2008 December 27 Saturday
Some Students Graduate Deep In High Interest Rate Debt
Private sources of educational financing charge crushing high interest rates.
Natalie Hickey left her small hometown in Ohio six years ago and aimed her beat-up Dodge Intrepid for the West Coast. Four years later, she realized a long-held dream and graduated with a bachelor's degree in photography from Brooks Institute in Santa Barbara.
Higher education does not always pay off. For some the odds of pay-off are slim. I doubt that Brooks graduates get a good return on their investment.
She also picked up $140,000 in student debt, some of it at interest rates as high as 18%. Her monthly payments are roughly $1,700, more than her rent and car payment combined.
I wonder how much this contributes to the birth dearth among smarter and more educated people. Miss Hickey isn't exactly a great catch for marriage and child-rearing. A guy would have to make big money to afford to let her make babies while still servicing her school debt.
Even worse in her case an LA Times photographer tells that demand for photographers and reporters is tanking due to the internet taking ad revenue away from newspapers. The editorial staff (which I think includes all reporters and photographers) has shrunk from 1500 to 600. The Tribune company that owns the LA Times just filed for bankruptcy. So the Brooks students graduating with piles of debt are entering a buyers' market for photographers.
If you are thinking about some career before you get yourself in debt up to your neck find out what the jobs in that occupation typically pay and how hard the jobs are to get. Kids need to be told that higher education doesn't automatically pave the road to your future with gold.
" wonder how much this contributes to the birth dearth among smarter and more educated people. Miss Hickey isn't exactly a great catch for marriage and child-rearing. A guy would have to make big money to afford to let her make babies while still servicing her school debt."
Maybe that is the purpose.
Randall, an offshoot of miles comment.
You are forgetting how much people will pay to position themselves correctly for mating (think private high school in the days when people tended to marry at age 19). Remember, there is a narrow time window when you will meet and choose choose your reproductive mate. Strategically positioning yourself to optimize mating is clearly something people will pay an enormous amount for. I was first introduced to this idea many years ago when a young girl sadly presented to the ED I was rotating thru as a 3rd year medical student in Southern California. She had a nasty rash across her cheeks and I diagnosed Lupus. It was a county hospital, she had no insurance and had just recently arrived from Mexico. I still remember jumped thru enormous hoops to get her an appointment in a few days into the internal medicine clinic for follow (the wait was well in excess of 3 months normally) and the appointment was free- I explained this to her very clearly. I still remember coming in on my day off to meet her for the appointment (it was the first case of Lupus I had diagnosed, I was very proud of myself and also felt really bad for her as I feared she might ultimately go into renal failure if we didn't get her on immumnosuppresives). My disappointment was enormous as I waited for her to never show. 3 months later during a dermatology rotation I again ran into her in the derm clinic (note she had to pay cash up front to get into that appointment). I asked her why she hadn't shown at the other appointment as I had clearly told her how much I was worried about her kidneys. She replied she didn't think it nearly important as the rash on her face, which she was embarrassed to go outside with (and which I did understand).
1 year later I ran into her again in the dialysis center, her rash looked much better.
The case still bugs me almost 20 years later- I am still convinced we could have saved her kidneys had she followed up. It changed the way I look at people.
I think you need to think of these things in terms of bubbles (like real estate or equity bubbles) but in this case think of 'reproductive behavioral bubbles'. At least that is how I look at it.
We could solve a lot of problems by allowing private student loans to be discharged in bankruptcy again. It would take away some of the perverse incentive to have lenders rope students into paying as much as possible. And if some people can't get loans to afford a private college (or public), perhaps that price signal could help stabilize tuition.
A couple of other points.
Why did she need a 4 year degree to learn photography? Its an occupation that screams apprenticeship...
You better be pretty hot if you want to bring that kind of debt to a relationship.
$140k for BA?? In photography???
Is that usual in the US? Is education extraordinarily expensive just like health insurance? Is the same structural problem manifesting in both industries?
Thai, your story makes sense. My experience is that the majority of people make poor long term decisions in favour of immediate satisfaction (I include myself in that!). That said, your patient's decision is odd because presumably she wasn't dealing with an either/or decision - she could have had both.
This is the kind of thing that makes one see conspiracies. How is it possible that someone has received $140,000 worth of education for a four-year degree? That's $35,000 per year. There is no way people are getting honest value for what they are nominally buying, that is, education. Therefore, they are buying something else.
I suppose the young people who are saddling themselves with such crushing debt believe they are buying an employment credential. Go through the overpriced process and get certified as being fit for hire. Talk about inefficiency.
I wonder how much of the current credentialism is ass covering, how much is purposeful restriction of the supply of labor to limit the competition for relatively prestigious jobs, and how much is just inertia.
Brooks is considered to be a prestigious place to study photography. BTW, their students come up to the area where I work to take pictures. I see them out on the lawn and in walkways with lights, cameras, and things kinda like umbrellas that reflect light.
Education expensive in the US: The cost of higher education has been going up faster than inflation for decades. The current prices boggle my mind and are one of the reasons I write blog posts about the need to automate education with pre-recorded lectures and computerized standardized tests.
They voluntarily subject themselves to this. Amazing.
She wasn't that hot. Click thru and see her picture.
Of course, the reason why US education is so expensive is that is an unregulated cartel, with zero compeition that only has one real aim - big fat salaries and benefits for faculty staff ('research' and teaching are sidelines to keep up appearances) - and to this end has succeeded enormously, far better than OPEC for example.
A harmful monopoply such as Adam Smith would have noticed.
Timesers are convinced that a 13 year old girl can make the decision to abort a fetus without parental notification.
Timesers are equally convinced that the same girl's multiple decisions some 5, 6, 7 years later to take out loans are ill-informed.
And the girl's "everybody was doing it -- everybody thought it was a good idea" defense seems particularly stupid.
All the financial information was readily available. She is a college girl, for heaven's sake, not a moron. Financial calculators are free on the Internet.
As far as her job prospects she could have spoken to the placement folks or other graduates, all of whom are readily available.
Instead, she chose to live in play land, spending a four year luxury vacation camera-dabbling in scenic Santa Barbara. Now she has to pay. I hope the memories of parties on the beach and trips along the coast were worth it.
These "student loans are evil" articles are not at all representative of the average student. Most private colleges offer plenty of scholarships and need-based aid, and in-state tuition is still pretty cheap. There are even ways for grad students to discharge some or all of their loans, assuming they are doing something useful like medicine. Anyone who has to finance the entire bill with debt either picked the wrong college or shouldn't be going to college in the first place.
Brooks Insittute lists its undergraduate tuition at about $26,000 per year, so $140,000 of debt for four years in beautiful but pricey Santa Barbara is quite reasonable, even with some financial aid. And a degree in photography will probably lead to a career managing the portrait photo booth at Sears or Walmart. For a girl with a rich daddy picking up all the bills for his little princess, a degree in photography might be a viable path to acquire some artsy-tartsy pretensions while trolling for a husband (preferably one who also has a rich daddy). However, for someone living in the real world, taking on this amount of debt to obtain a near-worthless degree is madness. A few weeks ago, my wife and I were having dinner at an upscale restaurant. We were discussing a Shakespeare play we had seen recently, when, to my surprise, the waitress chimed in with several interesting comments about the plot. It turns out that she had graduated from a nearby mid-level private college three years ago and couldn't find any job except waitressing. Most of these people would have been better off abandoning their pretentious but useless degrees and going to a vocational school.
I think population control in cheap labor countries would be an ideal remedy as cheap labor is a virulent cancer. In about a generation, the supply of cheap labor would be choked off if this is done on a massive scale. I think Randall would agree with this, but I do not think we would agree with the means. Politically incorrect suggestion, but I think we do need to consider population control for this and other more important reasons.
One could argue that globalization causes people to aim for a college education because it has reduced the wages for blue-collar workers. If they had access to nice paying blue-collar jobs, the demand for education would be reduced. I think it is best to think about reducing potential competition (as with the above suggestion of drastically reducing the global supply of cheap labor) instead of embracing it. The United States prospered in the 50s and 60s because it had no one to compete with.