1. Survey: Debt Gives Young Adults Self-Esteem Boost

    I suspect that most of this has to do with the fact that young people tend to feel “invincible,” but it’s pretty interesting nonetheless:

    OSU: Young Adults Get Self-Esteem Boost From Debt

    From the article:

    For this study, the researchers examined data on two types of debt: loans taken out to pay for college, and total credit-card debt. They looked at how both forms of debt were related to people’s self-esteem and sense of mastery – their belief that they were in control of their life, and that they had the ability to achieve their goals.

    …Researchers found that the more credit card and college loan debt held by young adults aged 18 to 27, the higher their self-esteem and the more they felt like they were in control of their lives. The effect was strongest among those in the lowest economic class.

    Only the oldest of those studied – those aged 28 to 34 – began showing signs of stress about the money they owed.

    If anyone wondered just why it is that lending institutions make such an effort to get young adults into debt, well, wonder no more. You can build up an immense pile of debt between the ages of 18 and 28. By the time the invincibility of youth has worn off and reality has set in, your next 20 or 30 years of payments are already set in stone.

    Then, when that “expected future income” thing doesn’t pan out, you get a host of nasty little outcomes — like one in five student loans being in default.

    More from the study:

    But how debt affected young people depended on what other financial resources they had available, the study found.

    Results showed that those in the bottom 25 percent in total family income got the largest boost from holding debt – the more debt they held, both education and credit card, the bigger the positive impact on their self-esteem and mastery.

    Those in the middle class didn’t see any impact on their self-esteem and mastery by holding educational debt, perhaps because it is so common among their peers that it is seen as normal. But they did see boosts from holding credit-card debt – the more debt, the more positive effects.

    Whoopee. And the debt-induced beat goes on … so long as you get ’em hooked young!

    EDIT: A more in-depth opinion on this study can be found right here . . ..



  2. Student Loans For the Win

    Mary Pilon at the Wall Street Journal tells us that total outstanding student-loan debt has now overtaken total outstanding credit-card debt:

    WSJ: Student Loan Debt Surpasses Credit Cards

    As of June, there was roughly $830 billion outstanding in student loans, compared to $826 billion in credit-card debt.

    Swell, ain’t it? I tell you, this country can strap on the anchors and leg chains of debt like nobody’s business.



  3. Worst-Paying College Degrees

    Now here’s an interesting article from Yahoo. Apparently someone has taken the time to compile a list of the worst-paying college degrees out there:

    Yahoo: 20 Worst-Paying Degrees of 2010

    I get a kick out of lists like this — especially ones that reinforce my own views on the relative value (or lack thereof) of higher education. Which is that “higher education,” in and of itself, is very rarely the Ticket to Financial Success which society makes it out to be. (Check out this article in the Harvard Business Review; the difference between “knowledge” and “skills” is immense. The higher-ed conglomerate may disperse knowledge, but usually, what employers want are skills.)

    And oh yeah — if you take on lots of debt to get that higher ed, you can easily end up worse off — far worse off — than if you had no degree at all.

    Because I’m lazy, I won’t reprint the whole list here. However, the top five worst-paying degrees…

    College Degree Starting Pay Mid-Career Pay
    1. Child and Family Studies $29,500 $38,400
    2. Elementary Education $31,600 $44,400
    3. Social Work $31,800 $44,900
    4. Athletic Training $32,800 $45,700
    5. Culinary Arts $35,900 $50,600

    … are pretty much what I’d expect. (Wait — where is Underwater Basket Weaving?)

    I do, though, have to take issue with how the author finishes out her missive:

    If you’d rather end up with one of the best-paying college degrees, you’ll have to major in something that requires a lot of math classes.

    I’m not so sure about that. I mean, politicians seem to do pretty well financially. And it’s obvious that math was never a core requisite at any point in their lives.



  4. Student Loan Default Rates

    Those of you with an interest in default rates — student loan default rates, in particular — will want to set aside a few minutes to read the following:

    Chronicle Of Higher Ed: Student-Loan Default Rates: Understated

    Of course findings such as the following will come as a complete and utter shock to everyone (not!):

    According to unpublished data obtained by The Chronicle, one in every five government loans that entered repayment in 1995 has gone into default. The default rate is higher for loans made to students from two-year colleges, and higher still, reaching 40 percent, for those who attended for-profit institutions.

    One in every five loans that entered repayment in 1995 are in default? Yikes. That is nasty. As in, subprime nasty. This is worth mentioning because, according to the fine folks at S&P in July, 2009 …

    S&P now projects defaults on subprime loans issued in 2005, 2006 and 2007 at 11 percent, 30 percent and 49 percent, respectively.

    So the folks issuing student loans to pretty much anybody with a pulse still have some work to do to reach those vaunted levels we associate with subprime default rates. Keep at it, guys! You’re making progress!

    Back to the Chronicle piece:

    But it’s the high rates of default at for-profit institutions that are likely to get the most attention from members of Congress, who have recently raised concerns about the cost and quality of for-profit higher education. Fifteen years into repayment, two out of every five loans made to students who attended two-year for-profit colleges are in default.

    Boy — this would be really troubling to hear if we didn’t recognize that student loans are undoubtedly “good debt” meant only to help you reach your dreams!



  5. Student Loans vs Subprime Loans: Similarities Abound

    Except, of course, that it’s much easier to walk away from poor real-estate decisions.

    NY Times: Placing Blame As Students Are Buried in Debt

    One view I’ve always presented at IYM — and which I believe more strongly now than ever — is that the old saying, “Student loans are good debt!” is, to be polite, a load of horse crap. And a mighty dangerous one at that.

    Oh, the “good debt” notion might have held merit at some point. But now that decades of easy credit for student loans have allowed universities to increase costs at double-digit clips each year, and with world economies showing the strains of unsustainable debt (high unemployment, stagnant or declining wages, general societal unease) everywhere you look, I would like to think that we can pretty much kick the “good debt” preachers to the curb.

    (Your local university president, faculty, and financial-aid office staff would disagree, of course. But you’re nuts if you can’t realize that these folks must, in trader parlance, “talk their book.”)

    Easy Credit: End-User Peril Applies, No Matter The Product

    As I noted in my “Student Loan Bailouts” post, when you make money (credit) easily available for something, the price of that something will rise. This is basic economics. It has held true for:

    • House prices (credit easily available / government subsidized)
    • Higher-education prices (credit easily available / government subsidized)
    • Medical and healthcare (“deep pockets” of third-party insurance / government subsidized)
    • Auto prices (credit easily available / government guarantees as applicable to GM, GMAC, etc. only recently)

    And there are probably more examples which I can’t conjure up just now. But I’ve often wondered: Where might auto prices be if there weren’t an entire industry set up to loan cheap money to anyone who can fog a mirror?

    And where might higher-ed prices be if there weren’t an entire industry (and/or a federal government) set up to loan cheap (taxpayer-backed) money on the same basis?

    Answer: Significantly lower than they are now.

    In a world where the middle class has no savings to speak of — only piles of debt in its place — the words “cash only” would mean retail pricing power is out the freakin’ window.

    Easy credit, on the other hand, allows for an unimaginable amount of can-kicking: Prices can rise largely as desired, masking any and all underlying strains as long as the money flow is uninhibited. Rising prices mean prosperity, don’t you know. The eventual day of reckoning can be put off for a long, long time.

    But not forever.

    From the NY Times article:

    Like many middle-class families, Cortney Munna and her mother began the college selection process with a grim determination. They would do whatever they could to get Cortney into the best possible college, and they maintained a blind faith that the investment would be worth it.

    Hmmm. That whole “blind faith” thing — it sounds vaguely familiar. Oh yeah — didn’t we just careen through a period wherein real estate, and property prices, were viewed the same way? Blind faith … home prices only go up … price doesn’t matter … buy now or be priced out forever … and so on.

    Yep. I’ve seen this movie before.

    Today, however, Ms. Munna, a 26-year-old graduate of New York University, has nearly $100,000 in student loan debt from her four years in college, and affording the full monthly payments would be a struggle. For much of the time since her 2005 graduation, she’s been enrolled in night school, which allows her to defer loan payments.

    Ms. Munna has become proficient at playing kick-the-can at an early age, I see. Completely foreseeable offshoot of the “Price doesn’t matter; easy credit can make it happen!” environment we’ve so effectively cultivated.

    So in an eerie echo of the mortgage crisis, tens of thousands of people like Ms. Munna are facing a reckoning. They and their families made borrowing decisions based more on emotion than reason, much as subprime borrowers assumed the value of their houses would always go up.

    B I N G O.

    It is utterly depressing that there are so many people like her facing decades of payments, limited capacity to buy a home and a debt burden that can repel potential life partners. For starters, it’s a shared failure of parenting and loan underwriting.

    The “failure of parenting” part, I agree with. The “failure of loan underwriting” part, I don’t. Where’s the underwriting failure, exactly, when student loans are pretty much non-dischargeable? And further, guaranteed by Uncle Sam?

    Sounds like a lender’s dream, if you ask me. (Government policy changes notwithstanding.)

    But perhaps the biggest share [of blame] lies with colleges and universities because they have the most knowledge of the financial aid process. And I would argue that they had an obligation to counsel students like Ms. Munna, who got in too far over their heads.

    Oh, please. Were the loans not made available, we’d have heard from Ms. Munna and her mom about how “unfair” it all was — that dear Cortney wasn’t being allowed the “same opportunities” as were other, more financially well-off students. Again we can draw a clean parallel to easy-credit, government-backed mortgage lending: We’re told that it “has to be done” to afford the same “opportunities” to those of lesser financial means.

    And then, sometime later, we’ll hear how unexpected the blow-up was. How, of course, no one could see this coming.

    The financial aid office often has the best picture of what students like Ms. Munna are up against, because they see their families’ financial situation splayed out on the federal financial aid form. So why didn’t N.Y.U. tell Ms. Munna that she simply did not belong there once she’d passed, say, $60,000 in total debt?

    Seriously? You have to ask that question? The financial-aid office, and the university itself, has nothing to lose here. Like the TBTF banks and Wall Street houses who packaged mortgage-backed securities, the plan was to always and forever (1) make the questionable loan, (2) get paid, and (3) quickly roll the risk onto someone else.

    In the case of Ms. Munna, so long as NYU gets its bucks from Sallie Mae, Citibank, or whomever, then the risk immediately becomes someone else’s. For them, the system is operating precisely to specs.

    Once the Citibank checks cleared, it was Game, Set, Match.

    That [idea that college aid administrators want to keep their jobs] doesn’t change the fact, however, that the financial aid office is still in the best position to see trouble coming and do something to stop it. University officials should take on this obligation, even if they aren’t willing to advise students to attend another college.

    Um, no. First and foremost, it is the job of the parent. Stop trying to foist the largest chunk of blame anyplace but on the individual and/or family.

    Instead, they [the university] might deputize a gang of M.B.A. candidates or alumni in the financial services industry to offer free financial planning to admitted students and their families. Mr. Deike [vice president of enrollment management for N.Y.U] also noted that the bigger problem here is one of financial literacy. Fine. He and N.Y.U. are in a great position to solve for that by making every financial aid recipient take a financial planning class. The students could even use their families as the case study.

    Well, let’s see: The university wants revenue. The (most painless) way to get more revenue is to charge more money. Since nobody has any savings, the way to charge more money is to promote more borrowing. (Easily done, when your product is advantaged by the “good debt” notion.) The way to promote more borrowing is to … well, our culture pretty much does that for you.

    You’ll note that, as a nation, the United States has not had “financial literacy” and common-sense financial education as a strong suit. Instead, we tend to learn our basic economics the hard way. There’s a reason for that.

    When your job depends on you not deploying certain information, you won’t deploy it.

    When your economy depends on consumers not understanding something, you won’t put forth much more than token, public-relations effort in the other direction.

    The balance on Cortney Munna’s loans is about $97,000, including all of her federal loans and her private debt from Sallie Mae and Citibank. What are her options for digging out?

    …Cortney could move someplace cheaper than her current home city of San Francisco, but she worries about her job prospects, even with her N.Y.U. diploma.

    She recently received a raise and now makes $22 an hour working for a photographer. It’s the highest salary she’s earned since graduating with an interdisciplinary degree in religious and women’s studies.

    Sounds like our heroine took the lifetime vow of poverty pretty early on. (The truth hurts.)

    She may finally be earning enough to barely scrape by while still making the payments for the first time since she graduated, at least until interest rates rise and the payments on her loans with variable rates spiral up.

    What? Taking out loans with variable rates entails more risk, and can turn out badly? Since when?

    And while her job requires her to work nights and weekends sometimes, she probably should find a flexible second job to try to bring in a few extra hundred dollars a month.

    Indeed. Somewhere a pole is missing its best friend.

    (Sorry. The urge to insert a pole-dancing joke was just overwhelming. I’ll try to do better next time.)

    Ms. Munna understands this tough love, buck up, buckle-down advice. But she also badly wants to call a do-over on the last decade. “I don’t want to spend the rest of my life slaving away to pay for an education I got for four years and would happily give back,” she said. “It feels wrong to me.”

    Yes, well, I don’t want to pay for your education, either, Cortney. I have my own family (and daughter) to worry about. So I’d appreciate it if you’d take that sense of entitlement and woe-is-me you exhibit and place it … oh, never mind. If nothing else, you can just dodge the loans, and call it good.

    A hundred grand down the tubes, and I wonder if this young lady has really learned anything at all.