US Student Loans Exceed $1 Trillion

sycodon writes "Politico reports that student loan debt now exceeds one trillion dollars, an amount that should impress even Dr. Evil. Politico further reports that this is one of the more concrete issues driving the OWS protests and provides some enlightening examples of their particular gripes."

You think the housing collapse was bad

[elrous0]

Just wait until you see what happens if THIS group starts going en masse into default. At least with houses, there is some collateral there. What are you going to foreclose on when little Johnny goes into default on his $100,000 loan debt because he can't find a job? You going to foreclose on and resell his worthless degree?

And, sadly, this is only going to get worse. Tuition has been going through the roof at universities in the U.S., even as wages for the jobs post-grads get afterwards have remained stagnant. The wages of parents and post-grads have stayed the same, but they're having to fork out more and more for tuition--driving them to even more debt. So it's hardly surprising to find out that student loan debt has increased over 63% in just ten years.

So what do you think the end result is if this trend continues? Either large segments of the population are going to have to give up on college or they're going to have to put themselves in a position where default is almost an inevitability. I guess that could actually have one positive effect. It could finally dispel the idea that everyone can or should go to college (or that a college degree should be considered a prerequisite for any white collar job).

And, BTW, you know who pays when someone defaults? The U.S. government foots the bill, since these loans are federally guaranteed. So Uncle Sam gets to fund the bailout on that one too, just like he did with the banks and domestic car industry.

Re:You think the housing collapse was bad

[yog]

Maybe Little Johnny shouldn't borrow $100,000 if he doesn't have a reasonable plan for a career after graduation.

It's possible to get by with work-study, part time jobs, summer jobs, and maybe even waiting a year or two before going to university, to try to work, think about what you'd like to do, come up with a plan.

The average 17-year-olds applying to college don't really know what they're going to do afterwards. If it's a down economy, maybe they should be thinking practical instead of borrowing up to the hilt and then hoping for the best afterward.

It's hard to feel a lot of sympathy. As for defaulting, currently the rules are pretty strict; you can't get out of your student loans, but you can defer payment until you are employed again. It's maybe not the ideal system but it does assume a lot of personal responsibility, maybe an assumption that we need to rethink.

Another question to ask is, why does a college education cost so much to begin with? Why has tuition increased so much faster than inflation, year after year? Maybe a smart alternative would be to take advantage of the enormous resources available online, such as MIT's online courseware and the thousands of other course curricula. A resourceful person could do the equivalent of a college education for just the cost of an internet connection (or at the library for free).

Re:You think the housing collapse was bad

[EllisDees]

>You have to declare bankrupcy & be able to show 'undue hardship'.

Nope, student loans aren't even dischargable in bankruptcy. You are stuck with them for life.

Re:heh

[Anonymous Coward]

My knee-jerk reaction is the same as yours. "Why did you take out loans you can't afford? Regardless of why, it's your fault for doing it."

However, looking at the times we live in, I have a lot of sympathy for the OWS movement. I recently got my PhD in Physics from a top university, and was a triple major as an undergrad. All of this happened without a single penny of student debt, and in fact I was actually supporting one of my parents on my grad student stipend. While I was in school, employers were often contacting me with offers of, "Please quit! Come work for us at Facebook!", and "Please quit! Come work for us at Hedge Fund!" I flew out to a few of the places to interview just because I wanted to see the city. Now that I'm done, the job market has since collapsed. It's hard to even get a call back, even with a decade of programming experience, several publications in an emerging field a PhD, and international recognition for my programming abilities. My university is balking at paying me a $2150/month stipend for me to continue doing research there as a postdoc.

I'm left thinking that leaving the good thing I had in high school and undergrad, a well-paying job in a contracting collective, was a big mistake. A huge mistake. Because even the opportunity cost of going to university for 10 years for free was greater than the value of the education. Now imagine you're one of the 99% who took out loans on the promise that they'd get a better paying job that would cover them in the future, and you're thrust into a workforce that doesn't want you. You can't bankrupt your way out of it. You can't take a job at McDonalds because the student loan payments are more than you'd be making. You feel like going to university in the first place as opposed to working a McJob was a mistake.

So, I do have a lot of sympathy for them. I can't imagine being in that position, and the promises they were given by their institutions are worth about as much as the paper the diploma was printed on. Their student debt has them saddled for life--they can't default or bankrupt their way out of it. They'll be paying until they die. I wish I could do something to help them, but until someone will call me back for something other than evil (damn you hedge funds), I'm out of luck too.

AC because this is embarrassing. I support you OWC. :(

Re:as with real state, personal responsibility...

[scubamage]

Coming from your background, that's fine. Here's my story: my dad worked at Merck, and was earning well over 100k a year. I was told that my student loans wouldn't be a worry, and thanks to being a mediocre student in high school combined with his earnings, I didn't get much financial aide (not for want of talant, but because I was frequently sick and missed a lot of school). My parents wanted me to go to a highly ranked local private college for my CS degree. I didn't want to go, but they refused to sign my financial aide papers (FAFSA) if I didn't go where they wanted. I applied early admission, which barrs me from applying elsewhere. A quarter way through my junior year, my father has a series of heart attacks, is diagnosed with cancer and lyme disease. My mother is diagnosed with uterine cancer. Neither one lasted long. All of their money? Gone in an instant from medical bills. His pension? Merck decided to fire him after due to frequent illness thanks to the cancer, so it was lost. My situation? Newly graduated with over $100,000 in student debt thanks to interest rates peaking at 8%. Now, this is all my fault, I knew that money was racking up, but honestly it never clicked. Pair that with an utter lack of money management skills being taught in my school or by my parents, and it was a recipe for disaster. It was something I never knew I needed to know, or even thought to learn about it. Not everyone has something "seriously wrong with them" and that sort of world view will get you branded as shallow and ignorant. Some people honestly get screwed by student loans.

Re:You think the housing collapse was bad

[LehiNephi]

Sure, houses are more expensive now than they were 40 years ago. They're also bigger (2700 sq ft today vs 1400 sq ft in 1970 [infoplease.com]) and better-made, with more features. The cost of building the same house today that was the average 40 years ago hasn't changed nearly that amount. In addition, minimum wage makes for an absolutely useless measure of average household income. The ratio of median home price to median income (a much more useful statistic) has roughly doubled in the last 30 years, and if you ignore the housing bubble, the ratio increased from 3:1 to about 4:1. That hardly constitutes a tripling of housing price/income ratio; in fact, it means that price per square foot has dropped.

I worked through college. My parents paid for my transportation to and from school and for phone calls home, but other than that, I was on my own. I'm now 30, and have a very good paying job (I'm in the top 20% income-wise). It's possible, but you gotta 1) choose the right school, 2) choose a useful major, and 3) work your tail off, all which requirements are increasingly ignored. It's also worth pointing out that the perception of a college education has created (in my opinion) a bit of a bubble. Just like the housing bubble, people are investing ridiculous sums of money into something which doesn't have near that amount of value. You can point the blame in any number of directions--at parents for pushing kids into college when the kid isn't made out for it, at the kids for choosing majors which provide no marketable skills, at colleges for helping perpetuate the perception that a college education is necessary to lead a comfortable life (and who can blame them, from a marketing perspective?), or at the government for artificially inflating demand by guaranteeing loans a ridiculously low interest rates.

There are still LOTS of good-paying, non-college-degree-requiring jobs out there. The trades particularly are (and have been for some time) suffering from a shortage. Plumbers, electricians, welders, and the like. A good welder with his own equipment can make a very nice living.

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Re:You think the housing collapse was bad

[elrous0]

What incentive will companies have to create REAL jobs if they know they can get indentured servants assigned to them?

Georgia actually started a program [state.ga.us] to do pretty much something like that with the unemployed a few years ag. (I know, who would have thought a southern state would support slavery, right?). Basically, companies get free unemployed indentured servants for up to 8 weeks, with the only caveat being that they're supposed to receive "training" at the job. The program was scaled back drastically after it came out that most of the companies weren't providing any real training at all and were just using these people as free labor. Shocking, huh?

Sadly, a lot of states are looking to adopt programs modeled on Georgia's. Even Obama is praising it [cnn.com] as a model program.

How Government Caused This

[geoffrobinson]

The government helps students take on loans -> colleges increase tuition because students can afford more thanks to the loans -> there is societal and economic pressure to help people go to college -> the government helps students take on loans ...

The three sectors that increased much faster than inflation (housing, health care, higher ed) all have their cost subsidized by government. Is this a coincidence?

And this is the relative size of the higher education bubble: http://www.di.net/blog/wp-content/uploads/2011/06/tuition-housing-cpi1.jpg [di.net]

Re:You think the housing collapse was bad

[Moryath]

This.

Additionally, start looking at how colleges are funded. 15 years ago, a "State College" meant that the institution was more than 50% funded by the state (e.g. tax and tariff and fee revenues). The cost was spread out, and the tuition costs were much lower.

Tuition costs have "risen" basically on par with how state funding has fallen. Today, a "state college" gets between 15 and 20% "state funding" and the rest comes out of tuition. In other words, much more of the cost has been placed on the backs of the students, with the EXPECTATION that these students will have "federally guaranteed student loans" so that either the student winds up a slave to student debt, or if they default or die, the federal government picks up the tab.

Welcome to the "conservative funding" shell game...

Re:You think the housing collapse was bad

[SpeZek]

Nope. But I'll be dollars to doughnuts that they were told consistently throughout their lives that if they don't go to college, they won't be successful.

Third-worldization of the US

[PeterM from Berkeley]

You nailed it. We are becoming a third world nation.

1) Huge wealth disparity between the rich elite and everyone else. (check)
2) Decreasing access to health care for the masses. (check)
3) Little social mobility. (check)
4) Decreasing access to education for the masses. (check)

--PM

Re:You think the housing collapse was bad

[Mordok-DestroyerOfWo]

Not all Americans share the "blame-the-victim" ideology, although I will grant you I see it far more than I like. What most Americans don't realize is that poverty, like wealth is hereditary I'm a second generation, my grandparents came from Mexico (legally) and lived in squalor in Southern California. My parents did a bit better than them, and I'm doing a bit better than my parents. The rags-to-riches stories that Americans are so fond of are the exception rather than the rule. It typically takes a long time for a family to attain wealth and student loans can be a way to accelerate the process. The increasing cost of education is the ruling class' way of combating what little social mobility is left.