This Woman Has $97K in Student Loans. Who's to Blame?(finance.yahoo.com) |
This Woman Has $97K in Student Loans. Who's to Blame?(finance.yahoo.com) |
This is a topic I've been thinking about a lot the last two weeks, since client work has me doing some calculating from federal data on what the current value of a degree in $FOO is likely to be. (I'm sure you will not be surprised that neither religious studies nor women's studies appears near the top of the list.)
I'll blog on that subject if folks are interested in it.
Some of the solutions, like cutting her off at $60k, are just insane. She'd be halfway through her college degree then. If she'd quit then, she'd be unemployed, have no sheepskin, and still owe $60k with no expectation for salary much higher than a generic high school graduate.
The charge for the degree isn't based on the income you can make from it, it's based on the cost of producing it (ostensibly). This is true of most things you buy. How much can you buy a steak for? How much can you sell it for after it's cooked just right? But the price is determined mostly by the cost of production and its intersection with the market's willingness to pay.
The real solution is to remove all special protection from college loans. Bankruptcy should cancel them like any other loan, and they should not be especially easy to get, especially not for poor people (who, despite all hopes for an equal world, will probably be making less on average after school and thus be in a worse position to pay back). Let the banks take their risks and let the shareholders pay for the mistakes. And if people have to go to state schools or (gasp) not get educated in retarded subjects like womens' studies, so be it.
She recently received a raise and now makes $22 an hour working for a photographer. It's the highest salary she's earned since graduating with an interdisciplinary degree in religious and women's studies. [...] "I don't want to spend the rest of my life slaving away to pay for an education I got for four years and would happily give back," she said. "It feels wrong to me."
Words fail me.
"After taxes, she takes home about $2,300 a month. Rent runs $750, and the full monthly payments on her student loans would be about $700 if they weren't being deferred, which would not leave a lot left over."
How is $850 not a lot left over for discretionary spending when you are 26 and just starting your career? You eat crap food, walk and take public trans and you make it work. This smacks of the kind of entitlement that just makes me sick.
I'm sure it would go over like the bay of pigs, but if the gov't and colleges starting subsidizing majors based on their projected income, there surely would not be as many post college financial problems and the US would benefit from more engineers, scientists, etc. China is doing it before our very eyes, the next 50 years will be interesting.
The funny thing is, you might expect the market to already do this. Engineering students can rationally expect to pay back tens of thousands of dollars in student loans, because engineers earn several tens of thousands of dollars per year. If student borrowers were rational and well-informed, no subsidy would be required.
Well, rationality is a tough problem to solve. But before we break out the subsidies, let's start well-informing people. You can start by putting lots of information about income potential by degree program in the mandatory entrance counseling that's required for student loans.
a) Force universities to publish[1] data on average graduate salaries after graduation. That way noone can delude themselves that a $100K major in Cultural Studies is going to be anything other than a financial disaster.
b) Stop subsidising college loans. If not for the explicit and implicit[2] subsidies then no lender would have been willing to provide so much money for a Religious/Women's Studies degree.
[1] And by publish I mean, actually make clear to people who apply or consider applying for these degrees.
[2] For example, the fact that it's unusually hard to discharge student loan debts through bankruptcy.
Remember, these aren't backed by the federal government. These are variable rate loans, often with double digit interest rates, 10 year re-payment plans, and virtually no consumer protections (even bankruptcy.)
I'm lucky that I can make my $1,400 monthly payments. When I left school, I thought that I would be able to pay my loans off in 20-30 years. A few weeks after leaving school I was floored when I found out that I had to repay my loan in just 10 years. No negotiation, no other options. Pay what they ask or they ruin your credit.
Personally, I'm on the fence about including student loans in a bankruptcy. It's not an option for me, but should someone have to live their entire life in service to a bank because congress changed a law in 2005?
Should a bank really be making $100,000 unsecured loans to 18-22 yo-s just because someone in their (future) field has the potential to repay it?
OTOH: What are thinking going to schools that cost $40,000+ a year when we have no means.
At least this taught me the value of unflinching frugality.
Proposal to include private student loans in a bankruptcy: http://thomas.loc.gov/cgi-bin/query/z?c111:H.R.5043:
Exceptions to Discharge: http://www.law.cornell.edu/uscode/html/uscode11/usc_sec_11_0...
It is should be like insured deposit in a bank. The government guarantees up to $100k or so, but if you have more you run the risk your self. In this case if the banks lends more than let's say 40K, then they are on their own if borrower declares bankruptcy. (I may not be using the proper terminology. English is my second language)
I can't understand the mentality that allows student loans to be charged at double-digit interest rates. At least allow interest to be deferred until you start working?
My younger brother is graduating with $70,000 of debt from an architectural degree, lucky for him it's a static debt and he only pays interest if he decides to go work offshore.
Also, I don't understand the disdain of some commenters for degrees that aren't 100% "applied".
You're looking through a CS/Engineering lens, the world would be a poorer place culturally if everyone did degrees for purely practical reasons.
There is value to having a well-rounded education, though if you're going to complain about employment prospects afterwards, perhaps a double-major or prior research was warranted.
It's changed a bit since I went to uni, but the general idea is still there: http://en.wikipedia.org/wiki/Tertiary_education_fees_in_Aust...
I remember being horrified when I saw my friend's HECS debt was around $8000 AUD... yet compared with this, it's peanuts!
It goes back to the problem of people perceiving the value for money all wrong, would you pay 5 to 10 times more for a similar functioning car just based on branding?
Not to pick on certain degrees I know little about but perhaps someone here does, with an arts degree majoring in religious and women's studies is it even a good chance to begin with that you are going to land yourself a job that can easily pay back a loan of this size?
Someday people will look back on this the way we view debtor's prison.
I'm sure you're right to put a lot of blame on the lenders though. If the loans weren't federally guaranteed I'm pretty sure they'd be looking at data more granularly than, 'four year degree' or 'two year degree' (though I have to admit that commercial bankers aren't leading in data analysis).
There are three main actors in this case:
- The university that charged huge tuition fees for a course in Religious and Women's Studies. - The financial companies that loaned the huge sums of money needed to pay for those fees. - The poor girl who took out the loans to pay the tuition.
One could criticise the university either for charging such expensive tuition fees or for failing to provide advice that the girl needed. However, you could also argue that the university was acting in its own (financial) self interest. That self interest would have been damaged if the girl had gone to a cheaper university.
One could criticise the companies that loaned the girl the money, money that they must have known she would spend a lifetime repaying. However, again, they acted in their own financial self interest, knowing that they'd probably get their money one way or another.
One could also criticise the girl but the article makes it clear that she thought that she was acting in her own self interest by getting a degree that she thought would be of great help to her career.
Many commenters here have suggested that either the girl could have benefited from better advice when choosing a degree course (which would have helped her to better act in accordance with her self interest) or that student loans should be dischargeable under bankruptcy (which would be an incentive not to loan to students who would find it impossible to pay the loan off).
How about a third option, give the university an incentive that is better aligned with the interests of the student after graduation: instead of charging large tuition fees up front, a university could instead say "in exchange for getting a degree from us, you owe us a certain percentage of all of your future income." A lot of people are prepared to voluntarily give a tenth of their income to the church so why not to your alma mater? I guess it would be the equivalent of selling "shares" in yourself to the university rather than taking out a loan.
I'm sure there are a million reasons why this wouldn't be workable but it would be rather wonderful if the interests of the university and the student could be aligned in this way.
Liberal arts and humanities departments that deceive prospective students to keep their headcount up so as to justify their existence are as much to blame as the students who believe them.
Or is the higher cost just being driven by greater availability of credit for the students? If this is the case, unis will find a way to absorb the extra cash, but not in a good way.
People often think that they need more student loans because college is becoming more expensive. It is more likely that college is becoming more expensive because the gov't makes loans for college too cheap.
There are reasons that the community college system is being built up in several (many? I know CA at least is doing it) states.
She probably got the short end of the stick because her mom owned a business that had a lot of revenue which precluded her from aid. Yet this business also had a lot of overhead, so their actual income wasn't actually that big.
This problem effects a lot of people that I know.
I say if your plan is a bad risk, no one should be coerced to fund it. You'll have to come up with a better plan.
That will leave more money for education that will create more wealth.
"It is utterly depressing that there are so many people like her facing decades of payments, limited capacity to buy a home and a debt burden that can repel potential life partners."
You know what ... anyone who would walk away from you because of your student debt is NOT a potential life partner.
People think they need to pay $50k/year for an NYU education because the smaller, cheaper one located [insert your town] isn't nearly as good.
But perhaps the biggest share lies with colleges and universities because they have the most knowledge of the financial aid process.
http://www.businessinsider.com/heres-the-next-big-industry-t...
Though for the rest of us, with non anglo last names who didnt go to a top 25 school, its much harder.
This girl was just chasing that.
Rock on, we need more philosophers like you.
Really, that is the justification in all this? I felt like I should get a loan (not "I truly need the loan because I've reasoned through all the details and risks involved") is now an excuse?
Who's fault is that exactly?
Can't she try to educate kids about the job prospects of women's studies majors? Can't she make a job board for her unemployed peers? Can't she turn her photographic abilities into an art hobby too and sell prints of religious symbolism in urban or rural settings? There's so much she could do, but it sounds like she just wants to push Reset.
Yep, I know how that feels. I'd love to call a do-over and make sure I invested in AAPL around 2001/2002 and maybe some more in a few other companies as well (even MSFT at the time). Alas, the real world doesn't offer time machines, at least yet.
My labmates and I (all PhD students in robotics) read through that _entire_ article up until that statement. We work like mad as paid engineering grad students, covered by grants and industrial partnerships. Because we serve a useful role to the University and our collaborators / partners, our grad school is _earned_ sans debt. We get an education chocked full of useful skills; they get cheap labor for 4-6 years.
It is ridiculous to expect handouts and/or government subsidies for a degree with so few (obviously) practical skills.
On a related note, I'm disappointed with the NYT shock-and-awe tactics. The degree sought should have been in the first paragraph!
When people take a job that' "something they love" a lot of them will be prepared to earn less. Couldn't a similar principle apply where people studying "something they love" do it some place cheap and possibly less prestigious?
maybe she should suck up her pride and take a night job at Fedex, McDonalds, Starbucks, etc. to pay that off.
A few of the departments in the engineering school at WashU published their own starting salary study -- using the Internets to get in touch with recent grads -- which did not endear them to other departments at the university. That was an amazingly useful piece of information for me when graduating, and helped me to avoid an offer of employment at substantially below the "going rate". (Then I became a salaryman. Education can't save everyone. sigh ;) )
I think that's a relic from the time when just having a degree did matter, but those days are over, and people are just starting to realize it. That being said, there's still a big problem with the ridiculous amount you have to pay for a degree these days.
Part of that has to do with the enormous fixed costs of running a college. For example; every walking path at a Maryland college I attended must be kept clear of snow and ice at all times. Including in the middle of a blizzard. This results in a friend of mine (and his whole department) working 16 hours a day during all snowstorms to keep the paths clear. During a blizzard, he makes hazard pay the first 8, then overtime hazard pay the second eight, and sleeps on campus. He paid his mortgage this year with just snow crew money.
So clearly cutting costs and unnecessary "services" would help. Cutting executive salaries would help too. But until student loans can be discharged in bankruptcy (thus forcing lenders and schools to actually cut tuition to match the value of a degree) nothing is likely to force schools to make the hard decisions.
God, the nerve of some people.
She made a poor choice and she needs to pay for it. This is a systemic problem and the only way to cure it is to enforce personal responsibility.
Supply and demand should be what determines the cost of any degree program. As long as the demand side is subsidized by the government through loans and debt that cannot be negotiated/discharged later on, then tuition costs will continue to rise and young lives will continue to be ruined.
I think in academia you have to be willing to travel. I'm starting to realise what a pain in the arse that is though! :) It's nice to feel "settled" in a place, and I suspect I won't get that feeling for a while yet (until I'm in a long-term position anyway).
I think that the big problem is that kids who go into university do what they enjoy doing (which isn't wrong, they should absolutely be encouraged to do what they enjoy doing!) but when they realise they can't be at university for the rest of their lives, unless they're willing to fight for academic positions, find themselves up shit creek, so to speak. I honestly don't think they realise that they're going to have trouble getting a job until they're well into the degree, and by then it's far too late.
I personally think it sucks that people should be discouraged from doing the "less useful" degrees just because there are a buttload of fees that get dumped on them that they need to repay later and they may not get a job that will cover that. Noone is EVER going to make a billion dollars working in gender studies or religious studies, but it's important to have those who do it (for the love!) for research and teaching purposes. But then you have a problem -- how are those people, who are highly educated but not ever going to make $$$, and yet are going to teach the next generation of students, going to pay back the debts they amass? Yeah, I don't like the American system very much :)
The system may well suck but it's no good signing up for it all then crying fowl about the system at the end of the process.
Here in Mexico the Tec of Monterrey (which is one of the best private Universities) does that. They give you a loan/scholarship based on a combination of good grades and socio-economic status. The students get 90%, 80%, 60%. If they get 80%, that means they have to pay 20% when they are in school, 40% is a scholarship and 40% is a loan.
One of the consequences of this is that most loans/scholarships are given to the engineering students. The fact that the school has a stake on the future success of the student makes them more careful on who to give the loan/scholarship to. I always assumed this was the way done in the U.S. but after reading the article and the comments here, it seems like it is not.
Students are not so naive as to not realize how much their education will be worth when they exit. It is (or was in 2006 at my school) a topic of constant discussion among undergrads. But that knowledge is for some reason not connected with action . . . maybe because these "adults" have never been responsible for or on the hook for anything in their entire lives leading up to this decision.
(Interestingly, I went to the same school as you.)
1) Making it more difficult for poor people to get the loans that are now pretty required for higher education is retrograde. The idea is to compensate for the already significant disadvantages that the poor face in climbing out of poverty, not to create yet another barrier. I'm guessing you're middle class, never experienced anything but?
2) Picking a subject out of the sky, like womens' studies, and declaring it "retarded" (classy in itself), is anti intellectual. What if evolution had to abide arbitrary rules about which biological configurations were "retarded" and which were acceptable? That's just not how it works.
I applaud your restraint!
> . . . higher education is retrograde . . . not to create yet another barrier
The individual being discussed in this essay is far from unique. The question is whether many poor people aren't being saddled with even more debt for very little payoff; debt that the education lobby has made it very difficult to escape. Poor people studying in subjects for which there is likely to be a good return on the investment ought to still be able to get loans. But you won't see as many poor womens' studies majors. And you won't see as many poor kids woefully underprepared for college going in the first place to throw five or ten thousand dollars and two years of earning potential in the garbage when they have to drop out.
I think the takeaway is that sometimes it is good to limit peoples' ability to get credit if it's not going to be used for a productive purpose that's likely to result in it being paid back. But since you can't discharge the debt through bankruptcy, the banks have no incentive to help make this determination. I don't mean that there should be government mandated limits, by the way; I just want the government to stop giving people nooses to hang themselves with.
The other factor is that if we stop propping up the market, colleges will likely be forced to stop charging so much money, especially the private ones. Or they will do something like what Stanford has done and adopt a graduated pay scale to maintain that desirable trait of diversity.
> Picking a subject out of the sky
If you'll read the article you'll note that the person in question was a women's studies major. It's hardly picked out of the sky. But even if it was, what does it matter if I picked an example out of the constellation of disciplines whose study do not deserve financial support? I could have picked religious studies too but I had forgotten that part of her degree's name.
> What if evolution had to abide arbitrary rules
Might as well call gravity, by which evolution does have to abide, "arbitrary." The rule that makes Women's Studies retarded is that it's not a productive or useful course of education. To wit:
1. Essentially no one except a government subsidized education facility and a few rare counseling jobs will pay you more at the margin for having a degree in Women's Studies because it is useless and nobody wants to pay for that.
2. Women's Studies is not, in most cases, very important in determining how effective a feminist you will become.
So if no one will pay for it and it offers little broader societal benefit that we might want to subsidize, what is it for? The entire field, like academic literary criticism, is masturbatory. That is why it is stupid and study in it should not be subsidized. Especially for poor people who cannot use it to climb out of their difficult situation.
You could ask that question about all of the humanities, really, but presumably you want poor people to have the option of studying English, history, philosophy, etc.
What if you declare it "retarded" after years of careful and intellectual consideration? What if you go on to point out that the field of study itself is intellectually bankrupt if not outright anti-intellectual?
I mean, we already have subsidies for people who are actually good at the humanities--tenured professorships. Philosophy's probably worthwhile that society can afford to pay for philosophers--and at this rate, we're hiring more philosophers as a society than ever in history. But what's the gain for society in training far more philosophers than we can afford to employ, or in indulging the 80%+ of philosophy undergraduates who have little to no aptitude for the subject?
I won't even get into the bigger question, which is whether religious studies or women's studies are worthwhile for society to subsidize at all.
Sure, there is a minimum cost to a degree that may or may not line up with its earning potential... but $100K? How in the world do schools get away with charging that much for a degree whose earning potential is so low?
This whole problem would be a lot less of an issue if degrees cost proportionally (or at least roughly proportionally) to their market value. People who want to study "useless" degrees can do so, and their costs would be likewise much lower than people who want "useful" degrees for employment. Perhaps we'd all be better off as a society this way.
They charge whatever the market will bear! Apparently there is a large intersection between "rich" and "willing to piss away four years on a nonproductive enterprise". Whodathunkit.