Universities don't care if their majors will result in a job and the student loans are a source of risk-free money.
They need to start taking on the risk of all student loan, not me, the tax payer.
The solution is to allow judges the discretion to default them in bankruptcy after X number of years after graduation. Lenders need to accept the risk. With no risk, they can loan as much as they want and have guaranteed repayment. This drives tuition higher and higher.
The more we inject money into the education system, the higher prices go. Setting a precedent that the government will just pay off your loans if you don’t pay them off only encourages more people to take out loans without thinking about paying them back.
There are so many things wrong with this idea that I can’t believe it continues to be popular. The only thing I can think of is that it’s a litmus test for who can and cannot consider second order effects of economic decisions, or who believes money can spent en masse without altering the system.
Perhaps your analysis of second-order effects is not thorough and complete? Have you really considered all of them?
I don't really think we need to forgive student loans - I think they should absolutely be dischargeable through bankruptcy, though.
Bankruptcy isn't a "get out of jail free" card - it puts a huge burden on a student relatively soon after graduating that makes it harder to start a family or buy a home. So it incentives are still aligned for the students taking the loans.
But the option that a student defaults brings some real light and transparency into a loan system that just feels wildly disconnected from reality right now. If a student can't pay the loan back with the job options in the field and is like to default... don't issue the loan.
I think it's absolutely abusive that student debt can't be discharged, and is pretty heinous as policy.
1) Zero risk does not mean 0% interest. True zero risk should have the same yield as treasuries.
2) No bankruptcy does not equal guaranteed payment. Some will die without having repaid.
Neither do I. I was happy with the status quo ante Trump where many classes of public servant could get their student debts forgiven after on the order of ten years of service. (An imperfect program with too many disqualifying loopholes, but it was better than nothing. Now, almost no one qualifies.) The Overton window has foreclosed on that kind of solution to the problem, however. Even military personnel have been disqualified from attending certain schools as part of their meager education benefit.
> Bankruptcy isn't a "get out of jail free" card
Indeed. One’s mid-twenties are arguably the worst period of one’s life to live with damaged credit.
> I think it's absolutely abusive that student debt can't be discharged, and is pretty heinous as policy.
Absolutely, it needs to go.
It would be like if instead of a foreclosure they just took a bulldozer to the house, then salted the earth with asbestos and lead so nobody could ever build a house there again. What's the (acute) benefit in just destroying the value? Plus, it turns the four years into a complete waste of time, no matter how hard you worked to get the degree, just because you couldn't find employment after.
I know we're talking about tweaking incentives to make it not worth it to game the system, but this would also screw over people that found themselves in that position through no fault of their own, plus it would waste all the time and work of everyone that taught that person and contributed to their education (even though they got paid, people largely aren't in education for the cash).
I don't know, I think it would be too much of a bummer to work.
A harsh lesson in personal responsibility. If you went to an out-of-state school to major in criminology hoping to be the next CSI, and you borrowed 180k to do it, you've learned a valuable lesson.
Don't give me "they're only kids, they aren't able to make these decisions!"
You’re responding to something you imagined I said. We’re talking about economic effects here, not your vengeful little morality play.
what is this referring to?
To your point, making it easy to cancel debt teaches borrowers that debt isn’t a serious thing.
Requiring someone go through bankruptcy (and all of the associated negatives on your credit score, etc) seems like a good tradeoff. Allows you to get out from under the debt (the entire purpose of bankruptcy in the first place..) while not letting everyone pretend the debt never existed (need to live with the impact of bankruptcy on your ability to borrow in the future)
I don’t know why we don’t hear more people lobbying for this. I guess it’s because the sound bite isn’t as sexy.
There is also the obvious drawback that if more people can discharge the debt, the interest rate goes up, and then everyone else has to pay for the people who took out loans they didn't pay back.
So change the bankruptcy law? It’s a pretty easy fix. Create a whole new chapter if that’s what it takes. Make it dischargeable only after 7 years of nonpayment, do means testing… bankruptcy law already has these kinds of nuances built in.
You don't really want to give people an incentive for nonpayment.
> do means testing
Bankruptcy already does that. But what are your "means" the day you graduate from college and haven't yet found a job, or temporarily take a low-paying one on purpose to meet the eligibility requirements?
You would need something like, deferred payments while you're unemployed but if you subsequently find a job then you have to pay, instead of one-time permanently discharging the loans. Except that's how it already works.
If student loans are dischargeable in bankruptcy, lenders will price it in or refuse to lend without a gurantor.
This isn't a permutations issue. We know the specific shape of the problem: 18 year olds from poor and lower middle class families don't typically have existing assets with which to secure a loan, so if they can't secure it with their future earnings, they can't get one, and then they can't afford to go to college.
> If student loans are dischargeable in bankruptcy, lenders will price it in or refuse to lend without a gurantor.
That's the problem. The inability to discharge them allows the borrower to get a much lower interest rate than they otherwise could for unsecured debt issued to someone with minimal credit history, or find someone willing to loan them the money to begin with.
It was set up this way so that people could go to college.
Lower interest rates for schools where graduates repay their debt, higher interest for schools where many people default.
Assuming it wouldn’t disproportionately affect disadvantaged populations, that could be an interesting way to incentivize schools to get their shit together and prepare students for starting their career
Don't have a dollar amount that you repay. Rather, your student loan payment is x% of (your income minus the average rate for those with a high school diploma) for y years. Forgiveness programs for certain fields go away--instead, the tab gets picked up perhaps with a multiplier. Disability, death? Irrelevant--a dead person generally makes nothing, the amount owed is $0. (Generally makes nothing because there can be ongoing income from something they produced. That would be subject to the loan repayment.)
If universities don’t know how much they’re going to bring in over the next few years, they won’t be able to budget effectively.
And then there’s the question of whether it’s acceptable for the lender to collect more than what was borrowed. E.g. if I graduate college, start a company, and sell it for $100 million.. am I then paying my alma mater (or lender) millions? If so, would universities make more money from the commons or are they banking on a very small percent landing extremely lucrative gigs post-graduation? I don’t think we want the model to resemble startup financing, where nearly all fail and a small handful pay for the rest (that works for startups, doesn’t work for people’s careers)
I like the concept though. In 2010’s when I was entering college, I actually made a website trying to solicit someone to pay for my education in exchange for a percentage of my future earnings. I found no takers at the time.
It also says nothing about whether the person actually goes bankrupt, just which debts are discharged, which is one of the key parts of the bankruptcy process. Certain debts are discharged because the person can’t pay them back, which is the point of going into bankruptcy court.
Why can I, as an 18 year old, sign for a loan that _cannot_ be forgiven, graduate into a crashed economy, and still be held accountable for choices that impact me when I only had a small part in them? The system needs reformed, and we need to do something for the people still on the hook of the old system (and I say this as someone who has paid off all my student loans).
It's a bunch of able-bodied people who took the elevator instead of stairs thinking it was a shortcut, but the effort put in was the whole point. Anyone who told you otherwise is to blame. Punishing people who took the stairs sends a clear message to everyone else deciding which way to go.
Because you took the money promising to pay it back, spent it on something you wanted, and now it's gone and someone has to pay the money you spent.
It's like saying why can I, as an 18 year old, purposely drive a car into someone else's house, cause six figures in costs, and then be expected to be on the hook for that because auto liability insurance doesn't cover intentional acts? You're the one who chose to do that.
The price of tuition and the expectation that you pay back the money are not secrets kept from you until after you've already signed, or if they somehow are then maybe fix that.
The "problem" is that if you don't pay a mortgage the bank takes the house, but the only thing for them to take if you don't pay your student loans is your future earnings, which is just the thing where you have to pay back the loan.
In many cases, that delta is negative. The school and lender should at least be forced to disclose that reality when you're filing FAFSA and taking secured loans.
Second, that doesn't hold true for other assets like mortgages so why would it apply here?
Third, the lender reaaaally should not be telling anyone what career they should do.
Fourth, If the lender and school made no claims that any degree would guarantee extra earnings, why on earth would they need to disclose the opposite? If you saw any marketing copy that claimed you'd be guaranteed more money you can definitely sue for false advertising.
At the end of the day, neither of those industries are guilty of more than helping rumors spread. There may be a specific person who felt ok to lie to you, but it wouldn't make it past their legal department.
How are they supposed to pay it back with a crashed economy? Look, I get it with personal responsibility and all that but these people were following the rules, did their part and now are burdened to their death while Big Co gets bailed out over and over and never learns responsibility. Why the double standard?
https://fred.stlouisfed.org/graph/?g=1M8KZ
The peak in 2007 was the massive housing bubble that crashed the whole economy. Where are we now?
The only reasonable way to solve that is to stop bailing out corporations.
In other words, they don't teach anything about how our economy works.
But I still see college graduates ranting on X who clearly do not understand compound interest on their student loans.
Banning credit for a large portion of the population would be a net good but we can't have that conversation.
A deal between loaner and borrower should be a free agreement between them, not something imposed by the government.
People who want loan forgiveness anbd to rework the financial aid system aren’t looking for a get out of jail free card, they’re looking yo even the playing field a bit.
Also schools need to be reigned in, if GA et al can pay each student athlete $40,000 a month, they MUST be held accountable for burdening the students and the state with unscrupulous debt.
you make a good point, if there's no risk there should be no interest. Or at worst, the interest rate should track COLA adjustments to social security. Some basic adjustment relative to inflation so the lender gets back what they lent out.
Now that schools can pay their athletes I hope the rest of the student body take notice and start asking questions about school funds allocation. It should make it plain as day to the average student that their school has plenty of cash and choses to force them into debt.
Even loans to the US government pays interest. If you meant "no premium beyond the risk-free rate", why would anyone want to lend to students, when they have to deal with the hassle of dealing with lenders and the political risk of it getting discharged, when they can just led to the federal government instead?
Also interest is payment for the combination of losing use of money + risk + inflation.
I think I agree with your broader point - just quibbling, here.
The UK had what I think was a really nice set up, although it's now not nearly as palatable. My student loan had an interest rate tied to inflation, and repayment was a fixed amount of my income above a limit, collected via the same mechanisms used for income tax. Any unpaid loan would be written off when I turn 60.
The modern system is similar, but the interest rate has been decoupled from inflation which means that instead of paying back essentially the same value, no matter how slowly you pay it off, it's now definitely better to pay more earlier. Which makes it much more like a regressive "graduate tax" that you only have to pay if you don't earn enough.
My problem is that it's presented as a loan but is in effect a tax. I would rather have a graduate tax which was honest on the face of it rather than wilfully misleading students that it's an ordinary loan. The 'loan' framing is harmful in my opinion, because if student loans were regulated like actual loans the government would have much less room to effectively change the deal after the fact.
I also feel a lot of the current social and political toxicity around the student loan system comes from it being effectively a tax which you can get out of by lucking into having rich parents who pay your student fees upfront, it rubs people up the wrong way on class grounds. A graduate tax would avoid this problem as well.
I have a decent career that means I've paid off my loan. I can easily imagine that many folk with fees and modern loans won't ever even cover the interest payments.
This. The whole student loan mess is a direct result of their special treatment during bankruptcy.
> It tells universities that they can keep charging exorbitant tuitions because kids can still get loans to pay them.
I wouldn't be opposed to some kind of tuition claw-back from schools, when a student loan goes into default (but only by the government, not private lenders). The universities need more skin in the game to keep tuition under control.
The loan forgiveness wasn't a thing when many students took out the loans.
The solution is to do what Germany and most of the EU does - pay universities with tax money and do not charge students anything at all (or maybe a few hundred to thousand euros).
This is a totally fine system, but would change US tertiary education massively. Much of the state university increases in tuition since the GFC have been driven by exactly the opposite behaviour (cut state funding, make it up in tuition).
The US would never approve of a school system that told parents that their children weren't allowed to go to university and had to go into vocational training.
For most students at public 4-year universities in the US, room & board costs significantly more than tuition. Even in those EU countries where tuition is free, average student loan debt is often >$20k USD because of this. By way of comparison, average student loan debt in the US is ~$40k USD, and that includes private school and out-of-state student tuition as well as room & board. Note that at least for the US, $40k is the mean; the median debt is <$30k. And these numbers are totals, not per year.
Perhaps one of the best ways to address the college affordability "crisis" would be to build more dormitories. The capital expenses could be publicly funded, and then charge students maintenance costs. But for various reasons, including NIMBY development barriers as well as modern expectations (see, e.g., the vitriol spewed about the windowless UCSB Munger Hall bedrooms), schools have long ago neglected this aspect.
People do not value things they get for free.
For one, Europe's academic system works well enough to disprove this zero-sum ideology.
Making everything financialized has two serious downsides: first, it excludes a bunch of people - those who financially cannot afford to take the risk of failure (because you can't discharge student loans in a bankruptcy) even if they get a stipend, and then it leads to humanities and "niche" subjects being either killed off entirely as the chance of ever earning back the student loan is very slim, or the only students for these subjects are those who "come from money", both of which has negative impact for society at large.
Yes, there were a handful that did try.
University rankings are mostly nonsense. They generally over-weight English speaking universities because most of the "high impact" journals are in English. The UK also does well by these metrics, but fundamentally academic research and teaching are very different things, and incentivising high output research institutions to focus on the research breaks the social purpose of universities which is to turn out educated undergraduates.
The German model is to focus more on teaching, which is a more sustainable approach than chasing the finite research dollars.
The market lens is myopic, the market cannot be expected to produce social goods in proportion to necessity - that's not any part of its function.
I agree that the student loan system is insane. Students need grants to cover cost of living while they focus on learning, education itself of course should be free.
"producing labour units for corporate" at least pays the bills. What's the alternative? Education is for "finding yourself" or whatever? That's a nice platitude, but "finding yourself" with a film studies course doesn't pay the bills, and is arguably the reason why there's a student loan crisis in the first place.
There's a student loan crisis because US education is dominated by for profit colleges (in start contrast to most other countries) and because student loans lack ordinary consumer productions (in stark contrast to all other countries).
In the US students act as guarantors for debt obligations between the government and commercial institutions. The reverse of the usual arrangement.
No it's not. Most students go to public or non-profit colleges, and most student loans is from government (not private) lenders.
I never understood this characterization. How do the schools implement a goal for producing labor units?
> education itself of course should be free
People don't value what they get for free. If you sign up for a course in welding, are you going to be more or less diligent in learning it if you have to pay the tuition?
No education is free, it's paid in time and effort. I value my degree because it was difficult, not because it had a cost attached. One that could be purchased without effort would have no value.
I don't buy that. Are you going to buy guitar lessons and then not show up?
Have you ever noticed how public school students trashed their textbooks that they were handed for free?
People don't value things they get for free. It's human nature.
The American model is terrible. The tuition prices are insane because no one pays for it now, and there's endless appetite to lend because your borrower is a systemically non-financially literate CHILD who is signing away their future wages with no right to default EVER.
No one would ever lend to the majority of these at these insane tuition prices. We'd quickly end up with reasonable tuitions like in Germany. And then most of the problem goes away.
Suddenly schools and degrees that WEREN'T good investments become good investments again.
I think about my lab classes and typically these were separate credit hours. More money to the university. Outside chemistry, we were using outdated equipment that wasn't getting refreshed/bought new.
If what you are saying is true, Humanities needs to cut costs of their credit hours or double down. For entertainment degrees (art, music), its prohibitively expensive to casually obtain the education. For business/politics/psychology, there is at least some sort of return on investment to be expected.
For your second point, I've never heard of a university that charges different credit rates for different majors (outside of special stuff like paying for certain PE classes), but that seems like it would be a university policy, not a department policy.
Is the university responsible? The arguments seem to be based on majors that have a poor job market.
For existing agreements, of course.
Going forward, for those who are the real beneficiaries of the loans, they should have a skin in the game.
Why aren't universities standing behind their product and offering financing without the unusual non-dischargeable nature of the loans? Do they not stand behind their products?
Now, sure, there's a genuine argument that those diploma factory schools aren't providing valuable service and are just parasites subsisting on public loan guarantees while their students bear the risk. But that's not a financial argument, it's a regulatory one.
No one thinks that people shouldn't be allowed to float a Stanford degree on loans, and "dismantling the entire system" just guarantees that we return to the era where only the rich could afford Ivy degrees.
If it does in fact lead to better outcomes, then the higher tax will cover the cost.
running it through the private system builds in too many perverse incentives.
It doesn't achieve this; the % of college graduates has vastly increased over the past few decades, but this hasn't contributed to any significant improvements in standardised measures of graduate knowledge or intelligence. From a business perspective the primarily usage of college is as a filter, a proxy for intelligence and willingness to follow instructions, but its usefulness as a filter has been steadily decreasing as it becomes easier and easier to attend and graduate from college.
It’s not at all clear we need to increase the level of subsidy, the rate of college attendance is very high right now compared to past history.
Second. Let's say universities did take on the burden of loans, of course that would be via a bank right?
If that's the case. How would they enforce risk? Based on certain majors? Who would give a loan with no collateral to young people with no credit on the hopes the major they picked had a viable job market years from that point?
Who gives out scholarships now?
Let's also note that the obvious response to the risk of the job market shifting after several years is to shorten the number of years required to pad out the degree, which is pure societal upside. The standard model of a four-year college degree only has you taking classes from your major during the final two years.
Many different of groups of unrelated people and organizations.
>he standard model of a four-year college degree only has you taking classes from your major during the final two years.
This has always been the case in traditional universities in the US.
As many have stated here the goal of education is not just to teach you how to do things but also teach you how to learn.
I do see value in vocational schools that only teach exactly what you enroll in to save money.
Cool. Cool.
Cool cool.
Feel like I'm answering whether or not public schools should be a thing from some 19th century peasant.
Public school is as much about providing babysitters for parents that have to work as it is about education. Notice how hard it is to be expelled from public school. Grades are irrelevant. This is very different from how post secondary education operates.
I mean, the whole premise of representative democracy is that we’re responsible for the messes we send representatives to make. If we don’t want that responsibility, I guess we’d have to look at alternatives to representative democracy, but that’s a pretty big topic.
There’d be a bit of fudging as we’d need to adjust for inflation and the reputation of colleges fluctuate over time, but this seems like the fairest way to do it.
You are being taken for a ride and you feel good about it.
I absolutely support maximizing access to education and I'm willing to pay for it. I'm not willing to prop up a giant unsecured-loan grift that transfers financial risk onto those least able to bear it, while universities jack up their tuition to grab their slice of this new pie.
Of course there are those who would exploit. But I'm not going to punish the well-deserving masses because of the unscrupulous few. It's a very small sacrifice I can make each year, which has the potential to positively impact the lives of thousands of families, and for generations to come.
Were I to refuse participation in such an opportunity to "protect" myself, I'd be no less selfish and greedy than those you warned me about.
If we were to finally reform the student loan process without any protections for the students themselves, it'd be a painful correction for everyone. But the current system has massive pain in the form of students taking on massive debt to go to places like the University of Phoenix, and they often don't even end up with a degree. Some of them do, of course, so maybe under the current system we end up better off as a whole. It's hard for me to know one way or the other.
But it is painfully obvious who the winners and losers are. The winners are the universities, debt collectors and loan servicing companies. The losers are some percentage of low-income students who get screwed and saddled with debt, the well-meaning taxpayers who fund the loan scheme, and the middle-class parents who pay ever-rising tuition that is fueled by loan money that they don't even qualify for.