Yeah, I get that college in Pennsylvania is not cheap, but that is on Pennsylvanians. Why should it be the duty of the other 49 states to bankroll what the good taxpayers of PA refuse to do?
I’d like to take a lot of the federal money from the private colleges and funnel it towards a better community college system. Eventually a local 4 year school within commuting distance in most areas. We’re close to that in NY. Free community college like in TN for starters. It will kill a lot of private schools, and some will have to discount. Longer term goal to have an excellent public college infrastructure like CA has with main colleges that have sterling reps. I’d like some incentives and benefits for those who graduate from those schools.
I don’t know where to go with the loans. Years ago when I was in this forum, a parent gave a scathing response to the suggestions to get rid of the loans. Working where I did early this year , I got a taste of that sentiment too. Sometimes these things like payday loans, Tax filing for a fee centers, student loans, rent a furniture, funeral insurance, all things that make me grimace as bad deals, do have a place, do open possibilities to those who otherwise would be even worse off. I haven’t sat and researched the situation to come up with a statement that I believe is true and reflective of the cases at hand. Off the top of my head, Im inclined come up with a forced pay back method for the loans—attach it to their social security tax, a percent of earnings on some scale until paid with faster payoff incentives. I think parent loans should require immediate repayment so that the impact of the loan repayment is immediately felt. I did that with my first student, and it was painful enough not to want to do again. This waiting 6 months after the kid graduated business to start repay just cranks up the borrowed amounts with interest till then.
In Chicago you get 2 years of community college for free if your a “b” student unless something changed. It’s a start but what happens to the “c” student that might get their act together in community College… Hmmm.
@bluebayou You aren’t bankrolling it with the current system. Any debt they take on is their own. Most don’t default. Most don’t take on huge loans either.
Over 10% of students default. While that isn’t “most”, it is more than enough to make student loans a money loser for the government. They are in effect another student subsidy, but a rather opaque one.
How Student Loan Debt Affects Women
https://www.usnews.com/education/blogs/student-loan-ranger/articles/2019-05-29/how-student-loan-debt-affects-women
KILLER LOANS — COLLEGE DEBT TRIGGERS DEPRESSION AND SUICIDE
https://whowhatwhy.org/2019/05/28/killer-loans-college-debt-triggers-depression-and-suicide/
And a terrific one for the gov’t to invest in knowing how many lives get positively changed compared to keeping the castes in their places as would otherwise happen.
High debt is never advisable though for undergrad. Basic debt can be handled by most students.
Whenever the government wants to spend taxpayer money, the amounts should be transparent. An example of how to do things right is Pell Grants. Everyone understands them well, and they have broad support.
Students loans are exactly the opposite. Many people here have the misconceived notion that the government makes money from student loans due to the “high” interest rate, when in fact the opposite is true. The amount the government loses should be openly discussed, such as a statement saying that “For every $10,000 loaned, we expect to receive about $9000 back”. But for political reasons, it never will be.
Make sure you continue the comparison though. For everyone who successfully completes college and gets a higher paying job - as many do - the gov’t gets X dollars in taxes. For everyone who ended up in a minimal job without advancement opportunities financially due to lack of education, it costs X dollars in food stamps, health care, or other support. For everyone who ends up opting for inexpensive escapes due to any dream they had getting dashed, it costs X amount for opiods or alcohol intervention - or incarceration - or both.
From what I’ve seen, the gov’t makes out much better merely losing what it does on student loans. Tweak if necessary to try to fix the system, but don’t punish all those who it helps by concentrating solely on those it doesn’t.
This post in no way means everyone needs to go to college, but for those who are capable and want to, many need more than a Pell Grant to make it work. My H had five digits in student loans to get his degree. We paid it off in five years with both us and the gov’t making out well ever since. There are more like us than those who default and whole lives/families get changed for the better.
I get that there is always a cost to someone for borrowing money, hence interest. And I also acknowledge that if the loans carry no interest then there is a real potential for abuse, but in any event they can’t borrow more than COA. But paying 7 percent when cost of money is 2.5 seems unfair. I realize that the difference takes into account risk and default rates, and this is meant to be a self-supporting program, so more defaults mean higher rates for new borrowers. But we as a society need an educated class of workers, yet student loan debt is causing other problems like delayed childbirth and delayed house purchases, both of which are bad for society. Too many young people I know today think that the government is going to step in and forgive their loans and they aren’t being as responsible as they should be. That’s why I like focusing on the interest as a way of managing this debt.
7% is on the low side for unsecured debt, which Parent Plus loans are. IMO if a parent doesn’t have collateral to secure their debt, they probably shouldn’t be thinking about taking on debt. If one does have collateral, then they may be able to access a better rate than the 7% Parent Plus loans (and avoid the pricey 4.2% origination fee).
@mwfan1921 I get your economic argument about why the interest rate is an accurate reflection, and maybe even a deal. My argument is that as a society we can choose to forgo the interest altogether because we are getting a different kind of return on our investment. And that by keeping the student responsible for the principal, hopefully they are still invested in making good decisions to minimize the loans. That can be argued too, but maybe there are tweaks that can be made to the general idea.
You were talking about parent plus loans in the post I replied to…For parent plus loans, the student is not responsible for the principal, the parent is…and the parent has no influence nor control over the adult kid’s decisions.
Sorry, there is zero proof that education loans delay child birth. And there is zero proof that both are “bad for society.”
But if true, the solution is simple, stop/restrict the loans that the feds are now making!
@Creekland The happy medium would seem to be either (a) work for a couple of years to save for college or (b) attend community college for a couple of years (while maybe working part-time). But we now live in a society where people are impatient, or just want to keep up with the Joneses, so these two sensible options have (for some) fallen by the wayside in favor of six-figure loans.
@bluebayou Evidence that student loan debt delays marriage, family formation, etc.
https://www.tandfonline.com/doi/abs/10.1080/09645292.2018.1541167?journalCode=cede20
@bluebayou I know it’s anecdotal, but I do know people who put off having kids or buying a house due to college loan debt
No question… We did put off our family till we got our business underway and wanted to get our finances better before we took on more debt called Children… Lol.
We had between both of us $350,000. Both doctors. We were very “lucky” that somehow the bank allowed us to buy a house. That appreciated very quickly and we used the equity at that time to pay down the loans. The house continued to appreciate greatly.
Have no clue what would of happened if not for that but we come from no money either side so we took a chance on ourselves to succeed. I don’t know if I would do that again in today climate. My experience was 30 years ago.
It seems to be the responsible thing to do- put off having kids, buying a house, etc. until you can afford it. I’m not sure why society wants to be on the hook for people doing things they can’t afford.
We had an entire cohort which put off higher education, marriage, houses, babies while they went to war. These were 18-25 year olds who left girlfriends/wives/husbands/boyfriends behind when they enlisted. Some of them never came back; the ones who did came back and then did what they could afford.
A generation back, during the depression, family size shrunk (even with less-than-perfect contraception and illegal abortion).
Why is this problematic-- that adults do what they afford within reasonable limits and expectations?
A default rate of 10%…
I worked for a high risk lender. 10% was about our average default rate on unsecured loans with some states at 9%, but some at 12%. Honestly, we were a business and we knew what we were doing. We made money by selling credit insurance and other products, by charging huge fees, by keeping operating costs low. The government does none of those things. Also, our rates were as high as 36%. It had to be to make money.
Most banks had mortgage default rates of under 1% until the mortgage crisis in 2007. When their default rates soared to 4-5% they had no idea how to handle it, when to start pressuring people to pay (we were on them every month), when to sue.
If the government wants to run a program with a 10% default rate, it has to make the money someway (or the taxpayers have to eat it). Origination fee is one way.