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Interest rates not reflecting the creditworthiness of the borrower is a design feature of federal loans. The idea being the government should at least subsidize loaning money to people for education.

In practice it just allows universities to raise tuition to the moon.

Exactly. Equality of opportunity, to the extent achievable, is important to preserve. But it needs to be done in a way that universities don't simply absorb any funding by raising tuition.

IMHO, we should start by taking the ACA approach on admin overhead.

I.e. If you want federal loans/grants to be usable on tuition at your institution, here's the administrative cost ("funds not directly spent on teaching") cap.

If you exceed that, then you must rebate students the overage.

>But it needs to be done in a way that universities don't simply absorb any funding by raising tuition.

Again, who's going to stop them? The government? No one in power has the incentive to change the system. And they wont until it's too late.

The federal and state governments, as primary funders, certainly have the power to stop them.

And the incentive, to the extent funding goes to private institutions.

The prices thing doesn't work well here because 1) the government has intervened, and 2) it's based on debt - the price of which is also controlled by the government/central bank. It's a skin-in-the-game problem. If education was at least partially funded by equity, the investor in the person receiving the education, be it a private investor, company they'll work for, or even the university itself, would have taken on the risk for failure to produce any sort of ROI. I say partially, because I believe there is some merit in government subsidy for certain fields, but more of that should go towards reducing the cost of university facilities, on-campus accommodation, labs, libraries etc. rather than student finances.

It seems to me that in the context of higher education the economics are fundamentally broken.

There are lots of examples of this type of situation in the U.S. Suburbia is subsidized through the road system. Gas taxes and vehicle registration aren’t enough to pay for the road system. K-12 education is subsidized by non parents. Police services are subsidized. There’s a ton of corporate welfare too.

There are some things for which a free market solution is advisable and some things for which it not advisable. I think education falls into the “not advisable” group.

> There would be no kids with low-value degrees in $250k of debt graduating with a job paying $30k/yr.

Very few people incur anywhere near that much debt for an undergraduate degree. Getting into the $200k+ debt neighborhood generally happens from law school or medical school.

It's pretty common for students to incur that much debt if they get both a Bachelor's and Master's degree from private colleges. Obviously this is not a smart financial decision, and the federal government shouldn't be encouraging it with subsidized student loans.

"More than 800 people applied this year for roughly 72 spots in the film MFA program, which can total nearly $300,000 for tuition, fees and living expenses."

https://www.wsj.com/articles/financially-hobbled-for-life-th...

I did not end up taking these particular college offers, but ~10 years ago I had offers for ~$50,000 a year after financial aid from multiple colleges. In 2024 I wouldn't be surprised if the same offer to me would be $75,000 a year. The year after year price adjustments I've see colleges make are insane.

As an economist, I totally agree. Funding of high-return majors by good students should have rock-bottom interest rates.

The govt should only be stepping into the loan market if the market isn’t happening. (Not that the market is doing loans wonderfully, but there are some new innovators.)

The govt should be helping the poor and investing in strategic capabilities. But the whole loan market and helping school rob parents of as much as they can pay? No.

The people entering the workforce with $250k in debt are mostly physicians. It’s mosrly people with $20–60k in debt that are stuck in underemployment (or didn’t graduate, so never got the salary bump to pay off such loans).

>Meanwhile, a computer science major will earn on the order of double what a psychology major might earn, both as a starting salary, and that will compound over their careers.

So? Assuming a fair charge (not the US kind of exorbitant tuition), the costs are similar (salaries from professors, administrative stuff, buildings, libraries, labs, and so on).

You're not paying to buy a career, you're paying to buy an education.

>There would be no kids with low-value degrees in $250k of debt graduating with a job paying $30k/yr. That simply shouldn’t happen.

Yes. Or we could forbid poor people from getting their desired degrees altogether, what you describe is the same thing but with more steps.

> Or we could forbid poor people from getting their desired degrees altogether, what you describe is the same thing but with more steps.

We probably should.

There's little difference between "I graduated with an uneconomic degree, and then failed to get a job in that market and/or labored under student debt I'll never be able to pay off" and "They wouldn't give me money for an uneconomic degree".

If anything, the latter is kinder because it nudges the college student into either funding their own uneconomic degree up-front (if they can find the money) or making other decisions.

It's always seemed insane to me that we let 18-year olds, sometimes with little financial education, make decisions that will benefit or haunt them for the rest of their life with so little guidance. (And college counselors have very conflicting incentives)

It may be better to tackle this issue at the school level than to pick and choose what constitutes a valuable degree because that can change depending on what the market wants. What may be true at student entrance may be totally false at student graduation. Isn't this a solved problem in Europe? The state treats public colleges as a utility to invest in the population. So the schools may not be as glamorous but they are easily and cheaply available for people who want to put in the work regardless of major.

I guess the issue with college funding is: is it an entitlement or an incentive program?

If it's an entitlement, we could just give people money whether or not they choose to spend it on college.

If it's an incentive (buying a good outcome for society), then it seems fair that the funder has some say in what they're buying.

I've heard Canada does have a serious problem with oscillating supply/demand mismatch in their medical education funding.

But it feels like that could be smoothed by using look back averaging & creating a +/- % system vs a hard, "there are no more slots" one.

> Assuming a fair charge (not the US kind of exorbitant tuition)

The submitted article was about "American colleges and universities", so we have to assume the US kind of exorbitant tuition.

If college students didn't have to pay exorbitant tuition and take out massive student loans, we probably wouldn't even be having this discussion about ROI.

>The submitted article was about "American colleges and universities", so we have to assume the US kind of exorbitant tuition

I know. My point was "EVEN assuming a fair charge, the costs for different degrees would STILL be similar (classrooms built and maintained, administrative salaries, campus maintenance, libraries, teacher salaries, etc)". So, why would you expect different degrees to charge different tuition?

>If college students didn't have to pay exorbitant tuition and take out massive student loans, we probably wouldn't even be having this discussion about ROI.

@lumb63 was bothered about how different degrees are paying the same - which is a question not tied to the tuition being exorbitant or not.

And I think his point was to use cost of the degree to discourage people from degrees that don't make money.

What's a "fair" charge? Students don't pay all of the costs to run a university even in the US, and certainly not outside the US. Students don't pay any of the costs to run a public high school, after all. But a big problem nowadays is that students are paying a greater share of the public university costs, since the government is subsidizing a smaller share of the costs. If you go back 60 years or so, it wasn't the case. That's why Boomers brag about paying for their college education by working summer jobs and such, because they could! Unfortunately, college costs have become less socialized and more privatized.

Different degrees do have significantly different costs, though. To some extent, market forces govern professor salaries, and professors in different departments can make vastly different salaries. Still, universities distort market forces by bundling all of the "goods" into one big package. Imagine if there were separate universities for each department instead of one university covering every department. For example, there would be separate engineering and philosophy universities. The engineering university would have a much higher price, not just due to the higher costs of engineering professors and the materials required by the department but also due to demand for an engineering education. The payoff of a degree with greater economic prospects makes the students more willing to pay a higher price for the degree. (EDIT: One might argue that public universities artificially inflate philosophy professor salaries, for example, beyond what they could command without the help of the other bundled departments.)

To be clear, I'm not suggesting that universities should be run according to market forces. On the contrary, I think higher education should be mostly subdizied just like high school and lower education. My point is that "costs" are not inherently fixed. They're subject to economics, both supply and demand, and you can't ignore demand as a crucial factor. Thus, when we think in terms of the costs and price of a university education, I think it's very fair to consider the ROI.

>What's a "fair" charge? Students don't pay all of the costs to run a university even in the US, and certainly not outside the US

Outside the US yes. In the US, with what students pay (including the parts covered by subsidies and loans), they could run 2 universities, not just one!

Private colleges do exist outside the US, the students don't pay US college prices to study there, but they still manage to survive and be profitable. But the operating costs of US universities are absurdly high (because they can, not because they need to). Even the "a-list academics" with the huge salaries are more marketing assets to draw students in than real contributors to their education.

Even without the subsidies and loans, it should not be infeasible to have a university supported by tuition feeds and still be affordable and good. And with state subsidies it is

US universities are not coveted because they're so better, they're coveted because they give privileged access to the US market and in a vicious circle the US academic employments. It's where the money and prestige are at, that's their draw.

But kids studing in much cheaper universities Europe, Asia, and so on, come to the US and crush it, as graduate/post-graduate students, or working in IT or STEM. They oftensmoke US-born kid who studies as undergradutes in the US. So it's not like their much cheaper education and much cheaper universities were subpar.

And this means the US universities could also be much much cheaper and be good too. It's the incentives which are misaligned for that, not some impossibility...

> US universities are not coveted because they're so better, they're coveted because they give privileged access to the US market and in a vicious circle the US academic employments. It's where the money and prestige are at, that's their draw.

Of course. This was my point about the demand side of supply and demand.

> And this means the US universities could also be much much cheaper and be good too. It's the incentives which are misaligned for that, not some impossibility...

I didn't say it was impossible. Indeed I was talking about the incentives. You're almost making my point for me by mentioning that people are flocking to the US for economic opportunities, while US students are not flocking to other countries for a cheaper education.

When you talk about a "fair" charge, that can be understood in a number of ways. In terms of market price, what's fair in one country may not be fair in another country, because the markets are different, the supply and demand is different. Whereas if you're talking about fairness in a kind of moral or societal sense, I think it's fair to ask whether the price of a social service ought to depend in some way on one's income, in such a way that the wealthy beneficiaries of the system pay more than the poor. That's a legitimate sociopolitical debate, nothing strange about it, I'd say. After all, certain forms of college financial aid have always depended on those factors.