from Hacker News

The Student Loan Crisis Is Overblown

by BDGC on 7/28/16, 1:20 PM with 95 comments

• by ScaryRacoon on 7/28/16, 2:01 PM

  I think a big point that wasn't touched on in the article (maybe her book does, I haven't read it) is that the increased debt load on students means they are delaying or forgoing buying other major purchases, such as homes and cars. Both of which are huge economic drivers. It isn't that people can't afford the loan payments, it is that the loan payments are reducing the disposable income of those students for quite some time.

• by givinguflac on 7/28/16, 1:59 PM

  Based on my personal experience and that of friends and acquaintances, 23-24 year olds with a bachelor degree working at Starbucks (or equivalent) is not at all rare. The 'crisis' may be overblown by the media a bit, but it is definitely not something that can be ignored. Every media and politic mouthpiece also said everything was perfectly fine, right up to the 2008 crash. I take anything like this with a healthy dose of salt.

• by irln on 7/28/16, 1:59 PM

  For context, this is the ramp up of student loans: https://fred.stlouisfed.org/graph/?g=nQY and https://fred.stlouisfed.org/series/TOTALGOV.

• by zekevermillion on 7/28/16, 2:27 PM

  Another overlooked problem is that easy debt financing (not to mention need-based aid) inflates the cost of attending university for those who have to pay full-price, including those who borrow the cost. This raises the sticker price required to remain competitive as an institution, and is terribly distorting as the many schools with no or poor endowments compete with wealthier universities for students, professors, and capital.

• by Kenji on 7/28/16, 2:22 PM

  A third of college students who earn a four-year degree graduate with no debt at all. Zero.

  Frankly, that is extremely alarming. Only a third? It's strange how people can look at the same numbers and draw completely different conclusions.

  Here's my take on the issue: The government inflated prices of education not unlike banks inflated house prices. All the loaners of student loans should start making provisions now, and big ones at that. People are defaulting or taking a longer time to pay back than anticipated. At the end of the day, I anticipate nobody will act until it blows up and then the state (and thus the common people) will pay up every single dime of this debt - just another case of privatized profit and socialized losses, it becomes boring to watch this game.

  I suggest a radically different form of funding education. I would start a pool for every branch of education and invite private companies to fund education and institutes they need (which is already happening at some scale). Then I would have the state multiply the collected amount of money by a number, say, 2 (or whatever the public agrees to and is reasonable), and pay that on top of the collected funds, and that is how much funding this branch of education gets. Maybe there's some minimum too. And I'd make tuition fees very low but still high enough to disincentivize just fooling around - full stipends would be granted to poor people who are doing well at school and show potential.

• by pitt1980 on 7/28/16, 2:03 PM

  Yes, racking up $100K of debt may seem good because you now have a 6 figure job which is good for the economy. However, what they don't explain is why $100K of debt was needed, and not say $10K. Or why you shouldn't just take $1M of student loans out because wow you'd really be productive!

• by jorge-fundido on 7/28/16, 2:32 PM

  When our federal government gets involved in something, the potential for corruption is too great - there's just too much money. We saw it with federally backed mortgages, federally backed student loans, and will see it with federally mandated health insurance. The intentions may be good but it's only a matter of time before opportunists screw it up.

  The figures at the end of the article seem to be cherry-picked in a way to hide the full details. Instead of telling us what a quartile looks like, why not show the full distribution?

• by api on 7/28/16, 2:10 PM

  Maybe not in isolation. It has to be taken as part of a larger picture.

  There is tremendous downward pressure on wages and has been for a long time due mostly to outsourcing, foreign competition, and automation. All those things are deflationary in general.

  Central banks have tried to fight this via traditional inflationary monetary policy but it's not working. Since the pressure on wages is so deep and structural, those policies are just inflating other things. Chief among these are housing and education because these are financed with debt.

  I think this is the wider picture. It's not so much a student loan crisis as a larger breakdown of the entire 20th century economic formula.

• by forgingahead on 7/28/16, 2:50 PM

  Related:

  "Credit Crisis: The Sky is not falling [2007]": http://www.brookings.edu/research/papers/2007/10/mortgage-in...

  "Growing Foreclosure numbers don't spell doom [2007]":http://www.businesswire.com/portal/site/google/index.jsp?ndm...

  You can find lots more, I just did a cursory search.

• by PaulHoule on 7/28/16, 3:32 PM

  Another angle is to look at it from a business perspective.

  Early on, Lending Club introduced roughly 10 categories of loans, one of which was "Student Loan".

  In the first few years the risk models worked out pretty well for the other 9 categories of loans and they turned out to be pretty good investments from the viewpoint of the lender and roughly similar in return/risk profile.

  Student loans were a disaster, with the interest mostly eaten up with defaults. They stopped making student loans.

  People think abstractly that education is a good thing, but from the viewpoint of improving your job prospects it is a risky thing. If it wasn't for government guarantees and subsidization, however, student loans would not exist today except for people who don't need them. It just is not a good business (as a business) to make loans that have a high chance people can't pay them.

• by RcouF1uZ4gsC on 7/28/16, 2:41 PM

  Actually, this is a lot like the housing crisis. The banks lent money in excess of the value of the home to people that could not afford the debt. With the student loan crisis, the Federal government has been lending money to students assuming that the value of the education is equal to what the institution charges for it. This has resulted in severe tuition inflation and a massive debt burden.

  I think a good solution both now and going forward is to:

  1) Calculate the value of the education based on the Institution, the Major, and the Degree. We should be able to calculate this based on the Federal student loan information cross-correlated with IRS data.

  2) Forgive all debt in excess of the value of the education

  3) Only finance student debt up to the expected value of the education.

  This will do a lot in terms of removing the tuition market distortion and in relieving the debt load.

• by squozzer on 7/28/16, 2:40 PM

  What bothers me most about these discussions is that no one seems to advocate making college cheaper. The solution space always seems to gravitate towards finding more money. I do not see how that approach can sustain itself forever.

  Ditto for health care.

• by GarrisonPrime on 7/28/16, 2:45 PM

  Wow, such a misleading premise. The majority of readers will come away with the simplistic conclusion that "there is no problem with student loans, unemployment among the educated, etc."

  Music to NPR's ears.

• by dailyrorschach on 7/28/16, 2:41 PM

  I am surprised this interview seems to ignore that the larger problem is coming from students who take loans out, but then drop out of the program before graduating, making it even harder to pay back their loans.

  This is an interesting article in The Atlantic on that subject: http://www.theatlantic.com/business/archive/2016/07/the-scar...

• by yourareanidiot on 7/28/16, 2:46 PM

  In France if I broke my leg it's free To fix. I can go to university for 500€ per year. People of USA open your eyes not your assholes.

• by tribune on 7/28/16, 2:01 PM

  Certainly some people are struggling with student debt, and I don't want to look down on their struggle. From a macroeconomic standpoint, though, the Student Loan "Crisis" is at least an order of magnitude smaller than the Mortgage Crisis.

• by IanDrake on 7/28/16, 3:09 PM

  I can't help feeling this is somewhat orchestrated.

  This author was an adviser to Clinton's campaign. Clinton has already said this is a problem, but the reality is that she will do nothing about it (for various reasons). So, it seems the best way to make that palatable to her base is to start a new narrative that says, "there is no problem".

  Like a Jedi brain trick, her followers will parrot the same thing and repeat the cherry picked statistics in these talking points.

• by lintiness on 7/28/16, 2:24 PM

  a few points:

  the same public unions that support clinton and sanders are the ones that created the "for profit" school debt problem. many union contracts offer mandatory pay raises for nonsense masters degrees pumped out online.

  the government subsidizing student debt with artificially low interest rates has increased the size of the load as well as the cost of said education.

• by atkinswj on 7/28/16, 3:52 PM

  The stats regarding the horrifying amount of student debt in this country speak for themselves. The stats regarding historically low levels of household formation and milestone purchases (home, car, etc.) among millennials also speak for themselves. This article is garbage.

• by eganist on 7/28/16, 1:57 PM

  This feels like when bankers thought mortgage default rates wouldn't crack 8% back in 2007.

• by awt on 7/28/16, 2:47 PM

  The student loan "bubble" is essentially an attempt to paper over the lack of jobs and serves as a welfare program for youth funded (as are most government programs) with debt.

• by awt on 7/28/16, 2:44 PM

  Ha. Overblown. His wife must not owe 100K+ after being kicked out of law school like mine.