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And the problem with private loans has been that the private banks have been acting like loan sharks, obscuring from students how much the payments would be once they graduate, and not disclosing details that students need to know in order to compare different loans offered and make the best decision. This is why the gov't is involved. If private lenders could be trusted, it wouldn't be necessary to provide an alternative. But they've proven themselves untrustworthy.
A private bank cannot obscure that. And details are in the loan papers they signed. If grown adult people are signing papers they aren't reading and not asking questions much of the problem is with them. I think it's obvious that loans are being taken out without any thought to how they are going to be paid back.
I think it might help if high school didn't make our kids think that getting that degree and any cost is the only way to go. I know they do this because my son that hates school insisted on going to college because he thought he would starve or have a really meager existence without it. It's not true. Higher education can be a great thing, but I don't think high schools are painting a realistic picture about the costs involved, or promoting any alternatives because college really isn't for everyone. Of the people that I know that have don't really well, some have degrees, some don't.
Seems about as goofy as the Corporate Health Insurance nonsense.
Create a crisis, and then a bad solution.
Why not cut the price of school?
There you go. Colleges are so laden with fat that it's beyond belief.
Need an example? Here we live in the great age of productivity. With automation, the Internet, computers, and a host of other innovations, every other sector of the economy has learned to accomplish a great deal more with fewer resources.
In contrast, American colleges have become bloated in the past decade. Since 2000 the number of college employees per 100 students has risen 36%.
Think about that for a second. More than a third. That is an astounding number when you think about it, and pretty much symbolizes how detached colleges are from reality. Simply put, colleges don't give a rip about providing value for the students and their parents.
Many students that go to college do little to determine the worth of their degree they expect to get. They do even less to shop for in state schools to help with the price. If so & so said X, Y, or Z are the best party colleges & is going to Z, this becomes the college of choice. They get loan after loan with little thought to the interest rate or being able to pay the loans back.
Many will not even take their parents suggestions on schools or loans & to many parents give in on their children & this is worst, because parents know better, have more experience in life & working.
Is there a sincere reason for the rapid increase in college tuition of the last few years? I don't believe there is a valid reason, such as offering better education or adding additional items of cost. I believe it had to do with the economy & obama's push for people to return to college that has lead to the rapid tuition increases.
Look at the many that are $30,000 or more in debt, loosing or lost their job & fell for the hype to go back to school & get another degree. This time they go, they add $75000 or more debt for a degree, now they are $100,000 or more in debt. Was this really the right answer or was this because this is what many were lead to believe was the way to go to secure a job?
Student loans should never be stopped, people do need to be smarter about accepting the loans, do more shopping around & KNOW what they are getting into.,
Because some credit card companies offer credit cards with 30% or higher interest rates & some people accept them only to learn they can never pay them off, should we end all credit cards? No, not even consider it. It is the same thing.
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?
You sound a lot like my son & what he did with his life. He is in IT as well & did it without college & is making great money, plus benies. He & his wife bought a house they could afford & never jumped into what their friends were doing back when the money was really rolling in during the early 2000's.
He went thru a 4 yr bout with AML, (a form of leukemia), he is one of a handful of people in this world to be alive with what he had & went thru. Being smart he had all his insurances in place that took care of him, the things he had in his name & medical cost. Even with the time his wife took off work to be by his side in the hospital, they stayed afloat without accepting help or having to borrow.
Today, 3rd year in remission, he just returned to work in IT again with a great company. For just turning 36 (coming up Nov 4th), he, his wife, & kids all are doing great, secure, over the years they remodeled the house, it is all like new. Most or a good number of their friends lost everything, just gone thru or in the process of filing for bankruptsy.
College degrees can be nice, but as you say, they are not for everyone & one's life is not limited without one.
One of the smartest things to do is get some work experience in a field one believes they may wish to be in, then if needed go to college for a degree. Either way, one has to be intelligent how to go about life, listen to one who has been where you wish to go.
Congrats to you for having & applying common sense & hopefully others will listen to your words & follow your path. Common sense is not taught in college, nor can it be bought!
I do not think the college/university education system are perfect so I am perfectly ok with finding ways to reduce costs, but cutting student loans isn't the answer because it most directly affects those who need college the most - those striving for upward mobility. Something that I think we could all (mostly) agree that as a country we are moving in the wrong direction in.
I agree with what you're saying about the direction we're moving in. But the problem of inequality starts looooong before kids start college. By the time kids are college age, a lot of the fates of low income kids are sealed (unfortunately). In my opinion, it really starts with the family. The 41% of kids today born to unmarried parents are at a major disadvantage. Until we admit to this elephant in the room, we're not going to fix much of anything with the education system, let alone economic inequality.
Isabel Sawhill of the Brookings Institution said that the increase in single-parent families—mostly due to unwed motherhood in the past few decades—"can account for virtually all of the increase in child poverty since 1970.
I agree with what you're saying about the direction we're moving in. But the problem of inequality starts looooong before kids start college. By the time kids are college age, a lot of the fates of low income kids are sealed (unfortunately). In my opinion, it really starts with the family. The 41% of kids today born to unmarried parents are at a major disadvantage. Until we admit to this elephant in the room, we're not going to fix much of anything with the education system, let alone economic inequality.
Isabel Sawhill of the Brookings Institution said that the increase in single-parent families—mostly due to unwed motherhood in the past few decades—"can account for virtually all of the increase in child poverty since 1970.
I believe this is a very significant issue. Unfortunately, it will not be fixed any time soon. And it does not change the fact that these "low income" single parent kids have no recourse, but to borrow if they want to participate in higher education. Sure, they can forego college, but only a small percentage that do, will ever go very far in competition with better prepared workers and job seekers.
First thing's first. As someone who has worked with a lot of banks of all sizes and descriptions, I can tell you that they do NOT make money off student loans. In fact, the exact opposite is true. If they did, large banks such as Citi, Wells Fargo, etc., would not have discontinued offering them. With the loan rates typically below the Federal Reserve prime rate, student loans instead have been gigantic money losers. Instead, student loans are considered to be loss leaders that are offered for the convenience of parents sending children to college.
Second, the fact that student loans are no longer subject to bankruptcy has a great deal with the staggering default rates of the early 90s. During that time, student loans rates were running close to 20%. When you realize that a well-run bank makes a grand Return On Asset of approximately 1.25%, this is a huge and unacceptable loss.
You seem to have a good grasp on this subject. An insiders view, if you will. How is it possible that with student loan rates around 7% (what I was offered with perfect credit and zero debt) that lending institutions cannot make money? Is it all because of the default rate? Hard for me to comprehend, because banks are giving 30 year mortgages at 3.5% and they are certainly making money on that. Could the paperwork on student loans possibly be more onerous than mortgage loans? Also, doesn't the US government guarantee these loans against default? Thereby putting the onus on the taxpayer?
You seem to have a good grasp on this subject. An insiders view, if you will. How is it possible that with student loan rates around 7% (what I was offered with perfect credit and zero debt) that lending institutions cannot make money? Is it all because of the default rate? Hard for me to comprehend, because banks are giving 30 year mortgages at 3.5% and they are certainly making money on that. Could the paperwork on student loans possibly be more onerous than mortgage loans? Also, doesn't the US government guarantee these loans against default? Thereby putting the onus on the taxpayer?
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?
Last edited by cpg35223; 10-29-2012 at 07:17 AM..
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