Page 1 of 3 123 LastLast
Results 1 to 15 of 42

Thread: $200,000 student debt: Is the College Debt Bubble Ready to Explode?

  1. #1
    Elite Member celeb_2006's Avatar
    Join Date
    Jul 2006
    Posts
    13,467

    Default $200,000 student debt: Is the College Debt Bubble Ready to Explode?

    is-the-college-debt-bubble-ready-to-explode: Personal Finance News from Yahoo! Finance

    Kelli Space, 23, graduated from Northeastern University in 2009 with a bachelor's in sociology — and a whopping $200,000 in student loan debt. Space, who lives with her parents and works full-time, put up a Web site called TwoHundredThou.com soliciting donations to help meet her debt obligation, which is $891 a month. That number jumps to $1,600 next November.

    In creating the site, Space, of course is hoping to ease her financial burden, but it's "mainly to inform others on the dangers of how quickly student loans add up," she said. So far she's raised $6,671.56, according to her site.

    Space is just one example — albeit an extreme one — of a student loan bubble that may be about to burst. Over the last decade, private lenders, abetted by college financial aid offices, eagerly handed young people hundreds of thousands of dollars to earn bachelor's degrees. As a result of easy credit, declining grants and soaring tuitions, more than two-thirds of students graduated with debt in 2008 — up from 45 percent in 1993. The average debt load is $24,000, according to the Project on Student Debt.

    In some respects, the student loan crisis looks remarkably like the subprime mortgage crisis. First, outstanding student loan debt has ballooned: It grew roughly four-fold in the last decade to $833 billion as of June — surpassing outstanding credit-card debt for the first time.

    Secondly, defaults have soared amid a difficult job market. In 2008, the most recent year for which data are available, nearly 3.4 million borrowers began repayment, and more than 238,000 defaulted on their loans. The number of loans that went into forbearance or deferment (when borrowers receive temporary relief from payments) rose to 22 percent in 2007, from 10 percent a decade earlier, according to The Chronicle of Higher Education. Over a 15-year period, default rates range from 20 percent for federal loans to 40 percent on loans to students who attend for-profit schools, The Chronicle found.

    Just as lenders offered easy no-money-down mortgages to unqualified borrowers during the housing boom, private student loan firms offered instant online approval for up to 100 percent of college costs to students, in some cases for four consecutive years. In early 2007, half of loans made by Sallie Mae, one of the industry's biggest players, were to students with no co-signers, according to Mark Kantrowitz, founder of informational Web site finaid.org.

    As tuition costs have outpaced the caps on federal loans, more families have turned to private loans, which carry higher interest rates and stricter repayment rules. Last year private lenders supplied about $10 billion in loans (compared with $100 billion in federal loans). A study by the College Board found about a third of graduates in 2007-2008 had private loans. About two dozen private lenders offer student loans, and their business is growing at 25 percent annually, after a temporary decline amid the recent credit crisis, according to finaid.org.

    Space, for instance, took out $12,000 in federal loans and borrowed $189,000 from private lender Sallie Mae. In an email interview, Space said she spent the money on tuition and room and board for four years; two summer semesters; a three-month study abroad program in Ireland; and books for three semesters. Some $20,000 of her debt is accrued interest. (Interest rates on her loans range from 3 percent to 9 percent.)

    Space worked throughout high school and college at restaurants, retail stores and a nonprofit firm. But her savings dissipated quickly at Northeastern, where annual costs are $49,452. She's now looking for a second, part-time job. (Northeastern officials did not respond to an interview request.)

    You'd think would-be borrowers would understand the impact of borrowing that much for college, but Space says that's not the case. "I think it is essential for young people to have someone sit down and explain how [loans] affect your credit, how much the debt will be with interest, and how this will truly change life later on. Many people say loaded things, like, 'go to the best school you can get into,' or 'student loans are considered good debt.' Solely following this advice led me to the place I'm at today," she said in an email.

    A Sallie Mae spokeswoman said she couldn't comment on Space's situation, but called that level of borrowing "extremely rare." Sallie Mae requires its private student loans to be certified by the school's financial aid office to ensure that the amount borrowed is no more than the cost of attendance, less any other financial aid received. She added that Sallie Mae reviews the applicant's and co-signer's financial situation before approving a loan.

    But Kantrowitz says Sallie Mae forked over a shocking amount of money. "To borrow $50,000 in the first year of college is already excessive. But where was the (lending) rationality in the second year when the student was borrowing another $50,000?" says Kantrowitz, adding that students who must borrow more than $10,000 a year for an undergraduate education should find a cheaper school, or start at community college.

    Zac Bissonnette, a senior at the University of Massachusetts and author of the new book "Debt-Free U: How I Paid for an Outstanding College Education Without Loans, Scholarships or Mooching Off My Parents," agrees that there's plenty of blame to go around.

    "It's profoundly stupid, but at the same time it takes a village to screw up that bad," he says. "I support the personal responsibility argument, but if you're 18 and the first person in your family to go to college, how can people absolve the college or the lender of responsibility?"

    While the housing collapse's impact was wide-ranging — wreaking havoc on a multitude of industries and market participants — the primary losers in this debacle are the borrowers. Lenders can't repossess a college degree, and changes to the bankruptcy law in 1984 and 2005 mean borrowers can't charge off their obligations the way they can shed credit-card, mortgage or even gambling debt when they file for bankruptcy. (Just 29 of the 72,000 borrowers in bankruptcy in 2008 were able to prove "undue hardship" and have their student loans discharged, according to Kantrowitz.)

    On the upside, federal student loans carry some consumer protections: lower interest rates; payment forbearance or deferment in the event of unemployment; income-based repayment programs; and forgiveness programs for public service careers. But the government will garnish the wages, income tax refunds and social security and disability checks of defaulters. Private loan terms are more treacherous, with fewer options for payment deferral, and fees and penalties for missing payments. Lenders can also get a court order to garnish wages. For its part, Sallie Mae says it has set up customized workouts for thousands of financially distressed customers.

    "With this kind of debt on your credit record, you won't be able to get a car loan or a mortgage, and you'll have difficulty renting an apartment," says Kantrowitz. Some borrowers have lost jobs because the collection agencies called them at work illegally. Indebted grads are also less likely to go to graduate school, and delay getting married, having children and saving for retirement.

    Kantrowitz says he doesn't think the student loan industry will implode, but its "cascading effect" on household finances and the U.S. economy will become noticeable by the year 2020. That's why he and educators, as well as some lenders, support legislation to reform bankruptcy laws.

    In April, the Private Student Loan Bankruptcy Fairness Act of 2010 was introduced in the House of Representatives and The Fairness for Struggling Students Act was introduced in the Senate. Both would modify the bankruptcy law to allow certain educational debts to be eliminated. (Borrowers would still be on the hook for federal loans, which are funded by taxpayer dollars.)

    "There are some people who go to school and live a very high lifestyle and graduate with a lot of debt, who could potentially attempt to get the debt discharged right after they get a job," says Kantrowitz. "But the bankruptcy code has enough anti-abuse provisions, and judges have enough discretion, that they could prevent someone from doing that."

    The upshot would likely be tighter borrowing standards and higher interest rates to reflect the additional risk, making loans less accessible to low-income households.

    Meanwhile, securitization of student loans throws a twist into potential legislation. In May, Standard & Poor's came out with a report suggesting that restoring bankruptcy protection would have a negative impact on the private loan asset-backed securities market, although it called the magnitude of the impact "uncertain."

    Kantrowitz, however, says the effect would be minimal: "In aggregate, we're talking about $1 billion a year — but relative to all the lending that goes on, it's not that much."

    As for Space, she says she is determined to pay off her debt and regrets the path she took to get her degree: "Everyone from Barack Obama to Bill Gates keeps pushing a college education as the way to secure one's economic future. That is a view that should be heavily qualified."

  2. #2
    Elite Member dolem's Avatar
    Join Date
    Jul 2006
    Posts
    3,639

    Default

    $200k is a huge amount of money to borrow for college, especially when that doesn't include graduate work, etc. She got a degree in Sociology. You could easily get that same degree elsewhere for much, much less money.

    I don't think it's fair to put all the blame on the lenders. In this case you have students who just think they can do whatever they want. When I was 18 I would never have dreamed of taking out that much in loans. Did she have zero concept that she would eventually have to pay that money back? That being said, I do think that Colleges charge way too much.

  3. #3
    Elite Member MrsMarsters's Avatar
    Join Date
    Oct 2005
    Location
    HELL
    Posts
    7,238

    Default

    I honestly don't understand why anyone would pay $200,000. Like you mentioned they could have gotten the same education for a quarter of the price at other colleges. They do charge way too damn much, however students need to start thinking about how they will pay back these loans.

    I went to a college that was too damn expensive..they ended up raising tuition by nearly $10,000..so yep I stopped going there. I have taken out loans, and already started paying them back.

    Like you mentioned above I honestly don't see how she could take out $200,000 and not have any sort of plan for paying it back, or think that it was too much to borrow.
    Life will break you. Nobody can protect you from that, and living alone won't either, for solitude will also break you with its yearning. You have to love. You have to feel. Horrible isn't it? It makes you so vulnerable.

  4. #4
    A*O
    A*O is offline
    Friend of Gossip Rocks! A*O's Avatar
    Join Date
    Oct 2005
    Location
    Being Paula
    Posts
    31,675

    Default

    People need to understand that a college degree guarantees you fuck all in the job market today unless it's something like medicine. $200,000 for a sociology degree? Purleeze. Go and learn a trade like plumbing or carpentry or train as a nurse or teacher for a fraction of that stupid loan.
    If all the women in this place were laid end to end, I wouldn’t be surprised - Dorothy Parker

  5. #5
    Elite Member Brookie's Avatar
    Join Date
    Feb 2008
    Location
    In the "D"
    Posts
    24,160

    Default

    Quote Originally Posted by A*O View Post
    People need to understand that a college degree guarantees you fuck all in the job market today unless it's something like medicine. $200,000 for a sociology degree? Purleeze. Go and learn a trade like plumbing or carpentry or train as a nurse or teacher for a fraction of that stupid loan.
    This. Many people with these days are retraining so they can earn money as carpenters and plumbers. But, they're smart carpenters and plumbers.
    Life is short. Break the Rules. Forgive Quickly. Kiss Slowly. Love Truly.
    Laugh Uncontrollably. And never regret ANYTHING that makes you smile.

    - Mark Twain

  6. #6
    Elite Member cupcake's Avatar
    Join Date
    Jun 2007
    Location
    Tampa Bay florida
    Posts
    4,804

    Default

    Good Lord!!! We put 5 kids through and didnt pay that much for all of them put together!!! That seems insane.
    True. One of my sons got a medical degree but he is now doing mechanic work on foreign cars at $35 per hour. More than he was making with his degree. Plumbers, electricians etc make very good wages
    My grace is sufficient for you, for my my strength is made perfect in weakness...I love you dad!
    Rip Mom

  7. #7
    Elite Member
    Join Date
    Oct 2008
    Posts
    3,807

    Default

    It's sick. I have a daughter who's a sophomore at a private university and we are trying really hard to make sure she graduates with manageable debt. Even with us paying about $25K a year, $20K in grant money, we're still coming up short.

    I ask myself on a weekly basis if it is worth it. When my daughter calls and complains about not being happy at school I want to shoot myself.

    Grrr.

  8. #8
    Elite Member McJag's Avatar
    Join Date
    Feb 2007
    Location
    Texas
    Posts
    42,521

    Default

    There are so many state colleges that are far cheaper. In the end, unless you are headed to Wall Street, a degree is a degree.
    I didn't start out to collect diamonds, but somehow they just kept piling up.-Mae West

  9. #9
    Elite Member witchcurlgirl's Avatar
    Join Date
    Feb 2007
    Location
    Acerbia
    Posts
    34,514

    Default

    ^ and even that isn't always the case. Mr Witch is a wall streeter, and many of the very successful people we know in the business never went to college or dropped out before finishing. I have two degrees and some of these people earn more in a month than I make in a year.

    I have no idea why anyone would spend $200k on a sociology degree if they had to borrow it. It would qualify one to do what? Teach? It's one thing if your parents can pay to send you, but to put yourself in that kind of debt....I don't know what she was thinking.



    All of God's children are not beautiful. Most of God's children are, in fact, barely presentable.


    If I wanted the government in my womb I'd fuck a Senator

  10. #10
    Gold Member philbert_wormly's Avatar
    Join Date
    Jan 2010
    Posts
    812

    Default

    Oh hell no!

    Space, for instance, took out $12,000 in federal loans and borrowed $189,000 from private lender Sallie Mae. In an email interview, Space said she spent the money on tuition and room and board for four years; two summer semesters; a three-month study abroad program in Ireland; and books for three semesters. Some $20,000 of her debt is accrued interest. (Interest rates on her loans range from 3 percent to 9 percent.)

    So she was admitted to the University by the skin of her teeth. No scholarships for her. From what I can infer no financial aid for her either because there is one form of public student loan which is not need based.

    Either no one sat this chick down and tried to guide her towards a cheaper option, or any transfer options, or she just did not want to hear it.

    No pity for this chick.

    Sorry but I have heard this story before in varying ways since the time I was a high school girl back in the year one.

  11. #11
    Elite Member louiswinthorpe111's Avatar
    Join Date
    Oct 2005
    Location
    Middle America
    Posts
    13,623

    Default

    If my kids are going to college they are going to state schools. There is no benefit in private schools and the additional tution.

    I got a college degreee on a budget. First, year I got pell grants and a student loan for $2600, and I lived on campus. Next year, the pell grant I was going to get wasn't going to pay for anything, so I went home and went to community college, where the pell grant covered all the tution. Second year, free. For my third and fourth year, I lived at home and drove 50 minutes to Iowa City 3 days a week to go to classes. Then we were paying tuition only, and my parents could cover the tuition only. And I went to summer school every year to ensure that I graduated in 4 years. Oh, and I worked 30-35 hours per week on top of that. so I graduated with a student loan of $2600.

    Wah-wah. If you want a degree bad enough, you can get it done.

    I had done loans for people in the past who had a shit ton of student loans, and there was never any way they would be able to pay them back. For one couple, each had 250K in student loans from Chiropractor School. And neither became a chiro! she was the manager of a Lane Bryant and he worked in a camera store. They made about 50K a year combined. And they kept getting their student loan payments deferred because of "hardship" meaning they didn't make enough money to pay them back. And if you declare bankruptcy, student loans are not included in that. So essentially, you could declare hardship your whole life, never pay it back, and then it would only get paid out of your estate when you die, if there's any money left in the estate.

    Nowadays, I almost think a college education is overrated unless you are going to be an engineer or doc or something technical. A liberal arts degree or a "business" degree isn't going to get you a job like it used to.
    RELIGION: Treat it like it's your genitalia. Don't show it off in public, and don't shove it down your children's throats.

  12. #12
    Elite Member NVash's Avatar
    Join Date
    Oct 2009
    Posts
    5,471

    Default

    Im a struggling college student and I frequently wonder about this. My loans arent that high but tuition is going up yearly and I was just told that by the time I graduate my tuition will be have another $5000 added to it yearly. Let me tell you I wasnt in the least bit amused to hear that but what can one do? I keep hoping that when I get out Ill be able to get a job but who knows. Maybe Ill take up Nursing then or even try to get a job at the college as a teacher.

  13. #13
    Elite Member Charmed Hour's Avatar
    Join Date
    Jul 2006
    Posts
    5,721

    Default

    Quote Originally Posted by cupcake View Post
    Good Lord!!! We put 5 kids through and didnt pay that much for all of them put together!!! That seems insane.
    True. One of my sons got a medical degree but he is now doing mechanic work on foreign cars at $35 per hour. More than he was making with his degree. Plumbers, electricians etc make very good wages
    Wait, wait... Are you saying your son is an MD and works as a mechanic? Confused.

  14. #14
    Elite Member NVash's Avatar
    Join Date
    Oct 2009
    Posts
    5,471

    Default

    I have a friend who has a doctorate, lost her job and ended up as a bank clerk for awhile. She isnt a licensed doctor but its still a doctorate.

  15. #15
    Elite Member Charmed Hour's Avatar
    Join Date
    Jul 2006
    Posts
    5,721

    Default

    Quote Originally Posted by NVash View Post
    I have a friend who has a doctorate, lost her job and ended up as a bank clerk for awhile. She isnt a licensed doctor but its still a doctorate.
    Honestly, I can't see an MD working as a mechanic, there's no shortage of jobs. Perhaps in "medical degree" she meant some kind of med tech or aide.

    On a side note, there's a woman at my job who has worked in our mailroom for 30+ years and has a Ph.D. Our job does 100% reimbursements and she has never felt to need to change careers.

Page 1 of 3 123 LastLast

Thread Information

Users Browsing this Thread

There are currently 1 users browsing this thread. (0 members and 1 guests)

Similar Threads

  1. Dubai's debt crisis
    By Novice in forum News
    Replies: 13
    Last Post: November 29th, 2009, 12:48 PM
  2. Replies: 7
    Last Post: October 5th, 2007, 07:42 PM
  3. Replies: 0
    Last Post: March 18th, 2006, 07:40 PM

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •