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greyenlightenment  investments: META/FBL, TSLA, TQQQ, TECL, MSFT ...  1yr ago (greyenlightenment.com)   1793 thread views

Moloch and college tuition: why broken systems endure – Grey Enlightenment

greyenlightenment.com

Submission statement

  1. The college debt debate overlooks the huge college wage premium and focuses instead on the nominal amount of debt, which although large, is still small relative to wages. Americans earn among the highest incomes in the world, when combined with low taxes, makes college even more worthwhile. I was surprised myself to see that the average income for college grads is so high: $70k. Just a few decades ago, it seemed like high 5 figures was uncommon, but now the norm. When you make so much, who cares about $3-5k/year in student loan payments.

  2. The incentives are aligned in such a way as to encourage the accumulation of a lot of debt, whether it's college or home ownership. Savers seem to miss out (penny wise, pound foolish as it's said). This goes against conventional wisdom that debt is bad or saving is always good. The people who seem to have the most wealth by their late 30s or 40s seem to be those who took on a lot debt in 20s and invested heavily in education, like student loan debt , graduate degrees, and mortgages.

  3. Students can take advantage of low interest rates with federal loans despite having no credit history, which is not possible with private debt. Also, tons of forgiveness plans and forbearance. This creates an incentive to take on debt.

  4. In the job market, not having a degree puts one at an obvious disadvantage compared to degree holders. Unless everyone defects, it's disadvantageous from an individual perspective to forgo college.

  5. Trade schools may not live up to hype and can be as expensive as 4-year degrees.

Rising interest rates will make this less lucrative, especially #2. On Reddit 'FIRE' subs, almost everyone who got rich over the past decade took advantage of low interest rates and surging asset prices after finishing college. But even with high interest rates and high inflation, college educated workers still fare much better. But it looks like 10+ year bond yields are crashing again. It's the same pattern of long-term rates falling like rock when even the slightest hint of economic weakness shows, or even for no reason at all. The era of 6+ % 10-year bonds like in the 80s,90s, and so, are over for good. There is too much demand from pensions and other sources buying up any long term treasury yielding 3% or more.

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This might be a personal bias, but I think there’s a problem in the debt to future earnings equation. I’ve never seen it broken down even to the median student. Which at least in my mind opens the door to making wildly optimistic assumptions. If you take a very high performing student who’s doing a very lucrative career path, sure, in a couple of years he’s paid off the loans and all is well. But I’m not entirely convinced that this is true for anyone below the median student.

If you’re a middling student at a Nowheresberg University, then your job prospects are much different. They aren’t getting the top openings or the high wages. They might even have chosen a lesser major and thus graduate with minimal qualifications for good jobs. In that case, they’re probably only getting a small “college bump” in the sense that it allows them to start above the absolute bottom. They would make less than 70K.

I mean…you can look up the median wage for college grads, and the median debt for college grads. IDK…I’m thinking Joe College graduated with a 3.0 from Directional State in History or something like that.

Imo there's plenty that can be done. Cheap & easily obtained govt loans can dissapear by fiat, though of course that's politically unfeasible - more promising is a 'skin in the game' compromise; for schools to be eligible for loan tuition funding, they have to accept clawbacks to pay for loan defaults in some cases. (student flunks out & then goes bankrupt [shouldn't have accepted them], student graduates but isn't able to find a job in his field within a reasonable timeframe then defaults and/or renounces the degree [stop overproducing niche and useless degrees])

Allow student loan bankruptcy…but only ten years after graduation, in the absence of chronic, significant disability.

This is exactly it. The simplest answer is make loan default easier/possible. Still politically infeasible (imagine the screams of the left when women's studies loans are impossible to get compared to CS) but we all know this is what it'll take. Infuriating.

Makes me think too of the Rich Dad Poor Dad philosophy (take on debt, buy assets) vs Dave Ramsey (save and budget; highly debt averse). In a high inflation environment makes more sense to take one debt and buy assets.

With rate increases will FIRE people get burned? -On a more serious note, I think the current inflation is doing serious harm to income inequality. Either through education or skills you are either in a dynamic industry where you get rewarded with pay increases so you maintain or increase your purchasing power or you're in a stagnating uncompetitive industry where your real income is eroded by inflation. This advantages only increases as you go through life, buying a house instead of renting and adequately saving for retirement vs renting and not being able to save.

On a more serious note, I think the current inflation is doing serious harm to income inequality.

However, it's slightly improving wealth inequality at the same time. Let's say I am one million in debt and you have one million in assets. Both are equal to, let's say, our annual earnings. If the currency is inflated 900%:

  • I still am one million in debt, but it's between one tenth of my annual earnings (if I work in a dynamic industry) and my annual earnings (if I work in a stagnant industry).

  • You have between one (you had everything in your savings account or invested into stagnant industries' stocks) and ten million in assets (if you had everything invested into dynamic companies' stocks)

If we both are smart, you preserve your wealth and I erase my debt. If we both are dumb, I preserve my debt and you erase your wealth.

What exactly do you mean by dynamic v stagnant industry, though?

Winner of the current market cycle?

Its like a world-wide Dutch Disease where the industry of focus is some technology/ finance and some select entertainment sectors; and all other occupations not tangentially related won't keep up with inflation.

Whatever AmericanSaxeCoburgGothic had in mind.

FIRE people stand to do well if they have already locked in low rates with mortgages and student loans. New FIRE people will find it harder, but should still be at an advantage if they have high-paying careers, which tend to have higher inflation-adjusted incomes and raises even in high inflation.

Regarding inequality, the stock market is a good proxy for that. Rising stock market = more inequality. Given that the stock market does well most of the time, including periods of high inflation, inequality should be expected to rise. https://gabriel-zucman.eu/files/uswealth/SaezZucman2014Fig1.png

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