Tag Archives: student loan debt

Fed Finds Wealth Advantage For College Grads Is Vanishing

Four years ago, in one of its taxpayer subsidized research papers, the San Fran Fed asked “is it still worth going to college“, looking at the trade off between the “investment” of tens of thousands of dollars in student loans relative to the pick up in earnings potential over one’s lifetime. It found that the answer is “yes” because “the value of a college degree remains high, and the average college graduate can recover the costs of attending in less than 20 years.” In other words by the time one is 42, one’s student loans will be paid off, assuming of course that one can still find a job. And, staying in this idealized world, the difference between earnings continues to grow “such that the average college graduate earns over $800,000 more than the average high school graduate by retirement age.”

Four years later, the New York decided to rerun the same analysis, which it described in a recent blog post “The College Boost: Is the Return on a Degree Fading?”, and came to a starkly bleaker conclusion. 

As DataTrek’s Nick Colas summarizes the Fed’s study, the net income and net worth benefits of a college or grad school degree are rapidly diminishing. Specifically, the NY Fed economists looked at two broad demographic cohorts (whites and African Americans), segmenting changes in expected income between those people born each decade between the 1930s and the 1980s. Their findings:

  • White workers with a 4-year degree born from the 1930s to the 1970s saw a +57–72% pickup in income over their non-college educated counterparts. Those born in the 1980s only saw a +43% improvement, however.
  • African American college grads born in the 1980s are, however, still seeing income differentials in line with older cohorts (+71% versus +66 – 76% for those born in the 1940s to 1970s).

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The data looks similar for those workers with a graduate degree. For white workers born in the 1980s, the differential to their peers without an advanced degree is +54%, lower than the +80–108% of older cohorts. For African Americans, the benefits of a graduate education remain consistently high (+73–125% more than those without a grad school degree) across all age groups.

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Where things look really bad is when you look at total wealth differentials between the age groups. These include both financial assets and non-financial, such as home ownership.

  • On that count, white families with a college educated household member who was born in the 1980s is +42% better off for their sheepskin, versus +134–247% for those born in the 1930s to the 1980s. Moreover, the older the graduate, the better the differential.
  • The news is even worse for African American households, where those born in the 1980s are only +6% better off than their non-college educated peers. Those differences were +126% to +253% for those born in the 1940s to the 1970s.

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Exactly the same thing holds true when applied to graduate degrees: earlier born households accumulate much more wealth than later ones when compared to those who did not earn such a degree.

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Key takeaway: to us, this looks like a solid data-driven indictment of the rising cost of US education, with its concurrent increase in student debt (and one that is vastly different from the far rosier take by the San Fran Fed in 2014). A college and/or graduate degree does mean higher wages. But it also means more educational debt, which delays both savings and home ownership.

The notion that younger demographic college graduate cohorts will deliver out sized economic growth, as their parents did when they were younger, seems suspect at best.

Source: ZeroHedge

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Student Debt Bubble Expands As Parents Do More Of The Borrowing

Not so long ago, student debt was mostly the responsibility of students. That is, you paid for college with loans and then paid off those loans with the proceeds of the good job you got with an advanced education.

These days it’s a little different. The cost of higher education is soaring, the jobs available to college grads don’t pay as much, relatively speaking, as they used to, and the size of loans available to students – though huge – don’t cover the full cost of many degrees.

One might expect these changes to lead more students to work for a few years and save up, or choose a cheaper degree, or eschew college altogether (as a lot of successful people now recommend) and substitute work experience for a diploma.

Some of that is happening but apparently the biggest change is that parents have stepped in to cover the difference between what their kids can borrow and the cost of a degree. As the chart below illustrates, until just a few years ago, the average debt of students exceeded that of students’ parents. But post-Great Recession, parents have given up trying to moderate the cost of their kids’ education and started doing the borrowing themselves. They’re now taking on the majority of new debts, and the gap is widening dramatically.

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Retirement Crisis?

So we can add student loans to the list of instances where people who once tried to control their borrowing have stopped trying and are now just going with the flow. Which means several things.

First, kids who if left to themselves and the market would probably opt for one of the aforementioned cheaper alternatives are still in high-cost, frequently low-reward degree programs, and are being sheltered from the consequences by well-meaning parents.

Second, the retirement crisis that everyone is talking about – in which people who have never saved a penny are approaching retirement age and looking at 30 years of abject poverty – is being made that much worse by parents taking on new debts at a time of life when they should be aggressively trending towards debt-free/cash-rich.

Third and most important for people who aren’t participating in this game of financial musical chairs, the eventual implosion of the student loan market – i.e., the point at which loan defaults become intolerable – will lead to a government bailout, making student loans everyone else’s problem.

But of course the government won’t raise taxes or otherwise inflict immediate consequences on the electorate. It will borrow the money and create enough new currency to cover the first few years’ interest, leaving the longer-term consequences for later years and other people.

As with all the other mini-bubbles out there, if student loans were an isolated problem in a sea of rock-solid financial behavior they’d be easily managed. But they’re just one of many time bombs set to explode shortly.

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Auto loans, credit cards, underfunded pensions and increasingly mortgages and home equity lines are all heading the same way domestically, while emerging market dollar debt (which dwarfs the US mini-bubbles) is just as precarious internationally.

https://www.zerohedge.com/sites/default/files/inline-images/Emerging-market-debt-April-18.jpg?itok=bsE1w3xB

The question then becomes, how many of these bursting bubbles can the US paper over before the currency markets figure out that each will be followed by another, for as far as the eye can see?

Source: ZeroHedge

The Exorbitant Cost Of Getting Ahead In Life

Some 84 percent of Americans claim that a higher education is a very or extremely important factor for getting ahead in life, according to the National Center for public policy and Higher Education.

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So, it’s worth the exorbitant cost, but not everyone can pay, and outsized costs in the U.S. are giving much of the rest of the developed world the higher education advantage.

According to the U.S. Bureau of Labor Statistics (BLS), people with a Bachelor’s Degree earn around 64 percent more per week than those with a high school diploma, and around 40 percent more than those with an Associate’s Degree. In turn, those with an Associate’s degree earn around 17 percent more than those with a high school diploma.

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The Federal Reserve Bank of New York says that college graduates overall earn 80 percent more than those without a degree.

There’s also job security to consider.

Individuals with college degrees have a lower average unemployment rates than those with only high school educations. Among people aged 25 and over, the lowest unemployment rates occur in those with the highest degrees.

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From this perspective, it’s no surprise that students are willing to bite the bullet and take on a ton of debt to finance education.

About three-fourths of students who attend four-year colleges graduate with loan debt. And this number is up from about half of students three decades ago.

The average student loan debt for Class of 2017 graduates was $39,400, up 6 percent from the previous year. Over 44 million Americans now hold over $1.5 trillion in student loan debt, according to Student Loan Hero.

According to College Board, the average cost of tuition and fees for the 2017–2018 school year was $34,740 at private colleges, $9,970 for state residents at public colleges, and $25,620 for out-of-state residents attending public universities.

The U.S. is one of the most expensive places to go obtain a higher education, but there are pricier venues, too.

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If you want a free higher education, try Europe—specifically Germany and Sweden. Denmark, too, doles out an allowance of about $900 a month to students to cover their living expenses. But don’t try to study in the UK on the cheap. The UK is the most expensive country in Europe, with college tuition coming in at an average of $12,414.

In Australia, graduates don’t pay anything on their loans until they earn about $40,000 a year, and then they only pay between 4 percent and 8 percent of their income, which is automatically deducted from their bank accounts, reducing the chances of default.

For Japan—a country that sees more than half of its population go to college—the highly respected University of Tokyo only costs about $4,700 a year for undergraduates, thanks to government subsidies. The Japanese government spends almost $8,750 a year per student because it sees the massive value in having a highly educated citizenry.

For Americans, while student loans may still be a good investment overall, the idea of taking a lifetime to pay off the debt may become increasingly unattractive. And it’s only going to get worse, according to JPMorgan, which predicts that by 2035 the cost of attending a four-year private college will top $487,000.

Source: ZeroHedge

New Game Show Gives Millennials A Chance To Eliminate Student Loan Debt

Overinflated college tuition facilitated by a bottomless ocean of cheap student loans has so far trapped forty-five million Americans with a record $1.48 trillion in non-dischargeable debt – an amount which has more than doubled since the 2009 lows.

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As we reported in January, approximately 40 percent of student loans taken out in 2014 are projected to default by 2023 according to the Brookings Institute.

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However, a new game show on TruTV offers millennial contestants a chance to answer trivia questions – and if they win, the game show will pay off their student debt.

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“Paid Off,” a new trivia game show that premiered this week tries to illuminate the student debt crisis that has entrapped countless millennials. To get the balance right, the show’s producers partnered with a nonprofit group called Student Debt Crisis.

Its executive director and founder, Natalia Abrams, gave this advice to producers: “Every step of the way, from signing up for college to paying back their loans, it’s been a confusing process. So make sure that there’s some heart to this show.”

Video: Paid Off with Michael Torpey Season 1 Trailer 

Michael Torpey, a New York-based actor (“Orange is the New Black”) who is the host of the show, acknowledges that student debt is a crisis and one of the most difficult financial issues plaguing millennials in the gig economy.

“We’re playing in a weird space of dark comedy,” said Torpey, who developed the show with TruTV producers and various nonprofit groups. “As a comedian, I think a common approach to a serious topic is to try to laugh at it first.”

Video: Paid Off with Michael Torpey – The Story Behind Paid Off with Michael

The rules of game show are simple: Three millennial contestants, all of whom have an exorbitant amount of student debt, go head-to-head in a few rounds of trivia questions, hoping that their useless liberal arts degree enables them to answer enough questions right. If they win, well, the show will cover 100 percent of their outstanding student loans.

“One of the mantras is ‘an absurd show to match an absurd crisis,’” Torpey told The Washington Post. “A game show feels really apt because this is the state of things right now.”

Earlier this year, the show had a casting call in Atlanta – this is what the casting flyer stated: “truTV’s new comedy games show PAID OFF is going to do something the government won’t – help people get out of student loan debt! If you’re smart, funny, live in the Atlanta area and have student loan debt, We Want You!”

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Video: Paid Off with Michael Torpey – Finger The Masters

Torpey told NBC that “he strives to balance the light hearted trappings of a game show with an earnest, empathetic look at the student debt issue.”

“I want to be very respectful of the folks who come on our show, who opened their hearts and shared their struggles with us,” Torpey said. “I hope this show de-stigmatizes debt. I mean, there are 45 million borrowers out there. It is a huge number of people!”

Google searches for “paid off game show” have been rising since June.

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Meanwhile, “student loans forgiveness” searches have been surging over the cycle.

Source: ZeroHedge

The State Of American Debt Slaves

It was one gigantic party. But wait…

Total consumer credit rose 5.4% in the fourth quarter, year over year, to a record $3.84 trillion not seasonally adjusted, according to the Federal Reserve. This includes credit-card debt, auto loans, and student loans, but not mortgage-related debt. December had been somewhat of a disappointment for those that want consumers to drown in debt, but the prior months, starting in Q4 2016, had seen blistering surges of consumer debt.

Think what you will of the election – consumers celebrated it or bemoaned it the American way: by piling on debt.

The chart below shows the progression of consumer debt since 2006 (not seasonally adjusted). Note the slight dip after the Financial Crisis, as consumers deleveraged – with much of the deleveraging being accomplished by defaulting on those debts. But it didn’t last long. And consumer debt has surged since. It’s now 45% higher than it had been in Q4 2008. Food for thought: Over the period, the consumer price index increased 17.5%:

https://wolfstreet.com/wp-content/uploads/2018/02/US-consumer-credit-total-2017-Q4.png

Credit card debt and other revolving credit in Q4 rose 6% year-over-year to $1.027 trillion, a blistering pace, but it was down from the 9.2% surge in Q3, the nearly 10% surge in Q2, and the dizzying 12% surge in Q1. So the growth of credit card debt in Q4 was somewhat of a disappointment for those wanting to see consumers drown in expensive debt.

The chart below shows the leap of the past four quarters over prior years. This pushed credit card debt in Q3 and Q4 finally over the prior record set in Q4 2008 ($1.004 trillion), before it came tumbling down via said “deleveraging.”

https://wolfstreet.com/wp-content/uploads/2018/02/US-consumer-credit-cards-2017-Q4.png

These are not seasonally adjusted numbers, and you can see the seasonal surges in credit card debt every Q4 during shopping season (as marked), and the drop afterwards in Q1. But then came 2017. In Q1 2017, credit card debt skyrocketed to an even higher level than Q4, when it should have normally plunged – a phenomenon I have not seen before.

This shows what kind of credit-card party 2017 and Q4 2016 was. Over the four quarter period, Americans added $58 billion to their credit card debt. Over the five-quarter period, they added $109 billion, or 12%! Celebration or retail therapy.

Auto loans rose 3.8% in Q4 year-over-year to $1.114 trillion. It was one of the puniest increases since the auto crisis had ended in 2011. Since then, the year-over-year increases were mostly in the 6% to 9% range. These are loans and leases for new and used vehicles. So the weakness in new-vehicle sales volume in 2017 was covered up by price increases in both new and used vehicles in the second half and strong used-vehicle sales:

https://wolfstreet.com/wp-content/uploads/2018/02/US-consumer-credit-auto-2017-Q4.png

The red line in the chart above indicates the old unadjusted data. In September 2017, the Federal Reserve announced a big adjustment of consumer credit data going back through Q4 2015, impacting auto loans, credit card debt, and total consumer credit. This adjustment was based on survey data collected every five years. So routine. But for Q4 2015, the adjustment knocked auto loan balances down by $38 billion.

Hence that misleading dip in auto loans in Q4 2015 in the chart above. This was at the peak of the auto-buying frenzy, and actual auto-loan balances certainly rose.

Student loans surged 5.6% in Q4 year-over-year. This seems like a shocking increase, but the year-over-year increases in Q3 and Q4 were the only such increases below 6% in this data series. Between 2007 – as far back as year-over-year comparisons are possible in this data series – and Q3 2012, the year-over-year increases ranged from 11% to 15%:

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And there was no dip in student-loan balances during the Financial Crisis; in fact, those were the years with the steepest growth rates. From Q1 2008 to Q4 2017, student loan balances soared 141%, from $619.3 billion to $1.49 trillion, multiplying by 2.4 times over those ten years. More food for thought: Over the same period, the consumer price index rose 17.5%.

The problem with debt is that it doesn’t just go away on its own. If one side cannot pay, the other side takes a loss on their asset. Some auto loans and credit card debts remain on the balance sheet of lenders, while others have been securitized and are spread around among investors. But most student loans are guaranteed by the taxpayer or directly funded by the government.

Over the years, student loans have fattened entire industries: Investors in private colleges, the student housing industry (an asset class within commercial real estate), Apple and other companies supplying students with whatever it takes, the textbook industry…. They’re all feeding at the big trough held up by young people and guaranteed by the taxpayer. Food for thought, so to speak.

Source: By Wolf Richter | Wolf Street

 

43% Of Federal Student Loans Are Not Being Repaid

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Do you have outstanding debt from a federal student loan? If so, the chances are significant that you are behind on your payments or have not even tried to make any payments at all. As of the beginning of the year, there were approximately 22 million Americans with student loans — and, according to information from the Department of Education, only 12.5 million of them are current with their loan payments.

Around 3 million student loan holders are in some form of postponement on their debt. Through a deferment or forbearance, they have permission to delay their loan payments due to a hardship such as unemployment or other financial emergency. Approximately $110 billion in student loan balances are in some form of postponement.

Another 3 million more student loan borrowers were delinquent, meaning they were between one month and a year behind on their loans. 3.6 million borrowers are at least a year behind on their payments and are considered to be in default. Government officials are concerned that many of the borrowers in default do not intend ever to attempt to pay back their student loans.

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The combined balance in delinquent and defaulted loans is approximately $122 billion, meaning that around $232 billion of the over $1.2 trillion student loan portfolio is in some form of distress. Other types of loans with traditional banks would not tolerate such a ratio — but what bank would loan money without credit checks, cosigners, or any evidence that the loan will ever be paid back? Essentially, that’s how student loans work. The government also has no collateral; they cannot repossess your education (yet).

There is at least some silver lining, as a 43% non-repayment rate represents an improvement over last year’s rate of 46%. The Wall Street Journal attributes much of the change to programs that allow some borrowers to lower their student loan payments by connecting them to a percentage of the borrower’s income (also known as income-driven repayment). The number of borrowers taking advantage of these programs nearly doubled over the past year to 4.6 million.

Fortune notes that the Department of Education has blogged that those who do not pay back federal student loans will not be arrested, but they will suffer problems in their financial future and will certainly have difficulties establishing good credit. Unfortunately, evidence shows that some borrowers may not care. The attitude may be that the government will eventually write off these loans or that the potential punishments are not worth a repayment effort compared to other priorities.

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Data from student loan servicer, Navient Corp. shows that the average attempts to reach borrowers in delinquency are between 230 and 300, or more than once every other day. Regardless of format — calls, letters, text messages, and e-mails — 90% never respond. Over half never even attempt to make a payment prior to default.

Income-driven repayment is the preferred compromise path that allows repayment without punishing those who legitimately cannot find work and afford repayment. There are four such programs offered through the Federal Student Aid website: REPAYE, PAYE, IBR, and ICR. If you find yourself among the 43%, consider income-driven repayment plans as a way to repay your debt without overburdening your budget.

If you are among those who are simply ignoring your obligation to repay, don’t. Just because you may never be jailed because of default does not mean that there are not consequences — and do not expect the government to bail you out. Even if the rules are changed, they may not be retroactive. Do the responsible thing and set up a program to pay as you can.

source: MoneyTips

7 Million People Haven’t Made A Single StudentLoan.gov Payment In At Least A Year


Perhaps it’s all the talk about across-the-board debt forgiveness or maybe the total amount of outstanding student debt has simply grown so large ($1.3 trillion) that even those with no conception of how much money that actually is realize that it’s simply never going to paid back so there’s no point worrying about, but whatever the case, the general level of concern regarding America’s student debt bubble doesn’t seem to be at all commensurate with the size of the problem. 

And it’s not just the sheer size of the debt pile that’s worrisome. There’s also the knock-on effects, such as delayed household formation and the attendant downward pressure on the home ownership rate, and of course hyperinflation in the rental market. 

Of course one reason no one is panicking – yet – is that the severity of the problem is masked by artificially suppressed delinquency rates. As we’ve documented in excruciating detail, if one excludes loans in deferment and forbearance from the numerator in the delinquency calculation, but includes those loans in the denominator then the delinquency rate will be deceptively low. In any event, as WSJ reports, even if one looks at something very simple like, say, the number of borrowers who haven’t made a payment in a year, the picture is not pretty and it’s getting worse all the time. Here’s more:

Nearly seven million Americans have gone at least a year without making a payment on their federal student loans, a staggering level of default that highlights how student debt continues to burden households despite an improving labor market.

As of July, 6.9 million Americans with student loans hadn’t sent a payment to the government in at least 360 days, quarterly data from the Education Department showed this week. That was up 6%, or 400,000 borrowers, from a year earlier.

The figures translate into about 17% of all borrowers with federal loans being severely delinquent—and that share would be even higher if borrowers currently in school were excluded. Additionally, millions of other borrowers who haven’t hit the 360-day threshold that the government defines as a default are months behind on their payments.

Each new crop of students is experiencing the same problems” with repaying, said Mark Kantrowitz, a higher-education expert and publisher of the information website Edvisors.com. “The entire situation isn’t getting better.”

The development carries big implications for borrowers, taxpayers and the economy. Economists have warned of student-debt defaults damaging borrowers’ credit standing, which would hurt their ability to borrow for things like cars and homes. That in turn would hamper the economy, which relies heavily on consumer purchases for economic activity. Delinquencies also drain government revenues, which are used to make future loans.

So what’s the solution you ask? According to the government, the answer is the income based repayment plans. Here’s The Journal again:

 Education Secretary Arne Duncan said declines [in some categories of delinquencies] resulted from rising participation in income-based repayment plans, which lower borrowers’ monthly bills by tying payments to their incomes. Enrollment in the plans surged 56% over the past year among direct-loan borrowers.

The administration has urgently promoted the plans, mainly through emails to borrowers, over the past two years in an effort to stem defaults. The plans set payments as 10% or 15% of their discretionary income, defined as adjusted gross income minus 150% the federal poverty level.

The plans carry risks, though, for both borrowers and the government. Many borrowers’ payments aren’t enough to cover the interest on their debt, allowing their balances to grow and threatening to trap them under debt for years.

At the same time, the government could be left forgiving huge amounts of debt if borrowers stay in the plans. The government forgives balances after 10, 20 or 25 years of on-time payments, depending on the plan.


But aside from the fact that these plans will cost taxpayers an estimated $39 billion over the next decade – and that’s just counting those expected to enroll in plans going forward and ignoring the $200 billion or so in loans already enrolled in an IBR plan – the most absurd thing about Duncan’s claim is that, as we’ve shown, IBR programs don’t drive down delinquency rates, they just change the meaning of the term “payment”:

See how that works? If you can’t afford to pay, just tell the Department of Education and they’ll enroll you in an IBR plan where your “payments” can be $0 and you won’t be counted as delinquent.

So we suppose we should retract the statement we made above. You are correct Mr. Duncan, these plans are actually very effective at bringing down delinquencies and the method is remarkably straightforward: the government just stopped counting delinquent borrowers as delinquent.

Source: Zero Hedge
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