America’s Student-Loan Burden Is Getting Severe

signal

Member
Oct 28, 2017
18,026
Bloomberg

There’s some good news and bad news about the state of Americans’ finances embedded in the Federal Reserve Bank of New York’s latest Quarterly Report on Household Debt and Credit.

First, the good news: 95.6% of households were current on their debt payments as of the second quarter, whether that’s mortgages, student or automobile loans or credit card bills. That’s the largest share since the third quarter of 2006, which of course was well before the financial crisis and the start of the last recession. It’s a sign that many individuals and families are continuing to benefit from this record-long recovery and have the resources to make timely payments on what they owe.
The bad news is that the share of households deemed “severely derogatory” on payments isn’t going away like it was 13 years ago. The category, which the New York Fed defines as “any stage of delinquency paired with a repossession, foreclosure, or ‘charge off,’” is hovering at 2%, the same level it’s been at since the second quarter of 2015. As the bank’s researchers noted in a blog post, severely derogatory balances now make up almost half of all delinquencies, the largest share ever in data going back to 2003.

What’s behind this trend? The answer may not be all that surprising to those who’ve heard Bernie Sanders, Elizabeth Warren and other Democrats on the campaign trail: Student loans.
Of the roughly $250 billion severely derogatory outstanding balance, defaulted student loans make up 35%, the report found. That’s a new phenomenon: For years, student loans barely registered compared with mortgages and credit cards. But, as the researchers noted, the U.S. housing crisis is in the rear-view mirror and the foreclosure pipeline has cleared out pretty much everywhere across the country. On the other hand, defaults on student debt “have grown stunningly since 2012,” they said.


Digging a bit deeper into the New York Fed’s report, those who are transitioning into serious delinquency (90 or more days late) on their student debt payments aren’t who you might expect. Those aged 18 to 29 are actually experiencing the slowest increase in delinquency rates as of late, while older Americans are falling behind. In particular, the category of 40- to 49-year-olds has experienced a significant jump in recent quarters.
The takeaway is that student loans are a real concern to a lot of Americans. Their explosive growth seems to be holding back a swath of U.S. households during this economic expansion. Delinquent debt not only has to be paid back, which is money that could be used to purchase goods and services, but it also significantly impedes a household’s ability to access credit. That, in turn, makes it more challenging to start a business, buy a home or even get a job.
 

Furfur

Alt account
Banned
Aug 5, 2019
43
REPAYE for life.

I'm never paying mine back and I really couldn't care less.
 

Pandora012

Avenger
Oct 25, 2017
2,364
Yeah not surprised. Eventually if nothing is done, this mess will fuck up the economy down the line.
 

PeskyToaster

Member
Oct 27, 2017
4,537
They bandaged ballooning college costs and stagnating wages with student loans and now it's coming back around. I'm lucky to have been able to pay mine off but I also made some decisions like going to a cheaper university.
 

Razgriz417

Member
Oct 25, 2017
2,673
getting?

I'm glad I was able to get by with mostly scholarships and loans from my parents so that I was debt free by 25

edit: well monetary debt at least, will be paying my family back one way or the other for the rest of my life lol
 

Furfur

Alt account
Banned
Aug 5, 2019
43
Wouldn't this screw up your credit score completely?
No. Under REPAYE you only make payments proportional to your income, since I make $20,000 a year my monthly payment is like $15. If you make less than $18,000 you pay nothing at all. The government also covers the interest if your payments are too low so the principal doesn't increase.
 

CopperPuppy

Member
Oct 25, 2017
6,682
People have been handwaving this as not a legitimate concern for years. Even on Era - just look at past student loan threads.

The fucked up part is that for people who are using income-based repayment, if they DO get to the end of their repayment periods, the amount forgiven - which will have been ballooning for 20-25 years - will be reported as taxable income for all of those individuals, causing widespread unpayable and non-dischargeable tax burdens that render the indebted insolvent. Since many of these programs started up around the same time, this will happen in large swaths across the country when it begins. Not unlike adjustable-rate mortgages resetting to higher rates and triggering mass nationwide default in 2007.
 

G_Shumi

Member
Oct 26, 2017
2,914
Cleveland, OH
I would have $600 more to use every month if I didn't have any student loans.
Same here! And the worst part is that I've been paying my student loans but I still have about 6-7 years left at this rate until they're fully paid off. I've basically been paying the stupid interest that's accrued because I wasn't able to pay any of it for a few years after I graduated. Student loans are destroying our economy.
 

Lumination

Member
Oct 26, 2017
2,584
People have been handwaving this as not a legitimate concern for years. Even on Era - just look at past student loan threads.

The fucked up part is that for people who are using income-based repayment, if they DO get to the end of their repayment periods, the amount forgiven - which will have been ballooning for 20-25 years - will be reported as taxable income for all of those individuals, causing widespread unpayable and non-dischargeable tax burdens that render the indebted insolvent. Since many of these programs started up around the same time, this will happen in large swaths across the country when it begins. Not unlike adjustable-rate mortgages resetting to higher rates and triggering mass nationwide default in 2007.
Wait, what? That's fucking terrifying.
 
Oct 27, 2017
3,600
No. Under REPAYE you only make payments proportional to your income, since I make $20,000 a year my monthly payment is like $15. If you make less than $18,000 you pay nothing at all. The government also covers the interest if your payments are too low so the principal doesn't increase.
So are you working under the assumption that you're never breaking out of $20,000/yr salary or that you will and will then refuse to pay anything more than you currently are?
 

Furfur

Alt account
Banned
Aug 5, 2019
43
So are you working under the assumption that you're never breaking out of $20,000/yr salary or that you will and will then refuse to pay anything more than you currently are?
Even if my income were to rise the payments would still be proportional. Like if I were to make $30,000 a year my payments would be $100 a month, but that would be affordable because I would be making another $600 a month a post-tax.

But yeah I don't expect to ever make much more than I am currently. I could maybe make a tiny bit more (like $12 / hour vs. $10) by taking one of the sales or collections jobs recruiters are always trying to hit me up for, but I'd honestly rather continue working as a janitor than take one of those jobs which I know would be completely miserable.
 

CopperPuppy

Member
Oct 25, 2017
6,682
Wait, what? That's fucking terrifying.
Under IBR, PAYE, and REPAYE, you pay anywhere between 10-15% of your adjusted gross income monthly for 20-25 years, depending on the plan. Lots of people are on these plans because their loan principals are too high to service with their income. As a result, the 10-15% they're paying typically doesn't do enough to pay down the debt meaningfully, resulting in interest piling up and the total debt amount expanding over 20-25 years.

The US tax code counts discharged debt as taxable income, no different than a wage you're paid for labor. Current tax law does NOT provide an exemption for debt discharged under IBR, PAYE, or REPAYE (only under PSLF, the ten-year government/not-for-profit plan, a much smaller portion of those under income-driven plans), meaning any debt discharged under those plans after 20-25 years will count as taxable income to the extent of the debtor's solvency.

Needless to say, this will be financially catastrophic for individuals who had to rely on an income-based plan to service a large debt in the first place.
 

Christian

Member
Oct 25, 2017
3,956
I’m sure if we just leave this alone, it’ll work itself out. Just like the environment! Nothing to see here.
 

Lumination

Member
Oct 26, 2017
2,584
Under IBR, PAYE, and REPAYE, you pay anywhere between 10-15% of your adjusted gross income monthly for 20-25 years, depending on the plan. Lots of people are on these plans because their loan principals are too high to service with their income. As a result, the 10-15% they're paying typically doesn't do enough to pay down the debt meaningfully, resulting in interest piling up and the total debt amount expanding over 20-25 years.

The US tax code counts discharged debt as taxable income, no different than a wage you're paid for labor. Current tax law does NOT provide an exemption for debt discharged under IBR, PAYE, or REPAYE (only under PSLF, the ten-year government/not-for-profit plan, a much smaller portion of those under income-driven plans), meaning any debt discharged under those plans after 20-25 years will count as taxable income to the extent of the debtor's solvency.

Needless to say, this will be financially catastrophic for individuals who had to rely on an income-based plan to service a large debt in the first place.
Yeah, I just assumed they all worked like PSLF. The logic behind this makes absolutely no sense. Thanks for typing it out for others.
 

thewienke

Member
Oct 25, 2017
1,548
Auto loans are also quietly becoming a major problem as people keep defaulting on what I assume are these 7 year loans for a $70,000 SUV or pickup truck.

Really it’s just staggering looking at how much was outstanding prior to the recession and afterward.

What’s a real problem also is that auto loans are secured by a rapidly depreciation asset and student loans are secured by nothing. At least the real estate market could self correct simply by making your payments and waiting it out until the values recover.
 

daveo42

Member
Oct 25, 2017
11,517
Ohio
I'd be screwed right now if I didn't have access to an income-based repayment plan. I could easily see my rates increase this year by 2x and put me in the $500+ range per month just because I got a slightly better job.
 
Oct 27, 2017
3,600
Auto loans are also quietly becoming a major problem as people keep defaulting on what I assume are these 7 year loans for a $70,000 SUV or pickup truck.

Really it’s just staggering looking at how much was outstanding prior to the recession and afterward.

What’s a real problem also is that auto loans are secured by a rapidly depreciation asset and student loans are secured by nothing. At least the real estate market could self correct simply by making your payments and waiting it out until the values recover.
Wow that is... such a good point and I never thought about it that way. Investing in a home at least leaves the potential to sell for what you bought in for or make a profit. A car on the other hand is depreciating as time goes on and student loans? fuhgeddaboudit
 

MrNelson

Community Resettler
Member
Oct 25, 2017
1,437
Tampa, FL
Same here! And the worst part is that I've been paying my student loans but I still have about 6-7 years left at this rate until they're fully paid off. I've basically been paying the stupid interest that's accrued because I wasn't able to pay any of it for a few years after I graduated. Student loans are destroying our economy.
Were you not able to switch to IBR?
 

Auros01

Avenger
Nov 17, 2017
1,875
It's been interesting to live through this because it really has made me think hard about what I would do if I had kids and wanted to send them college. I wouldn't want them to be saddled with a heavy amount of debt but college is so wildly expensive now, even if you (as a parent) set aside a bit of money each month for eventual tuition costs.

What a scam this whole thing is been. I really feel for all the people that are stuck with these high amounts of student debt.
 

Pandora012

Avenger
Oct 25, 2017
2,364
I'm on the PSLF, and god willing, that will work out for me. I have documents and everything to prove I have met the correct criteria.
 

LegendofJoe

Member
Oct 28, 2017
5,141
Arkansas, USA
I live in a much smaller and older house than my income would normally allow me to afford because of student loans. It's the only way I'll ever be able to pay them off.

It is what it is, I am at least fortunate enough to be a homeowner when most people in a similar situation are not.
 

MazeHaze

Member
Nov 1, 2017
3,243
It's almost like maybe there is something fishy about brainwashing children that they have to go to college to be successful, and then allowing them to take on 100k in debt while they are still teenagers, with no credit history or demonstration of an ability to pay it back.
 

Culex

Member
Oct 29, 2017
723
One reason I’m dumping money into my kids 529 plans and custodial accounts. I’d rather be broke now and know they won’t have to worry about a never-gonna-pay-off debt like tuition.
 

Gwarm

Member
Nov 13, 2017
306
I'm on IBR and working for a non-profit so I qualify for the public service forgiveness program. I had to refinance a few of my loans into the qualifying direct loans, but aside from that it has been a relatively easy process. Send in your paperwork each year to make sure your payments qualify because you don't want to be one of those people who just assumed and found out they didn't after 10 years.

I would encourage any healthcare worker to look into the program. Many hospitals are non-profit and will qualify.
 

est1992

Member
Oct 27, 2017
2,392
It's almost like maybe there is something fishy about brainwashing children that they have to go to college to be successful, and then allowing them to take on 100k in debt while they are still teenagers, with no credit history or demonstration of an ability to pay it back.
This. It pained me to see the PA's on set this past summer who were spending thousands going to a mediocre film school because somebody told them they "have to do it to be successful", meanwhile they're working under a person that spent 0 time in college and is making 10x more than the person that gave them that advice in the first place.
 
Jan 29, 2018
1,686
I was lucky enough to be able to pay off my loans a few years ago but we're doing it again with my wife's loans now. She set up IBR before we filed taxes together for the first time so her monthly payment is like $16, which is significantly less than the interest that accumulates. I've been throwing an extra hundred or two at it every month, but its fucking stupid.
 

Pandora012

Avenger
Oct 25, 2017
2,364
I'm on IBR and working for a non-profit so I qualify for the public service forgiveness program. I had to refinance a few of my loans into the qualifying direct loans, but aside from that it has been a relatively easy process. Send in your paperwork each year to make sure your payments qualify because you don't want to be one of those people who just assumed and found out they didn't after 10 years.

I would encourage any healthcare worker to look into the program. Many hospitals are non-profit and will qualify.
basically in the same situation, will be sending my forms in again in october.
 

Thunder11

Member
Oct 27, 2017
1,008
Under IBR, PAYE, and REPAYE, you pay anywhere between 10-15% of your adjusted gross income monthly for 20-25 years, depending on the plan. Lots of people are on these plans because their loan principals are too high to service with their income. As a result, the 10-15% they're paying typically doesn't do enough to pay down the debt meaningfully, resulting in interest piling up and the total debt amount expanding over 20-25 years.

The US tax code counts discharged debt as taxable income, no different than a wage you're paid for labor. Current tax law does NOT provide an exemption for debt discharged under IBR, PAYE, or REPAYE (only under PSLF, the ten-year government/not-for-profit plan, a much smaller portion of those under income-driven plans), meaning any debt discharged under those plans after 20-25 years will count as taxable income to the extent of the debtor's solvency.

Needless to say, this will be financially catastrophic for individuals who had to rely on an income-based plan to service a large debt in the first place.
Thankfully with REPAYE they subsidize half the accrued interest for the first three years you do it, which could help depending on the situation

And yes, the tax bomb is massive
 

Commedieu

Member
Nov 11, 2017
5,973
I've always been curious as to how this collapses. I don't see how it is possible.
Who is buying the student debt/leveraging it? IF none of the students are paying, all that you've leveraged on top of those promises to be paid are going to come back wanting money eventually. Same with the car loans.

If the only solutiion is printing more money... i guess it technically wont as long as the USA can bully other countries to play along?

I mean im just speaking from sense that Loans are for jobs.

There aren't any jobs. That isn't sustainable.
 

real2

Member
Jan 31, 2019
81
I'm currently working toward my way in applying to med school, and if I do get in i've already resigned the fact that it will take a very long time to pay off. Student loan in the USA is a total shit show
 

Plinko

Member
Oct 28, 2017
4,618
It has, is, and will collapse other industries however. It's having a massive impact on home purchases and the birthrate and that has negative cascading effects across the economy.
Right--that's what I was getting at. I dont see how this will affect the student loan industry at all. It will keep plugging away as normal.
 

petethepanda

Member
Oct 25, 2017
3,503
only in theaters
I would have $600 more to use every month if I didnt have any student loans.
Yep, about $650 here. It kills me. Something got me thinking yesterday about how much money I could have saved up in the 10 years since graduating if I didn't have student loans taking up such a significant percentage of my paycheck every other week, and man, it's just fucking depressing. I'm at least lucky to only have around 15 years left at this rate, I know people who are far worse off. The program I was in has increased by 10k/yr since I graduated and I feel awful for people starting it now.

I'm sure college is worthwhile for certain degrees and careers, but the particular school and degree I chose to put myself into hilarious debt for will likely never be topped as the worst decision of my life.
 
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DaveLong

Member
Nov 2, 2017
534
I'm a father of three. Student loan debt is piling up for my kids and of course I had to backstop them on it so it's on my head as well. There are two other options... they don't go to college and hope to luck into a good paying job, or I take on the debt for them entirely via the "Parent Plus" Loan, which is not "Plus" in any way. It's simply me footing the entire bill.

I'm in that 40-49 range. Those of you that are young and in college now... this is what you can look forward to after you pay your own debt. Twenty years ago I was paying my own $20k of loans, which was a lot for the time.
 

sgtnosboss

Member
Nov 9, 2017
2,536
IL
Even if my income were to rise the payments would still be proportional. Like if I were to make $30,000 a year my payments would be $100 a month, but that would be affordable because I would be making another $600 a month a post-tax.

But yeah I don't expect to ever make much more than I am currently. I could maybe make a tiny bit more (like $12 / hour vs. $10) by taking one of the sales or collections jobs recruiters are always trying to hit me up for, but I'd honestly rather continue working as a janitor than take one of those jobs which I know would be completely miserable.
Under IBR, PAYE, and REPAYE, you pay anywhere between 10-15% of your adjusted gross income monthly for 20-25 years, depending on the plan. Lots of people are on these plans because their loan principals are too high to service with their income. As a result, the 10-15% they're paying typically doesn't do enough to pay down the debt meaningfully, resulting in interest piling up and the total debt amount expanding over 20-25 years.

The US tax code counts discharged debt as taxable income, no different than a wage you're paid for labor. Current tax law does NOT provide an exemption for debt discharged under IBR, PAYE, or REPAYE (only under PSLF, the ten-year government/not-for-profit plan, a much smaller portion of those under income-driven plans), meaning any debt discharged under those plans after 20-25 years will count as taxable income to the extent of the debtor's solvency.

Needless to say, this will be financially catastrophic for individuals who had to rely on an income-based plan to service a large debt in the first place.

I think you two need to side bar, that is scary.
 

LanceX2

Member
Oct 25, 2017
2,230
me and my wife paid her college off every year.

she was a pizza driver and i was an electrical apprentice making 10$

Not sure why people think its okay to not pay their debt.

I agree college is INSANELY for alot of colleges but you can find a college for 15k a year.
 

LanceX2

Member
Oct 25, 2017
2,230
Yep, about $650 here. It kills me. Something got me thinking yesterday about how much money I could have saved up in the 10 years since graduating if I didn't have student loans taking up such a significant percentage of my paycheck every other week, and man, it's just fucking depressing. I'm at least lucky to only have around 15 years left at this rate, I know people who are far worse off. My own degree has gone up by 10k since I finished it and I feel awful for people starting it now.

I'm sure college is worthwhile for certain degrees and careers, but the particular school and degree I chose to put myself into hilarious debt for will likely never be topped as the worst decision of my life.

what are you making in your career? My wife became a teacher making shit pay but we paid it off every year.

she didnt live on campus but we were still paying 10k a year
 

MazeHaze

Member
Nov 1, 2017
3,243
me and my wife paid her college off every year.

she was a pizza driver and i was an electrical apprentice making 10$

Not sure why people think its okay to not pay their debt.

I agree college is INSANELY for alot of colleges but you can find a college for 15k a year.
Maybe because when youre 17-18 years old you might possibly have no concept of how much money you're taking on, interest rates, etc. Student loans are predatory by nature, they prey on children, people who aren't even old enough to drink and are still in high shool, yet lenders have no problem letting them take on $100k in debt that they statistically will never be able to pay back. I'm 30 and I have $80k in student loans and there's no way I'll ever be able to afford to pay that back unless I start making double what I make now. If the idea that college is mandatory hadnt been crammed down my throat by the US public education system, I wouldn't have gone at all, and I'd be in a much better place in my life.