America’s Student Debt Machine

https://www.motherjones.com/politics/2018/08/debt-student-loan-forgiveness-betsy-devos-education-department-fedloan/

by patagonia • 8 years ago

64 78 8 years ago

cascom• 8 years ago

shocker - government program is poorly administered and a private contractor is poorly supervised.

skh7• 8 years ago

The thing that shocks me is how Americans casually accept that government will pooprly run some programs. It’s almost expected that this be the case. Indeed, one of the two major parties sometimes actively seeks to prove incompetence.

sjg0073• 8 years ago

It is worse than that, the republicans seek to actively destroy programs that help people out. There is no reason we need private loan servicers for example.

merpnderp3• 8 years ago

Wanting to reform government institutions is seen as anti-government or anti-public service by a majority of people. My state spends $1k/per capita more on public services than a much more successful and well off neighboring state with much better services, but politicians who want to reform our public services to be just as efficient are seen as nutjobs.

evanagon• 8 years ago

It's not just that. The system has ballooned on top of itself: the arms race that is higher education is in no small part a result of government issued loans that seem great at the time but turn out to be a nightmare in practice. Students get caught up in the hype of needing to be a part of the arms race (go to a "good" school) and borrow exorbitantly from their future without understanding what they're actually getting into. Then many companies that pay the best only recruit at the "best" schools, which fortifies the entire system and leaves many students from lower tier programs with a degree, a mountain of debt, and no job.

alienreborn2• 8 years ago

Best thing I've ever done as far as college is concerned is

1. Saved up money by working before going to Masters.

2. Lived with 3 others in a two bedroom to save money.

3. Chosen less prestigious institution in a smaller town which is significantly cheaper than one of the bigger schools to which I got admit to.

Graduated with no debt.

whorleater• 8 years ago

Best thing I've ever done as far as college is concerned is

1. Did well in high school to qualify for merit scholarships

2. Chose a top 10 college for my field

3. Get a job starting at >100k per year

Graduated with debt paid off in less than a year

(this is comment is intentionally snarky to point out that "I did X and this is how I avoided loans" stories are usually unique to a person and circumstance, and ignores the very real problem that student loans are opaque, confusing, and intentionally manipulative for young borrowers, which was the point of this article.)

alienreborn2• 8 years ago

It wasn't meant to snarky. I would've been under debt too if I wasn't educated about this by my family/friends etc.

sjg0073• 8 years ago

I find it immensely difficult to get back on a standard repayment plan after being on the extended repayment plan.. They (Navient) don't want you to switch to a cheaper plan...

patagonia• 8 years ago

1) Graduated with a fair amount of debt which I used to subsidize global travel and broaden my perspective

2) Refinanced at 1.25%

3) Sat back and watched inflation erode the debt away

(thank you economics degree)

hellogoodbyeeee• 8 years ago

What year did you refinance and get a 1.25% rate?

eggie5• 8 years ago

how did you refinance so low?

dimillian2• 8 years ago

In France, I did apprenticeship (3 days works, 2 days school) as Software developer, meaning that I did not payed for school, I was actually payed to go to school. And it was full salary, I did that for 3 years. Got my bachelor, quite a lot of money and 3 years of experience. So I "began" my life with money, experience and diploma.

It was not prestigious school, nor prestigious diploma, I could have continued for a master, but IMO, I value experience far more than diploma, and where I worked/work also.

So my question is Americans? What's the deal. Same for France too, I guess our profession as developers allow that, I can understand that for some other fields you need prestigious schools and requirements to get hired for a good salary.

xeromal• 8 years ago

Not really related to education, but software eng. salaries around the world are far less than what American's make. Not sure if there is any correlation though.

donmatito• 8 years ago

I think you did good but employability is crazy good in computer science. Not sure how much is applicable in other fields.

Apprenticeship can work in other engineering fields (at least it does in Germany, for cultural reasons), perhaps a few other fields like sales... but you cannot extrapolate for all educational tracks

Same with other path to software engineers like self-taught or bootcamps. Very good but almost impossible to replicate in other fields with less desperate demand

nfRfqX5n• 8 years ago

higher education just costs much more here in the US

stevenwoo• 8 years ago

It's been a slow gradual boil since about the 1970's when college prices started increasing out of proportion to the cost of everything else, and no one stepped in to reform things since it mostly worked for the universities that could charge more and more, and make more and more money, except as the article notes - to make it possible for students to get more loans. Combine this with healthcare costs in America rising faster than college and stagnating wages for the average American over the same period of time and the added debt of college crushes a lot of people as the individual examples in the article note.

Companies have not very often sponsored college students in America, except for some profession like rural doctors where it's local government choosing to help pay for an exceptional debt load for an unpopular lifestyle choice (being primary care physician for a large geographical area).

The other option off the top of my head for Americans is to join one of the military services to fund education.

How did you find the apprenticeship and how did you decide to choose that route? Not sure of much like that in America except some of the construction trades like electricians/plumbers.

dimillian2• 8 years ago

It's very common in France for private school to advertise apprenticeship. Because it's a way for them to get more students, and more money, as the company pay the school + the student. It's hard, but not impossible for a student to find a company willing to sponsor them. In the end it can be a bit cheaper than a full time employee + you get a few state taxes cut if you have student/apprentice in your payroll.

For me, after college I was searching for that specific thing. That was my own requirement, I wanted to dev full time while getting a diploma as a "safeguard" and "to look good on my resume".

Actually school is more a side effect of me working. I continued school because it was possible to work same time, if not I guess I would have stopped after college diploma (BAC in France).

achoped2• 8 years ago

The software industry is doing this somewhat. I know of initiatives at my company where they'll assist with bootcamp tuition if you're interested in becoming a developer. It's up to the discretion of your manager (and theirs usually) whether or not you have a job waiting for you afterward.

Bootcamps are a decent alternative to a college tech degree. Instead of taking out $40k+ in loans, you can escape your poorly paid job by dropping $10k-$20k of your own (or your parents') money. It's usually worth it if you have the means, since your salary will probably double and you'll recoup the cost within a year.

Bootcamp students are basically useless when they graduate, but they can open an editor, write unit tests for dog.speak() and use git. The senior devs on the team they join end up training them. So it becomes like an apprenticeship system where the prospective apprentice shows serious interest by supplying a "modest" payment.

mariushn• 8 years ago

America is extremely good at business. Richest companies are in USA. However, in the last decades it "businessified" education and health too, at outrageous costs. Curious how this will end up.

Yes, Europe has better/cheaper education, but many smart people get educated here and then get hired by USA companies, or even leave for USA. Unfortunately, money rules...

hb3b• 8 years ago

I am really sorry for anyone who has piles of student loan debt. But with that said, there is no reason in my mind for someone to not consider state schools.

State University of New York (of which I'm a graduate) estimates the yearly expense of a commuter student to be $17,320 @ a 4-year school, less if you live at home, buy used books, take the bus, or go to a community college. It's really affordable!

And there are so many opportunities for part time work on college campuses. Everything from grunt work to being a TA to being compensated for working for a department. Hell, I worked in the nursing department as a comp sci student sorting files and research articles for professors.

Along with this, programs like CLEP and DSST exams that let you test out of gen-ed coursework for $180 a pop. The savings can be in the thousands!

So for those students who aren't going to an IVY on a full or partial ride, or those going to med school, I say do some research before committing to a private school. There is absolutely no reason in my mind why somebody ought to take on such massive debt and I am totally against the idea of our government being in the student loan business.

wilsonnb3• 8 years ago

I disagree that ~$70,000 for a four year degree should be considered affordable, even if private universities cost many times that.

I do agree that public schools are generally a better financial option, as are community colleges.

dgzl• 8 years ago

I believe the parent is considering that price to include housing and other necessities as well. I really think you'll have a tough time finding a decent University that would cost less than that for a year's worth of use.

afjl• 8 years ago

It's pretty sad how much Americans pay for our higher education compared to many other developed countries. I recently met a few college-aged Brits who just graduated with ~$5,000 in debt. How can we be paying an entire order of magnitude more for school?

vorgisborg• 8 years ago

I don't think anyone here is asking for 10 dollar education, by affordable we want an education that won't take us wage slavery over a million years to pay back with potential interest also contributing towards that elongated time. Job security is always shaky especially out of high demand fields, so that is a factor in determining the 'unaffordability', if you can't pay it back and can't land the actual wage to live a life while being a wage slave then it's simply unacceptable.

public schools are also plagued with debt collectively, what a way to attempt red herring.

neuromantik8086• 8 years ago

So for those students who aren't going to an IVY on a full or partial ride, or those going to med school, I say do some research before committing to a private school.

It's worth pointing out that certain colleges within Cornell are part of the SUNY system / state schools, so (at least in this one case) Cornell provides both options (full ride and in-state tuitions).

skh7• 8 years ago

I teach at a community college. Increasingly we are becoming a business and we now actively recruit people who realistically can’t get a college degree. Due to lower per student funding by the government we rely on tuition and need to market and recruit. We have become like a smarmy for profit. It’s a bad trend for society.

This semester before classes started we had seminars on helping students dealing with food insecurity and housing security. The whole time I’m wondering why are we asking students who are hungry or homeless to take on unforgivable debt to pay for tuition. The system is rotten.

The standards have eroded. Increasingly I see barely literate people being passed through the system. I pass people who don’t deserve to pass because I’m hounded by administration on the importance of having a high passing rate. I need a job so....

merpnderp3• 8 years ago

This is happening across all college school systems across all states. Kids are graduating who are functionally illiterate, or just quitting, and being burdened with massive student loan debt that mostly pays for school administrative costs and not professor salaries.

purplezooey• 8 years ago

Come to California. Good CC system. We don't tolerate that nonsense.

skh7• 8 years ago

My response is a quote from this article [1].

Although community colleges can decide on their own how to address hunger, California’s community college system offers on-campus training for faculty and staff so they can help students qualify for food stamps, according to Colleen Ganley, who works in the California Community College Chancellor’s Office.

[1] https://www.sacbee.com/news/local/health-and-medicine/articl...

golergka• 8 years ago

So, people are basically paying a stupidity tax. The same tax they essentially pay in many, many other circuimstances, out of their own bad judgements and lack of information.

At the same time, everybody seems to agree that a merit-based society is a good thing. That your intelligence, ability to make good life choices and decisions, and stick to them, should give you success. And at the same time, most of the people measure success not in absolute terms, but in relative, social ones, comparing peers. So, aren't stupidity taxes, in all of it's shapes and forms, an essential part of merit-based society?

petermcneeley• 8 years ago

This is a broken window economic fallacy. Meritocratic sorting is a good thing but at a cost of 100k and years of peoples lives its probably quite harmful. Just like its far better that the window is never broken, its far better for society if the people didnt waste this time and money.

paulryanrogers• 8 years ago

It's more of an ignorance tax. And I for one am glad there are laws, regulations, and other non-market tools protecting me from hazards like sloppy construction, poisoned water, and preventable diseases.

esalman• 8 years ago

Increasingly I see barely literate people being passed through the system. I pass people who don’t deserve to pass because I’m hounded by administration on the importance of having a high passing rate.

This is exactly how higher education works in many 3rd world countries, including where I come from (and America have a president to match now). Except that student loan industry is not a thing there yet. Many people do obliterate their savings or sell their land and other assets to send their kids to school. Instead of paying back loans, many also pay huge amount of bribes to place their kids in better (government) jobs.

intended3• 8 years ago

Haha. I’ve been saying this on American forums for a while now, and this comparison doesn’t seem to ring the alarm bells it should.

And same for my home country (which may well be your home country). We have all of the same, except the student loan industry, which sounds like some kafkaesque version of indentured slavery.

achoped2• 8 years ago

This sounds very similar to sub-prime lending behavior that occurred before the recent recession. I don't expect a different outcome this time, if the behavior continues.

The article paints a pretty bleak picture. My nieces (well, their parents) didn't have enough money to pay for a 4-year college. Instead of taking out student loans one decided not to go to college and the other one decided to join the Army for GI Bill benefits. The one in the Army has been having anxiety issues and they've started her on the path to medical discharge, which she is fighting.

It's really a shame that something we tell young adults is so necessary leads many of them to financial ruin or being a poorly paid servant to the government for years. My guess is that many of them will get sick of it and choose not to go, and the industry will have to adapt to employees with no higher education.

mywittyname4• 8 years ago

It's really a shame that something we tell young adults is so necessary leads

We tell them it's necessary because it is for most people. The decades of data made this an indisputable fact: people with college degrees earned higher salaries, had better jobs, enjoyed much lower unemployment rates, and were generally better off than their under-educated peers.

The problem is not that we push people to attend college, the problem is entirely the cost of education.

eximius2• 8 years ago

hounded by administration on the importance of having a high passing rate

Clearly we shouldn't enroll some students in the first place, but this just adds fuel to the fire. The growth of administrators who do nothing but keep the machine moving and growing with no thought as to what direction the machine should take is just as big of a problem.

intended3• 8 years ago

You mean politicians?

As I understand it, your colleges and schools must adhere to certain standards or risk having funding losses or being axed.

Managers follow incentives too.

simonsarris• 8 years ago

From last year, but I compiled some objective metrics of higher education standards eroding: https://medium.com/@simon.sarris/higher-education-erodes-a7c...

skh7• 8 years ago

Nicely written. Thank you for the link.

RickJWagner• 8 years ago

Thank you for sharing.

I agree, this is a rotten system.

40acres• 8 years ago

I was talking to my girlfriend the other day about this trying to wrap my head around what this will mean for the economy 20-30 years from now. We don't have student debt so we're in advantageous position. I keep wondering, what will happen to the housing market once the boomers die and their estates (and homes) are put on the market -- do prices drop because so many people have debt and can't buy homes? Do they rise because the gap is filled by foreign investors and those who don't have debt and/or have the wealth to scoop these homes up? I haven't been able to find any literature w.r.t to the long term impact of the student debt crisis.

woolvalley• 8 years ago

A pessimistic guess: REITs and hedge funds flush with boomer retirement cash buy them and more people rent because they can't afford it.

jseliger• 8 years ago

Buying property is not an intrinsic good, and renting is not intrinsically bad: https://affordanything.com/is-renting-better-than-buying-sho....

Applejinx• 8 years ago

The latter is a horrifying thought (though 'occupy houses' seems like a very obvious counter-mechanism).

Hedge funds and investors go and buy all the houses, because they need to park money somewhere and no Americans can buy houses. That's pretty much hilariously apocalyptic. More police, to defend (execution-style) the empty houses owned by literally piles of abstract capital!

xemdetia• 8 years ago

It feels like we have already started to hit that outcome in a sense in the people who took out loans as the cost of education skyrocketed without seeming bound in the 90's. In my naive opinion it feels like the entire economy already shifted that way once we pushed further and further into service economy. There are so few things that feel like the are traditional goods- you buy a thing to do a thing and then you're done, instead of paying persistently for the same thing you had before.

The whole construct has seemed to deviate into the fact that even mid to high earners have no ability to actually buy the thing at the price it is worth. I first felt like that once cellphones became mandatory around the time of the original iPhone and everything was roped into weird payment agreements instead of buy phone, and pay for service. You end up with people putting aside so much income to pay for even modest sized debts, and then you have them looking for cheap things to save money not because of frugality but because you still need these essentials like pants, shirts, and so on. Then since you are buying cheap you are in the same poverty mindset where you end up spending more than you should because the necessity of now exceeds the necessity of later.

So property prices go up from general want of property values to go up (feels not correlated), people 'moving to where the money is', and the lack of the people that should be starting out in life not being able to build/otherwise afford secure housing. Many of the stories I hear are people being effectively acting like squatters where they feel like they are going to have to move at a moment's notice. There is less people moving into an apartment/townhouse with the intent to live there for a 5 years, and this is not including people moving to chase opportunity it's people just trying to persist in the same environment.

These are also people that are making 75-150k and otherwise should not be having these same kinds of difficulties but when you are slicing the pie with ~60% going to loans, and a lion's share going to rent and other ongoing necessity services like cell phone, insurance, etc. This leads to just this swath of people being risk-averse where otherwise they should be financially stable, and then the services that are generally mandatory to keep the level of income to satisfy the loans end up eating the rest of any real gains.

In essence I feel like it already has taken plenty of effect now that people have most of their income already spoken for before they receive it. It's not massive credit card debt or some sort of aggressive consumerism, it's people that because of education are so over leveraged they aren't participating in the economy in the same way as someone who didn't have those hooks. Like the article dictates as well it also becomes you versus a constant changing set of loan servicers who manage to mess ordinary things up without recourse so whatever leftovers you had get eaten by penalties and could result in a cascade of penalties and costs just like how Bank of America was dinged for how they approached overdrafts (sort for biggest and fine for each one that goes over). So maybe the additional hidden cost here isn't even the loan + interest but loan + interest + unnecessary fines + legitimate fines which slurps up more of that critical income of someone first starting out.

As for the question for property prices I believe the problem ends up being a leftover of the boomer era and that general sense that 'property prices should rise.' From an investment/speculation standpoint real estate is a wonderful thing because of that sentiment. But it feels in general like the majority of money in that market isn't individuals buying homes or commissioning construction of a new home for themselves because of these loans preventing them from having the raw remaining leverage to do so, they end up having to take whatever they can get from the existing market or getting pre-recession leveraging. If the short-term beneficiaries of a real estate purchase is the banks and construction/real estate speculators and not the person buying the home why wouldn't they want to maximize that at expense of everything else? I feel that's another layer to the luxury home/condo/apartment construction trajectory. Because of these other beneficiaries I can't reason why house prices would come down from just the heavy debt ridden individuals- all they have to do is get them to agree to purchase something they can't afford and draw out what blood is left in either mortgage money or rent money it's just the best slice of pie from a student loan holder after the student loans to be paid from.

1290cc• 8 years ago

If you google you will find some data on this, GenX/Millennials are due to receive the largest pot of inheritance of any generation before them!

mywittyname4• 8 years ago

I strongly suspect that those with substantial inheritances are doing just fine right now. A couple that inherits two houses that have appreciated 10%+ pa along with a half-dozen retirement accounts probably had their entire university education paid for by their parents along with some down-payment assistance and maybe a car or two.

Imagine your life with zero debt for university, a solid network for getting jobs/internships, a gifted car upon graduation, and a 20% house down-payment when you married your SO. With those things, you'd probably be on track for FI/RE by your mid-30s anyway, so inheriting a few million more bucks by your 50s isn't going to make a difference.

dragonwriter2• 8 years ago

If you google you will find some data on this, GenX/Millennials are due to receive the largest pot of inheritance of any generation before them!

The fact that a handful of their age-peers (who are already quite wealthy because of the advantages of family wealth) will be fabulously wealthy on levels not seen before in history will not be of much benefit to the majority of people in those generations.

AlwaysRock• 8 years ago

Graduating without debt has affected my outlook and early career much more than I realized it would have. I paid for school with a combination of sports and acting scholarships and some money my parents had been saving for school since I was a child.

Getting out without debt allowed me to move to a city right after school with some meager savings, take a few months figuring out what I wanted to do, and take a job that paid very little upfront but had a large potential payoff.

I can count on one hand the number of people I know my age without any student debt. It's insane. It's also limiting with dating. It's odd to think I may inherit (in some way shape or form) 25K-100K of student loan debt from a significant other.

debtfreer• 8 years ago

During the private student loan heyday circa 2000-2007, anyone with a decent bank affiliation could spin up a "private student loan" company, write up thousands of loans, and sell them off to the bigger banks and trust portfolios, with very little regard to the student's ability to repay. It was a very fly-by-night operation with sketchy advertising practices.

When the credit crisis hit, these companies were one of the first to cut off the tap. And it was a literal overnight cessation of loan originations.

Buried within these promissory notes were odd mechanisms for calculating variable interest, accounting fees, and cosigner releases. Despite the variable rate moving very little on a month-to-month basis, students in repayment would see 20% of their payment applied to principal one month, then 8% applied the next month. Some servicers would not apply extra payments to principal, opting to apply payments to the next month's payment (which results in maximum interest for the bank) unless the debtor followed a convoluted trail of paperwork to force the bank to apply the extra payments correctly. Co-signer releases would be advertised at "24 months of on-time payments" but by the time the debtor reached that mark, they'd receive letters informing them that the promissory note had a clause that allowed the servicer to change terms, and the co-signer release was now 36 or 48 months.

Even servicers of the federal student loans would engage in sketchy practices, such as charging the debtor an fee to enter into a hardship forbearance. You can Google which servicers were fined heavily for these practices by the CFPB during the last administration.

dragonwriter2• 8 years ago

Even servicers of the federal student loans would engage in sketchy practices, such as charging the debtor an fee to enter into a hardship forbearance.

Actually, just encouraging forbearance when switching to income-based repayment was available was a legally available option was a bigger one, which the main service of federal loans (Sallie Mae—now Navient) was charged with engaging in.

jxramos• 8 years ago

Guys we just need to make college free and shake down these greedy fat cats who are splurging off their huge profit margins. Right??!!!!?

madengr• 8 years ago

The real problem is she paid $70k for a masters degree to be frigging bureaucrat. The second is that the federal government loans money for this crap.

Sheesh, I paid $0 to get a MSEE as TAs pay no tuition. Then was paid as an RA, so essentially was paid to do an MSEE.

People are crazy.

chriselles• 8 years ago

Student debt is an issue close to my heart.

I received my undergrad from a middle tier small public state university in the US.

I received a very good ROI on the money spent.

25 years later(graduated 93) the out of state cost has exploded 500%

Meanwhile starting salaries for Liberal Arts grads has barely moved since 1993, only circa 10% or so.

“Purchasing” a salary with a degree should have a positive ROI, rather than a negative ROI.

My thoughts are as follows:

Universities should have the same standards as print advertisers and used car dealers.

Graduation rates, starting salary rates, return on education $ invested rates should be independently audited(like readership audits for advertisers in print ad industry).

And education consumers should have car industry Lemon Law like protection against universities selling indentured servitude rather than value-add education.

My kids use Khan Academy, Duo Lingo, Amy.ac AI Math Tutor(disclosure, I’m on the cap table as investor), and Fender Play 5 days a week.

I’m rooting for Ed tech outfits like Khan Academy, Coursera, EdX(and of course Amy.ac) as an Ed Tech sector to transform education.

We are looking hard at Harvard Extension School for our children as a possible hybrid option for them.

1)School brand value 2)Online and in person learning requirements 3)educational rigor 3)Value of #1 & #2 & #3

While Harvard Extension School is traditionally for adult employed learners(and has been around for a long time as a correspondence school), I think their branded hybrid approach points to the future.

All I know is that countless middle to bottom tier schools are doomed.

To me, the financialisation of higher education achieves two goals:

1) Banking sector profiting from indentured servitude

2) University white collar worker bloat is akin to the “manufacturing” blue collar construction jobs that evaporated after the housing bubble of 2002-2009

Just my 0.02c

hollaur• 8 years ago

Is there a way to dig up the average credit score of student loan borrowers at the time they received their first loan?

If the government didn't do credit checks, which I don't remember them doing on mine, then wouldn't this be the epitome of predatory lending?

chiefalchemist• 8 years ago

"According to a 2012 study, 65 percent of newly hired nonprofit workers had student debt, and 30 percent owed more than $50,000. In order to keep people working as public defenders, or rural doctors or human rights activists, something had to be done. PSLF was an attempt at a fix."

So the root problem was jobs that didn't pay well, but the solution was student debt forgiveness? That is, find a problem, solve a symptom, the problem remains, and the symptom becomes a bigger and more expensive problem. But the politicians got more votes, and the taxpayers stuck with the bill.

This article should have focused on this. This is the lesson that voters are unwilling / unable to learn.

and perhaps ppl taking on more de

America’s Student Debt Machine

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