Student Debt: How Today’s Grads Are Being Set Up for Disaster

[marmar]

Student Debt: How Today’s Grads Are Being Set Up for Disaster.


This week’s credit check: Those ages 18-27 report a self-esteem boost from student loan and credit card debt. But about 9% of people ages 55-64 are still paying back student loans.

A new study recently came out that says young people get a self esteem boost from taking on debt. For those ages 18-27, its findings show, more credit card and student loan debt lead to higher self-esteem levels and a feeling of control over life. This lines up with some common sense: student debt is considered to be “good” debt, an investment in the future. And as Annie Lowrey reports, there is ample evidence that credit cards give us all the joys of consuming without the pain of spending actual money. She quotes George Lowenstein of Carnegie Mellon explaining, “Credit cards effectively anesthetize the pain of paying. You swipe the card and it doesn’t feel like you’re giving anything up to make the purchase, unlike paying cash where you have to hand over bills.”

But the other side of the coin, the study finds, is that the self-esteem high plummets later on when the students have to start paying that debt back — and realize how long and hard it will be to do so. For those over 28, having higher levels of debt reduced that sense of self-esteem and mastery. “By age 28, they may be realizing that they overestimated how much money they were going to earn in their jobs. When they took out the loans, they may have thought they would pay off their debts easily, and it is turning out that it is not as easy as they had hoped,” one of the study’s authors opined. This is unsurprising: While student loans help finance a college degree, and that does have an effect on eventual pay, the burden of paying them back often hangs around late into life. About 9% of people ages 55-64 still have student loan debt. Part of that is due to the fact that unlike most other forms of personal debt, student loans can’t be discharged in bankruptcy — there’s no way to get rid of them except payment.

And those loans will linger even longer without savings — even though young people think they are saving better than their parents. Almost half of respondents to a recent SavingsAccounts.com poll said they think as much. But as Jill Schlesinger points out, this isn’t really true. “The Bureau of Economic Analysis’ personal savings data indicates that the personal savings rate averaged only 3.48 percent of income over the previous 10 years, and doesn’t come close to matching the 10-year average personal savings rate of 9.63 percent seen from 1971-1981.” In fact, one in three adults under 33 have no savings at all. So on top of young grads being loaded to the hilt with debt burdens, they have very little stocked up to help pay it off. .............(more)

The complete piece is at: http://www.alternet.org/newsandviews/article/622154/student_debt%3A_how_today%E2%80%99s_grads_are_being_set_up_for_disaster./

[Orrex]

1. Student loan debt is indistinguishable from indentured servitude

There's been a lot of talk about debtors' prisons around here lately, but it needs to be said that indentured servitude has been widespread and legal for quite some time.

[IndyPragmatist]

6. That's a symptom of the problem

The real issue is the cost of college. Student loans aren't necessarily a bad thing, but the amount that many have to take out is.

The reason I disagree with your comment is because there is no other choice for lenders. When you mortgage a home or car, there is something physical that can be reclaimed if you do not pay. If you stop paying student loan payments, they can't take your education from you. If we allowed student loan debt to be cleared through bankruptcy, the ones that would be hurt the most would be the people making loan payments. The banks would be forced to recoup their losses by raising interest rates. Federally subsidized loans would see increases in interest or increases in taxes to pay for the losses. As much as I would like to think that people would do the right thing, I know many wouldnt. If it were too easy to get out of loans, some people would attempt bankruptcy immediately after graduation when they have no assets and can handle the credit hit.

We are allowing publicly owned entities (the universities) to operate like businesses. Indiana University breaks enrollment records every year. They are also always building new facilities, many of which are not needed. A friend of mine went to school at a small private school. He didn't have a class that was held in a building built in the 20th century until his sophomore year. The lack of A/C or television in the classroom did not impact the quality of his education. However, we see universities constantly making the claim that 20 and 30 year old buildings must be replaced because they cannot provide the environment for a quality education. This is bull. This is just a group of individuals who are pulling the strings, trying to make the university grow. By doing this, they are getting a professional reputation for being able to build universities and improving their personal situations at the expense of the taxpayer. We have a lot of issues with our education system, student loans are just one of the problems.

[Orrex]

11. I respectfully disagree with part of your point

The reason I disagree with your comment is because there is no other choice for lenders.

Lenders have plenty of choices. A great many more than do their victims, in fact.

Here are a few choices:

1. They should choose to provide accurate amortization schedules for their prospective debtors, so that the 17 year old can see how a $10,000 loan will turn into a $60,000 payoff over time.

2. They should choose not to prey upon people who simply have no means of combating the hugely funded propaganda effort that drives the student loan industry. Yes, the individual bears responsibility for his or her decisions, but when we as a society decry the predatory lending tactics of the mortgage industry, the credit card industry, and the "payday loan" industry, there is no reason why student loan providers should be free to operate more or less unchecked.

3. They should choose to bear some of the risk whereas currently they bear close to zero. The correct analogy here IMO is not between student loans and mortgages but rather between student loans and credit cards. Let's say that the debtor has racked up $30,000 worth of credit card debt through the purchase of services and perishable goods; the lender has nothing to repossess in the event of default, so why don't we likewise render credit card debt proof against bankruptcy?

4. They should choose to vet their potential debtors to an degree commensurate with the debtors' inability to escape the debt that will be incurred. Right now it's a come one, come all business model wherein not even the barest assessment of repayment ability is attempted. This is another reason why student loan debt is not analogous to mortgages or car notes; people are routinely denied mortgages or car loans. But student loans are dispensed almost willy-nilly because the lenders know that they're safe from default.

That's just four choices off the top of my head at 1:00AM. I agree with you completely that colleges have degenerated into money-making machines, but it's a two way street, and they've only been able to do so because student loan providers are more than happy to keep shoveling risk-free cash into the universities by way of (and at the expense of) the students.

Halting this process, or at least exposing the lenders to reasonable risk, would go a long way toward reducing the student loan burden that currently and disproportionately hurts middle and lower income students.

[Odin2005]

12. deleted, wrong place.

[Orrex]

14. That's right, dammit!

And you'll get more of the same if you try that shit again!!!!1!


:evilgrin:

[Odin2005]

15. LOL!

[Mojambo]

2. I guess since I'm just now starting to accrue student loan debt at 37, I'll be long dead

before I have it paid off.

Cool.

[Xipe Totec]

3. Not my boys

All three graduated debt-free.

It dang near killed me, but they started independent life free of any debt burden.

I'll pay the price when I retire.

But at least they have a chance to move forward.

[B-Stupid]

8. That's outstanding

My brother & I were very fortunate, our parents took care of both our undergraduate degrees (easily $100k plus for each of us.) I have no idea how I am going to be able to do it for my children...

[hadrons]

4. many of these young student (particularly ones in law school) ...

believe that they'll earn 6 figures when they leave school, so long-term debt isn't on their radar until its too late.

[Orrex]

5. In their defense, it's because they've been swamped by the bullshit about potential earnings

In particular, the absolute lie that a college degree will net you $1M more in your lifetime than your non-degreed peer.

Bullshit.


Yet the exploited individual is blamed for his or her failure to see--at the age of 17.5 years--that bad lending practices engineered by multi-million dollar legal teams will continue to have a crippling impact upon the individual for decades to come.

[sarcasmo]

7. Sad I didn't finish college, but really Glad I don't have student loan debt.

[a la izquierda]

9. I'll take forever to pay mine off.

I have three degrees. I have a job at a university that I'll begin in September. It is well-paying, I don't have much other debt (nor does my husband), and we have no kids. Still, if I end up in CA or somewhere else that's expensive, that debt is never coming down.
It is near impossible to do graduate work in some places while working even full-time, let along part time. Then, as you advance, if your university pays you a "stipend", which barely covers bills, you're strongly discouraged from having outside jobs. Thus, in order to live even remotely normally, you have to take out loans. Plus, to pay fees, outside medical costs (or insurance, if a university doesn't cover it)...
It's expensive as hell.

[a la izquierda]

10. I'll take forever to pay mine off.

I have three degrees. I have a job at a university that I'll begin in September. It is well-paying, I don't have much other debt (nor does my husband), and we have no kids. Still, if I end up in CA or somewhere else that's expensive, that debt is never coming down.
It is near impossible to do graduate work in some places while working even full-time, let along part time. Then, as you advance, if your university pays you a "stipend", which barely covers bills, you're strongly discouraged from having outside jobs. Thus, in order to live even remotely normally, you have to take out loans. Plus, to pay fees, outside medical costs (or insurance, if a university doesn't cover it)...
It's expensive as hell.

[Odin2005]

13. This is why I am determined to NEVER take out a student loan. EVER.

Even if it taken me till I'm 30 to get my BA.