Record Surge in Past-Due Student Loans Adds to US Debt Burden

[SC Maintenance]

When I took my first degree, tuition was cheap, I lived in room and board homes (for the first 2 years), earned large scholarships and had well paid summer jobs (well paid, but living in not very nice conditions doing heavy physical work). I didn't have very much spending money, but no-one else did either. When I graduated (in 1971), I had no debts, money in the bank and started a high paying job. That was a different time.

Today's young people expect more. Few would consider staying in room and board (if there even is such a thing any more), and renting an apartment or living in residence really runs up their costs. I would not have dreamed of taking an expensive vacation while in university, but that seems fairly routine today. And everyone seems to have lots of spending money.

But there are costs they cannot avoid and opportunities not available to them. They do pay much much higher tuition and don't have the same opportunities to make money during their summer vacations.

A "normal" post secondary education today can lead to back-breaking debt without much opportunity to pay it off later.

I don't think those old times will be coming back any time soon. And I don't think post secondary education should only be for rich kids. So perhaps its time for a different way to fund post secondary education.

I don't honestly think its changed as much as you think - other than the debt part.

My mid 90's experience was same as yours - replace boarding house with dorm or apartment full of other guys. I left with some loans, but also had mostly scholarships so they weren't that much - paid off year 1.

My kids lived in shared dorm / apartments. They didn't have car until one had internship that required it. I did see lots of fancy cars and such on campus, but all my kids friends didn't, nor did they go on fancy spring breaks, or whatever. I still think your perception is the minority, albeit a much larger minority maybe.

I think the older generation give these kids much too hard a time. Were supposed to be mentors, not critics.

 

[ecotourist]

A summary of financing for my first degree (Mechanical Engineering 1967 - 1971):

• Costs $1100 - 1250 per year for year 1 and 2 (tuition, books, room and board, spending money)
• During my first summer job I saved enough to cover my next year at university and buy a 3 year old car ($1250).
• Scholarships $800/year for the 2 final years.
• Graduated with no debt and a few hundred dollars in the bank.
• First job out of university $9900 per year.

 

[dubber09]

On the other hand Trump threatened EU with 35% tariffs if they don't make $600B 'investment' gift to US.

 

[nickaluch]

If the president of the USA can claim multiple bankruptcies I think student loans should be able to go to bankruptcy if needed

 

[SubieRubyRoo]

There never seems to be enough money for public education despite how much we pump into it. Fundraisers, federal, state, and local taxes, grants, endowments, bonds, tuition yet somehow it’s never enough and the quality isn’t keeping up with inflating costs.

I just gave you a huge example (Top 10 nationwide school in many disciplines!) of a well-known land grant public college. If a public college can do this with all of the legal restrictions on it, there’s absolutely no excuse for a private education that doesn’t significantly outrank this one to be 4-15x more expensive. It’s pure extortion on the part of the private colleges: you want a piece of paper with our name on it, we’re going to own you financially for the first 20 years of your career. No thanks!

 

[thastinger]

Purdue has figured out how to keep in-state tuition at $9912 for over 14 years now, even while adding hundreds of millions in technology investments to keep their education at the leading edge.

There’s no reason private (and public!) schools can’t create a similar model.

That is because only 40% of the kids who go there are Indiana residents getting that rate, everyone else 37.37% out of state and 12.64% international are paying the full price.
The kids crossing state lines bit has to stop.

 

[ripcord]

The first thing that needs to be addressed is to severely curtail the availability of federal loans for burger flipper degrees. Pretty much every degree that ends with the word "Studies" falls into this category. Women's Studies, Marxist Studies, ect., but there are plenty of others, too.

Low earning potential degrees should have lower loan availability with some exceptions for degrees for jobs with shortages of workers. It's just not fair to these gullible kids to let them be enslaved to mountains of debt they'll never be able to pay off.

 

[trd1zz]

The first step should be to get the gov out of the loans. They caused this mess and cannot be expected to fix it. Once it’s in the open market, it will largely correct itself.

Without federal backing of the loans the rates and terms probably get worse, not better.

What financial institution is going to loan money on friendly terms to an 18 year old kid with zero credit? Let me know because I want to make sure I never invest any of my money in said institution.

Want lower rates and better terms than a federal loan? That can be done today. Student applies for a private loan instead of a federally backed loan. But, here's the kicker, the parents need to co-sign the loan (and have good credit). If the kid fails to pay back, the parents are on the hook.

 

[ATex7239]

I just gave you a huge example (Top 10 nationwide school in many disciplines!) of a well-known land grant public college. If a public college can do this with all of the legal restrictions on it, there’s absolutely no excuse for a private education that doesn’t significantly outrank this one to be 4-15x more expensive. It’s pure extortion on the part of the private colleges: you want a piece of paper with our name on it, we’re going to own you financially for the first 20 years of your career. No thanks!

I just wrote a check for my oldest for classes at the community college. $3000 for 5 classes. That’s tuition, books and fees. Same basic/core classes as anywhere else. There’s absolutely no reason it should cost 5x more other than fleecing the public.

I think there should be a rule/law. If you are taking out loans for college (especially backed by the government) then you shouldn’t even be allowed into state or private institutions until you get into your discipline classes.

 

[SC Maintenance]

Without federal backing of the loans the rates and terms probably get worse, not better.

What financial institution is going to loan money on friendly terms to an 18 year old kid with zero credit? Let me know because I want to make sure I never invest any of my money in said institution.

Want lower rates and better terms than a federal loan? That can be done today. Student applies for a private loan instead of a federally backed loan. But, here's the kicker, the parent needs to co-sign the loan (and have good credit). If the kid fails to pay back, the parent is now on the hook.

Thats the point. The Universities will need to economize so kids / parents can afford to mostly pay without loans again. Now they can charge whatever they want because the money flows without limit. The issue isn't the interest rate. Its that college costs too much.

Also, where are you going to get a unsecured loan from a bank for under a federally subsidized loan - which google says is currently 6.39%?

 

[Pew]

I just wrote a check for my oldest for classes at the community college. $3000 for 5 classes. That’s tuition, books and fees. Same basic/core classes as anywhere else. There’s absolutely no reason it should cost 5x more other than fleecing the public.

I think there should be a rule/law. If you are taking out loans for college (especially backed by the government) then you shouldn’t even be allowed into state or private institutions until you get into your discipline classes.

Tuition at the community college I went to in 2010 was $130/credit hour. 15 years later it's $274. The University of Illinois - Chicago's tuition in 2010 was $3,700/year for undergrads. Now it's $14,000/year. They've outpaced inflation so much that we might as well make schools a legitimate business instead of a school since they're operating in that way now.

 

[PandaBear]

There is always 2 sides to a story. Student loan in the US is something you cannot bankrupt your way out of, and therefore an "interesting" financial investment for lenders. It is almost like a loan that have lowish risk and people don't cross shop, ended up with useless degree from a school that collab with predatory lenders.

In almost any other loans the lenders would make sure to only lend to people who would pay them back but not student loans. They would gladly lend to a hopeless, 90% for sure to drop out student, to get a useless degree that will never pay back the loan until 40 years in. In other countries that would be called loan sharking. Heck even credit card wouldn't let you rack up so much because they will lose their shirts.

Put some skin in the game and the lenders would be more careful picking who to lend to, and we will have less of an education waste and inflation problem.

 

[AZjeff]

I think the older generation give these kids much too hard a time. Were supposed to be mentors, not critics.

Been that way since the beginning of time. Mentoring has to be accepted and slackers need to be called out.

I go back to what I've said before, kids are getting bad advice or no advice. This isn't all on 18 YOs with no life experience. Hello parents?

 

[SubieRubyRoo]

That is because only 40% of the kids who go there are Indiana residents getting that rate, everyone else 37.37% out of state and 12.64% international are paying the full price.
The kids crossing state lines bit has to stop.

Not quite your numbers, official Purdue stats below. And FTR, nonresident is only $4300 more per year, and an additional $500/yr for international. So still not even $15k. That’s not much more…


It’s the business investments and research partnerships that are keeping costs low.

 

[trd1zz]

Thats the point. The Universities will need to economize so kids / parents can afford to mostly pay without loans again. Now they can charge whatever they want because the money flows without limit. The issue isn't the interest rate. Its that college costs too much.

Theoretically. But theoretically nothing now is stopping universities from undercutting and competing on price either.

Also, where are you going to get a unsecured loan from a bank for under a federally subsidized loan - which google says is currently 6.39%?

Aren't those limit capped though? Been a while since I graduated. A private loan would only have limitations for taking into account each of the co-signers credit worthiness.

 

[PandaBear]

I don't honestly think its changed as much as you think - other than the debt part.

My mid 90's experience was same as yours - replace boarding house with dorm or apartment full of other guys. I left with some loans, but also had mostly scholarships so they weren't that much - paid off year 1.

My kids lived in shared dorm / apartments. They didn't have car until one had internship that required it. I did see lots of fancy cars and such on campus, but all my kids friends didn't, nor did they go on fancy spring breaks, or whatever. I still think your perception is the minority, albeit a much larger minority maybe.

I think the older generation give these kids much too hard a time. Were supposed to be mentors, not critics.

My tuition (out of state) was $15k a year back in the mid 90s. My in state friends were paying $5k a year. Room and board? Dorm were more expensive at about $10k a year including food but if we live in shared apartment we were paying $250 per room a month and $100 per month on food, $50 on utility, etc. Today you would likely spend $60-80k a year all included on a normal college year, modest living standard compare to ours back then.

The pay after graduation and part time job during school probably double, but tuition and room and board basically 4x.

I remember the school funding chart back then said around 40% Federal funding and 40% state funding, then 20% tuition etc. I remember someone cut state funding to our UC system back then and the school decided to accept way more out of state students, going up in ranking to attract better academic and wealthier students all over the place, so they are moving up in ranking and now we in state students have to go out of state as well so we can get accepted. The world has changed. We the tax payer parents have to pay one way (more college cost) or another (tax to subside it).

 

[SC Maintenance]

Been that way since the beginning of time. Mentoring has to be accepted and slackers need to be called out.

I go back to what I've said before, kids are getting bad advice or no advice. This isn't all on 18 YOs with no life experience. Hello parents?

Fair enough, but kids don't get to pick their parents. As already stated above.

 

[ripcord]

There is always 2 sides to a story. Student loan in the US is something you cannot bankrupt your way out of, and therefore an "interesting" financial investment for lenders. It is almost like a loan that have lowish risk and people don't cross shop, ended up with useless degree from a school that collab with predatory lenders.

In almost any other loans the lenders would make sure to only lend to people who would pay them back but not student loans. They would gladly lend to a hopeless, 90% for sure to drop out student, to get a useless degree that will never pay back the loan until 40 years in. In other countries that would be called loan sharking. Heck even credit card wouldn't let you rack up so much because they will lose their shirts.

Put some skin in the game and the lenders would be more careful picking who to lend to, and we will have less of an education waste and inflation problem.

That's just the thing. Student loans were federalized back in 2010 by by an administration that was highly aligned with left wing academia. Increasing the money flowing to their allies was the solution, not the problem.

 

[SC Maintenance]

Theoretically. But theoretically nothing now is stopping universities from undercutting and competing on price either.

Why on earth would schools compete on price? Money is no object because they will lend it all to you. The SEC schools are flooded with out of state applicants that want to come. South Carolina Out of state tuition is over $37,000. Tuition and fees - nothing else. For a state school?

Aren't those limit capped though? Been a while since I graduated. A private loan would only have limitations for taking into account each of the co-signers credit worthiness.

I honestly don't know anything about them, but if a secured home mortgage with good credit is approaching 7%, and Prime is 7.5%, I don't see a bank giving you an unsecured loan on anything for less than 6.39%, (the federal student loan rate)

 

[Propflux01]

I don’t think banks should be loaning the money. Since it’s regulated by the feds, then the loans should come directly from the treasury at minimum to no interest, with a mandatory payback. Tuition capped at public universities. If you go private, then you pay what the banks want. Education is something we need to invest in rather than make it unobtainable due to cost.