I need some help understanding something

[PJMcK]

One of my Senators, Senator Schumer, is making an important play to eliminate up to $50,000 in student loan debt for each indebted student.

That represents about $1.71 trillion dollars. Since most student loans are guaranteed by the U.S. government, the lenders will not be held liable for erasing those debts and the government (all of us tax payers) will reimburse the banks.

I understand the debilitating effects of such a crushing obligation. One cannot begin one's post-college life when they're overwhelmed with such tremendous financial troubles. Forget about buying a home or even a car. Not to mention, it takes usually more than a decade to pay off that debt and the monthly payment could total more than one's income. In short, the student is functionally bankrupt before they've even begun their career. (Incidentally, we have a nephew who is looking at something like $75,000 in debt and nearly everyone in our extended family has stepped up and kicked in some help.)

What I don't understand is how so many people found themselves in this outrageous predicament. While the cost of a college education has exploded in the past couple of decades, how did these young people get saddled with this? Did families not save for college? Were school choices outside of a student's budget? Who were the predators that entrapped these young people? What obligations should the student and their families assume? Is the debt forgiveness essentially a get-out-of-jail-free card?

I'm of a mixed mind on this issue. To be clear, I have no problem with our government taking care of our fellow citizens and giving them a second chance to secure the American Dream. But what kind of message does that send to these generations of students who signed onto these financial obligations but now want to be released from them? When you buy a house, you have to know if you can pay for it. Likewise with any other large purchase. How and why is a college education different?

I'm honestly perplexed by this issue and would appreciate any insights anyone has to offer.

Thanks, in advance.

[WhiskeyGrinder]

1. .

While the cost of a college education has exploded in the past couple of decades, how did these young people get saddled with this? Did families not save for college? Were school choices outside of a student's budget? Who were the predators that entrapped these young people? What obligations should the student and their families assume?

Financial illiteracy, degree inflation (the requirement of having a college degree for jobs that didn't use to require them), the lie that the payoff in the end will be worth it, lack of funds to save in the first place, lack of grants and financial aid from states, an economy that squeezes early paychecks between healthcare, food and living expenses, etc., etc., etc.

Is the debt forgiveness essentially a get-out-of-jail-free card?

No.

How did your nephew come by that debt?

[PJMcK]

3. He pursued a very risky career in the performing arts

His family paid for his education with the "credit card" of student loans, both undergraduate and graduate. It struck me as kind of irresponsible but I always believe you have to walk a mile in someone else's shoes before making a judgment.

Thanks for your thoughts!

[mopinko]

2. it got a lot harder to find a job that didnt require a degree.

complicated by the raygun and beyond gutting of a living wage in this country, it got to be taken as gospel that a college degree was the only way into the middle class.
and tech in every job was on the way, as well.
then tuition went nuts. and most states gutted aid, to boot, as did the feds.

i left school to have a family in 85, and when i tried to go back in 92, tuition had doubled.
if i had been younger, i likely would have bit the bullet and gone back. but i was in my late 30's already. i had 4 kids. if it had been something w a paycheck, instead of art, i would have found a way.

i think they match changed too fast for people to keep up.

[PJMcK]

5. Good insights

Thanks.

As I say, I'm all for helping our young people. I just wonder how we avoid something like this in the future.

[mopinko]

7. by funding higher ed in the 1st place.

st ronnie started charging tuition in cali, where it had been free, to get the hippies off the campuses. that lit a fuse, too.

[Hekate]

26. Your recollections in this thread are similar to mine

[SheltieLover]

4. A large part of the problem

Is that when grads cannot find work, loan providers don't tell them about the income-sensitive payment plan, which would require zero in payments.

Instead, borrowers are push into deferring loans.

When one defers, they capitalize all the interest.

One friend had around $80K in loans, then was pushed into deferring & ended up owing $160K!

[PJMcK]

6. Wow!

I had never heard of that scam!

So the lenders were the predators and they knew they had the government facing them up. That's disgusting.

[SheltieLover]

36. I'd read sometime ago about a class-action suit on this

Maybe devoss killed it?

[SheltieLover]

38. So many can't find jobs, deferrment, I think is only for 6 months

So rinse & repeat. That's what happened to my friend.

[smirkymonkey]

17. +1000

That's what happened to me. My grad school loans came due right around Sept 11th, when I was laid off and didn't have a job for over a year. By the time I finally found one, I was not making enough money to pay for my rent, expenses and the amount that the lender was asking me to pay.

I offered to pay them what I could afford and they refused. They told me I had to pay the stated amount or go into forebearance, in which the interest is still capitalized. This went on for years. I borrowed $50k and ended up owing $135k by the time I realized I could get an income sensitive payment plan and have been paying ever since.

I have paid off the amount of my original loan and then some. The balance of my loan is now down to about $122k. It's such a racket. I hate these bastards more than I can say.

I tried to do the right thing, I was honest, I was never in default and I have paid off my obligation. Why should they profit off my misfortune and their slimy business practices?

[SheltieLover]

41. So sorry you were victimized!

Exactly what happened with my friend!

Have you read about a class-action suit regarding these practices? I saw something about one, but it has been a few years, at least.

Maybe devoss killed it?

One good thing is after paying on time for 10 years, all the rest us forgiven.

And this applies even if on income sensitive plan & zero dollars are required. Those zero payments count towards the 10 years!

[smirkymonkey]

51. Thank you, Sheltie Lover!

I know there are probably some deadbeats out there, but I think a majority of us acted in good faith and really got screwed. I should look into the loan forgiveness plan, since I think it's been almost 10 years of paying on time and I have more than paid off my original loan amount. That's good to know!

Hopefully Biden, Warren, Sanders and the rest will do something about this finally! It's such a travesty!

Thank you so much for your advice! I would like to think I could retire some day without this hanging over my head.

[MerryHolidays]

8. Watch the Operation Varsity Blues docudrama on Netflix if you can

It will give you a sense of how US universities have used "elitism" to drive up the demand. And when demand goes up, price usually follows. The greed of the parents who paid to have their kids get into schools or to take the SAT or ACT is just shocking, but it is emblematic of the lengths people will go. And price is no object when the demand is so great.

I understand that this year, demand for the "top" schools blew through all records. For example, Harvard undergrad's admission rate was something absurd like 3.5% of all applicants, the lowest it has EVER been.

Harvard is something like $50,000 just in tuition, not even considering room and board. It's no wonder that your nephew is in debt like that. The good thing is that many of the student loans are low interest and are generally flexible. To put it into perspective, I took two years of graduate school loans decades ago, and it was something like $45,000 (and, remember, this was decades ago). It did take several years to pay it off, but the amounts were manageable.

Compare the price of US higher ed with other countries and there is no comparison. It is TOTALLY out of control here in the US. And, to a large degree, it is the extreme competitiveness that is driving up the price, and there are MANY people (both in the US and around the world) who can easily pay full tuition out-of-pocket. So, the US universities are also taking in students from other countries and that too drives up the price. I'm not saying that anything is wrong with accepting foreign students, but the fact is that the universe of candidates for universities is the entire world, not just the US. And that goes for both private and public schools.

I am fed up with this situation, but, AFAIK, there's not much that can be done, as the universities are massive profit centers, even though they are not for profit. It's expensive to run a college or university, but the endowments and investments that many higher ed institutions have is mind-boggling.

I am not expert on this, but these are just some observations, right or wrong.

[mopinko]

9. the part where they cant be discharged in bankruptcy is also a problem.

true story-
someone i know went to northwestern law school, on loans. he had also taken loans on his cheaper undergrad.
he had been a high school debate champ, and was destined to be a heckuva lawyer. looked the part, too.
but his folks were poor.

he started off great, in biz for himself. but being an unrepentant old hippie, he was growing weed. lots of weed.
got cracked did 6 mos in prison. came out owing the irs $20k.
went bankrupt, but couldnt get out of his $100k loans.

today he works as a paralegal, making $20/hr and dealing drugs on the side. lives w his gf.
still owes $80k. in his mid 50's.

he's a trumpkin, and i cant wait to see his head explode when joe gets him off that hook, even a little.

[SheltieLover]

43. I was very close with someone who suicided because of student loans, in large part

Very sad.

Could not discharge on bankruptcy, lenders were not supportive, single parent.

[Hugh_Lebowski]

10. Because our economy is one largely based on predation and debt.

(in part because we don't make much stuff here anymore)

'Debt', and all that goes along with it, is an incredibly huge industry in this country, and this industry is ALWAYS looking for, and lobbying for ... ways to indebt the populace to sustain itself.

If you ask me, this country (and many others) are stuck in a vicious cycle of requiring perpetual growth to service the existing debt ... which in turn creates a need for more debt to service the requirement of perpetual growth.

Its a death spiral, basically.

Also, wingnut congresspeople at all levels have forced as much of the burden for higher education onto the students and their families as possible over the years. College used to be subsidized WAY more by government when most of us were young. Ya know, they hate government and taxes and doing anything for the collective good.

[wryter2000]

14. Ironically, my friend is the "I pay too much in taxes" type.

I tried telling her that if we all paid a bit more in taxes (including me, even though I don't have a kid in college), college wouldn't have to be so damned expensive for her.

You are so right about the percentage of the costs students have to pay these days.

[wryter2000]

11. The person I know who went into a lot of debt

I worked with a young man's mother. Although she got child support from her ex-, she still only made enough to care for herself and her son. If she could have saved anything at all, it wouldn't have been much.

Her son got a partial athletic scholarship in track, but still, the only way they could finance his education was debt. Both of them went into a lot of debt. He has a job now, and she has two jobs.

The cost went way out of control, and the only way the system works is through debt. Plus, they are private companies. When I got student loans, they were non-profit through the government. They were very easy to pay off.

Imagine someone with a job that allows them to save but they have more than one child to put through college. The only way to do it these days is through loans.

[underpants]

12. Answer is right here ⬅️

No actually not. Marking to read responses.

[yardwork]

13. Part of the problem are the for-profit "colleges" that weren't regulated.

The way I understand it, for-profit colleges and universities encouraged students to take out huge government loans. Some of these organizations were never accredited, and/or went out of business. Even those that still exist aren't particularly well respected. Students end up owing huge loans with no degree or near-useless degrees.

These for-profit schemes are promoted by the Republican Party. You're right to be angry that we the tax payers are footing the bill. The con artists took the money and ran.

[marie999]

15. In 1924 my grandfather died. My grandmother was sick and could not work.

My mother was supposed to go to college the following year but at the age of 14, she took a job at General Electric in the bookkeeping department. She supported not only her mother but also 2 brothers and 2 sisters. It was 3 years before one brother was old enough to get a part-time job. All 4 of her siblings finally had a part-time job and they all graduated high school and the baby of the family went to college. One thing my mother taught me was that it was okay to have a dream but live in reality.

[PJMcK]

40. Your mother is a wise woman

Still, dreams are important.

[Skittles]

16. I too wish they would address this issue

salaries did not keep up, yet the prices of everything kept going up (tuition and healthcare beyond all reason) - it is RIDICULOUS

[Politicub]

18. Student loans are not offered to people like other loans.

Federal subsidized loans are like this — I can’t speak to private student loans.

Here’s how people end up in the college debt trap: Typically, a school will offer a financial aid package to students — a combination of need-based grants and federal-subsidized loans. You sign for the aid package and sometimes get a stipend for books and living expenses.

This process is streamlined. With the student’s signature, they will have enough funding for the upcoming semester. It’s very abstract - and doesn’t feel like a financial transaction. Tuition along with room and board is settled. College ensues.

The ease in which student loans are proffered and accepted is how people get trapped before they realize how much these loans add up. In the case of subsidized loans, the student will not see a bill until they graduate.

Should people be more responsible for their choices? It’s a lot to ask of 18 or 19 year old people who lack financial literacy. I would place the onus on schools and the system to be more responsible and forthcoming about the long-term repercussions of borrowing.

College is expensive. Without loans and need-based aid, it would be unattainable for most people.

The long term answer is to keep a segment of colleges affordable. Not everyone needs to go to a $30k/year private college. That doesn’t help the people who are saddled with debt today, though.

I think forgiving $50k in loans is fair. It amounts to about $12k/year for a student who has a four-year degree.

[PJMcK]

39. You make a lot of good points

My only question is when you put the responsibility for the entire financial endeavor on the shoulders of the teenaged student. Parents bear a great responsibility in these decisions. My folks were involved with my education and I did the same with my son.

I guess I'm saying that responsible parenting doesn't end when your child turns 18!

[Politicub]

46. Not all parents are involved with their child's college education, or they are baffled by it because

they didn't go to college.

That's kind of my story. I didn't grow up with a lot of money, and my dad was a laborer. Neither of my parents went to college (or graduated high school for that matter). I was bound and determined to go, but I didn't have anyone in my family to turn to for help.

So I figured it out on my own. My parents were super supportive about all of my choices. I was fortunate to go to college almost 30 years ago, and to a state school. I knew private schools were out of my financial league, so I didn't apply to any.

There is so much about debt and college tied to economic class... your reply to my post got me to thinking about it.

Even things like the SAT and prepping for it are tied to class, too. I didn't really know that SAT prep was a thing that people did when I was a high school senior. I knew the test was required to apply for college, but no one suggested I prepare. I wouldn't have been able to afford a tutor anyway.

Everyone's story is different. Loan forgiveness will help a lot of people. Other people won't care. And some people will resent that they did not get help to pay off their loans.

I didn't get help paying back my loans, but I would not begrudge anyone who does. Generally I see federal investment into higher education as a positive thing.

[PJMcK]

48. Your drive for an education is inspiring

On another post below, I observe that I don't have a problem having our government help people get out of this crushing problem.

However, shouldn't there also be an equal benefit to those who didn't get the opportunity to go to college? Otherwise, the privileged person gets a double-leg-up whereas the less privileged gets nothing. That doesn't seem fair.

[Retired Engineer Bob]

19. Multiple reasons, perhaps

Graduated from the University of Wisconsin, Milwaukee in ‘90. Back then in state tuition for a full semester, full credit load was $750. Tuition is now $9,500. You can thank Scott Walker et al for the “improvement”.

Never did have the “college experience”. Stayed at my grandparent’s house, commuted to school via city bus. Spring break and summers were spent working at a large printing company.

Degree in engineering paid off. Got a job within a month of graduating, starting salary $22.5k/year. Ending salary was quite a bit higher.

[PJMcK]

37. Congratulations on your retirement

My dad got his BS and MS in chemical engineering at UW-Madison. I was born nearby in Neenah-Menasha and have worn my cheesehead with pride, even in spite of Walker, Johnson and the other Republican wankers.

Most state universities have experienced that same tuition explosion that you described. I think this circumstance will be unsustainable.

[Retired Engineer Bob]

52. Thanks for the congratulations

I agree on the sustainability comment. Kids nowadays start their careers with the equivalent of a mortgage hanging over their heads.

[gibraltar72]

20. I was in financial services.

Most families don't have enough after paying the bills to begin to set aside college funds for a couple of kids. That is just the way it is.

[PJMcK]

34. Income inequality is part of what is dividing our society

You're absolutely right about so many people's home economics. A staggering number of Americans live paycheck-to-paycheck and they still come up short some months.

[Oldem]

21. One student with life-crushing debt is enough, and there are many

multiples of one. Most colleges and universities have become a racket. From the standpoint of the national good, the point of having a higher education is for the graduate to make a contribute through his or her education and to be part of a thriving economy. The graduate with huge debt might make a contribution in business or a profession but not a contribution to the economy. Struggling to hang on to a middle class status doesn't put dollars into the economy.

[world wide wally]

22. A few thoughts come to mind when I think about student loans.

First of all, when I went to college (graduated in '93) the cost was about $100/ semester hour.
I just finished sending my daughter to college and the cost was $8000/ semester. Plus living expenses.
It was impossible for her to go without the financial assistance.
Finally, I remember the Obama's only paid off their student loans shortly after he was elected President.

[PJMcK]

33. Congratulations to your daughter on her academic accomplishment

She clearly has a parent who cares about and loves her.

[StarfishSaver]

23. These are excellent questions

While I think the government needs to do something about education debt, I also chafe at the inequity of solutions like this. The people who got degrees, even at baxk-breaking financial expense, have a leg up in society that many people, especially minorities and low-income Americans who couldn't afford college even with student loans (or couldn't get in because of subpar educations) won't benefit from.

Erasing that debt is an enormous benefit to them that will allow them to enjoy the fruits of the education without the burden while those who didn't go to college and get degrees are left even further behind.

I think any discussion of erasing student debt must also include plans for expanding educational opportunities and more focused job creation for people who havent't been able to access the opportunities these students have. Unfortunately, that part of the conversation is almost always shut down and any benefit to those people is treated as an undeserved handout.

[PJMcK]

32. Your last paragraph

You've answered my question. What was bothering me was that those privileged to go to college on a loan that will be forgiven are provided a double advantage over those who are less privileged. The folks left behind need an equal chance. After all, if a student is granted a $50K debt erasure, shouldn't the less privileged person also get a similar benefit?

[StarfishSaver]

42. Exactly

It just seems to me another example of people with privilege getting additional privileges because they had a privilege while those who couldn't avail themselves of that privilege get nothing.

I'm ok with erasing college debt IF we provide some commensurate benefit to people who were not able to go to college. Unfortunately, I don't think that will happen.

As Billie sang, "them that's got, shall get. Them that's not shall lose..."

[hunter]

24. I graduated from college without any loans.

Some of it I worked hard for (you have no idea...) and the rest of it was subsidized by the state of California and the U.S.A..

I like to think I made the world a better place, a good value for the investment.

After the Reagan Revolution fewer young people had those opportunities. If they wanted to make the world a better place they had to pay for it themselves.

The fucking Ronald Reagan "conservatives," may they rot in hell fucked in every orifice by demons with cholla cactus pricks, don't want the world to be a better place.

[PJMcK]

31. Actually, I do have an idea of how hard you struggled

I had to, as well. My folks were able to pay my tuition but I had to pay rent (no dorms), food, entertainment, books, etc. When I went to graduate school, I worked full-time while I did a 2-3 year program in one year! I'm pretty sure I put in at least as many all-nighters as any med student!

For grad school, I took a $4,000 student loan (1980-1981). About a year after graduation, I had to start paying it back at $35 per month for 11 years. Within 2 years, I was able to just pay the damn thing off. I can't imagine a young p[erson today being able to do that. It's really quite disturbing.

[TreasonousBastard]

25. The problem goes far beyond those loans...

Colin Powell, Ed Koch and thousands of others, and me, went to City College for free. It cost me $18 registration per term, plus books and some lab fees.

What eventually happened was the expansion of City University to where anyone with a high school diploma could get in. That obviously cost more than the city wanted to pay, so tuition was started. And standards were lowered.

Lowered by a lot.

At the same time, other recognized colleges and universities were also expanding. Everything from Pell grants to loans fueled the expansion. And for profit colleges made a big push. After all, with all that loan money out there, why not just register everyone?

If you couldn't cut it with NYU or Columbia, there was always U of Phoenix.

[PJMcK]

30. I've noticed the same thing at CUNY

My wife got her masters degree from Hunter College. Although it's still a good school, she tells me that some departments have deteriorated.

Sad, really.

Is higher education really necessary for everyone?

[Phoenix61]

27. As loans became easier to get colleges got

larger and hired more and more non-teaching staff. Since the only thing billable is teaching hours they had to charge more and more per credit hour.

[FakeNoose]

44. Exactly right - admin salaries and benefits have grown exponentially

... meanwhile professors, instructors, post-grad assistants, etc. are getting squeezed into poverty. Their benefits have been cut, office space is insufficient or non-existent, and full-time teaching positions are no longer being offered.

It's enough to chase the highest quality professors and instructors out of the field completely. The quality of instruction in our colleges and universities has suffered greatly in the last 35 or 40 years. But the tuitions keep climbing every year.

[PoindexterOglethorpe]

28. Far too many people, both young people and their parents,

fail to actually look at the total numbers, the full cost of college. And then the students major in something they simply find interesting, without ever paying any attention to whether or not there are jobs out there.

Also, vocational education is totally neg elected and even scorned in this country. More students should start at their local junior college, which while not as cheap as it ought to be, is a huge bargain compared to even the cheapest public universities. And many, many more should look into the amazing certificate programs at those junior colleges.

I've been nattering about this for literally decades now.

I will tell young people that it is okay to major in something they love, but not to lose sight of the fact that they are going to need to earn a living when they are done. Plus, every school has some kind of career resource center, whatever they might call it, and the people who work there complain that hardly any students know they exists. They can be enormously helpful. Heck, schools ought to have some kind of a requirement that all students spend time there each year they are attending.

[PJMcK]

29. Those are terrific insights

Thanks, PO. You raised several important points, particularly the attractiveness and utility of community colleges.

I was one of those dreamers who were into classical music but I had a lot of personal ambition and I've been fortunate to work steadily for over 40 years. I don't think a lot of young people have the same motivations that drove me. Some do, of course, and their exceptionalism allows them to stand out.

The debt thing freaks me out, however.

[PoindexterOglethorpe]

35. When I was in my mid 20s, in about 1977 or so,

I met a young woman several years older than me. She was bitterly angry at herself that she had taken out loans to complete college, perhaps five or eight years earlier. As I recall, the total amount was around $2,000, which even then wasn't all that bad, but she felt it had been an extremely poor financial decision. I have never forgotten.

Public colleges and universities used to be relatively inexpensive, although not very many states had truly free schools. When my younger son was in college I told him that when I was his age, it was possible to work a minimum wage job during the summer, and so long as you lived at home and saved most of the money, it was possible to pay tuition and fees at least at the University of Arizona where I first went to school. He was flabbergasted, because his friends who were attending the University of Kansas were paying far more than that.

Public colleges and universities should be as affordable in relative terms as they were back in the 1960s when I first attended.

[llmart]

45. I have some insight into the rising cost of public universities.

I'm retired now for almost two years but up until then I worked in administration at a public university, reporting to the very upper level of administration - the provost and president. I was privy to all confidential information in my position. The amount of administrator salaries and benefits and the number of, in my opinion, levels of administration would appall you. Public universities now are expected to run like a business, so they recruit upper administrators from big corporations. In order to lure them away from the big corporate job the university has to pay more. They bring the corporate mindset with them. They create unnecessary levels of administration.

Any President was given a house to live in and in one incidence one of the Presidents wanted the house updated so the Board allotted a million dollars for renovations. That President left before his contract was up, (there was a scandal about him and a young woman who taught there), they bought him out of his third year, hired another President (the hiring process alone costs plenty) and that new President didn't like the style of the house, so they once again allotted another million dollars to renovate again. This is only the tip of the iceberg as far as what I was privy to seeing while working there. There were so many lower level administrative people that they kept on but who contributed nothing much.

Students worked for me usually on the work/study program in order to help pay their expenses, and I came to like almost all of them and got to know them personally. I felt so sorry for some of them who were very serious students doing the best they could to help pay for their educations without too much student debt. Many of them were the first in their families to go to college.

In our state there is some sort of a cap on how much a public university can raise tuition each year and still get help from the government, so a university can go above that cap but they will not get any assistance from the state. The Board has to decide if raising the tuition above the cap will pay off financially for them in increased applicants above what they would have received from the state.

[Generic Brad]

47. Hate to say it, but most people don't understand the concept of loans

I've spent a career in the consumer financial services industry with close to a third of that spent in the student loan sector. When I hear educated people talk about the unfairness of loans, it is obvious they do not understand how compound interest works or even why loans have interest in the first place.

Before I graduated high school I took a personal finance course that gave me life skills I use to this day. I learned how to read a bank statement; how to balance a checkbook; the difference between fixed and variable rate loans; the basics of insurance, investments, and lending. That was enough to allow me to make deliberate and educated choices in how to fund my education (I earned a Masters in a field I do no work in). Having a class like that required in high school or making a loan seminar mandatory before applying for a student loan would help a lot of young people avoid the serious financial straits they eventually find themselves in.

[PJMcK]

49. I think you're right

Let me go further: Too many people don't really understand how money works. They think about this month's bills or buying a new TV or something else. They don't think long-term.

Acquiring personal wealth isn't too hard to do if you're disciplined. A mentor from my teenage years told me that every time I got paid for a job, I should immediately put 10% into a savings account, (back then they earned 5% interest!). Then I should pay my bills. It was good advice that has served me well.

ETA: I, too, got a masters degree that really hasn't been useful in my career but at least they were both in music!

[Generic Brad]

50. I grew up in a household that focused on minimum payments

As long as my folks could make minimum payments, they bought everything in sight. At one point my parents had a second home, a speedboat, a pontoon, a fishing boat, two snowmobiles and multiple cars. Then my dad lost his job. I watched his heart break as things got repossessed one by one. Then he died unexpectedly the day before he was to finally start a new job. I swear the stress contributed to his death.

I vowed never to have those things happen to me. I went without for a decade while I focused on paying off my student loans. And I have purposefully lived way below my means since.