Check out Rob's new site:
"Now on PBS" piece on the growing student loan bubble in America.
With each story i read i fight back tears. This system does not make sense and I am stressed and sick to my stomach everyday worrying about my loans as well. With everything I have read and I am still confused on if there really is any hope? Does anyone think there will be a change or are we wasting our breath!
I'm one of those lucky people who will be able to pay off my student loans in a fairly short time, in just a few years, or at the present time five months. Well, they were small loans and I had tuition, health insurance and other benefits covered through a graduate assistantship which also provided a stipend. It wasn't enough to live on so I took out low interest federal loans to make up the difference and then consolidated them. Others are not so lucky, and reading the comments posted following NOW was horrifying. Today, however, I read about a glimmer of hope that is on the way in the form of income readjustment. Curious, I applied the calculator to what I know a friend of mine owes. On his $100,000 student loan, the payment would only be $320 a month under the plan adjusted for his income. The debt would be forgiven in 25 years. For a person making very little money, say 20,000 or so a year, the payment on a typical 30,000 loan would only be $45 a month. This does not include private loans, but this is certainly a more manageable way of handling debt that college graduates are forced into by rising costs. I'd like to know your thoughts on these new programs.
I'm in my second career so was going back for my Master's degree. As an adult with years of experience with which to make informed decisions, I don't think college-age students are given enough information about their student loans from the schools or the lenders. One thing that surprised me when I was in graduate school was how few people knew that it was a good idea to pay the interest on their student loans while they were in school (which yes unfortunately may need to be done with some of the loan) thereby not letting the debt load mushroom. Advising students to pay interest could cut down on the debt while provide some measure to help ensure that not too much money was taken during the course of a program because there would be a visible relationship in front of the student between the loan and the accumulated interest.
Something does need to be done, regardless. No one should end up owing double their initial loan.
How long does it take personal credit history to be restored if this program is followed to the t successfully?
Before banks loan money, they must assess whether the debtor will have have the ability to repay the loan based on certain financial traits of the debtor (i.e. financial means--salary, collateral, credit score, etc.).
The bank makes money from interest when it makes a good assessment of the debtor and the debtor repays the loan plus interest. The bank in most consumer instances loses money when they made a poor assessment of the financial aptitude of the debtor. That's the business and the bank's high degree of skill is in assessing finances and determining risk.
So, why do they not have to appropriate risk for student loans like they do any other loan?? They still make high interest on it (many times higher than mortgage rates). They are in a position to know the value of a degree in a given market based on the demand of the profession. IF they want to lend $80K to an Art major or $200K to law students in a saturated market, then they should bear the same risk they do when they allow someone to buy a house that they clearly couldn't afford.
I'm a lawyer and I can't imagine what it would be like to go into trial and do a horrible job of assessing my case but know that no matter how terrible I did at my job, I would still get the verdict I want. Other than the student loan industry, what business/profession gets a guaranteed payment with virtually no risk?? It's unreal.
"I'm a lawyer and I can't imagine what it would be like to go into trial and do a horrible job of assessing my case but know that no matter how terrible I did at my job, I would still get the verdict I want. Other than the student loan industry, what business/profession gets a guaranteed payment with virtually no risk?? It's unreal."
Well stated!
Robert,
Please share your thoughts regarding the new federal plan for income readjustment that I mentioned above as applied to student loans.
It's a well-intentioned program that may help some people. I've heard that for those who are married, payment amounts can be higher and that, at the end of the repayment period, the forgiven amount can be taxed as income, setting you up for a giant balloon payment at the end. The fact that it only applies to federal loans and not private ones leaves MANY out in the lurch with no such similar help. It's a start. . .but very far from an across-the-board solution.
Most people i know all had Stafford loans back in the day (90's).
Loans were given without regard to ability to pay it back. With the downturn in the economy and the shrinking job market, default rates are going to soar.
Hi Robert,
What exactly do you mean, when you call it "Student Loan Bubble"? What makes it a "bubble" in your estimation?
Yes, default rates will soar (they are already high enough!), with all the concomitant economic effects. It will probably be more devastating than the housing crisis, even if more drawn out. This is what people have to understand, there is a real student loan crisis equal to if not more dangerous to the economy than the housing crisis. At the very least, the mountains of student debt the working and middle classes are currently buried under will stunt any economic recovery from the housing bust that might take place. Robert, you should also talk more about the social, political and cultural effects of this: decreasing social and civic engagement, increasing skepticism in government, and a general legitimacy crisis breaking out among the the young generation as they see their government bail out the banks, but leave them to wallow in the pit of student debt in the midst of a collapsing job market.