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Fri May 4, 2012, 09:39 AM

End Student Debt!


The student loan crisis finally reached center stage in Washington after the House GOP budget called for letting interest rates double on government-subsidized loans (and for deep cuts in Pell grants and other student support). If it passes, students who borrow the maximum will end up paying as much as $1,000 a year in added interest. President Obama sensibly called for extending the lower rate, stumping at colleges and on talk-shows to enlist students and others in the cause.

Republican leaders quickly realized the perils of angering young voters. In another flip-flop, Mitt Romney decided to support extending the lower rate, while the House GOP passed an extension but taunted the president by stipulating that it be paid for with money taken from the preventive health fund created by the Affordable Care Act. Senate Democrats propose paying for it by closing a loophole that doctors, lawyers and small businesses use to avoid payroll taxes.

Ignored in the standoff is that even at the lower rates, more and more students can’t afford the college education or advanced training everyone but Rick Santorum believes they need. Since 1982 the cost of living has doubled and healthcare costs have tripled; college tuition and fees have exploded more than four times. All this comes amid revelations about the hundreds of billions in loans—at below-market rates—ladled out to the banks by the Federal Reserve and Treasury during the financial crisis.

The student loan crisis has had two effects. The United States, once the leader in the percentage of college graduates age 25 to 34, has dropped to sixteenth among thirty-six developed nations, with more and more students dropping out because they can’t afford the rising costs. The second effect is ruinous debt: the average indebted college graduate is $25,000 in hock. Total student debt exceeds $1 trillion—now greater than credit card debt. And student debt is inescapable. Bankruptcy rarely extinguishes it; even Social Security payments can be garnished in case of delinquency.

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Arrow 5 replies Author Time Post
Reply End Student Debt! (Original post)
xchrom May 2012 OP
abelenkpe May 2012 #1
Igel May 2012 #3
Left Coast2020 May 2012 #2
supernova May 2012 #4
xchrom May 2012 #5

Response to xchrom (Original post)

Fri May 4, 2012, 09:44 AM

1. Would love to see someone compare terms

Of a 35,000 dollar car loan, mortgage and student loan. Back in 1995 that was my husbands amount of student loan debt. He's still paying today. Pretty sure those that bought cars or took out mortgages at the same amount have paid off their loans or been forgiven if they encountered financial hardship.

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Response to abelenkpe (Reply #1)

Sat May 5, 2012, 10:59 AM

3. It'd be eye opening.

My student debt was at an interest rate lower than commercial loans. But while commercial loan payments were calculated to retire the debt in 5 or 30 years and had relatively higher payment, the student loan debt was amortized over a much longer time and had far lower payments.

This makes sense: You want people just graduating to be able to live on their income and pay student loans off.

Result: I'd have paid more in student loan interest than in commercial loan interest. On the other hand, I'd have had the use of more money.

Solution: Pay off student loan faster. As your income increases, retire the debt faster. It's silly to have an annual household income of $400k, have a $700k house at 4.5% interest, and be complaining about $15k in student loan debt at 3.3% interest 15 years after graduation.

My recommendation: Screw the "average" amount that's borrowed. It's a meaningless number. Graduate with a JD or MBA and you're likely to have $100k or more in debt. Graduate with a MEng or PhD in chemical engineering and you're likely to have far less that either that JD or MBA or the kid who gets a PhD in French-language post-colonial Ghanaian literature.

So target economically important fields. Graduate with a degree in those fields or get a job in those fields, have your interest rate ratcheted down. We already do this with some jobs like teaching in certain schools or serving as a doctor in some neighborhoods.

The only problem is that as far as lawyers and MBAs are concerned, the only really important members of society are lawyers and MBAs so you could be assured that they'd be first in land for the handouts. (It's one reason MBAs give other MBAs the largest salaries and bonuses. If you actually survey MBAs and ask who contributes more or works harder or studied harder the answer is almost always MBAs.)

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Response to xchrom (Original post)

Sat May 5, 2012, 12:49 AM

2. I would rather see them allow us to forgive our debt.

Its been too friggin emotional an issue for those of us who are in a hole financially.

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Response to xchrom (Original post)

Sat May 5, 2012, 02:28 PM

4. Chief reason I've stayed away from Grad School

is the cost.

I was lucky with my BA, I got a scholarship that paid for all four years. But I'm on my own for Grad School. I would love to go to Duke to get my Masters. They have a couple of programs that I am very interested in. But doing some quick math for this year, my costs would be about 100K.

How is any sane person supposed to afford that? I'd be paying off the loans until I croaked 30 years from now. Even if I carried no other debt.

edit: To clarify: the 100K number is for the full program for two years at this year's costs.

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Response to supernova (Reply #4)

Sat May 5, 2012, 02:40 PM

5. wow. that is expensive -- i knew duke would be.

you know if you could be sure you'd get a pay check commensurate with the cost -- but who can tell any more.

how are ya?

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