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The Insanity of Student Loans

Much has been written about students getting huge loans and then graduating with heavy loan payments and scarce job prospects, and one wonders how people can make such bad choices, and who would lend them this kind of money in the first place. And then I heard of the story of Amira Nader. Amira graduated from Columbia University in 2010 with a master’s degree in acting and nearly $190,000 in debt.

Let me point out the most glaring points:

First – Amira got a master’s degree in a career that’s known for the brutal treatment of people that pursue it, and for those who do “make it”, their income prospects generally aren’t that good.

Second – she’s been loaned an amount equivalent to the price of a decent neighborhood house.

Third – even though student debt can’t be discharged in bankruptcy in the US, the likelihood of the lender getting their money back with interest is somewhere between “slim” and “none.”

Which leads me to the the obvious question – why on earth would anyone loan this women this much money when they had virtually no hope of getting it back? The insanity doesn’t stop there – thanks to a Federal program which “encourages” students with loans to work at non-profit companies like Amira’s work at WNYC:

If Amira works at a nonprofit like WNYC for eight or nine more years, most of her student debt will be forgiven under an Education Department program.

According to an opinion piece by Jeffrey Dorfman at Forbes:

Under the latest version of President Obama’s giveaway to former college students[1] , people with student loans that meet certain income eligibility standards will only need to pay 10 percent of their discretionary income for a maximum of 20 years. Discretionary income is the amount you earn above the poverty line for your family size. If a borrower works for a government or in a job defined as public service, they only have to pay for 10 years. After that, the remaining balance is forgiven.

Using numbers in Jeffrey’s article as an example, If Amira makes $40K a year, she’d only have to pay $144 / month towards her loan. Because the loan payment doesn’t even cover the interest costs, part of the interest would be placed back on the loan, resulting in the loan amount increasing over the years instead of decreasing.

If she works in the nonprofit for the full ten years to get her loan forgiven, she would’ve paid ~$22K towards her $190K loan, which by then would’ve costed north of $200K for the federal government to “forgive.” If you amortize $200K across 10 years, that’s ~$20K / year Amira’ll have been “gifted” for getting her masters in acting.

If you follow the money – from students being given huge sums of cash to spend on their “education” and then those loans are forgiven over a relatively short period of time, who benefits? The colleges! And with this epic windfall of money flowing into the coffers of these institutes of “higher learning”, is it any wonder that the price of education is sky-rocketing? And with the government presumably knowing that this is the effect of their program, one has to ask – what’s the agenda?

[1] I would note that this is an existing Federal program, and that Obama’s directive “only” expands the pool of eligible people by five million individuals.

Almost Half of College Grads in Jobs That Don’t Require A Degree – May 2013 Study

A May 2013 Forbes article reports some chilling employment numbers for recent college grads. I took the article and condensed it down to a set of easy-to-read bullet points. The article author’s son is looking to go into either the visual arts or social sciences, which is why they’re emphasized in this report.

How many grads are working in jobs that do NOT require a 4-year degree?

  • Nearly half of four-year college grads
  • Public universities grads are 11% more likely to feel overqualified than those who went to private schools.
  • Bureau of Labor Statistics: 48% of employed U.S. college grads are in jobs that require less than a four-year degree.
  • In 2011, 1.5 million, or 53.6% of college grads under age 25 were out of work or underemployed

Grads who got jobs in their field that required a 4-year diploma:

  • STEM grads: 75%
  • Visual and performing arts: 43%
  • Social science: 54%

What percent of college grads feel school failed to prepare them for the working world?

  • 33% of all grads
  • visual and performing arts students: 42%
  • Social science grads: 36%

What about college grads who got real-world experience?

  • 77% of graduates of the top 100 four-year programs who worked part-time, did internships or employee mentorships felt prepared for work, compared with 59% who lacked such experience.

Given the chance, how many would’ve picked a different career:

  • 50% of all grads
  • visual and performing arts majors: 47%
  • Social science majors:  39%.

Colleges Grads that couldn’t find jobs in their chosen field:

  • 40% of “top 100 school” grads
  • Social science grads: 36%
  • Visual and performing arts grads: 42%.

Pay:

  • a “top 100” school grad will earn 17%-19% more than students from other schools.

College grads working in retail that didn’t plan to:

  • Six times as many graduates are working in retail or hospitality as had originally planned.
  • 1.7 million grads getting a bachelor’s degrees this year translates into 120,000 young people are working as waiters, Gap salespeople, and baristas because it was the only work they could find.

See the original article for the definition of “top 100” school, and the rest of the article.

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Want to see if a college degree is worth it? Consult this 2014-2015 listing of entry-level and mid-career salaries for various careers here.

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