I hate sounding both old and weird but I cannot shake the feeling that much of the claims of economic health and growth in the US is... if not fake (I’m not totally nuts) but not accurate. My most charitable interpretation if I’m right is that we’re using the wrong metrics (possibly intentionally) that give a distorted view of the economy. But I keep hearing employment is great, productivity is great, stock market is great, and yet it seems like most anecdotal evidence I see and read about suggest this is all hollow, and things are actually really bad for the average American.
I don’t know. I know how it sounds. But I can’t stop thinking that stuff isn’t adding up. And this article is one more to add to the pile of “how can this be happening if the economy is actually healthy, at least in a way that means people’s financial lives are healthy and prosperous?”
In a nutshell, as a generic reasoning, say that a few years ago the student loan was about US$ 100,000 and once you got the degree you had - on average - a higher pay of around US$ 10,000 per year (net).
You could repay it in 10 years time while living at the same level of your non-graduated friends.
Now say that the student loan averages US$ 150,000 and - still on average - the increase in annual wages is US$ 7,500 (net).
So you can either:
1) live as before BUT repay it in 20 years instead.
2) live at a 7,500 US$/year lower level than your friends and still repay it in 10 years.
3) live at a 7,500 US$/year (or 10,000 or 15,000) higher level and never repay it.
I suspect that besides the lessened "value" of the university degree on the labour market, there is also an increased number of people that choose option #3 over option #2 or #1 (whether out of need or because of other reasons doesn't really matter).
From the article: "Department of Education ticked up to 18.8 percent as of June 30, up from 18.6 percent the same time last year, new federal data show."
There's your answer - 0.2pp is totally insubstantial, which makes the title borderline clickbait. The economy doesn't uniformly grow or distribute wealth, so a change so small could just be from the distribution of college leavers in a particular year being overindexed towards sectors that aren't growing.
Further to that point, it typically takes years for people to adjust their majors towards sectors of the economy that are particularly productive, so we shouldn't expect to see such a quick change in the numbers.
Due to government involvement, there is a lack of a true market pressure when student loans are underwritten. Not surprising in the least that this bubble is starting to pop.
This is such a silly meme. Its not "due to government involvement." Its "due to the manner of government involvement."
Loans that are guaranteed by the government, for all students, that can't be discharged by bankruptcy, is an idea clearly put together by lenders.
If we wanted government subsidies for private education, there are plenty of alternatives. Here's one: government guaranteed loans for all students; but repayment of those loans is capped as a percentage of the person's income, and interest rate is capped well beneath that. This would allow the government to subsidize students to go to college, while providing market pressure against universities raising their tuition yearly. It would also allow students who went to expensive institutions to pursue careers that aren't at the top of the financial spectrum, like, say, teaching.
Is it possible that some graduates are realizing that for all that money, their education was not what they were promised, and a bit of resentment has led them to make the decision not to pay?
I feel like it might actually be somewhat socially related as well. If people see that their friends/coworkers with large student loans are simply deciding not to pay and nothing horrible is happening to them while at the same time they are living more extravagant lifestyles with the student loan money they're not paying, that's an encouragement to not pay yourself as well. Pair this with the last administration taking steps to limit student loan repayment responsibilities (William D. Ford Direct Loan program), and it starts looking like maybe not paying your loans off is a pretty decent option.
It's possible Betsy Devoss has something to do with it; students always knew they were giving an incomprehensible amount of money to monstrous vultures by paying back their loans, but this time it's impossible to ignore that fact with her at the head of dept -- millennials loathe her.
Perhaps more and more students are simply refusing to pay, taking the free college they should have been given by economic force.
As this other Bloomberg piece notes [1], it's probably useful to break out the type of school and degree when looking at debt. It's not clear that basic undergraduate degrees are an issue with ballooning debt as much as for-profit schools and graduate degrees that don't do much for employment prospects. (The latter not just being a case of "useless" degrees but professional degrees like MBAs and JDs from low-tier or even just non-top-tier schools.)
Yes, but many people have been designsted as "having stopped looking for work", which means the statistic doesn't count them.
Additionally, those who are employed perhaps are underemployed, working as an Uber driver or bartender or chipotle or etc.
>the economy has improved
For the top 6% of Americans that are millionaires, it absolutely has improved. Most of their income is from capital gains, dividends, and business equity.
The average person with student loans has almost none of these things. They are relying on a wage from a job that requires them usually to pay rent, own a car, buy a monthly transport card, and so on.
When you are only making $1400-2000 per month after tax, and $1,000 of that is out the door on work-related expenses alone (rent, transport, insurance, phone), there isn't much left over for a $300 per month student loan payment.
Disclaimer: Don't shoot the messenger. These are merely my thoughts on what is happening. Please reply with criticism.
The amount of people I know with degrees who work in retail, or something completely unrelated is staggering. From my observations, I'd guess "underemployment" is the biggest contributor to the late payments.
This is just another example of why I urge any young people I know (high school age) to think long and hard before choosing to go to a 4 year college. When I graduated high school in 99', we were primed to think "college degree == good job". Of course, that is anything but the truth. And, it only serves to put someone in serious debt without any guarantees.
Hands on technical jobs like electrician, plumber, welder, are many times more lucrative than some bullshit business degree. A friend of mine's son is 22 or 23, and making a hell of a living welding. Granted, he's exceptional at it. But, that doesn't change the fact that his 2-year trade school investment was a good one.
Or, teach yourself a skill. Like lots of us on here, I'm a self taught programmer. It took years of doing small projects in the evenings, but I make a living from it now with $0 in student loan debt.
This, exactly. I don't know why you're getting down-votes. It's indisputable that both (1) the economy improving on average and (2) the distribution of those gains is highly skewed to the right-side of the income/wealth table.
Stories based on average numbers lose a great deal of the details that matter.
Besides all that, I'd add that the unemployment rate is an aggregate measure. There's no guarantee that the unemployment rate for arbitrary subsets of the population (e.g. college graduates) is the same as the aggregate unemployment rate defined over the whole population. So, supposing that college educated workers actually were more likely to be unemployed than the average worker (they aren't), looking at the national unemployment rate would be just ... looking at the wrong place.
But here's a "nice" graph (the graph is nice, but the trend is worrying): https://fred.stlouisfed.org/series/LNS11327662. Labor force participation for college educated workers fell by 3.9 percent points since 2009. This is rather massive compared with the actual unemployment.
I really wish the people at statistics offices would come up with some new measure of unemployment. Sometimes I feel a scalar doesn't cut it.
It's always nagged me how we can say the economy has improved without taking the distribution into account. It's like saying one person gained five bucks and three people lost a dollar. Sure there is two more dollars but the community/society isn't necessarily better for it.
> Yes, but many people have been designsted as "having stopped looking for work", which means the statistic doesn't count them. Additionally, those who are employed perhaps are underemployed, working as an Uber driver or bartender or chipotle or etc.
Yes. In most countries I know of, employment statistics are more about making economy/government look good and hitting targets, and less about giving any real numbers that people can use to understand the big picture.
Those numbers are all computed, and they've all been getting better as core unemployment has (that is, they are trending together). The only number that is getting worse is the number of people retiring out at 65/67.
I do agree that we have to look more at wealth equality to see what's going on.
If you include the unemployed as well as those who want a job but aren't actively looking, it's around 5% which is considered low.
But the point of the article is that the unemployment rate is moving in the opposite direction to the arrears rate. Unless the basis for these figures has changed recently, this would require that an abnormal number of graduates aree becoming less emlpoyed while an abnormal, and larger, number of grads are becoming employed. Seems unlikely.
> ...perhaps are underemployed
Are you sure? I'm not totally familiar with the exact counting mechanism in the US but, in the UK, if someone is in part-time work but is looking for more hours or full-time work, then they count as unemployed, not employed.
For further reading on this, look to articles about how the Phillips Curve (the theoretical link between inflation and underemployment) is broken (if it ever worked).
The share of Americans at least 31 days late on loans from the U.S. Department of Education ticked up to 18.8 percent as of June 30, up from 18.6 percent the same time last year
Tie student loans to educational institutions where the study takes place.
If the student fails to repay, a %age of the student loan debt should be paid for, by the edu institution where he/she graduated from.
Would be great if it is 50%. Even if university doubles the price, demand/supply economics will ensure universities cannot bump fees up at will.
Without holding the educational institutions and the students as equally responsible for the debt, edu institutions have no incentive to not-ripoff students.
Factor in the repayment history by graduates of a program at an institution to decide the percentage of debt the university is liable for.
If STEM grads are having lesser default, the school is responsible for 10% of the debt.
If a grads of <some esoteric program> have a higher default rate, school owes closer to 50%
I've never thought of it that way. I don't know if there wouldn't be some second or third order issues from something like this, but at first glance this seems like a good idea.
Why shouldn't the school take on some of the risk?
Serious question: Who loses out if all the student debt got canceled? Not the colleges, I assume, because they already got the tuition. And not the students. So would it be loan companies and the US government? Would such an action be catastrophic?
I think the "cancelling" action you're saying would be some way to pay the loan companies off with US govt funding. So, as a US taxpayer who is almost done paying his student loans, I lose out. Twice, i think.
I think this is kind of a nonsensical question but please feel free to correct me if I'm wrong.
Imagine you and I agree to a deal, both verbally and contractually (i.e. on paper). I give you 10 euros and you pay me back 11 euros in exactly 1 year.
Now 6 months into the deal you suddenly ask yourself: "Well who would lose out when this debt gets cancelled?"
Do you see now why I think it is a nonsensical question?
The gov't loses the repayment, since student loans are federally backed. Though the fed is double dipping on the student loans: they get interest back on the loans while also getting higher tax revenue from higher incomes.
Someone still has to pay the debt. Though many times the (defaulted) debt can be bought for pretty cheap. It's complicated, but in the end somebody pays it.
You don't even need it to be free if you fix the loans. In my country student loans are interest free but indexed with CPI and compulsory repayments are only taken from your tax once your income is above about 42k USD. Even then, the compulsory repayment amount is based on how much you're above the threshold. No-one really even notices that they're repaying their loans.
Real estate prices aren't rising everywhere. The problem is that our economy is increasingly based on knowledge workers, who benefit from clustering together in densely-populated areas with certain cultural amenities, jobs, and opportunities to meet people and share knowledge. That drives a great disparity in both housing costs and opportunities by region.
Are there any recent studies that crunch the numbers on how much that would cost? Because as a debt free college grad earning ~16000 pre tax I'm still willing to commit a fair amount, call it 500 a year? but I have no idea if that's even close to enough if we assume it's progressive at the same rate as income tax.
A couple of question with answers we'll never get:
- What is the breakdown across for-profit vs traditional school graduates? Are University of Phoenix grads defaulting at the same rate as ivy league grads? (obviously no, but the disparity would be good to know)
- What are the statistics if you include SoFi (and other similar refinancers that cherry-pick borrowers most likely to repay) borrowers that get removed from the public numbers?
There are some pretty hostile laws against borrowers. A relatively recent one caps the tax write-off on interest at $2,500. Anyone who went to a private or out of state college will hit that cap easily.
All good points, but the only real answer is...
Paying for an education is a gamble and gambling with our future is dumb.
If we pay taxes for anything, anything at all the number 1 priority should be to provide an education to anyone.
That doesn't mean pay for their housing, or anything else. One has to invest their time into an education, its already very expensive.
* Wage garnishment is limited, maybe the ruined the credit score and the max % of garnished monthly paycheck (%15) is less than what they are already paying?
* The type of majors and students background who graduated changed. Maybe universities 4 years ago decided to accept more students into majors which are having a hard time finding employment. Universities don't care, they just want more students with 6 figure approved loans to roll in.
* It is possibly there was a hint or signal of debt forgiveness being implemented. It doesn't have to be true, just a rumor but it can start to self-perpetuate because people really want to believe it.
* Also everyone is pretty connected these day via social media so maybe if someone bragged about not paying and "look a few months later, nothing happened to me" others might start thinking, hmm, well maybe it's ok. Certainly nobody wants to be left still paying like a fool if all their cool friend stopped and they still seem to be doing ok, kind of attitude.
Purely anecdotal but I have several friends who have told me they don't worry about paying their student loans on time due to the fact that they feel like they'll never go away. They feel like they'll never pay them off, and they can never get them discharged. So there's no motivation for them to pay them off.
[+] [-] 1_2__4|8 years ago|reply
I don’t know. I know how it sounds. But I can’t stop thinking that stuff isn’t adding up. And this article is one more to add to the pile of “how can this be happening if the economy is actually healthy, at least in a way that means people’s financial lives are healthy and prosperous?”
[+] [-] jaclaz|8 years ago|reply
You could repay it in 10 years time while living at the same level of your non-graduated friends.
Now say that the student loan averages US$ 150,000 and - still on average - the increase in annual wages is US$ 7,500 (net).
So you can either:
1) live as before BUT repay it in 20 years instead.
2) live at a 7,500 US$/year lower level than your friends and still repay it in 10 years.
3) live at a 7,500 US$/year (or 10,000 or 15,000) higher level and never repay it.
I suspect that besides the lessened "value" of the university degree on the labour market, there is also an increased number of people that choose option #3 over option #2 or #1 (whether out of need or because of other reasons doesn't really matter).
[+] [-] valj|8 years ago|reply
There's your answer - 0.2pp is totally insubstantial, which makes the title borderline clickbait. The economy doesn't uniformly grow or distribute wealth, so a change so small could just be from the distribution of college leavers in a particular year being overindexed towards sectors that aren't growing.
Further to that point, it typically takes years for people to adjust their majors towards sectors of the economy that are particularly productive, so we shouldn't expect to see such a quick change in the numbers.
[+] [-] lasermike026|8 years ago|reply
Wages and benefits are too low, tuition is too high, cost of living is too high, and student loans are a scam. Tuition is a scam.
http://studentdebtcrisis.org/
The rent is too damn high! ;)
[+] [-] taw55|8 years ago|reply
[+] [-] j_m_b|8 years ago|reply
[+] [-] ep103|8 years ago|reply
Loans that are guaranteed by the government, for all students, that can't be discharged by bankruptcy, is an idea clearly put together by lenders.
If we wanted government subsidies for private education, there are plenty of alternatives. Here's one: government guaranteed loans for all students; but repayment of those loans is capped as a percentage of the person's income, and interest rate is capped well beneath that. This would allow the government to subsidize students to go to college, while providing market pressure against universities raising their tuition yearly. It would also allow students who went to expensive institutions to pursue careers that aren't at the top of the financial spectrum, like, say, teaching.
[+] [-] Overtonwindow|8 years ago|reply
[+] [-] mdorazio|8 years ago|reply
[+] [-] unknown|8 years ago|reply
[deleted]
[+] [-] krapp|8 years ago|reply
[+] [-] wfo|8 years ago|reply
Perhaps more and more students are simply refusing to pay, taking the free college they should have been given by economic force.
[+] [-] ghaff|8 years ago|reply
[1] https://www.bloomberg.com/view/articles/2017-09-27/it-should...
[+] [-] quuquuquu|8 years ago|reply
Yes, but many people have been designsted as "having stopped looking for work", which means the statistic doesn't count them.
Additionally, those who are employed perhaps are underemployed, working as an Uber driver or bartender or chipotle or etc.
>the economy has improved
For the top 6% of Americans that are millionaires, it absolutely has improved. Most of their income is from capital gains, dividends, and business equity.
The average person with student loans has almost none of these things. They are relying on a wage from a job that requires them usually to pay rent, own a car, buy a monthly transport card, and so on.
When you are only making $1400-2000 per month after tax, and $1,000 of that is out the door on work-related expenses alone (rent, transport, insurance, phone), there isn't much left over for a $300 per month student loan payment.
Disclaimer: Don't shoot the messenger. These are merely my thoughts on what is happening. Please reply with criticism.
[+] [-] H1Supreme|8 years ago|reply
This is just another example of why I urge any young people I know (high school age) to think long and hard before choosing to go to a 4 year college. When I graduated high school in 99', we were primed to think "college degree == good job". Of course, that is anything but the truth. And, it only serves to put someone in serious debt without any guarantees.
Hands on technical jobs like electrician, plumber, welder, are many times more lucrative than some bullshit business degree. A friend of mine's son is 22 or 23, and making a hell of a living welding. Granted, he's exceptional at it. But, that doesn't change the fact that his 2-year trade school investment was a good one.
Or, teach yourself a skill. Like lots of us on here, I'm a self taught programmer. It took years of doing small projects in the evenings, but I make a living from it now with $0 in student loan debt.
[+] [-] bmcusick|8 years ago|reply
Stories based on average numbers lose a great deal of the details that matter.
[+] [-] tpeo|8 years ago|reply
But here's a "nice" graph (the graph is nice, but the trend is worrying): https://fred.stlouisfed.org/series/LNS11327662. Labor force participation for college educated workers fell by 3.9 percent points since 2009. This is rather massive compared with the actual unemployment.
I really wish the people at statistics offices would come up with some new measure of unemployment. Sometimes I feel a scalar doesn't cut it.
[+] [-] miketery|8 years ago|reply
It's always nagged me how we can say the economy has improved without taking the distribution into account. It's like saying one person gained five bucks and three people lost a dollar. Sure there is two more dollars but the community/society isn't necessarily better for it.
[+] [-] coldtea|8 years ago|reply
Yes. In most countries I know of, employment statistics are more about making economy/government look good and hitting targets, and less about giving any real numbers that people can use to understand the big picture.
[+] [-] seanmcdirmid|8 years ago|reply
I do agree that we have to look more at wealth equality to see what's going on.
[+] [-] lucozade|8 years ago|reply
They do, they're called "not in labor force" [0]
If you include the unemployed as well as those who want a job but aren't actively looking, it's around 5% which is considered low.
But the point of the article is that the unemployment rate is moving in the opposite direction to the arrears rate. Unless the basis for these figures has changed recently, this would require that an abnormal number of graduates aree becoming less emlpoyed while an abnormal, and larger, number of grads are becoming employed. Seems unlikely.
> ...perhaps are underemployed
Are you sure? I'm not totally familiar with the exact counting mechanism in the US but, in the UK, if someone is in part-time work but is looking for more hours or full-time work, then they count as unemployed, not employed.
[0] https://www.bls.gov/cps/cpsaat35.htm
[+] [-] bmh_ca|8 years ago|reply
e.g. http://www.cbc.ca/news/business/inflation-canada-outlook-1.4...
[+] [-] unknown|8 years ago|reply
[deleted]
[+] [-] astura|8 years ago|reply
[+] [-] qntty|8 years ago|reply
Is this newsworthy?
[+] [-] bigheadpercoli|8 years ago|reply
[+] [-] calvinbhai|8 years ago|reply
If the student fails to repay, a %age of the student loan debt should be paid for, by the edu institution where he/she graduated from.
Would be great if it is 50%. Even if university doubles the price, demand/supply economics will ensure universities cannot bump fees up at will.
Without holding the educational institutions and the students as equally responsible for the debt, edu institutions have no incentive to not-ripoff students.
Factor in the repayment history by graduates of a program at an institution to decide the percentage of debt the university is liable for.
If STEM grads are having lesser default, the school is responsible for 10% of the debt.
If a grads of <some esoteric program> have a higher default rate, school owes closer to 50%
[+] [-] AcerbicZero|8 years ago|reply
Why shouldn't the school take on some of the risk?
[+] [-] tbirrell|8 years ago|reply
[+] [-] mholmes680|8 years ago|reply
[+] [-] Rainymood|8 years ago|reply
Imagine you and I agree to a deal, both verbally and contractually (i.e. on paper). I give you 10 euros and you pay me back 11 euros in exactly 1 year.
Now 6 months into the deal you suddenly ask yourself: "Well who would lose out when this debt gets cancelled?"
Do you see now why I think it is a nonsensical question?
[+] [-] notfromhere|8 years ago|reply
[+] [-] godelski|8 years ago|reply
[+] [-] djrogers|8 years ago|reply
[+] [-] shmerl|8 years ago|reply
Time to switch to free high education system.
[+] [-] kirrent|8 years ago|reply
[+] [-] tdeck|8 years ago|reply
[+] [-] Avshalom|8 years ago|reply
[+] [-] rhino369|8 years ago|reply
[+] [-] joshuas|8 years ago|reply
[+] [-] bluebird01|8 years ago|reply
[+] [-] curun1r|8 years ago|reply
- What is the breakdown across for-profit vs traditional school graduates? Are University of Phoenix grads defaulting at the same rate as ivy league grads? (obviously no, but the disparity would be good to know)
- What are the statistics if you include SoFi (and other similar refinancers that cherry-pick borrowers most likely to repay) borrowers that get removed from the public numbers?
[+] [-] empath75|8 years ago|reply
[+] [-] cwkoss|8 years ago|reply
[+] [-] user68858788|8 years ago|reply
[+] [-] mikeash|8 years ago|reply
[+] [-] jaunkst|8 years ago|reply
[+] [-] rdtsc|8 years ago|reply
* Wage garnishment is limited, maybe the ruined the credit score and the max % of garnished monthly paycheck (%15) is less than what they are already paying?
* The type of majors and students background who graduated changed. Maybe universities 4 years ago decided to accept more students into majors which are having a hard time finding employment. Universities don't care, they just want more students with 6 figure approved loans to roll in.
* It is possibly there was a hint or signal of debt forgiveness being implemented. It doesn't have to be true, just a rumor but it can start to self-perpetuate because people really want to believe it.
* Also everyone is pretty connected these day via social media so maybe if someone bragged about not paying and "look a few months later, nothing happened to me" others might start thinking, hmm, well maybe it's ok. Certainly nobody wants to be left still paying like a fool if all their cool friend stopped and they still seem to be doing ok, kind of attitude.
[+] [-] cprayingmantis|8 years ago|reply
[+] [-] didip|8 years ago|reply