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Student Debt strangling our youth

arco222arco222 Posts: 12 Harvard Champion
edited May 2013 in Parents Forum
Education should allow a person to soar to the skies. Instead, when achieved through debt in a jobless or underemployed economy, it shackles a person to the ground.

http://www.nytimes.com/2013/05/11/business/economy/student-loan-debt-weighing-down-younger-us-workers.html?_r=1&
Post edited by arco222 on
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Replies to: Student Debt strangling our youth

  • Erin's DadErin's Dad Posts: 48
    edited May 2013
    From the posted article:
    The weak economy and tight credit standards remain the main culprits preventing young people just establishing themselves from making major purchases
    The article fails to mention that the average student debt is still <$27K. All smoke and innuendo, no fire. Some specific examples of outliers are being used to generate news.
  • garlandgarland Posts: 65
    edited May 2013
    ^This. The story is being spun over and over so that it appears that the entire 20something generation owes 100K or more. When in fact, very few people do, and none needed to.
  • ProudpatriotProudpatriot Posts: 13
    edited May 2013
    It is really hard for me to feel sorry for a teacher who owes $45K in federal loans and $40K to his parents. It isn't a big secret that teachers do not make a lot of money. IMO he made his bed and he needs to sleep in it.
  • aegrisomniaaegrisomnia Posts: 6
    edited May 2013
    The only thing that rubs me the wrong way here is that student debt isn't dischargeable in bankruptcy. That seems unnecessary. Lenders must bear some of the risk that the debt will not be honored.

    An idea that has come to my mind is this: let companies or for-profit groups sponsor students with loans. If the student succeeds and repays the loan, the debt is forgiven and the relationship is severed. Otherwise, the student can choose to work for the sponsor company for an agreed-upon amount of time in order to repay the debt.

    Note that this is a model not entirely unlike that used by the US government w.r.t. the ROTC. Students receive huge subsidies and are then responsible for a commitment or repayment of the funds.

    It seems unfair to deny bankruptcy claims by students who can't get decent jobs, and not offer to let them work to pay off the debt. On the other hand, if students agree to an "out" up-front, it seems perfectly reasonable to hold them to the debt if they refuse to take the "out" they've been given.

    The only reason I can see for this not working is that higher education is a total scam, with more graduates than companies are willing to pay for, and there's about to be a lot of bubbles popping. Actually, that doesn't come off as so far-fetched.
  • GladGradDadGladGradDad Posts: 29
    edited May 2013
    The only thing that rubs me the wrong way here is that student debt isn't dischargeable in bankruptcy. That seems unnecessary. Lenders must bear some of the risk that the debt will not be honored.
    When people mention 'bankruptcy' in this context it mostly means they want free money from others. I disagree with that concept and don't think bankruptcy should be used or permitted on a student loan. Don't forget that with a student loan there's nothing to repo - unlike a loan for a house, car, TV, etc. If the person enters an agreement to pay back the money in exchange for the loan up front then they should do the ethical thing and honor that agreement and not try to stick it to someone else.

    Another thing to consider, a major one, is that if one could fairly routinely discharge their obligation to pay back the loan, and especially given that it's unsecured and there's nothing to repo, very few of these people would get loans in the first place. If they can't get loans they can't go to school. This would mean that because a small percentage of the students would default on the loan and not pay it back the change in lending practices would negatively impact the majority who actually do follow through with their obligations and pay back the loan. This majority would find it much more difficult to get the funds needed to attend college.

    People simply need to exercise reasonable restraint and behave responsibly in this area. Most do but some don't. These sensationalistic articles of course focus on the latter.
  • aegrisomniaaegrisomnia Posts: 6
    edited May 2013
    ^ I think you miss the point I'm making: the lenders should be able to repo the student's labor after graduation.

    If a car buyer doesn't pay the loan, make the buyer sell the car to pay off the debt (typically, this actually works by taking the car from the buyer and disposing of the asset as the lender wishes).

    If a student doesn't pay the loan, make the student work off the debt. This is sort of a generalization of how the ROTC model works, except most people would probably prefer to pay off the debt rather than to provide labor.

    Basically, something is wrong with offering loans for which there is no "collateral".
  • yellowgranite56yellowgranite56 Posts: 5 Harvard Champion
    edited May 2013
    I thought this was a commercial free site!
  • BCEagle91BCEagle91 Posts: 154
    edited May 2013
    $45,000 in debt doesn't sound that bad and I'm wondering if the parents couldn't forgive the loan to their son. I ran it through a calculator and that's about $100/month for 11 or 12 years. It didn't say how much he makes and what his expenses are but those working professional jobs should be able to squeeze that out, right?

    My son isn't married, doesn't have a car and doesn't have a house. The car isn't that important if you live and work in the city which this person apparently does. It seems like a lot of 20-somethings like living in big cities and using their feet or public transportation to get around with. That might not be so good for car companies in the long run.

    Could he take a part-time job? Do some after-school tutoring? Something to scratch out an extra $100 or $200 a month to pay down the debt a little faster?

    > I thought this was a commercial free site!

    That's what the "Report Problem Post" link is for. It should disappear within a few hours of someone reporting it.
  • VladenschlutteVladenschlutte Posts: 35
    edited May 2013
    Basically, something is wrong with offering loans for which there is no "collateral".

    I agree here, but I don't think your proposed solution of indentured servitude is a good one either. The company making the loan would have to only loan to people who can provide some useful function within the company, which severely limits the number of people they'd be willing to give the loan to. And there is a lot of risk still for the company, first, because they don't know how the kid will turn out in 4 years, and second, because they don't know how their company will turn out in 4 years.

    It's simply very hard to stop stupid people from doing stupid things.
  • Gator88NEGator88NE Posts: 17 College Search & Selection Champion
    edited May 2013
    @BCEagle91

    Lol....how did you get $100/month for a $45,000 loan? Using 3.4% interest (undergrad subsidized stafford loan), it comes out to $442/month for 10 years. If you go with 6.8% (unsubsidized) it's over $500/month....ouch.

    All we can do as parents is help by advising our kids to avoid taking on more debt than they can manage (or would be prudent), which can vary(a lot) by kid. That advise would also go for parents. Please think twice before dipping too far into 401K plan; you're not helping your kid if they have to be concerned with helping your retirement, on top of building a family/career.
  • glidoglido Posts: 35
    edited May 2013
    "The only thing that rubs me the wrong way here is that student debt isn't dischargeable in bankruptcy. That seems unnecessary. Lenders must bear some of the risk that the debt will not be honored."

    Sure - but then many banks won't lend the money and for those that do, the interest rate will be much higher. I am not saying that you are wrong, only that the easy money availability will dry up the minute we change the law and leave the banks vulnerable to bankruptcy losses.
  • crazedcrazed Posts: 6
    edited May 2013
    vlines has it correct: Only go to a school you can afford. Don't borrow more than you can safely repay. State schools give you an excellent education. Build a nice resume.

    Cost should be a huge factor in picking a school, loans or not. We told our boys that we would pay, but both picked schools with great fit, great school, etc. and both turned down higher ranked schools. Both got great scholarship. Younger son just graduated with multiple job offers and older son graduated a couple of years ago and is at an impressive grad school (with great merit $ again)!

    Think wisely people!!
  • Erin's DadErin's Dad Posts: 48
    edited May 2013
    This is the crux of the issue:
    It's simply very hard to stop stupid people from doing stupid things.
    There will always be someone who will do the stupid thing. How many times have you seen on this site some student saying they are going to go into debt by $100K to attend their "dream school"?
  • MSNDISMSNDIS Posts: 2 College Search & Selection Champion
    edited May 2013
    Crazed - Even state schools are expensive now. My husband is currently unemployed and being retrained. We hope he's back in the workforce by next January. His income paid for our kids' college. Our youngest is about to enter college (we currently also have a junior at a state college) and a private school across the country (with scholarships, subsidized loans, grants and work study) is cheaper than our state school which only gave my D a small grant and parent loans for the balance. The cost for the private school includes airfare several times a year and it's still cheaper than our in-state school an hour away.

    College is not affordable at all for quite a few people. My younger D took an art class at our local CC last summer so she could free up a space for an AP class during the school year and it was $500 for the class (we are charged by the credit and it's almost $100 per credit). That's pretty expensive for a CC.

    I don't think college should be completely free and I think parents need to save as much as they can to pay for college but I don't think students or parents should have to take out a bunch of loans to attend college. The conspiracy theorist in me thinks big business likes the loans and the terrible economy so people will work for cheap with no benefits or substandard benefits.
  • BCEagle91BCEagle91 Posts: 154
    edited May 2013
    > how did you get $100/month for a $45,000 loan?
    > Using 3.4% interest (undergrad subsidized stafford
    > loan), it comes out to $442/month for 10 years. If you
    > go with 6.8% (unsubsidized) it's over $500/month....ouch.

    I typed some numbers into an online loan calculator. Probably screwed up a decimal point or something.
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