Are Student Loans the New Subprime Mortgage Crisis?

<p>This is something for the class of 2014 and their parents to think about before leaving for college in the fall. </p>

<p>placing-the-blame-as-students-are-buried-in-debt:</a> Personal Finance News from Yahoo! Finance</p>

<p>I've wondered this myself. So many people say they'll get the "best" education at any price, without realizing that the cost of education is not always correlated with its quality.</p>

<p>I feel badly for many parents with kids in this situation, those who just wanted to give their kids the very best in life, but who were too naive to do it right. To a typical middle-class family, elite private universities evoke images of old money and lives of leisure, and who wouldn't like to get their kids into that world if they could?</p>

<p>At the same time, it's hard to feel sorry for someone who takes on crushing debt to study something that's practically guaranteed not to get them a decent-paying job. I'm a bit contemptuous of anyone who can't do a basic cost-benefit analysis and see that $100,000 in loans will not be paid off on a social worker's salary, or whatever.</p>

<p>"Are student loans the next subprime crises?"</p>

<p>Yes.</p>

<p>I read that story also and was almost feeling sorry for the girl and her mother until I read what she majored in. </p>

<p>"Religious and womens' studies". </p>

<p>And now working in a photography studio. What the heck was she thinking? </p>

<p>Families have to think of a college education just like any other investment. Dollars in versus expected gain. No one in the article came off looking good. Not the student and her mother, not Citibank and not NYU. Colleges that encourage this kind of debt for degrees that aren't likely to pay off are conning the students.</p>

<p>I don't think the magnitude of outstanding student loans will come anywhere close to the amount of sub-prime mortgage loans. The data is out there somewhere, but the balances aren't as high and the number of people is far smaller. </p>

<p>The next shoe that will drop (& is already starting) is commercial real estate. Most of this is owned by banks and other institutions, but it will trickle down to supresss pension fund returns. It will also influence bank behavior going forward and less money will be available for construction projects. This will all lead to slower growth.</p>

<p>I can't imagine if two students with 100k in debt each, fall in love and get married. How would they ever build a future for their own kids or buy a house? Would they even qualify for a car loan? That debt would be a life changer.</p>

<p>"its just undergrad" - my motto.</p>

<p>csfmap, I have often thought about that. I also have thought about the family dynamics and possible resentment if middle class family A paid off their child's student loans and paid for all of college, and middle class family B allowed their child to borrow 100k. Now A and B marry and family A learns that their child is going to be saddled with 100k in debt anyway.</p>

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Now A and B marry and family A learns that their child is going to be saddled with 100k in debt anyway.

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<p>That ain't the family's beeswax.</p>

<p>mantori, I agree, but in some families they make it their business. There are parents out there who feel that they don't want to pay for their SIL or DIL's education (indirectly) by offering any monetary gifts. This would not be me, but I know people who would think this way. Naturally, the children can tell their parents not to offer gifts that they would resent giving too!</p>

<p>That would be wise. A gift that is given resentfully is no gift at all.</p>

<p>I agree 100%! </p>

<p>I just would not want to be marrying into this type of situation, where I owe 100,000, and my husband owes nothing or a small fraction of that. I would feel that inlaws would be my thinking about this quite regularly, whether they offered us a gift of any kind, or not.</p>

<p>I agree that my son's selection of his spouse - whether debt-free or in-debt - is none of my business. But, I'm going to make sure my son sees the article and knows that once he marries, he will assume the debt of his spouse. (Is there any way to avoid it? A prenuptial agreement?) I hope for his sake he thinks twice if he learns the girl he's dating is borrowing heavily to fund an undergraduate degree that can't possibly provide the earning potential to pay off the debt in a short period of time. I hope he's smart enough to start married life only when both partners are debt free or at least close to it. Either way, his debt won't become my burden.</p>

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I hope he's smart enough to start married life only when both partners are debt free or at least close to it.

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<p>I think that when we got married my our combined student loan debt was about 21,000. I don't know what an equal amount is in today's dollars vs. 25 years ago. We paid it off mover several years. It was all graduate school debt. We did not have student loans from our undergraduate years.</p>

<p>We may hope that everyone's sons and daughters understand how difficult it is to pay off a huge student loan debt. Unfortunately, even people with the best of educations don't always see the problem with the huge debt. Even if the chosen career promises to be lucrative, the timing of the high payoff in salary may still be too far off for those monthly payments that start after graduation. I think some debtors are hoping that the spouse's parents will pay off their debt. All I can say to that is that if the debtor's own parents didn't pay, how can they ask the inlaws?! </p>

<p>I think young grads have to realize that they will have to live extremely modestly if they have a large debt outstanding, and that this will of necessity mean sacrifices somewhere. I really do think once you get married, you should stand on your own, and not expect parents or inlaws to pay for you.</p>

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"Religious and womens' studies". </p>

<p>And now working in a photography studio. What the heck was she thinking?

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I'm not arguing with your point but just one recent anecdote I heard a few days ago - Carly Fiorina, currently running for a political office in California, is the ex-CEO of HP and someone who apparently has a bit more money in the bank than me, had an undergrad degree in Philosophy and Medieval History (from Stanford). She also dropped out of UCLA law school after a semester but obviously went on to some success (she also obtained an MS management degree from MIT). There are, of course, lots of other similar anecdotes.</p>

<p>That anecdote aside, I agree that one should have a plan as to how to pay for college regardless of the major or cost and it needs to be realistic. Not every Stanford grad with a history degree will become a millionaire. Not every doctor or lawyer will end up to have a huge income with which to pay off large loans. There's a degree of risk and practicality in all of these choices. A person graduating with a computer science degree and 50K in loans will 'likely' be able to pay it off pretty quickly. A person graduating with a social work or elementary teacher degree with the same 50K in loans will likely have to take longer to pay that loan off. People should approach this with a realistic and practical viewpoint and not strictly a 'follow your heart' (regardless of the financial cost, regardless of the final degree plan, regardless of the likelihood of earning enough to reasonably pay off loans) attitude. The 'heart' should be included as a factor in the decision but not the only factor.</p>

<p>I agree that "useless" degrees don't always spell financial disaster for the college graduate. But it looks like Carly Fiorina had future plans that included prepping for a lucrative career (law, and when that didn't work out, then business). </p>

<p>Also, degrees that don't directly lead to a career are not problematic if you can get them without a lot of debt. </p>

<p>The problem arises in this young woman's case where she has a degree that doesn't lead directly to a career, lots of debt acquired in getting that degree, and no thought to planning a future career that could pay off that debt. The perfect storm!!</p>

<p>"... when we got married my our combined student loan debt was about 21,000." </p>

<p>Ours was zero, but that meant starting our family in our mid-thirties. I don't believe in afflicting children with their parents' adolescent decisions. But I do think if appropriate to teach good values ... and I don't think "unmanageable debt at age 22" is a good value (pun intended).</p>