I'm not sure I agree with all the scandal. To me it's more a legal technicality.
Schools should be allowed to pay whatever market salaries they must to keep their heads. If students don't like it, they can choose to apply to other schools. If alums don't like it, they don't need to donate. If faculty are jealous, they can work elsewhere.
The argument only breaks down when these schools get non-profit benefits. So why not just be done with it and take away the non-profit status? And then perhaps spread the big research dollars to true non-profits. But - unshackle the schools.
To me the bigger scandal is how much the head coaches get paid. That's truly the sign of a for-profit enterprise, and the athletes frequently are required to go to college to get to the pros.
The NFL does not require a degree, but does have an age requirement which occasionally comes up as a hot debate point:
"The NFL Eligibility Requirements
NFL rule requires a player to either be out of high school for three years or have finished three college football seasons before joining the league. (Lupica, M. 2004) The NFL is the only major professional sport that prohibits the drafting of players who have not completed three college seasons or who are not three years removed from high school graduation (Gehring, 2004; Nieporent 2004). The NFL claims that this rule is in the athlete's best interest. The NFL argues that this rule protects player’s physical safety. However, the NFL and the NCAA benefit by capitalizing on amateur athletes."
The degree is not required, but this forces most into at least one year of indentured service to a college. You can sit out, but how will you be evaluated for the draft?
There is a scandal in the sense that the people running the schools earn significant benefits at the expense of the students: they charge the students substantial tuition rates, leaving the students with horrible debt, and a low probability that their education can be applied to cover the debt (more likely, the students' own tenacity will help them overcome the debt). You might argue that the students willingly walk into the trap, but I'd argue that the university has a duty and responsibility to guide the students towards a successful life path, and these days, that would legitimately mean advising their students to attend other schools.
"Students willingly walk into the trap" is an interesting way to describe it, that I think only applies if in fact the student doesn't find success. I feel that I'm doing pretty well, so I wouldn't characterize it as a trap. I would characterize it as a challenge. For me it was the challenge of "launch."
But, for some students, it very well may be a trap. I've had more than a few friends spend $150k on education, to only make $30k a year as a middle school teacher. Friends who graduated with "independent study" degrees in "film and medicine." Some For some people, trap does adequately describe it.
The point about head coaches is interesting, because while NYU has athletic programs, the funding (if I remember correctly) is hugely less than that than other private schools. NYU students just don't care about athletics.
Two additional points:
1) Conde Nast gives loans to editors and higher ups. [1] [2]
2) Having worked with some of the "all star" professors in varying capacities (and getting a glimpse, however small, of the bargaining process) a lot of other universities are often trying to poach research professors from NYU. Housing, which is a hugely hard "thing" to solve in NYC, is a large bargaining chip.
And I hear you on the necessity of this benefit. It's like anything else, if you want the best of the best in a competitive market, you have to find a way to pay them.
Charity is very profitable for many elites especially in places like NYC and DC. Just because they don't distribute dividends doesn't mean they don't distribute salaries. Most "connected" people here come out of school and get hired by their friends at non-profits. They sit around, raise money, and don't do much with it other than pay themselves.
Sadly, I have seen this myself. Expensive "gifts" for doing odd jobs for charities (that far exceed the value of the task), first-class travel plans and ludicrously expensive hotels...it's sad, really.
Of course this was a while ago. I don't know if the tax laws have changed to make these sorts of things more difficult to do.
Palotta is just providing cover for the parasitic fundraising class.
He has zero connection to actual work in the field of charity accountability and measuring effectiveness. Contrast against GiveDirectly, Against Malaria Foundation, GiveWell, and J-PAL.
NYU is a school for rich kids. It's a vacation for students who want college fun, but prefer it to be in an urban setting like NYC (and the best part of NY, to be sure), rather than in a small college town with its frat parties and beer pong. IMO, it's not the ideal place to study at all. Too many distractions. If you're a liberal arts student you can probably take advantage of all the events, museums, intellectual stuff surrounding you, but there's no way I would want to study pre-med or engineering or the like there (even if disregarding the costs).
If you go to a $50,000 per year university for four years in the most expensive area of the most expensive city in the country and come out surprised by all the student debt you have, then you're an idiot and your degree should be withdrawn.
Shame on the federal government for providing easy credit for those wanting a luxurious four year vacation.
Did you go to NYU, or are you just out to insult those who did?
I went to NYU. I credit it with developing a lot of the skills that have gotten me to where I am today. This comes with a very clear understanding that my degree, while not directly related to what I do for a living, is still hugely useful in my day-to-day life.
I have a substantial amount of debt; most college kids do, anyhow. I credit NYU with giving me the opportunity to leave rural Pennsylvania and helping me into a salary bracket five times higher than my parents ever were in. For me, the cost of 3 years (after scholarships) bought this opportunity.
NYU isn't a "luxurious four year vacation." It's one of the higher ranked schools in America. It has professors who are leaders in their fields. It is rigorous and challenging.
I'm clearly referring to undergraduate education. People with solid state school options shouldn't choose NYU unless they are rich. You'd be a fool to give up in-state @ Univ of Texas undergrad for NYU, for example.
You are correct about people that don't correctly judge what the tuition and loans will cost them at the end of their four years, but saying it is a school "for rich kids" is very far off.
I happened to receive a very generous grant to attend to offset my tuition. So do many others.
This comment is terrible. For one, it's purely anecdotal with no evidence to support the statement "NYU is a school for rich kids". Have you really seen the wealth distribution of these individuals? Second, that very same statement is an attacking one, attempting to paint all "rich kids" with one brush as people who like "luxurious four year vacations." Do all "rich kids" not like to work hard? And finally, is there any proof that NYU is really anything like a "luxurious four year vacation?" - at least as it compares to any other university?
> "If you're a liberal arts student you can probably take advantage of all the events, museums, intellectual stuff surrounding you, but there's no way I would want to study pre-med or engineering or the like there (even if disregarding the costs)."
As someone who went to college in a small college town (a 3-college town, even) with no semblance of events, museums, and non-academic "intellectual stuff" to be found anywhere... Wut.
I'd have killed, even as an engineering major, to have access to all of the above. I'd have killed to balance out 4 years of mindlessly pounding of head against books with some semblance of creativity and culture.
I left college culturally stunted and have spent a lot of time crawling out of that dark hole, I wish it upon no one else. It's an endemic problem in our field to belittle the arts, or to regard the total abandonment of the arts as some sort of ascetic virtue. To be clear, there should be no pride in spending 4 years of your life in an academic dungeon and eschewing museums, music, and "intellectual stuff".
Throwing would-be engineers into an arena where there are constantly exposed to non-engineering things and non-engineering people is probably the best thing you can do to engineering education.
You don't need to live in a city to have access to a city. Got a CS degree from a liberal arts collage in a nice small town near DC. So while it was easy enough to go to DC my rent was 1/4 of what it cost to live there.
You'd kill for one but would you go into $200,000+ more debt for it? That's kind of a ridiculous notion. Study in a cheap small town at an excellent public university for $35k vs NYU at $250k+? No thanks, I could just fly first-class up to New York once a month and stay at the Waldorf Astoria and still come out ahead.
I am not from a rich family. No one in my family earned a college degree before me and they immigrated to the States with little to nothing. They were smart enough to start saving early for my education so I wouldn't have to pay a dime, but despite that, I still have loans. Thankfully I'm well on my way to paying them off, and early, because of the skills and the network I think I could have only built at NYU and NYC at large. I have the job I have because I went to NYU.
It's true that this is not the ideal place to become a hermit and focus on maximizing your GPA. I argue that higher education is far more involved than your studies - it's about exposing yourself to new experiences, honing your social senses and building a strong network, among other soft skills that are not summarized by your transcript. There are few better places in the world to do so than in NYC and specifically within NYU as a college student.
Lastly, going through NYU was not a vacation. I was very aware - as well as everyone else I knew was as well - that NYU was a ridiculously expensive place to be going to: nearly a quarter of a million dollars for an education with everything accounted for. If I screwed this up, all that money would be wasted, so study up. Not only that, study up, but resist the weakness to indulge in the "distractions" of the city and let your grades suffer.
In short, to say that NYU students are all rich kids is overgeneralizing, to think that studying in college is your one priority is myopic, and to call an NYU experience a "vacation" is just insulting. Have a little faith.
I never said NYU is all rich kids. That's obviously not the case given so many are going into debt to attend. What I'm trying to say is it's "intended for rich kids." People who have to borrow $200k just for tuition and books to attend should NOT GO. Period! Go to the best public school in your state. NYU is not superior to UCLA, UT, Berkeley, etc for undergrad.
You are still overgeneralizing. I went to NYU over UC Berkeley and don't regret it one bit. Sure, if you are premed or prelaw and have the intention of going straight to grad school after finishing undergrad, your argument holds great weight. But that's not everyone; people have different goals. Some people want to go into finance and work on Wall Street, others want to act on broadway, etc. And for people with these types of ambitions, NYU is hands down the better option. Nowhere else can you have the opportunity to intern at pretty much any type of company imaginable, network, and have such rich cultural experiences all while being a college student (well, other than Columbia). Sure, NYU is more expensive, but it's an investment that can yield higher dividends. Case in point, NYU was substantially more expensive for me to attend than UC Berkeley; however, I will be starting work at a major Wall Street investment bank in the fall. Berkeley's placement onto Wall Street is nowhere near comparable, so the likelihood of me landing such a job had I went to Berkeley would have been pretty much nonexistent. So, while the cost of attending NYU was higher, the future cash flows I am generating as a result of attending NYU are much higher than what Berkeley would have generated, justifying the cost. And that doesn't even take into account intangible assets, like my overall happiness and how much I've grown from living in NYC. At the end of the day, you can't generalize; it comes down to the individual, his/her goals, and whether he/she takes full advantage of the opportunities presented to them.
You are speaking out of your ass, and it's really damn irritating to see the rest of you upvote this trash given people who've actually studied there responding in disagreement.
My younger brother just graduated from NYU Stern undergraduate and he says the experiences he's had were invaluable. School was not easy by any means, he was encouraged to travel and experience business in other parts of the world, was heavily involved in student government and the community, and is going to start a job here in NYC. He might not have been able to have such a rewarding 4 years had he gone elsewhere.
He pulled loans and will be paying them back, too. And he thinks it's still worth it. And I agree.
I hear you on distractions... Who would want to study accounting or read long books when you live in the Village? But NYU is one of the best schools in the US for getting to Wall Street, so it's not a complete vacation for everyone. For some the student loans are a reasonable and sane investment.
As a general rule, I think there is an counter-productive reaction among people to the idea of paying high salaries to people working in non-profits. At the end of the day, good people are willing to take a pay cut to work at an organization they perceive to be socially beneficial, but only so much of one. Their kids still have to go to college, after all. And if the organization can raise the money, why object to its paying what it needs to attract good people? After all, NYU is in a location where you just can't buy a reasonable apartment on a professor's salary. That's why it goes to such lengths to offer housing options to professors (it's the largest land owner in lower Manhattan, IIRC).
Now, the problem in this particular case, however, is that there is a massive market distortion in play: federal student loans. Because federal student loans are guaranteed up to the cost of attendance with almost no credit check, schools can raise prices to whatever they want with almost zero impact on demand. If students could only get loans based on parental credit, tuitions at places like NYU would collapse.
I'm not even sure parental credit would slow things down. That might send more of the less-privileged students to smaller universities and community colleges, but I'm not sure they constitute a large fraction of major university students in the first place.
And for those students whose parents credit would justify a 60k loan, how many of those couldn't also get an 80k loan, on student loan terms (rates and repayment schedules)? I think all you'd do there is make it increasingly harder for parents of college-age children to get any further credit and draw down their consumption as college prices continued to grow. (Surely they'll rank co-signing Junior's college loans as more important than a cottage or condo in the sunshine belt.)
I think the bigger problem is that the degree and institution aren't considered in the loan process. I don't know how you'd even begin to structure an objective analysis, but it seems fundamentally wrong that the government will guarantee an 80k loan today for a degree that cost 60k yesterday, even though the market for that degree hasn't moved and the program itself is largely undifferentiated from what it was yesterday, let alone from competing universities charging 40k or less for substantially the same program.
If they can discharge student debt on bankruptcy, wouldn't that just normalize the process of: 1. take on loans 2. go to college 3. declare bankruptcy 4. enter jobs market?
Or are we counting employers continuing/extending their discrimination against candidates with 'bad credit' ? And would that hold up in a tighter jobs market?
It would definitely limit the loan size. Someone with $50,000 in debt will default at the drop of a hat, and so they will never be extended $50,000 worth of debt, and so schools will need to charge less for their service.
Someone with $4,000 worth of debt probably will not default, because the hit to their credit isn't worth it.
I'm not sure paying higher salaries actually brings in better people in all cases, though. University administration has seen a big influx of people who are in it for the money over the past 20 years, the kinds of people who 50 years ago would've stayed in industry. Now you can land a $300k+ academic job, so it's seen as a potential stop on the VP/consulting/management/etc. circuit to take some kind of top role at a university for a few years— rather than being seen as a senior academic position, with a higher but still modest salary. And that has further knock-on effects in that the top ranks of academia tend to have very corporate rather than research/education-oriented cultural backgrounds, and self-servingly think of administration as the most important part of the university.
"If students could only get loans based on parental credit, tuitions at places like NYU would collapse."
Perhaps there could be another way of doing it - perhaps only allowing a threshold for the loan? If you cap the subsidy to average in-state tuition plus expenses, you will go a long way to solving the problem too.
Any government backed student loan should have a simple repayment schedule -- a maximum of 15% of your earnings for 10 years following graduation. At the end of 10 years, the loan is considered fully paid and any balance, if remaining, forgiven. The institution eats the cost of forgiving the balance.
So if you're an institution providing an expensive but worthless education, you aren't going to get paid for it.
Let's treat universities the same way we treat teachers -- let's assess the results.
It's also biased against institutions offering shit degrees at high expense. If institutions have to start eating the costs of a Byzantine pottery degree, they'll either stop offering it or start finding ways to do it more cheaply.
Agreed -- but keep in mind that institutions aren't going to be accepting loan-financed students who are unlikely to be able to pay the loans back, because that results in the institution repaying the government loan instead of the student.
It's a question because we shove a lot of people into college that don't belong there, and then they can't cut it, and end up with the worst of both worlds: no college degree (employers can legally discriminate against them based on that) and a bunch of debt.
For all the hand-wringing, the current federal student loan system (under Obama's PAY-E program) has pretty sensible repayment terms. You pay a maximum of 10% of your earnings above 150% of the household poverty level (but no more than you would under an ordinary 10 year repayment plan), capitalized interest capped (over the lifetime of the loan) at 10% of the original principal, balance forgiven after 20 years.
It's progressive, there's a safety net, and it is, for the time being, solvent (government makes 30-50% profit on each dollar lent). Yes, people with great credit who would end up paying less under a standard 10 year repayment at say 5% end up subsidizing those who graduate without getting a decent job, but I think that's uniquely justifiable in this context, because everyone involved is turning to the student loans as a way to better their economic situation (after all, nothing stops you from paying in cash or getting a private loan at 5% if you can qualify for one).
I think if you added a cap in there instead of going up to full cost of attendance, to force schools to moderate their tuitions, it would be nearly perfect.
Good info. The problem I see with a cap is that it's one size fits all. I'd rather see a system where a school can charge higher rates if it is confident that its graduates will be able to repay those loans.
20 years just seems too long.
And the key point here is that when a balance is forgiven, the institution should bear the cost, not the government. Maybe that's already the case. Can you provide more detail?
That assumes they really feel it. If a school charges you $500,000 per year for tuition and then gives you financial aid of $480,000 per year, they aren't really giving you that money.
If a school extends you $150,000 in credit, and then in 20 years you've only paid $40,000 of it back, they haven't really lost $110,000. They are just practicing perfect price discrimination, getting the most money from the people most willing to pay, backed up by the government who is doing the work of auditing people's tax records to ensure compliance.
Even simpler: Don't have the government involved in student loans at all, and let the market price loans for different degrees for different students freely. Those institutions that can convince lenders that graduates will be in a position to pay back the loans quickly will be able to offer lower rates to students, and thus attract more and better students.
Those out to study degrees that don't offer great employment opportunities will be offered more expensive loans which will curb demand for such degrees which will depress the cost of the degrees. It will also make sure that fewer people will go to a party college and study an easy degree (or, at least, that those that do aren't subsidised by tax-payer underwritten credit).
Extra bonus: All those companies that clamour for STEM grads have a very simple avenue for putting their money where their mouths are: Simply go out and underwrite some cheap loans. (And no, indentured servitude is still illegal - companies underwriting student debt shouldn't be allowed to change the terms of the loan if the student comes to work for them).
Those institutions that can convince lenders that graduates will be in a position to pay back the loans quickly will be able to offer lower rates to students, and thus attract more and better students.
This assumes that a lender's primary interest is in having a loan repaid quickly. I don't think it's true - they are in it to make a profit, and exploiting the young adult with penalties and hidden fees or tricks helps expand that profit.
No, true, they won't care about the speed. But they will care about the default rate - and the ability to pay the debt down faster correlates strongly with a lower risk of default.
But all other things being equal, would they choose a speedy repayment or a slower, more expensive schedule?
I think one good reason for government participation in the student loan market is that it helps reduce exploitation of the borrowers, who are mostly just-turned-18 adults so eager to attend a college they'll sign anything.
All other things being equal, just like with mortgages and credit cards and car loans and other credit products, there will be different options with different terms available from different providers. Including these guys: http://www.economist.com/news/finance-and-economics/21578670...
That's simpler, but worse. Education is a text-book example of a good with positive externalities and it's worth subsidizing, especially for poorer people.
To an extend yes. Absolutely true up to and including high school, but at some point diminishing returns kick in.
The idea that all education at any cost carries positive externalities is exactly what got us into the mess that is education today.
Edited to add: Also, my proposal isn't incompatible with neither financial aid nor grants to institutions. But like underpriced mortgages caused a housing bubble, underpriced student loans is causing an education bubble.
But almost all of the returns to education are captured by the person receiving the education. How much incentive do you need to provide to someone to increase their own earnings by 50%?
If you want to see what happens when a society mindlessly thinks "more kids in more college is better, damn everything else," look at society right now.
maximum of 15% of your earnings for 10 years following graduation
And then we make it 20%, and then 30%, and then extend it out to 15 years, and then . . .
We've been putting people into debt they cannot escape to go to college while telling them they "need" to go to college. Given the history, the end result of any kind of "we take a portion of your income" plan will be to make it ever more efficient for the colleges to capture 99% of the lifetime earning difference between a high-school grad and a college grad.
> Let's treat universities the same way we treat teachers -- let's assess the results.
There are dozens of legitimate ratings of colleges and universities and NYU rarely ranks at the top academically (except their research staff, which I know can be exceptional). That won't stop kids from paying $40k/yr from going there so they can party it up in the Village for 4 years.
Interesting how this was flagged to death... Maybe comparible to the same sentiment that was present in the housing market in 2007: most dreaming of their "rainbows and unicorns" blind to the chains they just wrapped their necks...
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[ 3.1 ms ] story [ 124 ms ] threadSchools should be allowed to pay whatever market salaries they must to keep their heads. If students don't like it, they can choose to apply to other schools. If alums don't like it, they don't need to donate. If faculty are jealous, they can work elsewhere.
The argument only breaks down when these schools get non-profit benefits. So why not just be done with it and take away the non-profit status? And then perhaps spread the big research dollars to true non-profits. But - unshackle the schools.
To me the bigger scandal is how much the head coaches get paid. That's truly the sign of a for-profit enterprise, and the athletes frequently are required to go to college to get to the pros.
http://www.thesportjournal.org/article/age-requirement-profe...
http://en.wikipedia.org/wiki/Eligibility_for_the_NBA_Draft
The degree is not required, but this forces most into at least one year of indentured service to a college. You can sit out, but how will you be evaluated for the draft?
But, for some students, it very well may be a trap. I've had more than a few friends spend $150k on education, to only make $30k a year as a middle school teacher. Friends who graduated with "independent study" degrees in "film and medicine." Some For some people, trap does adequately describe it.
Two additional points: 1) Conde Nast gives loans to editors and higher ups. [1] [2] 2) Having worked with some of the "all star" professors in varying capacities (and getting a glimpse, however small, of the bargaining process) a lot of other universities are often trying to poach research professors from NYU. Housing, which is a hugely hard "thing" to solve in NYC, is a large bargaining chip.
And I hear you on the necessity of this benefit. It's like anything else, if you want the best of the best in a competitive market, you have to find a way to pay them.
"The way we think about charity is dead wrong" http://www.ted.com/talks/dan_pallotta_the_way_we_think_about...
Uncharitable: How Restraints on Nonprofits Undermine Their Potential http://www.amazon.com/dp/1584659556/
Of course this was a while ago. I don't know if the tax laws have changed to make these sorts of things more difficult to do.
He has zero connection to actual work in the field of charity accountability and measuring effectiveness. Contrast against GiveDirectly, Against Malaria Foundation, GiveWell, and J-PAL.
If you go to a $50,000 per year university for four years in the most expensive area of the most expensive city in the country and come out surprised by all the student debt you have, then you're an idiot and your degree should be withdrawn.
Shame on the federal government for providing easy credit for those wanting a luxurious four year vacation.
I went to NYU. I credit it with developing a lot of the skills that have gotten me to where I am today. This comes with a very clear understanding that my degree, while not directly related to what I do for a living, is still hugely useful in my day-to-day life.
I have a substantial amount of debt; most college kids do, anyhow. I credit NYU with giving me the opportunity to leave rural Pennsylvania and helping me into a salary bracket five times higher than my parents ever were in. For me, the cost of 3 years (after scholarships) bought this opportunity.
NYU isn't a "luxurious four year vacation." It's one of the higher ranked schools in America. It has professors who are leaders in their fields. It is rigorous and challenging.
Eh... Maybe at the undergraduate level. NYU has some extremely strong graduate programs and surely most grad students there are not rich vacationers.
I happened to receive a very generous grant to attend to offset my tuition. So do many others.
As someone who went to college in a small college town (a 3-college town, even) with no semblance of events, museums, and non-academic "intellectual stuff" to be found anywhere... Wut.
I'd have killed, even as an engineering major, to have access to all of the above. I'd have killed to balance out 4 years of mindlessly pounding of head against books with some semblance of creativity and culture.
I left college culturally stunted and have spent a lot of time crawling out of that dark hole, I wish it upon no one else. It's an endemic problem in our field to belittle the arts, or to regard the total abandonment of the arts as some sort of ascetic virtue. To be clear, there should be no pride in spending 4 years of your life in an academic dungeon and eschewing museums, music, and "intellectual stuff".
Throwing would-be engineers into an arena where there are constantly exposed to non-engineering things and non-engineering people is probably the best thing you can do to engineering education.
NYU's Courant Institute is the top ranked applied math program in the States...
http://grad-schools.usnews.rankingsandreviews.com/best-gradu...
I am not from a rich family. No one in my family earned a college degree before me and they immigrated to the States with little to nothing. They were smart enough to start saving early for my education so I wouldn't have to pay a dime, but despite that, I still have loans. Thankfully I'm well on my way to paying them off, and early, because of the skills and the network I think I could have only built at NYU and NYC at large. I have the job I have because I went to NYU.
It's true that this is not the ideal place to become a hermit and focus on maximizing your GPA. I argue that higher education is far more involved than your studies - it's about exposing yourself to new experiences, honing your social senses and building a strong network, among other soft skills that are not summarized by your transcript. There are few better places in the world to do so than in NYC and specifically within NYU as a college student.
Lastly, going through NYU was not a vacation. I was very aware - as well as everyone else I knew was as well - that NYU was a ridiculously expensive place to be going to: nearly a quarter of a million dollars for an education with everything accounted for. If I screwed this up, all that money would be wasted, so study up. Not only that, study up, but resist the weakness to indulge in the "distractions" of the city and let your grades suffer.
In short, to say that NYU students are all rich kids is overgeneralizing, to think that studying in college is your one priority is myopic, and to call an NYU experience a "vacation" is just insulting. Have a little faith.
My younger brother just graduated from NYU Stern undergraduate and he says the experiences he's had were invaluable. School was not easy by any means, he was encouraged to travel and experience business in other parts of the world, was heavily involved in student government and the community, and is going to start a job here in NYC. He might not have been able to have such a rewarding 4 years had he gone elsewhere.
He pulled loans and will be paying them back, too. And he thinks it's still worth it. And I agree.
Now, the problem in this particular case, however, is that there is a massive market distortion in play: federal student loans. Because federal student loans are guaranteed up to the cost of attendance with almost no credit check, schools can raise prices to whatever they want with almost zero impact on demand. If students could only get loans based on parental credit, tuitions at places like NYU would collapse.
And for those students whose parents credit would justify a 60k loan, how many of those couldn't also get an 80k loan, on student loan terms (rates and repayment schedules)? I think all you'd do there is make it increasingly harder for parents of college-age children to get any further credit and draw down their consumption as college prices continued to grow. (Surely they'll rank co-signing Junior's college loans as more important than a cottage or condo in the sunshine belt.)
I think the bigger problem is that the degree and institution aren't considered in the loan process. I don't know how you'd even begin to structure an objective analysis, but it seems fundamentally wrong that the government will guarantee an 80k loan today for a degree that cost 60k yesterday, even though the market for that degree hasn't moved and the program itself is largely undifferentiated from what it was yesterday, let alone from competing universities charging 40k or less for substantially the same program.
Furthermore, make the students able to declare bankruptcy to escape student debt.
The reaction from the schools would be to make sure their students don't end up more than (very roughly) $10,000 in debt.
Or are we counting employers continuing/extending their discrimination against candidates with 'bad credit' ? And would that hold up in a tighter jobs market?
Someone with $4,000 worth of debt probably will not default, because the hit to their credit isn't worth it.
Perhaps there could be another way of doing it - perhaps only allowing a threshold for the loan? If you cap the subsidy to average in-state tuition plus expenses, you will go a long way to solving the problem too.
So if you're an institution providing an expensive but worthless education, you aren't going to get paid for it.
Let's treat universities the same way we treat teachers -- let's assess the results.
It's progressive, there's a safety net, and it is, for the time being, solvent (government makes 30-50% profit on each dollar lent). Yes, people with great credit who would end up paying less under a standard 10 year repayment at say 5% end up subsidizing those who graduate without getting a decent job, but I think that's uniquely justifiable in this context, because everyone involved is turning to the student loans as a way to better their economic situation (after all, nothing stops you from paying in cash or getting a private loan at 5% if you can qualify for one).
I think if you added a cap in there instead of going up to full cost of attendance, to force schools to moderate their tuitions, it would be nearly perfect.
20 years just seems too long.
And the key point here is that when a balance is forgiven, the institution should bear the cost, not the government. Maybe that's already the case. Can you provide more detail?
That assumes they really feel it. If a school charges you $500,000 per year for tuition and then gives you financial aid of $480,000 per year, they aren't really giving you that money.
If a school extends you $150,000 in credit, and then in 20 years you've only paid $40,000 of it back, they haven't really lost $110,000. They are just practicing perfect price discrimination, getting the most money from the people most willing to pay, backed up by the government who is doing the work of auditing people's tax records to ensure compliance.
Those out to study degrees that don't offer great employment opportunities will be offered more expensive loans which will curb demand for such degrees which will depress the cost of the degrees. It will also make sure that fewer people will go to a party college and study an easy degree (or, at least, that those that do aren't subsidised by tax-payer underwritten credit).
Extra bonus: All those companies that clamour for STEM grads have a very simple avenue for putting their money where their mouths are: Simply go out and underwrite some cheap loans. (And no, indentured servitude is still illegal - companies underwriting student debt shouldn't be allowed to change the terms of the loan if the student comes to work for them).
This assumes that a lender's primary interest is in having a loan repaid quickly. I don't think it's true - they are in it to make a profit, and exploiting the young adult with penalties and hidden fees or tricks helps expand that profit.
I think one good reason for government participation in the student loan market is that it helps reduce exploitation of the borrowers, who are mostly just-turned-18 adults so eager to attend a college they'll sign anything.
The idea that all education at any cost carries positive externalities is exactly what got us into the mess that is education today.
Edited to add: Also, my proposal isn't incompatible with neither financial aid nor grants to institutions. But like underpriced mortgages caused a housing bubble, underpriced student loans is causing an education bubble.
Time for me to find some investors and pull my own Kyle Bass :P
[0]: http://m.washingtonpost.com/business/economy/sallie-mae-to-s...
If you want to see what happens when a society mindlessly thinks "more kids in more college is better, damn everything else," look at society right now.
And then we make it 20%, and then 30%, and then extend it out to 15 years, and then . . .
We've been putting people into debt they cannot escape to go to college while telling them they "need" to go to college. Given the history, the end result of any kind of "we take a portion of your income" plan will be to make it ever more efficient for the colleges to capture 99% of the lifetime earning difference between a high-school grad and a college grad.
We need price pressure on the cost of education.
There are dozens of legitimate ratings of colleges and universities and NYU rarely ranks at the top academically (except their research staff, which I know can be exceptional). That won't stop kids from paying $40k/yr from going there so they can party it up in the Village for 4 years.