The Student Loan Crisis Is Overblown
npr.org
npr.org
Meanwhile I buy only used cars, so me purchasing a car doesn't drive the economy any more than buying a used house does.
But cars are different from homes:
1) No zoning preventing new cars from being built
2) Cars wear out within a decade or two
The average price to replace a roof is $12,000. But again, people are more likely to replace a roof than they are to replace an engine in their car. They'd just scrap it and buy a new car.
Houses wear out just as fast as cars do, but we're more willing to fix our house versus fixing our car. And it's not just a function of cost: you can get a new modular home for $50,000 and it will last decades. The double-wide I grew up in was installed in 1994 and there are still people living there over 20 years later. Very few people keep $50,000 cars for 20 years, though. And I see a lot of people with $5000 used cars parked in front of $150,000 houses. But if they bought a $50,000 brand new manufactured home, they could be parking a BMW out front instead. And if they wanted to, they could throw the house away just as fast as they throw away their car.
More specifically, new residential construction accounts for roughly 15% of the GDP, compared to the 3-3.5% from the automobile industry.
Housing supply is so far from being 'fixed' that it contributes 5x more to the GDP than automobiles.
I looked at this data from 2014: http://www.bea.gov/industry/gdpbyind_data.htm
It shows the value added rather than gross GDP. So if I import $7000 of parts from Asia, and use them to make a $12000 car, that would show up as a $5000 value add, representing the work that was done in the US.
From this data it appears that construction is about just under 4%, and motor vehicles are just under 1%. So, 4x, which is not far off the 5x you stated.
Now granted I got lucky and found a company that was willing to pick me up as an intern, then hire me part time, then hire me full time while I was working on my degree. Five years past graduation, my friend and I work for the same company now making roughly the same money in exactly the same job. I bought a house a year ago, he lives with his parents. I got into the workforce and started making money four years before he did, and he racked up four years more student loan debt than I did, so his monthly payments are over $800. That's the price of my mortgage.
We make the same money in the same job with the same education credentials, but instead of him making a house payment, he makes a student loan payment of the same size.
It's just like work, but instead of making money you're losing it--both gradually and in large chunks every 6 months. The workload is the same (probably greater as a student), the pressure is the same, the lack of free time is the same. You're subject to the same arbitrary deadlines and due dates. Plus, as a student, you have the privilege of needing to take high-stakes tests every semester or so. It's basically years of hazing for a credential that's become a requirement for getting any job later.
It's as if devised by a Bond villain: "I know, Let's have a system where we take a bunch of people in the prime of their lives, work them like slaves, subject them to enormous pressures and tests, put their social and productive lives on hold, and if they make it through N years of this hazing, only then do we let them participate as full members of society. AND TO TOP IT OFF THEY WILL PAY US FOR IT!"
I seriously do not miss studying, attending classes, doing homework, or having to walk everywhere. These days if I'm reading something boring, it's because I want to read something boring.
But don't be fooled into thinking a part-time job pays for college in any way, any way at all. I had a full time job making $40k and could only afford one or two classes per semester, and I lived extremely frugally. Paid-off car, apartment under $400/mo, no vices, no parties, and no pets. Someone making $8.15/hr for 20 hours a week only makes ~$8000/yr, or ~$4000 per semester. My mid-size state university costs over $13k per semester, plus books.
Your odds of working in a low skilled service position or manual labor job without a college degree (as a young person) are a little over 50%. With a college degree, it's about 25%/
as it is, the most expensive universities are seen as better, more prestigious.
We could lobby Congress to stop considering parents' resources in calculating financial need, but I doubt you will find much sympathy among voters for an agenda of "life is too difficult for children of wealthy families."
Frankly, that is extremely alarming. Only a third? It's strange how people can look at the same numbers and draw completely different conclusions.
Here's my take on the issue: The government inflated prices of education not unlike banks inflated house prices. All the loaners of student loans should start making provisions now, and big ones at that. People are defaulting or taking a longer time to pay back than anticipated. At the end of the day, I anticipate nobody will act until it blows up and then the state (and thus the common people) will pay up every single dime of this debt - just another case of privatized profit and socialized losses, it becomes boring to watch this game.
I suggest a radically different form of funding education. I would start a pool for every branch of education and invite private companies to fund education and institutes they need (which is already happening at some scale). Then I would have the state multiply the collected amount of money by a number, say, 2 (or whatever the public agrees to and is reasonable), and pay that on top of the collected funds, and that is how much funding this branch of education gets. Maybe there's some minimum too. And I'd make tuition fees very low but still high enough to disincentivize just fooling around - full stipends would be granted to poor people who are doing well at school and show potential.
But it's vastly more difficult (i.e., nearly impossible) to discharge student loan debt. Even if it takes years and years, most students will be required to pay back what they borrowed. I don't think we need to be worried about the bubble popping, but rather the secondary effects that the weight of student loans will cause. For example, companies have a natural advantage negotiating with graduates carrying debt who need a job more urgently than those who have no debt.
> I suggest a radically different form of funding education.
I'm slightly less radical, but along the same lines -- fund institutions, not students. Making students into consumers forces schools to compete on features & amenities (things students care about) rather than focusing on providing quality education at low cost. Public colleges don't need to be country clubs to provide an education.
That reminds me of a first year lecture of discrete mathematics that I took. The professor is pretty renowned and does a good job, but he's also incredibly strict and demanding, especially when it comes to exercises and exams. I still know pretty much all of the stuff we learned there and it's come in handy year after year i.e. in crypto and graph theory. Anyway, we could write anonymous feedbacks for this professor and some students really hated him. He read some of them to us and they contained things like "you are an a * * * ole" etc. I understand the frustration with him, it was one of the toughest courses, and it did cause suffering, but it was also a learning experience and the students left the course with newly acquired knowledge and skills. I'm pretty sure many people who were mad with him were even more mad with themselves and likely dropped out, because among the ones who passed, only few people hated him.
What's needed is an education policy that doesn't leave the amount of students in each program entirely up to the number of students who apply for such programs, but also constricts some programs based on market demand, and provides financial incentives for students to go in programs where there is high demand in the marketplace.
Visa students don't require government funding, they just pay cash. And often those students, who come from the rich families of the entire world, money is no object, so tuition naturally rises to meet the price that they will bear.
Of course government funding for domestic students does not keep up with that price inflation.
Back in the late 80s, I paid for my Bachelors by working part time jobs, and I was a full time student. I don't think I could do that today, unless I worked nights and never slept.
[1] Canadian universities anyway, may also apply to all north american ones.
The figures at the end of the article seem to be cherry-picked in a way to hide the full details. Instead of telling us what a quartile looks like, why not show the full distribution?
On the subject of corruption I can't recommend reading this highly enough: https://www.amazon.com/Conman-Master-Swindler%C2%92s-Library...
A con man selling a book spilling the secrets of his cons? Sounds like a con - I'm kidding (mostly). Reminds me of how self-help superstars peddle their wares.
There is tremendous downward pressure on wages and has been for a long time due mostly to outsourcing, foreign competition, and automation. All those things are deflationary in general.
Central banks have tried to fight this via traditional inflationary monetary policy but it's not working. Since the pressure on wages is so deep and structural, those policies are just inflating other things. Chief among these are housing and education because these are financed with debt.
I think this is the wider picture. It's not so much a student loan crisis as a larger breakdown of the entire 20th century economic formula.
"Credit Crisis: The Sky is not falling [2007]": http://www.brookings.edu/research/papers/2007/10/mortgage-in...
"Growing Foreclosure numbers don't spell doom [2007]":http://www.businesswire.com/portal/site/google/index.jsp?ndm...
You can find lots more, I just did a cursory search.
Early on, Lending Club introduced roughly 10 categories of loans, one of which was "Student Loan".
In the first few years the risk models worked out pretty well for the other 9 categories of loans and they turned out to be pretty good investments from the viewpoint of the lender and roughly similar in return/risk profile.
Student loans were a disaster, with the interest mostly eaten up with defaults. They stopped making student loans.
People think abstractly that education is a good thing, but from the viewpoint of improving your job prospects it is a risky thing. If it wasn't for government guarantees and subsidization, however, student loans would not exist today except for people who don't need them. It just is not a good business (as a business) to make loans that have a high chance people can't pay them.
I think a good solution both now and going forward is to:
1) Calculate the value of the education based on the Institution, the Major, and the Degree. We should be able to calculate this based on the Federal student loan information cross-correlated with IRS data.
2) Forgive all debt in excess of the value of the education
3) Only finance student debt up to the expected value of the education.
This will do a lot in terms of removing the tuition market distortion and in relieving the debt load.
In addition, the concept of federal government offering loans with no independent verification (which we could easily do) as to the value of what they are giving the loan for seems like a good way to create a bubble (see Fannie Mae).
I agree with the author that student loans are good in that it enables people who would otherwise have not been able to afford college to be able to get a degree. However, student loans are an issue that a major constituency in the United States think is an issue (see Bernie Sander's campaign). To dismiss that concern as just due to media scare tactics does not seem reasonable.
Makes total sense.
Ditto for health care.
Music to NPR's ears.
This is an interesting article in The Atlantic on that subject: http://www.theatlantic.com/business/archive/2016/07/the-scar...
>The problem is that we have a lot of people actually borrowing small amounts of money, going to college, not completing [a degree] or completing credentials that don't have labor market value. They tend to be older. They tend to come from disadvantaged, middle-income families and they're struggling. [But] not because they owe a lot of money.
what percent of college education is either lecture or textbooks? if curriculum includes video lectures, and can serve millions instead of hundreds per year, the cost should be drastically reduced. lecture portions can be reused from year to year.
now college costs should just be discussion/lab/feedback/etc
by clinging to live lectures, they can limit supply and control price. no matter how you spin it, college is overpriced, compared to how it could be if there were incentive to serve everyone and distribute all the information. its an exclusive club people pay to enter.
This author was an adviser to Clinton's campaign. Clinton has already said this is a problem, but the reality is that she will do nothing about it (for various reasons). So, it seems the best way to make that palatable to her base is to start a new narrative that says, "there is no problem".
Like a Jedi brain trick, her followers will parrot the same thing and repeat the cherry picked statistics in these talking points.
[1] https://www.congress.gov/bill/103rd-congress/house-bill/2264... [2] https://youtu.be/b1TdC9g4XBQ?t=32m28s [3] http://www.pbs.org/newshour/bb/politics-july-dec96-clinton_0...
the same public unions that support clinton and sanders are the ones that created the "for profit" school debt problem. many union contracts offer mandatory pay raises for nonsense masters degrees pumped out online.
the government subsidizing student debt with artificially low interest rates has increased the size of the load as well as the cost of said education.
Of course, when you hear "private school," many people think private high schools, which are typically superior to public, particularly in southern US regions. The different is these are "for-profit," which can easily be confused, particularly by someone right out of high school.
Finally large marketing expenditures and high pressure sales targeted at people who believe people are required, morally or legally, to be honest.
I think you are confusing "private schools" with "for-profit" schools. But, even here, lots of programs targeting mid-career workers offered by non-profit (public and private) institutions don't rely on admission testing.
> The different is these are "for-profit," which can easily be confused, particularly by someone right out of high school.
Is there are a large "right out of high school" population going into private, for-profit schools? Most of the marketing I've seen from them is directed at mid-career workers, not recent high-school grads.
[1] http://forprofitu.org/2013/06/seiu-testimony-at-a-department...
teachers with masters degrees offer no bump in student performance but cost a lot more (see bill gates on this if you don't like brookings). where do you think they're getting these degrees, harvard and yale? they're getting their masters degrees online, at home, at night (devry, university of phoenix, etc.), and they're getting them in made up bullshit fields of study.
(If they plan to keep the door open to going into administration, they'll usually do Education, because an advanced degree in Ed is selected for in hiring -- and sometimes an outright requirement -- for administrative positions.)