The person in the terrible situation in the article doesn't blame anyone but herself for the situation. I agree with the article that while she's mostly responsible for the situation, the lenders should consider risk at some point. I don't agree that we should forgive all of such huge debts because the money was received and spent, although perhaps we should write off some part of it as bad policy.
Obviously the policy for undergraduate education makes a lot of sense. Don't consider risk because everyone as a policy decision is guaranteed a chance to climb the ladder of opportunity. But after completion of a Bachelors degree the lender should be able to take into account grades and ability to repay given expected outcomes.
What is wrong is that educational loans have been granted a special status that makes it impossible to remove them by filling for Bankruptcy. It made the banking industry too willing to hand out money to people who would never be able to repay it.
That's the compromise to put people on an even playing field though. If you could get rid of them in bankruptcy, they would require a cosigner with credit history. Many people don't have access to that, so you would basically be cutting off anyone not middle class or above from college.
For loans without a cosigner I'd imagine interest rates would be on par with credit card rates, possibly higher since its a large, unsecured loan.
Regardless, you already can get student loans that can be removed in bankruptcy, they just require a cosigner and have higher interest rates so no one wants them.
It would be interesting to see schools cosign loans past the 2nd year. They could chapter out underperforming students with an associates after two years since they would be on the hook for repayment past there. Then the loans would still be accessible basically equally and schools would have incentive to keep costs down and be more selective rather than just growing indefinitely.
So if you look at the evidence, neither of your first two claims are true; that's the problem with speculation when there's actual data available. For-profit student debt was dischargeable in bankruptcy just like almost all debts until 2005, yet there wasn't a wave of opportunistic bankruptcy filings. Interest rates were similar to now. Student debt was made non-dischargeable largely through banks purchasing congresspeople because why not exempt yourself from bankruptcy if you can?
There are multiple datasets available that you can find yourself, or eg
Those same private loans are still available though - their interest rates are just higher. Either people aren't taking the time to research their options, or they desire the lower interest rate in exchange for lack of bankruptcy protection. Interest rates are lower on the non-dischargable loans, so I'm not sure why you think they're the same when both types currently exist so you can see the difference without the need for guesswork.
Additionally, private loans always have and still do take into account the credit history of the borrowers. If you don't have a credit history or someone willing to cosign you're basically out of luck.
I don't think opportunistic bankruptcy filings are an issue at all, but I do think it would be an issue for banks to lend significant amounts of money to people with no way to quantify the risk associated with it.
I don't have the perfect answer, but I do think it's better to have loans accessible by lower income people than to have the ability to discharge the loans in bankruptcy which by your admission only a small number of people do.
If I understand OP's point correctly, it's that there is no bankruptcy protection whatsoever, even with a qualified co-signer. And maybe there should be. Further, if one does not qualify for government loans, banks are the only place to go, with lower interest rates being a moot point.
BTW I am very intrigued by your idea of having a school cosign for a student after the second year. If nothing else it would force schools to think twice about their acceptance habits. It seems to me to be more in line with academia's not-for-profit interests, but I guess tuition dollars are too entrenched at this stage?
It's a chicken-and-egg problem. If it weren't for the easy availability of these loans then tuition would be much lower. This is a classic example of the fallout from adverse selection[0].
The government does not allow student loans to be discharged with bankruptcy. From the lender's (also the government) perspective, these loans are close to zero risk. They'll garnish your social security, your paycheck, anything and everything you have, in order to pay them. So, from their perspective, why not just keep lending and lending?
This. She started down one path, gave up on it to pursue another, gave up on it after getting ill and continue down the original. However this time around she thought she needed to immediately get her graduate degrees just so she could earn the "highest possible income". Stupid mistake. Let's count the ways she could have prevented this:
1. stick with the original plan of becoming a teacher. Take out minimal loans, work, pay off loans.
2. move towards a degree in law and complete the degree after her illness. Work, pay off loans.
3. get a teaching job after her illness, hold off on the graduate degree, work, pay off loans.
I have no sympathy for her. She clearly couldn't afford college (which is acceptable, that's why loans exist); however she also couldn't think to budget or plan financially for the future. She should have stuck to a single path and slowly worked forward rather than trying to do everything in as short a time as possible.
The first problem with college in America is that it assumes college students are fully-formed adults who know what careers they want to have for the rest of their lives. The second problem is that college has become the mandatory mealticket into the middle class.
"The second problem is that college has become the mandatory mealticket into the" lower middle class. So, costs and salary's have diverged rapidly.
Worse the government compounds interest while people are in deferrals. At 8% interest the first year of collage loans cost an extra 36% in just 3 years. But, you prepay for each semester which adds even more months on top of that.
On the second problem, there is no reason you have to pick a college far from home. Go with a state university. Certainly don't go out of state and pay higher tuition.
Maybe, but I find it frustrating that many people seem to believe that in-state universities are the solution for not going deeply into debt while supporting state policies that make them more expensive. I think state-supported higher education should be an important part of the solution to this problem, but policy is headed the opposite direction in most states.
Most traditional US colleges don't have students specialize until junior and senior years. There is plenty of opportunity to figure out what you want to do. In addition, many people don't use their majors in their future careers as well:
> A new survey from CareerBuilder suggests that plenty of Americans never work in the field that they prepared for in college. Among the 2,134 workers surveyed, 47 percent of college graduates did not find a first job that was related to their college major. What's more, 32 percent of college grads said that they had never worked in a field related to their majors. [0]
Also, if the student is not an adult, perhaps granting federally subsidized cheap credit is ill advised.
I've seen studies like that before, but I've never seen it broken down at all. I'm not surprised by someone with a bachelor's in psychology never working in psychology, same for English, but I would bet that a much higher percent of teaching majors actually go on to be teachers.
I'd be willing to bet that most majors aren't clustered around a figure of 32% never working in a field related to their major. It's almost certainly a wide spread. That means it's less useful as general advice, and more an indicator that some majors prepare you for a specific career, and some majors are just used as a generic signal that you graduated college.
Yeah, it's not a study, it's a survey by CareerBuilder. My personal (anecdotal) experience would suggest that many people don't use their degree directly for their current profession. Examples of jobs for which there doesn't really exist a college major include most service jobs (sales, waiter, etc) and secretarial work. True that many working in those fields don't have a college degree, but since these are some of the most common jobs in America, a large percentage of workers in the field do have some kind of higher education. Also, let's not forget about the immigrants who's previous educational achievements aren't recognized in America (the PhD driving a cab in NY).
Depending on the state, working as a teacher requires an advance degree in education. So some people go to college to study English or science and then return to graduate school for an advanced degree in education.
How would one even measure how directly a degree is being used? Outside of pure professional degrees (medicine, law), is it just a gut feel?
My degree is Economics. I'm a project manager at a large software company. Am I using my degree? Probably not directly, but I certainly use the critical thinking skills obtained during my years in school. A bit of the math comes in handy as well.
The two largest programs at my university were English and Psychology. I guarantee very few of those graduates pursued careers in either field. But, a good psychology degree takes a fair bit of statistics with a dose of scientific method. And the English degree took critical reading and analysis.
The third problem is that college has become widely regarded as job-training by industry. Broadly, it means non-STEM/medicine/biz students end up underemployed in the service sector, but even narrowly within CS you get the perennial debate about students wanting their college programs to teach them software engineering, instead of fundamental theory.
Just as an example, from my (top tier) college engineering class, of 5 friends and I, only 2 individuals are still practicing their original major. Some went into business, law, finance and the remaining a different engineering major. I think it is very common for people to different things than their original major.
It's really inexcusable. I can't believe the NYT is trying to play it off as the big, bad student loan system. Naive 18 year olds taking out giant loans is one thing, but this lady was never in that position.
"She briefly enrolled in an education Ph.D. program at Texas A&M before withdrawing, but not fast enough to avoid an additional $7,458 in loans."
Unbelievable. Makes it sound like student loans are just lurking around waiting to attack unsuspecting victims.
in order to take out federal student loans, you have to go through a big online educational program on the risks of loans, the dangers of interest, and how youll screwed if you take out too much.
I wouldn't blame the woman in the article because this program was likely before her time, but I would certainly blame anyone who takes out too much now.
I graduated with over $80k in student loans and I don't recall anything like what you're describing. I also know that if I had gone through something like that at 18, it would have made precisely zero impression on me.
> also know that if I had gone through something like that at 18, it would have made precisely zero impression on me.
Honest question. Do you think the age of majority should be raised form 18 to some higher age? (Like 21?). I hear a lot of this sentiment when discussing student loans, and it makes me think that if one is not capable of understanding the consequences of their financial decisions at 18, then their parents should still be in charge of their life.
I lean towards thinking that a good amount of maturity comes from experience, so simply sheltering people from the world for longer will only push the age of maturity further out. There should be a more common, encouraged (not forced) mechanism where young people can learn to deal with financial problems before the consequences can ruin their life.
I think there would need to be more substantial financial education over a longer period of time. I'm not sure there's any other way for someone who hasn't supported themselves to understand.
Having taken federal student loans when I was 18 (since repaid) I can say I have absolutely zero memory of any kind of educational program that taught me about loans. In fact, it was only after I'd finished paying them off that I learned student loans couldn't be discharged through bankruptcy. That fact wasn't relevant for me, but if life had thrown me a few more curveballs it easily could have been.
Credit and Debt always involve two parties. Student loans are a stupid instrument because there is hardly any way for the debtor to default. That is a perversion of the very idea of credit. It should be the responsibility of creditors to deal with the risk of default, not saddle people who cannot pay with debt for the rest of their lives. That's how it's supposed to work.
Also, so what if it was irresponsible? Does being irresponsible mean that you deserve all of the consequences of your actions and no further examination or thought is necessary? That's just terrible black-and-white legalism. Legalism sucks.
Every time she came across adversity, the answer was "get more higher education". Suzie Orman (love her or hate her) always yells at people on her show whenever they talk about "going back to school" as a way out of their financial ruin.
Ms. Kelley has one possible escape route: a federal loan forgiveness program that caps her payments as a percentage of her income and erases her debts if she logs 10 years of service in the public or nonprofit sector. (For today’s students, income-based repayment systems are helping lift the burden of debt.) But that would still mean a decade of what she describes as “futile” payments that won’t even cover her monthly interest expenses, leaving nothing to put away for retirement.
She didn't pay a single dime towards her loans in 25 years. Furthermore, she voluntarily cashed out her retirement fund, which would have been 100% protected against creditors.
Working for 10 years in the public sector in order to forgive her debt is not futile. That would be the one intelligent thing she could do in the 25 years of pure stupidity. She doesn't deserve a retirement, especially when she's done everything possible to not have one at all.
Yes, she doesn't claim that it's anyone else's fault, yet at the same time, she doesn't really seem to understand that all of her actions have serious consequences, and the actions she still makes also have consequences. She seems to think that when she reaches retirement age, she should be able to retire, just like that, even though she has actively jeopardized it in the past 25 years.
If she's not willing to pay a portion of her debt because its "futile", the best she can hope for is that her kids do well and take care of her ... or leave the country.
I am so glad she does not blame others for her excessive borrowing. I still think the government taking over the student loan program was the worst decision ever. This article emphasizes why, government agencies tend to not operate with any sense a business would and therefor make terrible decisions for themselves and those they serve.
the way out would be a government program similar to HARP, let them finance to a new low rate, remove penalty amounts, and start paying it back. Perhaps teaching at low income high need systems to earn credits as well. I have little issue with funding a college education provided it is needed by society and there is a defined service payback. However hers is just lots of bad mistakes compounded by a undisciplined government agency.
Amazing that the loan agencies cannot cut deals like they can do with people with huge tax loads.
The government takeover has been great from a loan holder point of view.
With Sallie Mae I would speak with foreign customer service rep who was barely fluent in English, I would be put on hold for literally hours, would be lied to about my eligibility for certain programs, the website was horrible, and trying to get paperwork processed was took months.
Direct Loans, I speak with an American, am on hold for under 10 minutes, and have all my questions answered truthfully.
Their website is great and all of my stuff gets processed under a week.
Despite all of the Republicans chest beating about privatized industry doing a better job than Government can, I've found it to be an extreme degree of exactly the opposite in this case.
I don't know why this article made such a small deal out of it, but there is an income-based repayment program thats caps your payments as a percentage of your income, and forgives the balance after 10 years (20 years for private-sector workers). It's a ridiculously good deal for people with a lot of student-loan debt.
The government taking over the student loan program replaced businesses that were lending money to students and collecting from the government if they failed to pay. In order to mitigate this while continuing to pretend that the private sector was at work, we then passed laws to aggressively collect on student loans, making default impossible, and substantially weakened bankruptcy besides.
Which is stupid.
If the government is going to subsidize something like this by "issuing loans" or "guaranteeing loans", doing the paperwork themselves rather than pushing it off to for-profit private entities makes all the sense in the world. There is no substantial problem here for the market to solve; Entities that participate are simple rent-taking parasites on the process of government subsidies reaching students, doing no work themselves other than advertising.
Tuition growth is a separate and very real issue.
Bankruptcy is a closely related issue, which has quite a bit more bearing on the article. We have a word for cultures that do not practice bankruptcy and pass on unpayable debts: slave states. Bankruptcy - the positive ability to escape from debt and in doing so to be blacklisted from further debtors - is essential both to keeping people free from indenture and also to keeping lenders honest in their assessment and labelling of debts.
College debts are particularly difficult to assess risk on: A free market does not seem like it would fund as many educations as the government would prefer people to get educated, which is where this started. That's why I think the government should favor grants over extreme long-term debts. Factor in the cost today instead of pretending we'll have the money tomorrow, and you head off a lot of pain for both lenders and debtors. The government can already redress its losses through taxation. A credit rating that shows default to the government is a deterrent just as much as a credit rating that shows default to a bank.
Some fraction of people will always be irresponsible, unrealistic, or just unlucky in acquiring debts they can't handle. Heaping blame on them and examining their individual faults is a distraction from attempts to actually deal with the fact that some fraction of people will always fall into that category.
Our language on topics like this has some of the most baggage of anything we talk about. It's important to examine all the words you're using, and try to remember to ask "Is this a useful paradigm to apply". Because the National Debt is not Household Debt or Municipal Debt. Household Debt is not loaning your neighbor 50 bucks for beer. Loaning your neighbor 50 bucks is not a bail bond. Every situation is unique and trying to imbue them all with the same morality and judge your way out of the problems they develop is worse than useless.
I've heard some comments like, "She should move to another country." Don't do this.
Yes, lenders will harass you. Yes, they might sue you.
If you are in debt, and can't pay back--first send a registered letter to the collection agency stating you do not want to be contacted again about the debt.
If worse comes to worse, and they get a judgement against you; don't panic. You have rights. They cannot clean out you bank account. They cannot take you entire paycheck. (with a little accounting magic, you could make a fair amount of money, and they still wont be able to attach you pay check.) You are allowed to keep possessions, but make sure you read what you are allowed to keep. Hell, you are even allowed to keep heirlooms up to a certain value.
My point is yes they want your money. Be smart? Don't panic. You can still have a full life. Try to make your self Judgement Proof.
I've never said this, but if you are a recent graduate, and have student loans, and have a sneaky feeling you won't be able to pay off the student loans; maybe read on. Really try to keep your credit clean. Get that first job--apply for unsecured credit. Don't lie on the applications. If you can swing it, use credit cards to pay off your student loans.
Yes, use CC to pay off your student loans. Do it right. Make sure you have enough unsecured credit to pay off the student loans.
Wait a few months. Declare a chapter 7 bankruptcy.
It's not an easy maneuver, but as far as I know it's legal, but run it by an attorney. If it works--great! Try to keep abreast of federal bankruptcy laws, and changes. It seems like with every Republican administration lobbyists try their best to make declaring bankruptcy more difficult. I foresee a Republican administration in our near future? In doing any legal research--I found findlaw to be a horrid legal site. Too many wannabe attorneys.
What ever you do don't do anything rash--like leave the country, or even think about suicide. Yes, there are people who have killed them-self's because they don't know they have basic debtor rights. Being in debt is not the end of the world.
A lot of the comments on here are bashing her for being fiscally irresponsible - which even she is not disputing - but the real atrocity here is the system. The government is effectively driving up tuition prices while imposing a life tax on children of the middle class and the poor in the form of student debt that cannot be discharged even in bankruptcy.
Of course since our Congress doesn't really give a shit because they're mostly millionaires, the only "reform" they talk about is lowering interest rates and expanding income based repayment programs - none of which address the crux of the problem.
I'm glad that students are finally realizing that they're getting royally fucked in the ass here, and that given our current legislative environment, absolutely nothing will be done until students across the nations collectively default on their loans. Luckily I think we're going to see this happen within the next 5 years. This is just piss poor policy, and it's a shame that more people aren't advocating for change, and that Congress can get away with continually kicking the can down the road.
I also felt that the real atrocity is the system, despite this one individual's choices. This article reminded me of an interview in the "The Giant Pool of Money" broadcast about the mortgage lending crisis. This person took a loan 100% intending to never make a payment. The system gave him the money, he bought a house and then it was taken away, uprooting his life. Human interest aside, it was amazing to me that this set of events could even happen.
It seems like there should be some sort of check in place for loans based on the expected income. If you're going to be a teacher, loans should top out at $30k or some reasonable number. You can't get a $500k loan for a $50k house. It doesn't make sense that you should be able to get $100k loan for a career that won't likely be able to repay. Prices for degrees should be in line with the career.
I've noticed that young students have to make these choices about loans right out of high school, but we don't really force them to calculate their starting salary and payments until it's time for graduation. It's like pretend money at that point for all of us and of course we all think we'll be the next billionaire anyway.
After thinking about this a bit, why isn't there a rule that once a person has graduated with student loans (or dropped out for some number of years), they have to pay back some large percentage of their loans before taking out more? At the very least make it so that additional loans can only be used for a graduate degree in a field directly related to their undergrad degree, and only within a fixed number of years.
This lady isn't very bright, but at the same time it's not very smart to keep loaning people money when they've repeatedly failed to pay back the money they've already been loaned.
This is the problem. It shouldn't have shocked her. It takes a minute to do the math and calculate how much a debt will equal in x years if you don't make a single payment. It's 100% predictable.
I think that also counts as a pretty catastrophic outcome. And she'd need to acquire citizenship in that country first, which is hard, however easy it might be too immigrate in the first place.
When I traveled to China regularly, I'd frequently meet people on the plane who intended to teach English, often without proper paperwork, working under the table. Some would even tell me they are fleeing debt or the terms of a divorce.
Leaving everything behind for an anonymous life in a 2nd tier Chinese city has got obvious drawbacks compared to having a middle class life in the US. But it's better than debt slavery. Many English teachers have a very comfortable life. Clearly enough people are taking this way out that you encounter them regularly while stretching one's legs on the plane to Beijing.
Since when do countries extradite for debts? I'm pretty sure you have to commit a crime, and the crime must be something that is a crime in the extraditing country as well.
They won't extradite for student loans. For someone that far in debt, leaving is likely the best option for them. They can still be sued though and I'm not sure how that works exactly when you're in different countries.
As the article states, this individual is in the 1.8% of all debt holders with the large amount that she owes. She does not represent the majority but rather a minority that has slipped through the cracks based on the current policies.
The payday loan industry and consumer loans in general are under ever-growing scrutiny and some of the most recent proposals and regulations are based on ability to repay. If a lender does not do their due diligence on a potential borrower based on objective information of current/projected income and expenses, the lender could be penalized and even lose their lending license.
With student loans, the ability to repay is considered a moot point since the borrower is a student and likely has no income, let alone income history. However this increased risk is met with an artificially lower interest rate (<10% vs 50-200% APR), the most lax underwriting criteria & acceptance rates (almost all domestic students qualify and receive), and no questions about how it will be paid off.
The primary externality here is that a whole industry, secondary education, has adapted to these crutches by increasing tuition, as the article states. The value provided by these institutions is arguably not increasing since it's becoming more of a commodity than a value-add (e.g. the fact that the bachelor's is the new diploma) and thus you could argue that adjusted for inflation post-degree salaries are not increasing. This leads to the ability to repay not improving and even getting worse.
The false assumption in all this is that education is an investment that yields a higher income even while adjusted for the interest on loans. The elephant in the room is the necessary segregation of students based on potential ability to repay, which is the present value of a student's income based on their future income. The primary indicators of this are based on caliber of the institution, graduation rates as per institution/major, desirability of their major, performance in school, necessity/likelihood of going to graduate school, current unemployment in the industry, job growth in the industry as it relates to time of graduation and beyond, and other significant factors. By understanding this, loan products can be customized for each student in the absence of credit history to more accurately assess risk.
Higher risk applicants may think twice when seeing higher interest rates and ultimately may make the decision to seek a lower product by pursuing a lower risk opportunity. At the end of the day, these are very personal decisions that can only be decided by the individual. However by not pricing loans accurately, we are giving the false impression that each student's decision after high school and/or undergrad is similar in ability to repay with their limited resources (e.g. stress, time, money). The government owes it to their citizens to be even more responsible than the private industry. Student loans may seem like an income generating opportunity such as tax revenue but it is preying on the least educated, most vulnerable, but most promising demographic. It should be viewed like Social Security and Medicare where a certain demographic is dependent on it for livelihood rather than an afterthought.
> By understanding this, loan products can be customized for each student in the absence of credit history to more accurately assess risk. Higher risk applicants may think twice when seeing higher interest rates and ultimately may make the decision to seek a lower product by pursuing a lower risk opportunity.
I get this argument, but IMO it would ultimately devolve into a system with a fixed set of sanctioned fields of study which only the wealthy could venture outside of. We really don't want that.
Don't forget that knowledge is an end unto itself: an educated person is better for society at large, even if they're flipping burgers for a living. The economic utility of a college education extends far beyond the student being educated.
I don't disagree with any of your assertions. An educated society made up of well informed citizens is the ultimate goal. However why should the government be responsible for giving a less advantaged student permission and almost encouragement to pursue a path that reduces their likelihood of paying back the loan in full/on time? The necessary education for someone to be well informed should be transferred to the high school system where the student does not need to go into debt to receive the necessary education.
If there was restricted access to loans or harsher terms, people from less favorable economic backgrounds would likely not pursue those sanctioned fields, unless they had some specific advantage such as ability since this could yield to a higher chance of success.
Why don't we want that? We will never escape a little unfairness, and we don't need to. Telling a kid that their only path out of poverty is to be an engineer or schoolteacher, but art historian is not an option -- I would love for that to be the worst of our social problems.
Of course not: IMHO, the unfairness in the current system is preferable to the unfairness you describe.
> Telling a kid that their only path out of poverty is to be an engineer or schoolteacher, but art historian is not an option -- I would love for that to be the worst of our social problems.
You're assuming the sole motivation is to make money, which isn't always the case. Some would be much happier as a poor art historian than a moderately wealthy engineer. Who are we to question that?
It would be hard pressed to argue that the government is offering loans for the ultimate happiness of the student. As the article points out, the lender is smiling when giving the loan but the end goal like any other business should be to get the funds back with interest in a reasonable time frame. If someone were to pursue a degree for happiness the government does not need to be in the business of funding that. They should be funding students looking to create a sustainable life for themselves.
Obviously the policy for undergraduate education makes a lot of sense. Don't consider risk because everyone as a policy decision is guaranteed a chance to climb the ladder of opportunity. But after completion of a Bachelors degree the lender should be able to take into account grades and ability to repay given expected outcomes.