Thursday, April 17, 2014

Taking a student loan in graduate school? The government is making money from you

Jordan Weissman at Slate has the details: 
...At the same time, the government will lose a small amount of money on direct loans to undergraduates, which make up more than half of its lending operation. While the Department of Education makes a profit on unsubsidized Stafford loans to college goers, it takes a hit on subsidized Staffords that go to low- and middle-income undergrads. When everything shakes out, the programs combine for a 10-year, $3 billion net loss. 
...Now back to those grad schoolers. Their loans, which are shown in red and blue below and now make up about one-third of the government’s yearly lending portfolio, are expected to yield almost $113 billion over the 10-year window before admin costs. Once again, that’s three-quarters of the government’s direct lending profit. Graduate students are such lucrative customers because they pay higher interest rates than undergraduates and don’t default all that often. For the government, they’re low-risk, high-reward borrowers.
It would be fascinating to know what percentage of the government's student loan profits come from humanities students as opposed to science/engineering types. 

11 comments:

  1. Does their definition of graduate school include professional schools such as law or medical? Those loans tend to be massive and take quite some time to pay off.

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    Replies
    1. That's certain to be the biggest heap then

      Delete
  2. A friend of mine from grad school has over $125k in loans. All from his Ph.D. program in biophysics, and this does not include the credit card debt. The physics department did not have the same resources as chemistry or biology for graduate students. While I was able to get RAs and fellowships, supplementing that with some teaching. He was left with an advisor who lost funding and a department that paid 1/3rd the amount that chemistry did for teaching the same load. Even when his advisor got his RO1 during my friends last year, he did not support any of his students. Said he needed it all for research, which I question. All said and done he was over $150k in debt, which he followed by a pdoc for $30k for five years and then a low paying government job @ $50k. The good news is he is in the government now and will only lose his job by act of congress, but the bad is he'll never pay off his loans. He just pays the minimum on everything trying to survive. In contrast, I had $10k in loans from undergraduate and had them paid off six months after I finished my pdoc. I've seen many similar stories for physics Ph.D.'s. Not too common in chemistry or biology but I'm sure they exists.

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    Replies
    1. I'm not familiar with the US system, but can't you get loan forgiveness after 10 years if you are working for the US gov?

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    2. There is a very specific system that must be followed and the person must be working in the public/non-profit sector to qualify for loan forgiveness...http://studentaid.ed.gov/sites/default/files/public-service-loan-forgiveness.pdf

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  3. The student loan bubble will pop pretty eventually. Just got to learn from the housing bubble. If you are paying, you won't get any help. There was a recent study by a Harvard economist that suggested half of all colleges/universities in the US could go bankrupt within the next 15-20 years. There is no question that the higher education industry is over-grown and needs to be soaked with a bunch of Round-Up. They say 50 % of recent graduate have jobs outside their degree field and some of those jobs don't even require a degree in the first place. Problem is that if they say it's 50 % it's probably more like 80 %.

    Sad times.

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    Replies
    1. Christensen is a Harvard Business School professor, not an economist:

      http://www.bothsidesofthetable.com/2013/03/03/in-15-years-from-now-half-of-us-universities-may-be-in-bankruptcy-my-surprise-discussion-with-claychristensen/

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  4. I would love it if student loan forgiveness applied to me. I am graduating in a year and I'm afraid of the debt. I currently don't have a job to pay the minimum payback amount.
    Federal Student Loan Forgiveness

    ReplyDelete
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