Posted on 07/14/2018 5:05:56 PM PDT by SeekAndFind
Not so long ago, student debt was mostly the responsibility of students. That is, you paid for college with loans and then paid off those loans with the proceeds of the good job you got with an advanced education.
These days it’s a little different. The cost of higher education is soaring, the jobs available to college grads don’t pay as much, relatively speaking, as they used to, and the size of loans available to students – though huge – don’t cover the full cost of many degrees.
One might expect these changes to lead more students to work for a few years and save up, or choose a cheaper degree, or eschew college altogether (as a lot of successful people now recommend) and substitute work experience for a diploma.
Some of that is happening but apparently the biggest change is that parents have stepped in to cover the difference between what their kids can borrow and the cost of a degree. As the chart below illustrates, until just a few years ago, the average debt of students exceeded that of students’ parents. But post-Great Recession, parents have given up trying to moderate the cost of their kids’ education and started doing the borrowing themselves. They’re now taking on the majority of new debts, and the gap is widening dramatically.
Source: Mark Kantrowitz (SavingForCollege.com)
So we can add student loans to the list of instances where people who once tried to control their borrowing have stopped trying and are now just going with the flow. Which means several things.
First, kids who if left to themselves and the market would probably opt for one of the aforementioned cheaper alternatives are still in high-cost, frequently low-reward degree programs, and are being sheltered from the consequences by well-meaning parents.
Second, the retirement crisis that everyone is talking about – in which people who have never saved a penny are approaching retirement age and looking at 30 years of abject poverty – is being made that much worse by parents taking on new debts at a time of life when they should be aggressively trending towards debt-free/cash-rich.
Third and most important for people who aren’t participating in this game of financial musical chairs, the eventual implosion of the student loan market – i.e., the point at which loan defaults become intolerable – will lead to a government bailout, making student loans everyone else’s problem.
But of course the government won’t raise taxes or otherwise inflict immediate consequences on the electorate. It will borrow the money and create enough new currency to cover the first few years’ interest, leaving the longer-term consequences for later years and other people.
As with all the other mini-bubbles out there, if student loans were an isolated problem in a sea of rock-solid financial behavior they’d be easily managed. But they’re just one of many time bombs set to explode shortly.
Auto loans, credit cards, underfunded pensions and increasingly mortgages and home equity lines are all heading the same way domestically, while emerging market dollar debt (which dwarfs the US mini-bubbles) is just as precarious internationally.
The question then becomes, how many of these bursting bubbles can the US paper over before the currency markets figure out that each will be followed by another, for as far as the eye can see?
He got a job as a purchasing agent for the school. One of the benefits was reduced tuition for staff's family.
But I was expected to pay for the actual tuition, so besides carry a full load of classes each semester, I worked three part-time jobs to pay for my schooling.
My highest paying job of the three, paid 90 cents per hour.
Tuition was $145 per semester.
Why doesn’t jr take a semester or a year off and work while living at home to earn the tuition instead of having mom and dad take out loans?
Tuition has risen far faster than the rate of inflation every year since the 1970s. That was OK in the 80s and 90s when the economy was mostly good. That suddenly made a whole lot less sense when the tech bubble burst and then made no sense at all once the Great Recession started. Even highly qualified people were either struggling or long term unemployed during those years when all of Obama’s regulations were strangling business and cause the most anemic recovery from a major recession in American history. So what happens when those student loans that can’t be discharged in bankruptcy and accrue interest at 9% don’t get paid at all because people are out of work or having to take Starbucks barista type jobs? OOPS! A lot of student loan debt will never be paid off. The government caused a bubble by guaranteeing student loans and colleges took advantage by inflating what they charged - as anybody who has taken so much as Econ 101 could have predicted would happen.
That’s a good formula, and we should all counsel young people along those lines.
There’s a huge difference, in debt to get a degree in a field which leads to a good paying job/career path, and debt to get a degree in gender studies.
i’ve heard the student loan bubble could burst, much as the mortgage bubble burst a number of years ago.
We need to rethink the whole concept of student loans, in my opinion. If you get loans to get a degree in some field which leads to a good paying job/career, where you will get a job which enables you to pay off the loan, that’s one thing. It’s very different to get a degree in women’s studies, black studies, etc. which doesn’t qualify you for any sort of job/career.
Perhaps loans should not be given out if you are majoring in a useless field, useless in the job market I mean. Tough decisions should be made, about who gets loans and for what purpose.
At some point, we are going to care more about qualifications than which school a student went to.
In my career experience, nobody cares what school you went to. What’s important is that you have the degree in fields such as accounting, finance, nursing, and have the requisite state license for your field. Nobody cares where you got the undergraduate education.
Why doesn’t jr take a semester or a year off and work while living at home to earn the tuition instead of having mom and dad take out loans?
This is a great idea. If young people get some job, even at minimum wage, and save the bulk of their money, because of living with mom and dad, they could have tens of thousands saved up in a few years. This involves some changes in social norms and exercising deferred gratification, but this sounds like a good concept.
Work where? To earn how much? In-state room, board, and tuition at a public college runs about $20,000/year.
And then there's this:
I'm sure mom and dad won't mind supporting the kids until they've saved up enough to start college at 30.
...any number of places.
That's helpful. So where can they go work to earn and save the $20,000 needed for a year's tuition, room, and board at an in-state public university?
I'm not the only one, not by a long shot. He should stop mailing out resumes, get his @ss out there and start knocking on the doors of small businesses.
When I was in college, I worked in the summer, lived at home and banked every penny. I don’t know how much of what I earned off-set my tuition, room and board and books but I know it was a good chunk. Of course, my parents had saved for my brothers’ and my college education, which is really the way to do it, plus working. I graduated from college in 77. I never took out a loan.
Times are different; the cost is so wildly inflated, the stakes too high to risk lowering your GPA by working.
Agree wholeheartedly. You should have to take an economically useful field of study...ie science, business, engineering...something in which you can likely get a job that will enable you to pay back the loan...in order to get a loan. That would also incentivize American students to go into areas where we are short of trained people.
No Philosophy, gender studies, sociology, African studies, 17th century French Literature, etc etc unless you can pay for it.
I'll bet you were paying $20,000 a year in tuition, room, and board in 1977.
In fact, I know you weren't. In 1977 it costed well under $1000 a year to go to an in-state public college.
In 1966. Today that would be roughly $1127 a semester using an inflation calculator.
In reality, college today costs about ten times this amount.
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