Student Debt and the Housing Market

Discussion in 'Off Topic' started by EDelahanty, Apr 8, 2013.

  1. EDelahanty

    EDelahanty Member

    Joined:
    May 7, 2010
    Messages:
    1,273
    Likes Received:
    312
    An article which appeared on CNBC this morning reminded me of the discussion of sticker shock a week ago.

    Mounting student debt - now a trillion $ - is damaging the recovery of the housing market. Student debt has special protection against discharge through bankruptcy. The debt service is absorbing an excessive amount of disposable income, limiting how much young graduates can afford to pay for housing and impeding their ability to accumulate a nest egg for a down payment.

    http://finance.yahoo.com/news/why-housing-stalled-1-trillion-160443449.html
     
  2. kinnem

    kinnem Moderator

    Joined:
    Oct 21, 2010
    Messages:
    7,539
    Likes Received:
    1,002
    Makes sense, especially when large numbers can't even get a job. Even with a job, with the debt service, it's difficult. I'm thankful DS will have under $10K in debt when he graduates and a still like new vehicle. Feel like I did my job as a parent... at least financially. The rest, I suppose, is questionable. :rolleyes: But then again, I sure don't expect him to join the housing market for a long time.
     
  3. Jcleppe

    Jcleppe Member

    Joined:
    Feb 10, 2010
    Messages:
    5,537
    Likes Received:
    837
    College debt is not only effecting the housing market in regard to the new young graduates, it has a large impact on many parents and their own homes. I've seen and read about so many parents that took out second mortgages on their homes to fund a high priced tuition, Johnny and Jannie just had to go to Berkeley. These folks figured Hey, our house is increasing in value so we'll just pay for college with the profits. Now that housing prices have fallen, many find themselves under water and un able to even sell their homes. In our area this is resulting in a shortage of homes on the market, couple that with young people carrying their own debt and there is a big problem.

    I have a Design/Construction Firm, a lot of our work in the past was funded by clients ability to borrow from their equity to fund a project, that money has dried up, deeply effecting our industry. I hear all the time "We would love to do the work but we borrowed for college and have no equity left"

    The cost of college and the debt people take on has a ripple effect through more then just the housing market and it's something we all need to worry about in the near future.

    It really scares me when I read that parents will invest hundreds of thousands of dollars in a kids college when there are options that would cost much less and have the same results.

    Some debt is OK and manageable, Kinnem, your son's debt will be very easy to handle, as a single 1LT he could pay that off in 10 months easy.
     
  4. Pima

    Pima Parent

    Joined:
    Nov 28, 2007
    Messages:
    12,796
    Likes Received:
    930
    +1 Jcleppe,

    Our niece is going to IMPO a no-name college, costing 43K a yr since it is private. She is a sophomore now and has 50K in college debt. She will have 100K by the time she graduates in 15.


    Her career desire that she is going so deep in debt for is Interior Design.:eek:

    I say eek, because as Jcleppe pointed out the housing market is still not booming 8 yrs later. The next gen. in this article will be happy to just get a mtg., their college debt is not going to allow them to hire an Interior designer. Hotels are not building/renovating as fast either due to the economy.

    Where will she get a job? How will she be able to leave home and start her life with that amount of debt in her name? These kids are impo worse off than we were 25 yrs ago. I graduated in 87 with 12K in debt.... a lot back at that time, I had 10 yrs to pay it off. Maybe I read the article wrong, but it appeared some of them are taking 30 yr loans now to pay off college. In essence they will be 52, and probably with kids in college before their debt is paid off.

    That is frightening to think about how they will be able to buy a home, have kids, pay for braces, and save for their education when they are still paying off theirs.
     
  5. kinnem

    kinnem Moderator

    Joined:
    Oct 21, 2010
    Messages:
    7,539
    Likes Received:
    1,002
    Unfortunately Pima, this reminds me of a variation on the old saw about your major determining the questions you ask the rest of your life.
    Major in accounting and you'll be asking "How much does it cost?"
    Major in engineering and you'll be asking "How does it work?"
    Major in interior design and you'll be asking "Do you want fries with that?"

    I wish her luck. Even in good times some will be successful with that major and some will not.
     
  6. goaliedad

    goaliedad Parent

    Joined:
    Apr 7, 2009
    Messages:
    1,601
    Likes Received:
    35
    My simple solution to the student debt problem...

    Require that student loans be made with the endowment investments of the institutions where the students attend.

    If the loan is a good value (i.e. the student is well-suited for the institution, suitable educated by the institution in a field that provides adequate income), the institution gets a good return on the investment of its endowment.

    Otherwise, the institution making poor value loans will lose enough of their endowment that they cannot continue to offer too much money to weak students in fields they cannot train students to earn a good living in.

    What we have right now is a bunch of securities owners (cdo's for student loans) who think they've go "golden" (not dischargable except for death and disability) payment streams. Reminds me of the folks holding cdo's for real estate 6 years ago...
     
  7. Idzak

    Idzak Member

    Joined:
    Aug 1, 2010
    Messages:
    217
    Likes Received:
    23
    Goaliedad: great idea.:thumb:
     
  8. Christcorp

    Christcorp Member

    Joined:
    May 21, 2008
    Messages:
    4,963
    Likes Received:
    872
    Hopefully some day, kids, and especially parents, will realize 2 things.

    1. It's not an automatic that EVERYONE needs to go to college. I've seen a lot of individuals who went to college and it was a big waste of money. There's a lot of satisfying and HIGH PAYING JOBS that don't require a college degree.

    2. Those who do go to college, and I'm all for it, hopefully will realize that they don't have to go into debt to go to college. Either through proper planning/saving, choosing the right school, knowing how to get scholarships and grants, there is no reason in the world to finish college up with anything MORE than the equivalence of a modest auto loan. E.g. around $20,000.

    I have seen first hand through friends I went to school with, cousins, kids of our friends, etc.... where they either wasted money going to college in the first place, or wound up with student debt that will take them 10+ years to pay off; all because they had to pick a very expensive school that offered them nothing special. Especially at 18 years old when you probably don't know what the hell you want to be when you grow up anyway. First rule: If you're going to go into major debt for a college degree, do it on your Grad School/PhD. Don't do it on your undergraduate bachelor's degree; which means little to nothing once you've completed grad school. If you're only going for an undergraduate degree, then there is NO EXCUSE for having major debt when graduating.

    I don't buy an Aston Martin One-77. Why??? Because I don't need to spend $1,850,000 on a car. That's an OK price for the person who's net worth is 10X that. Just like the $30,000 car is fine for the person with a net worth of around $300,000. And the young kid right out of high school looking for job, should be looking at a $2500-$3000 used car. Well, the same for college. Contrary to popular belief, and people can argue all they want, If a person is going to have $120,000 of student debt because they chose Sarah Lawrence College at $60,000 a year, and could only get 50% in scholarships, grants, student work, etc... instead of doing a little research; then that's there problem. I have no sympathy.

    FWIW: Berea College (Private College in Kentucky), requires all students to work on campus, in exchange for tuition. Total cost per year: $980. BYU; Brigham Young; is only $4700 per year. WHAT? You're not Mormon??? No problem. If you're not part of the LDS church, tuition is only $9400 a year. There are SO MANY GREAT SCHOOLS out there that don't require that much debt. I have found 3 big problems that lead to student debt. 1) As I mentioned, too many people think you MUST GO TO COLLEGE...... NO YOU DON'T!!! 2) Too many people think that you have to go to the biggest name schools in the country to be successful; AND that there's no way to get money for them. Sorry, but even Georgetown University can be attended without owing $150,000. (Maybe not for everyone, but that's why there are thousands of colleges/universities out there.) 3) Most kids/parents don't want to go to school away from home. Well, that's your problem. Remember; just like the military academies like DIVERSITY..... So do the universities. A student from Wyoming can get some great deals going to schools on the east cost to schools where they don't really have any student from Wyoming. Just like some east cost kids can get some great deals in schools in the Rocky Mountain States. But you have to be willing to apply and GO AWAY TO COLLEGE!!!

    Anyway; maybe some day kids and parents will get out of the trap. Then, colleges will cut costs to compete. They have no reason to cut costs when students and parents are naive enough to believe that such debt is acceptable, and there's a government who will back that debt.
     
  9. cb7893

    cb7893 Member

    Joined:
    Dec 6, 2011
    Messages:
    1,054
    Likes Received:
    377
    Christcorp, I agree with you on virtually nothing of a political nature.

    However, regarding all your various admonitions regarding college costs/debt and lower cost alternatives, you are absolutely spot on. You are especially correct about the opportunity costs of community college vs. university. This country needs precision machinists every bit as much as it needs engineers...and the pay scales reflect that reality.

    Excellent post.
     
  10. goaliedad

    goaliedad Parent

    Joined:
    Apr 7, 2009
    Messages:
    1,601
    Likes Received:
    35
    And the unfortunate problem here is that nobody is selling machinist as an occupation any more.

    And looking at what budget cuts have done to community college programs in many places, it is hard to imagine that we can train enough of them these days. It is far cheaper to push kids through a 2-year liberal arts AA program than a 2-year technical certification. So guess what our CCs produce?
     
  11. Christcorp

    Christcorp Member

    Joined:
    May 21, 2008
    Messages:
    4,963
    Likes Received:
    872
    While I'm the FIRST to jump all over the government for their waste of our money and their bad decisions, the "REAL POWER" lies with the citizens. Even beyond all the voting and being politically active; the real power that "We The People" have......... is "CAPITALISM".

    What????

    Imagine if "WE" didn't CHOOSE to send our kids to colleges that put them into debt for 10+ years??? Imagine if we didn't CHOOSE to charge a lot of money on credit cards, paying 15-20% interest, on things we really don't need anyway; but feel we are entitled to??? Imagine if we didn't CHOOSE to take on a $500,000 mortgage, because the bank/lender convinced us we could afford it on our $50,000 income; but we felt we were entitled to it???

    Capitalism is so great. If EVERYONE in the country CHOSE to PAY OFF their credit card over the next 6 months, and NOT ADD more to it, and except for a mortgage and car loan, we were debt free; it would put our country into a TAIL SPIN. Investment rates would go up and lending rates on such debt would drop to that like mortgages. "We The People" could actually CONTROL the economy again. But we won't. WHY? Because of an "Entitlement" mentality. And it gets worse with every new generation added to it. I got my first new car when I was 28 years old. When i got married, we had 1 TV and a clock radio for music. We "SAVED" for the things we wanted. We didn't buy them on credit. Credit was for "EMERGENCIES" like a blown transmission in the car; emergency airline tickets to attend a death in the family, etc... Not to buy a 60" tv. The HIGHEST car payment I ever had, was on a 2003 Toyota Camry. It was only $225 a month. Why? Because I put $10,000 down on the car. AND, I paid the 4 year loan off in 3 years.

    But that is why our country will continue down the path it's on. Too many people feel "Entitled". (They want their Obama Phone). If we cleared our credit cards, didn't buy houses we couldn't afford, didn't have 10+ years of student debt following us, and bought what we could afford and needed, instead of buying into the "Class Warfare" mentality that makes you feel entitled to the same things other people have; we'd have this economy totally licked. AND, that mentality would prevent our representative/politicians from wasting money; because we wouldn't ALLOW IT.
     
  12. EDelahanty

    EDelahanty Member

    Joined:
    May 7, 2010
    Messages:
    1,273
    Likes Received:
    312
    +1 to what CC said above. Sometimes I think we may as well change the name of the country to the United States of Consumers.

    Here's a test of how frugal (i.e., cheap) you are: Do you return soda cans for the $0.05@ deposit? My family thinks I'm nuts when I haul off these big dripping plastic bags.

    Followup question to Christcorp: You had a TV and a clock-radio?
     
  13. Christcorp

    Christcorp Member

    Joined:
    May 21, 2008
    Messages:
    4,963
    Likes Received:
    872
    Thanks for the compliment. But the reason you probably disagree with me on virtually everything politically; is quite simple. Somewhere along the line, you bought into the notion that 1) Politicians CARE about us; and 2) That the government knows best and should be in charge of the people, instead of the PEOPLE being in charge of the government. Once you realize the truth, you will realize that there is no such thing as class warfare; that all individuals have the power to control their own future; and that the more limited government is, the better it is for ALL people.

    LOL!!! Yea, but that required my wife to also work at the BX so we could have extra money for those "Luxuries". :smile:
     
  14. QA1517

    QA1517 Member

    Joined:
    Jul 11, 2012
    Messages:
    402
    Likes Received:
    102
    Manual Labor

    I thought I was the only one that thought college was not necessary. The problem with kids not going to college is they actually have to become self sufficient and grow up a little quicker than if you have 4 years to figure out what you want to do with your life.:eek:

    Skilled labor is at a scary low in this country. I am in management in the construction industry and it is frightening. Yes I went to college, got a 2 year associate degree then took night classes while working a full time job. Quit taking classes when I realized I was learning more at work and getting paid for it.

    I always told my boys that they did not have to go to college. They had to find a job they enjoyed and had to make enough money to live comfortably and be happy. And they had to learn a skilled trade.

    Oldest son will now be going to college on an AROTC scholarship and he will have no debt when he is done. Until he thought about the military a couple of years ago, college was not in his future.
     
  15. Christcorp

    Christcorp Member

    Joined:
    May 21, 2008
    Messages:
    4,963
    Likes Received:
    872
    Did college degrees help me get a good paying job? Yes. Did I need a college degree to get a good paying job? No, not at all.

    The funny thing is; the job I have currently, requires a college degree, which i have 3 of. The pay is decent. The job i left however; because I never really got to see my family with working 50+ hours a week; didn't require a college degree at all. YET, it paid about 30% MORE MONEY than I make now. My current job is HIGHER management. MORE responsibility. More knowledge. Yet, it pays considerably less than I was making in a job that didn't require a college degree. Go figure.

    And for what it's worth; MOST COMPANIES; from little Mini-mart convenience store and McDonalds, all the way up to the Fortune 500 companies, almost all offer tuition assistance to their employees. Which is another way to go to college without going into debt. Work.... Get Paid..... Take internet/night classes..... Use degree to move up the corporate ladder..... Make more money..... ALL WHILE BEING DEBT FREE!!

    But Nooooooooooo. That's not fair. I should be able to graduate high school; go directly to Harvard, Yale, etc.... Be instantly hired by a big company paying me $60,000+ STARTING PAY. Then, have the same standard of living that I was accustomed to living at home. "Doesn't matter that it took Mom/Dad 20+ years to get to that standard of living". I DESERVE IT NOW!!! Oh yea; and I shouldn't have to pay back for all this either!!!
     
  16. QA1517

    QA1517 Member

    Joined:
    Jul 11, 2012
    Messages:
    402
    Likes Received:
    102
    College

    I've been at my job for 23 years. Degree not req'd. Our general manager went to Vo-Tech in high school then started working here.

    I have a brother that runs heavy equipment. Depending upon the job and prevailing wage, he can make more money per hour than I do. No college, just started while in high school using a shovel (the manual kind). His work is weather dependent. I can't convince my bosses that it's raining in my office so I can go home early.
     
  17. Christcorp

    Christcorp Member

    Joined:
    May 21, 2008
    Messages:
    4,963
    Likes Received:
    872
    It's all about "Skills". When I retired from the military, I retired enlisted. 2 friends of mine; both officers; a squadron commander who retired, and another officer friend who was also an O-5 retiring. All 3 of us got hired on at the SAME COMPANY. Both of them had been management their whole careers. Both had grad school degrees. I was a electronic tech and developer. I designed solutions and repaired telecom in the military. Like I said; all 3 of us got a job at the same company. Their jobs required college degrees. Mine didn't, but it did require "Certifications". e.g. FCC license, Microsoft MC IT, etc... which I had. My starting pay was about $20,000 MORE than both of them. At the same company.

    Oh; and when the company merged with another similar competitor, they kept all the technicians, engineers, etc... and let go of all the management and kept the management from the other company that bought us out. So I still had my job and they were gone. Their new jobs still don't make what I make. And even though I left that job for my current job; At a Pay Cut, I still make more than both of them. So remember..... IT'S SKILLS....... NOT THE PAPER!!!!!
     
  18. QA1517

    QA1517 Member

    Joined:
    Jul 11, 2012
    Messages:
    402
    Likes Received:
    102
    College

    Your preaching to the choir here:thumb:
     
  19. kinnem

    kinnem Moderator

    Joined:
    Oct 21, 2010
    Messages:
    7,539
    Likes Received:
    1,002
    Reminds me of the old saw about the brain surgeon who complained when he got the bill from the plumber for re-plumbing his entire house.

    Brain Surgeon: You've got to be kidding me. When I figured out how many hours you spent, eliminated cost of parts to get your labor amout, and did the math - your hourly rate is higher than mine! And I'm a Brain Surgeon.

    Plumber: Yeah, I couldn't get rates that high when I was a brain surgeon either.
     
  20. goaliedad

    goaliedad Parent

    Joined:
    Apr 7, 2009
    Messages:
    1,601
    Likes Received:
    35
    I never let my schooling get in the way of my education... Mark Twain.
     

Share This Page