I don’t think education alone is going to solve the issue of 17/18 year olds signing loans. I understood compound interest and loan terms…what I couldn’t comprehend at 17/18 was how those loans would feel when I had to pay them back while also paying rent, utilities, groceries, car loan and every other unexpected expense that came up as a young adult.
The example @twoinanddone gave of the $318 repayment terms for 120 months sounds completely reasonable…until you are working a job making $40k a year and having to pay every other expense that comes from being an adult with bills. Especially if you are also trying to come up with the getting set up for adulting costs that come with graduating and getting your first job.
Increase the interest rate to closer to 8% and it gets even uglier…but won’t seem that way until you’ve graduated, have a job and finally understand how much it will cost to just live.
I remember the student who yelled at my boss, saying that she didn’t realize she had to pay the loans back with interest. My boss pointed out to her that she had completed the mandatory entrance counseling, to which the student replied that she didn’t really pay attention.
Maybe they should take kids thinking about student loans on an apartment tour in a local metro area.
Here is the apartment you could afford on an average recent college graduate professional job without loans. Here is the apartment you could afford with just the federal loans. And here is the apartment you could afford with a lot more in loans, oh and you will need two roommates . . . .
Last week I was in Sephora and there was a group of HS seniors getting ready/buying supplies for prom. They were scrutinizing their phones and checking out the ingredient list, sources of said ingredients, chiding each other, and in general sounding like biochemists. Apparently you can’t buy a tube of mascara or a hair styling product without reading the fine print– no silicone, no products derived from palm oil, conflict-free packaging, etc. They were REALLY doing their research and it was both impressive and ridiculous. One was especially concerned about “coral safe sunscreen” even when her friends reminded her that the lake the seniors were heading to didn’t HAVE coral (and nobody was going in the water in early June in New England!)
So the notion that this generation- they check yelp before buying a sandwich, they check product reviews before buying flip flops, they scrutinize the supply chain before investing in a bottle of shampoo- can’t work through a loan agreement??? I’m struggling with this idea.
And the idea that a new college grad won’t be able to afford to buy a new car, live alone, may have to entertain with a pot of chili and a six pack because their budget is tight- this is NOT new folks. The “I need a doorman building and a car and must go to fun restaurants with my friends” is the product of ridiculous notions of consumption based on TV and social media but has not been reality for college graduates for 100 years. My physician grandfather lived at home with parents, siblings and boarders until he got married- in 1922. My pharmacist great aunt lived at home (it was a menagerie which included two orphaned nephews plus the rest of the extended family) even AFTER her marriage– she and my uncle couldn’t afford their own apartment even with two “professional” salaries.
So the trope that student loans are to blame for the imposed thrift that young college grads need to endure strikes me as funny. There have always been young grads whose tastes exceeded their pocketbooks. There have always been young grads who “made due” with the hope that as they gained status and more money at work their lifestyles would improve.
Have we really raised a generation that cannot tolerate living on a budget as they pay off the loans that made their jobs possible??? Does ANYONE believe that the baristas in Friends could really afford their apartments living on tips? It’s fiction.
And before ya’ll criticize me for my “gee Blossom is so old, things are different now” are they really? Did any of us live the high life in our 20’s, whether we had loans or not? Did any of us expect to own a car (let alone one expensive enough to need a loan– maybe some of us drove grandpa’s junker once he stopped driving)? Did any of us live without roommates?
Or maybe I didn’t grow up affluent enough to have expected the trappings of an upper middle class lifestyle at the age of 22. Dunno. But I don’t believe that “kids these days” are too dumb to read the fine print on a loan application and work through a payback calculator. We didn’t have computers or smartphones- but we still managed to do multiplication and long division to figure out our liability before signing on the dotted line.
Did they compare the price at Sephora v CVS for that mascara?
My kids did take a finance class in hs and had to make a budget for rent, a car, food but it was all pretend. The teacher was an idiot and never taught them how to save for an emergency and the budget didn’t include a student loan payment (or toothpaste, toilet paper, charity donations, gifts, eating out, gas at $4/gal, car registration, a cell phone, Netflix). Teacher just said 'here is your pretend salary, you must buy a car, groceries (and no ramen allowed), a few other requirements. All pretend. Real life is different.
My kids did have to do the student loan counseling as freshman. It took about 15 minutes and again, it was all pretend as they weren’t making payments at that time. My kids also had me, and I worked in banking (and I’ve seen a lot of really bad loans) so understood they’d have to pay the loans back, but didn’t comprehend what that meant. They didn’t have cars in hs or college, so even those expenses post college were new and a bad surprise.
I was at a baby shower for my nephew/wife this weekend. Most of these kids were about 30 years old so would still be in the loan repayment period. They are rich. Most came from money and the biggest expense on their disposable income budgets is weddings, bachelor/bachelorette parties (in Mexico, golfing in Arizona), the gifts for the weddings (and now baby showers). Just a different world from my daughter the teacher trying to repay her student loans.
I think it is a case of the haves and the have- nots, and it is the have-nots making student loan payments. Or there are people like my son in law who went to undergrad on his dad’s GI bill and to grad school on the military (while he was active duty). He works 3 jobs (construction management, National guard, and as a welder) because he likes that, and yet they are not rolling in money. If he also had a student loan to pay, it would be tough and he might need a 4th job.
Agree. Don’t forget taxes, health insurance, retirement, and other payroll deductions. Working teens are exempt from most of these. Net pay from a first ‘real’ job can be a nasty surprise. My experience paying off modest student loans is why my children were told that if we could not afford the school without loans, they weren’t going there.
Is this different than in the past? We didn’t have social media, so the photos from a Kardashian’s bachelorette party in Marbella or wherever weren’t in our face. But kids from modest backgrounds weren’t getting invited to these shindigs anyway, so not being able to afford them wasn’t problematic.
I guess I’m missing the piece about “kids need to live on modest budgets when they are new college grads” being tragic. Loans, no loans- kids need a budget. And the young folks you reference- “they come from money” means they miss an important part of being an adult.
I have a friend- came from money, married money, now divorced and she is completely flummoxed about how she’s supposed to live on her (relatively generous) alimony. Her friends are trying to be tactful- she owns a gorgeous house free and clear, her kids are grown and flown. So when the lease on her Mercedes is up we’re supposed to feel sorry for her that she’ll downsize to the Honda or Subaru that everyone else is driving?
She never had to budget. She never worried about an extra charge on her credit card, or taking a long weekend “just because”. And now she’s stuck– a fully formed grownup- trying to understand what she’s supposed to do. Someone suggested- gently- that downsizing from the ginormous house in a hot neighborhood to something more modest would give her the cash cushion she’s looking for and she looked like someone suggested donating a kidney to a cat.
I still don’t see why young people in their 20’s living like young people always did (except those with family support) is a huge problem. Get a few roommates, buy a huge crockpot, do potluck dinners every Sunday with your new friends and enjoy your life.
There are entire families living on the types of salaries we are whining about as being inadequate! Perspective folks…
I think some student loan payments are higher now than they were when I was just out of undergrad. I didn’t have any until after grad school, so don’t know but I don’t remember any of my friends having payments of $500/mo or more. Even in grad school I don’t remember anyone borrowing more than the $5000/yr that was the limit on the grad loans.
I know salaries are higher, but so are other budget items like mortgage/rent, food, gas so not sure grads have more disposable income.
I still remember to this day my graduate school loan payment. I paid $106 a month. I had no loans from undergrad, but I was on my own for grad school. I did have a fellowship scholarship and later worked at the VA as a trainee but it didn’t pay 100% of my expenses. I Remember in grad school saving up money for small round Hoover vacuum cleaner, so I didn’t have to borrow it from the apartment office all the time.
I had $1200 of undergrad loans, most from my freshman year of college. I had no grad school loans.
I worked in a priority, low income school district and my federally funded loans were cancelled after five years because of that. Otherwise, it would have been ten years, back in the day when these loans cancelled for folks in certain professions after ten years of service.
I would not have been able to attend college without these loans. I also worked several jobs even during the academic year and summers. This was when it was actually possible to work one’s way through college.
$500 payment when I graduated college is the equivalent of $1500 today. $500 today is the equivalent of $150-160 then. So yes I think costs of loan repayment are roughly equivalent. I know people on CC are all about retirement savings and I think that’s great but most people I knew back in the day weren’t saving in their 20s - they were living mostly paycheck to paycheck and that included getting their loans paid off. In our 30s we started thinking about things like saving a down payment to buy a house and maybe retirement. Virtually no one I know expected to be able to do those things when they were first starting out.
The year I got married mortgage rates (30 year fixed) were about 16%.
So y’all will understand my skepticism when I hear that young people today will “never” be able to afford to buy a house. None of us could “afford” to buy a house when we were starting out. We were living frugally– and paying off our loans. I remember how thrilled I was when spouse and I found an apartment which cost the same as what each of us was paying individually– it was like getting a bonus every month. And it had air conditioning!!!
I think the trope “loans are bad” is an easy fallback if you’ve got the A student who can find a combination of merit and need aid without borrowing. I think it’s condescending to the B students (who are college ready, want to go to college, don’t want to attend Joey’s hair dressing academy) whose parents cannot even afford the state college system without the federal loans.
We all want to see more income and social mobility– but apparently not when it involves a kid taking out loans to afford to attend the institution which will make that mobility possible.
This saddens me. The power of the Pell grants has eroded every year given the increased costs of college and inflation. Loans are the answer for a LOT of kids. And count yourself (and your friends, and your family members) lucky if you don’t know any of them.
As I said- maybe growing up less affluent than other folks was a blessing in disguise. I never expected to buy a car, house, fancy vacations, “girls weekends at a spa” etc. until my 40’s at least. The fact that it happened earlier than that was truly a blessing (although I’m not a spa person and if any of my friends in my 20’s or 30’s had invited me to one of these bachelorette weekends I’d have howled with laughter). Bridal showers in the midwest when I got married consisted of potluck brunch (homemade quiche, salad, someone decorated cookies with wedding bells) and some pot holders and a pyrex measuring cup. Buying airplane tickets? Your friends would think you had lost your mind!
Years ago we were in a restaurant and a boy in my daughter’s graduating class was our waiter. My daughter said hello and that was it.
When he came back to the table he said he had to share his news. He went on to tell us that his family lives in affordable housing and they were not sure if he would be able to afford college. He just found out that he qualified for a grant, and with the student loan he was able to attend our excellent state university.
I actually became teary eyed seeing the excitement on this kids face.
Student loans are often a good thing, and once again I will say that I am very upset with the restructuring of this program. Kids like the one I mentioned should have a path forward, with loans if necessary.
I guess loans can be good if they are the only option. But are negative when they provide “bad optionality”. From NC and want to major in English? Go to App State or UNCG debt free if you can. Don’t take a loan to attend Elon or High Point. No shame in saying I can’t afford it ….yet.
I see HS kids drinking expensive coffee drinks, going to the (expensive) gym, and getting regular manicures/fake nails. And college kids living in a dorm nicer than my house. And I wonder how they are going to sustain their lifestyles.
Parents need to share the reality - show how compounding interest can be friend (saving) or foe (loans), etc. There are some good charts our there.
Yup, as long as you are willing to tell the parents “don’t buy a fancy watch which will depreciate by 50% when you wear it out of the store” and “don’t lease a Lexus because the fun of driving the Lexus will be worn off by the time the Repo man shows up- you need to be driving a safe and boring Honda Civic” and “why are you taking a cruise for a vacation which you’ve put on two credit cards and will be paying off for four years”?
If you want to get into the business of telling people what they can and cannot afford, I’m in. But funny how the “moral hazard” argument goes mute when it comes to Disney, luxury cars, and all the other “fun ways” people can find to spend money they don’t have.
Living within your means is boring, I get it. But last time I looked, High Point was NOT a particular outlier when it came to student loan indebtedness.
Well, it is our business if those loans are being funded or guaranteed by the US treasury. If people want to pay 24% interest on their Disney cruise and Chase wants to lend them that money on a credit card, that’s okay with me. I do want student loan amounts to be limited.
Does that mean that some students won’t be able to borrow enough (from the US govt) to afford an OOS flagship or a private school? Yes. Is that fair? Probably not, but life isn’t fair.
Some students can handle unlimited borrowing and get jobs that are good enough to repay a large amount, but the max allowed has to be based on what the average borrower with the average job can repay.
I have no problem with loan limits. And if the current limits are too high, reduce them.
But if the federal government can bail out airlines, car makers, soy bean growers or whomever is in trouble tomorrow for poor risk management (that means the taxpayers are on the hook) I think having college loans as a public “good” doesn’t bother me. Lower the limits, penalize students who can’t graduate in 8 years or who spend Freshman year taking remedial HS classes. Just don’t turn off the tap for the diligent college ready kids who want an education and there is no bank of mom and dad.
Several economic studies suggest that easy access to student loans has likely been a significant contributor to rising college costs, particularly at private colleges. After all, if more students can simply borrow more, then colleges can charge more.
Limiting loans may actually reduce the rapid growth in costs, which for decades has far exceeded inflation.