Make sure that you can afford this!

A Generation Hobbled by the Soaring Cost of College

http://www.nytimes.com/2012/05/13/b...-E-FB-SM-LIN-DOD-051312-NYT-NA&WT.mc_ev=click

A thought provoking article in todays NY Times about Student Debt. This is really no joke- kids are getting sold a bill of goods that they will be paying for until they are approaching middle age. Debt really does matter- make sure that you can afford the debts you are taking on to go to college!

Part of your debt calculation has to include your future earning opportunities out of school. Think hard about what you are going to major in- because the employability and earning power of graduates with different majors varies widely. I'm not a proponent of the "major in something that you love" school of advice. Basket weaving is a wonderful hobby that many love- but it doesn't pay. Psychology or English are excellent for preparing you for a job as a "barista" at Starbucks, but without further postgraduate education your starting salary (if you get a job) is not going to set you up for a penthouse on Central Park West. You can learn to love and excel at many things. "Major in what you love" is IMHO often code for "be lazy and don't work as hard as your peer competitors studying at Seoul National University right now". As an English major - you won't be as stressed out as your EE counterpart by the end of your senior year. But don't be shocked at the difference in employment opportunities after graduation between STEM majors and fluffier Liberal Arts majors. We are sponsoring young engineers for H1 Visa's because it is so difficult to get and retain young American Mechanical or Electrical Engineers, who as a consequence are starting in the mid to high 60's plus bonus opportunities. That is most assuredly not the case with new Liberal Arts majors of whom there is a glut.

The main point:You don't have to agree with my thoughts above about majors- but you must understand the level of debt you are signing up for, and give serious thought to what you are going to major in and what you are prepared to do with that major, because the level of debt that many of your peers is carrying will be a tremendous burden to carry and if you are in that position, you need to have some pretty solid earning power to pay them off. And- you should know that student debt is a debt that you can't get out of via bankruptcy- so think hard!

You know, I was actually considering switching my major to military history but I think I'll stick with what I have.

It takes a family to put a student in this type of situation. And considering how many "adults" have handled their personal finances, it doesn't surprise me that the next generation is off to an even faster start at putting themselves behind the 8-ball.

Thing I don't understand about why this is happening...
1) How did we create a system whereby student debt is not dischargable and nobody except the borrower takes any risk in the lending process? Who thought this was actually a GOOD idea? Put it this way, banks that are stupid enough to lend 100% on real estate which actually can be repossessed aren't stupid enough to lend a smaller fraction on something that cannot be repossessed. The lender doesn't even get to look at the risk (the grades the student is achieving) along the way to determine the level of risk. We'll just get the government to say that these things are golden so we can ignore the risks of no collateral and no question about the ability to repay. OK....

2) Let's just say the government thinks this kind of uncollateralized risk is worth the benefit to the greater society. However, they are unwilling to put their money where their mouth is. Let's just stick it to the borrower and sell it on "past performance" of the degrees granted. Oh yeah, isn't this the same government that has all brokerages say "past performance is no guarantee of future returns" in all advertising?

3) Let's just say that the aggregate good created by the education granted is worth the price paid. Why not just subsidize the education with grants? Oh, we don't want to pass the cost onto the tax payer of these "loans". They are on the borrowers books not the government's. Just wait until this bubble bursts. Is the government just going to allow the non-performing student loans to be counted as assets on the banks books? How about when these banks have liquidity problems and fail because of this? Oh yeah. That is when it goes on the government's books -- at a much higher cost than just giving the student the grant in the first place. Who is fooling whom here?

The problem here is how to unwind this whole mess. We've got too many schools granting too many degrees in subjects that aren't providing value to too many students and families who don't understand what the heck they are doing. Nobody wants to admit the problem. No institution wants to say they need to shrink for the betterment of the whole higher ed system. No parent wants to tell their kid they cannot afford to send them to their dream school. A generation ago, just going to college was the dream. Now there is an arms race in luxury student dorms. What happened here?

I've read several stories that have covered this topic in the past several weeks.

Time to take a step back and look at some of the data, and the environment that brought us to today:

1) Colleges and Universities control who gets access to financial aid, much in the form of loans. They "allow" students to accept these loans, with little or no recourse to the academic institution. This leads many colleges and universities to increase tuition costs AND sign up students for more and more debt. They only gain.

2) Many of these stories illustrate with anecdotes about outsized debt obligations. If the data is examined more closely, you'll find that the average amount of debt upon graduation is $23,300, and the median is about $12,800. This is far from the examples in the article. Source: http://libertystreeteconomics.newyorkfed.org/2012/03/grading-student-loans.html

That being said, there is a disconnect - some college-age students who have little grasp on finances, student loans, and what careers to pursue that pay well. And our media is trying to make some sort of case that is going to eventually cost taxpayers some money.

Prior to accepting his appointment, my son made sure he stopped in the placement office of his Plan B colleges to ask about the job situation for the course of study he planned. He was pleased to hear that most, if not all the seniors not only had secured jobs, but had received several offers.

M2inOR said:

1) Colleges and Universities control who gets access to financial aid, much in the form of loans. They "allow" students to accept these loans, with little or no recourse to the academic institution. This leads many colleges and universities to increase tuition costs AND sign up students for more and more debt. They only gain.

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And if they had to fund those loans with their endowments, I wonder how much they would lend. I think they would evaluate their risks more carefully.

And when I said it takes a family to get a student into this mess, I also notice that these families seem to stay involved...

http://www.usatoday.com/money/perfi/basics/story/2012-05-12/parents-helping-kids-get-jobs/54912010/1

Somehow, I wonder if our kids will ever be allowed to grow up and figure it out on their own...

Education is no different than any other service or product. Price is based on supply and demand. Unfortunately, the price is artificially manipulated. If people can't afford the price of a product, and aren't buying it, the seller reduces the price. Same with services. They lower their profit margin in order to sell. The problem with education is that low interest rate loans are too easily made available. Too many grants and scholarships.

Basically, schools can ask whatever they want for education, because they'll get the money. Those giving the scholarships, grants, loans, etc... will simply pay it.

Easy way to see this is in the insurance business. Doesn't matter if it's health insurance or car insurance. If Allstate only pays $235 for a broken windshield, then that is EXACTLY to the penny what the windshield repair center will charge. If the next customer's insurance company will pay $250, then that's what they'll charge them. I saw this first hand with my wife and daughter going for a yearly medical checkup. My wife had health insurance and my daughter was out of college and only had catastrophic medical insurance. Which meant she would pay the checkup totally out of pocket. My wife paid $225 for the checkup. (Included her deductible). My daughter paid $145 because it all came out of pocket. I had 2 broken windshields in a 1 year period. 1st was covered by full coverage insurance. Invoice was for $215 which insurance paid. Next one I told the vendor that I now only had liability insurance only. My bill was $110.

As long as the government is willing to fund low interest loans and allow people to be in debt; and as long as scholarships and grants allow for such large amounts of money to be used for education; the schools will continue to charge what they do for an education.

As mean as it may sound, the right answer is for the federal government to get out of the business of student loans. "Matter of fact, they need to get out of the business of education all together, but that's another topic". If the government got out of the student loan business, then individuals and their families would need to save for education on their own. If they wanted to borrow money, they could borrow on their own like for any other debt. Or; the universities could allow paying on credit, just like car companies do for buying a new car. This will make the cost of education go down. It's only high because people are willing to pay for it. And they're willing to pay, because they are either foolish enough to take a low interest loan or a scholarship benefactor is willing to give that much money.

But alas; there is no easy fix, because people have come to expect the socialist responsibility of the government to assist in paying for education. Plus, young people have been sold a crock or crap in believing that everyone must get a college degree. That a college degree is going to make you happy and wealthy. Well; tell that to all of the college grads who WASTED a lot of money, who can't find a job. Yet, those in trade careers are doing quite well. Anyway; the price of education is too high because the government is involved. If the government got out of the student loan business, the price of education would drop.

bruno said:

Psychology or English are excellent for preparing you for a job as a "barista" at Starbucks,

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Very true and very ironic as how many college students spend a part of their college loan at Starbucks?

I make a very good living, but I don't buy from Starbucks everyday and when I do I only buy regular coffee.

A friend of mine attended a top MBA program. He took his wife to Brazil when he went there for a class trip. I wondered as I know he was a full time student. What he told me was that this trip was nothing compare to most of his classmates. Most of his classmates maintained a high standard of living with loans on an expectation that after graduation they can earn enough to pay it back.

Since this is a servicae academy forum, like to go back to a related topic. If you attend a grad school funded by the Army, you still get your full salary while in school. What a deal!

MemberLG said:

Since this is a servicae academy forum, like to go back to a related topic. If you attend a grad school funded by the Army, you still get your full salary while in school. What a deal!

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Most grad school slots, unless ran by the military; e.g. AFETS (Air Force Engineering and Technical Services); require a scholarship. Truman, Rhodes, etc... Many directly from the school. These are NOT funded by the military. Yes, you are getting paid your salary and military benefits, but the military isn't paying for the grad school education. Again, that's MOST grad school. Air Force pays for AFETS. Army might have a similar school that they operate. But most of the grad schools aren't paid for by the military. Just your salary/benefits.

Christcorp said:

Most grad school slots, unless ran by the military; e.g. AFETS (Air Force Engineering and Technical Services); require a scholarship. Truman, Rhodes, etc... Many directly from the school. These are NOT funded by the military. Yes, you are getting paid your salary and military benefits, but the military isn't paying for the grad school education. Again, that's MOST grad school. Air Force pays for AFETS. Army might have a similar school that they operate. But most of the grad schools aren't paid for by the military. Just your salary/benefits.

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The Army frequently pays for graduate degrees, through FLEP, ACS, and other programs where officers need graduate degrees (Army staff, USMA instructor, Acquisitions, XP, Strat Intel, etc.). So yes, they ARE fully funded by the military.

CC, there is also in the AF TAP for grad, which many officers take full advantage of during their career. Granted it only pays 75%, but the military is still paying the bulk of the cost.

Member,

I understand you wanting to bring this back to the impact on the members of this site, but many members here are also ROTC cadet/mids or parents of these kids.

Many of them are attending colleges without a scholarship, yet with hopes that in a few yrs the scholarship will be awarded. The fact is even if the scholarship is awarded, it only pays tuition, which leaves them with a big chunk to pay for room and board.

These cadets/mids take students loans too. An A/NROTC scholarship recipient is tied to a school. UCLA OOS is 54K a yr. Room and Board is not covered, they can walk out owing 50K in loans as a commissioned officer.

AFROTC you can take the scholarship anywhere, but if you get a Type 7 and want OOS to UCLA, you must convert to a 3 yr Type 2, with max 18K a yr. That is a lot of money to come up with for your dream college.

We have a poster here who recently was told that their NROTC DS was dis-enrolled @1 mo prior to commissioning and now owes 143K dollars. The mid did nothing illegal so don't jump to that conclusion.

I only point this out to illustrate before you think that on this site student loan debt is not related, you are mistaken.

We discuss constantly Plan B. In AFROTC Plan B does not disappear until they complete FT. If the cadet is not selected, they lose their scholarship from AFROTC as a rising jr in college. What now? Do you leave, or go in deeper debt?

JMPO, but it is important to remind every poster, be it SA or ROTC that nothing is guaranteed regarding the cost until you raise your hand and take the oath. You may be 1 of those that students with debt, even on this site.

Pima said:

I understand you wanting to bring this back to the impact on the members of this site, but many members here are also ROTC cadet/mids or parents of these kids.

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Thanks for the reminder.

All points to reseraching and understanding consequences of choices we make concerning higher education.

I hope that posters/lurkers here understand that bad things happen even to those on scholarship or at an SA.

http://www.serviceacademyforums.com/showthread.php?t=24516&page=2

skt said:

At our local parents meeting, a parent of a 2011 grad indicated that if you wash out of UPT, they can choose not to offer you another assignment in which case you are required to pay back the cost of the Academy education. He said that some of his son's friends are in that situation right now. Did he misunderstand his son's explanation (or perhaps I misundertood him) or is it true that, if you wash out of pilot training, you may be required to "pay back" just as if you willingly didn't go forward with your 5 year commitment?

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honetguy said:

Yes. One of my best friends is in that situation. He is fortunate to have been picked up to become a sheriff while his wife is still active duty. He has to pay back, but they still are saying no to paying the government so the worst the government sans do is garnish 15% of his wages.

However, this is highly unusual and happened as the USAF was desperate to get rid of people.

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I am not trying to take the topic off track, just trying to highlight an SA/ROTC scholarship does not mean you will not be like your peers 4 yrs from now regarding debt if the bad juju happens to you.

My brother yrs ago nailed this issue right. Colleges are businesses that live by supply and demand. If people are willing to pay 54K a yr for UCLA as an OOS student while they have a 1.5 BN endowment, why wouldn't they?

The minute parents and students say enough, will be the minute tuition rates come back in alignment. Just like the tech and housing bubble.


Our niece, is going to be Kelsey Griffith in the WAPO article. She took out @30K in loans for her freshman year (class of 15), cost 43K, major Fashion/Interior design, school no name in the field (Not FIT. Parsons, PCTS). Just a college that took her with a career she wanted. In 4 yrs from now she will owe 135K on a good day. They have yet to understand 90% of the loans started accruing interest Sept 1st when she enrolled, and will accrue interest until she starts paying back...in other words the tally will be 150K+ before she remits her 1st payment.

She wanted this school. Loves it, Mom is happy she is flourishing. Neither one has yet to comprehend the true cost. She will graduate in 15, hopefully get a job. How does she get a car loan with that kind of debt? 5 yrs later, married and wants to buy a home, how does she get a mtg with that kind of debt?

Our economy is inter-related. She can't buy a car or a home, we have less tax dollars in the state budget. Can't pay the loan back and defaults the fed. picks up the dime. Less fed money, less DOD money.

Believe it or not, SA/ROTC scholarship, etc., the defaulting on student loans will impact the military budget. We are seeing the ripple effects now on how the housing market impacted our economy, which impacted the DOD.

We need to understand the outside economic world will impact the future of the military. 1 Trillion in loans is an issue for everyone.

JMPO, parents are as big of the problem regarding the debt as the schools are regarding the costs. Stating this is their dream school, and we want them to have it is fine, but at what cost? We all at one point didn't buy high end sneakers or jeans because their friends had them. We told our kids we weren't made out of money, what is the difference now?

The difference is your child will be saddled with big car/mtg pmt debts without owning a car or a house. We as parents can control this issue without the govt. However it means hardship, it means personal responsibility and honesty. It means saying to your kids, I Love You Too Much to see you live on Mac and Cheese until you are 30.

Scout/Pima. Yes, if a person is "Working" and they are going to grad school in their off duty time, there is "Tuition Assistance". I took the poster's comment to mean their job during grad school was "Student". I.e. academy grads who go straight to grad school. That's their job. It isn't tuition assistance. They required a scholarship. Or a service scholarship if it's a service ran school like afets. Yes, if their job required additional education, then they are paid to be a student. That's why the military requires an extension of their commitment in order to go to such a school.

Christcorp said:

Scout/Pima. Yes, if a person is "Working" and they are going to grad school in their off duty time, there is "Tuition Assistance". I took the poster's comment to mean their job during grad school was "Student". I.e. academy grads who go straight to grad school. That's their job. It isn't tuition assistance. They required a scholarship. Or a service scholarship if it's a service ran school like afets. Yes, if their job required additional education, then they are paid to be a student. That's why the military requires an extension of their commitment in order to go to such a school.

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I agree. What's the problem?

Scout, I guess you deleted the previous. No problem. All is cool. I think we both agree.

next article in the series: Slowly, as Student Debt Rises, Colleges Confront Costs

Here's another in the NY Times series on this subject, about how colleges are beginning to recognize that they can't keep relying on tuition increases and the burden that places on students: http://www.nytimes.com/2012/05/15/b...t-higher-costs-and-students-debt.html?_r=1&hp

College presidents across the country are confronting the same realization, trying to manage their institutions with fewer state dollars without sacrificing quality or all-important academic rankings. Tuition increases had been a relatively easy fix but now — with the balance of student debt topping $1 trillion and an increasing number of borrowers struggling to pay — some administrators acknowledge that they cannot keep putting the financial onus on students and their families.

Increasingly, they are looking for other ways to pay for education, stepping up private fund-raising, privatizing services, cutting staff, eliminating departments — even saving millions of dollars by standardizing things like expense forms.

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HMQ said:

Here's another in the NY Times series on this subject, about how colleges are beginning to recognize that they can't keep relying on tuition increases and the burden that places on students: http://www.nytimes.com/2012/05/15/b...t-higher-costs-and-students-debt.html?_r=1&hp

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Been slow in coming to that realization, but better late than never I guess.

HMQ said:

Here's another in the NY Times series on this subject, about how colleges are beginning to recognize that they can't keep relying on tuition increases and the burden that places on students: http://www.nytimes.com/2012/05/15/b...t-higher-costs-and-students-debt.html?_r=1&hp

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bruno said:

Been slow in coming to that realization, but better late than never I guess.

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But they are waiting for everyone else to cut the amenities that drive these cost increases before they cut their own...

Sounds just nobody wants to be first to offer "value" in a college education...

This cartoon seems to sum up the burden pretty well.

Bottom line- make sure that you understand that your future is going to be seriously constrained if you have to carry around the equivalent of a Mortgage from the day you graduate from college- without having the benefit of the house!
There isn't a right answer on how much debt you can safely take on, but whatever you do should be the result of a careful calculation made by the student with the parents involvement. The School in this case is not an honest broker - they are like realtors and mortage lenders in 2005- "you can qualify for virtually any amount of a loan and you should". But they aren't going to be around when you discover that your choices to stay above water may include working multiple jobs, defering marriage, vacations, car and house purchases all because you are carrying a huge debt load from when you were 18-22 years old. finally- that kind of debt may very well forestall you taking a career that would be much more satisfying to you over the long haul because you have to maximize your income. So- make sure that you know what you are signing up for!

The military is always hiring, and the GI Bill is fantastic.