WatchThis makes no sense...
Someone going back to school for a masters degree has to pay 6.8% minimum interest rate to borrow money to EDUCATE themselves. Yet the interest rate to buy a home is under 4% for a 30 year fixed... almost under 3% for a 15 year fixed. Don't get me started on buying a car at 0% interest rates.
Not that I think tuition needs more fuel to the fire to rise... People are already living off their student loan money. But something seems out of whack...
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Clearwater, FL
Because there's no collateral against the loan? Default on a home loan they take the house. Default on a car loan they take the car. Default on a student loan and the tax payer's get burdenned with trying to garnish future wages.
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Sunnyvale, CA
It makes lots of sense.
When someone defaults on their mortgage the loan owner forecloses, sells the collateral at auction, and would get most of its money back for a home bought today now that the bubble has collapsed.
When someone defaults on their student loan the bank can't repossess their education, can't sell it at auction, and must settle for at best 25% wage garnishment which can be limited by the states (California won't let creditors dip into weekly earnings up to 30 X the hourly minimum wage). With the college tuition bubble yet to collapse (tuition went up 4X the rate of inflation since 1985) and wages stagnant there's a good chance people won't be able to get a job that pays well enough to cover their debt.
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Clinton, MA
FloridaBill says
I'd agree with what you're saying if it were the whole story, but I don't think it is. IIRC, student loans are not excused in bankruptcy, meaning the lender can chase the borrower virtually forever. And in non-recourse states the lender has no right of action once they seize the collateral. Meaning if the house happens to have an underwater mortgage, lender only gets what the property will fetch at auction or equivalent, and (in theory) have to eat the difference.
What I'm honestly unclear about is how a mortgage shakes out in bankruptcy, how difficult it is for a lender to chase down someone with an underwater mortgage in a recourse state to recover the difference, and under what circumstances a non-recourse state mortgage can become recourse if a gullible borrower screws the pooch with the wrong kind of HELOC or similar instrument.
Yeah, I'm probably talking out of my posterior, but I think question does have some merit to it.
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Because having the "Good Schools" wasn't leg up enough for the thumb generation. Spite their best efforts those evil spawn from the suburbs are competing with Lil Tommy in the good Colleges and the Good Jobs.
If tuition gets prohibitive enough then only Ultra Rich elite will ensure that only their kids gets an education.
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Clearwater, FL
CaptainShuddup says
Rates should be higher. Too many people are going to school and getting degrees in Majors that do not have any real world competitive applications. For example, 90% of Psychology Majors do not get a job in the field of psychology. College has become Highschool 2.0
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Los Angeles, CA
higher education has become a ponzi-pyramid-government racket to fleece people maximumly. (maybe if i had a degree in english I would know maximumly isnt a word! ha)
you should NOT have to spend first 26 years of life getting talked at by governemnt employees before 'anyone will consider hiring you'.
We only need one teacher per subject with technology- everyone can watch the recorded lectures and take tests online. Do labs at home. Easily 99% of all higher ed teachers are redundant jobs. In fact fukem all and learn it/do it yourself like bill gates did.
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Reston, VA
Recent professional grads are getting killed right now. The spread between their rates and the mortgage rate is higher than ever and growing. The problem is that many professionals are paying $15K / yr or more in interest. That often works out to $25K pre-taxes, because none of this is tax deductable. If inflation were at historically normal rates, this wouldn't be such a big deal, but as we keep going sideways and backwards, it's brutal.
If the mortgage rates were not doubly subsidized, it would be less insulting. Say yay to granite counters and nay to education.
If you are going to school and your parents have some small business income, setup a corporation & get paid a bit through that. Then give yourself a $5000 back to school tuition benefit. At least that will allow you to get $5K / yr tax free.
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FloridaBill says
Why is tuition at colleges a flat rate... It costs FAR FAR more to train someone to be an engineer or doctor than it does to train someone to be a psychology or liberal arts major.
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That chart is helpful.
I just graduated with my MBA and the per credit cost is higher than a lot of other degrees. So to BoomandBustCycle - they do do that at the grad school level.
On to the OP question. The loans are pretty static at the rate they are. If memory serves me correctly, Bush signed something around 2006-ish that enacted this fixed rate for student loans. The idea was that it was a way to combat rising rates for students. Little did anyone know that we would be in such a prolonged low interest rate environment.
I have $85k of student loans at a weighted average of ~7.35% FML. I can't get them lower without looking at variable rates offered by banks knowing they are competing with the fixed rate of 6.8%+. I don't feel comfortable going variable because of the potential for inflation over the next couple of years.
The way I see it is that student debt is how investors are getting their yield these days. It is particularly painful for people who do the right thing with their finances and education.
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Baltimore, MD
BoomAndBustCycle says
Are you sure about that? I mean don't the professors make good money teaching either one?