a Masters in English Lit or something useless like that, with the goal of becoming a snobby bartender for snobby patrons who like to prattle on about boring and useless shit. She had the snobby part down already, that much I remember.

[Dweebston]

Hey, at least it's a business plan. She's one up on most of her fellow graduates, I'll bet.

[The Late P Brooks]

a woman who at the time was going for a Masters in English Lit or something useless like that, with the goal of becoming a snobby bartender for snobby patrons who like to prattle on about boring and useless shit.

She should have just subscribed to the New Yorker and put the rest of the money in the bank.

[Voros McCracken]

"A college education is an investment."

No it isn't or at least it shouldn't be. Thinking that it is an 'investment' has done more to cause the problem than most anything else.

People see kids dropping six figures to get a 'useless' philosophy degree, and place the blame on the wrong thing: the philosophy degree. That's not the problem, the problem is the six figures. Those numbers only exist because it's been drilled into people's minds that there's a quid pro quo between college degrees and future income.

And so these places can charge ridiculously exorbitant tuitions because people will pay it thinking it's an "investment."

It's not. It's a purchase like any other service.

[Jersey Patriot]

Note that student loans are nearly impossible to get rid of in bankruptcy, unlike almost all other debt. Student loan interest is only partly deductible: there are both income and total interest limits. The taxpayers and the students incur all the risk: the lender incurs essentially none.

The more pressing problem is that high-interest student loans hurt the marginal and poor students much harder than they hit good ones or rich ones. Good students will tend to find decent jobs. Rich students pay upfront. The poorer and marginal students will have trouble finding jobs to make the payments. It's all well and good to laugh at the MFA in Puppetry, but the real problem is the English and history majors from Lesser State U with no jobs and hundreds of bucks a month in debt.

Also note that while college-graduate unemployment rates are lower, college grads are crowding out crowding out high school graduates in jobs not needing a college degree: taxi driver, barista, retail, etc. $25k of debt to fold clothes at The Gap for $9/hr. is not a good deal.

[Neoliberal Kochtopus]

Then don't major in English or history. Seriously, do they not have computers or libraries that are accessible to the poor or what?

[Neoliberal Kochtopus]

Also, I am not sorry student loans are not dischargeable in bankruptcy. What, exactly, would be the incentive for a 21 year old grad not to immediately declare bankruptcy on graduation day? It's off his credit in seven years.

[Fluffy]

Well, we went through a quite extended period where student loans were dischargeable, and did not have anything resembling a widespread strategic default problem.

We had some anecdotal cases, sure - mainly among newly-minted doctors.

But nothing extraordinary.

[Red Rocks Rockin]

What, exactly, would be the incentive for a 21 year old grad not to immediately declare bankruptcy on graduation day? It's off his credit in seven years.

That's the point--the whole system is leveraged against the borrower, not the lender. The whole purpose of bankruptcy laws is to acknowledge that both the borrower and lender are taking a risk when a loan is made. Actual reform would bring back the dischargeable nature of student loans while eliminating federal guarantees so colleges have an incentive to not jack up tuition every year.

The other piece of this, of course, is simple supply and demand--with liberals trying to cram increasing numbers of people into college, costs are naturally increasing to meet the demand for new facilities, new teachers, and the bloated administrative bureaucracies that come with it.

The simplest fix to rising tuition costs would be to make college a lot harder to get into (fewer people to serve = fewer things to pay for), but that genie is out of the bottle and too many political leftists work in the university system now to allow that to happen.

We had some anecdotal cases, sure - mainly among newly-minted doctors.

That was actually the main incentive behind passing the non-dischargeable laws--these guys would take out massive loans for their medical degree, declare bankruptcy, and get out of paying the money back.

[Brandon]

I also think it would help to make the colleges liable for loans, somehow. Getting rid of the federal guarantees might actually do that on its own, since third-party lenders would be less likely to extend six figures of unsecured debt to an 18-year-old with no credit history, while an institution like Harvard, having a $30-some-odd-billion endowment, might figure to get a better return on its funds by extending credit to its less fortunate students than it could be sitting on bonds. As it stands now, the colleges have every incentive to charge as much tuition as the government will guarantee and offer all the easy majors (education, victim's studies, etc.) they can. They get the tuition income, and the students and lenders are left to wrestle over who gets stuck with the debt.

[AlexInCT]

Exactly, make schools liable for the loans they hand out and the fact so many pay ridiculous amounts of money for what really are worthless degrees when it comes to employment opportunities and the ability to earn, and I guarantee you this practice dies. What's the school's incentive right now to do the right thing when some bozo shows up and wants to sink $120K into a worthless gender study degree that qualifies that person for no real work, and needs to borrow all that money to do this? Nothing, Nada, Zilch. That's why the degree even exists.

[robc]

Mostly because the loans were cosigned by people with assets.

[sarcasmic]

There was a story a while back that some McDonalds stores were requiring that burger flippers have a college degree.

Fucking fuck fuckity fuck fuck.

[AlexInCT]

Clown College qualify? Cause that Clown College degree is better than some of those "studies" type degrees you can get from even someplace like Harvard.

[Red Rocks Rockin]

The taxpayers and the students incur all the risk: the lender incurs essentially none.

The schools don't risk anything, either--they charge increasingly exorbitant tuition rates because .gov guarantees the loans.

Whether they like it or not, college administrations need to come to grips with the fact that the country views them more as a job-training institution now, and less as a repository of higher thinking.

Really, the worst part is the people who bitch about rising tutition and student loan rates, and then turn around and sign for the loan anyway. They're like fucking crack addicts that know they're addicted, but can't make themselves stop looking for that one last hit.

[Kaptious Kristen]

My ex had a degree in "Government and Classics" from one of those small, expensive New England colleges. He was a bike messenger and courier company ops manager for his entire career.

Good thing the school paid for his 4 years (sports "scholarships").

[kibby]

What on earth does that degree even entail?

[AlexInCT]

Community organizing?

[Tommy_Grand]

I'm receptive to the idea that the USA should not subsidize former students' college loan debt, just as we should eliminate Social Security, Medicare, Medicaid, and the other stupid programs that are bankrupting (have bankrupted?) our government. As Gillespie wrote, bailouts are never a good idea. I am NOT persuaded by his argument that we shouldn't "sweat" doubling the interest rate on student loans because the cost is low: "the average payment amounts are hardly overwhelming?the difference in the monthly payments?is about $40 a month for the typical 10-year repayment cycle.." coupled with his argument, just 3 graphs later, that this change is needed b/c the costs are so huge: "Another year of 3.4 percent rates for borrowers will cost taxpayers about $6 billion."

6 billion is 6 billion. We can split that sum among all US taxpayers (~$40 per taxpayer per year) or we can impose all 6 billion on those few solvent individuals who are repaying their outstanding student loan debt, hitting each payer with (on aver.) more than $500 per annum. It seems fair to let former students pay the freight --- after all, they borrowed the money --- but it seems less fair when you consider that the nation forces these same young workers to subsidize their parents' and their grandparents' retirements, healthcare, etc. Given what we spend on social security, doubling student loan interest feels like just another victory for the old in the war against the young.