Peter Schiff on Abolishing Student Loans to Make Colleges Affordable
schiffforsenate.com
schiffforsenate.com
This guy's example of Yale's 42 year stint of $33 tuition and so forth is pretty poor, too.
"What has changed? Back in the 1800's there was no Department of Education, no government guaranteed student loans..."
Gee, mainly that there were only a few sons of aristocrats going to the few universities in the country, and all they did there was read Great Books. Today universities are centers for research and have much broader educational missions.
Guess what? Tuition isn't the primary source of income for universities (at least not mine, a Tier I research university). It's /research grants/. Tuition allows you to pay for high-caliber faculty that can bring in huge grants. Schiff misses this point /entirely/. We keep raising tuition so we can offer salaries competitive with our peer institutions and keep getting top-notch faculty (as an out-of-state student at a public university, I'm quite cognizant of these increases).
"If the government didn't guarantee student loans, no one would give them, it'd be too risky."
Completely false. Student loans are some of the least-risky loans to give: the expected income of future doctors, engineers, etc easily justifies the risk of a loan. That's why there is a thriving private market for non-government guaranteed student loans.
Turns out, however, that research and teaching are complementary, so the best faculty and the most gung ho students will often be at the research universities, and that you can often learn more in a research setting than in a classroom.
One of the key factors in combining the two is that you are not learning from someone who kind of studied the subject a decade or two previous like you would in high school, you're being taught by someone who is actively research the subject (or a similar subject).
And going by his math to pay for it, at 12 hours a day, for 32 days, you're looking at 384 total hours of work to pay for a year's tuition. To pay for a public school in the same number of hours worked, you would have to be making roughly $18 an hour, or a yearly salary of ~$38k (pre-tax, but that's a different issue entirely). Turns out college education is going to be roughly the same cost as it was then, if you're going to a public school.
That is not true. The many colleges originally founded on agricultural science curricula were started from the 1860s onward. Students were middle class. They were very cheap.
And in the meantime, those peer institutions are raising their tuitions to be competitive with you. It's an arms race, and the tuition increases are funding it. And those increases are only possible due to student loans (and tuition grants).
So your argument is circular: if these loans were curtailed to all institutions, then they wouldn't be able to escalate, and you wouldn't be forced to follow suit.
You can't shed student loans through bankruptcy, which is another big problem in the same vein driving up costs.
> there is a thriving private market for non-government guaranteed student loans
To my understanding this is not the case. The market is dominated by government backed loans. Correct me if I'm wrong. I'm pretty sure "peripheral" is a better choice of word than "thriving".
> Today universities are centers for research and have much broader educational missions.
This really doesn't address the issue. It should cost the same in real dollars to graduate an English major as it did 60 years ago. Realistically, it should cost less due to economies of scale and technology. Instead it's many times as expensive.
um....history would like a word with you.
I do however agree that Sciff's assertions on this matter are grossly oversimplified.
anyway, yes the problem with this topic is that it is a synthesis of so many things that you could literally write several books on the subject. the modern college system is a leviathan in its own right.
Announcement: http://ycombinator.com/newsnews.html#29apr09
Discussion: http://news.ycombinator.com/item?id=585507
http://thebivouac.wordpress.com/2008/04/27/economist-peter-s...
What happened in USA with education is what happened in Spain with homes:
Here home prices exploded, and remain high today, a 30m^2 flat(322square feet)in Madrid sells by 180keuros.
Normal flats cost no less than 300keuros, the interesting thing is that the prices started rising just when Aznar(he wanted to help as the USA gob) removed the limitations in loans years, and backing money you need for making a loan.
Normal loans went from 8 years to 10->20->30->40 years. Prices went up because someone with less money you have will pay more with virtual money from a 40 years loan he got from the bank without putting a cent.
When people could not pay the loan, they refinanced the loans with more years. That worked until now, things are not going well.
In Spain it costs over 1.000 euros/year to get a quality degree in Medicine or Engineering from a public university, this is 10% of the real cost of your education (over 10.000euros/year) for the state.
I regularly see MIT and Stanford lectures on Internet. They are not better that the education I received, but is way way more expensive.
Is there an example of an industry where government-created demand accounts for a major portion of consumer spending and there is not rampant price inflation? I am open to the possibility that there could be other causal factors here, but the a priori logic is pretty compelling.
Isn't that a little risky, with the chance of pricing out the lower 1/2 of income earners in the US?
What if, as a compromise, they just eliminated college loans for those with family incomes over a certain level? Then you could get the economic effects without consigning a third of a generation to "sorry you were born in the wrong place kid, no college for you".
If we want to eliminate economic distortions, we should go after the farm subsidies, of course. But those are even more of a political minefield than this idea.
By making college education artifically cheap, government discourages competition and innovation.
The best example are primary and secondary public schools which typically are completely free to a student. A private school, even if it delivers a much better educational value, has a hard time competing because if it charges anything, it's already more than what the student has to pay to attend public school.
The only way for private schools to compete in such an environment is to offer something the public school doesn't offer. A private school cannot compete by offering the same thing the public school offers but just at a lower price.
Anyways, back to the larger point.. I put a very high value on the idea that anyone in America, if they have a little talent and put in some work, can get a college education and make their own destiny.
That particular dynamic has way bigger implications for American competitiveness than moderate price distortions in university tuition -- I mean, if we can fix those, great, but let's not throw out the baby with the bathwater, and burn our house down afterwards for good measure.
Their default rates are appalling, but that's to be expected when you charge $40k for a two year degree in Fashion Design. This should have been reigned in years ago.
http://www.usatoday.com/news/education/2009-12-14-student-lo...
The only real difference is that the non-profit colleges funnel money to employees rather than to shareholders.
If a Devry student would not be accepted by Princeton (but would be accepted by Bumfuck U), it's unfair to compare Devry to the average of Princeton and Bumfuck. One should simply compare default rates of Devry and Bumfuck.
A financial advisor I know wrote a really good article about the value of a college education. It's available at http://financialtales.com/financial-tales/young-at-heart/a-t....
Related: If the government announced that in 10 years the minimum deductible for health insurance would be locked at no less than $20,000, what would that do for health care costs? In other words, if the only legal health insurance was catastrophic, would the health care industry be forced to become affordable?
As for your mathematically incompatible assertion, the way that the free market tends towards an equilibrium is because of feedback mechanisms that cause behavior change. However in the presence of a government subsidy the price signal of increased tuition does not necessarily cause decreased consumption. This breaks the feedback loop that is supposed to result in equilibrium.
This is a fundamental change in the mathematics of the situation, and can justify the belief that the market behaves in radically different ways in the presence of a government subsidy.
1. Fix student loans to give sane amounts of support to students. (Cost of living has gone up in the last few decades, but the estimated cost of living for your parents they use in the formulas haven't been adjusted. That's ridiculous.)
2. Only offer government supported student loans to students whose university tuition levels are in the bottom 70% of accredited universities.
The first change fixes the problem where a lot of people who need support don't get it. The second change gives universities an incentive to not just automatically bump tuition 10%/year "because everyone else is doing it".