Student Debt

[jesmu84]

http://interactives.ap.org/2015/student-debt/

Brutal.

[naginiF]

100% agree that this is brutal.  I can't imagine what that % of debt would do to my lifestyle and, hopefully, my kids won't either.

However, isn't this just market economics*? 

America gets built on the backs of soldiers and factory workers...  We monopolies the supply side of almost everything because every other industrialized nation got leveled between 1914 and 1945...  We recognize the middle class, pump money into the farm belt, and create 40 years of everybody being free'r, richer, and McMansioner...  Every parent wants their children to 'do better' than they did and for many that meant going to college.  Hell, i graduated in '88 and for some of my roommate's they were the first in their family to graduate from college........

Because of this we no longer want to work in fields or factories.  But, those countries that got leveled, or ignored, would love for their children to work in fields or factories and they will do it cheaper because they have a lower level of entitlement and a S*!tload more people than we do.

So, all kids 'must' go to college... the good schools only have a capacity.. there are few new quality schools emerging... prices for the good schools go up... demand on the mid/lower schools increase and their prices go up.. capitalism reacts to the vacuum and creates low quality diploma machines to scoop up students and student loans.

We are caught in a time where our traditional way of preparing ourselves (kids) to prosper has not evolved to take advantage of the fact that the economy has changed.  NoCal through WA and (maybe) Wall St. (and other pockets) have but Mr/Mrs America are still viewing the world like it was 1988.....get my kid through college and everything will work out. 

 


*shout out to Prof Z and anyone who took his Econ 101 class.  Equal parts brilliant and sadistic - two examples: 1) when he thought the class was not listening he would either give his lecture into the corner or crack the window and shout it out to the courtyard, and 2) two tests - mid and final - each 4 questions.  One of mids questions was a foot note in a foot note that wasn't referenced in his lectures.  Life lesson learned!

[MUsoxfan]

This is the next bubble to burst

[GGGG]

1. Rapid decrease in state support for public higher education.
http://www.acenet.edu/the-presidency/columns-and-features/Pages/state-funding-a-race-to-the-bottom.aspx

2. Tuition dollars replace those public state dollars.
https://www.insidehighered.com/news/2015/04/13/report-shows-public-higher-educations-reliance-tuition

3. Higher education leads to higher income and lower unemployment.
http://www.bls.gov/emp/ep_chart_001.htm

Conclusion:  Higher education has very inelastic demand.  Tuition increases are absorbed by the market place because consumers as a whole understand that higher education USUALLY leads to better economic fortunes.  According to the graphs in the original article, the average family spends $5,000 a year on higher education debt.  However since the average college graduate earns $20,000 more per year than the average high school graduate, the economic equation makes sense.

Further conclusion:  This is the inevitable result of morphing higher education from a "public good" that should be supported by society as a whole, into a "user fee" driven exercise.  As tuition dollars become the primary source of funding, and since there is such an inelastic demand, institutions are compelled to differentiate themselves in the market place without much worry when it comes to cost control.  You would think that a school could set itself up to be the "value brand," the Wal-Mart of higher education as it were.  Cut out the bells and whistles, just give you the basics of instruction and support, and keep tuition lower.  But as far as I can tell, no one has really attempted that model. 

[GooooMarquette]

Lots of problems with the student loan issue and costs of college, but two patterns I've noticed.

1.  Too many students aren't pragmatic in considering the cost of their school and their likely salaries upon graduation.  One example close to home: a friend's daughter wanted to be a nurse.  A solid career with good job security for sure, but not one where people make boatloads of money.  She could have gotten a great education at one of our state schools, but went to her "dream" school - a private small college that cost around $55,000/year total.  Now she has a respectable $40,000/year job...and nearly $100,000 in student loans to pay.  If she had gone to the state school, she'd probably have the same job, but a fraction of the debt.  That's not a knock on private schools - I went to MU - but just an observation that not enough students compare their available resources (excluding loans) and likely prospects after graduation.

2.  Students don't always live like students while they're in college.  With one daughter recently graduated and one currently in her second year, I've seen lots of students who live like they're already out making money.  I'm sure some are living on mommy and daddy's money, but I know many are living large on student loans.  The U of MN has a great slogan - "Live like a student now, so you don't have to live like a student later."  Unfortunately, not enough students follow that advice.

Like I said, these are FAR from the only problems, but they do exacerbate the situation.

[Badgerhater]

Story below doesn't apply to your average undergrad but does point out that people are inclined to take out loans they don't need.

I went to MU as a grad student and had an assistantship that paid the whole thing plus a stipend that covered my austere lifestyle -- didn't need a loan and am eternally grateful for the opportunity provided by MU.

Many in my circle who had the same deal took out student loans so they could have a larger apartment, buy some new furniture, go on trips, etc.   They used their loans to enhance their lifestyle.

Their complaints on Facebook about their student loan debt make me shake my head.

[PBRme]

http://nces.ed.gov/FastFacts/display.asp?id=76

http://www.inflationdata.com/inflation/Consumer_Price_Index/HistoricalCPI.aspx?reloaded=true

The cost of everything in the cpi has increased by 1.44 times from 1982 to 2013 

The cost of a 4 year public education increased by 4.46 times and the cost of 4 year private education by 4.92

http://docs.legis.wisconsin.gov/2001/related/acts/16.pdf    page49  This is the earliest budget I could find.

State funding (WI) 2001 ~413million

https://docs.legis.wisconsin.gov/2013/related/acts/20.pdf    page 36

State Funding (WI) 2013 ~614 million

Conclusion State funding may have gone down from a prior budget but is still substantially higher than inflation over time.

Further Conclusion looks like it is still being funded like a public good

One additional point.  This is not an example of inelastic demand.  It is an example of improper cost benefit analysis.  All education is subsidized equally (the art history major can borrow as much in any given year as the petroleum engineer or the accounting major (assuming equal economic background) even though the likelihood of repayment is not equal.  Thus their is very little price segregation between Journalism and Liberal Arts versus the Hard Sciences or Engineering.  If there was a cost benefit analysis the Art History Major would have a higher initial interest rate as well as a lower borrowing capability.

[GGGG]

http://docs.legis.wisconsin.gov/2001/related/acts/16.pdf    page49  This is the earliest budget I could find.

State funding (WI) 2001 ~413million

https://docs.legis.wisconsin.gov/2013/related/acts/20.pdf    page 36

State Funding (WI) 2013 ~614 million

Conclusion State funding may have gone down from a prior budget but is still substantially higher than inflation over time.

Further Conclusion looks like it is still being funded like a public good

These aren't budget figures.  These are the overall bonding authority maximums for academic facilities (supported by general program revenue), and other facilities supported by university operating income (gifts, student fees, etc.)

The key figures you need to look at are the 20.285 General Purpose Revenues Department Totals.

2014-15 (page 77): $1,128,306,700
2001-02 (page 75): $1,042,570,600

If the 2014-15 figures kept up with inflation, it would have been slightly over $1.5 billion.

Now the above figures include energy payments, interest payments on bonding for facilities, etc.  If you want to strip it down to bare support for the UW Systems basic educational operations, look at 20.285(1)(a) "General Program Operations."

2014-15 (page 75): $860,357,900
2001-02 (page 72): $824,685,000

If the 2014-15 figures kept up with inflation, it would have been slightly over $1.1 billion.

(I used this calculator for both figures http://data.bls.gov/cgi-bin/cpicalc.pl?cost1=860&year1=2001&year2=2014)

[jesmu84]

Tough to be a student in the last decade and going forward. Or, at least a student who actually needs max loans. Just finished a grad program and my interest rates are even higher than undergrad.

If the economy is dependent on consumer spending, things seem a bit out of whack. Or, we're building an economy on debt.

[GGGG]

By the way, the above General Purpose Revenue figures MAY actually include tuition.  (Wisconsin treats tuition as state revenue that is redirected to the University.)  If that is the case, then general support has actually decreased considerably.  I will look into it a bit more and get back.  (A high school classmate of mine works in the System's budget office so I can probably get my hands on something more specific.)

[#UnleashSean]

I've said this a 1000 times to other people. I believe all loans for students will be erased in the next few years.

[warriorchick]

I've said this a 1000 times to other people. I believe all loans for students will be erased in the next few years.

Care to elaborate?

[GGGG]

I've said this a 1000 times to other people. I believe all loans for students will be erased in the next few years.

There is no chance this happens.  The amount of federal loan debt is currently about $1 trillion.  That is more than is spent on Medicare or Social Security in a single year.  If you include the $200 billion outstanding to private investors, that is two years worth of medicare payments.

There is no way that student loan debt can simply be "erased."

[Goose]

Agree on next bubble to burst. The amount debt on these young people is crippling their chances right out of the gate. To make matters worse is that cost of renting a decent pad after college is out of hand. Very difficult for a qualified recent grad making good wages to save much money. Every check I write to MU pisses me off but I am glad my kids are not getting socked. Rather work another 6-7 years and protect them from the debt.

[Chicos' Buzz Scandal Countdown]

I've said this a 1000 times to other people. I believe all loans for students will be erased in the next few years.

that is quite the prediction

[Chicos' Buzz Scandal Countdown]

Hard to find an easy solution to this for everyone. Any time you give someone without much financial guidance access to leverage that can't even be lost in bankruptcy... and then tie all kinds of emotional baggage to it?

Probably not going to get a lot of disciplined thinking about risk/return.

Some undergrad and advanced degrees are worth taking out loans for. Others aren't. The data is all there.