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The $555,000 Student-Loan Burden
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Moldy Rutabaga

Joined: 01 Jul 2003
Location: Ansan, Korea

Posted: Fri Feb 19, 2010 8:24 am Post subject:

Quote:

With a PhD, it goes up to $70,000.

That's an average with some pretty wide extremes! If I'd stayed in North America, I might have been able to find work as an adjunct for, say, $15,000-20,000 a year. Better work conditions than Taco Bell, but no better pay, I'd think.

I have mixed feelings. It's harsh to have your financial life ruined for making poor decisions when you're nineteen. Nor are these arbitrary and outrageous collection fees fair. But good grief, if you're graduating at 41 you should have a good idea about whether you can afford the program you're taking and the debt you're taking on.

Last edited by Moldy Rutabaga on Fri Feb 19, 2010 8:25 am; edited 1 time in total

mises

Joined: 05 Nov 2007
Location: retired

Posted: Fri Feb 19, 2010 8:24 am Post subject:

Onltheway, I disagree. The financial system is an assault on dumb people by smart people. How many people in the US or Canada do you think can sit down and calculate the real value of a loan? When I tell people that their mortgage will more that double the price of their house they don't believe me. Then again, I believe in IQ and the importance of intelligence. Which is not really fashionable. But I'm right (I think). If you can't do even elementary maths:

Quote:

During their first math class at one of CUNY's four-year colleges, 90% of 200 students tested couldn't solve a simple algebra problem, the report by the CUNY Council of Math Chairs found. Only a third could convert a fraction into a decimal.

The lack of math skills means the CUNY students - nearly 70% of which come from city schools - could struggle to keep up with peers, fail classes or even drop out, the professors charged.

http://www.nydailynews.com/ny_local/education/2009/11/12/2009-11-12_cunys_got_math_problem_many_freshmen_from_city_hs_fail_at_basic_algebra.html#ixzz0g0206piI

Should those people really have access to unlimited expensive credit? I don't think so. Their inability to do maths puts the whole economy at risk. They are the majority. I'm being self interested.

ontheway

Joined: 24 Aug 2005
Location: Somewhere under the rainbow...

Posted: Fri Feb 19, 2010 8:56 am Post subject:

mises wrote:

Quote:

Sure, smart people can and sometimes do victimize those with low IQs when the sell them loans, but also when they sell them useless education, cars and socialized roads and highways, national health insurance, big government, stupid movies, big money sports, mindless consumerism of all kinds, and beer, booze, butts and babes (cigs, mags, peep shows etc.)

The fact is that fools are easily parted from their money - even wealthy fools like Ed McMahon - but that doesn't take away their right under the principles of liberty to make their own stupid decisions.

As long as no one, including government, has the right to force individuals into choosing things that are bad or good for them, then every adult human being should be free to make his or her own decisions, good or bad or foolish as they may turn out to be.

As to bad loans made by banks and other financial institutions to stupid people, as long as they are not bailed out with government or taxpayer funds, they are not subsidized, they receive no Federal Reserve loans of any kind, then they will be losing their own money when their bad risks go sour, and they will either learn to stop lending to risky borrowers, or foolishly lose their own money - which begs the question, "Who's dumber?"

Last edited by ontheway on Fri Feb 19, 2010 9:04 am; edited 1 time in total

mises

Joined: 05 Nov 2007
Location: retired

Posted: Fri Feb 19, 2010 9:00 am Post subject:

Quote:

The fact is that fools are easily parted from their money - even wealthy fools like Ed McMahon - but that doesn't take away their right under the principles of liberty to make their own stupid decisions.

The debt is a systemic issue that seriously harms the aggregate standard of living. Screw their liberty.

pkang0202

Joined: 09 Mar 2007

Posted: Fri Feb 19, 2010 9:04 am Post subject:

One problem is many places quote you an incorrect Interest Rate. They give you the APR. What you really need to know is the EAR (Effective APR). The Effective APR is what you are REALLY paying. You will find that salesmen are reluctant to give you an EAR estimate.

mises

Joined: 05 Nov 2007
Location: retired

Posted: Fri Feb 19, 2010 9:08 am Post subject:

pkang0202 wrote:

One problem is many places quote you an incorrect Interest Rate. They give you the APR. What you really need to know is the EAR (Effective APR).

The Effective APR is what you are REALLY paying. You will find that salesmen are reluctant to give you an EAR estimate.

Damn right. But even if given the proper rate, what % of people think:

"hmm, ok. So 250k for a shoebox. 500k after finance charge. Plus property taxes, closing costs, maintenance etc. We can rent similar for 1300$/month, but renting is throwing money away. BUY!".

ontheway

Joined: 24 Aug 2005
Location: Somewhere under the rainbow...

Posted: Fri Feb 19, 2010 9:12 am Post subject:

mises wrote:

Quote:

The debt is a systemic issue that seriously harms the aggregate standard of living. Screw their liberty.

Quote:

As to bad loans made by banks and other financial institutions to stupid people, as long as they are not bailed out with government or taxpayer funds, they are not subsidized, they receive no Federal Reserve loans of any kind, then they will be losing their own money when their bad risks go sour, and they will either learn to stop lending to risky borrowers, or foolishly lose their own money - which begs the question, "Who's dumber?"

I see you posted during my edit, above.

Without government subsidies, bad debt and defaults by foolish individuals will not affect the living standards of others. It will only result, at worst, in a transfer from the foolish to the wise.

It is the socialization of risk and losses that causes debt default to harm the economy as a whole. It is also this socialization of risk and losses and harmful distortions caused by income taxes and especially by use of inflationary fiat money instead of real, gold-backed money, that has encouraged the profligate expansion of debt to inappropriate persons and purposes.

mises

Joined: 05 Nov 2007
Location: retired

Posted: Fri Feb 19, 2010 9:16 am Post subject:

Quote:

Without government subsidies, bad debt and defaults by foolish individuals will not affect the living standards of others. It will only result, at worst, in a transfer from the foolish to the wise.

I agree. That isn't the system we have.

Quote:

It is the socialization of risk and losses that causes debt default to harm the economy as a whole. It is also this socialization of risk and losses and harmful distortions caused by income taxes, that has encouraged the profligate expansion of debt to inappropriate persons and purposes.

We live in the system as it is and not as it ought to be. As it stands now, misused credit is a serious risk. It is what it is. Gotta cap it.

ontheway

Joined: 24 Aug 2005
Location: Somewhere under the rainbow...

Posted: Fri Feb 19, 2010 10:05 am Post subject:

mises wrote:

Quote:

Without government subsidies, bad debt and defaults by foolish individuals will not affect the living standards of others. It will only result, at worst, in a transfer from the foolish to the wise.

I agree. That isn't the system we have.

Quote:

We live in the system as it is and not as it ought to be. As it stands now, misused credit is a serious risk. It is what it is. Gotta cap it.

There is no rational way to cap the issuance of credit, except through the market.

It was the power of political groups working in tangent for mutual interests that created the distorted policies, and they will not be capped. Home builders, lenders, RE agents, retailers, wholesalers, and manufacturers of building products and major appliances, middle class homeowners - they all want their bit of subsidy. To have any hope of reform, we have to use the logic and power of the market as a solution to problems created by government.

No one will agree to give up their subsidies while leaving them in place for others. We have to remove them all - one step from fascist-socialism to the free market.

Tear it off fast and get the pain over with.

bucheon bum

Joined: 16 Jan 2003

Posted: Fri Feb 19, 2010 10:22 am Post subject:

mises wrote:

pkang0202 wrote:

Well I think the real estate bubble popping has been an educational lesson for some out there.

A basic personal finance class should also be required in high school. I know a number of highly educated people who have little sense when it comes to their personal finances. For some, it is just due to (a lack of) willpower, but for others it is just ignorance.

jaykimf

Joined: 24 Apr 2004

Posted: Sat Feb 20, 2010 11:49 am Post subject:

mises wrote:

pkang0202 wrote:

We bought a new house exactly a year ago and it is true that I have no idea what the EAR rate is. I don't even remember what the APR is. Honestly, I don't care. Knowing what the EAR was would have made absolutely no difference in our decision to buy. I don't know about shoe boxes either. I do know that we had been paying $1280 a month for a 2 bedroom , 960 sq.ft. apartment and that the rent went up every year. We now pay $1704 a month including tax and insurance. We have a brand new 4 bedroom, 2160 sq ft house on an infill lot in an well established neighborhood. Its got a nice yard with a big plum tree and an even bigger cherry tree . Last year I planted raspberries, blueberries, strawberries and a peach tree. This year I added another peach tree and a cherry tree. And the vegetable garden. Our quality of life is dramatically better. And our rent will never go up again. And in 29 years we will own free and clear an asset worth a considerable chunk of money. And in the meantime we can deduct the interest and property taxes to reduce the amount of income tax. I have absolutely no doubt we made the right choice. EAR is irrelevant. (As are the economic theories of the Mises institute.)

visitorq

Joined: 11 Jan 2008

Posted: Sat Feb 20, 2010 8:29 pm Post subject:

jaykimf wrote:

And in 29 years we will own free and clear an asset worth a considerable chunk of money

How is it "worth" anything (as an investment, which is what most people treat is as) if it's only valued at half or a third of what you had to pay for it?

Quote:

We bought a new house exactly a year ago and it is true that I have no idea what the EAR rate is. I don't even remember what the APR is. Honestly, I don't care. Knowing what the EAR was would have made absolutely no difference in our decision to buy. I don't know about shoe boxes either. I do know that we had been paying $1280 a month for a 2 bedroom , 960 sq.ft. apartment and that the rent went up every year. We now pay $1704 a month including tax and insurance. We have a brand new 4 bedroom, 2160 sq ft house on an infill lot in an well established neighborhood. Its got a nice yard with a big plum tree and an even bigger cherry tree . Last year I planted raspberries, blueberries, strawberries and a peach tree. This year I added another peach tree and a cherry tree. And the vegetable garden. Our quality of life is dramatically better. And our rent will never go up again. And in 29 years we will own free and clear an asset worth a considerable chunk of money. And in the meantime we can deduct the interest and property taxes to reduce the amount of income tax. (I have absolutely no doubt we made the right choice. EAR is irrelevant. As are the economic theories of the Mises institute.)

What's (totally) irrelevant is the anecdotal postings of a random guy on the internet.

Fox

Joined: 04 Mar 2009

Posted: Sat Feb 20, 2010 10:09 pm Post subject:

jaykimf wrote:

mises wrote:

pkang0202 wrote:

$1704 a month might be the base payment, but did you also consider other factors?

1) Utility bills for a house are almost invariably higher, especially since heat and water are often included in rental agreements.

2) Apartment rental generally means you don't have to pay for repairs. Owning a home means no such thing. Roof repair, boiler replacements, incidental damage, and so forth are all your responsibility when you own a home. These are real costs that can add up.

3) The difference between your rental costs and purchasing costs are $424 a month. Over 29 years, that equates to $147,552. Could you possibly invest that money in such way that it ends up earning you enough over 29 years to be of greater value than the home you're puchasing after that time, especially in light of the fact that after #1 and #2 are taken into account, the actual figure will probably be noticably higher than $147,552?

If you think the quality of life you gain is worth the extra cost, that's good. I'm just wondering if you factored these cost differences into your decision.

asylum seeker

Joined: 22 Jul 2007
Location: On your computer screen.

Posted: Sun Feb 21, 2010 5:46 am Post subject: Re: The $555,000 Student-Loan Burden

visitorq wrote:

asylum seeker wrote:

ontheway wrote:

Government debt and government loan programs lead stupid people into making stupid decisions that destroy their lives.

Government must be prohibited from borrowing and lending.

Remember the wise words of the bard: Neither borrower nor lender be.

Private banks and credit cards with exorbitant interest rates also "lead stupid people into making stupid decisions that destroy their lives".

Should they also be prohibited from borrowing and lending?

Not if they're using their own money (which the government never does). The government collects taxes. It is not a bank.

So the argument is that there's nothing wrong with 'lead(ing) stupid people into making stupid decisions that destroy their lives' as long as it's done with private money rather than public money. If this woman had racked up huge amounts of debt with private banks that would have been fine. Thanks for clearing that up.

I guess in the unregulated libertarian utopia you and ontheway wish for, banks would be free to obfuscate and inveigle stupid people into taking on unaffordable debt at huge interest rates to their hearts' content. As long as the gummint doesn't get involved that's just dandy.

visitorq

Joined: 11 Jan 2008

Posted: Sun Feb 21, 2010 6:23 am Post subject: Re: The $555,000 Student-Loan Burden

asylum seeker wrote:

visitorq wrote:

asylum seeker wrote:

ontheway wrote:

Not if they're using their own money (which the government never does). The government collects taxes. It is not a bank.

It's not for you to act all smarmy here, considering the lack of basic logic and common sense you've shown thus far (not to mention the obvious strawman)...

First, I never said "there's nothing wrong with 'lead(ing) stupid people into making stupid decisions that destroy their lives' as long as it's done with private money rather than public money". I was referring only to your question of whether companies should be prohibited from lending money.

The point is that private money at least means something to people who lend it. This is because if they make bad investments they lose their own money (which nobody wants to do). In the case of the "gummint" (ironic, considering you're probably more of a hick than me), however, they are spending other peoples' money. Simply put, there is nothing more wasteful than government; they can afford to make as many bad and wasteful decisions as they want (and do, time and again) and simply borrow more from the Fed and/or raise taxes. Ultimately, the taxpayer foots the bill.

However, this is not to say that private finance is much better at present. Again, this is the fault of government: the mega banking structure can make as many deliberately risky, stupid, or just plain fraudulent decisions as they want, and the government will simply bail them out with our money (trillions so far, and counting). In a free market system, this could never happen.

Lastly, fraud is illegal. It is the government's job to enforce laws against private lenders to prevent unlawful activities. Currently, the government is doing pretty much the exact opposite, working with the banks to loot the public.

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