# No limit to credit?



## sags (May 15, 2010)

With asset bubbles popping up.......due largely to cheap credit, one has to wonder if there is an upward limit to what consumers can borrow.

As long as people (already deeply in debt) can borrow more and more................is there any reason they wouldn't borrow to spend?

After all.........they are cooked anyways, so what is a few more thousands here and there.

I am thinking when it all comes to an inglorious stop...........a lot of lenders are going to be wondering what happened.


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## james4beach (Nov 15, 2012)

Of course there's a limit to consumer borrowing and the USA illustrated this in 2007. Consumers can borrow up to the point that debt servicing costs (their monthly payments) overwhelm them.

The same thing goes for government. The critical factor is the cashflow required to pay interest, and how much of your spare cashflow goes to that interest repayment. And that's the flaw with perpetually increasing debt (whether consumer, corporate or government). There is always a limit.

I don't know what the stats are in Canada are but I'd be curious what amount of disposable income goes to debt servicing costs. The problem in the western world is that we've seen consumer debts grow, but incomes have been stagnant. Debt is growing at a much faster rate than income... that tells you it's not sustainable.


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## Ponderling (Mar 1, 2013)

Maybe others see me as a vulture, standing on a dead tree looking out for fallen prey, but....

I hope to see real estate values slide gradually so people loose the equity they thought was going to prop them up later down the road.

Then somehting come along that will force interest rates to rise rather quickly over the short term, and stay up for a good while.

If not all of my investment asest get wiped at the same time, I hope to have the money to cherry pick from the wreckage, and find all sorts of people once again to really work for a living rather than hang on in careers likel cel phone sales agents. 

Spain can show where things could go here. Ancedotally I heard that over one quarter the number of active cel phone acounts in Spain dropped by over a quarter of a million subscribers. People who likely are emotionally welded to thier mobile device, but cannot afford to keep it alive.


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## Maltese (Apr 22, 2009)

Being a person who hates to be in debt and who has always strived to pay off mortgages as quickly as I could, I am amazed how much financial institutions will lend people. A 67 year old friend of mine, has a total gross retirement income of $38,000 and has a $180,000 mortgage on a $325,000 new condo that she purchased less than a year ago. She has savings of $18,000. She's now put the condo up for sale and will not likely sell it for her purchase price. Plus she will have to pay realtor fees of $13,000 plus all the other expenses associated with selling a home. Once she sells she wants to buy another new condo for $350,000. Her financial institution is willing to lend her the additional money that she will need.

I just shake my head. I find it ludicrous that she can borrow so much money. Not only is she her own enemy, but in my view, the financial institution is also her enemy.


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## marina628 (Dec 14, 2010)

my daughter is a 21 year old student and she had $1000 credit limit on her visa when she was 18 and in less than a year TD gave her a $7000 Emerald Visa which she took for the 4% interest in case she needed money during her studies.She uses maybe $1000 a month on it and always paid in full,her limit is now $13000 and last night when she logged in they have offered her another $3500 increase.Now my daughter is given a paycheck from my business and last year she made $18000 + got $5300 in student loan.She has her own apartment in her name which we did not cosign and she pays $1050 plus Utilties for it.She is very good with money and honestly all her student loan money from last year is invested ,we figured she may as well get it as it is interest free and when she is done her studies she can pay it back in full.But currently she has available credit over $20,000 on credit cards and if she maxed this out how would she pay it on a $23000 income.I wont even tell you how much credit I am offered,everytime i login to canadian tire or capital one we are given increases ,I accept them but I dont even carry capital one in my wallet anymore as I have one of the older cards and there is no rewards or anything.


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## sags (May 15, 2010)

According to the credit bureaus............people are already at the debt service limit and flipping debt from credit card to HELOC.......and then a mortgage refinance.

With the new rules it will be tougher to do that...............so the pinch may be just starting.


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## Toronto.gal (Jan 8, 2010)

marina628 said:


> 1. her limit is now $13000 and last night when she logged in they have offered her another $3500 increase.
> 2. got $5300 in student loan....we figured she may as well get it as it is interest free


*1.* $16.5K credit limit for a full-time student with under $20K income, needing student loans even, is just ridiculous on the part of the bank.

*2.* It's not free for the tax-payer who is paying for it, unless you meant that it's an interest free loan from you.

You have told us on various occasions, how responsible/smart your daughter is, that she has won scholarships, that you pay her a salary for her work, plus all her expenses, including $400 monthly allowance [from post #6 that you wrote under the 'Ideal amount to leave in your estate' thread], so I'm not sure why she needed help from us, the tax-payers? Did she report all the above on her application? 

Government loans are intended for those that need those funds to pay for tuition & living expenses, not for saving/investing.

*'OSAP's objective is to assist full-time and part-time students from lower and middle income families in meeting the costs of post-secondary education through a combination of federal and provincial grants and loans. The purpose is to supplement, not replace, the financial resources that students (and their families, if applicable) are expected to contribute. *

I don't imagine that OSAP has an unlimited budget, so it does not seem fair for those not needing loans, to be asking for them, and it seems it is being done quite a lot.

http://canadianmoneyforum.com/showthread.php/15556-Hello-whats-first


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## marina628 (Dec 14, 2010)

Toronto Gal my daughter is an adult student does not live at home ,maintains her own residence in the city.She declares everything on her applications ,if she lived at home I am sure she would not need a loan nor would she qualify .


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## marina628 (Dec 14, 2010)

Also the $5300 student loan is not even 60% of her tuition cost for a year so it represents about 20% of the cost to go to school. My money is not her money thus she gets student loans.


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## marina628 (Dec 14, 2010)

also student loans are interest free to her until she is finished studies so why not get the loans over paying on credit or borrowing from me? Thank god her credit bureau shows she has $14000 in student loans or the bank likely would give her a $50,000 credit limit. She is not doing anything wrong nor am I by not funding her studies 100%.my daughter's first year we did pay for everything ,she lived in a rooming house and we gave her 100 a week. .She transferred into a new program and new school and a year ago she moved into her own apartment and more expensive school. Don't report every aspect on this forum but hopefully you will see with additional details that $30,000+ net expenses is much different than $900 a month for 7 months a year plus $4000 tuition much different situation so I absolutely do not and will not pay 100% of her costs.


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## Toronto.gal (Jan 8, 2010)

marina628 said:


> *1. *my daughter is an adult student.....
> *2.* why not get the loans over paying on credit or borrowing from me?
> *3.* She is not doing anything wrong nor am I by not funding her studies 100%.


*1.* Most university students are adults [small % are under 17], but it does not mean that all 18+ students apply for gov. assistance; Imagine the challenging budgetary case in such a scenario. I believe enrollment in Ont. universities was above 400,000 in 2012, so with your mentality, all should get gov. loans, even adult children of millionaires/billionaires? Does such a math make sense, considering that tuition is already heavily subsidized by the gov.? In Toronto, without gov. assistance, the fees would be around $20K in arts and humanities degrees vs. the current $6K to $7K. It's not surprising then, that Canada has the highest tertiary educational attainment.

*2.* Because those loans are for needy/struggling students, and since you're business savvy/wealthy parents [multimillionaires by your own account], you should make the interest free loans to both your children, not the tax-payer. You have also shared the fact that you're a very generous employer/big contributor to charities/help siblings/parents, so why not help your child with a loan as well? 

*3.* Asking for tax-payers' assistance and/or for a parent to encourage such when: 1) the parents are more than capable of doing so, and when 2) the child uses it for savings/investments, is not right IMHO, even when no laws may have been broken. I don't necessarily disagree with you about not wanting to fund her studies 100%, but explain to me why in your view, it is ok. for your child to be asking me, the tax-payer for an interest free loan [and interest we'll pay], instead of you, the parent? She's your child, not mine. 

You're an incredibly strong/smart lady, and I admire/respect you in general, but on this matter, we will have to agree to disagree Marina. I belong to the camp that believes that the education of children is the parents' responsibility [when possible], not that of the gov. nor the child herself. However, I realize many disagree, and that in fact, many children are literally forced to move out of their homes at age 18, but I disagree that children become the gov.'s responsibility at that time, unless assistance is needed.


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## Daniel A. (Mar 20, 2011)

Boy I'm retired with my wife still working for five more years.

My son decided that a trade program would be his best chance in the future and is working on it.
My wife paid his tuition as the paper work for his application for a student loan was not done right and the fee's needed to be paid ASAP 4000.00 
After being on a waiting list for 18 months we were not going to see him miss this chance.

I've been taking money from my RRSP to help support him. 

He lives independent.


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## uptoolate (Oct 9, 2011)

Maybe the government sees it as an investment in the future of the country. Optimizing education for all of its citizens. Certainly they did when I went to school and paid a ridiculously small amount in tuition because it was directly subsidized by the government. Students I teach these days are graduating with unprecedented levels of debt (200K+) and in many ways it is restricting their ability to contribute to society in a broader way. Who can afford to take a year or two to do volunteer work any more when they must immediately start working to pay back their debts. There are many ways to look at the issue as we found last year with all the activism by the students in Quebec. I don't know where the balance is or what the 'right' answer is. I do remember that even back in the seventies, OSAP was referred to as the Ontario Stereo Acquisition Programme by many and I think that even with much lower tuitions, it was much easier to get grant money that didn't even have to be paid back.


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## HaroldCrump (Jun 10, 2009)

uptoolate, what you refer to is precisely what is known as an education bubble.
Or, the education inflation.
Government policy of subsidies in this case, just like almost every other policy of thoughtless subsidies, has created this education bubble with the exact opposite of intended consequences.
This is the Law of Unintended Consequences of stupid govt. subsidies.

What we have now is an education speculation, just like R/E speculation, where borrowed money is used to speculate on which university, which degree program, which diploma must a student pursue to get the best bang for the buck i.e. allow him/her to get a job on Wall St. creating more derivatives and yet more speculation in other aspects of society.
The govt. tries to control this bubble by subsidizing education, which drives up the price of education even further.
The govt. keeps increasing subsidies - direct and indirect, and the cost of education keeps going up and up (surprise, surprise).

Now we have a situation where the student generation feels _entitled_ to a tax-payer funded education.
On the other hand, student loans are at a record high throughout the developed world.


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## uptoolate (Oct 9, 2011)

No argument from me Harold. I was having a pitched discussion re: The Law of Unintended Consequences at a meeting a couple of nights ago with my medical colleagues. 'The road to hell....' and all that. I think things have been also compounded by the universities' transitioning to more of a business model where the first year class size is dictated by a huge oversupply of applicants and there is now a built in attrition rate of 50%+ in first year in many programmes. The university is happy to take that money and let the chips fall where they may. I don't know if the students feel entitled in general. Certainly, in Quebec, there was a very well organized response to increases to what were by far the most affordable tuitions for Quebec residents. I don't know if students, generally, know what the implications are of the debt that they are getting themselves into, especially if interest rates rise to more historical levels. In other provinces I don't recall seeing such a response as tuitions (which used to be on par with Quebec's) rose dramatically through the 90s and noughts.


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## lonewolf (Jun 12, 2012)

sags said:


> With asset bubbles popping up.......due largely to cheap credit, one has to wonder if there is an upward limit to what consumers can borrow.
> 
> As long as people (already deeply in debt) can borrow more and more................is there any reason they wouldn't borrow to spend?
> 
> ...


 Hi, sags

Its all mass psychology as optimism increases new creative ways to increase leverage & or go deeper into dept are created. A trend can be self sustaining & self reversing. (cycles)


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## Islenska (May 4, 2011)

I remember being eligible for a student loan (1974) at U of Manitoba. With my bursary and meager savings (plus shared apartment etc...) didn't see needing the loan.

Was told by the loans officer, of course take out the interest free loan anyway, sounded good to me and so I did.

Even then I was shocked that pushing more into debt was OK, don't worry about tomorrow, grab it while you can...

(Trouble is today I haven't a clue where that loan went-----maybe don't want to know!)


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## lonewolf (Jun 12, 2012)

Harold

Love your prior post

Lowering of self esteam of students is another unintended consequences of goverment loans & or subsidies for education. One of the key components of the omni present psycological need for esteam is being both "CAPABLE" & worthy of living. Being independent & not relying on suport does wonders for ones esteam which in turn produces more productive students & workers.


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## Eclectic12 (Oct 20, 2010)

Toronto.gal said:


> *3.* Asking for tax-payers' assistance and/or for a parent to encourage such when: 1) the parents are more than capable of doing so, and when 2) the child uses it for savings/investments, is not right IMHO, even when no laws may have been broken. I don't necessarily disagree with you about not wanting to fund her studies 100%, but explain to me why in your view, it is ok. for your child to be asking me, the tax-payer for an interest free loan [and interest we'll pay], instead of you, the parent? She's your child, not mine ...


I wonder what's changed in the funding?

When I went many moons ago - as my parents were middle-class, the loan I qualified for was $800 per academic year, which I declined. I could have switched universities to qualify for a $500 bursary but it was too close to home for my liking! :rolleyes2:

My parents helped a bit but as I was able to get good jobs and knew that I had siblings who needed the help more, I paid something better than 95%.


Note that I had co-workers at the same summer job who also had jobs at the local grocery store who were proudly telling me that they had signed all their assets away so that in addition to the respectable money they were making, they also qualified for both grants and loans. So ignoring what the loans are intended for is not exactly a new situation.


Cheers


*Bit of Trivia:* One of the jobs I worked at during school to pay for some extras I wanted was making waffle ice cream cones.


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## Eclectic12 (Oct 20, 2010)

HaroldCrump said:


> ... Now we have a situation where the student generation feels _entitled_ to a tax-payer funded education ...


That's why I would have preferred the bill to each student included all the costs and then subtracted what the gov't was paying. Some of the comments about the costs while I was going to university showed a disconnect between the perception and reality.


Cheers


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## sags (May 15, 2010)

As parents and society I think we also have been unwilling to accept the fact that not all young people are capable of higher education.

It has always been this way..............just that in the past many people went to work, during/after high school, earning decent enough wages to support themselves.

The kids haven't changed...........the jobs have.

Trades are great........but our present system still requires far too much prior education that has nothing to do with the trade. 

What does English Literature have to do with learning the heavy equipment mechanics trade?

Most of the tradesmen I have met during my lifetime.........and that is a lot of them...........were fortunate to even have a high school diploma. THey learned the old fashioned way.........at the hands of a journeyman "teacher".

The education system was described to me as this way............a giant funnel where all the kids pile into the big end and a few squirt out the bottom. 

The rest............pay and get few job prospects out of it.


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## Eclectic12 (Oct 20, 2010)

sags said:


> As parents and society I think we also have been unwilling to accept the fact that not all young people are capable of higher education.
> It has always been this way..............just that in the past many people went to work, during/after high school, earning decent enough wages to support themselves.
> The kids haven't changed...........the jobs have.


While I agree that not everyone is capable of higher eduction - there's a lot more factors that make this at best, a simplistic view. 

When my dad was going to high school - a tiny percentage could get a scholarship and the rest attending university were the children of those with money. 




sags said:


> Trades are great........but our present system still requires far too much prior education that has nothing to do with the trade.


Ask the employers & those that manage the requirements be accepted into the trade. 

The ability to go from basic schooling or from high school based trade training into a trade when the local trades started requiring community college training. It seems to be the same factor as the office managers requiring a degree "to get the number of applications down to a manageable number".




sags said:


> Most of the tradesmen I have met during my lifetime.........and that is a lot of them...........were fortunate to even have a high school diploma. They learned the old fashioned way.........at the hands of a journeyman "teacher".


Those I know in the trades say that part is the same - the difference is what is required to be accepted into the trade.


Cheers


*Edit:* To be clear, this is not limited to only trades. For almost a decade, to be hired as a computer operator at a Waterloo insurance company - the application had to list a university degree in order to reach the interview stage.


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