Are students taking on too much debt?

Parents Forum
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We see so many posts on the forum with prospective students asking about whether they should accept an offer from their “dream” school that carries sizeable loans.

In a MarketWatch article today they reported

In February, a record-breaking 20.5% of 19.6 million student loans due for payment were at least 90 days past due
The student-loan trend that’s ‘alarming’ lenders: Even borrowers with great credit scores are falling behind<!-- --> - MarketWatch

That is incredibly depressing! One out of five borrowers. And these are loans that can’t be discharged in bankruptcy so they’re with these kids for life.

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So, I guess the answer to this thread is “yes.”

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The devil is in the details. I haven’t looked at the source data for that article but would be interested in knowing the graduate vs undergraduate split. Undergrads are generally limited to $27K in loans, so in the big picture that’s not ‘too much’, although of course people could get behind on those loans. I’d also like to know the proportion of thes loans that are parent plus loans (I assume those are in the numbers but not sure.)

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As Federal Collections Activity Resumes, More Than One in Five Federal Student Loan Borrowers With a Payment Due are Seriously Delinquent is the statement from TransUnion. However, details appear to be for paid subscribers.

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I think that the very long payment pause, the confusion over repayment plans, the fact that many loans have been reassigned to new servicers, and the propensity of many borrowers to ignore information from their servicers (I saw this far too often) have come together to create a huge mess. Students who are a few years out from graduation are not thinking about repayment. They did not include it in their planning, and they don’t seem to be doing so now that it’s time to pay the piper.

I worked really hard to impress upon my school’s borrowers how important it is to understand repayment and to make payments on time. I had detailed loan repayment meetings with students. Yet when their six month grace period ended, many ended up waiting too long to set up income based repayment - so they would either become delinquent because they just didn’t pay or they had to request forbearance and wait for an income based repayment application to process. If they had been a couple more years removed from graduation, I’m sure it would have been worse. It doesn’t help that the servicers apparently didn’t have correct information for a lot of borrowers (anecdotal information).

There should have been a big communications campaign from ED around repayment leading up to the end of the repayment pause. In the end, though, borrowers have options for repayment and should be able to set up a workable repayment plan. There is no excuse not to take care of their obligation.

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A financial guy here recommends not taking on more in college loans than you hope/expect to make in your first job out of college.

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Yes. In CA, you can go to CC for free for the first 2 years. Then you can transfer to a non-impacted CSU for the final 2 years. It would only cost you $8000 a year while commuting from home. You basically can get a CS/Engineering BS degree for $16K totally assuming you don’t get any financial aid. This is the cheapest way to earn $90-100K/year in Silicon Valley. Therefore, anybody borrow more than $16K, you take on too much student debt. Good Luck.

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That assumes that your parents will continue to subsidize your room and board at home like when you were in high school, and that your commuting costs will not be higher (there are fewer community colleges than high schools, so many students have longer commutes to community colleges; CSUs are again fewer, likely increasing commute distance relative to community colleges).

Note that in other states, community college in-state tuition can be significantly higher than in California, and the transfer pathway to state universities may not be as well marked and traveled.

However, not all non-impacted CSUs have engineering majors (or that many of them).

But the “student loan debt problem” probably is not referring to these students, even with costs somewhat higher than just in-state community college and CSU tuition. Some of the biggest levels of debt would be for professional schools.

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I do know from other studies that student loans for non-profit four-year colleges were less correlated with delinquency than other students loans, at least if the student actually graduated. This is part of the evidence in my mind for the idea that the federal loan limits for non-profit four-year college degrees are actually pretty well-calculated to be manageable for most students in light of the typical range of career outcomes for non-profit-four-year-college graduates.

But still, I am sure if you looked at the context of the whole family, then yes the families taking out a lot in loans for colleges (well past the federal limits) would be disproportionately likely to end up experiencing a lot of financial stress as a result.

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And those HELOC’s- ugh. I know several people who humble-bragged that it was MUCH smarter to HELOC for your kids college than to be the chump who was dutifully saving out of every paycheck and slowly, slowly, slowly saving money while living in their starter home with their modest lifestyles.

When home prices/values hit a snag- as they often do-- those people shut up pretty quickly. Nobody wants to be underwater, but when the tsunami hits it hits.

I have one acquaintance who had to deal with job loss. Quickly found another job in his field- but it meant selling the house and moving. And he owed more than the house was worth. Ouch. So you do stay unemployed and stay put- hoping for a job that won’t require relocating? Do you dump the house, pay off what is essentially multiple mortgages, get on with your life? Do you wish you hadn’t used your house as an ATM machine to pay for a college you couldn’t actually afford?

I was the chump who stayed in the starter home, saved up one paycheck at a time, so I kept my mouth shut.

People don’t often understand how much debt they’ve accumulated (whether secured by a house or not) until the alleged “Black Swan Event” which truth be told- is a reasonably regular occurrence…

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Due to grade inflation, many students are getting 4.0 GPA. Due to online help availability, many students are scoring 1500 and above for SAT. All these students think they deserve top collages. They fail to understand they don’t deserve to go to NYU, USC for $400K unless their family can afford it. Not even $240K for UIUC, GTech OOS. Not even $160K UCs in state… In my previous post, I demonstrate how you can get ABET accredited Engineering degree for under $20K. If this is all your family can afford, anything above that amount is consider luxury. Good luck.

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… in tuition in California, not including the costs of living with parents and commuting, and assuming that the student lives within commute range of a school with the desired major.

A student in rural Pennsylvania may find that to be more difficult.

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Anywhere in Vermont not close to Burlington (a state with lousy public transportation), etc.

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Yesterday there was an article in The NY Times about the cost of college. I was surprised to see the number of commentators who seemed to feel that families should not have to do either option --they should not have to scrimp and save like “a chump” as you put it. Nor should they have to borrow to pay their child’s tuition later. They felt that the cost of tuition + expenses should always be manageable on their after tax income alone. Their point was that the COA is too high at most colleges and the colleges are spending wastefully.

The basic concern was that families do not have enough money left over to pay the cost of attendance after their non-education expenses each month. There was a lot of frustration expressed by upper middle class families in particular who thought poor families have it easier. Some pointed out that even if they were earning 100-300K now, they were not earning enough money for the first 18 years of their child’s life to save much in advance. They are also reluctant to borrow anything now.

I get the concern, but I think for most families, it is impractical to believe that college will ever be payable out of regular weekly paychecks. College is expensive. So families do have to decide if they think the education is worth the expense. If so, many families can only make it work through some sort of long term sacrifice (either precollege for those who can save during the K-12 years or while/after the child attends college or both). Even for upper middle class families, it is not going to be affordable without substantial sacrifices on either or both ends.

My parents had to borrow to send me and my siblings to college. They did not seem to resent it (as far as I know). It helped that they were relatively young and thus had over 20 working years to recover financially after we’d graduated. It is harder when you are closer to your retirement years while your kids are in college --and then the calculus may need to be different. My siblings and I also borrowed to help fund our own educations. I was not done paying off my student loans until my oldest kids were in middle school, which meant I felt there wasn’t never enough extra to save for their college --it made more sense to me to save for my retirement and hope that they get decent financial packages or consider borrowing when the time comes. So far my first two have not had to take loans nor have I, but both got unusually lucky with being admitted to no loans colleges that met our need.

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I think that it’s also that expectations of what college life should be have also changed. Going to college (at all) was generally something that only upper and upper middle class people could afford with an occasional scholarship kid getting lucky. Additionally, for many (most?) people, going to college meant going to the local college or, if one was lucky, the state flagship. For many of the families that are earning $100k+, paying for their in-state publics is still possible, if not easy, on their current salaries.

What has changed are people’s expectations. They expect to be able to go out-of-state or to colleges with “nice” amenities, and preferably at a highly rejective college that will garner some impressed stares when they utter the school’s name. And attending a college like this was generally only for those with $$$. So from the comments you talked about, it seems like people’s expectations of a college experience have gone up, but they don’t want to pay a correspondingly higher price for it.

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If my dad was alive, he would be almost 100. He did not get a college degree because … he couldn’t afford it. My parents were unable to save to pay for their five kids to go to college, even though both worked. We kids chose our colleges based on what we could afford, with “living at home” being the contribution my parents could make toward our expenses. The idea that whatever college little Tommy or Suzy wants to attend should just magically be affordable for everyone, without any saving or sacrifice, is a relatively new concept. I remember parents who spent many, many thousands of dollars on dance team or travel sports complaining that they were expected to pay for college. It’s a very selfish mindset.

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I work with (and know from other activities) so many people just like this. These people have nice homes, take bonkers vacations, drive really nice cars and have multiple kids with absolutely no financial plan for college. These families were also the ones who were in the biggest panic 3 months into the covid shutdown. We all live paycheck to paycheck in our very early 20s, but they are doing this in their 40s and 50s. How (and why) you would bring kids into this world without a thought for setting them up for the future is truly a mystery.

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I still remember my grandpa (long gone) needling my mom about how he paid her bus fare (to get from the house to college and back again) without ever once complaining. My mom assured us that yes, he complained. Dorming was a luxury back in the late 1940’s and based on the stories we heard from my mom and other relatives- “ordinary people” did NOT expect to dorm or go far. And ironically- my grandparents had taken in boarders during the depression (a few who never left) and so my mom’s absence if she had dormed probably would have have evened out if they could have filled her bedroom with a paying tenant!

For sure this phenomenon explains the number of nurses and pharmacists in my family (when pharm did not require a doctorate). Hospitals ran their own allied nursing programs (for RN’s, not Bachelor’s) and so if you lived near a hospital, your D could become a nurse at relatively low cost. The pharmacy programs had higher academic standards back then- but again, you weren’t looking at 6-8 years of tuition. So the girls went to nursing school, the boys went to a pharm program. And the ones who served in the military had more options thanks to the GI Bill.

But middle class people did not conduct extensive, multi-state college tours requiring hotel stays!

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Students within commuting distance of a community college can still get an RN inexpensively, then have their employer pay for their BSN. Yes, even here in Pennsylvania. Last evening I watched the online streaming of commencement at my local community college, as one of my grandchildren was graduating. So many nursing and allied health care graduates. It was so heartwarming to see the rich diversity of the student body: students of various ethnicities, many first or second generation (good that I wasn’t trying to pronounce the names), many students of color, many ages, sizes, and shapes. So different than the demographics of my suburb (though we are slowly becoming much more diverse). Yes, a very different experience than most upper middle class families want for their college-age children, but definitely an affordable and enriching experience. And an excellent ROI.

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I’m right there with you on all this. College is just expensive, even in-state. Like it or not, it’s reality. A lot of middle-class people with nice houses etc. are downright angry when the time comes and they find out how much it actually costs. That often doesn’t sink in until after all the aid offers have already come in.

I supposed some people don’t check to see how much it costs in advance, and/or are assuming it’s about the same as when they attended. You can tell some are flying a bit blind, as they’ll think that FAFSA is a government program that decides how much aid they’ll get and hands it out, as opposed to a formula that determines what they think you should be able to afford. I hear some folks assuming they’ll get “more FAFSA” or “scholarships” to cover huge college expenses.

We too were unable to save for college due to low wages and our own student loans (still paying!). Though we have saved for retirement.

Yet we were pleasantly surprised at our $23K SAI number. Do we have money saved for that? No. Can we cash flow that? Absolutely not. But we were well-informed and knew that was pretty dang low for an SAI, so we weren’t disappointed. And we knew that colleges have no obligation to meet your SAI (though in-state publics and fancy privates often do).

We were lucky that our kid applied to lots of less selective schools and got great merit aid offers, as well as pretty generous need-based aid. Most offers came in within $5K of our SAI. Our kid picked one of the cheapest ones and we’ve been able to make it work with just the direct federal loans. This is largely because our kid earns 10K/yr working.

A ton of kids from our HS apply OOS to UMich. Why? It’s a big name and they erroneously think their kid will get a bunch of aid. Almost none could afford it even if they got in. For the ones that do get in, some of their parents are in deep financial distress to pay for it.

Exactly. It’s all about managing expectations. And I think a lot of people’s expectations are WAY off. Though I feel bad for them, since it’s common to be in the dark about it.

A lot of our friends are professors and I’ve been surprised at how even some of them are pretty clueless about college admissions and costs when it comes to their own kids. You can tell which ones are savvy because their kids apply to a way more eclectic list of schools rather than the typical list, and almost all of them end up attending some really neat OOS schools that have offered them a great aid package.

A typical app list for a studious kid from our HS is Purdue, IU, U Chicago, Northwestern, UMich, Notre Dame, plus a random sprinkling of other fancy schools. Spoiler: they all end up at the in-state publics and thank goodness those are great and quite cheap. But there are so many great schools they miss out on because they just don’t understand the landscape.

And some of them are pretty bitter at the admissions and/or aid because the results did NOT meet expectations. Whereas here on CC, people who have become informed prior to applying are often very pleasantly surprised at the results. Because they have accurate knowledge and realistic expectations.

I think this is largely how the student debt gets away from people. They don’t have realistic expectations and then when reality hits they just decide to borrow.

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