[azjetfan]

How student debt is hurting our economy

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Nearly 42 percent of 25-year-olds have student debt. That's bad news for the housing and auto industries

Student debt is climbing and dragging our economy down in the process, according to a new report by the Federal Reserve Bank of New York.

In 2002, 25 percent of 25-year-olds had student debt. In 2012, that number jumped to 42 percent, with the average amount of debt ringing in at $20,326. The result? Young people are much less likely to buy a home or car.


For a long time, people with student debt were actually more likely to take out a home mortgage or auto loan than those who didn't because, as college graduates, they made more money. That all changed after the start of the Great Recession.

Now it's the opposite: Young people with student debt are taking out fewer house and car loans than those without. The Washington Post's Brad Plumer breaks down why this might be happening:


One possibility is that younger Americans burdened by heavy student loans are simply unwilling to take on further debt. Perhaps they're worried about their future job and income prospects, especially in this dismal economy. (Remember, students who are unlucky enough to graduate during the recession typically have lower lifetime earnings.)

Another (related) possibility is that lenders are becoming stingier. There's decent evidence for this: The study finds that younger Americans with student debt have seen their credit risk scores plummet relative to those without. Banks and other lenders seem to be scared away from people with student loans — especially since delinquency rates are rising. [Washington Post]

As Bloomberg's Kathleen Howley points out, many students were forced into student debt because, after the housing crash, their parents could no longer take out big home equity loans to pay for college. This vicious cycle has resulted in the home ownership rate dipping to 65.4 percent, its lowest level since 1997.
SEE MORE: Apple's stock price reaches new low: Why are investors so jittery?

In his budget, President Obama proposed tying student loans to the rate on a 10-year Treasury bond, which, according to Businessweek, would bring subsidized, unsubsidized, and grad school loan rates down significantly (provided the economy doesn't pick up). He also wants to expand the program that caps loan payments at 10 percent of a person's income.

Of course, that all depends on the White House and Congress actually agreeing on something. For now, it looks like 20-somethings aren't likely to get out of debt anytime soon.

http://news.yahoo.co...-073000999.html

Kinda an interesting read for those with financial interests.

I disagree with this statement

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Another (related) possibility is that lenders are becoming stingier

Banks have opened the door again to alot of lending since the original housing crash. Most standards for loan origination have relaxed for not only consumer but for business as well. I think where this writer was confused is with debt ratio. Most banks (for portfolio or saleable) are looking for a debt ratio of 45% or less. When you factor in the 100s of dollars of student loan payments per month and the decreased income we are all feeling this makes debt ratios the real problem not the banks "stingy" lending practices. Also when an underwriter looks at a application a debt is a debt. It all goes towards the ratio. Dollars paying Student loans, Medical, consumer or mortgage loans are all equal. A dollar is a dollar.

I dont know if any of you listen to Clark Howard but he is 100% against taking out a loan to pay for school. Alot of financial people agree. He would rather you pay as you go. Work more take less classes take more time to earn a degree and not have this debt over your head for 10-15 years or more. Makes alot of sense unless your degree will guarantee a high paying profession in a high demand field, Like maybe a doctor, nurse practitioner etc. Where you can pay them back quickly.

Obama wanting to tie the market to the rate is a bad idea in the long term. I am all for lowering rates but it needs to be fixed. It may save money now but rates can only go up from here so what would your interest rate be in 3 years? Setting up another bubble to break in the future when the rates shoots up and people cant afford the 20% rate on there $40K in loans. There would need to be a cap and a floor on the rate. The problem is it would make it a undesirable loan for banks. Also keep in mind that a bank will view a loan without a fixed rate as a higher risk (credit card line of credits etc). This would also hurt your debt ratio since they may (and probably will) use a higher payment than what your payment actually is since they have to account for the rate adjusting. Anyway... Good read but I have some different views.

[SecondHandJets]

BS in Accounting.
MS in Economics.
Worked 35 hrs/per week since 17.
$0 debt.

[Mr_Jet]

The real problem isn't student loan debt but rising tuition costs. Students are taking out larger loans because they're paying more in tuition. If we (as a nation) paid 100% of the tuition costs for every student that goes to a public university or community college, there wouldn't be a student debt crisis. Student loans should be just for people who want to go to a private university. We already fund K-12 education. We might as well just extend it right through college too.

But of course we can't do that because we have to continue to fight the Cold War (which ended decades ago) and give the Department of Defensive an unnecessarily large budget.

[azjetfan]

Mr_Jet, on 18 April 2013 - 06:31 PM, said:

The real problem isn't student loan debt but rising tuition costs. Students are taking out larger loans because they're paying more in tuition. If we (as a nation) paid 100% of the tuition costs for every student that goes to a public university or community college, there wouldn't be a student debt crisis. Student loans should be just for people who want to go to a private university. We already fund K-12 education. We might as well just extend it right through college too.

But of course we can't do that because we have to continue to fight the Cold War (which ended decades ago) and give the Department of Defensive an unnecessarily large budget.

Yup, but we can push it even further down the river if we want to. We could say that there are not enough quality Schools to push the cost of tuition down.

I would much rather pay for school over a war but I would rather just lower taxes overall. The thing about sending everyone to school is that those who can afford it would go to the next step creating his whole problem again but with even more expense.

[azjetfan]

SecondHandJets, on 18 April 2013 - 03:06 PM, said:

BS in Accounting.
MS in Economics.
Worked 35 hrs/per week since 17.
$0 debt.

congrats!

[Mr_Jet]

azjetfan, on 18 April 2013 - 08:03 PM, said:

Yup, but we can push it even further down the river if we want to. We could say that there are not enough quality Schools to push the cost of tuition down.

I would much rather pay for school over a war but I would rather just lower taxes overall. The thing about sending everyone to school is that those who can afford it would go to the next step creating his whole problem again but with even more expense.

I don't think more tax cuts is the answer to this problem. Especially when one of the main reasons tuition has gone up is because states have cut funding to the public universities.

[azjetfan]

Mr_Jet, on 18 April 2013 - 07:15 PM, said:

I don't think more tax cuts is the answer to this problem. Especially when one of the main reasons tuition has gone up is because states have cut funding to the public universities.

You have a valid point. I think if everyone has the same opportunity cost free the people who can afford it will do extra to get an edge. Then we are back in the same boat in a few years. When is enough enough?

[Mr_Jet]

azjetfan, on 18 April 2013 - 09:23 PM, said:

You have a valid point. I think if everyone has the same opportunity cost free the people who can afford it will do extra to get an edge. Then we are back in the same boat in a few years. When is enough enough?

There are many more people who can't afford it than people who can. The people who can afford tuition (because of Mom and Dad) usually have things like legacies helping them and could afford to go to a private university if they wanted to. Like I said if we cut some things (like a good chunk of the DoD's budget), we could at the very least keep the states from feeling the need to cut funding to the public universities, which would help keep tuition from going up. Thus getting rid of the student loan crisis. High administration costs at these universities aren't helping matters either.

[azjetfan]

Mr_Jet, on 18 April 2013 - 09:41 PM, said:

There are many more people who can't afford it than people who can. The people who can afford tuition (because of Mom and Dad) usually have things like legacies helping them and could afford to go to a private university if they wanted to. Like I said if we cut some things (like a good chunk of the DoD's budget), we could at the very least keep the states from feeling the need to cut funding to the public universities, which would help keep tuition from going up. Thus getting rid of the student loan crisis. High administration costs at these universities aren't helping matters either.

I don't know if it would get rid of loans though. Unless there were no lending for school. In our culture it's never enough. I don't know about where you are but "legacy" money is not real big in the areas I have lived and worked in finance. Nursing homes final medical etc..pretty much wipe it out

[Mr_Jet]

Quote

Sen. Elizabeth Warren wants student loans to get Fed discount rate

By Jim Puzzanghera
10:31 AM PDT, May 8, 2013

WASHINGTON -- Students taking out government loans to help pay for college should pay the same rock-bottom interest rate that the Federal Reserve charges big banks, Sen. Elizabeth Warren (D-Mass.) proposed Wednesday.

With the interest rate on federal student loans set to double to 6.8% this summer, Warren said it's unfair that big banks can borrow money at 0.75% from the central bank's discount window.

"In other words, the federal government’s going to charge interest rates nine times higher than the rates they charge the biggest banks -- the same banks that destroyed millions of jobs and nearly broke the economy," Warren said in introducing her first stand-alone bill since taking office in January.

"That isn't right," she said.

Warren, a longtime consumer advocate, defeated incumbent Republican Scott Brown in November in the nation's most expensive Senate race. She won with strong backing from liberals, who cheered her embrace of the Occupy Wall Street movement and outspoken criticism of big banks. Warren's first bill, which likely stands little chance of passage, takes a swipe at Wall Street while advocating for more government help for average Americans.

Warren acknowledged that the Fed's policy, which also includes a near-0% federal funds rate, is designed to help boost the economy by providing cheap credit.
But, she said, "our students are just as important to the economic recovery as our banks." "Let's face it: Banks get a great deal when they borrow money from the Fed," she said. "In effect, the American taxpayer is investing in those banks." "We should make the same kind of investment in our young people who are trying to get an education," Warren said. The Bank on Students Loan Fairness Act would direct the Fed to make money available to the Education Department for one year at the discount window rate to fund federally subsidized Stafford student loans.