Student Loans Archives - Money Musings

Study: Federal Aid Makes College More Expensive

Posted by Michael • July 12, 2015 @ 5:10 pm

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A basic tenet of economics holds that the more money you make available for something (of finite supply), the more that “something” is going to cost. In this case, that “something” is college tuition.

Enter a new study from the New York Fed. Researchers found that increasing the availability of student loans and grants has — shockingly! — caused college to become more and more expensive. (Somewhere out there is a guy who’s mentioned this before.)

New York Fed: Credit Supply and the Rise in College Tuition…

The fun part of the PDF, for me, is Section 5 (page 21), where this little tidbit is found:

Changes in sticker-price tuition have a coefficient of 0.40 on the change in Pell Grant amounts (column 1) and this effect is significant at the 5% confidence level. The economic magnitude of this coefficient is large and implies that a dollar increase in Pell Grants going to an institution is associated with a higher sticker price tuition of about 40 cents. The effect of an increase in subsidized loan amounts is higher, at about 63 cents on the dollar, and this effect is estimated to be statistically significant at the 1% confidence level. Finally, we see the effect of a change in unsubsidized loan amounts on sticker price tuition to be smaller at about 25% but still highly significant.

All this talk of coefficients makes my head hurt, but I think I get the drift: The more money that FedGov throws at colleges, the more colleges will find ways to take it. Ergo, annual tuition increases of 5 or 10 percent, and more. (Current and future higher-ed students “take it,” too, but in a very different, X-rated manner.)

The point estimates suggest that the pass-through of increased student aid supply to tuition is around 50 cents on the dollar, on average, although with some heterogeneity. …Wefind a sensitivity of changes in tuition to changes in subsidized loan amounts on the order of about 60-70 cents on the dollar, with estimates that are highly significant in essentially all of the specifications considered.

So if you want to see college tuition rates get jacked up even more, year after year, just make more loans and grants available. Especially subsidized loans — those things are the ooey-gooey candy that just never runs out. (If you’re a college, anyhow.)

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Survey: Many Expect Student-Loan Forgiveness

Posted by Michael • November 16, 2014 @ 2:18 pm

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Well, can’t say I find this to be any surprise:

NBC News: 25pct of Millenials Expect Student-Loan Forgiveness

Note to those of you who run political campaigns: If a quarter of those Millenials with student-loan debt expect it to be dumped off on the taxpayer, well, I’m pretty sure they’ll line up to vote for anyone who promises to make it so.

I’m also fairly confident that there’s a word for folks who borrow money without the intent to repay.

(Doesn’t apply to governments or super-large automakers, of course; we’ve established that. But you know what I mean.)

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College Debt Comes Home to Roost

Posted by Michael • June 23, 2014 @ 8:02 am

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A really fun article which I stumbled upon late Saturday evening:

NY Times: Boomerang Kids Won’t Leave

I could go on and on about the scam that college debt has become, but I promised myself I wouldn’t do that again. Fact is, this country just moves from one bubble to the next, and Today’s Bubble™ is college debt.

The article itself is a hoot. But I also highly recommend that you take a look at the 14-photo slideshow which accompanies it, because there you’ll unearth gems like this one from Alexandria, 28 years old, the proud owner of a $90k student-loan chain around her neck:

I feel like I had no idea what I was doing when I took out those loans. They didn’t really sit us down and talk to us about financial aid or what our options were. I wish they would’ve had a class before you graduate high school, or like the first semester of college: ‘Let me teach you about basic student loans, math, finance, anything that you’re going to need now that you’re 18.’ I wish somebody would’ve been like, Alex, it is not a good idea to take out a loan that has 12.5 percent interest.

Oh, Alexandria. As Upton Sinclair so succinctly put it, “It is difficult to get a man to understand something when his salary depends on him not understanding it.” The same goes for education: Don’t expect colleges and the rest of the “Big Education” industry to teach you all that basic financial and debt stuff, because their salaries depend on you NOT learning it.

At least, not until you’ve run up student loans to the hilt and paid off all your bursar and textbook bills.

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Darn Those Student Loans, Anyway

Posted by Michael • May 20, 2013 @ 7:57 am

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If ever you wanted to know just how deep is the belief in consumption and big-ticket buying in this country, you need look no further:

USA Today: Student Loan Loads Block Home, Car Purchases

Amidst all the hand-ringing and “Someone must help our debt-ridden children be able to get more debt!” chants, you’ll run into this laser-sharp social commentary … emphasis mine:

One interesting fact: The high cost of student debt is stopping many young consumers from buying big items, such as new cars, homes and furniture.

Nearly 30,000 Americans commented to the federal consumer watchdog agency on the student debt issue, and many discussed day-to-day struggles.

One borrower, Debra, told the CFPB, “I can’t buy a house because of my student loan. I have to rent.” Another borrower, Daria, said: “These loans are stunting my growth as a citizen. No car. No home.”

Oh, the misery, the suffering, the ANGST these poor young souls must endure! They can’t go out and be Good Little Consumers straight out of college! All because of those big mean nasty student loans which they were forced to take on!

(And, I might add, over a year later, yet again media voices are lamenting how student loans are keeping a lid on house prices.)

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Captain Obvious: Student Loans

Posted by Michael • July 24, 2012 @ 7:55 am

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Well, here’s a surprise from student-loan land. Not.

ABC News: Lax Student Loan Standards Created Debt Crisis

This, obviously, was a topic which required a bureaucratic government study, and so we got one. From it we get amazing and startling new findings, guaranteed to drop jaws … findings like these:

From 2005 – 2007, the report found that school involvement in student loans began to shrink and students began borrowing more than necessary. And, lenders began making exceptions for students with lower credit scores.

Private lenders gave out money without considering whether borrowers would repay, then bundled and resold the loans to investors to avoid losing money when students defaulted.

Those practices are closely associated with subprime mortgage lending, which inflated the housing bubble and helped bring about the 2008 financial crisis, according to the Associated Press.

Huh. That’s weird. I know a guy who compared student-loan lending to subprime lending way back in 2010.

Whodathunkit.

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Idea: End Student Loans Altogether

Posted by Michael • June 18, 2012 @ 9:07 am

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Whilst I haven’t yet finished reading the whole piece, the title made it just too good to not share ASAP:

Bloomberg: Forget “Cheaper” … Just End Student Loans

What — you mean supply and demand matters, even in higher ed? Pffft. When did that start? [/snark]

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Daily Student-Loan Idiocy

Posted by Michael • March 21, 2012 @ 8:56 pm

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Man, I could practically write a standalone blog just on the topic of student loans, couldn’t I? I mean, the fodder is everywhere.

Bloomberg: Student Borrowers Lack Understanding of Loan Terms

This little snippet is pretty darn tough to ignore:

Marjorie Gelin Goodwin, 37, one of the respondents, said she owes about $107,000 in federal loans and about $15,000 in private loans for college and graduate school. She is in forbearance on her federal loans, meaning she isn’t making payments. She didn’t understand that her private loans would have a variable rate that could fluctuate so greatly, she said in an interview.

“I was surprised by how much my student-loan payments would take away from my income,” said Goodwin, who works at a nonprofit organization in San Francisco. “I’ll be retired and still paying my student loans at the rate I’m going.”

You just really have to read that article. As that great philosopher, Homer Simpson, might say:

“The stupid, it burns!”

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House Prices Suffer From Student-Loan Debt (But Colleges Seem Happy)

Posted by Michael • February 28, 2012 @ 7:55 am

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For today’s “LOL” moment, I proudly present to you:

Businessweek: Student Debt Is Stifling House Prices

It’s pretty darn comedic when you think about it: A pharmacist earning $125k/year, and carrying $100k in student loans, is miffed that she can’t — for some unfathomable reason — go out and buy a home. Like, yesterday.

Roshell Schenck has a Ph.D. in pharmacy and earns $125,000 a year. Yet, because she has more than $110,000 in student loan debt, counselors have told her she can’t qualify for a mortgage. “I’d love to buy and can afford to buy,” says the 28-year-old graduate of Lake Erie College of Osteopathic Medicine in Erie, Pa. With lenders scrutinizing college loans more closely than in previous years, it’s almost impossible for borrowers such as Schenck to get approved for mortgages. “My debt is crushing my chances of purchasing a home.”

Roshell, say hello to my esteemed colleague, the Law of Unintended Consequences. Kinda crazy, isn’t it, how these days, the debt you’re already carrying seems to matter again? And, darn the bad luck, it’s mattering just when you’d really like to borrow even more! Ain’t that a kick in the pants!

It’s not that I don’t have some sympathy for grads like Ms. Schenck. The situation she finds herself in — making a really nice income in a good field, but unable to qualify for a home loan due to six digits of student-loan debt around her neck — isn’t entirely of her own doing. After all, the government and our university system forced her to take out those loans—

Okay, never mind. It IS entirely of her own doing.

Look: She’s fortunate to be making the money she is. I mean, I would love to have an income like that.

But only if there’s not $100k+ of debt attached to it.

But She Wants It Now

By my reckoning, Ms. Schenck makes enough money that paying back those student loans should be no biggie, in the grand scheme of things. A few years of scrimping, saving, and consistent four- and five-digit extra payments toward those loans, and she’ll be in fine shape.

Admittedly, though, this concept works only if she goes all Dave Ramsey on it, and can manage to not play “Keep up with the Joneses” as regards her spending habits. (Yes, that dreaded disease which ravages so many of the high-earning types, like doctors, lawyers, pharmacists, and so on. Lots of money comes in the door, sure … and even more of it goes out. Wouldn’t want to not “look the part.” Heavens, no.)

Back to the article:

Recent college graduates carry an average debt load of more than $25,000, limiting their ability to qualify for mortgages even if they’re able to land a job in a market with an unemployment rate of 9 percent for 25- to 34-year-olds. Dubbing it a “student loan debt bomb,” the National Association of Consumer Bankruptcy Attorneys (NACBA) warned on Feb. 7 about the effects of rising student debt on recent graduates, parents who co-signed their loans, and older Americans who’ve gone back to school for job training.

Well, the good news is that borrowing of federally-subsidized student-loan dollars shows no signs of abating. So colleges will remain free to increase tuition at will, year after year, with no danger of “decreased financial resources” or anything outlandish like that out there to slow things down.

“Just as the housing bubble created a mortgage debt overhang that absorbs the income of consumers and renders them unable to engage in consumer spending that sustains the economy, so too are student loans beginning to have the same effect, which will be a drag on the economy for the foreseeable future,” John Rao, vice president of the NACBA, said on a conference call.

Absolutely preposterous, says I. How great of a country can we be, really, when our citizens’ past borrowing proclivities keep us from borrowing skads more now, right at the time when we most need it? Pffft.

I don’t know who came up with this silly idea that “Today’s choices create those of tomorrow,” but I don’t like it. And it seems like Ms. Schenck doesn’t, either. Since when should debt limit our choices? I mean, really.

Someone should just, like, do something.

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How to Make College More Expensive

Posted by Michael • February 24, 2012 @ 2:40 pm

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For this, they needed a study? Really?

SmartMoney: Why College Aid Makes College Cost More

It’s pretty basic: The more money you make available for a limited good or service, the more that good or service will cost.

This is what happened when “Fog a mirror, get a home loan” policies were all the rage in the early 2000s. It’s also why “Fog a mirror, get a student loan” policies are NOT the elixir for ever-increasing college tuition that everyone makes them out to be. Rather, they make the problem worse.

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Higher Debt-ucation

Posted by Michael • December 12, 2011 @ 7:50 am

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From from the annals of Bloomberg comes this jewel:

Bloomberg: Trapped by $50k Degree in Low-Paying Job…

One of the reasons I’ve not spent a single word voicing my thoughts on the current Occupy Wall Street (OWS) saga is that while I agree with them on several counts (yes, Virginia, laws should apply to everyone equally, regardless of political stature or the size of one’s bank account), there are numerous “grievances” put forth by OWS which are simply ridiculous, and merit not a moment of my time nor consideration. One of these issues centers on student loans and higher-ed debt.

So Here Comes My Opinion

No, OWS, higher education is not a right, nor should it be. Student loans should not be forgiven on any sort of universal basis. I care not whether you could or couldn’t find a job suitable to make your loan payments, Ms. Occupy Protester, because I was not the one who decreed it necessary for you to attend said institution and take out big loans to do the same.

Lament that mid-five-figures debt all you want, but the reason you have it is simply this: Government made it possible for anyone able to fog a mirror to sign their name on a few dotted lines and walk away with thousands of debt bucks, easily, for the glorious purpose of “higher” education. Take away that “easy” loan ability, and the demand for college goes down … as does the ability of college administrative boards to bump tuition and fees 8 to 15 percent per year. And down will come prices. Eventually.

If anyone could step out and borrow $5k per year (or whatever) for your product, just by slapping their siggy on a form or two, then you’d be lifting your prices by double-digit percentages each year, too. The more money you make available for “something,” the more that “something’s” price goes up. (Pretty neat how well it worked for housing, too, huh?)

Sold a Bill O’ Goods

That’s exactly what happens to lots of college students, it appears. They’re being sold a bill of goods.

Because if you, like Laura Sayer in the linked article above, run out and borrow $50k to get a Masters degree at NYU’s Program for Interdisciplinary Studies in Humanities and Social Thought, and then you’re upset to find that that degree doesn’t do jack squat for you in the Real World, well, I don’t know what to say.

…Sayer was set back $50,000 more after completing the Interdisciplinary Master’s Program in Humanities and Social Thought at New York University. The 27-year-old now makes about $45,000 a year as an administrative assistant for a nonprofit group, a job that didn’t require her advanced degree.

Hmmm. Seems to me that her advanced degree was much more of a years-long (and quite expensive) whim than any sort of career booster:

Sayer, the NYU graduate, said while she learned critical-thinking skills, her career prospects won’t allow her to pay off her debt anytime soon. [Emphasis mine]

“Even if I didn’t know what field it would lead me to, I thought it would be worthwhile for my professional career,” said Sayer, who lives in the Crown Heights neighborhood of Brooklyn with two roommates.

No, really. The jokes practically write themselves.

Many of the students who enroll in the master’s of “Social Thought” program directly from college do so with an eye toward a Ph.D., said John Beckman, an NYU spokesman.

Of course they do. The masters won’t do a damn thing for them. Thus, they want to put off those student-loan payments as long as is humanly possible. Of course, that will probably require taking out more loans, but as we’ve previously established, student-loan lending isn’t exactly “restricted” to only the best credit risks. No credit? No job prospects? Already $40k in debt? No problem. There’s more where that came from.

“The numbers have shown, and will continue to show, over time that an investment in an advanced degree will yield better career prospects and income,” Beckman said.

Some salesman, this guy. You have to wonder if the people who wrote the theses below — previous NYU attendees in the “Social Thought” program — really believed that what they were studying had ANY BEARING WHATSOEVER on whether or not they’d achieve gainful employment at anything above poverty-level Mcwages:
- The Graven Image: Truth, Self, and Identity in Max Frisch’s Novel I’m Not Stiller
- The Meaning of Documentary: Narrativity, the Cartesian World View, and a Heideggerian Critique
- H.D.’s Creation of the New: Redeeming the Maternal Body in Pursuit of Feminine Language
- Why Are Gay Men So Effeminate? An Essay on Aesthetics, Affect, and White Gay Male Subjectivity
- Speaking in Tongues: Language and Creolite in the Work of Kamau Brathwaite and Junot Diaz
Readers, please tell me: Do the authors of these things actually want to WORK and create products or services of value to the rest of us, or do they just want their egos stroked and subsidized (preferably at taxpayer expense) on a regular basis?

Methinks I know the answer.

And I didn’t need to borrow $50k to achieve my “critical-thinking” skills.
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But She Wants It Now

So Here Comes My Opinion

Sold a Bill O’ Goods