This is why, until there's some radical, radical change, I'll always vote for the people perpetuating student loans. I'm not going to be the one that screws an entire generation out of a worthwhile education in the name of "loans are bad!"
Loans absolutely are at the root of the problem. Not the abstract concept of loaning money, but the current implementation.
The student loans legally allowed today are borderline usary. They provide a convenient way for lenders to sidestep bankruptcy protection. This leaves students with exact same problems society had before bankruptcy: it's far too easy for the unwary to sign their life away to crushing debt. They essentially become an indentured servant for the rest of their life, destined to die in poverty.
These issues are a practically daily occurrence on r/personalfinance [1]. I personally know several people in this situation. Naive kids get too far over their head in debt, and the traditional protections for that situation have been taken away from them.
Maybe it's time to cap total outstanding student debt to some reasonable expectation of when they can be repaid. That's the only way I can imagine tuition levels reverting to a sane level.
1. for a recent example, see http://redd.it/1kavq7
> Maybe it's time to cap total outstanding student debt to some reasonable expectation of when they can be repaid.
I think that's a good start. Kind of resembling a loan-forgiveness mechanism (which there are already a few). It falls into the same trap most solutions do, though. What's "a reasonable expectation," and who decides it?
Did you read the article? It provided a fairly sound argument supporting the conclusion that the availability of student loans and the price of tuition are quite related.
You're missing the point. The overspending is a direct result of the lending problem. Lending is the root cause of the overspending problem. Students choose schools with lots of amenities because it's so easy to get loans, so why not? Because of this, schools have to continue to build plush dorms and state of the art fitness centers in order to keep their enrollment up. This, of course, drives up costs, which is passed on to students via tuition, who just continue to pay for it all with more readily available loans.
A particular university can't just cut spending, because it would put them at a huge competitive disadvantage with everybody else. Only by reigning in lending will costs stabilize.
Secondly, there's a lot of sources at the bottom of this. http://www.washingtonpost.com/blogs/answer-sheet/post/the-ur...
That's just blatantly wrong. The easy availability of student loans is what's driving education costs. The fact that lenders are willing to lend enormous amounts of money to people who may not be able to pay them back, tells you right there that there is quite a bit of market-distortion going on. Couple this with a natural tendency to not consider future-risk by an 18-year old, strongly implies that colleges would be incentivized to exploit this, and in fact they do! I've read countless articles on private colleges charging insane amounts for tuition whose middle-class graduates end up with thousands in debt and no reasonable chance of making a salary to pay off those loans.
Think about it this way, in a normal reality, there is no chance a responsible bank would lend a middle-class kid $100,000-$200,000+ to do a 4 year liberal arts degree.
Lots of sources down at the bottom.
EDIT: Also, I've yet to actually see any study that concludes direct causation between availability of loans and tuition prices. Yet somehow the burden of proof is on the naysayers?
That blog post, by the way, the source of the quote that Taibbi references in TFA. It's not even an op-ed, it's a guest post written on one individual WaPo blog.
I'm aware of what it is. That's why I didn't tell you to read the blog post. I told you to go to the sources.
Here's what paints a picture for me:
- Tuition since the 1980s has increased by an order of magnitude. Out pacing inflation, cost of living, and medical costs (http://en.wikipedia.org/wiki/College_tuition_in_the_United_S...)
- Federally backed student loans are non-dischargeable and are available to nearly all students (regardless of credit score or financial issues).
- Student loans total around $1.2 trillion dollars (50% increase from 2008!)
- US has the highest tuition costs in the developed world.
Whether or not you think tuition is too high or is correlated to federal aid is almost incidental to the issue. There's a big fuckin problem with the amount of student loan debt out there, and if the federal government isn't to blame for this with the way they structure student aid (i.e. guaranteed, non-discharable loans to anybody that wants one), who the hell is? It's also hard to imagine that this much available cash for post-secondary education wouldn't have an affect on demand.
I have no idea who's to blame. I think part of it is institutions adding several layers of bureaucracy is one part. Institutions expanding resources is another (justifiable) increase in cost. Most importantly, a simple increase in demand: Students need to do something to give them an edge in the job market. The safest way to do that is still, by far, to go to college. Just because it's less safe than it used to be doesn't mean it's more irresponsible than, say, dropping out and hoping you're Zuckerberg/Gates/Jobs 2.0
If you're fast and loose with stats and terms you can prove anything. As I read the post, I was struck by the way the writer weaved in disparate studies, terms, and references. I'm very sure there is quite a bit nuance in her claims and because this was written by someone with such a huge conflict of interest (her position literally exists to further private college interest and would she would never, ever argue something that would be counter to those interests), I have to ignore it. There's only 24 hours in a day, and because I don't have the energy to fact check her, I have to dismiss it.
>Most importantly, a simple increase in demand: Students need to do something to give them an edge in the job market. The safest way to do that is still, by far, to go to college.
That's your guess??!?!?! Of course kids want to go to college, just like all kids want a luxury car and fly first class everywhere, so no, demand isn't a great answer. If tuition is high, and you don't have money and you can't get a loan, you don't go to college. Responsible lenders certainly wouldn't lend to everybody, regardless of credi score or repayment ability, but they do. Does that not sound like it could be a problem?
What I don't understand from your perspective is how you can not even imagine that $1.2 trillion in outstanding federally back loans (with around half of it NOT being repaid) would not contribute to the increased tuition costs?!? That's over a trillion dollars that may otherwise have been available if the private lenders had to take on all the typical lending liabilities. That's over a trillion dollars to divvy up between all the colleges and universities (and lenders)! It's insane that tuition outpaced all other costs, including medical costs which are crazy. It looks clear as hell that there is a huge market distortion happening.
Okay, forget I linked to the blog post. Here are sources.
U.S. Department of Education National Center for Education Statistics, Dec. 2001, Study of College Costs and Prices 1988-89 to 1997-98, Vol. 1
National Commission on the Cost of Higher Education, February 1998, Straight Talk about College Costs & Prices
Government Accountability Office, May 2011, Federal Student Loans: Patterns in Tuition, Enrollment, and Federal Stafford Loan Borrowing Up to the 2007-08 Loan Limit Increase
Sandy Baum, Policy Analyst for the College Board, New York Times, Feb. 3, 2010
Bridget Terry Long, Education Economist, Harvard University, Testimony, Senate Finance Committee hearing “College Tuition Pricing and Federal Financial Aid: Is There a Connection?” Dec. 5, 2006
What I don't understand is how you think it matters what I "can imagine." It doesn't. You're hounding me for an answer that I never said I have. You are way too eager to find conclusions which may not even exist. You don't have evidence to back those conclusions. You don't want to find evidence to back them up. You don't read evidence that conflicts with your conclusions. And then you act like I'm stupid for not arriving at a conclusion (because, spoiler alert: there isn't one, yet).
I never said it "doesn't sound like a problem." I said that there's no evidence that availability of funding increases tuition. Until you provide something beyond gut feeling, to combat the statistics that contradict you, it's not worth talking about.
One simple change that would have drastic effects is modifying the forgiveness timeframe on income based repayment (IBR) for student loans. Right now, the expiration time is 25 years [1]. In other words, 99% of all kids going to college are on the hook for paying loans for longer than they have been alive.
I think the government should shorten that period down to fifteen or even ten years for any loan that is not dischargeable in bankruptcy. Correspondingly, it might be a wise idea to up the current reduced payment amount from 15% of AGI [2] to maybe 25-50%. I'm throwing out numbers here, clearly some careful study would be warranted if this idea was seriously considered.
This would probably mean a corresponding increase in loan forgiveness for public servents (teachers, firefighters, public defenders, etc). I'm not opposed to such an idea prima facie.
My expectation is this will drastically reduce the availability of certain types of degrees. The upside is we won't have a ton of young kids floating around with degrees they can't use and loan burdens they can't meet.
1. http://studentaid.ed.gov/repay-loans/understand/plans/income... 2. http://en.wikipedia.org/wiki/Student_loans_in_the_United_Sta...
EDIT: one more thing I forgot to mention: I think that, like many social systems with complex feedback, you cannot reduce this problem to "too much loans" or "too much spending". It's difficult to delineate cause from effect, but it's indisputable that the easy availability of credit has at least enabled recent skyrocketing tuition.
With IBR they can do even better. Instead of charging everyone the average, they can charge each and every person his/her exact wage premium.
And it's all backed up by the IRS enforcing collection, too.
I can see why schools would freaking love this. Why would any one else?
Sure. And the bubble in home prices was a purely secular affair, with no correlation to the introduction of option ARMs, low doc/no doc loans and subprime credit availability.
If the government is giving out $800 billion/yr, there are MANY people with the incentive to see that continue and grow.
Loans for the sake of loans seem to be the key problem here: If students who intended to get a "degree in bullshit" at a gussied up diploma mill faced difficulty finding a loan for that purpose, they might reevaluate their decision.
And besides: Who's seriously advocating for the total elimination of student loans?
Libertarians tend to like the idea. But short of that, it's difficult to vote for reform that lands between perpetuate-the-problem and screw-an-entire-generation.
We can fix the problem of paying for education, but that solution isn't going to be found anywhere near the student loan debate.
Surely this isn't that difficult a problem to solve. President Obama thinks his administration could start to address it:
http://www.insidehighered.com/news/2013/02/13/obama-calls-mo...
1. Useful degrees from good universities will be easy and cheap for good students to fund.
2. Everything else will get harder/more expensive to fund, in proportion to its statistical returns.
That's all you really need to fix the system.
But if you move the risk of default onto the "market" via private lenders, then, the theory goes, the rates a student can expect will be swamped by other factors than the value of their prospective education, notably whether they have a sufficiently credit-worthy parent to cosign.
Maybe the best bet is to have market rates that are "cushioned" by the Feds in a need-based scheme.
I don't think the choice is "lend the kids a whole bunch of money to let them in" vs "don't let them in at all."
It's "lend the kids a whole bunch of money" vs "don't lend them a bunch of money, and still let them in."
It's possible I'm wrong about this, but we've definitely went too far in the other direction.
But for the many excellent schools without massive endowments, the risk of letting in more qualified "Caa3" applicants over "Aaa" applicants could make a substantial difference on the margins.
A couple of points:
First I don't think such a school would remain the best very long. There was a time when CCNY and the CUNY system in general had a fantastic reputation largely because it served an immigrant population that the Harvards of the world refused to take on as students or faculty. CCNY's fortunes turned around for many reasons, but one of them was that the traditional top schools dropped their racial/ethnic quota systems and introduced aggressive need based scholarships.
Second, I think we a society need to move away from the idea that 18-22+ year olds are still members of their parents' economic unit. In Sweden college tuition is free, yet the percentage of students taking out loans is higher than the US because there is no expectation that parents will pay living costs. Perhaps banning co-signers for such student loans is going too far, but perhaps not.
But the schools are profiting immensely from the difference between the perceived value of a degree and the actual value. They'll never get into the loan business without being forced.
But I agree they should have some skin in the game. My favorite idea on that end is students should be able to partially default on loans, and the schools should be required to share the loss with taxpayers.
If you're a responsible lender, you sure as hell should look at the risk profile of the borrower. If the borrower is asking $200,000 to go to a private college for a liberal arts degree, you may want to assign a higher risk to him, then if he was going to Med school. In other words, you may want to go through the same exercise you go through to approve small business or real-estate loans. The problem is that you don't need to be a responsible student loan lender since the federal government will just guarantee you the loan anyway.
High-tier school with a degree that has great employment potential? Throw a loan at that kid, that is a good investment.
High-tier school with a degree that has great employment potential... but the program has a 99% dropout rate? Think twice about throwing a loan at that kid, if he is in that 99% then you will have a hard time getting your money.
Shit school with a vanity degree? Tell that kid to get lost. If he wants a vanity degree, he can pay for it himself.
When they went to college it was inexpensive enough to work your way through and most of the faculty was full time moderately paid professors. Now tuition at many places is more than the national median household income, and the most of the faculty is made up of very poorly paid adjutants with a thin gerontocracy layer of tenured professors taking up most of the faculty salary pie. And they're all loaded to the gills with deanlets and deanlings.
When 1) employers are allowed to discriminate against the non-college educated, 2) going to college becomes the default instead of the exception, and 3) there is no downward price pressure on educational costs, I think the results are inevitable.
Here is something really shocking we could do: make education something that most employers are not allowed to consider, like marital status or a handful of other things. (They mostly cannot consider IQ, because of Griggs v Duke, but they can use your degree, which uses an IQ test (the SAT) to decide if you get in.)
Who then? Boomers have had all of the political power for the last thirty years. They will probably hold it for another decade.
As the article points out, all those new buildings they're always building aren't free and the posh dorms are unnecessary. But everyone is paying for them anyway, because why not?
But more to the point, the problem is pretty much the opposite of what you describe. Since money for education comes from taxes, education doesn't get nearly as much money as it does in the US. Some buildings are in a pretty lousy state, and teachers don't get paid much. The private sector sometimes invests in universities that will prepare people for the jobs they need, but even that is sometimes protested by the faculty and students since it can be seen as influencing in the curricula. Not to say it's all bad. We certainly could use more money, but we are still giving some of the best education this country offers, for free. In a lot of fields, the only reason to go to a private college is because it's easier to graduate.
I know a few baristas in their 30s with six figure loans. Similar story for all of them. Barely 18, pressure to go to a good college, parents proud of their kid who encourage it more, who themselves are not the most financially savvy either. Throughout their college years, school administration makes it very easy to help them request another 10k or so at a time. Between parents, loan officers, and school administration, everyone is just whisking them through to sign and the money is theirs. Since it seems so normal and unquestioned, by people who are supposed to be providing guidance, many kids don't seriously consider the feasibility of the whole thing.
I'm a believer in personal responsibility, but I think when it becomes adversarial and systemically designed to provide all the rope necessary to hang themselves, it's hard to put the blame on some of the kids.
A good solution is making loans optional like in Scandinavia. Universities are pretty much free, but some students take loans to get by.
I agree. I think we all would. But how? Loans are already very optional - that's a nonsolution.