Is the Credit Junkie Pipeline Fully Primed?

September 22, 2010 by  
Filed under Fools of Finance

More scary news for our country. It seems that total student load debt in the U.S. now exceeds credit card debt. This is a first ever event. To me, it signifies that whatever credit abuse lessons the parents have learned, their kids are prepared to learn again for themselves.

This fits in with recent studies suggesting that overspending is a hereditary condition. It stands to reason that children of credit abusers are inclined to maintain the family tradition by heavily borrowing their way through college. Foolishness begets foolishness. The parents may be better off.  At least they can bankrupt their credit card debt. Actually, I don’t blame most of the students. They are just doing what they have been taught and/or were left with no college funding by spendthrift parents.

Right about now some readers are getting all agitated and indignant based on the notion that student loan debt is “good debt.” Really? Ask the law professor who embarrassed himself by complaining that he was just scraping by on what is estimated to be a $400k family income. One of his problems? $500k in student loans. If student loan debt is “good”, this guy must be “great.”

On a positive note, you are smiling if you work for a higher education institution. Without so much in student loan borrowings to prop up uncontrolled tuition and fees, competitive pressures would put a lot of colleges out of business.

Here is a link to the article: Total College Debt Now Exceeds Total Credit Card Debt

What is your reaction to this consumer credit trend?

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8 Responses to “Is the Credit Junkie Pipeline Fully Primed?”
  1. Steve says:

    I wouldn’t care if some financial analysis was done. You want to be a history teacher? Find out what they are paid, what the likelihood of you becoming one of those paid is, and then discount expected income and compare to what you borrow. My guess is that would eliminate a lot of loans (and hopefully reduce tuition in the process).

  2. Rick Beagle says:

    Sigh, this is a bunch of rubbish, but whatever.

    I chalk it up to predatory loans on the naive, and a lot of confusion concerning ROI.

    I also suspect that a great many of those people who have student loans, are the same folks who chalked up credit card debt. These folks have been duped into believing that an absurdly expensive college degree is the only thing that will: 1)keep them from the unemployment line, or 2)get them gainful employment. Nothing like fear and ignorance to keep people from reading the fine print.

    Hey, it has worked for the Republican Party for years, and now it works for the University of Phoenix too.

    Rick Beagle

  3. Rick Beagle says:

    BTW, not to continue bashing on University of Phoenix (okay, I really do hate them, but that’s beside the point), but I personally know a 4.0 carrying Junior who has zero critical thinking skills and can barely read or write (thank you Florida public school system). Seriously, this woman makes Gump look like a damn genius.

    “So what did you do for this class?”

    “We all got together and put together a presentation.”

    “Isn’t that what you did last class?”

    “Yeah, but this time it was about .”

    “Let me guess, you got another A?”

    “Oh yeah, and I’m thinking about going for my Masters.”

    300k later and she will still be as dumb as a rock but now with a college degree.

    Rick Beagle

  4. Adam says:

    Student loan debt is not necessarily bad, but there is no one to tell students what the consequences are.

    I borrowed 30K to get an engineering degree. I has that paid off roughly three years after graduating, and my current salary lets me live comfortably and save a decent chunk of money for retirement.

    At the same time, I have a friend whose student loans went up to nearly six figures, and got a history degree. He can make his minimum loan payments, but has little left over (although he doesn’t starve).

    I believe that a good rule of thumb should be that your student loan debt should not exceed your expected starting yearly salary (or the average for your chosen profession). Based on my experiences that would be fairly easy to pay off in short order with a little budgeting once you graduate.

    Sure, it would have been great if I had no student loan debt, but even after paying it off, I’m in a much better earning position than if I hadn’t gone to school. I expect that within a few years, my net worth will catch up to where it would have been if I had gotten a job right out of high school (no debt + years of work at a lower wage), then quickly surpass that mark.

  5. MasterPo says:

    “predatory loans on the naive”

    Let’s put this one to bed too.

    Everyone who signs a loan is at least 18 y/o. If they can’t read the details it’s THEIR fault. Someone who makes $9/hr at Wendy’s then wants to buy a $300,000 house with no money down – who’s kidding who?!

    As to the $400k prof, well considering the massive taxes on “the rich” I would not at all be surprised if at the end of the day his cash flow is in fact barely covering expenses and loan service!

  6. Melissa says:

    My university required a passing an exam about student loans before dispersing the money. I have no sympathy for anyone who couldn’t digest the spoon-fed details.

  7. Rick Beagle says:

    “Who would pay and why: When all the dust settles, the Tax Policy Center figures that just 1.7% of households would pay higher taxes under the president’s proposal than if Congress extended all the 2001 and 2003 tax cuts.

    Just as interesting is why those 2.7 million high-income taxpayers would get hit. For most of them, the answer is not the high-profile increase in the top rates. Rather, it is Obama’s proposal to hike rates on capital gains and dividends.

    A close look at his plan shows that fewer than three in ten affected taxpayers would be hit by the 36% and 39.6% rates on ordinary income that have drawn the loudest complaints.

    Another change, the limitation on itemized deductions and the phaseout of personal exemptions would affect less than half.

    But nearly 95% of people facing higher tax bills would pay more tax on gains and dividends. Keep in mind, by the way, that while Obama would raise the top rate on capital gains from 15% to 20%, he would also tax qualified dividends at 20%. If the Bush-era tax cuts are allowed to expire, the top dividend rate would hit 39.6%.

    Knowing that less than 2% of households would face higher taxes, mostly because of their investment income, won’t calm the debate — and by itself certainly provides no justification for backing the president’s plan — but it’s always helpful to know the facts.”

    I was tired of you parroting the lies of Fox. Seriously, get your information for another source.
    Rick Beagle

  8. MasterPo says:

    Rick – For once you got it right (finally! :-) ).

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