I Am The Toxic Asset
This was originally posted on 2/28/12
There comes a certain risk involved with divulging one's personal troubles all over the internet where potential employers could read it and make all sorts of judgement. However without some risk, there is no return as everyone on here should know by heart. That being said, I'll take the risk to make the larger point.
I'm possibly getting sued over my student loans.
The specific details aren't what I want to get into, but know this -- I went to college, majored in finance, and after college couldn't find a finance job. I took a non-related job to just get by and got laid off right around the time those loans came due. Like Gecko said in Wall Street 2, I become a "NINJA", No Income, No Job, No Assets" and staggering student loan debt for a degree I dreamt would eliminate all of those problems even if I knew the risk that debt entitled.
High risk; high return.
Within the deep crevice of my own despair I've come to reflect on that high-risk decision with every nano-fiber of my being. To the point where I look at the world I live in and ask "why?" How many people are there who struggle with their student loans? I hear I'm not alone. I'm not the only one. It's systemic.
It's not you kid, it's your economy!
Our economy is based on people producing goods and services in order to sell to other producers. Steve produced more apples than he needs, so he sells them to bob who has more wood than he needs, which he sold to have money to buy apples. The more useful you are to others, generally the more money you find yourself having. You have the apples everyone NEEDS or more importantly, FEELS they need. Anyone who gets a college degree understands this on some level, whether they came to it through direct personal observation or instilled through the guidance of others, they know they have to be useful in some way.
And we are told or -- sold-- on the thought that you can't be useful to society without a college degree. You can't get a good thing called "a good job" and a better life, without going to college. Your teachers didn't tell you to make something of yourself by flipping burgers at McDonalds. Your friends didn't come back home telling you crazy stories about the party the assembly line guys threw.
Zuckerberg didn't make Facebook to help connect Wal-Mart cashiers.
So if you're eighteen and have an kind of ambition whatsoever college should be the your goal like any rational teen at the time. However whenever you're eighteen, they is a highly likely chance that you haven't necessarily come up with the tens of thousands of dollars it's going to take to fund those college dreams on your own. You can't even legally earn money until you're sixteen or casted on The Mickey Mouse Club. You've got two years to earn funding for those four, on minimum wage. Now if this doesn't happen for whatever reason, there is still hope, someone else could always pay your way. If you have two parents who saw this happening and planned accordingly, they might have your back. If not -- scholarships, grants for solving equations and throwing balls are all around and if all that isn't enough (and there is not enough for everyone) ... there is still hope for our ambitious youngsters.
You can always get a loan.
Always. Always because the federal government is even a provider of funds, as well as the major banks which employ much of this board. There is money in someone else's pocket who's willingly to take a risk on you. You take the risk of soul crushing debt; someone tasks the risk of losing money if you don't achieve you're dreams and a $40,000 write off isn't as bad as a $40,000,000 one so how much risk can there be?
College graduates always earn more income just like housing prices always go up!
It's a win/win right? No child left behind! If you're young, it's a pretty legitimate option to realize you're dreams; if you have millions of dollars to invest or create out of thin then it's a good return for yourself. Give a man a fish, feed him for a day. Teach a man how to fish, feed him for life. Tell a man in order to fish he needs to go through four years of fishing school he can't afford and loan him the money and charge him interest regardless if gets a job fishing or not... feed yourself for life.
According to Smart Money (http://www.smartmoney.com/spend/family-money/why-…) states there is an "assumption that a college education is a good financial risk for lenders." However, "student loans recently eclipsed credit card debt" which should be chilling in and of itself, but "If costs outpace the ability of graduates to find jobs with good pay, and repayment rates on these loans slide, taxpayers could end up feeling the crunch." A crunch? What are we feeling now exactly? A crunch. What am I feeling? A crunch!
Just like with the housing crises, there is tons of easy money flowing into the hands of people who may not be able to continue paying it back. So what happens when they don't or can't? Unlike a mortgage, default isn't an option. The graduate who doesn't get the job they needed-wanted now owns an invisible, intangible car that he can't drive and still has to make payments on; the creditors can't seize that car so they seize their soul and anything else they can get their hands on instead. The horror stories are abound, CNBC did a documentary on it.
At what point does this all collapse like the housing market? When is the bubble going to burst? Maybe my inner bear is roaring on shorting this, but I smell another crisis in the air while fumes from are still fresh from the recent one. I fear for our cubs. As I reflect on my shared dilemma tonight, one question is going to ravage my dreams...
When did I stop being a young, ambitious student and start becoming a toxic asset?
What I see here is that you have the skills to go into journalism. Atleast start a blog. Very well written. Aside from that I thank my lucky stars that I don't study in the USA and my country has a solid university system.
Yeah I've been wanting to start a blog and I have an ulterior motive with posting this piece, which was to test my writing skills with finance topics and see what people in finance think about it. I appreciate the kind words.
"a degree I dreamt would eliminate all of those problems"
I think I figured out your problem. A degree can't get you a job. Only your skills, experience, and network can do that. And even then, only if you work at it.
Ha! Yeah, I know that now. I didn't really get that back then, in a way. I meant everything getting that degree implied, building those networks and gaining those experiences. Could of made that sentence a little more clear I guess.
You guys are so lucky for figuring that out at 18.. Or maybe did you simply have informed parents? I think it is a fairly arrogant and pretentious to assume that you came up with that conclusion by yourself. And the degree of information you have does depend on your social class.
In the end, well-off kids tend to do better because their parents went through the system, know it and its traps and are able to guide them adequately. Lower class kids are just thrown into it and end up poorer, more indebted and unable to climb up the social ladder because, yes, it probably was not the appropriate degree. This is a vicious cycle.
I definitely second that.
Also I found it amusing on my recent visit to USA and seeing my cousins insane college entrance requirements and fees that in your country the one thing (education) that freed people from social classes and gave them the freedom to be who they wanted to be has been capitalised. To the point where entrance into college is also stigmatised by the social class you are in. It is a very vicious cycle. Whilst the solution to most problems in third world countries and our society as well is education, I guess the education system in USA is over saturated. Hope things get better for you. I never thought I would see the decline of USA the great which was miles ahead of every one else in my own lifetime, let alone whilst I am so young.
Colleges are most certainly not what "freed people from social classes" (whatever that means). Not sure where u got that one, but the middle class in America (when it was growing and vibrant) was fueled mostly by well=paying factory jobs that no longer exist...it has/had nothing to do with colleges.
Excellent post - good luck, OP
I think everyone should understand the risk/reward of taking on student loan debt. You should not blame your lenders for being cavelier by lending too much money, in my opinion. It is the responsibility of each person to evaluate the prospects of paying off debt and implicit risks that come along with that. This is probably not something that is sufficiently communicated to young students about to make an extremely large financial committment - it certainly was not explained to me.
That said, there are lots of options for student debt repayment including graduated payments, income-linked payment plans, deferral, and forebearment. I'm sure the OP has explored all of these options, but it is worth mentioning that there are a number of mechanisms available to distressed borrowers.
I'm not blaming them, I'm just questioning the logic behind creating something like Sallie Mae and putting so much faith and capital into it when the other Mae's have lead to the financial crises. Probably should have made that point clearer in the original essay. I'll add it in the revision.
Exactly! I knew the prospects of paying it off, but I was also hearing what I wanted to hear from everyone around me, that I would make the money back in a few years. Several friends I know are debt free, our school is know for paying off debt. So I had rose tinted glasses on and I'm sure I'm not the only one, as other guys on here have admitted.
Again, I don't want to make this just about MY situation. I'm just using myself as an example of something I'm horrified to say, is becoming seemingly commonplace.
Those options do cost money, be forewarned.
Well written post, but I'm not sure I get your larger point. Are you just trying to point out that student loan debt is out of control or is there a bigger point that I'm missing? If your point is that student loan debt is out of control, I think most people agree with you.
One thing I will say is that you are a good writer. You come off as fairly intelligent and I'd assume that you'll be a hard worker once you get through this tough time. Smart + Hard Working is a combination that can get you really far in this world. Don't quit on yourself yet.
Also, while I'm sure you're not looking at more debt as the answer, if you get a graduate degree you can stretch your payment out to 25 years. I'd assume that this is true even if you go part-time (although I'm not sure). If you can get an entry-level role and go to grad school part-time you may turn your situation around. If you can build a career and stretch out those payments the monthly cash flow situation will become more tolerable.
Have you looked at entry-level analyst roles at large corporations? When we have an open FA role we typically fill it with anyone with a finance or accounting degree. There is no formal recruiting process, we basically post the positions as they open up and fill them with the best candidate that applies. If you can't find that, do temp work. It'll probably suck, but you'll build a skillset.
Yes! The debt is out of control. I mean not just on student loans, but with the country as a whole and with the deficit . I understand that we live in credit-driven-society fueled by money created out of thin air that's rapidly becoming nothing more then ones and zero's, however I would like to see more savings and investing going on than so much debt. That's another subject though.
Student loan debt is a different breed and how we deal it speaks a lot about our society and what it values and where it believes value comes from.
Thanks for the kind words! I'm developing my writing style into something more publishable so any feedback helps.
Yes, that reminds me. It seems a lot of students are turning to grad school as a way out of, what a recent grad student friend of mine called "job limbo" where can't get a job in your field so you shot again with the Masters. Didn't M&I call it "rebranding yourself" with an MBA? Personally I keep putting it off because I want to try a new school out and I want to try and get an employer to pay for it or get a scholarship.
No more loans.
I've been applying for FA roles but haven't had much luck. I'd say something like that would be my goal, analyst, intern analyst, financial analyst, any of that would be awesome. I've been told I'm over-analytic so being able to channel that into a profession would be superb.
Do you live in Chi-town?
BOTTOM LINE: No one forced you to sign loan papers. You signed them, you owe them money.
Whatever happened to honor in this country? You keep your end of contracts, that's how life works.
I think he fucking realizes that. What would you have him do at this moment in time?
The reality is that it costs these companies a pretty high sum to sue you, win and then collect on you. So, there's costs involved there that they would like to save themselves. You can almost always talk them into a settlement of your loan minus these projected costs and maybe a small premium like 5% or whatever. But they would only be agreeable if you're talking about a small-ish number. Its much harder to talk them into this if you owe 100K or something like that. I'm also making the assumption that the kid can pay off any amount at all and then company will take that into consideration.
I generally associate honor with running into burning buildings to save babies or that sort of thing. But that's just me.
Again, I didn't want to make this so personal. MY problems paying MY loan is that I don't have income at the moment. When a loan company calls and says "Hey give us $250 this month or else" and you don't have $250, your honor and your word mean nothing. The only thing that matters is you forking over that money. Doesn't matter if you robbed your neighbor for it or worked really hard at your job.
I'd love to pay back my loans. I just want to be able to pay my loans and my rent at the same time. I'm not alone in that. I think my mind sees it as less of personal honor problem and more of a cash flow problem and it does that to rationalize and keep me from beating myself up over it as hard as I feel I should.
I've come across this mindset (the stereotypical black & white mindset) before and its always from people who have never been in the situation in which they're discussing.
Absolutely great post - 2nd what Cluelessfromoz said about the blog. Good luck to you OP
This post and its comments are a microcosm of the macrocosm. While you have some good ideas OP, your grammar is poor, and you clearly couldn't be bothered to revise before posting. I couldn't read beyond this "sentence":
"So if you're eighteen and have an kind of ambition whatsoever college should be the your goal like any rational teen at the time."
Others' comments are mere cheerleading for your bruised ego, yet others blowing smoke up your @#$ does nothing to help you.
I'm not trying to be offensive, but you come across as entitled, narcissistic, and not nearly as ambitious or competent as you think you are. Classic millennial.
^This. You wonder why you can't get a job? Perhaps you need to proofread your resume for these types of errors. You sound exactly like the type of person who hangs out at Zuccotti Park all day.
First, dabanobo, I want to thank you because you're giving me exactly what I need, which is constructive-criticism. I take pride in my writing because it's the one thing in my life I get complimented on the most. But if I want to turn it into something worth other's time I need to know everything WRONG with it in order to master that skill. So I don't take offensive to it. I read your profile and you're a VP at a hedge fund, a position I aspire to, so having your input on ANYTHING I do means a lot me to. So, again, no offensive taken.
But I want you and everyone else to know that I read this over multiple times. I noticed when I reread my writing I auto-correct mistakes in my brain and read them as correct. The sentence you quoted represents that. I have three different sentences going on in my head at once, I end up writing them all down and reading them as the one I want to hear. I'd call that a lack of attention-to-detail, and that things like forum posting and feedback can go a long way of improving (HINT, HINT for our younger members).
"So if you're eighteen and have any kind of ambition whatsoever then college should be your goal" or "So if you're eighteen and have any kind of ambition whatsoever, college should be your goal, like any rational teen at the time." Which sounds better? How would YOU word it dabanobo? I'll literally spend hours if I had to decide which one to choose, but I'll spend nano-seconds just munching it all together and tricking myself when I read over it. bBut that's just me and my own writing quarks[/b]
The larger point is, how much money should I take out in a loan to improve this skill when I could just have someone point it out to me for free, as you so kindly just did?
As far as the "entitled" comment goes, can I ask you what you mean? What does entitled mean? Doesn't entitled mean you want what you haven't earned? So what have I earned at this point? I earned a degree and the dean of an accredited four-year institute of learning shook my hand when he gave it to me. What does that entitle me to exactly? My creditors tell me it entitles to several thousand dollars I need to earn, my society tell me it entitles me to a better living, my parents tell me it entitles me to a better future than they had and my couch-surfing graduate friends tells me it entitles me to nothing.
So what does my achievement entitle me to exactly? I have no idea. I honestly have no-f*ing-clue at this point. It's what I make of it. And right now I'm not making anything of it. But the people on this board are teaching me how I can and that's worth all the money I owe.
As far as not being as "ambitious or competent' I'd agree that at this moment I'm definitely not as ambitious and competent as I used to be. I'll concede to that, I lost a lot of my ambition after I failed to get my first business venture, generating electricity from shoes and bike tires in order to power iPhones and Nintendo DSs', off the ground in college. I lost a lot of ambition after that. I buried myself in my job, my social life and "just graduating and getting a job."
We don't all get to be Bill Gates.
Is English your first language? I know written language is more conversational these days, but it can be painful to read sentences (let alone paragraphs) that start with conjunctions (but, so, etc.). Be precise with possessive use ("worth other's time" is incorrect), and be careful with tense ("I'll literally spend hours if I had to" should be conditional tense not future; reverse your phrasing to see the error more clearly).
Re: your sentence, semantically speaking I don't think college is a particularly ambitious goal. Grammatically speaking, I'd prefer "College should be one's goal after high school."
Analogously, your degree is a small plus yet entitles you to very little. Most people work harder after college than they did while in school. Perhaps you should join them?
What did you major in and what type of school did you go to where you took on all this debt and are now unemployable? I understand that a lot of people go to ivy league schools and then aren't able to find great jobs because they have, for all intents and purposes, a degree that doesn't qualify them to do anything from a skill set perspective (not to say by any means that they aren't incredibly intelligent). However, if you take me for example, I have a shit ton of student loan debt and I am working my ass off as an analyst with the hope of paying that off, but I routinely work 90-100 hours per week to earn analyst salary. If someone were really that motivated they could certainly get the equivalent of 2 full time jobs and work roughly 80 hours a week and bring in what I would estimate at around $80k. That's essentially two full time jobs that pay around $20 an hour, which is completely feasible if you work as an administrative assistant or some office job, or Walmart during the day and then work as a server / bartender at night. The reason I know this is because I have tons of friends from back home that never went to college that do this and that's roughly what they bring home.
While I realize that the above scenario isn't ideal, you have two options... you can either A) Try to find a job that pays you a solid salary for working a normal week and pay the debt down over time, or B) Try to expedite the paydown schedule through the build-up of sweat equity (i.e. doubling down on your work hours at two shitty jobs or working as an analyst slave).
I'm not saying that the situation isn't bullshit, it definitely sucks, but there are definitely people besides yourself who are going through this. I likely have a similar, albeit marginally lighter student loan debt to yourself assuming yours is pushing 6 figures and I can say that it definitely wears on me and is very frustrating when I just see all of my money going out the door with very little staying to improve my quality of life.
But there is a silver lining in all this and that's the fact that if you can accelerate your paydown schedule such that you are cutting in to the projected interest that you owe on your loans, you are saving yourself income that will compound as time goes on. Keep after it and try not to get discouraged. I completely agree that our education system is bullshit and is something that needs fixed.
Bottom line, the gov't needs to stop subsidizing and guaranteeing loans.
Obvious answer is to take the LSAT and go to a Tier-Three Law school.
Not to mention that the cost of college is rising faster than the price of healthcare--
I'm sorry to hear your story, but it is one that needs to be heard by all the seniors who are going to loan up on 150K for law school. More and more I hear it everyday.
A bit off topic but one commenter suggested accelerating the payment schedule on student loans. Want to point out this is not always the best idea. Depending on when you graduated your rate may be super low, especially if you are eligible for tax deduction of the interest. I think my effective rate is around 3%. At that rate pre-paying doesn't make much sense as your money is better put into maxing out your 401(k) and/or other investments with preferable tax treatment and greater rates of return than 3%. I am essentially borrowing at 3% to invest at a higher rate.
given the super-senior status of student loans you don't own those assets (maybe the 401k) you own a call option on them with the strike being the value of your debt. still might be favorable because of tax distortions but be careful, you have no idea how long those tax incentives will last on either side of your personal balance sheet.
if I was so deep in debt that I was considering a default I'd actually spend a boatload on education. nobody can take your human capital away from you.
Anything more than 50K in loans for undergrad is fucking stupid (maybe more if HWS - but if you could get into HWS you can get into a semi-target on scholarship and fucking destroy - so I still question the logic).
1 - You should work in college. It's healthy for you. My parents & I had a deal where they would only pay school bills - only tuition bills to be exact. Anything else (rent, books, phone, pizza, etc) was on me. That forced me to work. I graduated (in 4 years) with experience and NO debt. My parents got the better end of that deal because I was a damn good student and earned scholarships up the ass. I went to one of the most expensive universities in the country (often cited as THE most expensive) and my parents wrote checks that totaled less than 15K for my 4 years there. I remember one semester my tuition bill was like $600!!! Everything else was scholarships.
2 - most college housing is a rip off. Live off campus. When you take campus housing off most school costs, it drops like 50%. I know you can't do this at some campuses, but if you can avoid overpaying, do it. I lived with two other guys from the same school who had also caught on to this fact. Yeah, it was a shitty basement apartment but we each had our own rooms and we paid less than $300 each. Suck it up for a few years.
3 - be smart. At my school the first weekend after classes started there was a mass exodus to Atlantic City every semester. Most students would take their "living stipend" and gamble for the weekend and come back broke for the semester. My college roommate graduated with 100K in student loans by doing this. That's fucking dumb.
If you follow the three rules above virtually anyone can graduate with less than 50K in debt easy
These are all great tips.
However, you are completely incorrect that your "parents got the better end of the deal". In fact I'm almost in disbelief that you could be so misguided. I'm sorry you had to pay for pizza and your cell phone, but last I checked Pizza Hut isn't going to sue your ass for payment on the 4-year "All you can eat" special you signed up for as an ignorant 17-18 year old. You can stop buying books and paying for a cell phone when you don't have the money, but student loans aren't going anywhere regardless of your income status.
As someone who will be paying for the next 4 years of college along with my books, cell phone, car, pizza and beer, etc. I'm offended that you don't realize the expense that you didn't have to incur because of your parents. I'm sure you worked hard for scholarships and at your job, but you didn't have to deal with the burden of paying back loans (even if they are less than 50k). So step off your high horse and have some sympathy for the OP.
Sarah Lawrence takes men...?
george washington university?
It's called going to state school. I am entering my last year undergrad and have a grand total of $0 in student loan debt. I got into more "prestigous" private schools in the Texas area (Baylor/SMU/TCU) but, frankly, those schools just aren't as fun as state schools and they cost 2-5 times as much in tuition. Only go private if u got in ivies, or something close to an ivy in your area (Rice in Texas for ex.)
I went to a state school with a tuition discount due to having a family member on faculty and worked full time through school and still have a shit ton of loans. It massively depends on what your family's expected contribution is so you can't assume that it works out that way for everyone. For some people it's cheaper to go to Harvard than a state school.
I am fairly convinced there will be a bailout of some kind. Probably not a complete bailout of the $1 trillion nut but something significant. It will also have a stimulating effect on the economy through spending by the younger demographic including buying homes which has become nearly impossible due to the new strict lending requirements.
I do not believe in bailouts personally. It can be debated whether it was the right move to bailout the financial industry, the auto industry, Greece etc. But it seems like today no matter how much you fuck up no one will let you just fail (which goes against the laws of capitalism). So if you have a mountain of student debt you might just want to say fuck it, if everyone else gets bailed out why shouldn't I and I don't see any reasoned why you'd be wrong to think that. Instead of another round of useless quantitative easing by the fed why don't they use $500 billion to pay off half the student debt in this country.
Just something to think about
What EXACTLY makes you think there will be a bailout? I'm not saying you're right or wrong, I truly want to get other peoples perspective on this. Obviously theres been a lot of rumbling about this but I just cant see it happening. The numbers are just too large and the precedent so ugly. Besides, this wouldn't appease the masses like Obama likes to do. A student loan forgiveness program without, say, a credit card forgiveness program would still look elitist in a way. I just don't see this happening.
Maybe it will not happen, it's just my own speculation. Why not though?? We have bailed out every other institution/group that has fucked up here. Can a generation of college educated people be "too big to fail"? You say the numbers are too large and the precedent so ugly, I hear you completely BUT I bet 6 years ago you would have said the same thing about all the other bail outs as well. It's the Pussification of America era now, bail outs are the norm. You're are not allowed to fail, no group/institution is.
They are already trying to change the interest rates on student debt. As issue will only get push further into the spotlight and we will see how it gets handled but my guess is partial forgiveness.
Kiddo I'm a capitalist. So my sympathy is reserved for widows and orphans. A kid that wants to complain about school loans that they didn't have to incur? They can suck my dick.
Ah, well you're in luck then because the OP is an orphan adopted by a widowed woman. Does that change the circumstances? Not at all. He's still got the debt because his family wasn't as well off as yours and couldn't pay his tuition through school. There's no use patronizing him (or anyone else); it just shows how out of touch you are.
Bash the government-supported student aid all you want, as that's where "capitalism" was truly avoided - don't hate the people who endure skyrocketing college prices and all-but-inevitable student loans because of it.
Just go work for a non profit for 10 years. Remainder of your loan is forgiven. Done.
No way, he must have gone to GW in D.C.
It seems that the original post questions the higher education system itself, an even deeper problem than simply getting $$ for higher education. The whole process has become so standardized that it has developed inefficiencies. Almost anyone will tell you that you NEED to go to a 4 year college to succeed in life. But since when do you need 4 years of random gen-ed classes to be a 2nd grade teacher or a receptionist.
I don't have any solutions on how to change the system, but it is interesting to think about the progression of higher education in America and how standardized it has become.
Student loans are a pain to deal with, do all students get it?
I recommend you join the military. Both wars are over so the risk/reward tradeoff has vastly improved.
+1
I have a 67K student line of credit (3.5%) and a mortgage I'm really kicking myself for spending so recklessly in school. I also have a huge tax bill coming up. I hate debt. Spend wisely kids. Or end up like me!
OP: You are the symptom of a larger problem. Nice post and good luck to you.
Gentleman Jack: I agree with you that paying your bills should be a source of personal pride, but it is hard to deny that "corporate persons" seem to take more advantage of the bankruptcy code than individuals. People feel like their getting hosed by the system so they are beginning to look at all contracts in the same legalistic manner that the corporate world does. And honestly, I have a hard time blaming them.
If paying your obligations is equated with honor; then corporate America and governments have the honor of a thief. Choose a poor strategy? Fuck your unsecured creditors and pensioners. Having collection problems in Illinois? Stick the public university with a $300 million IOU.
My point is, it is hard to keep asking john q public to "man up" when the institutional example they see is to screw over the next guy. And why the hell is it damn near impossible to wipe off student loans??? Ughh
This exactly. It always makes me laugh when people make references to pride and honor when it comes down to paying personal debt, but the same people will laud a company's smart use of bankruptcy laws, creating a huge double standard. Bankruptcy, for a company or an individual, should be viewed dispassionately and with a financial/economic perspective only.
You're pretty close in age to me, and, among other reasons, that make this hit pretty close to home for me. I'll stop back through and post some thoughts later on.
With the cost of education today and high standards for high-paying jobs (like IB), kids face a tough situation: go to a target/semi-target school. if you get no scholarship and/or parents don't pay for it - 100K debt. Spend 2-3 years working your butt off in IB (if you're lucky to get in), pay off the loans (if you manage your expenses well and get good bonuses). Then go to top MBA - another 100K+ debt (assuming no scholarships)... If you fail to land a job at a BB or top HF/PE shops with high comp somewhere along the way, you're screwed... I guess that housing in the US will take a veeeeery long time to recover as income of young professionals is going to paying off mounting student loans.
This system is really grotesque. Basically the US managed to commoditize "hope".
The government should stop encouraging student loans and disengage completely from this market.
There is a clear moral hazard here, again banks are throwing loans left and right on the assumption that the bubble will keep growing. If the governments steps back, Banks will stop lending to students, students won't be able to pay, and those retarded universities will HAVE to lower the fees.
The US needs a MASSIVE deflation in this sector.
Seriously, there are countries where top notch education is almost free.
I sympathize with the OP about his dilemma. Universities tend to act as gatekeepers for opportunity - not only to move into positions of prestige, but even mediocre office jobs. This, combined with such plentiful access to student loans, drives up the price of admission. Sometimes, you can do all of the right things (choose a decent major, work through school, etc) and still crap out.
The real issue here is the accessibility and cost of student loan debt. Almost anybody can take out student loans, regardless of situation. I get that this is to provide a chance at improving one's lot, but high demand and limited suppliers mean everybody gets stuck paying higher rates. How is it that all borrowers are stuck with the same borrowing costs? If you base interest rates on borrower risk, people with good credit and decent incomes have better rates. All federal loans are in the 6.5%-7.7% range in this low interest environment. It is absurd that you can't refinance to a lower rate. I can get a 30 year fixed mortgage for 3.9%, but a loan that cannot be discarded in bankruptcy (student loans are essentially secured to the income of the borrower) and can be tied to everything I earn is twice that amount? Name one other industry where you cannot refinance debt if the borrower has good credit, cashflow and the lender has security.
Whatever...I know the risks, blah, blah, etc, etc. The system is still a big turd sandwich. The least the government could do allow equitable tax treatment of student loan interest. A cap of $2,500 for tax deductable interest is wrong. I'd love to hear ideas on if it is possible to run student loans through a corporation to get a full tax shield on interest payments.
^ That would be called tax fraud and I'm pretty sure the IRS would have your ass in jail ASAP. It would be the same as running any personal expense through a corporation to get favorable tax treatment - highly illegal and easily traced by tax authorities.
Also, the tax deduction of interest on student loans (as with mortgages) just further distorts decision making and optimal allocation of capital. The problem is not that there are not enough subsidies. It's that there are too many.
So by your argument, highly levered companies that can fully use interest as a tax shield distorts decision making and the optimal allocation of capital. Please explain why one is different than the other.
The leverage you take on as a student in order to obtain the resources (skills, knowledge) necessary for employment is essentially the same thing as a company taking on leverage to acquire an intangible resource, yet the two are treated very different. If an organization's income was dependent on debt, the expense is justifyable. I'm not endorsing tax fraud. My statement was aimed at finding a legal way to minimize a tax burden, no different than examining avenues such as trusts to reduce estate taxes.
Twigga,
You make an interesting point, and its important to remember that in the US tax code all personal interest was once tax deductible. When the deductibility was removed certain items (e.g., mortgage interest) were carved out. Ostensibly this was to encourage homeownership relative to other forms of consumption.
My point is only that when you subsidize a product you distort decision making and resource allocation between the subsidized product and non-subsidized competing good. This is true in comanies too - favorable tax treatment of debt makes it more attractive relative to equity. The argument is that interest is an operating expense contributing to income just as are COGS, salaries etc.
I don't think you can extend the analogy to people though. I have lots of operating expenses - clothes, subway passes, haircuts - should those be deductible because I couldn't earn income without them? I don't think so. This dicussion probably deserves a more rigorous treatment than I have time to devote, but it is an interesting debate - how should personal expense be treated by the tax code?
Twigga and Boothorbust,
You both bring up how debt is treated differently for the corporation and the individual. And like you both allude to, individuals are disadvantaged in their strategic usage of debt because many expenses (ex. clothes, subway passes, haircuts etc) that are essential to an individual's "operations" aren't tax deductible at all.
I think this raises as even deeper issue, that pertaining to the consequences of default on that debt. If the corporation defaults and bankrupts, they might just restructure or settle their claims. Maybe they'll disappear in an extreme case, but the people that worked there at least have a fighting chance to find jobs elsewhere.
As for the individual, if you default on student loans for example, you are in some serious shit. You're just a number to a big bank - they don't want to help you settle your debt, they just want the money. The consequences are much worse. Once you can't pay, that's it. Sure you can file for Chapter 7, but the consequences will follow you for the rest of your life.
It's interesting to think about both of the points mentioned about debt treatment for the individual vs. the corporation, but it's scary to think about what to do if you as an individual defaulted. There just aren't as many viable options. And it's not like the government is gonna bail you out either. You're just a number to them too.
Boothorbust - I see what you're saying and agree with what you said about the effects of subsidized vs. non subsidized goods on decision making. I just believe that if companies can receive a tax benefit for taking on leverage for the purpose of growth, individuals should be able to do so, as well. It's an interesting debate to have...obviously more philosophical than anything. Whether that answer is to remove all tax incentives or make the incentives more uniform (at least for the purposes of investments), it is unlikely we'll ever find out in reality.
By the way, you can use pretax dollars for subway passes (my company offers a transportation spending account) and I highly recommend it if you have one available.
It's telling that the government will guarantee student loans for the purchase of food and entertainment, indulgences that too many college students know no bounds.
Lol this Gentleman Jack guy sounds like a completely out of touch ass hat. "Kiddo I'm a capitalist," is that a fucking joke? You're a dipshit.
My small mind has an exponentially better grasp of what a contract is. The United States isn't going to collectively stop honoring contracts, that's not even realistic. You're a dipshit. Last post because it's turning into a circle jerk.
Seriously though, what's this strange fixation on trying to belittle others through the usage of that "kiddo" word. I see it in like every post you write. Is this some way of empowering yourself over anyone that presents an opposing view? Seems like this doesn't only extend to people younger than you because I've see you get into a pissing match with someone your age or older in a different thread.
Just wondering what that's about...
This is definitely one of the more enjoyable discusions WSO has seen in a while though. It's stuff like this I love spending my limited time reading about.
Lol at "kiddo". Are you 50?
My thoughts on the student loan and tuition inflation situation:
*How is it that private college administrators justify $35K/Yr for tuition? Is it not obvious that the avg middle-class family cant afford $250,000/kid for an undergrad degree?..."Lets charge $35K/Yr because somehow people will pay for it through loans...or whatever" is the conversation I am picturing among college admins. And those are the people we trust to educate or best and brightest.
How is it that private lenders approve $100K+ for *unsecured debt? Weak underwritng standards...this sounds a lot like that other bubble.
*How is it that credit card debt can be wiped out in bankruptcy when a student loan cant? If this policy was to be reversed, I see a massive pull back from private lending which would eventually force downward pressure on tuition costs. Reversing this policy would be the most effecient way to deal with tuition inflation, IMO.
*Consider this - There are about 30K students total at USC, 50K students at NYU and 20K students at Harvard. Assuming total cost of attendance (tuition+housing+books+everything else) at $50K/Yr, thats $5B/Yr that needs to materialize in order for those people to attend college for one Yr...at just 3 large private colleges. Thats fucking absurd.
No doubt, we live in a county that's *obsessed about college, with emphasis on prestige and the "college experience".
*The college text book industry is totally unethical. How do you justify charging $200 for a new edition calculus book (which comes out every year, making used books obsolete) when the only changes are the problem sets. Its sad that text book publishers and authors (professors) think this is ok. Even sadder that nobody says or does anything about it.
*Government lending is NOT the main cause for inflated tution costs. The max total amount of Stafford loans a student can take out is $31,000 over 4 yrs. To put that in perspective - annual estimated cost of attendance at UT Austin (one of the cheaper public colleges) is $20-25K/Yr. Private lenders are the main cause of tuition inflation (like in that other recent bubble).
*I think that the Gov. should increase student lending for STEM majors while eleminating lending for liberal arts majors. I think the Gov. should also increase lending for community college students that are learning technical and in-demand trades. This conversation will open up a whole new can of worms, but I wont even go there, but feel free to disagree.
Fuck, I could keep going. You get the point.
Awesome post. I especially agree about the textbook industry - it's absolutely absurd. I was hoping the tech industry (iPad, et al.) would take hold and force prices down but the exact opposite has occurred.
Also selective student loans are the most logical and yet impossible objective. People would cry foul immediately, despite the fact that it would immensely improve the economic state of higher education.
At some point shit will hit the fan and everyone will open their eyes (like in that recent bubble).
@OP - I reccomend trying to get a temp job through a staffing agency like Robert Half or Ajilon Finance while you look for more stable employment. Dont sit around! Take any opportunity to maintain/advance your skill sets (especially with excel and related computer skills). I know you majored in finance, but a CPA may be a worthwhile investment. CFA is another option. i wouldnt reccomend seeking low-skilled employment (like retail sales), these jobs are really hard to get in today's economy and they will do nothing to add to your skill sets.
^^Not the best advice, I know. But you're at the point where you need to secure stable employment ASAP. Dont let this situation depress you any more than it already has. Good luck.
Actually the recent legality of importing "international" versions of textbooks has driven costs down tremendously. You can pay
just curious, which CNBC documentary is that?
I think college only worth it when ur parents are willing to pay. I personally would not choose to come to college if not my parents want me to go and are willing to pay.
While those students should be responsible for their choices, the societies definitely should hold responsible because they didn't educate the students enough.
Where's the role of parents then? should they care more about their kids and try to help, either with college choice, loan option or afterwards repayment?
it's a family structure problem of America! Irresponsible parents.
The Price of Admission: America's College Debt Crises.
http://www.cnbc.com/id/39911910
You're right. It's sad, but it's wise advice.
See that's a great question. Where, how and should we even hold parents responsible. Some parents simply don't have the money because they never made enough. However, in my own principles I would never have a kid without knowing I could provide for their education. I think it's irresponsible, but should I hold my parents and my society to those standards?
I agree. I'm no neo-conservative family values culture warrior, but I've noticed a lot more success comes from some kind of stable home, usually with two parents. An old friend of mine who graduated with a 4.0 in everything was an only child from a home with two ultra protective, hard-working and loving people. I've seen enough science to say that's the average for higher achieving students.
I think a lot of American's want to have their cake and eat it too, have a family at home and fun on the side. But that's another subject.
He's wrong and that's terrible advice. "You should only go to college if your parents are willing to pay?" Stop whining.
You should go to college if it makes sense for you to go. Not everyone should go to college, but if you do choose to go to college don't study some bullshit major if you are worried about finding a job.
I get that student loans suck, but you make it sound as if you were tricked into going to school and didn't realize that you were going to have to pay the money back. I know that it sucks to have to pay the money back and even agree that the price is higher than it should be, but that's because you didn't get an education worth what you paid. If you got an education worth your money, then you would be in a situation where you would know that this is a temporary period and that the money will come.
I'm willing to look past the grammar issues being that most people don't want to spend time editing material that is only to be posted on an online forum and because it is also unclear most of the time as to whether or not English is the first language of the person posting.
But the job thing, come on man. The entire time this economy has been struggling with high unemployment, it has strictly meant that its hard for college graduates to get a job that they WANT to be doing. Certainly you should be able to get A job with A corporation. And no, I'm not talking about flipping burgers at McDonald's. You should be able to get yourself a back office operations job at some corporation punching numbers into a spreadsheet or doing some customer service bullshit that requires no more than a high school education to perform. From there, you can make your transition, get higher education (with employer assistance hopefully), network, whatever. But honestly, you have not pursued all of your options if you think you can't get any job at all. Maybe you aren't going about the process right.
And the student loans... It is your obligation to pay back the money you borrowed, and it will make you a better/stronger person for making that happen. Certainly the corporate/education/government system(s) have gained way to much power over the people but that is a different story. It is your responsibility to pay back the money you insisted be lent to you. And honestly, if the Tyler Durden effect became real and all consumer debt was wiped clean and everyone started back at zero, my gut tells me we would be right back in our current leveraged consumer economy in a matter of 5-10 years. The change has to come from within. You can't just wipe the debts of a compulsive gambler away and rid him of his addiction to gambling. He has to find the power to change from within himself. Use the debt anxiety to fuel your motivation and put out as many applications as possible, its a numbers game man. Good luck!
I really think the crux of this post and subsequent discussion is the price of college tuition. Someone mentioned it earlier, but college tuition has been increasing at an enormous rate (a rate that I believe is unsustainable). Obviously if the price of college was lower, you would not need to take out such a large loan to pay for it. Realistically, I see no end in sight for the raise of college tuition. The demand is there and until it isn't, there is no hope for those who are looking to go and pay for college in the next decade.
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