Rising college loan default rates

Twoin18
Mon, 27 Aug 2018 21:10:36 +0000

“It’s because parents are allowing their kids to take out more loans than they can pay back. Johnny got into his “dream” school and we HAVE to find a way to let him go there, so they co-sign private loans. Those are completely irrational decisions based on an irrational demand from a teenager who has ZERO understanding of how hard it is to pay back $100,000.”

And yet people on CC are much more understanding (and even approving) of the parents who live on a fraction of their salaries, have an old car, smaller house, no holidays, etc so their kid can go and spend another $100,000 or more on the “dream” private school rather than attending a more affordable in-state public school. And there’s another set of people who aren’t taking out these loans but still have to (or even plan to) downsize in retirement because too much of their savings was spent on paying for expensive colleges for their kids.

Aren’t those decisions still based on an irrational demand from a teenager who has ZERO understanding of how hard it is for most people to save up $100,000? Moreover, those parents don’t usually say “here’s the $100,000 I’ve saved for you, do you want to spend it on the fancy private college or something else, like a house downpayment?” More often than not, if kid 1 doesn’t spend the money, it goes to pay for kid 2’s expensive college instead (which doesn’t exactly create the optimal incentives for kid 1 to look for the best ROI).

Richer people make irrational decisions about education spending too, it’s just that the consequences aren’t necessarily so dramatic or visible. But in fact the people who took out the loans might even be better off if their loans end up getting written off at some point in the future, just like the people who walked away from their underwater houses in 2008 were sometimes better off than the people who kept paying. Like this guy: