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So low margin, high risk. What sane bank would want to take that on?
Then hear is an idea... Maybe colleges should trim the fat and make their service affordable to the average American. 30 years ago, it wasn't unheard of for young people to earn enough to pay their tuition. Try doing that today... Colleges need to obey the same rules of the free market that any other business must obey... If your customer can't afford it, you go bye bye.
Then hear is an idea... Maybe colleges should trim the fat and make their service affordable to the average American. 30 years ago, it wasn't unheard of for young people to earn enough to pay their tuition. Try doing that today... Colleges need to obey the same rules of the free market that any other business must obey... If your customer can't afford it, you go bye bye.
I have to say this upfront, I went to college, graduated, and I used student loans to do it. I was already in IT when I went back to school, I went to school simply to have more of an edge on my competition, it's as simple as that. I was well established in IT when I went, and I can say that I didn't really learn any useful new skills while in college. I can easily pay back my student loans, and I should have them paid off (hopefully) within 4 years.
I'm not an economist, but I remember when my wife and I purchased our house in early 2000, we were excited, a few years later, the value of our house was on a steady rise, we thought about selling and moving into a nicer place, but of course, the price of those houses shot up as well, and it went fast. I thought that something was wrong then, and of course the housing collapse happened, and I'm sure you know the rest.
Now we have student loans, and all that is happening is the price of college keeps rising and rising, and I feel it's because of the ease of availability of student loans. For the most part, you don't have to prove anything to get a student loan, a young person can easily get thousands of dollars without showing any responsible behavior beforehand. People never want to say don't go to school, but college is not for everybody, it wasn't for me when I was younger, and I'm glad I didn't go then.
While I wholeheartedly agree that education is very important, that education does not need to be some 4-year school, and if it is, it should no longer be taxpayers that loan the money. If your household was bankrupt, or getting close, wouldn't it be smart to cut out your cell phone, your cable, your weekend entertainment? It should be the same for student loans.
I think private student loans should be eligible for bankruptcy, and the federal loan program should be cut. The price of college would have to come down, but as it is now, what's the point of lower prices when it's so easy to obtain a loan. Everyone having a college degree is pointless, so many jobs don't need it, heck, I didn't need it for IT.
What do you think?
The government should definitely stop issuing student loans. It's not the government's responsibility to see to it that our people get college education. We can't even educate people the right way in compulsory public schooling... what makes the government think they can fix that problem by promoting college?
Student loans are an evil of the highest degree. I should know. I had some. Took me 11 years to pay them off, and I'm working in a field totally unrelated to my degree. We have had "degree inflation" due to the ease of obtaining student loans, such that the bachelor's degree of two generations ago was as rare as today's master's degree. All that's done is jacked up the requirements for getting certain high level jobs. When my dad was in college, some instructors only had bachelor's degrees. It was very common for college professors to have master's degrees but not doctorates. These days, you can't even think of becoming a professor unless you have a doctorate. You might get a teaching job at a local community college but even those jobs require master's degrees... and that doesn't even guarantee that you can teach! I tutor lots of people who go to local community colleges, I only have a bachelor's degree, and you should see how many of them beg me to look into teaching at that college because I do a much better job than the master's-degree-wielding teacher they have! (Alas, can't do it. Since I don't have a master's degree, I can't get any teaching job there. Something about the school's accreditation. I imagine that's a government thing too. Wasn't an issue back in the day, is an issue now... degree inflation, yet again.)
We seem to forget that when everyone is special, no one is. If everyone was a college graduate, there'd be no value to being a college graduate because it'd be expected, just as being a high school graduate is expected now. (Even that used to be a luxury, back in the day!)
Well, Federally-guaranteed student loan rates have been at 3.4% and will be for at least a year.
Second, the default rate on student loans is extremely high. Around the 13-15% mark. In the early 90s, they topped 20%, which is why the no-bankruptcy rule got written in. Otherwise you would had rampant abuse of the system caused by students graduating college and promptly filing bankruptcy on student loans once they had gotten a credit card or two. And the banks, who weren't making much money at all on student loans in the first place, wouldn't have lent the money at all.
Realize this for a second. A bank's profitability on the money it loans is razor-thin. Return on assets for a bank sits at the 1.25% mark. Mind you, the average business sees a net of 5-7%. So if a student walks on $8,000 of student loans, that means the bank has to lend out an additional $1,000,000 in order to recoup the default.
So low margin, high risk. What sane bank would want to take that on?
Ok, you are talking about federally subsidized loan rates @ 3.4%. The taxpayer is paying half the interest and the loan recipient paying the other half. Which means the bank gets the full 6.8%, just like the unsubsidized loans that I was offered. Both subsidized and unsubsidized loans are federally guaranteed, thus unsecured. Isn't that why rates are twice that of mortgages, which are subject to default also? I understand that margins are thin, but banks have been making their money that way for years. And I agree with not allowing recipients to file bankruptcy to discharge loans, thus causing rates to skyrocket for everyone.
Nonetheless, banks choose voluntarily to offer these loans. Even advertise for new customers. I don't imagine them doing that if they are not making money, while I accept that the default rate is problematic.
Ok, you are talking about federally subsidized loan rates @ 3.4%. The taxpayer is paying half the interest and the loan recipient paying the other half. Which means the bank gets the full 6.8%, just like the unsubsidized loans that I was offered. Both subsidized and unsubsidized loans are federally guaranteed, thus unsecured. Isn't that why rates are twice that of mortgages, which are subject to default also? I understand that margins are thin, but banks have been making their money that way for years. And I agree with not allowing recipients to file bankruptcy to discharge loans, thus causing rates to skyrocket for everyone.
Nonetheless, banks choose voluntarily to offer these loans. Even advertise for new customers. I don't imagine them doing that if they are not making money, while I accept that the default rate is problematic.
Well, the term 'voluntarily' is a bit subject to question. While the government did not put a gun to their heads, it was very obligatory. Why? Because student loans were almost a loss leader, so if you didn't have it in your portfolio then the customer would simply go elsewhere to get it -- and take their other accounts with them. Given how customer attrition is a huge destroyer of bank profitability, banks basically had to say, "Okay, do I take a bath on a $10,000 student loan, or do I lose $75,000 in assets when the applicants parents get mad and yank their biz?" So in that sense, offering it and promoting it are two completely different things. Trust me. I've never seen any officer at any level of any bank or credit union say in a meeting, "Do you know what this institution needs? Student loans."
And, yes, the default rate was extremely problematic. That's putting it nicely.
I know this isn't a popular opinion, but I think the government should get out of the loan business all together, be in education, housing, whatever. Government loans make it possible to buy a house when you really shouldn't. It still happens. If all the government loans programs went away tomorrow, things would adjust and housing prices would drop in order for people to be able to buy them. And maybe they would have to come in with a decent sized down payment and therefore be less likely to default. Funny how prices always skyrocket when the government gets involved. Government student loans have made education prices sky rocket as well.
Great post..............just not sure about housing drops if the govt bails of of the loan business. Sure a 49K starter home might drop (or force the owner to hold the note) but certainly a 500K house (which isn't the focus of govt lending anyway) wouldn't drop to 49K just because the govt won't finance it.
College is a bad choice for many kids. Political Science majors, art majors, 16th century latin studies.....yeah "Welcome to Walmart" greeter jobs in your future. Now add the costs of that education and you are broke for life.
I have an employee that borrowed 19K to finish college. Now he had free schooling to a point (scholarships etc) but decided to borrow 19K in his last year. School was only 8K of the 19K, 11K was for "spending money" to enhance his senior year. He even bought a boat with his brother since he had 5K burning a hole in his pocket. Well school is almost up, no job in sight and the loan payments start in early 2013 at $139 a month (X 30 years).............YEP $50,000 to repay!
His plan is to take another class to keep defering the payments.............Can't fix stupid!
Ok, you are talking about federally subsidized loan rates @ 3.4%. The taxpayer is paying half the interest and the loan recipient paying the other half. Which means the bank gets the full 6.8%, just like the unsubsidized loans that I was offered. Both subsidized and unsubsidized loans are federally guaranteed, thus unsecured. Isn't that why rates are twice that of mortgages, which are subject to default also? I understand that margins are thin, but banks have been making their money that way for years. And I agree with not allowing recipients to file bankruptcy to discharge loans, thus causing rates to skyrocket for everyone.
Nonetheless, banks choose voluntarily to offer these loans. Even advertise for new customers. I don't imagine them doing that if they are not making money, while I accept that the default rate is problematic.
Also consider private loans are 8-10% all day long right now.............That is almost criminal especially since they can't be discharged!
Another bad thing is the recent concept of "online universities and trade schools" that just exist to get poor kids to sign up for their classes and get the loans to pay the school with zero regard for whether the students finish school, get a job or even are a good match for the school.
Anyone know the default rate of University of Phoenix online, New England Tech aka Lincoln College, Strayer University, etc? These aren't even recognized universities but the dopey kids that attend there think they are actually getting a college degree like they attended Harvard!
Another bad thing is the recent concept of "online universities and trade schools" that just exist to get poor kids to sign up for their classes and get the loans to pay the school with zero regard for whether the students finish school, get a job or even are a good match for the school.
Anyone know the default rate of University of Phoenix online, New England Tech aka Lincoln College, Strayer University, etc? These aren't even recognized universities but the dopey kids that attend there think they are actually getting a college degree like they attended Harvard!
lol yea i laugh when i see those commercials
people might as well get their degrees out of a cereal box and save their money
I think l;ike home laons many loans are goig to degrees that limit the abilty of those takig the loans to repay them by the degree gotten.Especfaily has the cost charge ahd grown so much i cost rise by universities. I think a bubble in college cost just like the housig bubble has been created and i time will curst. like that the ese fo getti gloans has created it.
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you are broke for life.
