This article has research showing that over half of student loans are higher than when they were first issued, due to accumulating interest. Disadvantaged groups (women, Blacks, Latinos) fall further behind. But very few student loans are paid off in 10 years.
America’s Student Loans Were Never Going to Be Repaid
In recent years, many Americans with student loans weren’t making enough money to pay even the accumulating interest on their debt, let alone make progress on the principal. Wage stagnation is a long-running phenomenon that worsened after the Great Recession. But an important additional source of student loan misery is the widening and diversifying nature of the Americans who take them out. It’s increasingly the case that people who were always going to have low earnings no matter their educational attainment are also overloaded with student debt — think of underpaid teachers who acquired expensive master’s degrees for only a modest pay increase. The promise of higher education leading directly to high incomes is hollow…
This situation is the fruit of a tacit agreement among state legislatures, college administrators and the federal government dating back to the 1970s: defund public colleges and universities and shift them to a tuition-based revenue model, with the federal government backstopping the system with student debt so that more students can continue to obtain more expensive education. This change was justified by the idea that higher education “pays off” in the labor market…
Opportunities for middle-class employment without a college degree have certainly dwindled. But increasing the educational credentials required for any given job or salary doesn’t magically make pay go up. It just means the higher education system gets to take a larger slice of a worker’s lifetime earnings on the front end. And if the debt can’t be repaid, taxpayers swallow the loss on the back end — but only after the borrower has endured years of mounting balances and their negative consequences for wealth accumulation and creditworthiness… [end quote]
There is a lot of politics embedded in the article but the macroeconomic impact is large. Entire generations of the most ambitious segment of the population are lured into weighing themselves down with debt that will be impossible to pay off. People who can’t marry, buy homes, have families will depress America’s potential for many years to come.
The article has suggestions but those will not happen. Even if they do they won’t help those already burdened by debt.
Luckily, all our family members managed without current debts, loans were from family or in any case I believe all were either paid off or gifted… No Federal loans AFAIK… Whole different game today, I guess… We helped Grandkids, Nieces, Nephews managed with parents help and part time jobs…
A wedding coming up Saturday for aNephew, both his and the bride’s education paid off grandly, multiples of my highest years after only a few years out of college, should be a great time at the wedding, out on a ranch towards the coast here in Sonoma County… Naturally the hottest day is expected, but we will be near the coast…
I can think of a few young white males who opted not to go to college. They blamed the costs involved. That was not fully true. One dropped out a few times and has no work ethic. The next is a drunk with less of a work ethic and in fact daddy stopped paying. The last is smart but just on the cusp of being college material. He was more responsible.
The heart of it these young men are very angry at talk of forgiving the debt for people that rang it up. All three are in a harder place now because they did not finish a degree.
It is very troublesome that people are angry at those who want to get ahead to the point of not being supportive. Because those three men are not in a good place economically it really is not their taxes that pay for picking up the debt. Their jobs depend on the consumerism of college students actually.
The perspective that a woman would get ahead of these young men bothers them to no end. Did I mention how none of them have done the work?
We all know we have a societal problem with responsibility. Perhaps society can act responsibly and pick up this debt regardless of people who wont work and are holding back our nation on purpose.
Certainly the silent generation and the greatest generation did it for us. I am not talking free college. I am talking heavily subsidized. In other words being the grown up in the room.
The student loan program was around before the US went “supply side”, but the 80s were when state funding started to be cut, and the costs shifted to the students, so the states could use the money for “something more important”, than educating the spawn of the not-rich.
Of course, the next target is public schools, starting with an effort to drive parents to abandon public schools, and providing state aid to private schools. We could see an end to the US tradition of free public schools in our lifetime. Not surprisingly, Florida is in the vanguard.
This is bunk. Just like the old “work hard and kiss up the boss and you’ll be successful”.
The “college at any cost” nonsense that was sold to students was a major financial fraud.
As Warren Buffett notes, “There’s no magic in a college education that automatically gives you a higher income. The people who pursue college tend to be “better people” (i.e. smarter, able to learn, harder workers, etc.) That’s why they make more money.”
Despite Red State racism, ignorance and innumeracy, and white folks that blame blacks and Hispanics for their poor life choices, eventually the “powers that be” will let people discharge educational debt in bankruptcy. Otherwise the drag on the economy is going to affect their bottom line, and we know we can’t have that.
My favorite data wonk says the article is basically bunk.
The vast majority of students with loans attend public universities. On average, it takes them 4-5 years to pay off their loans for an AA or bachelor’s degree. A master’s degree takes longer. There is no sign here that paying off a student loan is some kind of impossible task.
… Transition into delinquency has risen slightly over the past two decades to 9%, which means that 91% of borrowers remain current. Again, this is not a sign that student loans are impossible to pay off.
Maybe because we have decided that education is a benefit to everyone, not just those who actually get it. If the US is to be a world leader in the next generation(s), it will need more who have had higher education.
This does not mean that every student loan was prudent, many were not. Many will not to anybody any good. And if this sort of program is to continue that it should do so with serious changes , including adding vo-tech training and subtracting diploma-mill schools.
However hampering a generation of people “for being educated” seems a fraught policy. Remember when we educated a whole generation with the G.I. Bill, and they went on to produce the richest, most scientifically advanced economy the world has ever seen? Remember when we didn’t educate anyone but the children of the rich, or the tiny few who could get their hands on a book and read it by firelight? And we produced a generation of drones, fit only to work in the factories of Carnegie and Rockefeller?
This is an after-the-fact a minor correction of a policy done badly, not unlike paying for superfund cleanup of toxic dumps or paying farmers not to plant to stabilize food prices. As a “one time” thing I’m OK with it (depending on size). Not if it ingrains itself into the system and becomes a regular feature.
Taxpayers in general have paid for the education of other people’s spawn for a very long time. Education used to be funded by direct government subsidy. Now, increasingly, it is funded by personal debt. If the personal debts are cancelled by the government, is not the net effect the same as if government directly funded education to the degree it did 50 years ago?
Kalamazoo played a role in establishing the principle of publicly funded education.
Right Goofy and I agree with that. So going forward we should make college free for everyone. But there has to be some guidelines. What we are talking about here is college that was already consumed, there were no guidelines. People, that probably shouldn’t have gone to college did, and now, because they consumed the wrong education, they can not pay it back. This was not thought out well nor is the education they received worth the money they paid.
Exactly, That is exactly what I am thinking. So why pay them for making bad choices? I understand everyone wants to help but that help rarely really helps them with making good choices.
My wife went through all of this and received a Masters Degree, I went through it and received an AA. Her education was much more expensive, mine was not. We paid them both back and My salary was just as much as hers.
That is fine that you are for it, I am against it. I think if you are going to put your debt onto other people than those people should expect a return on their money. This isn’t that. These people spent money on an education that was worthless because if it was worth something they would have paid it back, like my wife and I did. My thoughts are that instead of fixing the past, when we do not have control of the parameters, is just throwing money down a hole.
Right now anyone that has a B or higher in High School can have 10000 dollars paid for some schools in Nevada, (State Colleges) This pays for your tuition. This should be free for all State Colleges. Right now the Military has a GI bill , it pays for The bill covers the cost of tuition as well as housing, relocation, books and supplies . Many Corporations will pay for schooling if you work for them.
So my thought is, Let’s set up a system where anyone can go to a state college for free, if you want to go to an IVY league or some other college, you pay for it yourself. Anyone going to college must have a B or higher to get the free college otherwise you serve in the military for service to get free college. Might not be the best way and I am open to providing a path forward.
** 1992: The Higher Education Amendments of 1992 create the FAFSA, the Direct Lending program, and unsubsidized Stafford loans, which meant that now students had to cover interest costs while in school rather than the federal government. Up until this point, the federal government was subsidizing student loans.**
They only covered the interest. Not the whole loan.
Not entirely. But it used to be much more subsidized by state governments than it is today, and that is Steve’s point. Today, much more of the cost of college is put onto the student’s shoulders than it used to be decades ago. For Boomers, or for Gen X like me.
Right My wife and I didn’t get that subsidy so we had to pay the full amount. Not a problem if you budget for it. California used to have a great college system that paid for people to go to college and maybe we should follow that model.
What I do not understand though is why go back and pay for people’s college just because they screwed up? We all knew what the rules were and we abided by them. If you wanted free college, go into the military, if you wanted help go work for a corporation and take classes at night. If you didn’t want to go that route, go to college, pay for the whole thing, party your *ss off and hope you receive a degree, Then find a great job. Not everyone get’s to live in a golden age so you have to find a way to do the best you can to get where you need to go. Let’s make it better for those going forward so we can build a better world, but looking back and trying to fix problems that are already past by throwing money at it just doesn’t sound like a great idea.
Maybe the solution is we tell everyone that want’s to get their loans paid back , we look at their job. Set them up with a career counselor. If they are in a job that doesn’t pay them enough to pay back the loan we tell them if they go back to college and get a degree in something that is useful we will pay for it all. For the ones that went to college and dropped out? We tell them to go back and get a degree in something useful and we will pay for it all. Then, we get a return for money well spent. If they can’t or do not want to , well then it is on them.