What went wrong with federal student loans?
papers.ssrn.com
papers.ssrn.com
I attended SUNY Buffalo in the late 80s / early 90s. I found some old bills when cleaning out my attic several years ago. Tuition was $1,350/yr. At that time, the minimum wage was $3.35/hr. So one could theoretically work a minimum wage job over the summer for 10 weeks and pay for tuition (403 hours). Today the tuition is $10,782 and the min. wage is $14.20. So a student today would need to work nearly 2x as long (760 hours) to pay for tuition.
I'm not trying to single out the SUNY system. I think the problem is nationwide.
I think a lot of this is driven by the fact that people are more mobile. When its your kids went to, and grandkids going to the school down the street, then you are more likely to support higher taxes to pay for it. But when you live in a different state from your grandkids, and your tax dollars will not benefit your family, you're much less likely to want to subsidize the education of other peoples grandkids.
On other hand, my alma matter - University of California system - cost $4500 per year in in-state tuition alone when I graduated in 2000 when minimum wage here was around $5 and it’s under $15000 today when minimum wage is $15.50
So it appears that people in California do support public education fairly consistently. This is one of the positive outcomes of crazy taxation regime we have here.
I am of course ignoring the 800lb gorilla of college affordability - housing costs. Those are craZy here in Nimbyland
From that page, it looks like in 1990 the UC tuition was $864/semseter, and the min. wage was $3.80/hr. So it was roughly the same affordability as the SUNY system at that time (except for the gigantic UC student services fee that was more than tuition -- we didn't have that, and kept voting against D1 athletics to keep it that way).
Going the other way, SUNY tuition was $3,400 and the min wage was $5.15 in 2000. That puts us 1/2 way to the rates we have today.
So something clearly happened in the 1990s that raised tuition in multiple states. You can see that in the (SUNY) chart here (https://www.buffalo.edu/provost/oia/facts-publications/factb...) where there were 2 huge tuition increases (over 25% each) in the 1990s.
For example, the cheapest on-campus meal plan at UC Berkeley is $6,260 per academic year[1] for 12 dining hall meals a week plus a $600/semester in credit for other food[2], and
($6,260 - $1,200)/(8 * 4 weeks) = $158.13/week
for 1.7 meals a day seems steep for dorm food, especially if we also assume $600/semester is sufficient to cover the remaining 9 meals, given that
$1,200/(8 * 4 * 9 meals) = $4.17/meal.
On an annualized academic year basis, this is
$6,260 - $4.17 * 8 * 4 * 7 * 3 = $3,457.76
less than the cost of the meal plan.
And while dining out in Berkeley at $4/meal is unrealistic, living on $100/week of groceries as a non-student is not[3], so $3,000/year seems like a reasonable figure for the net food cost of an on-campus UC Berkeley academic year.
[1] https://housing.berkeley.edu/rates-contracts-policies/rates/
[2] https://dining.berkeley.edu/meal-plans/2024-2025/living-on-c...
[3] Source: I can eat frugally but well on $10/day in Indianapolis, and both random Web sites and official government statistics both suggest bay area grocery prices are roughly 25% higher.
* this comment was sponsored by $7 aspirin pill and a $3000 knee brace(sold on Amazon for $400)
Education is one of them.
It's wild that you can take out 200k with no collateral
Borrowing $200K for medical school has a completely different cost/benefit calculus than borrowing $200K to get a BA in English or History.
So, more of that, except linked to objective workforce measurements instead of cherry picking professions.
see also: Biden’s suggested plan to give thousands to every new home buyer to help address affordability
> see also: *the* suggested plan to give thousands to every new home buyer to help address affordability
Would still get the idea and issue across without the need to mention the 'who'. It does not change the meaning or the concern by adding in the 'who'. If that part was changed to any other name, would it still be a problem?
Whether disparaging or promoting, naming the plan can be beneficial. It's pretty common to have multiple plans for the same topic/issue and calling out which one by the sponsor can differentiate it.
It is injecting partisan into the discussion but in the end, we need to discuss partisan politics well rather than avoid it. I mean, I'd broadly say we're stuck currently with Democrats promoting bad policies of laying band-aids across the disastrous marketization policies of the past while the Republicans mindless "cut things", killing what good about the state and maintaining the worst policies (see the "national monument effect" etc).
> If that part was changed to any other name, would it still be a problem?
I would ask the same of you. Frankly, I don't think I would have gotten a reply like this and downvoted if it hadn't been mentioning the president on an election year.
But for everyone bathed in the constant nuclear radiation of "{name}'s policy!!", it's going to remind people of the last time they saw a partisan clickbait mass media headline.
If you want to engage people's curiosity, probably better to reference nameless policies around elections.
Tldr - political news sucks, avoid anything that resembles it
I pretty much exclusively use HN as a refuge from that style of conversation.
I'm sorry that so many people's brains are poisoned by political news or whatever, but I'm not really going to change what I find is a useful way of referring to things just to accommodate them.
FWIW I am certainly going to vote for Biden, for all the good that it will do in California.
So either optimize for reality or stick to your principles.
It would be better to have a mix: free education slots for students who pass (tough-ish) entrance exams and slots that university can add at market price for students who do not meet the bar. If there are more market price applications than slots schools can select any way they want except on price (i.e., all market rate slots should be priced the same). My 2c.
We already have this on a small scale and in niches. Scholarships are essentially giving free or reduced cost slots to performance graded people. Then we have other free (or later forgiven) slots based on service, such as GI bill and teach for America, etc. There are all sorts of ways to get free/reduced/forgiven tuition if it's important enough to someone.
The bigger problem is the marketing and credentialing. Companies want credentials, schools want students, and so it's sold from multiple angles as the necessary thing to do for a good job. We end up with people getting junk degrees to work gate-kept jobs for low wages. Or they can't even get a job in their field.
Clearly the market is broken, but free tuition isn't going to fix the problems either.
Merit slots, given via clear exams, give everyone a good idea of whether they are likely to get in or not, for example by doing practice tests and looking at passing scores from previous years.
Yes, and I see this as a good thing. If someone wants free tuition at a top university, they have to be very good, way above average. Free tuition at a good, but not top school would be a lot less competitive, but still require ability and work.
And we should also get away from the current state where everyone feels compelled to spend 4-5 years on higher education after school. That's a fad of the last 30 years and it is not a healthy one for the society. My 2c.
This is basically how scholarships work.
For example in the US today, scholarships are competitive (as any free money is), but the selection criteria has little to do with merit. Even top universities (MIT, Stanford, Harvard) specifically do not provide merit-based financial aid. There are some exceptions with private scholarships, but those are few. The majority of scholarships and grants are federal or federal+school, where the state puts a lot of specific requirements on the students, mostly based on need with some social mobility mixed in.
The result is that students go through a rigmarole that has very little to do with proving merit for the chosen field to the grant-givers who are themselves far removed from teaching or research in that field.
What I am talking about is a clear set of entrance exams given (or agreed to) by the university itself. No intermediaries, pure merit. This is very far from how the scholarships work in the US today.
Some sets of circumstances don't favor score maximization on such tests, whereas being in a high income family favors prior access to education that help get those scores for instance. Ergo you'd not solve a better access to education that way.
Similarly, means testing for those slots also has negatives incentives. It's a hard issue to solve.
Offer them scholarships if they have potential, not loans for everyone.
On the one hand, we could fund college for only those who need the help.
On the other hand, that would be a political shitstorm because people with means wouldn't receive as much (or potentially even any) benefit.
So the system now has lots of loopholes and sliding scales, so that everyone gets some benefit and supports it. Replace states with families, and it's the NASA approach to political support.
Personally, I think the removal of objective testing is dumb. It may be income/background correlated, but it is objective.
You can address the disparities by providing benefit to those who come from disadvantaged backgrounds.
More critically, you want a system that doesn't allocate money to 'dumb/lazy but also from an advantaged background'.
What does that mean? The two camps disagree fundamentally - so "the problem is they don't agree"? Why should they be expected to agree something? Perhaps they could agree that "Paris is the Capital France" (see Kids In The Hall's Brain Candy).
My theory is that as our society matured, people/companies/institutions gradually figured out that education was something that they could extract value ($) from and take a cut out of. (Whether that is just blatant profit, or using the money to invest in education-related things, or even less insidious semi-reasonable employment of lots of people in that industry to benefit off of it. A gradual creeping up of somewhat well-intentioned desire to turn it from classes in just-good-enough lecture halls into polished buildings that need endowments and administrators to oversee.)
The problem is when goods that are pretty mandatory to succeed in life get turned to the for-profit market to be solved, of course prices will go up.
What we are increasingly failing at is to offer enough seats at high quality educational institutions at affordable prices. That's how you get out of this.
In the USA, reverse discrimination was found to be criminal. Some universities implemented illegal systems to continue doing this which turned out to be extremely abusive to minorities.
Politicians still wanted to get minorities educated, and so they not only did this, but they also set it such that you can't bankrupt the debt.
What was the effect? Univerisity risk greatly reduced and so tuition has been climbing every year since.
You now have a cohort of people who in their prime years are paying down debt and not investing, not taking risks at entrepreneurship. They are also hit with so much debt that it might be decades before they truly start their life. The college-apprentice path simply by not having tremendous debt is by default going to be the safer path.
It seems to be a general theme these days in government, business, a lot of things.
If costs were half the current level, which they were fairly recently, this would be a very manageable problem.
Exempting student loans from normal bankruptcy was a really stupid move. Of course if you treat this one type of loan as some special thing where the lender doesn’t assume any risk, the lender won’t take any care about how they make the loans. And the price of a degree would never have been able to grow out of control like this if students were given loans appropriate to their ability to pay them.
I mean, I think education should be heavily subsidized as well, but let’s start by not perturbing the market in the most harmful way possible.
Takes about how everyone used to have free XYZ are usually ahistorical at best.
It's false, ahistorical nostalgia for the past. A well known psychological effect that distorts peoples understanding of how much the past actually sucked in reality. People watching shows like Bridgerton always imagine they would be among the nobility.
I know that for this immigrant few years off the boat, federal grants and deferred interest loans was what gave me access to education that would otherwise put a huge burden on my family at the time.
Granted this was for an engineering degree at a public university and amounted to no more than 10-20k as opposed to 200k for an art degree at a private art college that we often read about
Today, the prices have tripled. The money is going somewhere, and I’m certain some simple graphs would reveal the cause. After all the people complaining about the skyrocketing costs, I’ve yet to see these charts. Where are the investigative reporters?
I expect to find wasteful hiring and departments full of non-student facing faculty, whose salaries aren’t paid for by grants. I expect to find not just one IT department for the university, but an IT department for each college. Even the residence life had a 10 person IT department back when I attended, and I remember being horrified at the waste. These organizations have likely grown. I expect to find the sports organization, including basketball and footballs are no longer a revenue engine, but have grown to be a parasite through creative accounting. I expect the non revenue generating sports, which were a questionable destination of funds back when I attended, have grown. Why was I, as a student, funding a world class swimming team? I never attended a match. My tuition included an invisible “tax” to fund these athletics.
Instead of pushing to roll back the finances to the pre-2000 levels, the university continues to raise rates, and the students continue to attend, because the loans continue to get approved.
So, when I hear politicians asking for student loan forgiveness, without asking the hard questions on why these costs have skyrocketed, and putting a system in place to roll back these hikes, I’m disgusted. It does nothing to solve the problem. Cap the loan amounts, retroactive to inflation adjusted from 2000. The universities will quickly have to figure out if they really need a synchronized swimming team, or three website designers for the dorm web page.
The problem is, states are not pulling their share of costs. It's federal dollars and loans or other private payments.
As for loans, they are a poor tool to improve accessibility to higher education and will agree that tuition (as well as many education related expenses) should be free for those who need it.
Hard to imagine being able to learn how to be a doctor or get to "useful" in electrical engineering
It is also probably too hard to even do this for technical training that is almost required now for manufacturing jobs.
To me this points to a tertiary level of education that is academic or technical/professional.
I think that broadening this education out to "blue collar" job education (which is in fact these days highly skilled) will also increase political support for it.
But even with free tuition Harvard is super expensive because it's in a high cost of living area.
That's not what was said. Tuition should be free. That's it.
I'm not sure why people are opposed to something we've done successfully in the past. I mean, the current situation is a result of Reagan not wanting the "wrong type of people" going to college. Why do we want to hold on to this and hurt Americans? Why?
Sounds like a recipe for gaming the admission standards or setting caps on admissions. It might not be a bad idea with the right safeguards in place, but it would be a mess if we just threw that into the current system.
Of course there are other options that exist today. Scholarships are essentially the same model you are proposing, only with higher standards. Plus, almost anyone who wants free tuition (including to private schools) can enlist in the military.
2. Witness the explosion of enrollment in low-quality colleges and universities.
3. Notice the spillover effect of (2) into every corner of higher education, in the form of higher tuitions everywhere.
4. Watch as (2) leads to ludicrous debt burden on college grads.
5. Wring hands about out-of-control cost of college, leading to higher demand for loans.
Rinse and repeat year after year.
What would happen if federal student loans were phased out across the board?
Who would have guessed.
Seriously though, the young borrowers aren't price sensitive so the cost of the things they're buying spikes.
The dynamic here is quite simple and obvious (though maybe only in hindsight).
It's econ 101 that markets can produce rational allocation of resources but only if they are involve people with the information and time to determine the outcome and those people are working with their own money. A system where the state "gives"/"loans" your customers money and then forces them to spend that money on you produces a industry that has neither the discipline of skin-in-the-game markets nor the discipline of state regulation.
This is why fewer students are attending small, private, expensive colleges.
The dynamic is not that simple. There are a multitude of reasons behind the increase in the cost of postsecondary education. Waving it away as young people just being young people is sort of silly.
They can borrow the money all by themselves.
Independent student loan limit is $57,500 total. First year cap $9,500.
https://studentaid.gov/understand-aid/types/loans/subsidized...
Most people borrow money from private lenders as well.
I think the way to solve both is to let the state own both systems. Publicly funded research and education can occur at state universities. The private colleges can do whatever they want with their own money, until they're small enough to drown in a bathtub, or they can go back to primarily serving as seminaries.
Think your passion is economics or psychology and drop out after 1.5 years ? You've just cost the equivalent of 8 years of tax money from the average joe (ex: France median after tax income is 25k, roughly 2k of tax money, each college year is 10-12k).
It turns out there aren't enough average joes to give every kid the opportunity to try multiple studies, so we have to share the burden, at least a little bit. The average joe can pay 70%, and the students 30%. Or the average joe pays 90% of the first curriculum, but if you "reset" once (change majors without transfers), then the average joe no longer pays that share and only pays 50%. But you have to accept that education isn't free and there should be some incentive, even if small, to make sure you're picking something you'll commit to and make it work.
Education is not inherently expensive. The student loan mechanisms are what allowed the vast expansion of colleges as capital intensive enterprises. You can find a multitude of discussion about how cheap both public and private education was in, say, the 1960s. And that was with primarily state/institutional regulation. Which is to say the student loans were moral hazard crack to compared to state regulation.
For most subjects, one needs an informed teacher, a class room and some books. Somehow this costs vast sums now. Guess why?
You also need to divert time from your researchers to teaching activities. You need to pay for classrooms, that's real estate, plumbing, electricity, etc.
Keeping up with the state of the art in research isn't cheap, and using part of those funds to purely teach and not compete with other countries is an investment that's not neutral.
It’s quite weird that you blame solely ‘the market’ but totally ignore the role the federal gov has had in this. I read somewhere about 90% of student loan debt is from federally backed loans ?
You think getting rid of competition the market provides and making the gov the sole issuer, creditor, and policemen of student loans would create cheaper education? Lol
There is no place I say anything like "it's the market, not the fed". The Federal Government initiated it's (pseudo) market "reforms" and so certainly bares considerable blame for the outcome. My main point that whole approach was bad rather than the approach having implementation problems.
I suppose they're trying to build a grand theory of social market economies / social democracy, which is nice.
anything that exists today can be called capitalism, nobody has a clear definition of what is constitutive and it is not a useful diagnosis for offering prescriptions on how to make it better
1. Doctor cartels (this one is sort of self-explanatory) and other provider coordination on pricing
2. Over expansion of insurance (insurance is not meant to cover things that are expected, we have expanded insurance to cover routine expected expenses) and the associated costly administrative structure
3. Lack of price transparency
4. Global free ridership on drug prices makes us think we could get new drugs for much cheaper than we could
5. Lack of neutrality in tax law between cadillac health insurance plans and income
6. Overutilization (partially due to fear of malpractice lawsuits, partially due to overexpansion of insurance)
7. Political failure to address any of these. Obama tried to resolve 5 and Trump tried to resolve 3. Both have essentially failed.
Almost all of these are caused by bad policy more so than the market-based outcome. This is not a ranked list, if I had to find primary culprits it would be 2, 3, and 6.
You paying directly for your services is almost entirely removed from the equation.
You even deciding on which insurance company you would like to use is removed from the equation as well because it’s more expensive for you to sign up directly than it is for your company to sign up as well.
If you wanted to be a part of a private insurance group with diet and exercise requirements for membership, including annual physicals that could potentially get you a lower rate…but you don’t really get that option. The market doesn’t even get to attempt to provide that option because of how separated the producer and consumer of the service are from the people paying for it.
The market is completely removed from the equation.
The only person who proposed a plan that would have resolved this problem was Dr Ben Carson fwiw. It was by far the best solution to fixing healthcare in the US that I’ve heard in the last 20 years but instead we got ACA.
There's generally a misunderstanding from left wing voters — when people say "markets" they understand "crony capitalism and monopolies with regulatory capture" when most other people just mean "fair competition between suppliers".
We'll all agree the second option isn't easy to get, but the disagreement often comes from the fact one team thinks it's impossible or even undesirable, and something more radical should be preferred.
I feel we made a mistake in giving 18 year olds full adulthood. Lower the drinking age, raise the age at which they can take out loans.
Student loans were designed to do exactly what they did (very successfully):
1. Allowed Universities to exponentially increase tuition/room & board costs that would have otherwise been unaffordable by the market; and
2. Indebted millions of 18-22 years olds for the next 40 years of their lives or their entire working lives until they were eligible for social security at age 62.
Perhaps what wasn’t anticipated was the job market and economy failing so miserably that borrowers wouldn’t be able to service their loans and default in mass, although this slowly occurred over 30 years so the writing was on the wall but like most disasters it was (and still is) ignored. Eventually things would turn so bad economically that student loan borrowers would in mass return home after college until their mid 30’s, forego marriage and children.