Deadbeat Kids With Student Loans
Parents who co-signed for their kids' student loans are having some unhappy days, writes Kelly Greene in the WSJ:
Cyndee Marcoux already was stretched thin, thanks to the $80,000 in student loans she racked up after getting divorced and going back to school a decade ago. Her breaking point came in 2010, when her daughter defaulted on student-loan payments of her own.That's because Ms. Marcoux, a 53-year-old library administrator in Seekonk, Mass., co-signed for about $55,000 of her daughter's loans. When the daughter was unable to keep making payments, Ms. Marcoux was on the hook--a burden that forced her to reshuffle her entire life. To scrape up the extra $550 a month she owed, she sold her house, then took a second job registering emergency-room patients on the weekend overnight shift. "You work your whole life and never pay a bill late," says Ms. Marcoux. "You don't ever think your kid isn't going to pay."
After years of facing all sorts of financial pressures they never expected, from adult kids moving back home to their own parents needing help to retire, empty nest parents are struggling with a new headache. Thinking it was only natural to want to help children and grandchildren, many co-signed student loans. Now, they're becoming the latest victims of the nation's mounting problem with student-loan debt, which surpassed the $1 trillion mark last year.
At a growing rate, young graduates who are either out of work or who didn't land high-paying jobs find themselves unable to pay their loans. When primary borrowers stop paying, co-signers are expected to pick up the tab--and soon find themselves fending off debt collectors. "People are confused about what it means to co-sign, and their ongoing obligation," says Deanne Loonin, director of the Student Loan Borrower Assistance Project at the National Consumer Law Center, a consumer-advocacy group in Boston. "When they come to understand that they are equally liable, the regrets set in."
Antony Davies and James R. Harrigan in US News on the education bubble:
Just as the government sought to engineer people into houses, it now seeks to engineer them into higher education. Congress established Sallie Mae in 1972 to encourage banks to loan more money for college. The Affordable Care Act of 2010 allowed the government to loan money directly to students. The following year the Taxpayer Relief Act extended tax breaks to student loan borrowers. Predictably, the Federal Reserve kept interest rates at historically low levels, making college loans cheaper.And the price of a college education soared--just as one would expect from a market flooded with cheap money. By law, lenders cannot even deny Stafford and Perkins loans (types of federal student loans) based on the borrower's credit or employment status. What other reason is there to deny a loan? And just as home buyers took out loans to speculate on houses they could never hope to afford, students are taking out loans to cover educations they often cannot complete and which often do not hold value in the market even when completed. Government meddling has again separated profit from risk. Universities get to keep the tuition profits while taxpayers are forced to shoulder the risk of students not paying back their loans.
Once again government has created the conditions for wholesale failure, and failure is upon us.
From 1976 to 2010, the prices of all commodities rose 280 percent. The price of homes rose 400 percent. Private education? A whopping 1,000 percent.
In the end, this bubble will be worse than the last. Even when homeowners got hopelessly behind on their mortgages, two options helped. First, they could declare bankruptcy and free themselves of their crippling debt; second, they could sell their houses to pay down most of their loans.
Students don't have either of these options. It's illegal to absolve student loan debt through bankruptcy, and you can't sell back an education.
The simple fact of the matter should be obvious by now: Government created this mess, in both instances, by forcing the market to provide loans it would not have granted otherwise. As is its custom, government did by force what no private lender would have ever done by choice. This is the breeding ground for bubbles, and this one will burst just as they all do. As with the last bubble, politicians will blame the "greed" of the marketplace. How many more bubbles must we endure before we realize that the problem isn't greed and it isn't markets? The problem is government interference.
Cammy talked about this the other night at Skirball. She's in the habit of disparaging all of higher Ed when her complaint is mostly with the Humanities. But given the scope of the problem, it no longer seems worth quibbling about.
Also, my dreams keep dying (or marrying off).
CridComment@gmail.com at October 28, 2012 12:01 AM
(Photo of a T-shirt.)
Crid [CridComment at gmail] at October 28, 2012 5:01 AM
Um, why does it cost more than $80,000 to learn how to sit in your ass in an air condition building and hand out free books?
lujlp at October 28, 2012 5:47 AM
Don't you know that there are 10 major classes in the Dewey Decimal System? That means she only paid $8000 per each classification.
Jim P. at October 28, 2012 6:17 AM
Lujlp - you misread that.
It didn't cost her $80,000 to learn how to sit in an air-conditioned building to hand out free books.
Nooo, she is "Library Administrator"; that means she supervises others on how to hand out free books while sitting on her ass in her own taxpayor funded office. That is a more challenging job requiring a more expensive education.
Charles at October 28, 2012 7:45 AM
That t-shirt is fucking hillarious!
Eric at October 28, 2012 8:31 AM
"Um, why does it cost more than $80,000 to learn how to sit in your ass in an air condition building and hand out free books?
"
Partially, because it is the only legal way of hireing someone and not be sued for discrimination.
Partially so the students can get fringe benifits at school, indoor rock walls, cheap movies, concerts, foreign travel, and enough PC diversity training/green living to make up for the guilt you should be feeling for wasting other peoples money.
Joe J at October 28, 2012 8:34 AM
My kid just graduated college and quickly landed a fabulous job with fabulous pay and benefits. How is that possible, in this economy? Surprise ... he majored in engineering, not diversity studies.
Jim Simon at October 28, 2012 8:51 AM
It's shocking the way lenders expect their loans to be repaid.
If this keeps happening we could have an epidemic of integrity or, God forbid, self-reliance!
Makes me shudder just thinking about it.
Gog_Magog_Carpet_Reclaimers at October 28, 2012 9:33 AM
But why aren't these loans forgivable in bankruptcy? The feds bail out GM, but not parents?
KateC at October 28, 2012 11:04 AM
Well, if people learn that parents will be forgiven for their school loans, that's how it will be done.
McArdle on school loans and on cosigning.
Crid [CridComment at gmail] at October 28, 2012 11:16 AM
If student loans could be discharged with bankruptcy, lenders would be MUCH more careful who they lent to. School prices would drop, since schools could no longer gouge every attendee for every dime the government will guarantee. Self-correcting market. The problem arises when government interferes by telling lenders who they HAVE to lend to and tries to makes up for it by telling students they can never ever ever get out from under that debt.
momof4 at October 28, 2012 11:21 AM
I sincerely appreciate the irony of your point about GM... But loan forgiveness for students may do more to demonstrate the essential corruption of the Government than did the auto bailouts.
'Free education' sounds much nicer 'n' kinder 'n' more compassionate than it actually is.
Crid [CridComment at gmail] at October 28, 2012 11:23 AM
Too many people in college that ought to be in trade school. I see a big shortage of plumbers, electricians, heavy equipment operators, repairmen (etc)in our near future. If everyone is working at a desk, there will be no one to build and maintain our infrastructure that is dissolving by the day.
I'd rather see someone excel in a trade school than flunk out of college. As the older skilled tradespeople retire, there are very few to take their places. And won't be, until we hit a critical shortage and wages go up, which will happen sooner than one might think.
It will happen. When the toilet is overflowing or the lights are out...who needs another lawyer or stockbroker? Quit pushing the unwilling or under-talented into an expensive college degree, steer them to skilled trades and and we will all be better off.
The wealthiest guy from my high school class inherited a garbage business and is now the local recycling king. My autobody shop owner cousin is much wealthier than the lawyers/psychologist/professor/nurses in our generation. My hairstylist has an Masters in Fine Arts and makes more money cutting hair than she did at the art museum. She had no problem paying off the loans for beauty school, although her Dad is still paying on the MFA.
Amuse at October 28, 2012 11:42 AM
How many more bubbles must we endure before we realize that the problem isn't greed and it isn't markets? The problem is government interference.
No. The problem is people like "Cyndee" in graf 1.
Kevin at October 28, 2012 1:17 PM
The fallacy in your argument:
Jim P. at October 28, 2012 8:20 PM
Amuse has some good points but I think misses some what.
In talking with one of my brother's friends who is an electrician, in the area where he works there is an extreme over abundance of electricians and plumbers, etc. His point was that almost all the people in these professions were engaged in building and remodels. With the housing crash there is now need for very few of them. He said that earlier that week he was around 600th on unions registry and there was not even 200 people hired that day. He said the plumbers were in a worse situation.
My cousin is the manager of a big auto repair shop. He makes good money (though he also had to go to night school to get that job). The owner who started it makes lots of money. But just about all the rest top out at about $15/hour with limited benefits. So the auto mechanic is most likely making less than the desk driver...but there is a small chance they are making a lot more. If you look at his son who decided he would start is own car customaization shop...well he has good revenue but little profit (around 400/week and no benefits).
The Former Banker at October 28, 2012 8:52 PM
People should simply take Dave Ramsey's advice on this: do not cosign for anything. For anyone. Ever.
This goes double when discussing the exchange of giant amounts of money for borderline useless slips of paper.
MikeInRealLife at October 29, 2012 8:25 AM
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