Are Student Loans A Ticking Time Bomb For The Economy?

Four years later, we’re still standing on the rim of a smoldering crater where the housing market used to be, pledging we’ll never let another financial disaster like that happen again. But some prognosticators worry we could soon be bracing for another blast, judging by the growing number of people who can’t pay back their student loans.

More than 80% percent of bankruptcy lawyers have seen an increase in clients looking to get out from under their student loans, according to the National Association of Consumer Bankruptcy Attorneys.

And since many of these people don’t meet federal hardship standards for discharging a student loan through bankruptcy, it’s often the parents who co-signed the loans that face financial ruin.

“This could very well be the next debt bomb for the U.S. economy” says William Brewer, head of the NACBA. “Obviously, in the short term, student loan defaults are not going to have the same ripple effect through the economy that mortgage defaults did… My concern is that the long-term effect may be even graver.”

Brewer explains that he fears some people won’t seek the training or education they need because they won’t want to risk a loan they can’t repay.

As we reported last week, student loan debt in the U.S. now stands at around $870 billion, significantly more than the $730 billion owed on car loans or the $693 billion in credit card debt.

Just under 10%, around $85 billion, of that student loan debt is currently past due.

Back in September, the Dept. of Education stated that the number of college graduates defaulting on student loans have been increasing in recent years. Most notably, in just one year the default rate for graduates of for-profit colleges jumped more than 3% from 11.6% to 15%.

In an attempt to reconcile student loan issues and help keep borrowers from defaulting, the Consumer Financial Protection Bureau recently launched a complaint portal.

Worst Company In America 2012 contender Sallie Mae also recently decided that, rather than simply charging $50 forbearance fees to people who defer their loans, it would actually apply the funds to the loan.

Student loans seen as potential ‘next debt bomb’ for U.S. economy [Washington Post]

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  1. Phildogger says:

    Boom goes the Fiscal dynamite!!!

    • Jawaka says:

      This all makes me feel kind of stupid for paying off my mortgage and student loans. It looks like the new way of paying off debt is to just cry hardship, default on your loans and wait for the government to bail everyone out.

      I cry for the passing of personal responsibility in my country.

      • penuspenuspenus says:

        Ya, I just paid mine off last year. Would be a bit disappointed if suddenly these debts were erased for others.

        • Cor Aquilonis says:

          I just paid mine off this last month, and I would feel a little cheated, too. But, I would then console myself that I took care of what I signed up for/ had personal responsibility/ decry the moral turpitude of of Americans/ etc.

      • Peggee is deeply offended by impetulant, pernicious little snots disrespecting her and violating her personal space at Best Buy. says:

        You obviously missed the part where few people actually meet the hardship requirements. Essentially, you have to be dead or a quadriplegic. Technically you can just stop paying, but since the loans can’t ever be discharged, the lenders can and will seek (and win) to garnish your wages (such as they are), plus you won’t ever get credit again.

        So, poor you for paying them off (most likely before the price rose to quadruple what it was 20 years ago), but no one’s getting a free pass here. These people may have defaulted just recently, and maybe that looks like they’re free and clear, but once the lenders catch up on getting judgments, the nightmare begins. And never ends.

        • Cor Aquilonis says:

          ProTip: Sallie Mae doesn’t have to sue to garnish wages – they can garnish immediately through “administrative garnishment.”

          The Moar You Know!

  2. Cat says:

    Do you really have to ask?

    Ok. YES

    • Loias supports harsher punishments against corporations says:

      Pretty much this.

      If things are allowed to continue, most people will have high college debt that they can’t pay off.

      • ChuckECheese says:

        What people fail to recognize is that virtually all consumer spending has been propped up with these debt bubbles, at least since the 1990s. There was commercial real estate, then the tech bubble, then housing. Now student loans, and all the rest. Problem is we don’t have jobs that pay decent wages that would allow people to pay for these things without borrowing a bunch of $$.

  3. TheMansfieldMauler says:

    Get out your wallets, time for another bailout.

    • Snowblind says:

      For which I will pay for, and not benefit. Just like the home loan debacle.

      I play by the rules, and for that I get to pay for the idiots. Twice.

      • hansolo247 says:

        Amen.

        I don’t have a house (because I knew the prices were too high), and my student loans are a gnat in my overall financial situation (I could pay them tomorrow).

        In both cases, I’ll be bailing someone out.

        And…IMO…both bailouts will be needed BECAUSE the government is involved in the market.

      • Kate says:

        Everyone benefits from an educated populace.

        You have a safer environment – people who aren’t qualified for jobs usually resort to criminal acts to eat.

        You have competent professionals to go to when you need it.

        You have roads and bridges designed by real engineers, you are far more likely to have a good economy, you have doctors and technical benefits, the list is endless.

        People who think they don’t use schools and education all of their lives are completely wrong.

        • Snowblind says:

          Fine, then they can pay for it. I already pay a lot in taxes to pay their tuition if they go to a state college or Univ. They just have to pay the various “fees”.

          Stop trying to pay for your dreams for other people with my money.

          Why do I have to bail them out? I am not getting bailed out on my home or my loans.

          Now I have to pay for their homes and loans as well. Very likely my kid will continue to pay for their mistakes.

          I meet a lot of people that ought have skipped college and simply gone into the trades. The money is good, the work is good, and they would not be burdening themselves or society with the debt.

          But people with “good intentions” convince them they are somehow less fulfilled then sitting at a computer pushing keys and moving a mouse.

          No, society benefits when there are people that can keep the water flowing, the sewage out of the streets, the lights on, and the food coming to the tables.

          The rest of us booklearners are just overhead.

      • Awesome McAwesomeness says:

        There are tons of things paid for through tax money that I don’t agree with. Take the war for instance, or Medicare paying for Viagra. I don’t sit around bitching all day about it. Everyone pays for shit they don’t like. It’s part of being a U.S. citizen. Get over it.

    • FatLynn says:

      One of the reasons student loan debt has soared, though, is that so many schools were forced to raise tuition when the government severely decreased education funding. This is true at both the federal and state level; universities that relied on government support were suddenly forced to find other revenue streams.

      All of which is to say, if the government bails out student loan debt, it’s just the same money they should have thrown in up front.

    • huadpe says:

      And this one is already assured. Most student loans carry an explicit government guarantee against default.

  4. Blueskylaw says:
  5. longdvsn says:

    Solution Step 1: No federal student aid or student loans for students at For-Profit schools.

    It won’t solve all the problems, but it’s a darn good first step.

    • TuxthePenguin says:

      How about solution step 2: Student loans on the ability to repay. If you are taking, say, engineering and their average starting pay is $30k (including an average of those who cannot get jobs – $0s in that case), you’ll get more than someone taking, say, underwater basketweaving with an average starting pay is $10k.

      I’m not so concerned about for-profit schools – they seem to function like payday lenders – educators of last resort. I’d love to put them out of business… but we like the idea that anyone can get a college education. And there are times I think if every entity had to generate corporate accrual-basis financials it’d open a lot of eyes…

    • voogru says:

      Just because a school is non-profit doesn’t mean everyone there works for free.

      All they do is take all of the profits and give it to all of the professors. Exxon Mobile can be a non-profit too, all they have to do is hire enough people and pay them enough salaries to zero out their profits on the books.

      • longdvsn says:

        I certainly know what non-profit means. Maybe generalizing to non-profit vs for-profit isn’t completely appropriate…but the generalization usually draws wide distinctions from admissions counselors (for-profit, see: salesmen), accreditation, and graduation rates. I was about to write a long tirade about the differences between them, but if people want to defend for-profit “accredited” (quotations for sarcasm), then they’re beyond reasoning with.

    • mistyfire says:

      I agree. I also think for profit schools push the loans too. I know a few people in my town who could afford the schools but got the loans anyways (“They told me it would save me money”) and now have loan repayments higher than what the schools would have cost. And I know others who had to take out other on top of the student loans to help pay for the schools.

      My local CC. no longer encourages for profit schools.

    • czechyoself says:

      And Solution Step #3: Make for-profit institutions responsible for covering X% of the student’s loan balance if the applicant fails to [1] graduate or [2] find relevant employment within 6 months of graduating. The graduation rate at for-profit institutions (e.g., University of Phoenix) is appalingly low, and often the degree isn’t worth the paper it’s printed on. If these for-profit institutions were required to have some skin in the game, then perhaps they’d use better discretion when accepting candidates and pushing high-interest loans.

    • heisindc says:

      Short sighted. For profits serve many who cannot make it work at traditional schools or even community colleges with faulty teachers and unworkable schedules. I tried both.

      My for profit had the best professors that got back to me in a matter of MINUTES, who worked in my field, and helped me after my classes ended.

      I also had better financial advisers, rather than some old lady in the disbursement office working 9-12 only on Tuesdays.

    • The Caretaker says:

      I wonder what the breakdown of these loans would show. What I mean is, how much is owed for medical school versus Pima Medical Institute or the University of Phoenix. Student loans are meant to reperesent this country investing in its people, but these for-profit places are mostly financial sinkholes for the taxpayer and the borrower. Does it really make sense for a student to pay $20,000 for a Pharmacy Tech job that pays $12 an hour? That the student could get just by working at Walgrens for a while and get on the job training?

      • OnePumpChump says:

        Once you’ve got people getting that training, on their own dime, why would Walgreens want to hire someone without it?

  6. Liam Kinkaid says:

    How exactly would one, with a few thousand dollars, best poise himself to take advantage of the impending crisis?

    • TheMansfieldMauler says:

      Your best investment right now is ammo and canned goods.

      • Liam Kinkaid says:

        Well, I already have a year’s supply of Candwich. I’m betting if I get enough corn and baked beans, I can use my derriere as a high velocity gas powered machine gun.

      • Not Given says:

        Time to order more wads.

    • Yomiko says:

      Figure out whether there’s a student loan version of a CMO (collateralized mortgage obligation) and buy a CDS (credit default swap) or a put option against it.

  7. Yomiko says:

    “And since many of these people don’t meet federal hardship standards for discharging a student loan through bankruptcy, it’s often the parents who co-signed the loans that face financial ruin.”

    I am actually in the opposite position. I have plenty of loans, but I can cover the payments.

    I’m worried that my parents will default on the loans they took on my behalf (which I co-signed) and I will have to take over those payments. They already made late payments that I didn’t find out about until I pulled my credit report. They never said anything to me and didn’t know they could ask for a deferral/forebearance until I told them about it. They got back on their feet that time, but I’m worried that they will try to hide it if they get in over their heads again.

    I would MUCH rather that they ask me for the $250 to cover the payments for a month than that they get behind again. Who knows how high the payments will be if they default for long enough for the company to come after me?

    • cyberpenguin says:

      Why not just tell them that their investment paid off, and you’re ready to take care of the rest of your loans?

      • Jfielder says:

        Exactly my thought… your parents took out a loan for your education… your education earns you enough money that paying that debt back is no big deal, and yet they are struggling? Jesus rollerblading christ! Take care of your parents!

      • oblivious87 says:

        THIS! Just because you’re parents were kind enough to add more debt to their lives to make Junior happy, doesn’t mean they should suffer when you’re more then capable of paying back the bills you accumulated!

      • Yomiko says:

        Because I don’t have the $250 every month. But for one month I would let my credit card balance ride rather than pay it off in full and I will use that cash to give to my parents.

        I will have the money every month in about 18 months when the loan I took to refinance my college-era cc debt is paid off. Then the trick will be convincing them to let me take over the payments. They will be resistant (my dad still swears that one day his ship will come in and they will take over my payments), but I think I’ll be able to convinve them when I point out that my sister is an art student and will need all the help they can manage.

        • Liam Kinkaid says:

          Oh, I’m pretty sure that you don’t need your parents’ permissions to give money to the bank. The bank will happily accept your money. Your parents might not be too pleased by it, but there’s not much they can do when the bank cashes the check.

          • Yomiko says:

            True. This is my backup plan. If they protest and insist that htey will continue to pay, I will say “Good. The loan’s getting paid off twice as quick now.”

            Like I said, 18 months and I can make my move.

          • Cor Aquilonis says:

            Oh, OF COURSE! Thanks for making this point! I’m in a similar situation, where my parents are paying off “my” student loan debt (a parent PLUS loan), but they won’t let me take over the payments. I’m going to have my sister find out the loan number so I can throw money at it on their behalf.

            I’ll have to see if my Dad will get pissed or emasculated in some way if I try, first, though.

            • Yomiko says:

              Yeah, I know where my parents (mom, really) keep the bills filed away for paying, so I can sneak a peek when I’m home. The loans are from MEFA, who only gives loans to parents or independent/adult students so I don’t have any loans from them other than the ones I cosigned. I have had no contact with them yet, but I will figure it out.

              I’m glad someone else out there got what I was saying. Congrats on paying off your other loans, btw. I look forward to my time… someday… 7 to 8 years from now.

  8. sirwired says:

    A measly $85 Billion in past-due debt is hardly an economy-destroying time bomb. It’ll hurt, to be sure. And the banks getting hit won’t be happy with the process. (And how much of this is government-backed loans?) But this is hardly the end of the world here…

    • TuxthePenguin says:

      My concern with that number isn’t the 10%… its how much of that current debt is in forbearance (no job) or deferral (in school) – those amounts aren’t counted as past due. I wonder what the total is without those two items in it.

      A bigger concern isn’t necessarily that it goes bad, but it’ll hurt other things. If you graduate with $100k in debt, getting a house just isn’t an option – you’ve already got a mortgage that is nearly impossible to get rid of.

      • ChuckECheese says:

        A lot of this debt is held by young people. In case you didn’t know, people under 30 are suffering a great deal more from un- and underemployment than older people are, and have throughout this downturn. This age cohort holds a majority of these loans. It is expected that the default amounts will only increase over time.

  9. tbax929 says:

    If they’d allow student loans to be discharged via bankruptcy, it would help. I know a lot of people who had to file for bankruptcy but couldn’t get the student loan portion of their debt discharged.

    Before I get villified, I want to point out that I faithfully pay my student loan every month. Of course, I’m gainfully employed and have actually benefited from obtaining my college degree. Many people who went to college are having a hard time finding employment or are working for minimum wage.

    • alstein says:

      This is the simplest solution- bankruptcy isn’t a get out of jail free card, there’s a cost, but you can rebuild from that easier then permanent crushing student loan debt.

    • Herbz says:

      Do you even know WHY student loans aren’t dischargeable through bankruptcy?

      Its because people used to go to expensive college, rack up a crapload of debt, and then (on the day they graduated) they would file bankruptcy.

      POOF all your debt gone, start fresh, no loans to worry about and only 7 years of shitty credit.

      • tbax929 says:

        There are consequences for bankruptcy. It’s not like your debt magically disappears.

      • apember says:

        I have heard that discharging student loans by filing for bankruptcy used to be a favorite practice of recent graduates of medical school. This is just a story I heard, so I am not sure if it is true. We all complain about rules, myself included, but many are put in place because of a minority that abuse the system for their own gain.

        • Not Given says:

          They should put a time limit on it. You can’t do it right after school, only after a certain amount of time. You can’t take cash advances or buy big screen tvs on your credit card or give things away for a certain amount of time before filing, so put a limit on discharging school loans.

      • OutPastPluto says:

        > Do you even know WHY student loans aren’t dischargeable through bankruptcy?

        Sure. There’s no shortage of peasants eager to reinstate feudalism with corporations playing the role of robber baron.

        There are plenty of people willing to stick it to the individual citizen while giving corporations a free pass.

        There’s a reason that we eliminated debtors prisons on this side of the pond. Part of lending money is correctly assessing risk. Losing your money is one of the pitfalls of being a professional banker.

        It’s bankers that don’t deserve bailouts.

    • prag2 says:

      This would have the effect of making the lenders more careful about who they lend to and how much. As in the run-up to the housing bubble banks don’t really worry if the borrower is making a good choice. They don’t have much skin in the game and make it easy to get in over your head. Maybe that’s a good thing. It might also end up lowering tuition in the long run which is inflated partially due to easy access to student loans.

      • Lyn Torden says:

        I agree. The banks were making a lot of bad loans in the housing crisis, and were encouraged to do so for student loans (because of the impending job crisis that still haunts us).

        It would have been better if the loans could have been fully deferred until a full time job on the educated field can be obtained. And for some people that might well be forever.

        The ultimate solution is free higher education, including graduate school, as long as people keep up a certain minimum level of grades on standard class loads.

    • ChuckECheese says:

      I don’t believe there are any hardship circumstances that will get your student loans discharged. I know a person who had a stroke, became homeless, and filed BK. They still wouldn’t discharge his student loans.

      • Tardis78 says:

        I could see loans being discharged if a person wasmaking a good faith effort to pay back the loans. A student could not filie for bankruptcy right out of school and even when they do they would have to show that the discharge or reduction would allow the part of the loans to be paid off.

      • JonBoy470 says:

        All the doctors filing backruptcy ruined it for the rest of us. A newly minted MD graduates with 2-300K in student loans. Then enters a residency at 80-90 hours a week for three to five years paying peanuts, so it’s not like they could afford major purchases, even though they’re technically employed. At that point, filing backruptcy was just acting in their own best interest.

        Poof student loan debt was wiped out. Employment prospects were unimpaired, because so many new doctors had bankruptcies in their past. Sure, they paid higher interest on their car loan or mortgage than someone with pristine credit, but they could still get loans for the things they wanted, and the higher finance costs were (much) more than offset by the savings from the student loans they were no longer paying back…

        This practice was most associated with the medical profession, but many others (lawyers come to mind) also got in on the act…

  10. AngryK9 says:

    Sallie Mae didn’t just decide to do that. It took lawsuits and public attention and negative publicity to get that to happen.

  11. Hoss says:

    Is this entirely a function of a down economy? I don’t think so — this is the part of the consequence of using college as an extension of high school — many kids have worthless debt that doesn’t match income potential. If your kid shows aptitude for a tradesman job, why put them in an art study class?

  12. Cat says:

    Perhaps I was too quick – just saying yes is hardly an answer to “Are Student Loans A Ticking Time Bomb For The Economy?” I forget there are people who are so stupid they didn’t see the real estate collapse coming.

    Lets try “Good lord, Fuck YES!

    The real estate crash will pass in time with relatively little effect on consumers. Sure, people will walk away, default, be foreclosed on, forced to short sale, lose money, declare bankruptcy, etc. But after 7 years, the slate will pretty much be wiped clean for those that took a loss.

    Not so with student loans. You can’t foreclose an education. You can’t short sale, walk away, or take a loss. And you can’t have your student loans discharged in bankruptcy. If you default, they just add “fees” and “penalties” that would make Bank of America blush. And they proceed to garnish your wages and any tax refund you may be due.

    Consumers will be screwed when the student loan bubble bursts, and without government action, it will happen, mark my words.

    Wait, did I just say “government” and “action” in the same sentence?

    I’m sorry.

    • Jevia says:

      Even for those people who are paying on their student loans, these huge loans, caused by huge tuition, take anywhere from $500 to $2,000 out of a person’s pocket every month. That’s a huge amount of money to essentially be taken out of the economy, that the person can’t spend on clothes, eating out, movies, electronics and other “consumer” items. That’s money that prevents a person from buying a new car, or saving up a down payment on a house. That’s huge money for people that can only find part-time barista work, or even if full time, still usually less than $50,000 a year.

  13. HowardRoarksTSquare says:

    Hopefully some people do look more into taking loans and seeing if it’s something they can re-pay in the future.

    Too many people getting degrees they’ll never use or need.

    I blame Human Resources more than I blame the kids. HR is convinced a sec – administrative assistant – needs a 4 year bachelors degree. I’m fairly positive you don’t need a liberal arts degree to answer a phone and make sure the conference room isn’t double booked.

    Also blame America for having this stupid vision that everyone needs to go to a 4 year school. We need ditch diggers and plumbers and welders and machinists. UGH!

    At least the Market will sort this out eventually.

    • bbf says:

      It’s not that an administrative assistant *needs* a four year degree. The fact is that people *with* four year degrees are plentiful, so it’s just a way of filtering the number applicants.
      Plus, in general, a person who has a four year degree is more competent than one with a HS diploma. (Of course there are exceptions, but time is money, and it doesn’t pay to sort through hundreds of applicants to find a “diamond in the rough”.)

      • HowardRoarksTSquare says:

        We aren’t talking engineering or education or medical practice. We’re talking “Accounts Receivable Nina Speaking…Just a moment”

        It’s a never ending cycle where people are going for a piece of paper they don’t need for a job that shouldn’t require said piece of paper.

        • Kate says:

          And yet if we don’t keep our educational standards up, we will be bypassed by the rest of the world. The US has already sunk below a lot of other countries.

          • whogots is "not computer knowledgeable" says:

            Removing some of the chaff from our education mills would increase standards quite a bit. Luring vo-tech cases into academic programs and mollycoddling them to inflate matriculation rates makes every single damned class more miserable and less rewarding for everyone else.

        • Not Given says:

          My niece is going into the same field as her parents. The difference is to take the professional exam now requires a master’s as oppsed to the bachelor’s her parents needed in the 80s.

      • JoeTheDragon says:

        I think that the Traditional College system is not the best fit for lot’s of jobs and there are better ways to learn and to show that you have skills.

        Harvard Study: Too Much Emphasis On College Education?
        http://www.csmonitor.com/USA/Education/2011/0202/Does-everyone-need-a-college-degree-Maybe-not-says-Harvard-study [CC] [MD] [GC]

        http://hotair.com/archives/2011/02/02/harvard-study-hey-maybe-were-placing-too-much-emphasis-on-a-college-education/ [CC] [MD] [GC]
        “It would be fine if we had an alternative system [for students who don’t get college degrees], but we’re virtually unique among industrialized countries in terms of not having another system and relying so heavily on higher education,” says Robert Schwartz, who heads the Pathways to Prosperity project at Harvard’s Graduate School of Education.
        Emphasizing college as the only path may actually cause some students – who are bored in class but could enjoy learning that’s more entwined with the workplace – to drop out, he adds. “If the image [of college] is more years of just sitting in classrooms, that’s not very persuasive.”
        The United States can learn from other countries, particularly in northern Europe, Professor Schwartz says. In Austria, Denmark, Finland, Germany, the Netherlands, Norway, and Switzerland, for instance, between 40 and 70 percent of high-schoolers opt for programs that combine classroom and workplace learning, many of them involving apprenticeships. These pathways result in a “qualification” that has real currency in the labor market”

        “It would be fine if we had an alternative system [for students who don’t get college degrees], but we’re virtually unique among industrialized countries in terms of not having another system and relying so heavily on higher education,” says Robert Schwartz, who heads the Pathways to Prosperity project at Harvard’s Graduate School of Education.
        Emphasizing college as the only path may actually cause some students – who are bored in class but could enjoy learning that’s more entwined with the workplace – to drop out, he adds. “If the image [of college] is more years of just sitting in classrooms, that’s not very persuasive.”
        The United States can learn from other countries, particularly in northern Europe, Professor Schwartz says. In Austria, Denmark, Finland, Germany, the Netherlands, Norway, and Switzerland, for instance, between 40 and 70 percent of high-schoolers opt for programs that combine classroom and workplace learning, many of them involving apprenticeships. These pathways result in a “qualification” that has real currency in the labor market”

      • NewsMuncher says:

        There is a lot of emphasis placed on the value of a person with a degree. All the studies that point to degrees leading to longer life, more money, higher happiness quotient.

        I have an Associates of Fine Art that I earned through the military (crazy, huh?) and am currently pursuing a Bachelor’s of Science. When I was preparing to graduate high school, I said that I wanted to either go in the military or go to a vocational school, both so that I could pay less money and get a job faster (and avoid dealing with the admissions process). THEN I would worry about getting a higher degree. … and now I’m wondering if the vocational school would be the best pay-off right now, as I’m married to active duty and we haven’t found a place to settle yet. My pride wants the Bachelor’s, but I also know it’ll be good for getting me in the door and qualifying to home school my own kids with less restrictions.

    • alexhohio says:

      I would say a lot of the blame should fall on schools. They gladly take the money for what turns out to be largely useless degrees.

    • Powerlurker says:

      They do that because they can’t legally administer IQ tests to all incoming hires and a BS/BA is being used as a proxy for “not a complete idiot, can be trained, and will probably show up on time.”

    • Arcaeris says:

      I totally agree. I used to work at a university. When I applied for a job, it said I needed a degree and some experience. Later after I got the job, I asked our director what it was like when she started, and when she got into my job (like 25 years ago), she came in with no degree and no experience.

      And she didn’t see any problem with the fact that kids today could not follow the come in -> get promoted -> be director path she followed without a degree. If she could do it, why can’t anyone else?

  14. sagodjur says:

    It’d be nice to see some investigation and regulation come out of this, but it won’t happen. God forbid we regulate big business for the health of our economy…

    We need investigation into public institutional spending to curb any waste or excessive salaries for administration. We need to investigate textbook publishers for price-fixing and anti-competitive practices. We need better student loan forgiveness conditions. We need federally-funded, open source and accredited learning materials.

    I was fortunate enough to get a good job around the time I graduated, but others are being set up to fail. That banks and public institutions are taking advantage of people who don’t know better than to go into debt over a, at best, false promise. Yes, some people shouldn’t take on the burden of debt, but that doesn’t excuse the practices of those who take advantage.

  15. Hi_Hello says:

    Brewer explains that he fears some people won’t seek the training or education they need because they won’t want to risk a loan they can’t repay.

    what’s wrong with that? People should NOT get loan if they can’t repay.

    you can get training for jobs that don’t require loans or a college degree.

    • r-nice says:

      Someone not going to school simply because of money issues doesn’t sit right with me. Tough problem to tackle for sure.

    • Kate says:

      Do we want a lot of uneducated unemployed people sitting around with nothing to do but steal or sell drugs? This is the problem of a lot of third world countries, why do you want the same problems?

      • Hi_Hello says:

        really?? I don’t think education will make doesn’t who sell drug and steal legal productive citizens. They just going to sell in college and steal bigger things in life.

        Those who sell drugs in the corner, are take the easy way to make a lot of money. Even if given a free ride to college, they would probably drop out because they don’t want to work hard.

        If they do want to work hard, even without an education, they will get a job.. but base on the people who were on parole, they don’t even want to work on the farm.

        Sure there a lot of illegal stuff in 3rd world countries but guess why most of the jobs are outsources?? Because there are uneducated people who can’t afford to sit around and do nothing and don’t want to do to steal and sell drugs.

  16. MrObvious says:

    They should stop giving out student loans for luxury degrees, such as liberal arts. Focus on degrees that are worth it, such as engineering.

    • sagodjur says:

      No, you need to reform the way human resources departments and hiring managers deal with job candidates. If they vetted their own applicants instead of relying on, “oh, he has a degree!” to determine if an applicant is qualified for the position, it would go a long way to making sure qualified people get jobs regardless of how they look on paper. There are many jobs that you don’t need a degree for, but that you need a degree to be considered for, even if the degree is unrelated to the work.

      I got a job unrelated to my degree, but it got me in the door because the job requirements included having a degree. So liberal arts degrees can be valuable for job acquisition. You just have to be a good candidate for the right job. On the other hand, I’ve seen people who have master degrees in their job field and who shouldn’t have been hired because they’re completely incompetent regardless of their suitability for the position on paper.

    • bsh0544 says:

      I hate to do it but I mostly agree. I just don’t see the use of a lot of degree programs these days.

    • Tardis78 says:

      Yeah my D/D- average in math from high school and undergrad would make me a great engineer. I’m sure firms would be lining up to hire me.Though I use my liberal arts degree everyday and in my field. I don’t get paid, much, but I can cover my loans and living expenses with a little left over for my retirement.

  17. areaman says:

    Brewer explains that he fears some people won’t seek the training or education they need because they won’t want to risk a loan they can’t repay.

    What does it mean to “need” in this statement?

    I remember the post on here about the Allison Eastman. She had run up most of a $170K in debt for a bachelor’s degree in photography. I think something to make people weigh the cost of something (an education) vs the earning power it bring is good.

  18. SPOON - now with Forkin attitude says:

    yes.

  19. AgostoBehemoth says:

    There are a lot of college financial aid offices with suspect relationships to the student loan industry..

    The colleges need to have some skin in the game with their tuition – which has risen much faster than inflation for the past 20yrs. They’ve been hiring administrators (not professors) and building taj mahol like structures – while getting doe-eyed 19 & 20yr olds to sign on the dotted line to finance their 20k per year pursuit of a BS in the Social Sciences and Liberal Arts. There is nothing wrong with either field, but the rate of return on that 80k b.a. diploma is pretty weak.

    To the University/College admins, you aren’t a student – you are a part of their business cycle.
    Nobody ever says “no”, they just say, “sign here”.

    Heck, here in PA a division II state school, tuition is 8k, but room & board will is another 8, total is the better part of 17k per year. These kids are graduating with a mortgage on their back.

    Is it going to bite the economy? – sure is, they arent able to buy cars or houses for the first 25yrs out of school.

    If you don’t have the money saved for school – and are committed to your dream in the Liberal or Social arts, my advice is to at least do the first two years at a community college, at least try and lesson your post-school debt load.

  20. oldtaku says:

    Nah, this bubble can never burst.

  21. Brian Cooks says:

    The expense of higher education is the only thing that prevents me from going to school for a higher degree. Associates degrees currently give the highest bang for your buck and have for years.

  22. Awesome McAwesomeness says:

    What about the new income based repayment with discharge after 25 years? If you work in public or non-profit education, you get them discharged after 10 years. It’s going to cut our loan payments in 1/2 and our debt owed by 2/3 b/c we are both public educators. Even if you aren’t an educator, it makes payments way more manageable.

    • iblamehistory says:

      That’s what’s saving me right now. Finished my masters in social work last MAY, got licensed, and still no job. I am simultaneously overqualified and inexperienced for literally everything. My 1200 hours of internship experience is completely useless because it wasn’t “paid employment.” Well, no shit. It was a requirement of my education that I had to participate in and do well.

      I woud owe thousands a month. I stopped adding once I hit $2k because I just couldn’t look at it. I applied for IBR because my husband makes $10.25 an hour washing dishes with his bachelor’s in psychology–a degree that, in 2004 when we started college, would have landed him a nice HR position, which is what he wanted. And now he works with high school students and drop outs, and when our friend referred him for the job, the manager asked “Don’t you have a Mexican to give me? They complain less than the white ones.”

      Now we have a baby due in August–we were simply sick and tired of putting out lives on hold when he have done everything properly. We want kids and we refuse to hit 50 and be childless because “shit didn’t work out.” We can afford it, barely, but I’m of the mindset that my kid doesn’t need a new pair of $500 boots every week.

      I currently “owe” $0 a month and it’ll be reevaluated every year based on our income and family size. As of now, I’m looking at the stay at home mom thing for at least a little while, which is fine. I’ll enjoy it. I’d also like to use my education before I die but I just don’t know if it will happen–I’m already 10 months past graduation and I’ve done NOTHING since then. Well, volunteer work, but that is meaningless across the board since it’s not paid employment. I’m not sure if I will ever be hired for anything.

      I am just very, very glad that I knew better than to get private loans. ALL my loans are federal.

  23. britswim04 says:

    I can tell you that if I didn’t have to pay $250 a month for the next 15 years (yes, I could pay more) I’d be buying a house. I just paid off my car, which gives me an extra $400 a month an extra $650 would go a long, long way to a comfortable mortgage payment, instead, it’s going towards paying for an education I’m not really using.

  24. PhiTauBill says:

    Much different risk, since the debt is not generally eligible to be discharged in bankruptcy. So, you won’t have people walking away from a student loan because they are under water (llike you have in the mortgage market), since there is little benefit in doing so….

  25. framitz says:

    This bomb has already gone off in an escalating slow rolling shock-wave.

  26. backinpgh says:

    I went to college for a career path that was very promising, grads were making 40-50k out of school. I took the loans thinking this was the best thing I could do to end up with financial security in the long run. Then the real estate market died, and since my career is tied to that, jobs totally went away for new grads. Any openings demanded 10+ years of experience. So my skills went stagnant, and now the jobs are starting to ramp back up but new grads have the benefit of knowing the very latest software requirements for the field whereas I’m about 4 years behind. I’d have to go back to school just to use the degree I already have! And this isn’t exactly the type of stuff I could take at community college either. Unfortunately it seems like I’m doomed.

  27. maxamus2 says:

    At least this is debt they can’t just freaking walk away from. I’m getting tired of reading stories about someone that overpaid for a house they could never afford, live in it for years rent free and then just walk away from it when it finally goes through foreclosure.

    But who knows, watch the gov’t come in and reclassify student loan debt so they can discharge it in bankruptcy.

  28. shepd says:

    Amazing! In Ontario (possibly all of Canada) you are NEVER allowed to default on a student loan (at least a government funded one).

    At best, you may ask for deferral and other programs. But the sword of Damocles will hang above your head forever until you pay it off. As it should.

  29. Snip says:

    Most definitely yes. Most of the loans you’re hearing about that are outrageously huge aren’t huge due to the tuition. The average public university student is taking out loans that equal the amount you would spend on a fixer upper house, at least on the principal. Nothing to sneeze at, but hardly outside the reach of someone with a modest income. It’s the interest that’s causing those jaw-dropping numbers. It’s enough to make you gasp even before you find yourself having to do something like apply for a forbearance, which will make that interest skyrocket into the stratosphere. People ask for the forbearances because the minimum payments are not in line with the minimum wage jobs a lot of graduates are forced to take right now. I’m not talking about being unable to afford to contribute to the consumer economy here. I’m talking about choosing between shelter and food. If you ask for a lower payment they will not work with you. They don’t have to, and they know it. Because if they wait long enough, you will owe them so much in interest it is not to their benefit to avoid that. They will get it by garnishing your paycheck and taxes if you don’t find a way to cover it. All they have to do is wait you out.

  30. heisindc says:

    Any comments asking for an overhaul of the student loan system? Any?

    I can take some classes at a community college and get $17,000. No strings attached rather than signing some papers.

    Does that happen anywhere else?

  31. Tacojelly says:

    The real problem is the growing number of unaccredited, for profit schools. They coach you on how to take out federal loans and then leave you with no skills and a worthless degree.

    Thousands of people my age have their finances and lives ruined by these scams, and now work minimum wage to pay off their useless degree.

    • Cor Aquilonis says:

      Don’t forget “Bible Colleges.” I’ve met more than one person who has immense debt and a virtually unhireable degree from a religious “university.”

  32. joescratch says:

    So if a student loan is not dischargeable by bankruptcy, what does that mean to the bankrupt? Will the lender then garnish their wages (should they be lucky to you know HAVE ANY) until they die? This is a serious question. I mean, just saying “You must pay back this loan even if you’re bankrupt” doesn’t mean the ower has the money to pay for it.

  33. kgb says:

    “Brewer explains that he fears some people won’t seek the training or education they need because they won’t want to risk a loan they can’t repay.”

    THIS is why I chose to not go to college. My sister owes $100,000 and can’t get a job. There’s no way I could afford to pay off college loans and try to pay for everything else.

  34. kgb says:

    I found a job opening for an ‘administrative assistant’ (phone answerer)…they wanted 3-5 years experience, a bachelor degree in business, and it was for a whopping $9/hour.

  35. chatterboxwriting says:

    My fiancee and I are having a tough time with this. He was paying $300 a month to two loan companies on a $9.75 per hour wage (around here, that’s a “good” wage — too bad you can’t live on it). I’m paying $105 a month, only because I got loans when the rates were around 2 percent and he later went back for a second degree and took out loans at 5.75 percent. He consolidated under the income-based repayment plan, so the next few months will be okay — but then after 12 months, he goes back to paying $200-something a month again! When you’re paying 20 percent of your GROSS income to student loan payments, something is wrong.

    • iblamehistory says:

      He can reapply for IBR when the 12 months are over. They will reevaluate it every year and adjust accordingly. I don’t see myself ever qualifying to pay anything MORE than $0 a month. College and grad school got me nowhere.

  36. majortom1981 says:

    Stop having kids go to harvard for say $30k a year (not sure of the exact price this is for an example) when that same $30k a year can get you 4 or 5 years at a state school.

    I got my 4 year degree at my state school for $4000 a year (graduated in 2005) and had no problem getting a job. Private schools are way too expensive

    • Katrine says:

      My oldest attends a state university, and his tuition alone is $9000/year, not even including living expenses. While it is significantly cheaper than a private school, he still is not going to go four or five years for 30K, even on just tuition. Ironically, my younger child will graduate with significantly less in student loans, despite going to a private university, because the financial aid there was much more generous than the state university would offer him.

    • Powerlurker says:

      Harvard would probably be cheaper for most students due to their high amount of grant-based financial aid (Harvard has a no-loan financial aid policy). If your family makes less than $65,000/yr you won’t pay a dime to attend Harvard and won’t have any student loans.

  37. corridor7f says:

    Yes, yes, yes.

    Too many people, including parents, think college / university is THE way to “make it”. It’s not.

    The only guarantee here is that you’ll have to work a long time to pay it off – and likely not in the field you actually emptied your wallet to study for, at least at first. Disillusionment doesn’t come cheap.

    When it comes to being advised about this kind of stuff, there has to be more practicality and tailoring to the current economy.. not just all the idealistic bs parents seem to believe.

  38. vp_bsu says:

    One way to help is to allow re-financing of the loans. I believe you can consolidate your loans one time. Then you’re stuck. I’d wager that a lot of people with the loans are stuck with interest rates around 7 or 8% and are not allowed any kind of relief.

  39. legolex says:

    Not going to lie, I avoided college after high school because I was scared of debt (in 2001!) I’d like to go to school to get a degree in Computer Forensics but I’m still terrified of the debt despite looking at my community college.

  40. vdragonmpc says:

    This. I have loans and I can re-state that Sallie Mae is the most ruthless cut-throat scamified company I have ever seen. I have direct loans and never had an issue (except for the high interest rate and climbing payments that act like I have gotten a raise in the past 3 years)

    Sallie Mae put me in repayment no less than 4 times while I was in College in Virginia. There was no recourse. They lost deferment requests and forbearance letters. I finally got angry and paid them off in one lump sum a bit after graduation during a ‘we cant find any record of you requesting a forbearance or economic hardship under this form that says you requested a forbearance last month”. I kid you not they would actually mess up and say they couldnt see the form that was on the screen in front of them. I could get no reduction in paying them off either. Every time they put me in repayment while I was a student I got fees and interest that were never removed. It was pure profit and greed. There IS NOTHING YOU CAN DO THERE IS NO NEGOTIATING WITH THEM!

    Now when the industry explodes it will be earned. There is no reason for rates to be 6-14% for loans backed by the government. Savings are down to .20% and mortgages are at 2.85%. Why are student loan rates almost worse then credit cards? Did you know that Sallie Mae now services Direct Loans? They took that over. Funny my payment has gone up twice in the IBR plan since. I know my pay has not gone up…

  41. technoreaper says:

    YA THINK?

    I’ve been saying so for years. Easy loans have made the auto, housing and student loan market ridiculous.

    Make everyone pay cash and the price will drop like a rock for all those things.

  42. Luder says:

    I have been struggling with my loans for years (Sallie Mae), and I will never pay them off. One trick is to not pay them for several months and then they will start you over and tack the overdue amount onto the back of the loan. You will never pay it off, but you never need to pay either.

    Another one that a friend of mine did is to pay off you loans with credit cards and THEN file bankruptcy.

    Over the years I have paid back the original loan amount twice over and still owe more that I started with due to deferrments and layoffs/unexpected bills. Probably not the best attitude toward my loans, but I’ve felt hopeless for about 8 years now.