The inflation happening right in front of us: government-backed student loans | Hacker News Reader

The inflation happening right in front of us: government-backed student loans

ghobs.substack.com

37 pointsKoftaBob15 comments

I've ranted before about how tuition is rising because we keep pumping more money into the system in the form of student loans.

Our efforts to make higher education more available by giving more and more student loans have backfired again and again by driving up tuition costs. The more money students have to pay tuition, the higher tuition costs will go.

In many cases the increased funds are being spent by schools on things that are not directly related to education, like elaborate student centers and other upscale facilities designed to attract more students.

The end result is that we are making students slaves to massive government debt but, for many of them, not providing any better education than they would have had if school were cheaper and the facilities maybe a little bit less nice.

Odd not to mention reduction in state funding for the state schools; it's been a big driver in tuition costs in California at least.

https://www.ppic.org/publication/higher-education-funding-in...

"Higher education spending accounted for 18% of the state budget in 1976–77, but by 2016–17 higher education funding had fallen to 12% of the budget. These funding cuts have been felt most strongly at the University of California, where funding per full-time-equivalent student fell from slightly more than $23,000 to about $8,000. CSU funding per student has also fallen by about 25% since 1976–77 from slightly more than $11,000 per student to slightly less than $9,000."

...which accounts for ~$15k in tuition increases straightaway.

We should also bring out the guillotines for the ever-expanding MBA admin bloat at the universities. Eliminating admin cronyism is probably one of the best cost savings available at the UCs, at least. This report sez the UC is at ~$4k per student in admin costs, which seems kinda crazy:

https://www.ppic.org/publication/higher-education-in-califor...

This shows why if the government does some amount of student debt forgiveness, it must be coupled with tuition price controls of some sort. It's not plausible that student debt forgiveness will be a one-time affair. And if the government forgives, say, $10,000 per year of student debt, tuitions will quickly rise by an additional $10,000 per year, and the student debt level will be unchanged. The incentives in the higher education market are already a mess, and throwing in debt forgiveness with no cost controls will make it even crazier.

Or just stop giving out guaranteed student loans?

This article does not explain the mechanism at work. How are Federally guaranteed, privately originated loans functionally different from Federally guaranteed, publicly originated loans in terms of education cost inflation? They could only be different if the principal determining mechanism is also different between the programs but that is not mentioned.

Private grade school costs have also grown 42% in real dollars over the last ten years.* Federal loans do not explain this fact either.

*https://www.nais.org/articles/documents/member/tuitiontrends...

If I were the feds, I'd declare a two-decade long tuition freeze, to let inflation eat away the current crazy costs and force universities to find alternative sources of funding.

It'd be a bloodbath though.

if I were the feds, I would stop underwriting student loans and make any new loans dischargeable under bankruptcy. probably a good thing neither of us actually gets to decide.

underwriting cap and dischargeable in bankruptcy would do it

I think the first part is already true? "underwrite" was probably the wrong word to use in my original post. the federal government doesn't really underwrite loans anymore; it directly issues them. the federal loan options all have yearly limits already. if I understand correctly, the remaining private loans are actually not underwritten by the federal government.

but anyways, I don't really see the point in having the federal government issue loans knowing it will end up forgiving a large chunk of them. why not just package that money as grants to the neediest students instead?

They need to be forced to limit a 4 year degree tuition costs to the average starting salary for people with the same degree graduating from their school. Align the incentives for them to provide valuable degrees and they make more money. This will get rid of a lot of the waste (pointless administration and cruise ship level amenities). If you want government backed loan promises you have to play by their rules.

I agree it would be prudent for the government to be more discerning with issuing loans (or imo not do it at all), but I don't think the schools themselves should be forced to do anything. most people already have access to perfectly good state universities that charge in-state students less than a year's wages at mcdonald's. I went to one of these and got a valuable education, minus the "cruise ship level amenities". if someone wants to blow $50k/year on a medieval lit degree at a mid-tier liberal arts college, that should be up to them, provided it is made clear that it's probably not a good financial decision.

If we want to go on about naïve economics, why aren't there more low-cost competitors arising? If there's more money being pumped into the system, new players should arise to take it up.

Creating a new college isn't easy, but it's been almost 40 years. There's more than simple supply and demand at work here.

The problem is that there's a prestige factor at work, and prestige goods don't follow plain economics. Employers are demanding four-year degrees, prefer private schools to public schools, and treat online degrees as second-rate. And maybe they are on average, but not all of them, and there are a lot of smart people who don't want to get mired in a lifetime of debt.

If the guaranteed loans push up prices for fancier sheepskins, let 'em. The problem is on the other end. The loans make it possible for poor people to get degrees, and we're denigrating them so much that people pay more for degrees that aren't necessarily any better.

Naïve economics is doing us a disservice here, as usual. But even by naïve economics, there is more than just the supply to look at. You can take advantage of the bargains it creates on the demand side (students).

The government should make secondary education free at public institutions. This should be the same as with regular schooling (grades 1- 12). An investment in our people will go along ways, and will provide equity to everyone in the nation.

Not sure how to handle private institutions, but they have been getting a piggy back for a very long time. If they have the leadership and the organizations and prestige then they will be heavily desired still. If they are not worth the value that they offer, then they will loose out. This could have a large impact on these types of schools.

We don't need price controls, we need the government to STOP giving out guaranteed student loans. Then limited forgiveness on the existing ones.

If the lending change in 1993 had a big effect, it should be visible in the graph of inflation the article provides, but it looks like things carried on as it did before.

It doesn't matter if the government guarantees loans, or lends the money directly. Either way, the government is making loans cheaper, and thus making it easier to pay for university.

Reply on news.ycombinator.com