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17 year old commits to going to a college

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…17 year old commits to going to a college. Because they’re 17, they don’t really know how money or credit work. The big tuition numbers are just abstractions. Assume they come from a family that lives an upper middle class life and money isn’t an issue they discuss, even though the family is living paycheck to paycheck.

Comprehensive fees (tuition, room, and board) run from the high teens to low twenties at state flagships. Privates average about 30k/year after discounting, which is about half of the sticker price.

Let’s assume the 17 year old manages to graduate from college in four years. At a state flagship, that’s going to be 60k out of pocket, and at a private more like 120k. Federal loans cover 31k. Depending on the state, there might be another 10k or so of state-based loans available. So maybe there’s $40k of Federal and state loans available on average, which have an historically high interest rate of 5%+ (in the late 70s and 80s the Dept of Ed was originating loans at 2% interest when inflation as above 10%).

Where does the extra $20-80k come from? Parents? That’s how it’s supposed to work with the Parent PLUS loans, but plenty of parents don’t take the debt on themselves. Instead, they cosign private loans for the student, often at 8-12% interest that begins accruing immediately. Even 20k at 8% interest balloons in a hurry.

Now the student is on the hook for a bad loan taken out to shift the expected parent contribution to them, that’s been ballooning the entire time they’ve been in school. There’s no IBR, PSLF, or often even a forbearance option. The repayment timeline is 10 years for most of these loans. Not only is their credit on the line, they’re also in the awful position of having their parents’ credit on the line, too.

What you’re missing is that the student I describe above is common, and that student has gotten f’ed by every adult in the room, from their parents, to their financial aid office, to private banks, to the Dept of Ed.

I also want to add, that a lot of private universities purposefully make their credits untransferable through spreading around course content or semester length. So once you start school, even if you realize you’re paying out the nose, you are stuck and you better graduate. If you transfer, you’re practically starting over with very low amount of credits.

At 17 I couldn’t be trusted by the state to drive after 9pm. But I could be approved for 25k+ in student loans!

As for this question, probably for the same reason that if a patient has a botched surgery we don’t blame it on the patient, we blame it on the surgeon. Say you have a lower than average IQ, you never went to college, and this college counselor is telling you to sign some papers so that your kid can go to college. This college counselor has a degree that you don’t have. You love your kid and you want them to have a good future and this expert is telling you to sign a piece of paper. What do you do? What do some of these people do? Who’s “fault” is it? The whole system was setup to get them to sign the piece of paper.

So what is to be done?

1) Restore bankruptcy protections for all private lending. I can see an argument either way for Federal loans since that risk is imposed on the public. But if private banks want to lend to students or parents, they should fully internalize the risk.

2) Prohibit co-signed private loans. Right now, many of these loans are the functional equivalent of what liar mortgages were during the housing bubble: they’re a financial instrument to load up people who aren’t creditworthy with debt. There’s a built-in co-signer release after a certain number of on-time payments, so that the debt shifts – without income verification or a credit check – 100% into the student’s name. What these co-signed loans functionally do is get debt into the name of a person without any assessment of their creditworthiness. Banks aren’t concerned, because this debt is non-dischargeable (see above), so they run little or no risk of having to write it off even if it’s not punctually repaid.

3) Stop sending Federal student loan money to for-profits. Their outcomes are abysmal, and they serve no niche that isn’t better and more cheaply filled by community colleges. A for-profit model is a bad idea for higher ed. We’ve tried it, and there’s nothing good about it.

4) Aggressively enforce the gainful employment rule. If your students can’t get jobs and pay back their loans, you shouldn’t be getting Federal student loan money.

5) Reduce Federally mandated administrative overhead:

a) Reign in the accreditation process to reduce costs. Focus on back-end outcomes (see the gainful employment rule above) rather than process-oriented assessments that are super labor intensive.

b) Clarify and reduce institutional responsibility arising from Title IX. Change the rules and guidance to direct institutions to refer all potentially-criminal conduct to law enforcement, and clearly spell out institutional responsibility for non-criminal behavior.

6) Do not allow the co-mingling of tuition with other money or expenses. Require that funds charged as tuition be used for no other purpose than faculty salaries, the library, and direct classroom facility expenses. This will clarify for the students and the public exactly how much of their money is going to the classroom.

7) Forgive some small amount of existing Federal debt across the board. Most of the loans in default are small, less than $10k. It doesn’t make sense to chase debtors around over small balances.

8) Reduce Federal interest rates by a significant amount. We can debate what the proper rate should be, but it seems that fairness would say we should use recent generations as a benchmark. Maybe it’s the rate of inflation, or the prime rate, or the overnight funds rate, or set as a function of the total program costs. Regardless, it doesn’t seem like Federal student loans should be a the money maker they are now.

9) Cap private interests rates at the Federal rate, or the Fed rate plus a few points. Writing loans at 12% doesn’t benefit anyone but the banks.

10) Give student loan payments a partial tax deduction without limit to put them on par with a 529 plan. It violates basic principles of fairness that parents who save for their children’s education through a 529 get better tax treatment than a student trying to pay off loans for their own educations.

So that’s ten ways to tackle the problem. Maybe they wouldn’t be enough, but I think they’d go a long way toward addressing it.

Here’s how to dodge student loans:

  1. Ace some AP exams or enroll in dual-enrollment programs while in high school.
  2. Go to a public in-state university.
  3. Graduate in four years or less, especially if you did dual enrollment.
  4. Major in something that has value in the marketplace.
  5. Spend time in college interning for companies that might actually hire you.
  6. Get a job while in college that pays the costs.
  7. Live like a college student – no eating out, going to bars, traveling on breaks, etc


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