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Monday, December 17, 2012 3:00 AM


Readers Share Their Student Debt Reasons and Experiences


In my post Trends in College Tuition vs. Bachelor’s Degree Wages; Interesting Demographics of Student Loan Debt History I noted skyrocketing student loan debt, especially in the age group 30-39. See article for details.

Since 30-39 is not the typical school demographic, I asked readers 30 years or older who are sitting on a pile of student debt to share their stories and reasons.

A summary of reasons and email snips from readers follows.

Reasons for Skyrocketing Student Debt in Age Group 30-39

  1. Interest rates are so low they encourage not paying off loans
  2. Interest rates are so high and job salary so low that debts cannot be paid back
  3. Economic incentives for special ed teachers and others
  4. Divorce sends middle-aged mothers back to school to get a job
  5. Divorce and child payments sends middle-aged men back to school seeking better opportunities
  6. Pressure to get into management, and management requires additional school
  7. Exploitative ads
  8. Deferred payments
  9. Employers unnecessarily require college degrees 
  10. Those who get married after high school decide to go back to school later in life
  11. Parents co-sign loans shifting debt responsibility to higher age group
  12. Job loss sends middle-aged persons back to school hoping for better opportunities


Email Anecdotes

Reader Steve, went back to school to become a special education teacher. He purposely loaded up on debt because "both our state and the federal government offered economic incentives in the form of student loan forgiveness to people entering that career path. Loading up on student loan debt was the only rational fiscal decision available to us."

Reader Tom went into debt thinking it was a great deal because his loans were at a low rate for 30 years. He now has the cash to pay off his student loans but does not because he "bets that boring index/asset-allocation investing will average better than 3.6% nominal over the next 15-20 years."

Reader Dave and his wife have a combined $90K in debt at a not so attractive rate of 6.8%. Right after he got his MBA Dave reports the "economy collapsed". Dave spent 2 years unemployed, accruing interest. "We'd like to buy a house, but instead we are paying the government back at excessive interest rates."

Reader Colleen mentioned the divorce factor. Women with kids and who did not work previously may need to go back to school as a result of divorce.

Reader Beth, age 30, says "I left undergrad with relatively little debt, but grad school killed me."

Reader Jeremy suggests "some of the initial student loans are in the parents' names, adding to the 'over 30' demographic". He also suggests that right before the housing bust, "tens of thousands of people were getting $16,000 student loans to fund a 2 year real estate college." After the bust there was no way to pay the debt back.

Reader Terry complains of automatic deferrals. Terry writes "My wife had initially asked for a deferment during one semester but after that, and even after repeated calls asking them to stop, they continued to defer payments and capitalize interest. You had better watch what is going on closely or you will suffer because the incompetence is incredible. Keep a sharp eye out or better yet do not go into student loan slavery, as I preach constantly to my children!"

Reader Trish also notes loan deferments writing "I already owe more in compounded interest from having my loans on unemployment deferment than I will ever be able to repay in my lifetime. I am a responsible person who understands I owe someone this money for the education I received. But as things stand now,I will literally go to my grave owing on the loans. I know this is a horrible financial mess, but it may help to explain some of the odd stats."

Reader Lucy writes "many employers are now requiring college degrees for jobs that shouldn’t require one if you have commensurate experience.  For example, one company I am very familiar with decided that all new hires who are not hourly factory workers must have a degree.  They overlooked a very talented and experienced person who had 25 plus years of experience and more training and related skills than anyone with a master’s degree. Business is definitely contributing to the college insanity."

Reader Matthew delayed going to school, and instead got married and got a job after high school. His boss pushed him into management and "company policy was that management had to have a bachelor's degree." Matthew succumbed to the pressure and ended up getting divorced in the process. He now has his B.A. but also a mountain of debt, child support, and a job that pays $8/hour. Matthew writes "For twenty years I've been making $8 an hour. Of course, that figure is a lot less now than it was twenty years ago when I was just starting out. Would I do it again? No. Hell no. I wasted years of my life pursuing this thing, and got nothing more than debt for the effort. My entire situation sometimes makes me laugh when I think about it. Sometimes it makes me cry. Mostly it just makes me bitter. And I try not to think about it."

Reader Drew writes "Throughout the 90s and 2000s, we obtained degrees which are not supported by income. As a result, we deferred monthly payment and/or missed payments over the last decade. It's easy to see how student loans fall to the back of the bus. I'm 39 and am slowly chipping away at my wife's master's degree."

Reader Lynn writes "In Austin, television is filled with badly-acted ads from purported chef school students exhorting the opportunity to go to culinary school and become a professional in the food and hospitality industry. We’re also bombarded with ads for car title loans, quick short term loans, etc.

For people who are stuck, desperate, and not adept at critical thinking, such ads offer a glimmer of hope that will flicker out once they graduate. The offers to help are purely exploitative and I would guess if you scratched the surface of some of these entities, you would find the same players that are tied to Wall Street.

Thanks for all the work you do trying to figure this stuff out, and then putting it out there for people to read. You are a rare soul."

Reader George says "I had many classmates that were borrowing the maximum allowed (even if it wasn’t necessary) simply because they could lock in fixed payments at 2.5%."

George gets the quote of the day for his amusing comment "It’s only a trillion dollars of totally unsecured, non-asset backed debt. What could possibly go wrong?"

Reader Winston wrote a lengthy email asking "Where's the control group?" Winston is tired of studies that hype up salaries of graduates while ignoring those who drop out, and also wondering how much exceptionally bright kids would make if they simply did not go to college. Winston suggests salary comparisons ought to be based on equivalent SAT scores (those who graduated from college and those who didn't).

Billionaire Dropouts

Winston's line of thinking piqued my curiosity. Here are a few names on the Wikipedia list of college-dropout billionaires.

  • Bill Gates - Microsoft co-founder
  • Mark Zuckerberg - Chairman and CEO of Facebook
  • Lawrence Ellison - Co-founder and CEO of Oracle
  • Michael Dell - Founder and CEO of DEll
  • Ralph Lauren - American fashion designer
  • John D. Rockefeller – American oil magnate (deceased)
  • Steve Jobs – co-founder and former CEO of Apple (deceased)

From Wikepedia, "According to a recent report from Cambridge, Mass.-based Forrester Research, 20% of America's millionaires never attended college."

The report is from 2000, thus not so new, but the reference link is certainly catchy "Some Billionaires Choose School Of Hard Knocks".

Think!

If you are a brick-layer or painter, don't think schooling will turn you into a Java programmer. And if you are an out-of-work Java programmer, don't think a culinary school will turn you into a chef.

Regardless of who you are or what you want to become, please think twice if you are considering going back to school to get a degree, especially a degree from a for-profit school churning out useless degrees for which there will be no job when you graduate.

Student debt may become a trap from which there is no escape (and I have a lot of emails from readers that I did not quote) to prove it.

Thanks to all who emailed their thoughts and stories whether I referenced them or not.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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