The Long Road to the Student Debt Crisis
wsj.com
wsj.com
Roughly 1/3 of all borrowers drop out, implying (I think?) that the majority of debt is held by people who complete degrees, a substantial minority of whom obtain graduate degrees.
If the student debt crisis is about rescuing people for whom college was of no benefit (for instance, because they attended a for-profit school and didn't obtain a bachelor's degree --- the overwhelming majority of low and middle SES quartile students at for-profit colleges do not), the intervention needed to solve that problem is radically different and less expensive than "forgiving all student debt".
Don't let history repeat itself
This is in line with the “total and permanent disability” escape method which has minimal impact on the larger student loan market. https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancell...
In 2010 the policy changed, however plenty of older federally backed student loans are still being sold and resold. https://www.investopedia.com/articles/personal-finance/08121...
https://studentaid.ed.gov/sa/repay-loans/understand/servicer...
> In some cases, ED needs to transfer loans from one servicer to another servicer on the federal loan servicer team. ED transfers loans as part of its efforts to ensure that all borrowers are provided with customer service and repayment support. If ED needs to transfer your federal student loans from your assigned servicer to another servicer, your loans will still be owned by ED. The “transfer” to another servicer on ED’s federal loan servicer team simply means that a new servicer will provide the support you need to fully repay your loans.
There was a change as a rider to the 2010 affordable care act. But, older federally backed student loans are sold and resold.
Either way loans go back 4+ years before graduation and people take 15+ years to pay them back. So I assume quite a few of these loans are out there even if the remaining balance is not that huge.
You can make loans dischargeable, but doing so will drastically change who loans are made available to in the first place.
BK's on your undergrad also would make it harder to take out loans for post graduate courses.
I suspect that leads to outcomes that are uncomfortable for universities though.
If you suddenly made that allowed again there's be a bunch of initial bankruptcies because of pent up demand and the market racing toward equilibrium but it would almost certainly revert to somewhere near the level it was originally.
1. Tuitions were much lower when loans first started to be non-dischargeable.
2. The provision to exempt them from bankruptcy was based on concerns that people were already ruthlessly defaulting on them.
As this article notes: the current disposition of college financing is part of a package of policy changes geared at drastically expanding access to college, and that package is generally viewed as being successful on its own terms.
Not allowing defaulting on student loans was a huge driver in why tuitions are so high without any added value from the universities.
If nothing else, this seems like an argument for permitting the recipient of this particular kind of windfall to break it up across a few years, possibly retroactively.
Further, I’d argue that the borrower isn’t the main beneficiary of these student loan programs. Rather they are intended to, and do, enable monstrous cost growth in private de facto for-profit universities.
“literally nobody knows who these people are or what they are doing”
https://www.forbes.com/sites/carolinesimon/2017/09/05/bureau...
You don’t have to make profit to waste a lot of money.
First off, the source doesn't even claim that. They measure total expenses on instruction. The instructors might be getting a shitty pay (most do), but the expenses could be high if the instructor:student ratio is high enough.
Secondly, I highly question their data and methodology.
The only relevant data to support the claim you made is in Figure 14. That figure does not explain how the expenses on "instructors" are tallied.
To start, the universities have purely teaching faculty and research faculty that also teach. The latter can be highly salaried, but also bring a lot of money to the university in the form of research grants, which actually pay the high salaries.
Thus research spending and instructional spending are likely mixed in Figure 14.
(It is a well-known fact that most of instruction is down by adjunct faculty at slave wages).
Going further, I don't see a distinction between undergraduate and graduate instruction. A graduate seminar, say, on tropical varieties for non-archimedean analytic spaces that exactly 5 students are enrolled in because it's something they need for their research can be formally listed as a class, but this 1:5 instructor-to-student ratio is not something a typical undergraduate student will ever see. Furthermore, whether the TA's (grad students) are counted in such ratios is unclear.
Now, let's look at the data[1].
From 1970 to 2009, the instructors' salaries have seen a modest increase (about $4K/year) after adjusting for inflation[4], less than 6%.
However, the cost of attendance has more than doubled, inflation adjusted[2].
For the claim in Figure 14 to hold any water, we should expect to see the student:instructor ratio drop by a factor of more than 2 since the 70's.
This simply did not happen[3]. The FTE student-instructor ratio, on the average, stayed at about 16-17.
Therefore, the Figure 14 that the book[0] includes without references to sources, can't be right.
The data I cited suggests that the tuition costs would be half of what they are today if they were tied to instructors' salaries. However, the costs have more than doubled.
(Everyone who would like to dispute this is welcome to dig into the statistics).
[0] https://www.mercatus.org/system/files/helland-tabarrok_why-a...
[1]https://nces.ed.gov/programs/digest/d10/tables/dt10_267.asp
[2]https://nces.ed.gov/programs/digest/d07/tables/dt07_320.asp
[3] https://nces.ed.gov/pubs2012/2012001.pdf - page 377
[4] Inflation calculator: https://www.officialdata.org/1976-dollars-in-2006?amount=924
Higher education is a ponzi scheme, from books to peer review to administration.
1) State aid has dried up considerably. Public colleges used to get a a huge amount of their budget from the state. However, cutting funding to higher education has always been more politically palatable when tightening the belt than other areas. When I was in college, the funding was roughly 50%. Now it's about %25, and in inflation adjusted dollars is significantly lower than 20 years ago.
2) For at most of the past 20 years, there's been an arms race amount colleges competing for students. In that pursuit, enormously expensive new facilities from dorms to rec centers have ballooned capital expenses, covered primarily by bind issues that have interest to be paid and therefore necessitate higher tuition. To make ends meet.
These two items, along with easy financing, represent the three legged stool on which massive tuition and increased and student debt sits.
One would like to think that this would allow new schools to materialize that opt out of that race to the top, though of course the overhead is very high. I've been watching Signum University, an online-only school, work its way to accreditation over the past several years, and they're nowhere close. (A big bolus of cash would probably help; they're trying to do it with only small-donor donations.)
I feel like college has become not-worth-it in the three decades since my degree, though unfortunately that's not true: even with the ballooning costs it's still a net positive. It just seems as if they're raising prices to absorb as much of that net positive as they can, and in doing so the people on the left side of the return curve go from positive to negative. Since the schools get theirs up front, that's pure positive for them.
Only a couple years ago it was advantageous to pay off your student debt quickly to avoid interest. Now it seems beneficial to pay the monthly minimum only and hope that the debt gets forgiven by the government at some point...
Does any one know if any of the Democratic candidates have talked about this issue?
So if you're already in a place to pay it off without struggling, I'm betting your life won't change that much. I'll just be happy to see my loans gone. If I end up paying it off in 5 years and find out it all would have been forgiven regardless, C'est la vie.
Yes, college is expensive, but there is an existing alternative that everyone seems to forget about and it boggles my mind.
Severe student loans can be incurred starting at age 18 and aren't dischargeable. That's why they're uniquely pernicious. It's typically not possible to fuck up your financial life for decades via most debts, but it is with student loans. We don't know ourselves and the future is unpredictable, and that's why bankruptcy exists. Taking it out of the equation empowers predatory lenders and institutions.
In practice, I'm not certain this is true. In Massachusetts, a parent can be forced to pay for his over-18 child's college education:
https://www.familyneedslaw.com/blog/2019/03/massachusetts-pa...
I'm unclear as to whether or not the court can force a parent to go into debt to accomplish that.
Then, the people who raised them, and who they trust the most, tell them to sign on whatever dotted line is in front of them. The finances take care of themselves later! The administrators act as though it’s business as usual. The student is their proxy to government guaranteed money.
Since student loans can’t be discharged, it’s not even that banks relax their standards. It’s much worse than that. They’re now financially incentivized to give out as much debt as they possibly can. The more they lend, the more they are guaranteed to profit.
Money is free, so schools raise their prices and hire more staff.
I don’t really blame the students at all. Most people are surprisingly financially illiterate, and 17 year olds are especially naive. Their brains are not fully formed. We don’t let them buy cigarettes or look at naked people, because we don’t trust them. Yet we throw them in this game with seasoned adult professionals who work with complex financial instruments for a living, and we somehow expect them to come out alive.
Sure, many individuals will navigate this just fine, but, predictably, those ones are lost in the noise when you measure populations.
The only thing that boggles my mind is the fact that we haven’t corrected it yet, and most of the current proposals sound like they will actually make the problem worse. Bernie wants to make tuition free! That sounds like a pre-emptive bailout on a blank check.
If you want to understand why people seem to be inexplicably bad with money, it’s important to realize that their brain doesn’t work like yours does. So any assumptions based on what you think is logical are worthless in furthering your understanding.
Many community colleges even have transfer agreements with universities; you just check the courses off the pre-agreed upon list, and you're guaranteed admission.
Not only will your college be paid for while in, but you have the GI Bill when you separate and if you were forward-thinking choose a job that is marketable on the outside e.g., air traffic control.
Longer answer, according to the universities: Because modern students demand more than just classes, they also want social services (on-site counseling, bias incident response teams, etc).
Longer answer, according to a cynic: Because universities are more or less guaranteed the money from the federal government, they've grown to spend the money on inflated administration. As costs go up the government allows students to borrow more and more to cover the costs, and universities find ways to jack up their prices to match the money on the table. While the government loaning poor students money to better themselves with an education is a great thing in theory, I think it's what directly lead to the current situation. I don't want to turn this into a long post against capitalism, but I think that the unfettered capitalistic worldview we have here in the US is the root problem.
It seemed to me like the government subsidizing the market in stark contrast to unfettered capitalistic principles is the root of the issue.
Perdue’s income sharing plan mentioned in the article seemed really interesting off the cuff.
I think it would have been really beneficial had I been required to create a pitch deck to get financing for my education.
>It seemed to me like the government subsidizing the market in stark contrast to unfettered capitalistic principles is the root of the issue.
My opinion was apparently unpopular, but I'm not claiming that the government is the cause of the problem. Instead I'm claiming that the government's noble effort is subverted by the fact that the schools care about maximizing immediate profits more than altruistic goals like building healthy strong societies. The cause of skyrocketing costs is, in my opinion, the simple fact that the schools seek to maximize their revenue and since there's no government-sponsored damping (as that would go against capitalist principles) we get a feedback loop as the government tries to educate its populace.
In terms of cost this statement doesn't make sense to me. There are plenty of economies of scale in education. One professor can educate an undergrad class of 100 people for barely more than what it costs to educate 10 people. While the effort for checking exams multiplies directly with the number of people, many of the costs are lowered the more students you have.
The marginal costs per student almost go to zero if you have enough students.
https://slatestarcodex.com/2019/06/10/book-review-the-prices...
Most civilized countries offer free or close to free education for their young population instead of trying to profit off of this segment of the population that barely knows what it wants out of life. If they can do it, I'm sure we could. How about bailing out the people for one and ending this for profit loan system once and for all? How about investing in the future generations of Americans for once instead of trying to profit from them? Or we could continue on the path we're on and see just how much worse things get for the masses here. I wonder just how much they will put up with.
In US any graduate from HS can go do 4 year degree in “something”. Try that in Germany or Netherlands.
1. Testing 12-14 year olds to decide their lot in life is.. well unreliable. Not to mention brutal.
2. In US race card will be played once it is apparent that proportion of people with different ski color that get free education does not line up with demogrphic proportions(political suicide)
3. People WILL game it by hiring tutors to study to test, bribing teachers, teachers will cheat and give out solutions etc. In Netherlands they have what amounts to counter-intelligence apparatus to counter this. Good luck implementing that in all of the States.
The whole thing seems a touch more diabolically evil in a way.