Generation Y and Z Debt

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SEIOWA CLONE

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Dec 19, 2018
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In one of the richest countries in the world, no one should be forced to chose between not getting or getting a higher education or job training on the basis of lack of money to cover the tuition to cover the costs of said training.
Nor should companies or businesses be profiting off people wanting a better life for themselves or following their dreams of a college education.
 

Sigmapolis

Minister of Economy
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Its not complicated. Everything costs more and wages are flat. Millennials have gone into extreme debt to make up the difference. At some point it will become unsustainable and the economy will crash. Then we will get another round of boomers and gen Z blaming Millennials. I guess its our fault no matter what :(

Disagree wages are flat...

Wage growth has been outpaced by cost of living for decades. Multiple studies have shown this.

Those studies and that notion are generally bunk for three reasons.

(1.) They usually only account for wages and salaries, not for compensation. The difference between the two is, of course, benefits, mostly health insurance, which has been sucking up more and more of a percentage of American incomes in the past few decades. That is a problem in itself, but it is part of the compensation package offered workers and is the more valid comparison of just looking at wages and salaries alone -- that is thumbing the scale.

(2.) Those studies either intentionally or unintentionally talk about "household income" without adjusting for changing family structures over time. Two-income households are becoming rarer and rarer with there simply being less marriage out there and more and more marriage concentrating in high-income households with two college-educated spouses. When you account for household size, much more of the supposed "stagnation" goes away on you.

(3.) The CPI-U used as the denominator in these calculations overstates inflation.

If you really think our standards of living have not increased since 1980, you have a screw loose.

Besides...

https://www.brookings.edu/research/is-a-student-loan-crisis-on-the-horizon/

"The average debt levels of borrowers with a graduate degree more than quadrupled, from just under $10,000 to more than $40,000. By comparison, the debt loads of those with only a bachelor’s degree increased by a smaller margin, from $6,000 to $16,000."

"Increases in the average lifetime incomes of college-educated Americans have more than kept pace with increases in debt loads. Between 1992 and 2010, the average household with student debt saw an increase of about $7,400 in annual income and $18,000 in total debt. In other words, the increase in earnings received over the course of 2.4 years would pay for the increase in debt incurred."

"The monthly payment burden faced by student loan borrowers has stayed about the same or even lessened over the past two decades. The median borrower has consistently spent three to four percent of their monthly income on student loan payments since 1992, and the mean payment-to-income ratio has fallen significantly, from 15 to 7 percent."

"Ultimately, Akers and Chingos conclude that typical borrowers are no worse off now than they were a generation ago, and also suggest that the borrowers struggling with high debt loads frequently featured in media coverage may not be part of a new or growing phenomenon."
 
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Beernuts

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Nov 9, 2017
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Over the last 25 years states have drastically reduced funding to state universities and of course that cost has shifted directly to students. Furthermore, the fact that wages/income have remained pretty stagnant during that same time period. And Republicans blame the students and the professors instead of doing a little self reflecting on the damage their own policies have caused.

The root of this is not a Republican problem or a Democrat problem...the root is a parenting problem.

Parents need to counsel their children (young adults) wisely, and to diligently be realistic in their kids abilities. Watching kids go to college without an end game is largely a sign of bad parenting advice. And this is one mistake that can be extremely costly!

Little kids....little problems. Bid kids...big problems.
 

Peter

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Feb 21, 2010
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Actually it's more about the getting into debt question in the first place than a wage question.

I can also assure you graduates are making considerably more than I did when I got out of ISU....

Yes, but things like school, housing, healthcare, transportation, and food cost WAY more. Obviously wages have grown but not at a sustainable pace for most people. You don't get as much bang for your buck these days.
 

Beernuts

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Nov 9, 2017
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In one of the richest countries in the world, no one should be forced to chose between not getting or getting a higher education or job training on the basis of lack of money to cover the tuition to cover the costs of said training.
Nor should companies or businesses be profiting off people wanting a better life for themselves or following their dreams of a college education.

Good Grief!

Why on earth would I ever think I "deserve" a higher education because the country I live in is wealthy, or that the company I work for is profitable?
 

Peter

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Feb 21, 2010
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The root of this is not a Republican problem or a Democrat problem...the root is a parenting problem.

Parents need to counsel their children (young adults) wisely, and to diligently be realistic in their kids abilities. Watching kids go to college without an end game is largely a sign of bad parenting advice. And this is one mistake that can be extremely costly!

Little kids....little problems. Bid kids...big problems.

I just tell my kids they should be debt collectors. Its a lucrative business these days.
 
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Bobber

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Yes, but things like school, housing, healthcare, transportation, and food cost WAY more. Obviously wages have grown but not at a sustainable pace for most people. You don't get as much bang for your buck these days.

And that harps back to my original post that there are other choices out there....
 

Sigmapolis

Minister of Economy
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In one of the richest countries in the world, no one should be forced to chose between not getting or getting a higher education or job training on the basis of lack of money to cover the tuition to cover the costs of said training.
Nor should companies or businesses be profiting off people wanting a better life for themselves or following their dreams of a college education.

It is ironic then that you are playing right into businesses' hands.

Most of the benefit of higher education, outside of a few technical fields (and even then I have my doubts) is in "signaling" yourself as a smart and employable person.

Even my MD wife has told me that she uses maybe 1% of her undergraduate training and 10% of her medical training at her day-to-day clinical job. Most of what she learned came from what amounts to an apprenticeship as a resident and fellow.

I think any honest person would admit that you learn how to do a job by working. I do not know how teachers and professors (who have rarely been anything but a teacher or professor their whole lives) are going to show you how to do that in a classroom.

With that in mind, throwing more and more money into education...

(1.) Creates a "rat race" of credentials. Education does not create good jobs, but merely controls the distribution of who receives them, and as soon as everybody has a BA, everybody needs an MA to stand out, which throws incredible amounts of time and personal and public money into something that generates a meager social return of just sorting workers.

(2.) All this to ultimately aid businesses in selecting workers which, if you really thought they should bear their own costs, they should be responsible for.
 

AuH2O

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Sep 7, 2013
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I think there are probably six factors, thinking through it.

(no particular order here)

1. Baumol's cost disease -- This is an old problem in economics. Service industries are not becoming more productive very quickly. It takes as long to grade an essay now as it did in 1950. At the same time, other sectors are seeing massive productivity increases and able to pay higher and higher wages. In order to attract workers, service industries have to do the same thing, which inevitably leads to higher prices because they do not have the productivity increases to hold them down. The same issue happens with healthcare with its costs over time.

2. Universities used to be faculty and... that was it. The mass professionalization and bureaucratization of educational institutions comes with its conveniences but costs, too, as well as state- and self-imposed mandates for certain service programs.

3. Students expect more -- the monastic experience used to be part of the deal, especially when parents were mostly paying for school. As students have started to self-finance, they have started asking for more, and hence dorms have become nicer.

4. IT costs -- computers and electronics for students and, perhaps underrated, the costs of equipment for faculty have gone up a lot. That has to be paid for. I would imagine research professors in engineering, sciences, and agriculture need a lot of $$$.

5. As the returns of a degree for individuals have gone up, so has willingness to pay. Their ability to finance more and more debt allows more to be charged. Colleges are simply collecting some of the windfall of the students' future wages and ability to finance for themselves.

6. State contributions to public schools have declined.

I think they all probably play a part.

In response to #2 - Both the expansion of staff and infrastructure as well as reduced direct contact in a teaching role by faculty is not surprising given the ROI a University can get from investment toward getting research grants vs. teaching another student. In addition, the ROI for the faculty is much greater. Tenure and raises are heavily driven by research. All the incentive is for research, both for the individual professor up to at least the Deans. That is not necessarily a bad thing, but from my experience at ISU (and assuming other universities there are similar situations) there are a handful of professors that are raking in huge dollars that are massive net contributors to the university through the indirect cost that raises, and the contributions through paying grad stipends and tuition, paying undergrads hourly wages, etc. Conversely, there is a lot of investment through faculty start-ups, seed funds, etc. that don't generate a return for the university. So, while research investment probably makes a net good return for a place like ISU, I don't think it is nearly as efficient as it could be, and probably needs a more ROI based approach. Spending $100k to get no additional grants and publish a couple papers in a journal should not be considered a successful investment. Additionally, getting a $100,000 NSF grant that barely covers a grad student and probably gets subsidized by the department is great for tenure, while a $1,000,000 grant supported by a company doesn't move the needle much in terms of tenure. Second, the benefits of that return are highly concentrated. For example, my group has had many grad students that come through, all getting paid nice stipends and getting tuition covered (100% for PhD, 50% for MS). However, other than creating some hourly jobs and gaining some research experience there is limited impact to the general undergrad community. There's lots of overhead generated that flows through the colleges, but I don't think those funds are probably being spent at any significant level to either improve the undergrad experience or reduce costs.

In response to #5, I guess I'd disagree that there is a general increase in return for degrees. I'd say in some fields the ROI of the college cost might be a bit higher or steady. However, now there are LOTS of degrees with a negative ROI. When I was in school 20 years ago, you could still get a good ROI for almost ANY degree. That simply isn't the case now. People of my age and older had the luxury of just going to school and figuring it out, and unless you were a complete idiot you got your moneys worth. Now students do not have that luxury.
 

cyclone101

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Oct 19, 2009
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I work with alot of Boomers and I'm convinced their view on money is no "better" than Gen Y or Z. I can't tell you how many clients I have that have amassed large estates and have enjoyed absolutely zero of their money. No vacations, junk cars, same small house. Saving money just to save.

While I don't think taking on an irresponsible large debt load is a great idea either, there is something to be said for enjoying your money while living.
You have to realize with some of these people it's understandable. All 4 of my living grandparents are Great Depression babies. Their parents were understandably very afraid of another depression so they saved and saved and saved because they knew they needed that cushion should that ever happen again. That behavior was passed on. My dad started farming right around the time the farm crisis happened. He saw a lot of people go under and that reinforced that "save, save, save" mindset. I don't feel that lifestyle negatively affected us growing up at all. We always went on a yearly vacation and had a very enjoyable upbringing. Balance is key.

It might be different for others, but I would say at college graduation.

We helped my son through ISU (just graduated), in large part because he worked his butt off, he found a good job, and is now debt free and not relying on us any more (although he has asked if he can stay on our cell phone plan and reimburse us for it :) )

It has been interesting to mentor him on his personal finances: tracking his expenses and income, investing in 401K, paying for new tires, debating when to get a newer car, etc.

For sure, he is learning as he goes. But he is not sucked into a lifestyle (yet) and is trying to be responsible with his finances and avoid unnecessary debt..
My siblings and I were treated the same way. We were promised help through college to any that cost the same or less than any of the three state schools here in Iowa, the three conditions were that we took school seriously, worked part time during the school year, and full time each summer. Between my parents and the money I made working, I came out really well. But we were weaned the day we graduated college.

I honestly didn't know this was a "thing". I thought it was just moving onto a different stage of life and these were many of things it entailed... I actually thought that was all the pay-off to getting out of school but I generally looked at school as, well, school so I could get a job and be an adult.

I'm 55 so I should probably say "get off my lawn or I'll report you to the HOA"...
I agree. While post graduation was a nervous time with starting a career in a new area, it was also very exciting and I looked forward to it.
 
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CascadeClone

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These numbers are from memory so take them with a grain of salt, but something like 50-60% of ISU's budget in the early 80s came from state appropriations. Now that's down closer to 20% and may have even slipped into the teens. And Iowa's universities remain relatively affordable...the situation in other states is much bleaker.

There's a numerator and a denominator in those %s.

State - that's your numerator.
Budget - that's your denominator.

2018: budget $731M, state contrib $225M (31%)
1988: budget $173M, state contrib $112M (65%)*
2018: budget $345M, state contrib $106M (31%) (adjusted for inflation)

In real dollars, the State puts in about the same amount. But ISU budget has doubled. Enrollment has not doubled, but it is up quite a bit - roughly 50%. So what is the other half of the budget increase caused by?

The only argument I would make is: how much should taxpayers spend to subsidize students who will go on to make more $$ than those that aren't subsidized? It seems unfair, especially when most students come from higher socioeconomic backgrounds. But it is also a public good to have more educated populace. Reasonable people can disagree on %s. I am not sure I have a strong opinion, but I'd lean toward people getting the benefits (students) paying the costs.

*Note the 1988 info was from a report on in-state vs out of state students and tuition, so I had to back into the budget numbers - it showed total revenue, which I have to assume is close to the budget. I think they should be close.
 
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madguy30

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Nov 15, 2011
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Because some people don't slurp up right-wing think tank thoughts on education?

Sit in your desk, face forward, and learn like you're taught to learn.

What's so hard about that?

*jimlad*
 

madguy30

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Nov 15, 2011
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I agree. While post graduation was a nervous time with starting a career in a new area, it was also very exciting and I looked forward to it.

I look more fondly back on my early post-college life than I do college.

Go to work, do what you feel like, and no exams. Can't say it was scary at all.
 

throwittoblythe

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I honestly didn't know this was a "thing". I thought it was just moving onto a different stage of life and these were many of things it entailed... I actually thought that was all the pay-off to getting out of school but I generally looked at school as, well, school so I could get a job and be an adult.

I'm 55 so I should probably say "get off my lawn or I'll report you to the HOA"...

I imagine there's something psychological going on. As an old millennial (born in the early 80s), I've had somewhat of this experience. My guess is that we were always told to "follow our dreams/passion." So we did that and then realized real life is not all rainbows and butterflies. There is no such thing as a "dream job" there are just jobs that are fun more than they are not. You're not going to find your "soul mate" where every moment is bliss, you're going to find someone you love despite the things about them you don't like. There will always be stresses: money, relationships, society, whatever.

In general, my generation tends to be idealistic, in my experience. So we build up this big event (entering the "real world") expecting that it's going to be soooo amazing. And then we realize, it's just life. Just like our parents and our parents before them. It's not bad, but it doesn't meet idealistic expectations. So we freak out a bit. We wonder if we're going about it the right way. Do I have the right job? Am I living in the right place? Should I change fields? We want to make the most of our time on earth and not waste our youth doing things we don't enjoy. So we spin ourselves up trying to find the "perfect" life because we're not living the one we imagined when we were 20.

Just my $0.02.