Today’s young consumers, increasingly burdened by student debt, are less likely to borrow money to buy houses and vehicles, according to a paper by the Federal Reserve Bank of New York. In the past, people with student debt were more likely to own a home than those without, but the trend has reversed. The same thing has happened with auto loans, as student debt crowds out other kinds of borrowing.
Very interesting. The majority of the people I know (I’m 26) are still dealing with student debt from undergrad or masters degrees.
A cousin of mine got a joint law-finance masters degree and passed the DC bar. He’s in 200k or more of debt, but he is now making 125k+ a year. I’ve heard him mention his debt once or twice.
Some very crude math,
`125k salary a year
less student debt interest of 5-10k
less taxes
100k a year income
less 40k principle per year for five years
60k a year for five years
So, he wont really see real impressive returns on his investment until five years down the road. Add that to the fact he had two years of low income earning the degree, and you’re talking about, arguably, a not so attractive investment.
Although, in the very long-term I think it’s a good investment. There are so many variables-- mainly in determining your opportunity costs.
60k leaves room for financing cars and homes, but the psychological burden of the other debt probably makes people avoid it.
Another consideration is that $150k in debt from HBS is likely to have a much greater return than an equivilent debt from a lesser school. Same as X amount in debt for a accounting degree vs. an english degree.
Also I think the repayment term would be longer than 5 years, but I get the point you’re trying to hit on. I think lots of student loans are 10 year amortizations.
Also I think at this point lots of people with more debt will be more opportunistic if they find higher paying jobs (or maybe finding a job at all) and may move more often, so that doesn’t lend itself to owning big assets.
the crowding out effect does have merit. If you are carrying a huge weight of student loans, then sure you are less likely to have any downpayment for a car / home.
We need more trade jobs. My plumber makes a comfortable / stable six figures while laughing at the hordes of people who spent a ton on useless college degrees.
Tax preparer identified
The research does not support the theory that student debt alone is crowding out home or auto debt. Based on the NY Fed website (not the Washington Post article) total debt per capita has been decreasing from 2008 onwards. People are taking on less debt, except student debt. Rather than student debt crowding out other debt, the Fed’s other proposed explanations are more reasonable: 1) people are participating in the general "consumer deleveraging’, or 2) credit underwriting standards have increased, so it’s just harder to get loans.
The cut off for deducting student debt is 75 or 80k so i wouldnt even count that
Yeah phase out starts around there. It still has to be paid though, so it still is an expense before he has his spending money. It just isn’t tax deductible.
Phaseout is 60-75 for singles, and 125-155 for MFJ.
Seriously? If you make more than 60k, you’re one of Obama’s “millionaires and billionaires” and need to be punished?
If you make 125k per year you’re taking home about 7k per month (6k if you properly fund a retirement account) and with a 200k student loan you should be paying about 2.5k per month. That’s a big hit.
Yeah I don’t get the low phaseout for loan interest, especially since the deduction isn’t really that large anyway if it maxes out at $2500. I have friends not far out of their masters completely phased out and they still have big loan balances.
When were these levels introduced? Were these just around for many years and not inflation indexed?
^ I finished my MBA 15 years ago and seem to remember the income limitation being in that range.
So if you’re a dentist who makes 600k per year you can set aside up to 12k per year tax free to fund your child’s education, a 4k tax benefit. But if you’re parents are broke you need (1) to borrow money and pay interest at above market rates (2) receive no tax advantage when repaying even though the interest paid is essentially a loss on investment which should be used to offset any gains just like all other losses (3) and it’s essentially impossible to get away from them in bankruptcy.
Yep. America!
We are so f*cked. And me especially, with my 300k student loan debt (thanks to compounding, it’s a much more impressive figure than at principal). Fml.
Is school really that much more expensive in the states? I had help from my parents, but that was in the form of RESP contributions (education savings plan) for birthday presents in the 18 years leading up to my going to school. By my final year of undergrad I knew I was going to be graduating without debt, so took the opportunity to buy a used car on a low interest student line of credit. That was paid off within 6 months of working. I understand the lawyers/doctors taking on a huge amount of debt though, and expect them to reap the rewards down the road. I had friends graduating from undergrad programs though 60+ thousand and debt, yet they’d go partying and on multiple vacations each year. Do people not plan for school at all?
Damn this is country is heading for the crapper if not already there. I’m thinking about moving out and relinquishing citizenship. What’s a good place to go?
Key considerations:
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okay or good weather
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low cost of living / no socialist tax regime
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stable government with rule of law framework
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low per capita concentration of fat chicks
This rules out most or all of Europe, most of Latin America, and large portions of Asia.
Maybe Costa Rica, I have heard it is really nice and I speak Spanish.
May I suggest the Cayman Islands? British Virgin Islands or Bermuda would check all those boxes except low cost of living.
Mauritius might also be appealing but obesity is a concern there.
My younger brother is a carpenter. He earns $13 per hour while working for a very reputable luxury home builder in our area. His actual job provides standard employee benefits and covers his basic living expenses. He then works what he calls his “second 40” under his own LLC and just kills it. He’s a pretty a sharp guy, so most of his extra earnings are reinvested in his business, but he still winds up with more “pocket money” than I have.