<p>Private banks used to lend for education. Not many do anymore, and by not many I mean fewer than 10. Several of the biggest lenders left the business about 5 years ago. Since about 1980, private student loans were guaranteed, but now aren’t. Sallie Mae was buying them up, making money on the servicing not on the actual loans.</p>
<p>They are unsecured loans. When setting the interest rate, bankers need to look at who is in the borrowing pool. For many years, the default rate on mortgages was about 1.5-2%, and rates were set accordingly. When the default rate zoomed to 10%, the losses couldn’t be covered by the earnings and banks failed because, unlike finance companies and payday lenders, they didn’t know how to deal with such high default rates. How would they establish the rates for the student loans? They’d look at the pool of borrowers: those who can’t qualify for government loans, a current default rate of about 10%, the condition of the economy. Those rate are going to be 15% or more, and that’s to people with good credit scores. It just isn’t good business to lend money to people who aren’t going to pay it back, and history tells us that more than 1 in 10 are NOT going to pay back what they borrow.</p>
<p>I disagree that banks would make the loans if they weren’t competing with the government. There are plenty of people who will borrow whenever its available. They don’t care about the APR or repayment terms or how much it will cost in the end. They want the money now. Look at the payday lenders. But they aren’t good risks, and they can’t borrow more than $500 or so. If payday lenders offered student loans of $10000 at 30% interest, people would line up at the door. Believe it or not, there is no profit in such a loan for the lender because the default rate would be 75%.</p>
<p>^^^ lookingforward I was the one who said I do not believe that the rising tuition of colleges is not absolutely necessary and that many, if not most, colleges should be able to figure out places to cut back on their current costs. You had said “I doubt you know, from the inside, how bloated any of this is-” and I said that I believe the college budgets are indeed bloated and I also said that I do not believe that colleges are incapable of cutting costs anywhere and that these increased tuitions and all their new expenses are absolutely vital. I expressed my views that I do not really believe universities when/if they say that they just cannot cut costs anywhere and would have to close if they were pressured to cut costs.</p>
<p>Well there’s an easy “fix” for incoming students … pay off student loans on schedule or be conscripted into the military. Make 'em sign enlistment papers before they attend, deferred so long as loan repayments stay on schedule. That should encourage incoming students to take a closer look at how much they’re borrowing. </p>
<p>Unfortunately, this doesn’t address the current student loans situation. That will take some governmental action, since student loans are a government-sponsored program. How about something simple to start … like reducing interest rates to something reasonable? </p>
<p>^^^ lookingforward I understand what you are trying to say about Harvard, but even there I see signs that they are simply dealing with excessive spending issues and not necessarily with expenses that are absolutely vital. You mentioned “every single building or reno project go on instant hold”, but many of those buildings could be simply new and overly fancy construction projects they were building simply because they could and not because they absolutely had to - that is definitely the case at numerous other universities. You mentioned “lower annual increases in tuition” I can see that being the case for Harvard and other universities, but maybe that is a response to pressure to do something about their budget after years of raising the tuition at a totally unchecked rate. You mentioned them dealing with budgets for their faculty - but that could be because some of the faculty are teaching in departments that have been considered superfluous, particularly if said departments are not preparing sufficient numbers of students for jobs other than those they could have gotten even without a college degree. </p>
<p>I just feel that it is an important issue to look at more closely because there have been calls for even more federally backed, guaranteed student loans and protests that students don’t get enough student loans. Our gov’t has been putting the idea on the table of coming up with making available federal student loans significantly larger than they currently are. If colleges know that they will have even more guaranteed student loans than these budgets will become even bigger still and I do not believe it will all be going towards more vital services.</p>
<p>NewHope33 - That is actually a phenomenal idea. If I were president I would be giving that idea very serious consideration at the very least. </p>
<p>But I still think student and parent expectations will have to be lowered and eventually universities will have to realize that if they choose to close rather than cut some of their more unnecessary expenses than it is on them.</p>
<p>^that’s a belief, though commonly expressed. I do not see that happening where I teach; both schools are constantly looking for ways to stretch dollars farther.</p>
<p>“So now they’re in the military… And what benefit are taxpayers getting out of this?” In some cases. if they are in the military, they are being more productive from the perspective of taxpayers than if they simply had taxpayers bail out their loans while they continued to hold out for their dream job as a fashion executive. </p>
<p>^^^ Garland, I am glad to hear that for your school. However, I remain highly skeptical that this is the case at all the hundreds of universities across the country. I think some of them may be slashing costs in some areas to give the illusion that they are on a tight budget while ignoring the excessive spending in other areas. When I see universities with all these modern, ultra fancy buildings and all the latest technology, what often comes to mind is that if we end up with loan debt forgiveness, that means working Americans will essentially be expected to cover all these costs. </p>
<p>That’s why they’re not going to offer blind loans of $10000 to everybody who shows up. They’re going to use some criteria to determine who is a good risk and capable of paying it back, and who isn’t. The B- student going to a 50K a year school to study Spanish isn’t going to get the loan, the A student going to a public school to study Computer Science will. </p>
<p>Unless we’re in a situation where we need more soldiers (and we’re not right now - and we usually aren’t) the productive value of another soldier is $0. And now we have all the costs of keeping them in the military, and we forgive their loans after they’re out? No, I’m really not seeing the benefit. </p>
<p>Just to reiterate, I am not advocating for only one kind of solution. I believe that the solution will be a combination of more prudent college financial planning for students and parents, universities being more responsible with budgets and costs, more people looking at community colleges, trade schools and “directional” schools like the one garland teaches at and understanding conceptually that college simply is NOT for everyone. I think those are solutions that could work along with some combination of the seven ideas I posted at the start of the thread.</p>
<p>Another thing I was thinking - maybe there could be loans that are tied to both the capability of the student, as demonstrated by factors such as the ability to win merit based financial aid, and the probability that the degree they are pursuing will lead to a job that can let them pay back the loans. </p>
<p>And two things - first off, this is NOT meant in any way to be another “STEM majors are the only majors that matter” type of idea since I am well aware that NOT all of the most employable majors are STEM majors, but meant to be a suggestion that loans could be tied to all of the majors that are considered more employable. And second, I am aware that even this plan has numerous drawbacks. Indeed, any possible solution is going to have serious drawbacks; this includes all the current solutions our gov’t is currently considering.</p>
<p>*I remain highly skeptical that this is the case at all the hundreds of universities across the country. I think some of them may be slashing costs in some areas to give the illusion that they are on a tight budget *</p>
<p>But what do you really know about all this, that leads to your speculation? </p>
<p>And no, banks aren’t going to make risky loans to students. And, as it actually works, when you apply for a 2nd year loan, they;re going to be looking at the existing indebtedness from freshman year loans. Plus, these loans start due nearly immediately, versus federal arrangements. </p>
<p>Perhaps some of it is empirical evidence gathered from living within college campuses, which I realize does not tell the whole story. But are you really saying that current college budgets are absolutely necessary and that the rising tuitiions at many universities cover costs that are absolutely vital and that the universities cannot do without and that if universities were asked to cut costs in these areas it would necessarily lead to them closing? Is that what you are saying?</p>
<p>And what is your general solution for the student loan crisis in addition to the idea that the debt be worked off through community service rather than simply bailed out?</p>
<p>OP, smarter families. Not all this hand-wringing, blame slinging, “if only” thinking. You may know how many staff are sitting around when you visit that office, but you don’t know more than what is visible to you. </p>
<p>And that’s true for all of us- we only now what we know But some of us just happen to have a little more detail. Try finding an annual report from your current school-or something that discusses, eg, renovations. If it’s the school I think, plenty of belt tightening. And the impact of meeting full need among UG. This info is out there.</p>
<p>Not yet mentioned: do not allow schools with known high loan default rates to take part in student loan programs. For-profit schools are a huge part of the problem. </p>
<p>Here is something that NOBODY will like it here.
Kids are NOT prepared for college at all. K - 12 is a big schema that is complete failure. That is why immigrants kids do so much better (I am talking about families that are actually helping academically). So, here it goes. K - 12 - complete overhawl so that kids do not need to take remedial, lower level classes at college, but rather focus on real college material. Number of classes / tutorial cervices / prof. office hours…etc. will be down with the lower overall cost (of course, if the budget balance is not switched over to sports and some other non-academic items, like palace type of Student centers and dorms). And look at these books!!!. Do they have to be printed on such a high quality paper using such a high quality printing. Go down to basics. They are absolete so quickly anyway, so what is a point of having $200+ textbook?</p>
<p>^^^ MiamiDAP - I like what you are saying, so there’s one person, if nothing else. And I will freely admit that in several ways I too was not ready for college when I entered but like everyone else in our town, it was presumed that anyone who did not finish a four year degree right out of high school was an underachieving failure. It was overlooked that high schools were not getting kids ready for college and, equally bad, they were not getting kids ready for careers other than those that need a college degree. High schools, if I understand it correctly, used to teach home economics, business schools, wood shop and the basics that one would build on in a trade school. And these classes were dropped for what really do seem like inexplicable reasons. </p>
<p>That is why when there is all this talk of how families need to adjust their attitude and how the feds need to do something, I guess I still just do not get while universities and high schools are not included in this list of people who need to be proactive in finding a solution, as if they are all doing everything they can and should not take any of the blame. If someone feels that is the case, I guess I will have to just agree to disagree with them.</p>
<p>SlitheyTove is also right - some of these for profit schools are essentially turning student loans into little more than a disguised form of welfare and the nation would probably be more productive if they indeed were closed.</p>