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Comment by chrischattin | Hacker News Reader

How to fix student loans...

The .gov backs student loans. And, they are non-dischargeable. So, it is zero risk for the lender to give loan to the 2.7 GPA moron getting a worthless basket weaving degree from the local private lib arts school for $100k. So, they give as many loans as possible, since they can't lose (taxpayer on the hook). Colleges are incentivized to drive up costs of tuition b/c tons of free money.

It's a classic moral hazard created by .gov guaranteeing the loans. Same thing we saw in the housing crisis.

Make student loans dischargeable in bankruptcy or take away the .gov guarantee and watch the market for student loans for worthless degrees dry up and tuition costs plummet.

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This is my thought as well. These universities have had very little incentive to cut costs for a long time and have padded out administrators and built opulent and unnecessary facilities driving costs ever upward. Universities used to be little more than professors and classrooms with very few administrators.

>Universities used to be little more than professors and classrooms with very few administrators.

Correct. There was also no IT, counseling, healthcare, Title IX, and secondary public education was functional. Things are different now.

I wish it was getting spent on IT, counseling, healthcare and other practical services. Somehow I doubt the tiny staff at my university clinic, or the four IT people, were soaking all that money up.

Why do those things have to be a part of a university?

Counseling healthcare and secondary public education should be addressed somewhere else. University is the wrong place for that.

Option 3: Make the schools co-obligors on the debt. In a default, the school pays. I suggested that to a congressman once; he nearly spit out his drink.

I was thinking the same thing except maybe place it at 50% or something. So they still want to give out loans but are more judicious about it.

Also there might be scale correlated to market demand. So if doctors are in high demand the gov backs it more, if it’s something with little market demand, back it less.

Everyone passes all of their classes?

Easy classes and grading aren't going to help people not default.

The school can really only improve the education they provide or make their admissions more stringent. If they are going to do the latter, we might as well go back to direct government support, no need to have a loans process and all that noise.

It is incredible to me how straightforward and undoubtedly true the point you are making is, yet I've had 0% success in bringing it up in conversation without immediately being called all sorts of names or accused of hating poor people.

> It is incredible to me how straightforward and undoubtedly true the point you are making is

Even the part when it relies on private lending behavior being driven by security provided to lenders by federal loan guarantees that haven't been available to private lenders since July 1, 2010?

that may be true but the non-dischargeable by bankruptcy part still holds true. A student loan is still one of the lowest risk investments a bank can make.

Or, track the loan payback percentage for each degree, let’s say 5 years after graduation. Publish those results, and stop making loans for programs where the repayment is less than X%. Then, basket weaving degrees won’t get loans, the cost for basket weaving programs will go down, as only those with parent’s stupid money will pay for basket weaving degrees. Students will be directed by market forces to degrees that actually pay, and repayment percentages will go up.

This will of course cause universities to encourage student loans for students with wealthy parents who could have paid up front, as they’re more likely to pay, even if employed as a barista. For every rule, it will be gamed in some way.

More likely, the basket weaving program would entirely go away. Wealthy parents generally aren't idiots and don't encourage their children to waste away in pointless degrees. Well, the ultra-wealthy might not care, but there aren't too many of those.

In any event, congrats, you just made a whole set of degrees inaccessible to anyone except the wealthy. The progressives are really going to love you for that.

It's wise to view a degree of such cost which is unlikely to re-pay itself as a luxury good. We call most other quarter-million dollar products that have little investment potential, such as yachts, luxuries. The whole point of free college is to give everyone a shot at the middle class. Personally I think we'll just get degree inflation; college has been used as a distinguishing factor because there are a limited number of such jobs. That aside, basket-weaving degrees don't move people into the middle class. Would anyone, progressives included, contend that everyone ought to get a free yacht (or other luxury good of your choice)? A free stem degree is at least much more likely to lead to long-term, multi-generational success.

Markets provided some balance here, but were taken out of the picture. No thoughtful lender provides equal capital at equal interest rates to a poetry and a business major. This is reasonable, as the business major has a significantly higher lifetime earning potential. Making more capital available at lower rates to higher-earning majors is a good strategy because it helps to push people into higher-earning jobs. The invisible hand seems better-equipped to do this than a central planner.

I haven't seen ISAs (income-share agreements) mentioned much here, which is a pity. The obvious solution is to modify the incentive structure such that colleges have a strong financial interest in the success of their students, which ISAs accomplish. If you want to read more, I recommend this article: https://reason.org/commentary/a-better-path-to-dealing-with-...

Purdue is currently offering them, so we'll hopefully get some real-world data on how they work, but they seem very promising on paprer.

The federal government directly issues loans now, and they won't give you $250k in student loans. The private lenders who will don't have government backing.

So if they give someone $250k for a basketweaving degree, they are unlikely to ever see that money fully repaid.

No one serious thinks private universities that cost $60k+ a year should be free btw.

Also most STEM degrees are about as economically viable as liberal arts degrees if you don't go to grad school. Computer Science and any degree that can get you into CS are outliers.

I’d consider that a good thing. How many basket weavers are really needed in the world? My biggest concern is that politicians will make basket weaving degrees free, forcing me to pay (through taxation) for these over supplied degrees, and then being forced to support unpaid basket weavers on UBI.

That will automatically happen because lending banks will do it, just like car, home and health insurance.

There are no lending banks. The money comes directly from the Department of Education.

There are both US-government, and nongoverment private bank, student loans, in the US.

Which are not guaranteed by the government. When speaking of government-backed student loans, which this discussion is, there are no banks.

OK. That's confusing, and some brief DDGing finds a bit of a mess.

Got any recommended references?

The relevant Wikipedia article to start: https://en.wikipedia.org/wiki/Student_loans_in_the_United_St...

The relevant paragraph:

> Prior to 2010, Federal loans included both direct loans—originated and funded directly by the United States Department of Education—and guaranteed loans—originated and funded by private investors, but guaranteed by the federal government. Guaranteed loans were eliminated in 2010 through the Student Aid and Fiscal Responsibility Act and replaced with direct loans because of a belief that guaranteed loans benefited private student loan companies at taxpayers expense, but did not reduce costs for students.

Even a student loan from Wells Fargo?

That already happens. Lenders just don't care because they can't lose money on those loans b/c reasons stated above.

The government doesn’t just back student loans, it makes the student loans. The government is the lender. More than 90% of all student debt is carried on the government’s books.

Not only that, I remember reading that something like 1/3 of the US federal government's receivables are student loans. A mass default or forgiveness program would dramatically lower the governments ability to pay other obligations.

The other 10% is still $156Bn... That's more than the GDP of Hungary. It's still worth considering.

That 10% is also dischargeable in bankruptcy. Only the loans made by the US Government are non-dischargeable.

I feel the need to remind people that going bankrupt is the worst thing you can do to yourself financially. It will set up back a long way in very basic things.

Good luck with that. You just made college out of reach for everyone that isn't already wealthy, exacerbating inequality and further entrenching class boundaries.

To be clear, I agree with you, rip out the loan guarantees and let the private market deal. But progressives would never allow this.

> You just made college out of reach for everyone that isn't already wealthy

Immediately yes, fortunately, there is a supply and demand curve, so if you cut the demand for a bunch of colleges that already exist; then the price should find a new equilibrium. Of course, as is the science of economics, time and outside influences matter.

So what do you say to all the people for who college will be out of reach while the market "equalizes"?

The same thing we're telling financially concerned people now; public colleges, community colleges, trade schools.

Fortunately, in a low unemployment world, also means that hiring should be very elastic to this change.

You can get a very good education at a pubic university, for example in California's State University system, for about $6,000 a year. It wouldn't put college out of reach, it would put going to an expensive liberal arts school out of reach. I think that's OK.

> Good luck with that. You just made college out of reach for everyone that isn't already wealthy, exacerbating inequality and further entrenching class boundaries.

You could apply that argument to anything. "Good luck with that, now people can't afford mansions, Good luck with that now people can't afford private jets".

Should everybody be able to afford mansions or private jets? No.

College should either be free, thus directly paid for by the government, or not everybody should go to college, you can't have it both ways, or that's how you'll get your big next financial crisis. The government should not back private loans, period.

Cost of education has skyrocketed BECAUSE banks started to loan crazy amounts of money to every students. This is free money for the banks.

> The government should not back private loans, period.

It's a good thing they don't, then.

Wouldn't they be in roughly the same position, just without a ton of debt?

People have a different emotional response to predatory lending like payday loans, but not those same practices in student loans.

You say that like it's a bad thing and not the real intent.

Make the college take a 10% stake in each loan. Suddenly they’ll start being more discerning about who they accept and what their majors are.

Suddenly costs go up 10%.

If someone told me they'd give me $1 if I throw away a dime, why wouldn't I just keep taking their dollars all day long?

You don’t get a dollar (in your metaphor)...a student still requires variable costs so you’d be left with maybe a dime.

No. If the school assumes 10% of the risk of the loan, they still get the other 90% guaranteed.

Future risk-affected dollars != current risk-free dollars.

You have a cost of production.

The risks can be managed.

What a great idea!

The 100k basket weaving liberal arts student barely exists and is a meme to generate rage clicks.

The modern versions are usually gender studies, communications, or English.. As an engineer, it's difficult to accept any non-engineering degree as legitimate :-)

So my nephew is getting his degree in "expeditionary studies":

https://www.plattsburgh.edu/programs/expeditionary-studies-m...

I'm jealous..

I haven't got any idea if that degree will lead to a worthwhile career for your nephew, but that looks like a lot more fun than the four years I spent getting an engineering degree I don't use :)

There is a Career Opportunities section on the same page.

The 100k in debt grad student becoming an adjunct and needing food stamps not to die of starvation in poverty is a pretty stark reality. One would have to be tone-deaf to pretend it does not exist.

Sure. But I said the basket weaving liberal art student. The 100k grad student can be everything from a CS major to a soon-to-be-tenured ivy league history professor. These are not the same people, and it's not what I said.

Pick a major which ensures your financial survival. Spending 100k on a degree which cannot ensure survival is a hell of a way to learn that lesson.

I don't disagree with you, but when that cost is underwritten and inflated by nondischargeable, government-guaranteed debt that's the product of a decision made by folks scarcely old enough to vote or serve in the military -- it just feels wrong.

There are other options, not all require college. The world needs tradesmen/women. Some of their pay is on par with my data scientists.

I also have a few on staff who do not have a degree but perform solid work and manage the same tasks as my degreed team members. There are options with college or military.

I think that's exactly why this kind of a loan product existing is wrong in the first place. Why is it okay to directly profit off of the debt interest of selling hopes and dreams of class mobility to impressionable youth who will be in an even worse position after taking that loan? If we abet it, are we intrinsically taking a dim Darwinian view and saying that they deserve to be exploited?

That's probably some of it, but the underwater basket weaving meme predates the internet and has embedded wisdom.

Essentially a cautionary tale about taking on debt for something unlikely to be able to pay off that debt.

Agreed, attacking degree programs is a red herring. Also, what kind of society would we be if the only subjects available to pursue were a select list of STEM programs?

> Also, what kind of society would we be if the only subjects available to pursue were a select list of STEM programs?

It's a sacrifice. I love art and music and spent many years pursuing both. I'm an old man now and many friends spent years seeking that out and unable to ensure their own survival years later.

"Basket weaving" may be a meme.

But English, psychology, history, music, etc. are in fact very real.

I'd go one step further. Make the universities guarantee the loans. If a student earns a degree and isn't able to earn a living sufficient to pay back the loans then the University has failed.

What you are effectively saying is that university education exists solely for providing job training. That's not something most universities will agree with.

For the non-wealthy, the university education is in fact about job training. The non-wealthy can't afford to pay that kind of money for something that doesn't pay them back.

The wealthy can pay for a degree that doesn't pay them back. That's fine. They can study whatever they want with no regard for practicality.

Rank and file students are there to get a job, and the University marketing is commensurate with that. I don't care what they agree with.

This is fundamentally incompatible with the idea that everyone should be able to afford to go to college and private institutions need to foot the bill for the costs. We as a society prioritized availability of college education over costs. In order to get both you would likely have to change to some income percentage based repayment system instead of traditional loan repayments and that probably wouldn't be possible unless the government is heavily involved.

Half of all college students don't finish their 4-year degree in 5 years, and it's not due to cost. Even countries like France, Netherlands, etc which have lower costs for college, place you in a track when you're in your freshman year of high school. This track determines if you're going to college, a trade, or somewhere in between, and it's hard to switch from lower to higher tracks. College should not be a goal for 100% of the population like we have now, there should be a greater push for trades like chefs, electricians, HVAC technicians, plumbers, woodworking, metal working, glass blowing. You're an apprentice, you get paid a livable wage, and you have 0 student loans.

You're describing a caste system, except instead of having your life determined by your lineage it's determined by some standardized tests given when you are 14 years old. It might work for some societies but that flies so directly against the "American Dream" that it will never work here.

In reality it isn't as limiting as you think in the Netherlands. You get different levels of education based on previous school results, but after finishing "mid level" highschool you can continue and take the last two years of "upper level" highschool if it turns out you developed more and are now a better learner at 17 than you were at 14. In total that takes only 1 year extra, because "upper level" is a year longer by default.

Same in college vs university, you can continue from the lower level program into a masters degree as long as you pass the acceptance test or have the required grades.

> Even countries like France, Netherlands, etc which have lower costs for college, place you in a track when you're in your freshman year of high school.

Imagine trying to do this in the US. I wonder to what extent colleges are free in places where there is stricter criteria to get into college.

We also need to consider modernizing our "trade" skill list.

Based on the success of bootcamps etc.... I do wonder if software engineering would be better as a trade skill rather than university

>Based on the success of bootcamps etc.... I do wonder if software engineering would be better as a trade skill rather than university

There's plenty of data plumbers (myself included) who are writing a check a month to pay for skills they don't use but a lot of them don't have degrees in the first place. That blurry line between corporate IT and software development is where people would probably benefit most from trade programs.

Edit: Apparently a lot of people took offense at this comment and I'm not sure why. Please explain.

College was dirt cheap before student loans became non-dischargeable and the government started backing them.

I looked for tuition costs over time, but didn't find much online. I did find Stanford tuition data going back about 100 years. Here's a graph of the log of Stanford tuition over time [1]. The log of tuition has grown pretty much linearly.

There doesn't seem to be much difference between how it grew before government backed loans and after them. Somewhere I've got a spreadsheet where I compared the growth rate to the inflation rate. I can't find that right now, but if I remember correctly the tuition growth rate was about twice the inflation rate.

It would be interesting to get this kind of data for a variety of schools, but I couldn't find it.

[1] https://imgur.com/fXnjDNn

College was also dirt cheap in an entirely different era where people could earn a living even with menial labour and where the average purchasing power was higher.

Trying to correlate the two and say it's because of government loans is just plain ignorant. Or are government loans also to explain why people can't save money, or afford rent, or survive off of a single 40h job etc.

The government is already heavily involved and we already have that system: https://studentaid.ed.gov/sa/repay-loans/understand/plans/in...

Debt as an investment is fine. If you are investing in your future with your education, okay, but that requires the education be practical. It must have a value greater than its cost. That is not true for most education and thus we are not investing in our future as a society with this debt.

I'd rather the debt we incur as a society be spent on infrastructure and engineers than wicker baskets. Wicker baskets don't last very long. Roads and bridges do. Engineers do.

Sure, but once you bring financial value into the equation it starts limiting access. Not everyone can be an engineering major. Not everyone even belongs at college in the first place. But we as a society want everyone who wants to go to college to be able to afford it (at least initially). That is not compatible with a profit minded view of that education being a sound financial investment for each individual student.

This doesn't mesh with my perspective of education. Universities are non-profits for a reason. yes, there are profit minded University of Phoenix's but that is not the historical norm and they are the worst offenders.

Not everyone should go to college. We shouldn't enable everyone to go to college. If you shouldn't go to college, going to college won't change that. You'll struggle and fail out or get a worthless degree because it's the only one you can pass enough classes to get.

We have trade schools. We have apprenticeships and on the job training. Lots of folks for home those paths are better, are turned off to them by social pressure, not logic. I've taken welding classes and vehicle maintenance classes and they have shown themselves to be valuable assets to me. I can connect steel at the atomic level. I can keep my vehicles safe for me and my family and friends.

There's no one-size-fits all approach to human evolution and we need all of us. Maybe I'm idealistic.

We need to stop doing stuff that only makes sense to the banks. They are entirely self-interested and provide negative value back to society. We are squandering our futures to the fat cats.

Okay - can anyone actually cite me even a class, let alone a degree, that has the word wicker baskets in them? If not, stop using this straw-man term.

Dude it is a satirical term to symbolize low value programs. It isn’t supposed to be taken literally.

Teachers generate less value (see:income, GDP) than engineers.

We should abolish teaching degrees and just teach software engineering at college.

We probably should. I bet it's easier to teach a STEM grad how to teach (in a professional training program after college) than to teach a professional 'teacher' how to do math.

What are you basing that on?

My sister is a 3rd-grade teacher and I'm not sure I would be equipped to handle 30 children without lots of training. Teaching someone how to teach 3rd-grade math is not that difficult. Teaching someone to start building positive learning habits with 8-9-year-olds sounds incredibly complicated.

I might be reading into your post too much but it seems like you think STEM grads are superior to non-stem grads. I don't buy that. STEM grads have a specialty that is in demand in the labor market. It doesn't make STEM grads better then non-STEM grads.

You may be right about elementary school teachers, I'm thinking more about high school STEM teachers specifically. Although the grade school teachers in my city seem to struggle even with fractions [0].

Only one of my high school math teachers seemed to have any idea what math was about (not just regurgitating formulas, but deriving them and proving them from a set of axioms and only then using those formulas to solve free-form real-world problems).

My High School CS teacher was a geography teacher who just read one chapter ahead in the CS textbook and had no idea what he was talking about.

Being good at teaching seems kind of useless when you don't know anything to teach.

[0] https://www.thestar.com/yourtoronto/education/2016/05/13/for...

Well, the real question is marginal value - if we taught more software engineers, they might not bring in much income or create much GDP.

If you're asserting that teachers are as valuable as software engineers to society, then the question becomes: why doesn't society compensate them accordingly?

Given the hard core attempt to subvert eduction going on in the public schools, maybe. At least with software you’ll have logic, math, and history. https://www.reddit.com/r/conspiracy/comments/dqd6ca/activist...

You should take a moment and read that individuals post. It is well researched. Just because it’s from r/conspiracy doesn’t mean you should skip it.

It’s a metaphor for a degree that does not generate an income. https://en.m.wikipedia.org/wiki/Underwater_basket_weaving

Regarding income-based repayment, I think Purdue was experimenting with this, and may still be. I haven't heard of any significant government involvement in that program.

https://www.washingtonpost.com/news/grade-point/wp/2016/04/1...

I didn't know that, thanks for passing it along. The reason I think the government needs to be involved is because this isn't going to be financially viable for every student at every college and therefore private banks won't want to participate. Purdue seems to have found a way around that by funding the program themselves but I wonder if that self funding is scalable.

U of Chicago is ranked #6 in US 2.7 GPA morons are nor likely to be accepted.

The ad hominem hyperbole turned me against your much simpler - add moral hazard - argument. Do tell, which universities provide this degree in basket weaving that you denigrate? Sure, you may have drawn on this often invoked mythical degree as a standin for courses of study that you see as useless and valueless but implicitly know would quickly and easily get called out for revealing your bias about obviously subjective determinations of worth. Maybe basket weaving is really art or history or the study of native cultures. And there are plenty of smart people who have been 2.6 GPA students at some point, as GPA is not a measure of intelligence but an abstraction that simply measures one's ability to adhere to and excel at a fairly arbitrary framework.

Moral hazard may or may not be a simple, good solution but your argument for it, as presented, disincentivizes me from even considering it, since so much seemed to be missed in the argument, the same was probably true for consideration of the solution.

Those colleges exist, but they exist in the form of for-profits like Strayer and University of Phoenix. They prey on veterans and marginalized folks, many of whom don’t get jobs that can a pay off the debt afterward. It’s not “basket weaving”

>So, it is zero risk for the lender to give loan to the 2.7 GPA moron getting a worthless basket weaving degree from the local private lib arts school for $100k.

I don't see how any degree LAC, Computer Science, Math etc is worth risking a dischargeable loan for from a bank's perspective. There's no reason to single out LAC degrees, which by the way can be pretty useful.

The smartest thing for any student to do is declare bankruptcy right away after college when they have nothing and risk losing nothing. That makes no loan worth giving, which is the problem.

> The .gov backs student loans. And, they are non-dischargeable. So, it is zero risk for the lender to give loan to the 2.7 GPA moron getting a worthless basket weaving degree from the local private lib arts school for $100k. So, they give as many loans as possible, since they can't lose (taxpayer on the hook).

The only lender who is allowed to issue government-backed student loans for many years is the federal government, and their policy on what loans they’ll issue and on what terms are set in law, not a response to market incentives.

This. To the lender, it's a virtually risk-free loan and a very high yielding one at that (10%+ interest). I don't think there is even a way of discharging it, even death.

>Make student loans dischargeable in bankruptcy

And watch default rates rise, and interest rates on these unsecured loans skyrocket, so that very few can go to college, and even more people get screwed by them due to higher rates.

Or people will simply not get loans, since they'd become too risky, and less people will get college skills, likely hurting the entire economy over time.

Educating people is a good national goal. Balancing the various pieces is much harder than simplistic changes to the current system.

Or keep them private but set a max cost per year. You can't give student loans and have no control over the price.

I mean, you're not wrong. I'd say 9/10. Its pretty easy to see the parallels to gov involvement in many other areas, where they create a special type of problem, by only being partially involved. Then everyone can stake out their positions, and just work on fighting over the middle of the issue, never letting gov be involved enough to be effective, nor entirely removed enough to let the market fix it.

Its the worst kind of half assed capitalism, that only benefits the political class. Kinda like our healthcare system, among others.

The government isn't guaranteeing the loans, it's making the loans. It is the lender.

Loans for education are different from loans for a house or car since your lender cant repossess your degree/the connections you made while in school, which is the original reason these loans were made to be non dischargeable.

The Government should stop backing student loans. Tuitions will drop like a rock.

The government giving anyone and everyone money and guaranteeing it is the problem. I don't think the bankruptcy plan works. A lot of people would just not pay.

That's exactly the point. Lenders would stop lending to people who couldn't/wouldn't pay.

In all countries? Here, we don't have that, the cost is fixed and so are the loans.

I totally agree but unfortunately a lot of people can take the same situation and twist it up to fit their own views.

Where I live we just passed a minimum wage increase. A fairly substantial one that keeps up with the rest of the country by increasing every year until we hit 15 an hour in a few years. It's been a couple of years into it and someone asked why local restaurants are ending services, closing some locations, increasing prices, shrinking their menus, and basically cutting costs. I saw a lot of answers that boiled down to "greed" and my favorite was "labor costs are increasing" because of "late stage capitalism".

I wouldn't be surprised if a lot of answers you see in the wild involves doing exactly what we've been doing but on a larger scale.

Kind of off topic, but I'm very much a fan of the "shrinking their menus" effect. Restaurants have way too many things on their menus. This usually means that they aren't very good at those things leading to lower quality food. Smaller menus generally mean a restaurant is going to be more focused, and able to produce quality food. I'm all for quality food.

Yeah from what I understand it's actually a good thing. I also love the small menu restaurants, especially the smaller hole in the wall places since you know it's probably going to be great stuff.

Loans should not be guaranteed by the government. Banks should be able to tell shitheads no.

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