The Subprime Student Loan Crisis

By
Friday, May 28, 2010 at 3:51 pm

The New York Times’ Ron Lieber has an excellent column on the severe hangover left by the cocktail of cheap credit and spiraling college tuitions: the tens of thousands of young people saddled with tens of thousands of dollars of what is, effectively, subprime student loan debt. In some cases, that student debt is more onerous than mortgage or credit-card debt, since it is difficult to get rid of via bankruptcy.

Lieber elucidates the point by telling the story of Cortney Munna, who lives in pricey San Francisco, makes $22 an hour and owes $97,000 to Citibank and Sallie Mae for her New York University diploma. She is a photographer’s assistant, and has no intention of going into a high-paying career in a field like finance. She is stuck, and her mother might end up selling off her bed and breakfast to rid her of debt.

Lieber’s story is particularly exceptional for making the argument others are loath to make: that Munna’s education was not worth it, and that she would have been better off dropping out and enrolling somewhere cheaper. Of course, on aggregate, people with college diplomas significantly out-earn those without them. And of course, it is impossible to calculate the value of time spent in school or of education for its own sake. But in Munna’s case, where a college diploma makes no difference in her earning potential in her chosen career, remaining in a pricey institution — New York University is the fourth most expensive out of the nation’s 1,800 private colleges — might not have been the right choice.

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Thomas
Comment posted May 29, 2010 @ 12:16 pm

“her mother might end up selling off her bed and breakfast” Might? She cosigned, of course she will have to sell it. And quite frankly she deserves to be out on the street for all the nonsense she filled her daughters head with.

Women and religious studies? What does that even mean? That is a Micky Mouse degree any way you look at it.

The best option I see for Courtney is to default and leave the country.


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brad
Comment posted May 29, 2010 @ 4:44 pm

Nobody dislikes the student loan racket more than me. but i knew how much i borrowed and i was prepared to pay it back at a low interest rate. my issue is with the ridiculous interest rates (15%-18%) and the lack of consumer protections. The excessive interest rate has profoundly changed my life, negatively. i'm fortunate enough to have a decent job and can make interest only payments — otherwise i would no longer be an American. the other real issue is with the inflated cost of college tuition.

i stand to repay 7 times my borrowed amount, that should be criminal. i never would have taken $100,000 in loans, that is clearly unmanageable. i think if they drop this girl's interest rate to something like 2.5%, and cap her total payments at something less than $200,000 then that would be fair. everybody wins.


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Strych09
Comment posted May 30, 2010 @ 5:37 am

I believe Lieber's column did what journalists call “burying the lede”. The issue is not that Ms. Munna should have dropped out of NYU, it's that she had no business taking on that kind of debt toward an absurd “Women and religious studies” degree, not that she shouldn't have taken on that kind of debt to go to NYU. Lieber should have had that information in the first paragraph.

Heck, Ms. Munna is lucky she has a job at all with that kind of education, much less one that pays her close to $47k per year.


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Bob
Comment posted June 1, 2010 @ 3:42 pm

There's a strange meme circulating in elite circles these days — that there are far too many people attending college than ought to. I can only hope no one listens to this talk or alters college prep tracking or acceptance decisions accordingly. The idiot children of the rich will never stop attending college, much less elite colleges; instead, the folks who would be disadvantaged from this kind of approach would be working class kids trying to climb out of the class to which they were born.


Devon Noll
Comment posted June 1, 2010 @ 4:55 pm

I am 57 years old and was forced back into college to get a Master's degree after a former employer committed worker's comp fraud and the company whose worker injured me got off because of tampering with a witness and destruction of evidence by my employer. I am in debt to the tune of $136,000 because when I completed my Master's, the stock market crashed and there were no jobs for someone with a degree in Public Administration at my age. I went on to try for a PhD. that might have gotten me a teaching position, only to max out my loans and not have any grant money available just before starting on the dissertation. So now I am ABD at age 57 with no job prospects and only a small SSDI payment to cover my bills. I will have to get deferments on my student loans until the job market improves, but that may still not be enough time. I will be over 80 before my loans are repaid, and that is assuming that I can find a job or make one for myself that would allow me to work that long. I am not irresponsible, just desperate to work in an economic environment where my age and education now work against me, instead of for me.

My sympathies go out to anyone who finds themselves in such a situation, but the girl in this article is not one of them. She wasted time and money that another student could have benefited from with a degree that, unless you are planning to enter the ministry, is essentially worthless. She obviously had no such intent. As for her salary range, if she is not paying her student loans, then she is not trying and expects her mother to pick up the tab for her. Her mother should be telling this girl to either pay the loans and cut out the excess spending (and yes, you can live in SF for less that $47K per year quite comfortably, but not luxuriously) or get a real job. Undergraduate federal student loans are capped at $57,500 at about 6.8% which makes her payments between $663.41 for 10 years or $439.49 for 20 years. Based on her income, which used to be my husband's, she can easily afford the lesser payment if she chooses this repayment option (I know because we did it in larger, more expensive places than SF). There are other options that are tied to her income level that are smaller, but she needs to take responsibility for this debt and not force it onto her mother. This girl needs to grow up.


Debbie D
Comment posted June 1, 2010 @ 7:17 pm

Stop focusing on what type of degree she got. 90% of NYU's degrees are grossly overpriced, if not worthless, in today's economy.

Go ahead and blame the borrower if that makes you feel better. But, WHEN she defaults and she most certainly will, we taxpayers will be 100% on the hook for the principal plus 15% interest, plus late fees, all compounded daily of course. That's why these schools and banks are so eager to bury students in debt. It's risk-free money-making for both the schools and banks.

These schools and banks are in bed together. As recently as April 2007, NYU admitted receiving kickbacks from Citibank. They promised Cuomo they'd stop selling their students down the river. These so-called alma maters (“nourishing mothers”?!?, haha, yeah right!!) should be ashamed of themselves.

If they're going to bury their students deep in non-dischargeable debt, then they should lose their tax-exempt status and pay taxes like every other for-profit business in America.


Maxwell
Comment posted June 2, 2010 @ 1:40 pm

Annie, you conveniently failed to mention that she majored in women's studies. She majored in women's studies and now she works as a photography assistant. She has the job for which she is qualfied for. This should serve as a cautionary tale to anyone who wants to major in women's studies. You'll be in debt forever, and you'll be working at a photo studio or serving lattes forever.


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DorothyP
Comment posted June 2, 2010 @ 11:43 pm

I think there's a big disconnect between the prestige of a namebrand college and the payoff. If Ms. Munna had majored in Film at NYU, her degree might have actually paid off in terms of career growth and earning potential. If she'd gone to Ringling or Art Center College of Design or CalArts and majored in photography–same idea.

But her choice of major and her current job don't make any sense. Her public Facebook profile says she's studying chemistry–med school?

She could have studied religion at a number of well-regarded cheaper schools–but the combination of NYU and major seems a lethal cocktail.

And I wouldn't hire anyone who doesn't understand compound interest.


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Mitronko
Comment posted August 12, 2010 @ 6:22 pm

She should have taken Men Studies instead. At least that would help her get a guy who could pay her debt.


birdinthesky
Comment posted November 22, 2010 @ 11:25 pm

“And quite frankly she deserves to be out on the street”

Be careful what you wish for others, as it might turn around on you.

In all seriousness, if any of you would look into how the money is leveraged for these loans you would realize that the reason the college tuitions are so high is because of these same banks that are now parasiting the students who wanted to build a productive life for themselves.

Middle class is being removed by design. Robber barons (Rothchilds, Rockerfellers, Duponts, royal families of EU etc…) want slaves. They believe they have evolved past the rest of the humanity which they now see as their livestock.

If the elite of this world is left to do what they do best – the middle class will disappear entirely, and you will once again experience life as a medieval serf. The predator class is starting to feed on the gullible and sleeping middle class, whose children wont even be able to understand what is being done to them because they never had a chance at higher ed.


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Comment posted September 4, 2011 @ 11:56 am

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