Posted on 07/21/2021 6:49:49 PM PDT by SeekAndFind
In the current political climate, arguing against free college and student-loan cancellation doesn’t make you very popular among a particular crowd.
But one thing that’s clear is that many people are upset about loans but don’t know how they work. Multiple misconceptions surround student debt and college finance that make people more upset than they need to be, which can lead to poor decision-making when it comes to education or finances.
So let’s clear up a few things.
Student debt isn’t an inescapable life sentence.
The political discourse surrounding student debt would have you believe that unaffordable student loans are inescapable, but that’s pretty far from the truth for the average borrower. Most borrowers’ monthly loan payments are affordable based on their income. Those high balances that newspapers like to write about are exceedingly rare: only 7 percent of borrowers carry more than $100,000 in student debt, thus making these high-balance borrowers, such as doctors and lawyers, the minority. They don’t need our collective pity. Rather, it’s those with the smallest balances, and the highest rates of default, that need more assistance. These borrowers are often those who didn’t finish school and therefore don’t see the returns of a degree.
Even if you haven’t seen financial returns on your degree, you may be in luck. Over the past decade and a half, policymakers have built a comprehensive safety net that gives borrowers a break when their loan payments are unaffordable. The Department of Education’s income-driven repayment (IDR) plans allow any student borrower to set his or her monthly payment to a percentage of their monthly income without major penalties. While it can be difficult to choose from and enroll in IDRs, these plans can bring huge financial benefits for those who qualify.
The student loan crisis isn’t a product of a predatory lending industry.
The vast majority of U.S. student debt (over 90 percent) was issued under federal student-loan programs. When you want to point a finger at someone for this problem, don’t point to Wall Street but Capitol Hill. It’s fair to refer to the federal student-loan program as predatory since it makes loans available regardless of whether the borrower will be able to repay.
The Department of Education hands out loans without considering future affordability. If you’re heading into a program of study like fine arts, statistics suggest that your degree won’t pay a huge dividend, and you may be stuck with a loan that you can’t repay. In a sane world, there would be protections against this kind of lending. This is an obvious solution but one that’s often rejected by people who think that part of the American dream is being able to “follow your passion” at any individual or social cost.
Student loans aren’t just for the economically disadvantaged.
Student debt is a tool that many well-off families use to send their children to expensive colleges and graduate schools. In 2015–16, students from the highest-earning households borrowed about $10,500 more than students from the lowest-earning households.
Borrowing through the federal loan program is relatively cheap compared to consumer credit. Those with financial savvy can figure out ways to make paying with student loans cheaper than paying with cash – such as using low-interest student loans to pump money into a 401k. A lot of students are better off borrowing for college and investing the cash they have on hand.
Plenty of problems need fixing in our system of higher-education finance. We need significant reform to make the safety nets work better for more people. We also need to stop writing loans that borrowers can’t repay. But to make meaningful improvements to the system, we need first to have our facts straight. These common misunderstandings are a good place to start.
The “Underemployment Rate” [~11% to ~73%] is the often sad reality of the college graduate labor market:
https://www.newyorkfed.org/research/college-labor-market/college-labor-market_compare-majors.html
I viewed it as cheap money for my kids. I paid off the loans with money I didn’t payout while they were in school.
See Figure 4 Percentage of Median Earnings Needed for Student Loan Repayment by Major in Sixth Year, by Major:
and the paper it is in:
https://www.hamiltonproject.org/papers/major_decisions_graduates_earnings_growth_debt_repayment
Bear in mind that the decision is more complicated than those graphs might suggest. Your economic future also significantly depends on your personality and where you live.
“It is unwise to make education too cheap. If everything is provided freely, there is a tendency to put no value on anything. Education must always have a certain price on it; even as the very process of learning itself must always require individual effort and initiative.”
Address, Centennial Celebration Banquet of the National Education Association, Washington, DC, 4/4/57
https://www.eisenhowerlibrary.gov/eisenhowers/quotes
I guess they think it’s free money.
The predatory part is not the lender but the educational institution itself by over-selling the value of the future diploma/degree without an eye toward the ability to repay the loan. In addition, these loans are the financial lifeblood of the institutions that allow them to run up tuition rates, fees, room/board, etc. Without this cash infusion, the institutions would have to find ways to keep costs in line and stop gold-plating every aspect of their offerings. This is also why most baccalaureate programs have class hour requirements in excess of the typical load taken per semester to allow a 4-year graduation plan.
We are paying for all our children’s Associate degrees. Past that, they are on their own.
My oldest is finishing his BA and plans to go to law school. He went to local schools, did not live on campus, and had academic scholarships. After law school, he will have about 100k in debt.
My middle child took a year off to deal with a medical issue. He will graduate with about 14k in debt.
My youngest is still in high school. He will probably out-earn them all or live at the poverty level. Such is the fate of a lot of people with Asbergers.
Great thing about this combination is that it forces them to go into a field that will pay.
Basic basket weaving underwater lesbian dance theory is not a viable major.
Here’s how they work: You borrow it, you have to pay it back.
Poor poor students. It is only fair the kid who did a four year apprenticeship as an electrician making 75k a year pays off the student who racked up 150k in loan debt “finding herself” in gender studies classes.
All I know is my late father, a dirt poor kid from the Bronx, went to Columbia and received an MBA from Wharton in the 1950s without incurring a penny of debt or receiving any need-based financial aid. Tuition at those esteemed institutions was approximately $500 per semester.
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