Bad Debt Reserve

Finance allah shmoop what is the student loan crisis Well

simply put more and more and more students have no

hope of paying back the loans they've borrowed to go

to college Pick a middle of the road priced university

good school but state money is fast evaporating so tuition

and other costs are midway to that of the elite

private institutions like harvard and stanford On those guys tuition

twenty grand a year times for room and board Fifteen

grand a year times four books travel another five grand

a year times for two green unnecessarily priceless add it

all up and the total cost to go to a

middle of the road price university these days all in

while somewhere around one hundred and sixty grand ouch Some

of the money can be paid back via summer work

but it's not easy to find those jobs anymore right

Certainly in california and a lot of students grumpily have

tto live in their old rooms back with parents desperately

hustling artisanal toothbrushes on etsy or moonlighting as a driver

for uber or lift if you like tips But let's

say ten grand gets paid back through summer work each

Summer the interest cost on student loans is high Yeah

Why Well students or a bad risk How would you

like to loan money to a student Tons of them

don't pay back the loans they promised to pay back

when they signed the paperwork taking them out in the

first place Five percent interest rate ten percent Twenty percent

what's the right number Yeah who knows Well all that's

clear is that some very large number of student loans

will default and then cost a fortune in lawyer bills

to collect if they ever get collected at all How

would you feel being the bank who loaned all those

bad loans to people who majored in french literature and

couldn't get a job Well is this fair to the

non dead beat students who actually did pay back the

loans they took out They're not responsible for those students

who were unable to find gainful employment in their field

study or those who are teo you know preoccupied even

bother paying loans back in the first place Regardless all

the goody goodies air left the riding the same skyrocketing

interest rates is everyone else Why Because you have to

Charge the non deadbeats mohr interest to pay for the

deadbeats who didn't pay back their loans Is that fair

No not at all Is it really life You bet

isn't that one of the first lessons they teach you

in college that life isn't fair Well so figure ten

percent on student loans and here's where things get brutal

ten percent interest Ah history and english major graduates from

whatever university with one hundred fifty grand in debt just

saying they owe fifteen grand a year just in interest

and the loan packages require them to pay down the

loan and ten grand a year because they gotta get

their principal back at some point bringing their total annual

repayment to twenty five thousand dollars so that after fifteen

years the loan companies can finally be paid off and

presumably loan the money to some other deserving student But

here's Job reality 10:14 history and english majors and we

know this here It's come up because way hire them

well Other than its mup there are almost no jobs

for history and english majors today other than driving uber

or being a barista may be bartending or you know

convincing hotties to pay your rent by quoting shakespeare about

that not a real job and no union and all

that is said you know until those jobs were taken

over by driverless cars and robots and artificially intelligent computers

pitching woo for the shakespeare quote thing and the relatively

few jobs that do exist don't exactly pay a ton

of money like think forty grand a year for starters

So on forty grand you'll pay say make grand in

taxes and other government fees That leaves you about thirty

two thousand dollars toe live on and to pay off

your loans but you're one you owe twenty five grand

on your loans Fifteen is interest which is not tax

deductible by the way and ten grand is in principle

Pay down So that leaves you seven thousand bucks toe

live on Was that what you spent on haircuts Clothing

in car insurance alone last year What about eating Is

that optional How about rent and like anything else Yeah

you can't afford it So hopefully your parents haven't rented

out your room yet So why is this thing called

a crisis Haven't you been listening Because loans of magnitude

Have continued to flow out of the various coffers that

loan money to students and the ability to repay those

loans is getting worse and worse and worse Well eventually

the system grinds to a halt with massive declines in

loans made and then what happens Riots What happens when

students air simply denied the ability to go to college

altogether What will they do Demand colleges drop tuition costs

with colleges care colleges are going bankrupt too by the

way and be nice if they could drop tuition costs

But other than the top forty or fifty colleges around

the country Well most schools of higher learning or just

barely scraping by many you're committed to very high fixed

recurring costs in the form of tenured professors they and

not fire expensive building and land maintenance and insurance for

you know creative student activity and so on someone and

so on It all adds up such that tuition needs

to remain high just to pay those bills and keep

going Could the government step in and just like big

mama pay all the bills Well your feelings about this

issue will vary with your political alignment but that still

doesn't solve the issue of rising costs which will keep

on getting higher and higher And no matter who's footing

the bill and why's it fair for the government to

take money from high earners and give itto low earners

for something like college that has unclear financial payback Is

that fair What's our solution but we don't have one

but it's not how shmoop rolls Our only advice is

think long and hard when picking a college major and

taking loans out for school That means keeping your hands

off ebay and amazon and keeping your nose in the

books and look really hard at majoring in engineering or

something Next time you meet a french literature major foreign 00:05:46.295 --> [endTime] coffee for you at starbucks