Author Topic: Another Reddit Underbelly - How to Dodge Student Loans  (Read 8062 times)

therethere

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Re: Another Reddit Underbelly - How to Dodge Student Loans
« Reply #50 on: August 21, 2019, 01:05:07 PM »
What have I missed here?   

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.

YES. This is exactly how I ended up with 100k+ in loans. Luckily I graduated and got a job out of it. 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!
« Last Edit: August 21, 2019, 01:06:39 PM by therethere »

mathlete

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Re: Another Reddit Underbelly - How to Dodge Student Loans
« Reply #51 on: August 21, 2019, 02:04:02 PM »
Careful. I got mod-slapped for impugning the virtue of a bank. I believe I compared Chase to a "juicy whore" and invited people to take advantage. I wasn't aware that a Chase card was one of the ones on the MMM preferred list at the time. Oops. Bad Grim.

lol I think it was probably the colorful language, rather than the impugning of the bank that solicited the mod slap.

Goldielocks

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Re: Another Reddit Underbelly - How to Dodge Student Loans
« Reply #52 on: August 21, 2019, 05:19:25 PM »
Thanks caleb and PDXTabs.   Two great points that I missed:

1)  There are also in-state loans and administered separately, with separate caps.
2)  The unsubsidized portion of the federal loan acrues interest right away... and that interest is very high   

PDXTabs -- re bankuptcy, I said the exact opposite, we agree.  I definitely think that a validated bankruptcy in front of a Judge should lift the student loan.   Not allowing that created a vicious predatory lending cycle from many parties (private colleges, banks, others).   By returning to allowing bankruptcy as an aid for heavy student loan debt, it would put more of the risk back onto the lender.


The point that the 17/18 year old undergrad has been screwed by everyone, including the parents (especially the parents? who refuse to pay for the Parent Plus loan or help with co signed loans?)... parents that are fully grown adults that should look out for thier kids...  well, that seems hugely correct.   

Why aren't people railing against the loans that the parents took out?  Even if the 19 year old student begged them to do it, they should have put on the adult vision.  Suze Orman has been decrying co-signing for decades... much longer than this student loan crisis.  Shouldn't the parents buck up and pay for their share of the mess too, or is that only the student's responsiblity?

PDXTabs

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Re: Another Reddit Underbelly - How to Dodge Student Loans
« Reply #53 on: August 21, 2019, 06:38:03 PM »
Why aren't people railing against the loans that the parents took out?  Even if the 19 year old student begged them to do it, they should have put on the adult vision.

That you for the thoughtful reply, I appreciate it.

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.

caleb

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Re: Another Reddit Underbelly - How to Dodge Student Loans
« Reply #54 on: August 21, 2019, 07:51:21 PM »
The point that the 17/18 year old undergrad has been screwed by everyone, including the parents (especially the parents? who refuse to pay for the Parent Plus loan or help with co signed loans?)... parents that are fully grown adults that should look out for thier kids...  well, that seems hugely correct.   

Why aren't people railing against the loans that the parents took out?  Even if the 19 year old student begged them to do it, they should have put on the adult vision.  Suze Orman has been decrying co-signing for decades... much longer than this student loan crisis.  Shouldn't the parents buck up and pay for their share of the mess too, or is that only the student's responsiblity?

Um, yes, the parents should buck up.  And it's even worse in many cases than you're describing it.  At privates where the tuition tag is now $60k+, the experience is marketed to the parents as much or more than the students, and parents are often ongoing consumers of the experience.  There are parent events throughout the year.  Parents are at the sporting events.  Parents are in the library and the cafeteria on the weekends.  Parents can often audit classes for free. 

And of course parents consume the experience in all sorts of soft ways every time they tell their friends and family that their child is at Country Club U, even if they never set food on campus.

The parent experience is funded in large part by tuition.  And in the case of the parents who aren't paying the expected family contribution part of the bill the student is debt financing all of that tuition, and so the student is paying for the parent experience with their debt.  The students in these cases are subsidizing the parents' experience of college, rather than the other way around.

I think that's f'ed up, and I think it happens because lots of parents are more concerned about the appearance of being a successful adult and parent (big house, new cars, kid at Country Club U) rather than actually setting their kids up for success as adults by helping them get a start in life.

So why aren't we talking about it?  Well, if you were one of those parents, would you want to talk about the fact that your family life was a sham enabled by throwing your kid under the financial bus?  And if you're their kid, do you want to have a public discussion about the fact that your parents shirked their responsibilities and let you debt finance their parenting dreams?  Me neither.

This isn't just a financial crisis, it's a moral crisis on all sorts of levels.
« Last Edit: August 21, 2019, 07:55:22 PM by caleb »

caleb

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Re: Another Reddit Underbelly - How to Dodge Student Loans
« Reply #55 on: August 21, 2019, 09:00:03 PM »
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.

Dicey

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Re: Another Reddit Underbelly - How to Dodge Student Loans
« Reply #56 on: August 23, 2019, 09:47:02 AM »
The reason these loans aren't dischargeablde is because they used to be and that didn't work well. People went to law or med school, then declared bankruptcy. I knew a couple of people who pulled every loan they could, bought houses,  sheltered them, ( I believe that loophole is gone now, too) and then did a bankruptcy.  Fun times.

My concern is the underlying premise that everyone must go to college. And everyone must live in dorms. And take trips for Spring Break, etc, etc, etc.

PDXTabs

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Re: Another Reddit Underbelly - How to Dodge Student Loans
« Reply #57 on: August 23, 2019, 10:30:53 AM »
The reason these loans aren't dischargeablde is because they used to be and that didn't work well. People went to law or med school, then declared bankruptcy. I knew a couple of people who pulled every loan they could, bought houses,  sheltered them, ( I believe that loophole is gone now, too) and then did a bankruptcy.  Fun times.

But after 1990 you still had to wait seven years to discharge them in bankruptcy (five years from 1978-90). This means that you either were paying them for seven years or in default for seven years. In the default case you could have had your wages garnished the entire time if you were actually a working professional - also, you would be signing up for 17 years of bad credit: seven years of default and 10 years of bankruptcy on your file.

You aren't wrong that a few people filed for bankruptcy to get out of their obligations that could have paid them. But we also threw a whole lot of folks under the bus because of a couple of rich assholes.

EDITed to add:

My concern is the underlying premise that everyone must go to college. And everyone must live in dorms. And take trips for Spring Break, etc, etc, etc.

I don't disagree with this. But if a bank gives an 18 year old money for spring break, who should have been the responsible party?
« Last Edit: August 23, 2019, 10:49:56 AM by PDXTabs »

Goldielocks

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Re: Another Reddit Underbelly - How to Dodge Student Loans
« Reply #58 on: August 23, 2019, 11:40:28 AM »
The 18 year old...  whoever borrows the money is the one responsible.  If the student is doing this with their federal loans, well, with the caps on those amounts, tuition and living costs from some other cash.... money is fungible and all of that.

BUT!
At this point, it is still a loan on parent's credit. I think the point of the posts above is that the bank is lending money to the parents (co-signers) and lying to them / misleading them to get them to sign (your student will have a wonderful life and make lots of money to pay this back, it is not your loan, etc), and then they both are flipping it around to make the student responsible for payments a year or two into the loan repayments, without validating the student's ability to carry it first.  (If I got that right).

So..
End co-signed loans.

Provide a means for bankruptcy to discharge private loans. (A lot more time / rigor than standard bankruptcy is fine.. someone with 7 years of low / no income should be able to get loans discharged in bankruptcy, not someone only 3 years out of school that took a gap year after and now is just starting to work steady after a long job search and contract positions).

Do not flip a loan back onto someone, instead have them refinance it into a new loan their own name based on their own credit.

Don't go directly into a Masters  (without substantial work study or other funding to offset) if you already have a large student loan.

But also -- keep caps on these loans!  If someone can't afford it now, they can't afford it later, either.

PDXTabs

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Re: Another Reddit Underbelly - How to Dodge Student Loans
« Reply #59 on: August 23, 2019, 11:45:15 AM »
The 18 year old...  whoever borrows the money is the one responsible.  If the student is doing this with their federal loans, well, with the caps on those amounts, tuition and living costs from some other cash.... money is fungible and all of that.

I'd be fine with that if this was the normal "responsible" that society has decided on for every other kind of debt. But it is an extra responsible that only applies to student loans.

BUT!
At this point, it is still a loan on parent's credit. I think the point of the posts above is that the bank is lending money to the parents (co-signers) and lying to them / misleading them to get them to sign (your student will have a wonderful life and make lots of money to pay this back, it is not your loan, etc), and then they both are flipping it around to make the student responsible for payments a year or two into the loan repayments, without validating the student's ability to carry it first.  (If I got that right).

Unless they are one of the many independent 18 year old students as reference earlier in this thread.

Dicey

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Re: Another Reddit Underbelly - How to Dodge Student Loans
« Reply #60 on: August 23, 2019, 07:02:02 PM »
The reason these loans aren't dischargeablde is because they used to be and that didn't work well. People went to law or med school, then declared bankruptcy. I knew a couple of people who pulled every loan they could, bought houses,  sheltered them, ( I believe that loophole is gone now, too) and then did a bankruptcy.  Fun times.

But after 1990 you still had to wait seven years to discharge them in bankruptcy (five years from 1978-90). This means that you either were paying them for seven years or in default for seven years. In the default case you could have had your wages garnished the entire time if you were actually a working professional - also, you would be signing up for 17 years of bad credit: seven years of default and 10 years of bankruptcy on your file.

You aren't wrong that a few people filed for bankruptcy to get out of their obligations that could have paid them. But we also threw a whole lot of folks under the bus because of a couple of rich assholes.

EDITed to add:

My concern is the underlying premise that everyone must go to college. And everyone must live in dorms. And take trips for Spring Break, etc, etc, etc.

I don't disagree with this. But if a bank gives an 18 year old money for spring break, who should have been the responsible party?
Ahem, I was referring to the pre-1990 era, because I am old.

PDXTabs

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Re: Another Reddit Underbelly - How to Dodge Student Loans
« Reply #61 on: August 23, 2019, 08:23:17 PM »
Ahem, I was referring to the pre-1990 era, because I am old.

Everything I wrote was also true starting in 1978, just for a slightly shorter time.

Anyway, I'd be totally fine going back to seven years of payment/default before you could file for bankruptcy. This is in fact the exact same time-frame as Canada.

LiveLean

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Re: Another Reddit Underbelly - How to Dodge Student Loans
« Reply #62 on: August 27, 2019, 12:37:50 PM »
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.

Why is this so freakin' difficult?

TheGrimSqueaker

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Re: Another Reddit Underbelly - How to Dodge Student Loans
« Reply #63 on: August 28, 2019, 09:33:15 AM »
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.

Why is this so freakin' difficult?

Because it's not what the Instagram people do or what "college students" do in movies or on TV.

I'd also add:
8. Live with your parents or a relative and have a work-in-lieu of rent agreement to keep your expenses low.
9. Buy secondhand books, or rent them.
10. Don't take on other debt such as a car loan.

joleran

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Re: Another Reddit Underbelly - How to Dodge Student Loans
« Reply #64 on: August 29, 2019, 07:38:40 AM »
9. Buy secondhand books, or rent them.

International editions (thin paper, black and white only) on ebay worked wonders in the early 2000's, seems like it's still a thing too.

merula

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Re: Another Reddit Underbelly - How to Dodge Student Loans
« Reply #65 on: August 29, 2019, 08:14:40 AM »
9. Buy secondhand books, or rent them.

International editions (thin paper, black and white only) on ebay worked wonders in the early 2000's, seems like it's still a thing too.

I went to college in the mid 00s; international editions had the exact same content but the book questions were in a different order. So if it was a class where you had to turn in homework from book questions, you had to find someone who paid for the real book to write down which numbers in the real book corresponded to which numbers in the international edition.

I did have a few professors who recommended international editions and would either give homework as printed-out questions or have the assignment list the question numbers for both editions, but that was rare.

Just Joe

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Re: Another Reddit Underbelly - How to Dodge Student Loans
« Reply #66 on: August 29, 2019, 08:34:18 AM »
9. Buy secondhand books, or rent them.

International editions (thin paper, black and white only) on ebay worked wonders in the early 2000's, seems like it's still a thing too.

Or do like a student I knew in one of my classes - download a B&W PDF of the textbook, find access to a free printer somewhere on campus in someone's work study office probably and print out the book. All on one side of the paper of course. He said it was printed on one of those really slow mid-90s Laserjet printers (when we were in school in the mid-90s) and took forever... He did a chapter at a time as needed. 

WhiteTrashCash

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Re: Another Reddit Underbelly - How to Dodge Student Loans
« Reply #67 on: August 29, 2019, 01:35:15 PM »
9. Buy secondhand books, or rent them.

International editions (thin paper, black and white only) on ebay worked wonders in the early 2000's, seems like it's still a thing too.

Or do like a student I knew in one of my classes - download a B&W PDF of the textbook, find access to a free printer somewhere on campus in someone's work study office probably and print out the book. All on one side of the paper of course. He said it was printed on one of those really slow mid-90s Laserjet printers (when we were in school in the mid-90s) and took forever... He did a chapter at a time as needed.

This is actually something I am okay with, because the textbook companies have become dicks and started requiring people to do all kinds of registration online to prevent the purchasing of used books. It's kind of like how tech hardware companies use proprietary technology to prevent people from being able to repair their own devices. When companies pull shenanigans like that, then as far as I am concerned, the gloves are off.

seb345

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Re: Another Reddit Underbelly - How to Dodge Student Loans
« Reply #68 on: January 21, 2020, 02:12:00 AM »
student loans are always a problem. but I feel like the schools are also to blame. The tuition is sky high so we can have a pool? what the hell. Yeah books are super huge expense and when you try to sell them afterwards its kind of a hassle

Bloop Bloop

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Re: Another Reddit Underbelly - How to Dodge Student Loans
« Reply #69 on: January 21, 2020, 03:08:24 AM »
9. Buy secondhand books, or rent them.

International editions (thin paper, black and white only) on ebay worked wonders in the early 2000's, seems like it's still a thing too.

I stopped buying textbooks. Most of it's bullshit anyway. Especially in law, where you have access to the whole world's databases at your fingertips (via the university Lexis/Thomson/etc subscriptions), textbooks are just an unnecessary "secondary source" of information. They don't measure up to primary sources. And there are legal encyclopaedias and textbooks available via the university subscriptions anyway.

Go to a uni you can afford. Get a scholarship if possible. Don't buy everything you're told to buy (academic, lifestyle or otherwise). Do well enough to get a high paying job. It ain't brain surgery or rocket science, unless you happen to be majoring in that.