Last week, The New York Times ran a particularly depressing article about how college students are taking on too much debt to ever pay back. Lenders were encouraged to do this, because not only were the loans government-backed, but the new bankruptcy laws don’t discharge educational loans.
The Times showcased a recent NYU graduate, Cortney Munna, who ended up owing over $100,000 in student loans and had to enroll in night school to avoid the unaffordable monthly payments that would start once the classes stopped.
While many viewed this article as yet another example of the Brazilification of the United States, thank goodness Danville Realtor Greg Fielding has put this story into the proper perspective. Who’s Greg Fielding? He founded the group blog housingstorm, and also runs Bay Area Real Estate Trends.
Greg Fielding believes that high college debt is a problem because indebted graduates can’t take on further debt to become homeloaners!
From a real estate perspective, this could impact the starter-home markets for the a decade or more as the next generation of first-time homebuyers is already burdened with too much debt.
And if they have so much debt they have to stay in night school forever, so much for saving up a down payment on that cute little 800 sf condo. Just as the lenders threw money at anyone who could fog a mirror and wanted a house in 2006, it’s happening with college loans now.
All of these actions were taken in the name of helping students, but few ever stopped to consider that loaning an 18-year-old kid $40,000 a year might not be “helping” him. In fact, just like housing, the beneficiaries weren’t the borrowers, but the lenders, brokers, and sellers. It is their collective, repugnant greed to blame.
A Real Estate agent speaking against the excesses in the mortgage market (by way of criticizing the college loan market) is quite refreshing! So, how bad is this problem?
60% of student loans are either in forbearance or default (with interest piling up). A full 60% of these predatory loans are NOT being paid back. This is a staggering number. A full 60% of recent grads are watching their loan balances grow with less and less hope of ever paying them back.
Wait, wait, wait. Math class is hard, but can we agree that if 60% of the loans are not being paid back, that this does not mean 60% of recent grads are affected? The example in the Times, which Fielding himself quotes from, has one student with four different loans. Is it possible that the same people are defaulting on multiple debts, leading to a lower percentage of college grads at risk?
Okay, that’s a digression. 20% or 60%, this is a problem. There is $730 billion in student loan debt, and only 40% of it is being repaid. The rest is either in deferment (no payments, no additional interest), forbearance (no payments but interest accrues), or default. And this is a problem, because:
This generation will have a harder time qualifying for home loans, and will certainly qualify for smaller loans, until these debts are paid off. But we are making NO progress. In fact, the situation is only getting worse.
They will have a harder time qualifying for home loans. Priorities! And speaking of home loans, here’s an example from the Wall Street Journal article showing the difference between home loans and student loans:
Heather Ehmke of Oakland, California, renegotiated the terms of her subprime mortgage after her home was foreclosed. But even after filing for bankruptcy, she says she couldn’t get Sallie Mae, one of her lenders, to adjust the terms on her student loan. After 14 years with patches of deferment and forbearance, the loan has increased from $28,000 to more than $90,000. Her monthly payments jumped from $230 to $816. Last month, her petition for undue hardship on the loans was dismissed.
Fielding doesn’t just see this as preventing future home sales. He questions whether all these people should be buying in the first place, or whether they should borrow for college.
But “more people in college” is not the answer any more than “more people in homes”.
Fielding wants these debts addressed in bankruptcy proceedings, but he thinks government is beholden to colleges and banks. Then government will help colleges and banks instead of debtors. More loans, not fewer. More “debt slavery” rather than less. This Greg Fielding makes too much sense. He almost sounds like a Socialist.
It’s an interesting way to sell houses.