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Comment by msandford | Hacker News Reader

It's really too bad that the laws surrounding student loans make them artificially cheap. You can't get rid of college debt through bankruptcy so you're basically saddled for life.

Normally the interest you pay is the combination of three things:

1. The (inherent) time value of money

2. Expenses the lender incurs to keep up with the debt

3. The average default risk of those taking the loans

Student loans only price in 1 & 2 because of the near impossibility of not paying the loans back. Which is great in the short term as it means that more people are able to go to school because the interest rate is lower and thus they can afford more debt.

But a college education is a lot like a house. The price of a house isn't how much it's "worth", it's an artifact of how much money you have to pay every month for the privilege of living there. A house of a certain niceness is (everything else equal) going to cost the same amount of money per month whether the interest rate is 1% or 15%. A $1500/mo mortgage buys you $250k of house at 4% but only $150k of house at 9% and only $95k of house at 15% like in the early 80s. (http://www.bankrate.com/finance/mortgages/history-of-mortgag...)

By removing all the default risk from the pricing of student loans, more students are able to afford college which is exactly the intended effect of the laws. But the size of most academic institutions doesn't grow; most colleges don't admit twice as many students just because more are clamoring to get in. This excess demand and fixed supply means that colleges can raise prices. And thanks to the lowered interest rates those who could have afforded college prior to the law (and lower interest rates) are still able to afford it because the lowered interest rate has increased their borrowing capacity.

Those on the margin prior to the change in the law still aren't able to afford college once the price increases follow the increase in available money and additional demand for degrees.

The law was changed in 1978 and it's taken quite a few years for this unintended consequence to play out. It's really sad to see it happen. http://www.finaid.org/questions/bankruptcyexception.phtml

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A large part of the problem is all the shitty for profit schools. They get students to take out large government backed loans, then are defaulting, since they can't actually get a job.

I knew several people I grew up with who went to these schools. They took out huge loans, 10k plus, and they never landed any kind of job with their "certificates" / degrees.

[1] Half of all defaults are from these kind of schools.

[1] http://www.businessinsider.com/career-education-corp-will-pa...

>[1] Half of all defaults are from these kind of schools.

That means half of all defaults are from the "other" kind of school. And the loans from the "other" kind of school are much, much more than 10k +, and many of those students are "never landing any kind of job", too.

Sounds like a LARGER part of the problem is "conventional" higher education.

How many people go to real schools, and how many go to fake 'for profit' schools?

And isn't the median student debt something like 25k? Not really "much much more" in my book. Anyone with a real degree should be able to handle that sort of debt.

What we should be doing is allowing lenders to discriminate by major and school. Good school with a good degree? Lend. Good school with a shitty degree? Lend with extreme caution caution. Fake school with any sort of degree? Tell them to kindly fuck off.

> What we should be doing is allowing lenders to discriminate by major and school. Good school with a good degree? Lend. Good school with a shitty degree? Lend with extreme caution caution. Fake school with any sort of degree? Tell them to kindly fuck off.

No disagreement here.

I don't want to give the perception that I think "for-profit" higher education is problem-free. I do think they have severe problems, but putting a disproportionate amount of attention on them is distracting to the problem that the "non-profits" are - which has a bigger societal impact, since they are serving more people. "For-profits" are just an easy target because of the broad social perception that profits breed evil, where many of those evildoings are just as bad in the "non-profit" higher educational sector.

No, for-profits are a problem. They account for 10-13% of students, but 25% of student loans, and 50% of defaults. They have no academic standards, because they have no concern for academic reputation in the way traditional institutions do, and can seek to enroll the largest possible classes without worrying about keeping up GPA/SAT medians.

I agree that for-profits are a problem.

To put my objection more clearly: Don't use the IRS designation to whitewash "non-profits", which are in many ways acting just as atrociously as "for-profits" anyway. Your statistics miss something important - the socioeconomic class that is consuming the non-profit product comes with some inherently lesser risks vis a vis default (for example: I presume more "non-profit" college consumers are going to be able to cover their asses, debt-wise, with help from their parents). What happens when you correct for that, what is the magnitude of difference? The "non-profit" statistics also encompass schools where you are clearly going to have less of a problem getting a job afterward. What happens if you look at the LOWEST tier of "non-profit" university and compare it to the "for-profit"? I would presume that you would find very little difference.

Agreed. Article in San Jose Mercury News just yesterday:

http://www.mercurynews.com/education/ci_24041125/profit-coll...

The good news:

"Last year California cut from its tuition aid program more than 130 private colleges with low graduation rates and too many student loan defaults. Some wonder if the federal government will follow the state's lead to hold colleges responsible for their performance.

Today, only 50 for-profit schools in California remain eligible for state-subsidized tuition; 115 do not"

> low graduation rates

> hold colleges responsible for their performance

Sounds like a recipe for lowered standards...

That's why you factor in job placement rates. Degree-mills are already a problem.

For "workforce training" in Texas, we have a rolling average criteria (along with several other metrics). Which is good, because economic fluctuations affect the job market. Some classes just can't seem to catch a break.

To add to that, they tighten the noose with every legislative session. It appears to be the intention to make our pay proportional to "graduate success"; which will likely end up meaning GPA. That would put the same incentives in place for public college instructors that have existed in for-profit schools.

Loan default rates were also mentioned.

Am i the only person that see's those types of numbers, and correlates them with the type of students the school attracts - the student who did not - or could not - enter into an accredited 'regular' university?

Which is not to say that should necessarily impact the degree of scrutiny those schools receive. But perhaps worth considering - if they are serving students who are likely to get no education at all, is it better / worse? Honest, question - no implications here. Just think its something worth discussing.

these students are worse off. Because now they have a useless degree, some sunk time, and debt. But I think non-profits can be just as bad if not even worse, because the degree is still useless, there's just as much sunk time, and even more debt (since many nonprofits are more expensive than for-profits).

This is similar to a proposal by the Obama administration to prevent loan-milling by Wall St. owned private schools.

When will a "Godwin's Law" type rule be introduced for the inevitability that the problem being discussed eventually gets blamed on Wall Street?

As soon as Wall St. reigns in their tendency to profit off just about every thing they can imagine, legal or not [1] - seeing as they can just buy off the regulators or lawmakers.

[1] http://www.bloomberg.com/news/2013-03-31/money-laundering-ba...

Call it...Godwin's Wall?

What percentage of the issued student loans were taken out by those attending for-profit institutions?

"Despite dismal outcomes and high defaults, for-profit colleges enroll between 10 and 13 percent of students but receive 25 percent of all federal financial aid dollars. In 2009-10, this amounted to 25 percent of the total Department of Education student aid program funds."

http://www.harkin.senate.gov/help/forprofitcolleges.cfm

I'm not sure that "student aid" and student loans are the same.

This discussion also seems to be missing the fact that students who attend many of these for-profit schools are poorer and thus more likely to default, regardless of the quality of education obtained. Any study is useless without an adjustment made for median household income of the student (and perhaps high school GPA).

"Because 96 percent of students starting a for-profit college take federal student loans to attend a for-profit college (compared to 13 percent at community colleges), nearly all students who leave have student loan debt, even when they don't have a degree or diploma or increased earning power."

"Most for-profit colleges charge much higher tuition than comparable programs at community colleges and flagship State public universities. The investigation found Associate degree and certificate programs averaged four times the cost of degree programs at comparable community colleges. Bachelor's degree programs averaged 20 percent more than the cost of analogous programs at flagship public universities despite the credits being largely non-transferrable."

People going to public schools are getting loans for unjustifiably expensive 'educations' which are nearly universally absolutely worthless. That is why such a staggering number of people attending for-profit schools have trouble.

You can dig up more and more data, looking for a way to make for-profit schools look good, but all you are really doing is shoveling more data onto the heap of reasons why they are predatory shitheads.

we're not necessarily trying to make for-profit schools look good, we're just sick and tired of disproportionate attention being laid upon for-profit schools when non-profit schools (of a certain tier) are just as bad if not worse but seem to be escaping the amount of scrutiny they are due. The sins of for-profit schools are being used to whitewash institutions that hide under the nomenclature of their IRS designation.

Always ask if the school is Regionally Accredited in the degree you intend to take: http://en.wikipedia.org/wiki/Regional_accreditation#Regional...

If not, the credits are generally non-transferrable and many businesses will simply toss your resume.

How do you know that 'Regionally Accredited' is meaningful until you are educated? My high school guidance councillor certainly never talked about this.

My college actually shouted "we're accredited" at the top of their lungs, but I didn't give a fart until I was half way through the degree, and one of my profs talked to me about why they worked so hard ensuring accreditation (for the same reasons you state) - at which point I said, "pheww it's a good thing this place is accredited"

I had no difficulty getting a job after grad. But I certainly didn't know that accredited was important before I entered the course.

This is a mistake I made. My dad didn't go to college and my mom got a 2 year degree from a community college. A shitty for profit school sold me on the idea that I could get an awesome job in 2 years and then continue on to a bachelors program. Except that the credits don't transfer and you can only get the BS from the same shitty school. I also didn't see anyway I could pay for schooling without working full time and I didn't see how I could make that work at a traditional school.

Although I'm doing ok in my career I know many people who go to these types of schools do not. Now I don't know what to do. I would love to have gone or go to a 4 year state school. At this point in my life I make too much money and have too many responsibilities to be able to quit and go back to school. I also have 10 years in the field which I hope makes up for the education gap in some cases.

Are there any actually decent (accredited) programs that have hours for working people? The only way I see myself getting a BS is if there is a full night program somewhere but at this point I'm not even sure that it's worth taking on more debt.

Look into DePaul. They have decent distance learning and are accredited. The distance learning is like a second classroom that is remote (instead of like a MOOC). They record the lecture of the day and post it in the evening. If you have any tests, you often need to find a proctor. They also have restrictions on who can be a proctor (you can't just find a teacher friend).

> My high school guidance councillor certainly never talked about this.

They should have. :( It's sort of important.

The odd school here and there can get away without accreditation if their reputation allows it. For example, at least one of the founders of Pixar came from my former university, which has an unaccredited CS program (at least at the time I attended).

The focus in this discussion is on school accreditation. Program accreditation is a different beast of far more narrow interest. School accreditation is essential; program accreditation is a feature.

School accreditation is done by a regional accreditation organization and validates every diploma the school grants.

Program accreditation is only available for certain degrees to begin with, and is usually under the authority of a professional group in that area of study.

Practically every state university is an accredited institution, even if they offer (i.e.) accounting or engineering programs that are not accredited by a relevant organization.

Dunno how old you are, but I think most CS programs up until about 2003 werent accredited because no such program existed. Any BS from before that is just backed by the reputation of the school--which is basically the case save for the bottom of the barrel for every subject. (Because if you have to ask...)

As a sometime prof at a for-profit school, may I observe that 1/3rd of my students (on average) failed - not for any guilt by the school (me included), but because they just didn't do the work. Really, they didn't even try; I can't grade what's not submitted. Methinks there's a significant correlation between your complaint and the reality I observed, a correlation which nobody is taking into account.

the charge is that the school management knows damn well that a full third won't do the work, and admit them anyway, getting their monies and putting them into debt.

the issue is that public money is being used for this scheme, not that there's anything wrong with taking money from idiots in general.

Statistically you're correct, but objectively you can't identify which students won't do the work - ergo, you can't discriminate who to enroll (heavy on the consequences of involving the word "discriminate"). The government would come down hard on any school which says "you pass all the enrollment criteria, but we have a nagging feeling you won't complete the degree so we're not letting you in."

Hence the argument that public money[1] should not be involved. The school management can't say "no" to it (from any angle), and the would-be students think it's free; nobody, lender in particular, hammers home the point "if you don't do the work, you'll be in deep financial $#!^".

It's the borrower "putting them into debt". Society pressures kids into getting a degree, the school makes it easy to start the process, government makes it easy to borrow the money, but ultimately it's up to the enrollee to sign for the loan and do the work to make it pay off. Every self-appointed pundit is pointing fingers at the school (for "fleecing" students) or the government (for "wasting" public funds), but nobody is pointing at the students for not making the effort.

[1] - "public" insofar as it was legally confiscated from the public at implied gunpoint.

> but objectively you can't identify which students won't do the work - ergo, you can't discriminate who to enroll

I'm calling complete bullshit on this one: isn't that the very definition of admissions? Even if you claim it's not, I think that if you look at any student's previous grades / work experience / references, you can quite reliably determine who will do the work and who will not.

These schools simply don't want to: they want to admit everybody so they can take their money in exchange for basically nothing. I would fully support legislation to bar for-profit institutions from receiving any federal tuition aid (whether loans or grants).

> public money[1] should not be involved. The school management can't say "no" to it

This is false: schools are not required to accept federal loans.[1]

[1] http://www.deseretnews.com/article/865576111/No-more-student... to accept federal loans

You'd be very surprised at who won't do the work. I was. Interacting with them, and knowing how they were admitted, I have no doubt of their previous grades / work experience / references, and yet am time & again stunned at their utter reluctance to take basic required initiative.

By "won't do the work", I mean really simple things. A student has a week to take a simple on-line 10-question multiple-choice quiz, but doesn't even look at it. For every creative assignment, I make clear "submit something - even if it's just a text file saying 'I have no idea', I'll work with you on it", but nothing is submitted. I'll take a submitted "program" of pure gibberish, write a detailed explanation of what's wrong and how to make it work, tell them to fix it, and give them until the very end of the course to do anything & everything to make it passable, but no resubmission is attempted. Online group discussion participation is required with a weekly N-post minimum (N very small) with very low content standards, a very simple requirement, but little or no participation occurs. These are students who passed high school, hold jobs, can hold competent conversations, show up for class, etc.; I have no reason to doubt they have references, adequate prior grades, and work experience. Yet...when given a very basic collegiate task, they won't do it to a mere 60% sufficiency.

There's a fundamental difference between high school and college: the latter is not obligated to pass you. Every opportunity is given, every task may be simplified to near-triviality, but if the student won't take the steps on their own, they reap the consequences of willful inaction.

But, of course, you refuse this experiential insight and insist it's all about malicious greed.

This is false: schools are not required to accept federal loans.

You miss my point: it's not about rejecting federal loans, it's about rejecting an applicant who does satisfy grade/work/references/funding criteria when there are openings, but the admissions personnel concludes admission still isn't a good idea. The mortgage industry knows what I'm referring to.

> "The government would come down hard on any school which says "you pass all the enrollment criteria, but we have a nagging feeling you won't complete the degree so we're not letting you in."

No it wouldn't. Admission to selective schools isn't based on criteria, it's competitive among the other applicants in the pool for a limited number of slots. Counselors routinely state that the vast majority of their applicants are academically qualified; students are selected based on interestingness (communicated through essays & recommendations), extracurricular talents, race, gender, and other factors. Sometimes even virtuosos are rejected because there are already enough virtuosos with that particular talent in the university.

As far as I know, it is only very low-end schools in the US that run admission solely off of standards.

It's not really about high end schools. Harvard, Yale, and MIT can turn down anybody they want because they have a million overly qualified candidates. They can be selective and still fill their all of classes ten times over.

But if tiny community colleges start turning people away when they have half empty classrooms, there will be a lot of negative press.

But it isn't about tiny community colleges, it's about for-profit schools, right?

They could probably figure out how to sell it as "raising the bar," talk about providing a more individualized education, ride the negative press as actually increasing the value of their degrees, etc.

Enrollment is way down. Spin only goes so far.

I believe the issue stems from a lack of education about the loans themselves that the student borrows. Very few high schools around the U.S. are teaching personal finance, and I also suspect the public high school I went to wasn't the only one not properly preparing their students for the financial part of higher education.

The process of getting accepted to a school and receiving financial aid may be long, but considering the student is borrowing tens (and sometimes hundreds) of thousands of dollars it's also incredibly simple.

Very few high schools around the U.S. are teaching personal finance

If public schools are going to promote using public funds for continuing education, it's their responsibility to teach how to use those funds.

The for-profit schools being accused here have no way to not accept those monies. Public agencies advocate public school graduates use public funds for continuing education, but do not teach what not to do with those funds and punish any organization which does not accept those funds. Looks like it's the "public" at fault here.

My girlfriend attends a for profit school (because her employer covers it 100%), it's absolutely alarming how stunningly expensive these for profit schools are. As a comparison, the state school that I attend, even with over-priced books, sets me back about $1200/semester, and that's for 3 classes. A single class for her is billed at that same amount. Before books.

I don't know how anyone would look at the cost and their future earning potential and decide that paying for a for-profit is a good idea. I know people who have gone the that Full Sail program and ended up 100+k in debt, and with nothing useful to show for it.

Education in this country is in a terrible, terrible state.

Full Sail Graduate here. You are correct. Avoid Full Sail. It's designed to pump out students like crazy. I'd say it's one of the most greedy schools. In the end I wish I could take it all back and never go there.

Its worth noting Full Sail is one of the top display advertisers in the United States.

The public university I attended was not much better. Tuition + Room and Board was 24k a year and rising. At the same time, an incredible amount of new university buildings are being built.

I couldn't agree more! Another unintended consequence is that people who previously wouldn't have been able to get loans at all due to default risk can get money. But they don't have the credentials to get into a fancy school. This means there is a lot of excess demand and it makes it possible for these for-profit schools to even exist (they probably wouldn't otherwise).

Since the job market doesn't necessarily need double the number of college grads it means that competition for the jobs that do need filling is fiercer. And that means that people who need to pay back loans for school don't necessarily have the ability to. A race to the bottom in terms of accepting a lower paying job ensues, and people are left with very little agency.

Sometimes it seems like the better-intentioned a social justice law is the worse it'll end up being years down the road.

McKinsey says there will be a huge shortage of college graduates:

http://www.mckinsey.com/insights/economic_studies/talent_ten...

Despite widespread knowledge of grade inflation and diploma devaluation, somehow a college degree is still used in discussions of employability.

If it's easy to graduate once you've been admitted, increasing the number of graduates isn't going to help alleviate the "shortage of college graduates" because the real shortage is in talent.

That's really insightful.

From that link: "Students at for-profits account for nearly half of all student loan defaults but only about 12% of post- secondary students,"

In other words, not so much "half of all defaults" but "at 4 times the rate."

it's actually 9 times the rate, if you do the math correctly.

(1/12)/(1/88) = 7.33

oops, I rounded 12 down to 10 when I did my math!

Sorry which school did you go to? ;)

Uchicago math. Can't handle non integral mantissas or when they are greater than 6. At work, I do mostly biology, where everything is 1, 2, or 5 - close enough. One sig fig is par for the course, anything else would be an overoptimistic lie.

I do mostly biology, where everything is 1, 2, or 5

As an engineer working in medical imaging this I loved!

I'm only half joking. I'll make a buffer solution, recipe calls for 2.4 grams per liter of sodium phosphate monobasic. Ok, 2 is close enough; I'm making 500 ml, that's half, so I'll round down to 1 gram, etc etc etc.

Bubbles beget exactly this kind of opportunism. During the housing bubble there were builders who slapped up houses so poorly that they had to be demolished years later.

Considering the budgets of most schools, which ones aren't for profit? Really?

When even state schools spend money on facilities, staff, and materials, not directly toward educating the student, they are for profit.

Money going back into the institution and improving research, attracting better staff, buying supplies, building facilities, and improving the quality of life is not profit, it's reinvestment in the organization.

Further, as easy as it is to be offended by brand-new facilities, you'll find that 1) many are paid for by oustide grants and the money never could have gone towards reducing tuition, and 2) those that are paid for with students' money amount to pocket change per student.

A for-profit college educates students as cheaply as possible (in terms of cost to the institution, not price to the student) to maximize the amount of surplus the owners can pocket.

Playing devil's advocate, isn't it fair to remove the ability to discharge student loan debt and in term the default risk due to the fact that there is no collateral? Unlike a car loan or a mortgage, a bank can't repossess your education.

Yeah that's a really good point. I'm not sure it really matters, though. The law allowed you to shed college loan debt through bankruptcy up until 1976/1978 and people went to college for at least 100 years prior to that law.

Furthermore a cheap college degree might be so inexpensive that the hit to your credit isn't worth the expense dodged. Banks can loan on cars worth as little as $5k even though their cost to repossess and auction it might approach the cost of the car. For small debts the shame factor can't be underestimated.

From this what can we conclude? Prior to the change in the law college had to be fairly cheap so that banks could make uncollateralized loans for people to go. Because students could only afford so much, colleges had to figure out how to deliver an education for that amount. If a college wanted to charge more, it had to pull risk out of the loan to the student so that a bank would issue it.

> people went to college for at least 100 years prior to that law.

This is the fallacy of comparing the upper classes of one period with the masses of another. A far smaller fraction of people went to college in the century before 1976, and those who did go from lower-class origins often did so through direct scholarships like the GI bill. The college loan market was not very viable at this time. None other than Milton Friedman discusses the problem in his 1962 book Capitalism and Freedom. Actually, he proposes some form of legally undischargeable debt as a solution.

Yeah that's a really good point!

I've heard plenty of people talk about working their way through school by having a summer job to pay for room and board and tuition and that it was possible to do it that way, even if it was uncomfortable. That really sounds great but maybe a little bit too great: it's a good narrative about how things were better back in the olden days when things were still good and not fucked up. I WANT to believe it but I'm not sure that I should. And it's all anecdote, no data.

I did some searching for pricing and I found this: http://www.collegeview.com/admit/?p=1858 It looks like a decent summary. In 1960 the minimum wage was $1.00/hr and the cheapest tuition I'm seeing is $960 for the University of Texas. If you made minimum wage for three months of summer that's a total of 40 * 4 * 3 * $1 = $480 pre-tax. So definitely not enough to pay for a whole year of school from just the summer job. At an Ivy League school you're at about 1/4 of your yearly total.

Today if you work a minimum wage job for a whole summer you'd get 40 * 4 * 3 * $7.25 = $3480 (pre-tax of course) which wouldn't even pay for your tuition (nevermind room and board and other expenses, that's another $5k per year at least) at the University of Florida, arguably the best deal in college tuition in the last decade. Comparing it to an Ivy League these days, it's not the 25% it used to be but rather about 10% if you go to one of the cheaper schools.

I went to one of the University of California campuses in the late '80s. Back then fees were about $500 per quarter my freshman year, and minimum wage was $3.35. I was able to cover all my fees and most of my living expenses by working summers at a job that paid about double the minimum (with lots of overtime). A job in the campus cafeteria during the school year covered the rest. I took out one $2500 student loan for a rainy day fund but never spent the money.

There are a few things that have changed since back then:

* College tuition has gone up faster than anything else in the economy. Anything. The UC system was a great deal at $1500/yr, but back then you could go to Stanford for $13k or so. The increase has been driven mostly by easy money from student loans, but also by administrative bloat related to government dictates. Books have become an extortion racket - $150 for a stack of unbound pages?

* Almost 20 million illegal aliens have entered the country since I went to college, completely wiping out the low end of the job market. My 1986 summer job is now done by illegals in their late 20s, and they're making about $0.50 more per hour than I made 25 years ago. My old employer doesn't pay more because he doesn't have to.

* The rise of unpaid internships. You work a summer for free so there's a chance you can get a job when you graduate. I think this is another consequence of easy loan money. If you offered me (or my classmates) an unpaid internship we would have declined - we needed to get paid so we could afford to go to school in the fall. Between the low wages and easy loan money today you can almost see the wheels turning - "What the hell. It's not like a job at Burger King will make a dent in my debt."

College tuition sticker price has gone up a lot. The actual amount that students pay hasn't gone up as much.

A half-decade ago, Stanford waived tuition for students from families of income less than $100k [1]. Median household income in the country is roughly $57k.

[1] http://www.reuters.com/article/2008/02/21/us-education-stanf...

Stanford may now have more students on scholarship than off. But I know many of the Ivies have 40%+ of their students receiving no scholarship money, and it takes a family income of 150k+ (often more like 200k+) to not receive scholarship or loans. That means more than 40% of these schools' students come from families earning in the top 5% of household income (the 95th percentile is ~$190k). That is to say, the schools that offer the best aid, that have the potential to be the most affordable, aren't typically serving those who could most take advantage of the lower prices. Instead, private universities that do not guarantee to meet a student's need, state schools and for-profits tend to serve those students. Those are the schools where the sticker price is more likely to be the real price.

Its easy when you have a $17 billion endowment.

Where is the citation for the amount students pay hasn't gone up? College tuition was already past the "this math doesn't make sense" mark when I was in school a decade ago. One of my room mates couldn't borrow anymore money and had to drop out half way through. $90 textbooks back then are $150 now. And so on.

My dad worked his way though state schools (SUNY) for undergraduate and law school from 1968 - 1975.

A few things about your calculations. First back then, unlike now, no college degree didn't mean automatic minimum wage job. Second, he worked while in school, not just over the summer. Third small scholarships back then actually made a difference. Today if you get the national merit scholarship for doing well on the PSATs, it's meaningless at $2000. Back then he got a $500 a year regents scholarship and it really helped.

Yeah I'm not suggesting that I have a definitive answer to the question. I just wanted to do some back-of-the-envelope calculations to see the scale of the thing.

So if you work 15 hours/week during the year and 40/week during the summer and take the winter break completely off that would be 40 * 4 * 3 + 15 * 4 * 8 = 1140 hours. If you manage to bring in $2.00/hr that would be enough to pay your way at Harvard.

That sounds doable for a person who isn't a genius and willing to sleep only three hours a night or otherwise make really big sacrifices. Truly exceptional people will always be able to bootstrap. But one thing I think is important is to make it possible for those who are talented but not insanely talented (I don't know what the percentages are) to get a degree and learn enough to be useful to society. It's remarkable that people really could (at least in some cases) do that without going into debt.

I have a different perspective. Rather than thinking it's remarkable that they could do that back then, I think it's a disgrace that we can't do that today.

Harvard's tuition back then adjusted for inflation is around $18,700. Assuming 10 classes a year an using an average class size of 40 students (which is what Harvard reports), that's a budget of $74,800 per class. You should be able to run a college on that, even taking into account some overhead for libraries and such. Yet Harvard today charges more than twice that.

Harvard could afford to charge nothing for any of its students. However, by having a form of price discrimination where they gouge the wealthy, they then get to subsidize their low-income students, so that they don't have to miss out on as many of the non-economic opportunities that their classmates engage in, and still provide all the amenities (nice gyms, libraries, clubs and activities) that the upper-class students expect.

The issue is, after the most endowed schools ($/student), there is a steep drop where schools suddenly aren't able to provide the same opportunities for their low-income students, but still compete for students capable of paying in full. This leads to escalating costs, as schools construct nicer gyms, study areas and dorms, pricing out the mid-to-low income students.

With thier endowment Harvard could provide gyms, which aren't that expensive in the grand scheme of things, without gouging anyone. There is no good reason for an obstensible charitable non-profit to be engaging in tactics suited to an 19th century railroad monopolist. Also not every legal adult whose parents are wealthy have access to those resources.

Furthermore, you are letting them completely off the hook for exploding expenses. Check out the administrator to student ratio changes from 1960 to today. College payrolls are now stuffed to the gills with deanlings and deanlets with no educational purpose whatsoever.

I've had the impression that Harvard is very affordable for most applicants. They limit parental contribution to 10% at $150,000/yr, and require no parental contribution at less than $65,000/yr. And they do not bundle loans in there financial aid packages.

http://ofr.harvard.edu/site/policies-issues/financial-aid/

So that seems to me to say that if a family is in the bottom half of average household income, Harvard is free.

No families attend Harvard, just individual adults. Adults whose parents by-and-large are under no legal obligation to support them.

Right, but financial aid offices assume the parents will be supporting their children, and include that support in financial aid offers.

I just don't think we should be using Harvard as an example of the high cost of a college education when it seems to me that they are committed to making it affordable for their students.

I started college in 1993 and my parents (and the rest of my extended family) talked a lot about me getting a summer job to pay for college, that that was all I'd need to do. That was so far from the case (I did attend a university rather than a state school) but I remember pricing it out and coming to the conclusion that my family was really disconnected from reality.

I assume a bank cannot reposes my liver either. What happens if I go into debt from medical expenses? Is there an exemption for medical debt as well?

From what I've read about the US health system, I thought you don't get much in the way of medical treatment unless you have medical insurance.

In other word the insurance covers the cost.

If that is the case, where is the debt?

All I know is that many people go bankrupt from medical expenses. I don't know the specifics of how they get into that sort of situation. Perhaps it happens when hospitals first treat people, then bill them afterwards.

They go broke for many reasons:

1. US Healthcare is too expensive. Two weeks after I first came to the states, my wisdom teeth (all 4) started growing. I had to pull them out. That was a $2,000 bill and a good lesson to get insurance asap. If you get into a car accident and you don't have insurance, your bill might be about $25K. More if you need continuous care and more surgeries.

2. Doctors are doing unnecessary tests and operations. Sometimes, I feel like they just want you to test for every single disease with a similar symptom. What a joke.

3. Some patients are stupid. Why on earth do some people need to call ambulance for flu. Even if they don't have a ride, just find it, use a cab, or use a bus if you are that broke.

Common sense is like deodorant. People who need it most, never use it.

> 2. Doctors are doing unnecessary tests and operations. Sometimes, I feel like they just want you to test for every single disease with a similar symptom. What a joke.

Probably because you would rightfully have a slam-dunk malpractice suit if they didn't test you for diseases with similar symptoms and missed a diagnosis.

I think even people with insurance pay $2,000 or somewhere in that ballpark to have their wisdom teeth removed. Dental insurance operates differently from health insurance in that there’s usually a fairly low yearly cap, so it’s not really insurance in the normal sense, and it usually pays for maybe half the cost of certain types of treatment, and you pay the rest out-of-pocket. Upper-middle class people with health and dental insurance still spend a lot of money on orthodontics and cosmetic dentistry.

I had a different experience with my dental insurance. My insurance (offered through my employer) was only ~$30 per month. Most of the preventative treatments were absolutely free. Apparently insurance companies discount preventative treatments heavily, so teeth cleaning, xray, and other stuff that would cost about $200-300 per tooth/event was literary free. Hell, even crowns, implants, and alike were discounted by 60-80% if I wanted to do that. I also had a nice cap overall. I visited my dentist many times and never had to pay more than $40 per visit.

But I agree, ortho/cosmetics is a different beast to deal with.

A lot of credit card debt has no collateral either, but that can be discharged in bankruptcy; why not student loans? And I suppose credit card companies could try to re-possess the goods purchased with credit cards (obviously not the services), but they don't. (And it makes sense not to; not worth it financially).

FWIW, I have no student loan debt so I'm relatively neutral on this.

The issue is at the end of a normal Bankruptcy proceeding, assets are sold to repay the note. Lets say you go out and buy a rental property for $500k, if you never make a payment the bank can repossess the rental property and sell it to recover their loan. Your asset is gone, you have no way of making any kind of income from it after it has been repossessed.

With student debt its different, if you went to undergrad at MIT then did an MBA at Standford - you are probably looking at north of $100k in debt. If one year after college you defaulted and it was discharged, you would still retain the 'asset' (your education). You could go out the next day and get a nice job at google and continue to earn income from your asset. The bank has no recourse to prevent you from continuing to use the asset they loaned you money for. This is one of the main reasons that you can't discharge student loan debt. No one is going to come take your degree away from you if you don't pay.

This is retarded (pardon my french). Assets are only relevant with respect to security interest held by the lender. Slavery is illegal, and it is not legal to attach security interests to peoples lives. Of course, by making the discharge of debt itself illegal, the lenders have placed their security interests in a default position aking to the states right to tax all future income. Which is a hillarious (although not funny) abdication of government authority in a democracy (as its unaccountable, not to mention opaque and non-transparent).

I'm not advocating this, but why couldn't they take your degree away? They can't take your education away, but the degree is just an agreement/contract that says you upheld your part of the bargain - passed tests, etc, and paid the university, and they in turn give you a certificate of achievement. If you default on the loan which was a substantial portion of the payment clause of that contract, why can't they revoke the degree?

I realize the loan in these cases is not directly from the university.

If they could, what would be the point? They don't want to punish you; they want their money back. It's not like they could sell your degree to someone else.

I suppose just as an incentive to not default. If you keep the degree, in theory you are more employable. If you have to give it up to default on the debt, maybe you'd think twice?

Or you'd just tell your employer you had to give it up in a default. He's not going to care whether or not you still have your official slip of paper.

If you implement it properly, there will be no transcripts or verification if bills are not paid.

I went to Harvard, its just I lost the degree in bankruptcy, so they claim I didn't go. Just call my references (which are actually burner phones held by my brothers)

Interestingly higher ed already requires all bills to be paid to graduate... they don't care if you default on your credit card the week after graduation, but you aren't getting the diploma until the library fees and tuition are paid off by "someone, somehow". Once its the loan servicers problem, they don't care and you get your diploma. I vaguely recall having to get a slip from some different offices proving I owe no money to the school, in order to graduate, and threats they wouldn't provide transcripts to students in collections, etc.

But your future employer may care about indications of your character and future behavior while under their employ. I've heard of companies running credit-history checks to discern whether a prospect is a risk of embezzlement.

I'm not saying the judgement / assumptions would be correct, but it's quite possible some employers would act this way all the same.

Therefore it's a big incentive to pay your money back.

But presumably if the employer cares about defaults it won't matter whether or not you get your degree since the default will show up on your credit record.

The degree is just proof that you have the education. Revoking the degree does not revoke the education which is, short of extenuating circumstances, deserving of certification. When you're hired, you're hired for the education; the degree is just convenient standardized proof you have it.

True, but claiming an education != having proof of it. Sure you're employable, but it's more difficult.

Plus, if the potential employer checks your credit history and sees you defaulted on your student loan, they may make assumptions about your behavior or character, having a definite impact on their hiring decision.

Credit cards also carry interest rates based on that risk. Do you think student loans would work with 25% interest?

yes, and if you were offered a 25% interest rate, perhaps based on a poor choice of major, then the signal would be "don't go to college"; or "switch majors"; or "get better grades"

The original recipient / payee of the majority of college debt is a government college / university. Not always, but the vast majority. So why would the government make laws such that money owed to another government entity cannot be defaulted on?

Call it professional courtesy.

Regardless of the students' situation, that money going to get paid, come hell or high water.

Not really when other types of unsecured debt are wiped out by bankruptcy. Your credit card debt can be erased by chapter 7 bankruptcy even if you used it to fund an awesome vacation that no one can take back.

Yes, but a credit card requires credit. Student loans are specifically crafted to be obtainable by people with no income and no credit.

I know the credit cards companies have cut back on this, but. . .credit cards for students don't require credit. . .and are specifically crafted to be obtainable by students with no income or credit. Students with income and/or credit can get better deals with "non-student" credit cards.

Indeed, and when I was a student I got my first credit card with a modest job (< $10k). What was my initial credit limit? $400.

I believe that the Credit CARD Act of 2009 changed much of that. IIRC if you are a student with no income then you need to give them a collateral the size of your credit limit.

It is pretty impossible and probably unreasonable to expect your average college freshmen to have a good credit rating.

No one expects them to. The point is the credit card company accepts the risk of default on no-collateral loans in part because they have confidence (credit report) in the chances of being paid back, while a student typically has no such supporting evidence to back their case.

I'm a college student. I have two credit cards with credit limits of $500 and $1700. My tuition (with room and board) is $58,000 per year. That's the difference.

Those cards generate lots of fees. How can the CC have confidence in the credit report when they issue cards to people with virtually no credit. They are wildcatting.

https://en.wikipedia.org/wiki/Wildcatter

Right, but just imagine the fees you'd need to establish on student loans to wildcat them!

Late billing fee: $10,000 Processing fee: $1,500 (Etc)

Are you assuming that every college student who is issued a $600 credit limit is a deadbeat? I don't think that's the case.

edit: My point in the post above was simply that _if_ it is possible on average for an 18 year old to have a 'good' credit rating, _then_ credit ratings are practically without meaning.

not only that but students usually have negative wealth upon graduation. Declaring bankruptcy is way more attractive than it is supposed to be at that stage.

No. Also, I believe they can garnish wages and repossess property to pay off loans if it looks like the client won't ever be able to pay the debt back.

In carrying out its fiduciary duty the firm that issued the loan came to the conclusion that the person would be reasonably able to pay the loan back with interest. Of course, since the risk of default is off the table with student loans, why not hand out a bunch of money that will get paid back with some accrued interest before it is discharged, if it ever is at all?

In a world where fake private schools didn't accelerate the loan bubble, and one that probably treats student loans like any other debt, it would be a different story. Boils down to whether or not they think the prospect of their client finding gainful employment after school is worth taking on the risk of the client defaulting.

>>Student loans only price in 1 & 2 because of the near impossibility of not paying the loans back.

That, and there is virtually no way to accurately measure the default risk of those taking the loans.

It would be very interesting to live in a world where your choice of major affected your loan rate. For example, as a political science major you would not be nearly as employable as a computer science major, which would translate to more risk of default. This would ensure that only those who are serious about a political science degree would pursue it, and at a big picture level things would shift so that people would think about the real value of their education much more carefully.

Imagine a situation where you are looking at a list of majors, and next to each item there is a percentage score, which is the loan rate. For electrical engineering it might be 2.5%, whereas for art it might be 9%.

But then you would also have to consider the risk that someone who is not qualified for or interested in electrical engineering would most likely drop out of it. So the formula would also have to take into account the person's background. If they scored high on their SATs and Advanced Placement tests for math and engineering, the loan rate for EE might further go down to 2%. For those coming from a non-technical focus in high school, it might go up to 3.5%.

Hmm...

It's no problem for the bank of they can't accurately measure your risk of defaulting, as long as they can assess a group risk. So, say 4% of students fail to repay, the bank would use that number.

Just like car insurance when you first start driving. They don't know (or care) if you're a good driver so they just average beginner drivers and base the price around that average.

Well, the average might be based on group risk. But car insurance companies still care about your individual situation as well as driving history.

It isn't quite true that student loans can't be discharged through bankruptcy. Student loans are not excluded from discharge if excluding the debt would "impose an undue hardship on the debtor and the debtor's dependents":

11 USC 523(a) Exceptions to discharge ... (8) unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor's dependents, for -- an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or an obligation to repay funds received as an educational benefit, scholarship, or stipend; or any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual;

Per http://www.moranlaw.net/student_loan_brunner.htm, "undue hardship" means '(1) that the debtor cannot maintain, based on current income and expenses, a "minimal" standard of living for herself and her dependents if forced to repay the loans; (2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and (3) that the debtor has made good faith efforts to repay the loans.'

Why isn't this clause used, assuming people who go bankrupt actually tried to prevent that from happening ?

Predictably, the easy availability of student loans has caused inflation in tuition.

>This excess demand and fixed supply means that colleges can raise prices.

If colleges raise prices, won't this make it more attractive/affordable for new colleges to open, thus increasing supply?

Potentially yes. But those colleges won't have the prestige and long history that a college needs to serve as some kind of credential, neither will the inherent network-building happen there either. What I mean is that because Harvard is such an elite school, many of the people you meet there WILL be involved in society at the highest levels and you'll already know them. That gives you a powerful advantage. University of Phoenix doesn't have that yet and may not for several decades. And the University of Phoenix doesn't carry much prestige or brand recognition with it.

Furthermore the job market doesn't necessarily support the need for additional college grads. In a "normally functioning" (total bullshit I know but go with it for a second) job market high wages and high employment does two things:

1. Increases people's ability to pay for loans post-graduation

2. Reduces the average default risk

When that happens, interest rates for college loans go down and more people are able to go to college based on fundamentals: the job market will (with some lag factor) still be good when they graduate and thus loaning to them is a good idea. This is a "natural market function" which, though imperfect, tends to balance out the supply of college with ability to demand. I would estimate that college loans would tend to lag the job market by somewhere between 2 and 10 years depending on how agile a bank was to react to the job market. So you would have a period of heightened wages for at least 4 years as people worked their way through school and then potentially a period of lowered wages for a few years as people slowly figure out that the crazy high wages are gone.

But with these subsidies you get all the downside of the glut with none of the upside of the scarcity. It's not awesome.

It would be if you assumed the purpose of college was to impart information. It's not. All that stuff about "teaching students to think" is just bullshit, frankly. The real reason you have to go to college to get a good job is the school you went to gives employers an indication of how smart you are.

Prior to Griggs v Duke Power employers could just give you an IQ test, and all the big ones did. If you wanted to work for IBM you could get a job even without a college degree if you did well on the IQ test. But with that single court ruling employers had to cast about for another way to rank applicants, and the most obvious solution was by college exclusivity.

So if you went to Harvard they want you. Not because you were likely to learn anything at Harvard you couldn't learn at State U. It's because they know you have to be pretty smart to get into Harvard as only one in about twenty applicants is actually accepted.

So Harvard (with the highest rejection ratio) can charge whatever it wants (and it's worth every penny), whereas schools that take everyone can't charge more than enough to keep the lights on.

It's hard to establish a new school. Parents will want to know "Is it a good school?" Since this is one of the biggest decisions in Junior's life, they're going to go conservative and try to get him into established colleges with solid reputations. Your new college has a chicken and egg problem - you can't get a lot of applicants unless you reject a lot of applicants.

I think this is a big part of it. I think of it as a signalling tax on the young extracted by the old. "Ah ya think you're smart eh? You want a job eh? Promise me $100k+ your future earnings and we'll talk".

If colleges raise prices, won't this make it more attractive/affordable for new colleges to open, thus increasing supply?

Yes. Hence "bubble".

The government did everything in its power to funnel money into housing back from 1999 through 2005. If someone was against this, they were against people having homes. This resulted in a housing boom.

Today, the government gives out giant loans to students who will never be able to repay them. If you are against this program, you are "against people getting an education".

Yes, which is why we have the large number of new for-profit institutions. Many of these new for-profits deliver degrees that aren't the paper used to print them because delivery a quality education isn't easy.

This is true for for-profit colleges. But some public and non-elite private colleges risk pricing themselves out of existence - or at least into dire financial straits - if they raise their prices too high and if student loans dry up.

Actually, the price increases are most likely not caused simply by the availability of loans.

In the case of public schools, the evisceration of public subsidies has left them operating as public schools in name only. Even in my very liberal state, state support for colleges and universities was cut in half as a share of budgets over two decades. Most states fared worse. At the same time, medical insurance costs for faculty and staff have been increasing by ten percent per year on average, causing this expense to crowd out other necessary costs.

In the case of private schools, the rising cost of public schools has contributed at least as much to their ability to charge more. For profit schools seem to be able to get away with ridiculous claims, leaving graduates jobless and defaulting on large loans. However, they would not be able to justify their prices if public schools were too much cheaper.

"A house of a certain niceness is (everything else equal) going to cost the same amount of money per month whether the interest rate is 1% or 15%. A $1500/mo mortgage buys you $250k of house at 4% but only $150k of house at 9% and only $95k of house at 15% like in the early 80s."

That doesn't make sense. In the short term, we can hold the housing stock and income as fixed, and as the interest rate varies, the amount of capital available to buy homes varies as does the price. That isn't to say it is the primary effect -- income, net household formation and the housing stock are the other main determinants -- but the level of interest rates is important.

The students can always leave the country to search for a better life.

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