"The U.S. government is forecast to generate $185 billion in profit over the next decade from students and their families under an overhaul of the federal student loan program endorsed by the White House and approved by the Senate on Wednesday.
The profit figure, if annually averaged through 2023, would place the U.S. student loan program among the 20 most profitable public companies in the world, according to Fortune magazine’s annual list of the world’s 500 biggest companies. The bipartisan Senate bill would increase the government’s profit off student borrowers by more than $700 million compared with existing law, the Congressional Budget Office said."
Honestly, I'm okay with the student loan system, I just think schools need to face tuition caps to be eligible for federal student loans.
My wife and I have substantial student loans from law school. We got good jobs and can afford to pay. Meanwhile, lots of people don't and can't, and rely on the governments very generous and flexible repayment terms. As long as the program as a whole turns a profit, its a cross-subsidy, and I think that's great. People who take student loans should be uniquely willing to pay to spread out the risk.
If we're going to cap tuition (price controls), why not increase taxes as well? College becomes much cheaper ($10K for your degree, not your semester), and society, the student, and every future employer benefits.
I understand people don't like taxes sometimes. Even me. But with them, I buy civilization.
There is a place for that, but the thing I like about the student loan system is that the people who benefit from the system pay for it. I think we have too many taxes in the US where the benefits aren't broadly distributed, which undermines support for those programs.
What about betting against for profit universities which, on the shadier side, seem to be using unqualified students to grab federal loan money? Seems like they could get hit hard if the loan money starts to dry up.
Commenting as an Oregonian, it isn't going to solve any problems it just makes college more accessible, allowing students to kick the can down the road. College is still too expensive and costs have risen for no reason.
I went to state college in Washington (Washington State, go Cougs) and when I started there tuition was $1300 (semester system, so $2600 per year). My middle-class parents were easily able to cover my full costs (tuition, room and board), with a part-time job I contributed to room and board. It's now well over $9000 (insert Dragonball Z joke here) for the year just for tuition. Now, I'd have had to graduate with student loans.
There's just too much waste in the college system and I have no idea where it's going. Facilities? Sports? Salaries? Marketing? It's certainly not inflation or value since salaries are stagnant pretty much across the board.
The problem is costs won't stay where they are, they just keep climbing for no reason. The quality is only marginally better, if that. It is one thing if the states are covering less tuition for their constituents that would make the cost rise make sense, but out-of-state tuition has almost doubled since I started college back in the mid-90s.
Here's the problem. My alma mater is Washington State. They want to be a 'world class' college and it's a nice goal, but that's not the point of the state system. World class costs way too much money for little benefit. I'm not saying aim low, but be realistic. The job of a state institution is to provide an affordable opportunity for those who might not have otherwise. It's not Harvard or Stanford but it's accessible and it allows for upward mobility.
>> It's not Harvard or Stanford but it's accessible and it allows for upward mobility.
Agreed. I came from a state university as well. It wasn't MIT or CalTech, but I had plenty of roommates with engineering degrees who landed gigs at LockHeed Martin, 3M, and BP. They used to tell me straight up they didn't care about their pedigree, they wanted an affordable, solid education.
Once they were hired, they convinced their employers to let them go back and get their masters, all paid for of course by the company. Something a LOT of people forget about and take for granted.
But it all starts with an affordable state university education.
Let people declare bankruptcy and cancel all their loans.
The worry back in the 70's was that people would get a lot of loans and then declare bankruptcy after graduation and then no one would lend money and no one would afford school.
I can see why they were worried about that. We got something much much much worse.
If students could declare bankruptcy, people would still make educational loans, but only for a few thousand dollars. Schools would have to lower prices.
I believe that's the period Australia's program has. In addition it also caps repayment at a fraction of income. I was suggesting a system that's working. (I've had it explained to me, I'm not an Australian).
Wait a minute: Why won't it solve any problems??? If universities are funded by the salaries of their graduates, then 1) they have to ensure that graduates have decent earning potential, so bloated programs which are sending students to flooded markets (I'm looking at you Psychology) will have to shrink drastically while engineering, and god forbid, vocational education would grow,
and 2) Colleges will no longer have a magical hat of endless, low interest, risk free (from the college's perspective) debt to draw on from each student. This, and only this, will force them to cut the bloat.
The Oregon program is the only one I know of that both guarantees qualified students can go to college and simultaneously forces the universities to stop endlessly piling bloated expenses onto taxpayer financed debt.
People don't seem to get this: these universities will have a fixed (but growing annually if they properly prepare graduates) cap on their operating expenses, while simultaneously being able to grow their budgets by training students in skills that the market demands.
The problem isn't that there are student loans - people take loans out for many other things and have no problem with those. The problem is that the repayments are killing the spending power of the middle-class.
Where does paying back a loan or paying back a fixed amount of income differ? Do you honestly think that the gov't is going to curb the costs of education? More than likely the gov't will just jack the repayment % on future students.
So, like I said, it just kicks the can down the road. No where in the Oregon plan is an outline of how to bringing state college costs back down to a reasonable level that doesn't require loans except in extreme cases (where it was in the 60s, 70s, 80s, and even 90s).
It does away with the Sword[1] and instead opts for an olive branch -- some cannot risk the sword (great debt) for a reward (greater career opportunities), and they will now have a new opportunity.
By the same token, the Sword will never be held to the throat (bankruptcy). A happy worker is a productive worker.
Really, I think he's somewhat wonderful. The way he marshals words in the service of outrage, anger and disenchantment with authority is extremely appealing to me, even when I disagree with him.
That's my problem with him. What do you learn from this article except to be outraged? Surely the folks perpetuating this system aren't all mustache-twirling villains: Somebody out there has a case to make for the current system, but Taibbi isn't at all interested in that case.
There were plenty of balanced articles about the faults of the student loan system. Nobody noticed, and now student loan debt has grown to be the largest source of consumer debt, even with the ease of obtaining credit cards, mortgages, and car loans.
I don't deny that college kids are being taken advantage of. Graduating from a small liberal arts college in South Dakota that no one's ever heard of with a degree is Culture Studies and 80k in debt really is a rip off.
The flipside of this coin however is someone like me. My parents are immigrants and I was the first to go to school. To my parents, the fact that someone would be even willing to give you money to go to school is ridiculous. I graduated with 20k in debt with a math degree from Cal. The ease of getting loans and financial aid are the main reasons I was able to attend college as my family was otherwise poor, at least at the time.
In some countries, you don't even have the OPTION to take out a loan to go to school. You either have the money and you go, or you don't and it is that much harder to climb the social ladder.
I'm not sure which evil is worse, but I'm damn glad I was offered those loans.
I agree. Loans aren't at the root of the problem, but they're also a bad solution. An even worse solution is getting rid of loans. The only solution worse than that? Blaming students.
This is why, until there's some radical, radical change, I'll always vote for the people perpetuating student loans. I'm not going to be the one that screws an entire generation out of a worthwhile education in the name of "loans are bad!"
This is why, until there's some radical, radical change, I'll always vote for the people perpetuating student loans.
Loans for the sake of loans seem to be the key problem here: If students who intended to get a "degree in bullshit" at a gussied up diploma mill faced difficulty finding a loan for that purpose, they might reevaluate their decision.
And besides: Who's seriously advocating for the total elimination of student loans?
And who is going to decide what's a "degree in bullshit" and what's a "gussied up diploma mill?" What metrics would they use?
Libertarians tend to like the idea. But short of that, it's difficult to vote for reform that lands between perpetuate-the-problem and screw-an-entire-generation.
We can fix the problem of paying for education, but that solution isn't going to be found anywhere near the student loan debate.
The market. Right now, the government loan programs treat all degrees interchangeably. If you introduce market forces into the equation, the lenders will run some basic stat calculations and you'll quickly end up with the following scenario:
1. Useful degrees from good universities will be easy and cheap for good students to fund.
2. Everything else will get harder/more expensive to fund, in proportion to its statistical returns.
As I understand it, the problem with this approach is that even the pre-2010 system put the risk of default more or less completely on the Feds, as it is now. If you leave that risk there, then market players have no incentive to set rates themselves: It's up to the Feds to decide which loans at which rates they're willing to backstop or acquire. Not really a "market".
But if you move the risk of default onto the "market" via private lenders, then, the theory goes, the rates a student can expect will be swamped by other factors than the value of their prospective education, notably whether they have a sufficiently credit-worthy parent to cosign.
Maybe the best bet is to have market rates that are "cushioned" by the Feds in a need-based scheme.
Do they? If government loan programs treat all degrees interchangeably, why do you have differential pricing for STEM degrees and Liberal arts, with the latter being cheaper and STEM, law and medicine degrees being the most expensive.
They are more expensive because the programs cost more to run. The professors have more job prospects outside of academia, so that drives up their wages. They also need more expensive resources (labs, legal libraries, etc.).
The schools are in the best position to underwrite loans. They should be the ones loaning out educations. That also has the advantage of giving the schools a stake in the marketability of their graduates.
How do you avoid the problem of schools only/mostly handing out loans to students with rich parents to cosign? That's the underlying cause of all this conflict: We want the best colleges and universities to be accessible to everyone, and not have existing class distinctions weigh too heavily on the scale.
Sure, the problem is not the Ivies and top tech schools, most of which have basically committed to paying full tuition for any admitted student who demonstrates they couldn't attend without it.
But for the many excellent schools without massive endowments, the risk of letting in more qualified "Caa3" applicants over "Aaa" applicants could make a substantial difference on the margins.
It's an important consideration and so a good question.
A couple of points:
First I don't think such a school would remain the best very long. There was a time when CCNY and the CUNY system in general had a fantastic reputation largely because it served an immigrant population that the Harvards of the world refused to take on as students or faculty. CCNY's fortunes turned around for many reasons, but one of them was that the traditional top schools dropped their racial/ethnic quota systems and introduced aggressive need based scholarships.
Second, I think we a society need to move away from the idea that 18-22+ year olds are still members of their parents' economic unit. In Sweden college tuition is free, yet the percentage of students taking out loans is higher than the US because there is no expectation that parents will pay living costs. Perhaps banning co-signers for such student loans is going too far, but perhaps not.
>The schools are in the best position to underwrite loans. They should be the ones loaning out educations.
But the schools are profiting immensely from the difference between the perceived value of a degree and the actual value. They'll never get into the loan business without being forced.
But I agree they should have some skin in the game. My favorite idea on that end is students should be able to partially default on loans, and the schools should be required to share the loss with taxpayers.
>And who is going to decide what's a "degree in bullshit" and what's a "gussied up diploma mill?" What metrics would they use?
If you're a responsible lender, you sure as hell should look at the risk profile of the borrower. If the borrower is asking $200,000 to go to a private college for a liberal arts degree, you may want to assign a higher risk to him, then if he was going to Med school. In other words, you may want to go through the same exercise you go through to approve small business or real-estate loans. The problem is that you don't need to be a responsible student loan lender since the federal government will just guarantee you the loan anyway.
If lenders had any significant risk, then lenders would evaluate the value of a school/degree combination (value being determined by the likelihood that they could be paid back).
High-tier school with a degree that has great employment potential? Throw a loan at that kid, that is a good investment.
High-tier school with a degree that has great employment potential... but the program has a 99% dropout rate? Think twice about throwing a loan at that kid, if he is in that 99% then you will have a hard time getting your money.
Shit school with a vanity degree? Tell that kid to get lost. If he wants a vanity degree, he can pay for it himself.
You still need price pressure on the schools. If tuition keeps on going through the roof but no one cares because it's "free" we're still blowing a lot of money that could better be spent elsewhere.
I'm not sure how it's done in Scandinavia. I think the government can simply fund public universities with a lump sump (per student), and disallow any tuition charges. Universities could then raise additional private money to use as they see fit.
In Finland the operating costs are nationally averaged to make up unit rate (google: yksikköhinta). Majority of state funding can be then traced back to Unit rate x number of students.
You will not make things more efficient by having them run by the government, you will only create another unfunded mandate. While it may seem that it is free if the government pays for it, obviously someone pays. The least cost effective way to run something is through a government bureaucracy, that should be pretty clear by now.
Loans absolutely are at the root of the problem. Not the abstract concept of loaning money, but the current implementation.
The student loans legally allowed today are borderline usary. They provide a convenient way for lenders to sidestep bankruptcy protection. This leaves students with exact same problems society had before bankruptcy: it's far too easy for the unwary to sign their life away to crushing debt. They essentially become an indentured servant for the rest of their life, destined to die in poverty.
These issues are a practically daily occurrence on r/personalfinance [1]. I personally know several people in this situation. Naive kids get too far over their head in debt, and the traditional protections for that situation have been taken away from them.
Maybe it's time to cap total outstanding student debt to some reasonable expectation of when they can be repaid. That's the only way I can imagine tuition levels reverting to a sane level.
The overall price of education is the root of the problem, and the price of education has little correlation to the availability of student loans (contrary to popular belief).
> Maybe it's time to cap total outstanding student debt to some reasonable expectation of when they can be repaid.
I think that's a good start. Kind of resembling a loan-forgiveness mechanism (which there are already a few). It falls into the same trap most solutions do, though. What's "a reasonable expectation," and who decides it?
> The overall price of education is the root of the problem, and the price of education has little correlation to the availability of student loans (contrary to popular belief).
Did you read the article? It provided a fairly sound argument supporting the conclusion that the availability of student loans and the price of tuition are quite related.
You're basically saying let's ask people not to accept free money that's being thrown at them. That's not impossible, but I think restricting bad loans is more compatible with human nature.
Sorry, I meant the universities are accepting free money and that's why they won't reduce prices. If the government refuses to make "underwater" loans on degrees that are not worth the cost, we should expect prices to go down.
"Fixing the lending problem might influence the overspending, but fixing the overspending would solve the problem much more directly."
You're missing the point. The overspending is a direct result of the lending problem. Lending is the root cause of the overspending problem. Students choose schools with lots of amenities because it's so easy to get loans, so why not? Because of this, schools have to continue to build plush dorms and state of the art fitness centers in order to keep their enrollment up. This, of course, drives up costs, which is passed on to students via tuition, who just continue to pay for it all with more readily available loans.
A particular university can't just cut spending, because it would put them at a huge competitive disadvantage with everybody else. Only by reigning in lending will costs stabilize.
First, the burden of proof actually isn't on the people saying there's no correlation. It's on those saying that there's direct causation. Baseless claims should be treated as such until there's something more behind them than "well it just makes sense."
>and the price of education has little correlation to the availability of student loans (contrary to popular belief)...
That's just blatantly wrong. The easy availability of student loans is what's driving education costs. The fact that lenders are willing to lend enormous amounts of money to people who may not be able to pay them back, tells you right there that there is quite a bit of market-distortion going on. Couple this with a natural tendency to not consider future-risk by an 18-year old, strongly implies that colleges would be incentivized to exploit this, and in fact they do! I've read countless articles on private colleges charging insane amounts for tuition whose middle-class graduates end up with thousands in debt and no reasonable chance of making a salary to pay off those loans.
Think about it this way, in a normal reality, there is no chance a responsible bank would lend a middle-class kid $100,000-$200,000+ to do a 4 year liberal arts degree.
EDIT: Also, I've yet to actually see any study that concludes direct causation between availability of loans and tuition prices. Yet somehow the burden of proof is on the naysayers?
"Government and colleges are not driving up college costs," government and colleges report.
That blog post, by the way, the source of the quote that Taibbi references in TFA. It's not even an op-ed, it's a guest post written on one individual WaPo blog.
The writer is the president of the National Association of Independent Colleges and Universities, which has a vested and financial interest in keeping the status-quo. The fact that this organization is pushing so hard for federally backed student loans should ring some warning bells that its members may benefit. I don't have the will nor energy nor need nor the time to research this topic extensively, but because of the clear conflict of interest that the writer has, I cannot just accept what she argues. Interestingly she doesn't say what is the cause of tuition increase.
- Federally backed student loans are non-dischargeable and are available to nearly all students (regardless of credit score or financial issues).
- Student loans total around $1.2 trillion dollars (50% increase from 2008!)
- US has the highest tuition costs in the developed world.
Whether or not you think tuition is too high or is correlated to federal aid is almost incidental to the issue. There's a big fuckin problem with the amount of student loan debt out there, and if the federal government isn't to blame for this with the way they structure student aid (i.e. guaranteed, non-discharable loans to anybody that wants one), who the hell is? It's also hard to imagine that this much available cash for post-secondary education wouldn't have an affect on demand.
I'm very well aware of who wrote it. That's why I didn't tell you to read the blog. I told you to look at the sources.
I have no idea who's to blame. I think part of it is institutions adding several layers of bureaucracy is one part. Institutions expanding resources is another (justifiable) increase in cost. Most importantly, a simple increase in demand: Students need to do something to give them an edge in the job market. The safest way to do that is still, by far, to go to college. Just because it's less safe than it used to be doesn't mean it's more irresponsible than, say, dropping out and hoping you're Zuckerberg/Gates/Jobs 2.0
>That's why I didn't tell you to read the blog. I told you to look at the sources
If you're fast and loose with stats and terms you can prove anything. As I read the post, I was struck by the way the writer weaved in disparate studies, terms, and references. I'm very sure there is quite a bit nuance in her claims and because this was written by someone with such a huge conflict of interest (her position literally exists to further private college interest and would she would never, ever argue something that would be counter to those interests), I have to ignore it. There's only 24 hours in a day, and because I don't have the energy to fact check her, I have to dismiss it.
>Most importantly, a simple increase in demand: Students need to do something to give them an edge in the job market. The safest way to do that is still, by far, to go to college.
That's your guess??!?!?! Of course kids want to go to college, just like all kids want a luxury car and fly first class everywhere, so no, demand isn't a great answer. If tuition is high, and you don't have money and you can't get a loan, you don't go to college. Responsible lenders certainly wouldn't lend to everybody, regardless of credi score or repayment ability, but they do. Does that not sound like it could be a problem?
What I don't understand from your perspective is how you can not even imagine that $1.2 trillion in outstanding federally back loans (with around half of it NOT being repaid) would not contribute to the increased tuition costs?!? That's over a trillion dollars that may otherwise have been available if the private lenders had to take on all the typical lending liabilities. That's over a trillion dollars to divvy up between all the colleges and universities (and lenders)! It's insane that tuition outpaced all other costs, including medical costs which are crazy. It looks clear as hell that there is a huge market distortion happening.
> I have no evidence for what I'm trying to argue, and I don't have the time to read any conflicting evidence, so I'm going to just keep spouting BS because it's easier to remain convinced.
Okay, forget I linked to the blog post. Here are sources.
U.S. Department of Education National Center for Education Statistics, Dec. 2001, Study of College Costs and Prices 1988-89 to 1997-98, Vol. 1
National Commission on the Cost of Higher Education, February 1998, Straight Talk about College Costs & Prices
Government Accountability Office, May 2011, Federal Student Loans: Patterns in Tuition, Enrollment, and Federal Stafford Loan Borrowing Up to the 2007-08 Loan Limit Increase
Sandy Baum, Policy Analyst for the College Board, New York Times, Feb. 3, 2010
Bridget Terry Long, Education Economist, Harvard University, Testimony, Senate Finance Committee hearing “College Tuition Pricing and Federal Financial Aid: Is There a Connection?” Dec. 5, 2006
What I don't understand is how you think it matters what I "can imagine." It doesn't. You're hounding me for an answer that I never said I have. You are way too eager to find conclusions which may not even exist. You don't have evidence to back those conclusions. You don't want to find evidence to back them up. You don't read evidence that conflicts with your conclusions. And then you act like I'm stupid for not arriving at a conclusion (because, spoiler alert: there isn't one, yet).
I never said it "doesn't sound like a problem." I said that there's no evidence that availability of funding increases tuition. Until you provide something beyond gut feeling, to combat the statistics that contradict you, it's not worth talking about.
> I think that's a good start. Kind of resembling a loan-forgiveness mechanism (which there are already a few). It falls into the same trap most solutions do, though. What's "a reasonable expectation," and who decides it?
One simple change that would have drastic effects is modifying the forgiveness timeframe on income based repayment (IBR) for student loans. Right now, the expiration time is 25 years [1]. In other words, 99% of all kids going to college are on the hook for paying loans for longer than they have been alive.
I think the government should shorten that period down to fifteen or even ten years for any loan that is not dischargeable in bankruptcy. Correspondingly, it might be a wise idea to up the current reduced payment amount from 15% of AGI [2] to maybe 25-50%. I'm throwing out numbers here, clearly some careful study would be warranted if this idea was seriously considered.
This would probably mean a corresponding increase in loan forgiveness for public servents (teachers, firefighters, public defenders, etc). I'm not opposed to such an idea prima facie.
My expectation is this will drastically reduce the availability of certain types of degrees. The upside is we won't have a ton of young kids floating around with degrees they can't use and loan burdens they can't meet.
EDIT: one more thing I forgot to mention: I think that, like many social systems with complex feedback, you cannot reduce this problem to "too much loans" or "too much spending". It's difficult to delineate cause from effect, but it's indisputable that the easy availability of credit has at least enabled recent skyrocketing tuition.
IBR is just another way for colleges to more reliably price discriminate. If the average student gets a $500,000 NPV wage boost from going to college, the college can charge $499,000 and capture most of it.
With IBR they can do even better. Instead of charging everyone the average, they can charge each and every person his/her exact wage premium.
And it's all backed up by the IRS enforcing collection, too.
I can see why schools would freaking love this. Why would any one else?
"the price of education has little correlation to the availability of student loans"
Sure. And the bubble in home prices was a purely secular affair, with no correlation to the introduction of option ARMs, low doc/no doc loans and subprime credit availability.
In the political world price is a feature, not a bug. You will not pass any proposal through congress that significantly lowers the price of a quality education, say through technology.
If the government is giving out $800 billion/yr, there are MANY people with the incentive to see that continue and grow.
Getting rid of loans isn't really on the table, people are generally free to loan each other money and there doesn't need to be a special government program for student loans to exist. But we do have a lot of laws and programs around student loans and I'm not sure that they do more good than harm, on net.
I think removing bankruptcy immunity would go a long way. It forces lenders to actually consider risk, and fixes a lot of perverse incentives. As it stands, there is no reason not to loan far more than someone could ever repay. You pay until you die, bankruptcy or not, and then your estate pays. And, it's guaranteed by the federal government. Why wouldn't you push as many of them everywhere you possibly could? There is no better asset on your balance sheet as a lender. It's guaranteed free money. But there is no asset, so it's even worse than the subprime mortgage scandal.
I know a few baristas in their 30s with six figure loans. Similar story for all of them. Barely 18, pressure to go to a good college, parents proud of their kid who encourage it more, who themselves are not the most financially savvy either. Throughout their college years, school administration makes it very easy to help them request another 10k or so at a time. Between parents, loan officers, and school administration, everyone is just whisking them through to sign and the money is theirs. Since it seems so normal and unquestioned, by people who are supposed to be providing guidance, many kids don't seriously consider the feasibility of the whole thing.
I'm a believer in personal responsibility, but I think when it becomes adversarial and systemically designed to provide all the rope necessary to hang themselves, it's hard to put the blame on some of the kids.
When they went to college it was inexpensive enough to work your way through and most of the faculty was full time moderately paid professors. Now tuition at many places is more than the national median household income, and the most of the faculty is made up of very poorly paid adjutants with a thin gerontocracy layer of tenured professors taking up most of the faculty salary pie. And they're all loaded to the gills with deanlets and deanlings.
I don't think the boomers ruined this one, although they were in the right place at the right time to blame them.
When 1) employers are allowed to discriminate against the non-college educated, 2) going to college becomes the default instead of the exception, and 3) there is no downward price pressure on educational costs, I think the results are inevitable.
Here is something really shocking we could do: make education something that most employers are not allowed to consider, like marital status or a handful of other things. (They mostly cannot consider IQ, because of Griggs v Duke, but they can use your degree, which uses an IQ test (the SAT) to decide if you get in.)
On the contrary - the way to screw an entire generation is to give them these loans. The loans are the problem. They don't have to be - loans are not inherently bad - but the current system is the problem.
Free college subsidized by taxes? We have had that in Argentina for a long time, and for some time we had the best education you could get in Latin America. I'll admit nowadays we are pretty much average, but still free. I can't really explain the reasons for the decline in the quality of our education, and it may be related to our lack of monetization.
Without any kind of price control or accountability on the cost of the education, that's just cutting out the middle man in the cash flow problem. Sure no one will have student loans, but taxes will have to be raised to make up the difference.
As the article points out, all those new buildings they're always building aren't free and the posh dorms are unnecessary. But everyone is paying for them anyway, because why not?
Well, we don't have dorm rooms in college, since the buildings are in the cities or very close to them. That dorm room situation is very weird to me, I don't really see the benefits.
But more to the point, the problem is pretty much the opposite of what you describe. Since money for education comes from taxes, education doesn't get nearly as much money as it does in the US. Some buildings are in a pretty lousy state, and teachers don't get paid much. The private sector sometimes invests in universities that will prepare people for the jobs they need, but even that is sometimes protested by the faculty and students since it can be seen as influencing in the curricula. Not to say it's all bad. We certainly could use more money, but we are still giving some of the best education this country offers, for free. In a lot of fields, the only reason to go to a private college is because it's easier to graduate.
Perhaps it helps to clarify that the evil here is not that college loans exist, but how easy it is to get them to pay for any kind of education, how much you can borrow, and how impossible it is to get rid of this debt burden.
The choice between no loans or bad loans is fallacious.
Isn't that akin to the argument that a knife is evil because it is so easy to slit someone and someone else's throat? That isn't the evil, it's not how this college loan is used, what is evil is that our society necessitates college and the price you pay into the function is rarely less than what you get out of it these days.
> In some countries, you don't even have the OPTION to take out a loan to go to school. You either have the money and you go, or you don't and it is that much harder to climb the social ladder.
> I'm not sure which evil is worse, but I'm damn glad I was offered those loans.
You are stacking only two options against each other. There are countries where there are no schools and countries where school is being paid by the community via taxes.
Of course between no school and school with loans the choice is clear (in an (post-)industrialized country, mind you).
Of course between no school and school with loans the choice is clear (in an (post-)industrialized country, mind you).
Doesn't always seem clear to me. The whole point of the article was that you could be saddled with loan payments for a very, very long time with little to no improvement in job prospects.
Yes it is because grand-parent stated he wanted to go to school (that's how I read it) and that statement of mine is a follow-up to that train of thought where I pointed there are more than 2 options.
So? Where do these "5k" come from? And where do you get money to live and eat?
Either you have parents who can help, then it doesn't really matter whether we are talking about 5k, 25k or 50k (from a structural perspective), or you don't. If you don't have anybody who can help, it doesn't matter whether you cannot come up with 5k, 25k or 50k.
One of the reasons German students protested 600€ a term (1200€ a year) fees was that it furthered the divide between people who could afford university and those who needed loans or other money. If you could already afford it either way, 1200€ didn't make much of a difference either. If you already struggled massively to keep yourself afloat before that, coming up with 1200€ more was sometimes quite impossible.
If you cannot take out a loan (any form of loan), then you are screwed unless you are already privileged enough to study. If you are, 5k, 15k or 50k make little actual difference.
There are, in my opinion, two possible ways: no fees & affordable student loans for living cost OR no loans, and in the latter case, you already exclude based on wealth, so you might as well just charge whatever it is you want or whatever artificial treshhold you would like to enforce.
Part of the reason prices have gone up so much is that credit has become so easy.
50 years ago, if you wanted to go to college, you went, and the prices were reasonable because people could not afford a lot of money for it, and no one would lend it to them.
There is almost no downward price pressure on college costs, and there is upward price pressure: since the students don't care about the price, they always want the school with better and more modern facilities, which cost money.
The institutions are the ones receiving the benefits of the subsidized loans; the students bear the long term costs of the 'student loans'.
"Where the supply curve is more inelastic than the demand curve, producers bear more of the tax and receive more of the subsidy than consumers as the difference between the price producers receive and the initial market price is greater than the difference borne by consumers." [1]
http://en.wikipedia.org/wiki/Effect_of_taxes_and_subsidies_o...
the core problem with college loans is that they are non-dischargeable. this means that no matter what the student's ultimate financial situation (long term unemployed, finances wiped out, etc) they still have to pay down the debt, and it can't be wiped out in bankruptcy.
This stands in contrast to virtually every kind of loan out there, which can be discharged (written off). As a result, there is less risk for the lender to give a loan to any old fool out there, regardless of the major they choose, regardless of the quality of school they go to, etc. anything that might correlate with the ability to pay it back.
you might say, great, they don't discriminate against liberal arts students at no-name schools. and that might be something that suffers if reforms were made. but perhaps that student might be better served if funding were hard to come by. complain now versus complain more later, kind of thing.
the great sin in the student loan market is the online degree mills, which target relatively vulnerable segments of the population, all funded by loans. for example: did you know that online universities cost almost the same as physical ones? that makes absolutely no sense when you think about it, but i don't think many of their students do. online only should be a fraction of the rate.
Perhaps the online university is a market to be disrupted. not unstructured MOOCs, but credentialed degree schools that are a fraction of the cost of current ones. i can see the ycombinator startup already.
and student loans should be dischargeable. it's the only fair thing to do.
Student loans are unsecured, so if they could be discharged, the market rate would be akin to a credit card with a huge balance-- 15% to 20% a year in the current interest rate environment. Plus if they could be discharged, such action would become commonplace, a rite of passage at graduation.
Exactly. It amazes me how many people seem to believe that the solution to the student loan debt problem is to allow for discharge in bankruptcy.
Not only will this necessarily force lenders to increase the cost of these loans to borrowers, a lot of folks apparently don't understand that the biggest lender in this market is the federal government. Of the more than $1 trillion in student loans outstanding, about 85% have been provided by the federal government. Just over one in five federal student loans is already in default or delayed default. If the law is changed to permit discharge of these loans in bankruptcy, Student Loan Debt will become Mortgage Market 2.0.
The problem here is that we can't just use a magic wand to fix the situation. There is over $1 trillion in outstanding student debt that needs to be dealt with. Much of it is already going bad.
But the problem is bigger than the trillion dollars in debt you and I are already on the hook for. A lot of people like free candy, and if you take it away here, we'll go from "Tuition costs are too high, and I have too much debt!" to "Washington politicians are denying me an education!" The education lobby is strong and too many people are dependent on federal student loans for this to be "fixed" in a logical fashion. Everybody has been sold the idea that a college degree is a prerequisite for access to the middle class, and government-subsidized student loans are practically seen as an entitlement.
As much as one can hope for a better system, it isn't likely to come. We're well beyond the point of no return.
As much as one can hope for a better system, it isn't likely to come. We're well beyond the point of no return.
Well, in so far as the people (and our government) who are already in debt, I can't disagree. We're in bad shape.
However, I do have hope. The online instruction revolution is still in its infancy, and I have much hope that quality education will be spread far and wide (at low cost). And that anyone with a reasonable amount of motivation can learn and grow and become more productive and wealthy as a result.
But credit card debt can be discharged; why not student loan debt? The inability to discharge it is relatively recent, I believe - a compromise reached when the private banks were pulled out of the federal student loan loop. Also, if they could only be discharged during bankruptcy - as was the case before - there would be no concern about it becoming a rite of passage.
The official overall unemployment rate for recent college graduates has been as high as 9.4% in the past three years. There is still significant underemployment, and many employed college graduates are in roles that don't even require college degrees. Most of the post-2008 college graduates who are fortunate enough to be employed are projected to have lower earnings than their pre-Great Recession counterparts.
As I noted in another comment, one in five federal student loans outstanding is already in default or delayed default, and that number does obviously not include the number of loans that are in deferral still accumulating interest. Put simply, there are a lot of people out there who likely could and would consider filing for bankruptcy if it allowed them to discharge this debt.
We can't have it both ways: if you want everybody who wants a college education to be able to obtain one, the federal government has to be in the lending business and it has to be all but impossible for borrowers to discharge their debt.
> Then people will stop lending students tens or hundreds of thousands of dollars...
Let's make your comment a little more accurate:
Then the federal government, which is responsible for ~85% of the student loan market, will have to stop lending students tens or hundreds of thousands of dollars, and there will be no end to the cries that millions of young Americans are being denied a college education by well-to-do politicians who are out-of-touch with the economic realities of the average American.
Maybe for a year. After that schools will lower costs and everyone will be better off. Well, except for the school administrators and the construction people who build new stuff for them.
You don't make society's huge education bills go away just because the government is paying for them.
I think you're misreading my point, as I don't disagree at all. This problem is a government-created one, and it's bound to end badly, but it's important to be clear about who is doing the lending (it's not random "people") and what the "victims" of this system will complain about next.
We're in a lose-lose situation here. If student loans are plentiful, tuition costs rise and the debt must be secured by laws preventing discharge in bankruptcy, which leads to complaints about the cost of an education and debt levels. If student loans become less plentiful, the complaints will shift to focus on lack of access to education. Even if costs decrease substantially from today's levels, there is sadly a sizable market of would-be students who simply don't have the funds to go to college. Telling them they can't go to college and major in [insert wacky subject here] is political suicide for politicians.
> there will be no end to the cries that millions of young Americans are being denied a college education by well-to-do politicians who are out-of-touch with the economic realities of the average American.
I'm not convinced it would happen as you say, since the crippling burden of college loan debt described in this article is increasingly familiar to many Americans. Once it begins affecting us personally, it becomes significantly harder to sweep these things under the rug.
No doubt, they would try their best, perhaps suggesting that reduced loans will result in higher taxes for average Americans and will shift the financial burden onto the older generations. That would be much easier (and more desirable, to special interests) than attempting to tackle the underlying issues that have resulted in hyperinflated tuition costs.
If only there were a way to broadcast the views of an intelligent, non-partison, and informed demographic to the average American household. Though I'm not sure anybody would tune in, as people find Fox News' fear-mongering and political divisiveness so entertaining.
Fortunately, a more nuanced solution is possible. Want a STEM degree from an efficient school? Sign here for the loan. Want a degree in culture studies? No loan for you.
That's better, but what you will end up with is colleges pricing their "good" degrees higher and higher until they have captured almost all of the wage surplus that workers get from going to college.
What's the lender's incentive to do that? Their goal is to extract as much profit as possible from the borrower (even when we're talking about the government as lender).
I would say morality, but I realize that's an invalid argument. It seems like the government shouldn't be allowed to profit from issuing student loans (especially bad ones).
Bankruptcy for newly-minted medical doctors and dentists used to be a rite of passage. The law was changed because of this. What comes around goes around.
That's a fine prediction. And yet, student loans were only made so hard to discharge due to changes in the law in 1996 and 2000. And prior to 1996 and 2000, student loans were offered at much less than the exorbitant rates you predict, and lenders made nice fat profits on them even so. And no, there was no significant abuse of the system - after all, there's always a judge involved in bankruptcy proceedings, who has the authority NOT to discharge debts if there's any reasonable prospect of them being paid off.
You cannot simply look backward to assess what would happen to interest rates on student loans going forward if a) the federal government significantly reduces its role in the market and b) allows for discharge of student loan debt in bankruptcy.
There are way too many factors that cannot be ignored, but that you choose to ignore. You need to look at the interest rate environment (which determines the cost of capital), banking regulations (which have changed dramatically in the past several years), the unemployment rate (you might have noticed we're in the slowest "recovery" since the Great Depression) and inflation-adjusted wage growth (hint: there basically is none), amongst other things.
Finally, you fail to note that the federal government was a participant in the student loan market well before 1996, so you cannot look at the history of private student loans without understanding that the government has influenced the market to varying degrees for some time.
If you want to assume that private lenders would rush to provide student loans at low rates at the same pace the federal government has in this economic environment and without the discharge restrictions currently in place, I'd love to introduce you to someone looking to sell you his 100 year J.C. Penney bonds. They yield over 11% and you can buy them at ~70 cents on the dollar - a great deal!
My house was secured, had a 5% interest rate, and the bank lost over $150K when I walked away from it. People still default their mortgages when they're as little underwater as $10-15K, yet, the interest rate on mortgages has not shot up. Go figure.
> the great sin in the student loan market is the online degree mills, which target relatively vulnerable segments of the population, all funded by loans. for example: did you know that online universities cost almost the same as physical ones? that makes absolutely no sense when you think about it, but i don't think many of their students do. online only should be a fraction of the rate.
I believe part of this is the convenience issue. I finished my MBA 4 years ago, and at the time the school was pushing online classes pretty hard. And the online classes cost more than regular classes.
(Faculty also commented that they were pressured to give higher grades than they believed were earned because of the profit component, and few argued they learned better online. But they sure can be convenient.)
I would be interested to see if an App Academy model for a credentialed institution could work. Small deposit payment upfront, and a period of return dependent on salary. Definitely changes the incentive structure for the better.
I'm genuinely curious about the prospects of disrupting the online university market.
The question "What makes a degree valuable?" is at the heart of its success. All these companies that demand a four year degree - what are their criteria? When they see that someone got their degree at a very inexpensive online school, will that hurt the perception of value?
Part of the reason prices have gone up so much is that credit has become so easy.
Think of it as a perverse incentive for collusion between the schools and finance providers to milk the students through the mechanism of easier credit.
I think it is even worse than simply "easy credit", I think the rewards built in encourage exploitation. Allow me to explain.
1) You have capital seeking a return.
2) There exists a basic need that can be facilitated by the application of capital (a degree for a "good job").
3) You remove all the risk out of providing capital for filling the need through government guarantees.
4) You provide a rate of return that is higher than the government guaranteed rate on their own capital instruments (treasury bills).
#4 there, which gives you higher returns on low risk investments, creates a demand for those instruments. And that demand causes a supply of instruments to be created. And the regulation on that supply is minimal.
The result is you get financial institutions giving loans to students for useless degrees at inflated cost institutions knowing that the government has made defaulting nearly impossible (hence the low risk) and they can offer better rates than t-bills.
Students are being exploited exactly like unqualified home buyers were being exploited in the mortgage fiasco of 2008.
What annoys me about the journalistic coverage is that the 'rage views' are "Students are graduating with few prospects from college and a mountain of debt" whereas the bigger story is that "Rich people demanding higher returns, enslave unsuspecting youth through their loan seller proxies."
#4 has also been abetted by the decline in state investment in higher education. A generation ago, I felt I got a great a deal paying $1000/quarter at a UC school. Registration for community college, where I started, was capped (capped!) at $50/semester and served a much more broader segment of society.
What's UC tuition nowadays? $3700 for resident tuition. $4900 when you include all the fees (which my $1000 figure did). Push everything forward 20 years and my parents would have no expectation to be making much more money now than they did then. I would be carrying more debt.
Pick your narrative for explaining what happened in the meantime. "Rich people demanding higher returns, enslave unsuspecting youth through their loan seller proxies" works for me.
This war was won when the special interests slipped in certain changes to the barkruptcy code circa 2005. Prior to that, student loans could (like any other) be discharged. The government (not wanting to fund poor students) basically created these "off balance sheet" funding mechanisms through their extensions of loan guarantees. Again, this is very much the same thing that was done with the credit g'tees for the Mortgage GSAs.
What's even worse, is that the money just goes right to the colleges inflated overheads. No student ever "sees" the money from the loans. In this case, the cost of the schools just keeps going up so that the loans remain ~80pc of the cost of a degree. Now, how much money is in the Harvard Endowment? Stanford? Princeton? Massive amounts growing far in excess of inflation, and all Tax free. Why are these places even allowed to charge fees for tuition??
This was caused by government unintended consequences....
Some doctors graduated from med school with $100ks in loans.
So they immediately filed for bankruptcy and cleared the debt. After a few years of work they were back in the bucks and debt-free.
The loan industry had congress write some new laws (was it 2008 ish?). The package clamped down on debt-collectors calling at all hours. It also eliminated clearing college loans with BK.
The loan industry celebrated - nothing like sure bet! Indentured servitude - Yahoo! They started giving away loans like candy.
Then the schools noticed all the free-flowing money and joined the party.
I don't see the unintended consequences: financial companies asked Congress to write a law for the express purpose of insulating those companies from risk and increasing their profits and the results were that (1) borrowers couldn't discharge debts in bankruptcy, making the financial services companies more money, and (2) increased profitability led to more loans, helping drive up tuition costs increasing the average loan amount and making the financial services companies even more money.
Doesn't seem to be unintended consequences at all.
In New Zealand the government pays about 75% of tuition costs in the first place (a degree is around $5000 NZD a year), there's a student allowance if your parents earn under a certain threshold, and your student loan is interest free as long as you remain in New Zealand.
There's another side to need-based financial aid that tends to be ignored. For you to attend an expensive college for less than the average rate, someone else had to pay more than the average. That is, your discounted tuition increased the sticker price for someone else.
That's inherently unfair. It may sound reasonable to ask wealthy families to pay more in order to subsidise poor families, but there's no reasonable method to actually determine a family's wealth.
The usual practice is to look at the parents' savings. If a family has saved $200,000, they will be asked to pay a higher tuition rate than a family that only saved $20,000. But that's crazy: it penalizes families that save for higher education.
That's particularly harmful to middle class families. If you don't have any money, then you can go to an Ivy League school for free (via financial aid). If you have a great deal of money, then you can pay the full tuition rate and still have assets left over. But if you only have some savings, then a college bill can easily wipe out everything you have.
The article is about loans. A loan is not a discount. And if you're talking about need-based financial aid, that's usually financed by people (often alumni) who decide to pay into a fund specifically for tuition subsidies. That means he didn't get a "discount" that average students had to make up.
Not to belittle your accomplishment, but you were very lucky to have parents who lived in California, which still has the best public colleges in the US. People whose parents lived in the other 49 states had to either go to a worse (sometimes much worse) school than Cal, or shell out $250K for a private degree.
I went to one of the most expensive private not-for-profit schools in the US (top 20 net-cost, going by http://collegecost.ed.gov/catc/#) and had exactly fuck-all for scholarships. I didn't shell out anywhere near $250k.
Are you assuming med school or something? As far as I can tell, the median debt for med school grads from private schools is barely half of $250k. The most expensive I can find still falls short (barely, to be fair): http://grad-schools.usnews.rankingsandreviews.com/best-gradu...
California is so large it has many great public schools, but other states like Virginia (UVA and William & Mary) have public schools that rival the best in California, and most large states have an elite public school (Texas, Michigan, UNC, Georgia Tech, etc etc) that would be top tier in California. To some degree, California's support for its universities has slipped and the reputation is based on the past.
Yup. I grew up in Arkansas. Our highest--and only ranked university--is ranked #138. The smartest students leave the state, as you can see from the SAT/ACT score ranges at in-state schools. I went to a top university and took out many loans to do so... had I lived in a state like Texas or California, I would have had access to a fantastic state school and not need to do so.
You used these loans wisely. When did you go to Cal?
I was a grad student there in 1999-2000, and the tuition for the year was only a little over $4,000. It's much higher than that now, about $15,000 for the year. That's still relatively low, assuming that you're an academic student. Professional schools can charge what they like ("data science" is 60K!)
It's still possible to get an excellent education for less money. Part of this is that we need a cultural shift as well as an institutional one. Four years of cal is now very expensive (about 60K in tuition). But a lot of immigrants (many in my neighborhood) go to 2 years of community college (while living at home to keep costs down), finish at a UC, and study something with good job prospects. That's not reading poetry by the the leafy glen next to a beautiful old building, but at least it is affordable. I suppose I shouldn't just say "immigrants", I do know california natives who do this to, plenty of them, but it doesn't really fit the traditional middle class notion of "4 years of college, away from the parents".
Also - Cal has a good name, but rankings like US News and World Report haven't helped either. They reward colleges for everything that costs money, but they don't reward colleges for keeping costs under control or for enrolling low income students. Not a single public institution in the USNWR undergrad top 20, including UC Berkeley.
Bill Bennet, the republican and quite conservative former secretary of Education, made some very good points about this in a recent book "is college worth it". His take on it is, if you get into stanford, go. If you are inclined to study petroleum engineering, go (PE used as a stand-in for highly employable majors), even if you go to a small college in South Dakota (though if it's engineering you're studying, state schools are often more prestigious than their private counterparts, especially in the western states).
The danger is in between. Don't go to an unknown third tier school and run up a huge debt studying liberal arts - or, if you do, make sure you double major with something that will lead to better employment.
One thing - I don't want to give the impression that I think a cultural shift is all that is needed. Students do need to turn away from the high-cost model, but the government did play a role in this problem. Unfortunately, making loans available wasn't helpful to many students. By guaranteeing the loans, the government made it possible for students to borrow far more than a private lender would have considered prudent. By changing the bankruptcy laws around student loans, the government created a far more poisonous form of debt for students. And then lastly, by making the money so freely available, the government allowed institutions to raise their prices - so even if students wanted to "just say no" to high prices, institutions knew they could charge this cause someone would take out the loan. In short, the gov't may have ensured that the low cost education that would have been demanded never emerged.
"In some countries, you don't even have the OPTION to take out a loan to go to school"
In some countries, like mine (Uruguay) university-level education is free :) (though postgraduate studies are paid).
I think China is the biggest example of free university education. EDIT: I was wrong, about U$ 2000/year and rising apparently.
At least our bazillion psychologists and communication majors (equivalent to the dreaded "English majors" in the U.S.) are not saddled with debt, though a non-specialist psychologist can expect to earn less than a store clerk or McDonald's employee.
Continuing edit: Sweden and other countries also have "free" college education:
List of countries with free post-secondary education (from Wikipedia)
Algeria
Argentina
Bhutan
Cuba
Denmark
Egypt
Estonia
Finland
France
Greece
Italy
India
Malta
Mauritius
Morocco
Norway
Oman
Pakistan
Russia
Saudi Arabia
Scotland
Spain
Sri Lanka
Trinidad and Tobago
Turkey
Barbados
Kenya
United Arab Emirates
Uruguay
I was wrong about China, but apparently it is free in India.
One major difference is that here in Uruguay you don't have entrance exams, and it's free for foreigners (we get several Chilean students, where it is not free).
I'm 100% sure we don't have tuition here in Uruguay, and poorer students get state help.
However, five years after you graduate, you have to pay a mandatory special "university graduate tax" called "Fondo de Solidaridad" which helps pay for the poorer students, etc., so I guess it is a form of debt :) .
Brazil is missing from that list. BTW, here the public schools are the best (universities that is, public basic education is horrible).
However, the rich still benefit from the system. Here's how it works:
1) Kids with money go to the best prep-schools and get in the public universities through hard entrance exams.
2) Kids that can't get in the public system, but still have money, can pay for medium-level education.
3) Kids with no money due to poor basic education can't get into a public university and can't afford a private alternative.
The thing about China and possibly several other countries on your list is that while college is cheap (or free), the number of students accepted are very low. So for example only the top 10% (or 1%) of high school students even get the option to go to college. So competition in high school is very fierce to get one of the college slots and not end up with a factory job.
(And I imagine money can be used to "open" a spot, but that won't appear in tuition summaries.)
> I was wrong about China, but apparently it is free in India.
Yeah, if you can get into the limited government education programs. Most people pay oodles of money to be educated in private colleges 'affiliated' to universities.
In India, some government education institutes are heavily subsidized (think IIT and the state REC's) but the rest of the private colleges you have to BUY seats - so your parents financial clout decides if you get to study at a good university or NOT.
> I was wrong about China, but apparently it is free in India.
Education has NEVER been free in India. You have to pay a lot of money at the University level. Almost all education is now privatized.
Germany, OTOH, has FREE education upto the PhD level and it does not figure on the Wikipedia page - This is exactly why Wikipedia should not be a citation source. People submit wrong information and it never gets corrected, perpetuating lies.
You're a very special case, going to one of the best schools in the country at a good price. 3/4 of American college students are not traditional college students going full time to a four-year university. And only 30% of Americans eventually achieve a bachelor's degree. But plenty of the rest take out $20k in student loans and never have anything to show for it.
If, for example, Rolling Stone were to approach this story as others have approached stories about the high cost of healthcare in America, i.e., by comparing the costs there with the costs in other countries with similarly high standards of living, it might produce a more interesting perspective. Readers might see that there are students in certain other countries who are having their educations financed under far more financially-friendly terms than those now presented to American youths.
When a journalist shows the reader the healthcare costs in her country compared to those in other comparable countries, maybe it sends a powerful message to the reader. Journalists covering education costs should perhaps consider this approach.
Remember a while back when the price of gold skyrocketed and suddenly there were all "Cash 4 Gold" places that were willing to pay you "good money" for your gold. I've noticed the same thing has happened with the education system with a of a bunch of college popping up seemingly out of nowhere with promises of making more money by having a better career. The whole college system seems like a racket to saddle people with debt that takes them often decades to pay off. The ironic part is that despite more and more people going to college, our overall educational rank in the world hasn't improved.
Oh and don't get me started on the college textbook scam.
Yeah when there is growth in easy-to-qualify loans that may only be spent with one industry, that industry will prosper. The great part about it (for schools) is that they don't actually have to work that hard to lobby for more government-underwritten education loans.
...our overall educational rank in the world hasn't improved.
If you just look at the top end, it isn't actually possible for the USA to improve its rank. ( http://www.timeshighereducation.co.uk/world-university-ranki... ) I know there are some awful lower-level schools, but I assume there are all over the world as well.
I am seriously interested in understanding how an individual would go about shorting college loan securities. I have no doubt in my mind that this the next big crisis just waiting to burst.
Unless you have the money to cut a deal with a major investment bank (like how paulson worked with GS to short MBS), you could just try to amass as much student loan debt as possible and wait for the government to force lenders to take a haircut. That way, you "win" insofar as the cash you have exceeds how much you have to pay back. But TBH it's a really really bad idea because if there is a 100% federal backstop you will end up losing.
You could also short servicers and lenders like Apollo Group (NASDAQ:APOL) and Nelnet (NYSE:NNI). If you asked me for a compelling short in the space, I would say DeVry (NYSE:DV), but do your own due diligence before entering a trade
One big problem I have with college loans is that people that sign up for it are not adequately informed on the long term consequences of their action. Since this is a loan for education one would expect that before being allowed to sign for the loan there would be a test that you'd have to pass to be able to apply.
That would get rid of a lot of people that find out the hard way that they've borrowed themselves into a very deep hole. Job prospects, interest rates, cumulative interest, evaluating the small print and so on. There are many ways to get burned on a student loan and there is only one way you can get out, and that way out takes not just skill but also considerable luck and long term stability.
A few of our Canadian employees were saddled with long term versions of these and we managed to get rid of those, and we managed to keep one intern out of debt by paying him enough that he didn't have to apply for a loan.
I don't think student loans are bad in and of themselves, they just don't work out for everybody and for quite a few people that get squeezed by them the risks were not readily apparent when they entered into the agreement.
Student loans are a tool, and like any other tool they required some study and mastery to make the most of them.
I don't know if the rules have changed since I was in college, but I actually did have to take an online test showing I understood the nature of student loans before my loans could be approved.
I learnt how compound interest worked long before high school. I don't mean to sound unsympathetic, but the notion that people who have applied to and been accepted to a university wouldn't be capable of making simple cost/benefit decisions or understand the consequences of a loan should be laughable. The fact that so many people are apparently approaching graduating without yet having thought about the consequences is a sign that our education system sucks long before student loans become an issue.
edit: I recently discussed this with a friend who just received an MBA with an emphasis on finance. He was complaining that the interest rates on his loans had gone up every year, even before he started graduate school. It's disgusting that he could be accepted to a graduate school to study finance and didn't see that one coming.
> I learnt how compound interest worked long before high school.
Good for you. I don't mean to be unsympathetic either but not everybody has an intuition for numbers.
I know people that have serious problems relating even simple numbers, doing multiplication of anything over two digits (even with the help of pen and paper), you can just forget about compound interest.
That doesn't mean that such people should not be able to apply for loans, it means that the consequences would have to be explained to them in terms that they can understand, not the mathematical equivalent shorthand for those consequences.
I know that to some people the fact that others can't quite handle numbers is a shocking concept but I've seen this on more than one occasion in people that were otherwise functioning just fine and I definitely don't envy their inability to deal with figures.
> That doesn't mean that such people should not be able to apply for loans, it means that the consequences would have to be explained to them in terms that they can understand, not the mathematical equivalent shorthand for those consequences.
I think even explaining the math in Explain-Like-I'm-Five words would not be sufficient for most people because they might not be in a situation to fully grok it. What does $833/mo for 10 years mean to a student training to be a Radiologist? They hear salaries like $120k/yr and think $833/mo isn't a big deal. Then you end up with too many unemployed, qualified Radiologists, salaries plummet to $52k/yr, and suddenly $833/mo is significant.
My point is that when people signed up for these loans, they were told it was a risk-free investment in their own life. Every investment comes with risk. That is the entire point of investments. Nobody ever treats student loans as a risk on the student-side of things. That's what needs to be conveyed more clearly.
It's not the math that people have a difficulty with. It is the impact. I was a double major in CS + Econ with Math minor. I took out student loans and I knew the interest rates. I knew exactly how much my monthly payments would be. The problem is that the number meant nothing to me as a student.
I had no idea if $100/mo for 10 years is a lot or very little to pay for student loans because I had no job, no car payments, no mortgage, no healthcare costs, no hobbies, and no personal obligations. But I did have some side income and I could easily make $1000/mo making websites if I needed to. So I signed up. Would I have signed up if it was $2000/mo? No. But had my payments been $600/mo instead of $100/mo, I would have gone bankrupt because my starting salary after college was pretty low.
Just like a small percentage of people who abuse welfare, Medicare, and other social programs, a small number of students abuse the student loans by spending them on luxury goods. But most of the students take out loans because they have no alternative and regardless of the interest rate, social/family/economic pressure discourages them from choosing any other path.
And in this particular instance, the economy was pretty good 2000-2008. So the students who took out $80k loans for an Art degree from the Ringling School of Arts in 2006 did not think they would be stocking shelves in 2010. Ringling Graduates from the past two decades had done pretty well for themselves, finding work in Disney, ILM, and many other creative agencies around the country. Now nobody thinks twice before telling them "Well you should've thought twice before signing up for a useless art degree instead of something useful like STEM"
The guy who taught me accounting used to be a car salesman. He told me that car lots don't make much selling cars, they make their bread by selling financing. And they do it to people who simply cannot understand the numbers.
It gets worse. He'd patiently explain the numbers to the customer, and they'd still sign up for the most expensive option. (They were motivated by the monthly payment amount - the term or the interest rate simply meant nothing to them.)
Being math challenged has severely negative consequences for ones' financial prospects.
The problem is that the flip-side consequence is dead-end job prospects. It's a greater of two evils - have a disproportionate lack or opportunity or debt. Debt is the easy choice. The only thing kids need to consider is return on investment. A heap-load of debt will rarely get paid off with a humanities or communications degree.
Every time, people have to be reminded that few people start out in communications degrees. Someone makes it to college, trying pre-med. Then they realize that, while not failing, they do not have the grades to make it into medical school, and they don't have an aptitude for the sciences.
So, if they quit at this point, they will have no degree and 20k of debt. The marginal cost:benefit analysis for a social sciences degree is high. We talk about sunk cost fallacies, but the risk profile looks like this:
drop out | 20,000 in debt, 2% chance of job that can pay it off, and a soft limit on class mobility.
continue in social sciences | 60,000 in debt, 35% chance of job that can pay it off, and a better chance of staying in the middle class over a career.
I see my sister run into this. She can't advance in her career because she made the decision to drop out. She is intelligent enough to finish a social sciences degree, and intelligent enough to do the work of a college graduate, but she is filtered out of many jobs because of the requirement.
___
Full disclosure: I have a communications degree (CS minor) and am a developer and am not ashamed to say I've used my communication degree to my advantage as a programmer. What I learned about organizational communication and conflict management have helped solve problems.
It's great that you've used your communications studies in your career but you didn't have to get a communications degree to learn that.
I feel that the anthropology, communications, biology, history, etc. classes I took in college were great and really opened my eyes to other things. However, I didn't pursue degrees in them because I knew it probably wasn't a good ROI (investment being time and money).
In my case, I had a bad semester where life crashed around me right before finals, which included two of the classes I needed to have a minimum GPA for admittance into the CS program. I had the option of losing a semester and retaking everything again, of course, but at the same time I had been involved with speech and debate during high school and loved the communications classes I was taking.
It worked out for me. If I hadn't had the option, I could have retaken a few math classes and been fine. I could have made it, but I return to the question: what happens when people aren't cut out for STEM? Do you charge 20k and say "thanks for trying,?"
Certainly not and I'm not downplaying the importance of liberal arts degrees, it's just that right now their ROI is terrible. Unless you go to a private school, state schools should never cost $20k per year - ever. I can't believe my alma mater costs $9k + room/board per year, it's not worth it for even STEM.
The only solution is bringing costs down. Plain and simple. If a majority of students can't pay for in-state college alone or with help from family the system is not working as intended.
EDIT: butchered that last sentence by missing one word (now in italics)
> One big problem I have with college loans is that people that sign up for it are not adequately informed on the long term consequences of their action. Since this is a loan for education one would expect that before being allowed to sign for the loan there would be a test that you'd have to pass to be able to apply.
I grew up in another country and do not really know what the process is for american would-be college students. Could you please explain to me what the process is for getting a student loan?
I'm imagining that it works just like any other loan. "We will give you this much money. We will charge an annual interest rate of x%. Interest will not accrue until you graduate". Is it not like that?
> "We will give you this much money. We will charge an annual interest rate of x%. Interest will not accrue until you graduate"
It's pretty much exactly like that, in most cases.
But I think an underlying issue is that many teenagers now enter college with no concept of money. Many haven't worked before and haven't paid their own bills (they can't deal with that as teenagers because they need to focus on getting into a good college). They don't understand how fast money spends and how slow it accrues. When they think of the salary they may earn after graduating, they don't account for the government shaving 20%-30% off the top. All of this knowledge comes later, with experience.
When you're 18, and the government starts mailing you $3,000 checks every semester, it feels like free money and it's hard to quit. It's not until four or five years later (well, better make that six or seven, because you'll need a master's degree to set yourself apart and land the job you really want) and you're $40,000+ in debt with interest accruing, that reality starts to set in. When the free money stops, and you need to pay your rent, car insurance, groceries, health insurance, loans, etc., etc., with your hard earned money, that's the first real dose of reality for many kids today.
Was it irresponsible of them? Yes. But it's not surprising, all things considered.
A degree that provides the recipient with little foundation for income should not be underwritten with tax dollars. You want a teaching or nursing degree, I'm there. If you want a degree in puppetry, not happening.
In many parts of the English-speaking world, there is such a glut of teachers that a teaching degree doesn't give you a much bigger shot at a career than a puppetry degree. And of course, this all depends on supply/demand, which can change significantly and unpredictably over the course of a new graduate's working life. So how exactly are you going to make this call?
> Historically, the humanities have been central to education because they have rightly been seen as essential for creating competent democratic citizens. But recently, Nussbaum argues, thinking about the aims of education has gone disturbingly awry both in the United States and abroad. Anxiously focused on national economic growth, we increasingly treat education as though its primary goal were to teach students to be economically productive rather than to think critically and become knowledgeable and empathetic citizens. This shortsighted focus on profitable skills has eroded our ability to criticize authority, reduced our sympathy with the marginalized and different, and damaged our competence to deal with complex global problems. And the loss of these basic capacities jeopardizes the health of democracies and the hope of a decent world.
I know this is Hacker News and any non-STEM field is generally disrespected, but the liberal arts are quite important.
I categorically reject the notion that STEM does not teach critical thinking.
After all, STEM fields have a built in reality check for one's thoughts. If you design an airplane and it doesn't fly, you're forced to develop critical thinking skills so that doesn't happen again. Physical reality isn't going to bend to your thoughts.
One of the most important things STEM provides one is the most important tool to determine truth from garbage - the scientific method. This is applicable far beyond just the physical world.
Another thing I learned from STEM is the opposite of compartmentalization - I learned how fundamentally similar hydraulics, electronics, mechanics, etc., are. The rules, processes, math, methods of solving problems, are all transferrable between the disciplines.
I took an economics course once, and was a bit puzzled by two pages of equations in the textbook until I realized that they were doing the equivalent of a simple derivative. The textbook was written under the assumption that economics majors didn't know calculus. I thought it was rather sad.
My point was that this possibility wasn't addressed. I don't make a claim either way[1], except that it's not so absurd a possibility that it deserves no attention.
[1] This would likely involve a lot of pinning down just what STEM curricula and just what alternative curricula you are considering, unless you're able to establish there is no overlap in the distributions - a premise which I doubt.
As someone who has both a liberal arts and a STEM degree, I resent the insinuation that STEM majors are drooling sociopaths who don't know how to relate to other people. Also, there's more to liberal arts than "empathy". Thanks.
College is not and should not be job training. If you want job training go to a trade school, get an internship / coop or apprenticeship. College is about learning how to think.
Hopefully, students arriving to college know how to think - though I realize that's somewhat rare, given the "teaching to the standardized test" mentality that so many students endured in school. And then college could help even more with learning how to think - and learn. But it's hard not to want some "job training" in there, especially given the amount of money being spent AND the fact that most of the graduates presumably need to start earning money almost as soon as they graduate.
I don't see how an obvious result could be considered a scandal. We beat the drum for 30 years that all HS students must go to college and pursue their dreams of being marine biologists. We offer loans that people are unqualified to repay; allowing costs to balloon without constraining demand.
The student loan issue is kinda like the Health Insurance issue in America (strictly an opinion). Prices are driven up because colleges can charge whatever they wish and the students pay for it in the form of loans mostly backed by the Government (STAFFORD etc.). Colleges have no incentive to reduce tuition cost because the money flows either way (student or the govt. ). Remove the option of getting subsidized/backed by the Govt, the colleges will either have to reduce the fee or be at the risk of not getting enrollments and ultimately lose money. They don't want that. No one does. Similarly, remove the middleman i.e health insurance companies, doctors/hospitals can directly charge a patient and voila, a visit to get stitches will not be billed at $1000.
We'd also want to restore the force of bankruptcy for these loans. When the student loan goons have to get in line with all the other sharks, student loans won't seem so much like free money for them.
Also, it's precious to describe a market that the government has exited as then having "no competition".
As someone who comes from outside the USA, it is always extremely surprising to me how much just the fact of getting a college degree is lionized here. New graduates are made to think they are accomplishing a great deal just by virtue of having graduated, i.e. having completed the minimum requirements laid out by their program.
I can't count the number of Facebook statuses I have seen that say "So proud I'm graduating!!!!" or something to that effect, without having even a vague concept of what to do after that are cheered on and congratulated by similarly clueless people. Add in a mix of pictures in those $70 graduation caps and gowns effing everywhere, and you have the recipe for something younger students will rush into doing without thinking of the consequences.
I think an immediate lessening of the adulation showered on people who have graduated from college, and an increase in the respect for those who have actually learned a useful trade or done something (note: a summer exchange program in Europe that your parents or the Govt. paid for does not count) would go a long way towards getting people to think carefully before signing up for one of these predatory loans.
What really breaks this is that the current education bubble is essentially unpoppable. Until lenders start losing more by allowing people to default on student loans, they have no incentive to turn down anyone. And with all of that money so readily available, colleges can keep increasing tuition, since the loans will always provide enough students to fill their classes.
The problem with fixing this, however, is that any measure that makes loans less available will be seen as a negative, since it will limit who can go to college. In a country where people have declared that everyone should be able to go to college, this will be a very unpopular position. We need social acceptance of some viable alternative, like vocational schools to fill our ever dwindling ranks of skilled workers.
* Note, this comment is focused on the US. I don't know enough about other country's systems to comment on them.
I agree with this comment so much! The negative stigma of "only" doing high school is so harmful. Take welders for instance. It's an honest job, provides a useful and necessary service. If somebody finds welding interesting enough to occupy them and satisfy their career ambitions, it's a smart decision not to go to college. They will contribute to society just as well for their choice.
I recently attended a high school graduation - in America - where one of the top 5 students planned to become a certified underwater welder. Granted, this was not the most academically competitive high school in the area, but still a pretty decent one. You could hear the audience gasp. But then we all applauded. Afterward I told her I admired her guts, not only for her unusual vocational choice, but also for ultimately deciding in college. She applied to several, was accepted and received partial scholarships to all, but decided that she wasn't "crazy" for being #5 in her class and deciding to forego college.
Employers are allowed to discriminate against people with "only" a high school education.
This is not so bad in a society where 10% of the people have a college degree. Because there are still a lot of smart -- to say nothing of hard-working -- people who don't go to college.
It is bad in a society with 70% of people have a college degree. What kind of idiot weirdo doesn't go to college?[1]
[1] NB: I really don't subscribe to that view, but employers do, for rational reasons.
The major problem is that university administrations are becoming top heavy. Instead of hiring tenure-track faculty to teach real subjects like computer science or mechanical engineering (or even English lit, so as not to be prejudiced to the humanities), universities are creating $300K per year sinecure positions like "Vice-President and Associate Dean of Student Diversity".
Guess who pays for this? Students and their families.
There's no way to win this issue. If you don't give loans, you are doing wrong. If you do give loans, you are doing wrong. If you expand no-strings grants, those are expanding entitlements.
I think that's an over-simplification - "this issue" is not just about funding; it's also about costs. Ultimately costs have to come down - if costs come down, then so much of this is not an issue (or at least goes back to being what it was in the 80s and 90s).
I know plenty of people in this same situation, degree in psychology, social work, communications and my favorite opera, with a mound of debt accruing. All while they struggle to pay off their debt while working at the same college job they had, working at a restaurant waiting tables or being a barista at Starbucks.
Some of these people are in way over their head and beyond just the government loans. A few of them went to smaller private colleges and accrued well over 150K.
Luckily I was in a technical degree (Information Systems but I didnt graduate from the business school ;-), Math and Science school along with the CS majors) and was able to get a few job offers before settling on what I considered the best one.
Its interesting to me that they didnt mention the fact that the Gov't is essentially upgrading an asset. It seems to me that people w/ degrees on average earn more. If they on average earn more, their taxes ought to be higher as well. So the student is borrowing money at interest, to upgrade themselves and in turn will also pay the government more money in the long run. Seems like a great deal for the Gov't.
Third, people with degrees do earn more, but remember that they actually take four years or more off. That's 4 years of taxes and raises that the government doesn't get. Given wages in a lot of non-degree jobs that don't require degrees (public employee unions and public safety work come to mind), this is not an insignificant amount.
It's just strange to me that "technology" is improving yet costs of "education" is increasing at rates that cannot be explained by inflation (and also "medical care" but I digress). Fifteen years ago I remember wanting an encyclopedia set to read and my computer was ten times crappier than any entry level smartphone on the market.
> The New York Times did a story earlier this year declaring the college degree to be the "new high school diploma"
I have developed this view from reading links from Hacker News, that every reader/contributor taught themselves how to code from the age of ten and subsequently freelance/consult/sold their startups for decent money, and would therefore find that statement laughable.
Yet in my experience this view is so entrenched within the middle class - that in order to learn a skill you have to have information spoon fed to you, that people who are self-taught anything are geniuses. I'm a pharmacist learning how to code and when I tell my coworkers that I would someday like to be an entrepreneur web developer, they say "but you have to go to school for that... "
Yet most knowledge is a few Google searches away. Maybe the first few searches you don't really know what you're even looking for, but as you read and gain familiarity with the vocabulary of your subject of interest, it's all there.
So the idea of a college diploma as a surrogate marker for aptitude/potential/diligence is very much the perspective of my family and coworkers.
There's got to be a better way of finding data, ranking it in terms of credibility/robustness, and testing for knowledge (startup idea?). With all the stuff that's available out there shouldn't we all be building solar-powered Arduino robots that can produce food and defend our family? Information is more accessible now than ever with more powerful tools to gather them, and many people still buy into showing up physically to a lecture hall and then filling in bubbles on a narrow strip of paper for four years for a beautiful piece of parchment.
IMO, The issue is that it is a near societal necessity that everyone go to college, but the cost of it has not been lowered to reflect that. There is a supply of students, and the universities know it. Competition amongst schools for top talent is easily reflected in sports where colleges go head over heels to pay a student athlete's way through school if they would just play for them. The tables would need to be reversed to affectively lower the price of education as universities competed for students. Essentially, remove the abundance of students or introduce more universities to compete against the currently entrenched. That would be a free market method, because this regulated version isn't working out.
My brother now works at a University of California school. He says that the professors are in on the con-game; they know that the kids know that this is all a bubble.
Trouble is, everyone involved is tied to the mast. The admins can't find other work for this kind of money, the profs have tenure, the grad students can only otherwise work slinging dope or burgers, and the undergrads have even worse prospects than the grads. Its a mess. And it can't continue, and everyone knows it.
One real wave generator is the MOOCs. The profs know it. At UCLA they just started allowing kids to take classes completely virtually. If the class is too full for the fire marshal, you can opt to take it online completely. The profs fought it, but lost. They all knew that was the camel's nose in the tent. Look to see MOOCs take the place of degrees real soon. Man though talk about a 'flat world'
The problem w/ MOOCs are that many students lack the discipline to successfully finish the class. A blended approach (classroom + online) is the best combination, imo.
I agree! Imagine taking a chem class entirely online without a lab. Obviously, certain classes need the skills and hands on approach. Also, Weight Watchers is a good example here. The effort to loose 50 lbs. and the effort to learn calculus are comparable. You do need that social component to motivate you along. Ok, ok, I need it.
Still, the days of the professor-preacher are coming to a close. The days of the super-star explainers and lots of grunt lab assistants are coming. Sort-of like Turbo-Tax and the accounting industry.
I said it before, but this points it out all the more: the educational credential race hurts the poor the hardest.
Even if college was cheap and guaranteed to graduate, it would still be the poor who could least end up able to sacrifice 4-9 years of their life on it.
I like the name "The Silent Bubble" for this impending crisis because when it bursts, the voices of the millions of Millenials this affects will be drowned out by the constant bitching of the Baby Boomers.
All real bubbles are silent. Just because everyone screams "bubble" at any growth curve, does not mean that anybody knows for sure when it is going to burst.
Eventually most growth curves falter or crash every so often. Then the same people will say "Ha! I knew it was a bubble for the last ten years!"
276 comments
[ 4.5 ms ] story [ 286 ms ] threadFor what it's worth, the student loan program is solidly in the black for the federal government.
The profit figure, if annually averaged through 2023, would place the U.S. student loan program among the 20 most profitable public companies in the world, according to Fortune magazine’s annual list of the world’s 500 biggest companies. The bipartisan Senate bill would increase the government’s profit off student borrowers by more than $700 million compared with existing law, the Congressional Budget Office said."
http://www.huffingtonpost.com/2013/07/24/obama-student-loan-...
My wife and I have substantial student loans from law school. We got good jobs and can afford to pay. Meanwhile, lots of people don't and can't, and rely on the governments very generous and flexible repayment terms. As long as the program as a whole turns a profit, its a cross-subsidy, and I think that's great. People who take student loans should be uniquely willing to pay to spread out the risk.
If we're going to cap tuition (price controls), why not increase taxes as well? College becomes much cheaper ($10K for your degree, not your semester), and society, the student, and every future employer benefits.
I understand people don't like taxes sometimes. Even me. But with them, I buy civilization.
http://www.huffingtonpost.com/2013/07/03/pay-it-forward-oreg...
Ohio has also shown interest:
http://www.huffingtonpost.com/2013/07/18/ohio-tuition-plan-o...
I went to state college in Washington (Washington State, go Cougs) and when I started there tuition was $1300 (semester system, so $2600 per year). My middle-class parents were easily able to cover my full costs (tuition, room and board), with a part-time job I contributed to room and board. It's now well over $9000 (insert Dragonball Z joke here) for the year just for tuition. Now, I'd have had to graduate with student loans.
There's just too much waste in the college system and I have no idea where it's going. Facilities? Sports? Salaries? Marketing? It's certainly not inflation or value since salaries are stagnant pretty much across the board.
Then lenders will discriminate based on major (as it should be) and not fund english degrees and other such things that we have a glut of.
Here's the problem. My alma mater is Washington State. They want to be a 'world class' college and it's a nice goal, but that's not the point of the state system. World class costs way too much money for little benefit. I'm not saying aim low, but be realistic. The job of a state institution is to provide an affordable opportunity for those who might not have otherwise. It's not Harvard or Stanford but it's accessible and it allows for upward mobility.
Agreed. I came from a state university as well. It wasn't MIT or CalTech, but I had plenty of roommates with engineering degrees who landed gigs at LockHeed Martin, 3M, and BP. They used to tell me straight up they didn't care about their pedigree, they wanted an affordable, solid education.
Once they were hired, they convinced their employers to let them go back and get their masters, all paid for of course by the company. Something a LOT of people forget about and take for granted.
But it all starts with an affordable state university education.
Let people declare bankruptcy and cancel all their loans.
The worry back in the 70's was that people would get a lot of loans and then declare bankruptcy after graduation and then no one would lend money and no one would afford school.
I can see why they were worried about that. We got something much much much worse.
If students could declare bankruptcy, people would still make educational loans, but only for a few thousand dollars. Schools would have to lower prices.
The Oregon program is the only one I know of that both guarantees qualified students can go to college and simultaneously forces the universities to stop endlessly piling bloated expenses onto taxpayer financed debt.
People don't seem to get this: these universities will have a fixed (but growing annually if they properly prepare graduates) cap on their operating expenses, while simultaneously being able to grow their budgets by training students in skills that the market demands.
Where does paying back a loan or paying back a fixed amount of income differ? Do you honestly think that the gov't is going to curb the costs of education? More than likely the gov't will just jack the repayment % on future students.
So, like I said, it just kicks the can down the road. No where in the Oregon plan is an outline of how to bringing state college costs back down to a reasonable level that doesn't require loans except in extreme cases (where it was in the 60s, 70s, 80s, and even 90s).
By the same token, the Sword will never be held to the throat (bankruptcy). A happy worker is a productive worker.
[1] http://en.wikipedia.org/wiki/Sword_of_Damacles
Edit: Well, I was wrong. I realized that on my mobile, I read "By Victor Juhasz", referring to the photo credit.
I don't deny that college kids are being taken advantage of. Graduating from a small liberal arts college in South Dakota that no one's ever heard of with a degree is Culture Studies and 80k in debt really is a rip off.
The flipside of this coin however is someone like me. My parents are immigrants and I was the first to go to school. To my parents, the fact that someone would be even willing to give you money to go to school is ridiculous. I graduated with 20k in debt with a math degree from Cal. The ease of getting loans and financial aid are the main reasons I was able to attend college as my family was otherwise poor, at least at the time.
In some countries, you don't even have the OPTION to take out a loan to go to school. You either have the money and you go, or you don't and it is that much harder to climb the social ladder.
I'm not sure which evil is worse, but I'm damn glad I was offered those loans.
This is why, until there's some radical, radical change, I'll always vote for the people perpetuating student loans. I'm not going to be the one that screws an entire generation out of a worthwhile education in the name of "loans are bad!"
Loans for the sake of loans seem to be the key problem here: If students who intended to get a "degree in bullshit" at a gussied up diploma mill faced difficulty finding a loan for that purpose, they might reevaluate their decision.
And besides: Who's seriously advocating for the total elimination of student loans?
Libertarians tend to like the idea. But short of that, it's difficult to vote for reform that lands between perpetuate-the-problem and screw-an-entire-generation.
We can fix the problem of paying for education, but that solution isn't going to be found anywhere near the student loan debate.
Surely this isn't that difficult a problem to solve. President Obama thinks his administration could start to address it:
http://www.insidehighered.com/news/2013/02/13/obama-calls-mo...
1. Useful degrees from good universities will be easy and cheap for good students to fund.
2. Everything else will get harder/more expensive to fund, in proportion to its statistical returns.
That's all you really need to fix the system.
But if you move the risk of default onto the "market" via private lenders, then, the theory goes, the rates a student can expect will be swamped by other factors than the value of their prospective education, notably whether they have a sufficiently credit-worthy parent to cosign.
Maybe the best bet is to have market rates that are "cushioned" by the Feds in a need-based scheme.
I don't think the choice is "lend the kids a whole bunch of money to let them in" vs "don't let them in at all."
It's "lend the kids a whole bunch of money" vs "don't lend them a bunch of money, and still let them in."
It's possible I'm wrong about this, but we've definitely went too far in the other direction.
But for the many excellent schools without massive endowments, the risk of letting in more qualified "Caa3" applicants over "Aaa" applicants could make a substantial difference on the margins.
A couple of points:
First I don't think such a school would remain the best very long. There was a time when CCNY and the CUNY system in general had a fantastic reputation largely because it served an immigrant population that the Harvards of the world refused to take on as students or faculty. CCNY's fortunes turned around for many reasons, but one of them was that the traditional top schools dropped their racial/ethnic quota systems and introduced aggressive need based scholarships.
Second, I think we a society need to move away from the idea that 18-22+ year olds are still members of their parents' economic unit. In Sweden college tuition is free, yet the percentage of students taking out loans is higher than the US because there is no expectation that parents will pay living costs. Perhaps banning co-signers for such student loans is going too far, but perhaps not.
But the schools are profiting immensely from the difference between the perceived value of a degree and the actual value. They'll never get into the loan business without being forced.
But I agree they should have some skin in the game. My favorite idea on that end is students should be able to partially default on loans, and the schools should be required to share the loss with taxpayers.
If you're a responsible lender, you sure as hell should look at the risk profile of the borrower. If the borrower is asking $200,000 to go to a private college for a liberal arts degree, you may want to assign a higher risk to him, then if he was going to Med school. In other words, you may want to go through the same exercise you go through to approve small business or real-estate loans. The problem is that you don't need to be a responsible student loan lender since the federal government will just guarantee you the loan anyway.
High-tier school with a degree that has great employment potential? Throw a loan at that kid, that is a good investment.
High-tier school with a degree that has great employment potential... but the program has a 99% dropout rate? Think twice about throwing a loan at that kid, if he is in that 99% then you will have a hard time getting your money.
Shit school with a vanity degree? Tell that kid to get lost. If he wants a vanity degree, he can pay for it himself.
A good solution is making loans optional like in Scandinavia. Universities are pretty much free, but some students take loans to get by.
I agree. I think we all would. But how? Loans are already very optional - that's a nonsolution.
Loans absolutely are at the root of the problem. Not the abstract concept of loaning money, but the current implementation.
The student loans legally allowed today are borderline usary. They provide a convenient way for lenders to sidestep bankruptcy protection. This leaves students with exact same problems society had before bankruptcy: it's far too easy for the unwary to sign their life away to crushing debt. They essentially become an indentured servant for the rest of their life, destined to die in poverty.
These issues are a practically daily occurrence on r/personalfinance [1]. I personally know several people in this situation. Naive kids get too far over their head in debt, and the traditional protections for that situation have been taken away from them.
Maybe it's time to cap total outstanding student debt to some reasonable expectation of when they can be repaid. That's the only way I can imagine tuition levels reverting to a sane level.
1. for a recent example, see http://redd.it/1kavq7
> Maybe it's time to cap total outstanding student debt to some reasonable expectation of when they can be repaid.
I think that's a good start. Kind of resembling a loan-forgiveness mechanism (which there are already a few). It falls into the same trap most solutions do, though. What's "a reasonable expectation," and who decides it?
Did you read the article? It provided a fairly sound argument supporting the conclusion that the availability of student loans and the price of tuition are quite related.
You're missing the point. The overspending is a direct result of the lending problem. Lending is the root cause of the overspending problem. Students choose schools with lots of amenities because it's so easy to get loans, so why not? Because of this, schools have to continue to build plush dorms and state of the art fitness centers in order to keep their enrollment up. This, of course, drives up costs, which is passed on to students via tuition, who just continue to pay for it all with more readily available loans.
A particular university can't just cut spending, because it would put them at a huge competitive disadvantage with everybody else. Only by reigning in lending will costs stabilize.
Secondly, there's a lot of sources at the bottom of this. http://www.washingtonpost.com/blogs/answer-sheet/post/the-ur...
That's just blatantly wrong. The easy availability of student loans is what's driving education costs. The fact that lenders are willing to lend enormous amounts of money to people who may not be able to pay them back, tells you right there that there is quite a bit of market-distortion going on. Couple this with a natural tendency to not consider future-risk by an 18-year old, strongly implies that colleges would be incentivized to exploit this, and in fact they do! I've read countless articles on private colleges charging insane amounts for tuition whose middle-class graduates end up with thousands in debt and no reasonable chance of making a salary to pay off those loans.
Think about it this way, in a normal reality, there is no chance a responsible bank would lend a middle-class kid $100,000-$200,000+ to do a 4 year liberal arts degree.
Lots of sources down at the bottom.
EDIT: Also, I've yet to actually see any study that concludes direct causation between availability of loans and tuition prices. Yet somehow the burden of proof is on the naysayers?
That blog post, by the way, the source of the quote that Taibbi references in TFA. It's not even an op-ed, it's a guest post written on one individual WaPo blog.
I'm aware of what it is. That's why I didn't tell you to read the blog post. I told you to go to the sources.
Here's what paints a picture for me:
- Tuition since the 1980s has increased by an order of magnitude. Out pacing inflation, cost of living, and medical costs (http://en.wikipedia.org/wiki/College_tuition_in_the_United_S...)
- Federally backed student loans are non-dischargeable and are available to nearly all students (regardless of credit score or financial issues).
- Student loans total around $1.2 trillion dollars (50% increase from 2008!)
- US has the highest tuition costs in the developed world.
Whether or not you think tuition is too high or is correlated to federal aid is almost incidental to the issue. There's a big fuckin problem with the amount of student loan debt out there, and if the federal government isn't to blame for this with the way they structure student aid (i.e. guaranteed, non-discharable loans to anybody that wants one), who the hell is? It's also hard to imagine that this much available cash for post-secondary education wouldn't have an affect on demand.
I have no idea who's to blame. I think part of it is institutions adding several layers of bureaucracy is one part. Institutions expanding resources is another (justifiable) increase in cost. Most importantly, a simple increase in demand: Students need to do something to give them an edge in the job market. The safest way to do that is still, by far, to go to college. Just because it's less safe than it used to be doesn't mean it's more irresponsible than, say, dropping out and hoping you're Zuckerberg/Gates/Jobs 2.0
If you're fast and loose with stats and terms you can prove anything. As I read the post, I was struck by the way the writer weaved in disparate studies, terms, and references. I'm very sure there is quite a bit nuance in her claims and because this was written by someone with such a huge conflict of interest (her position literally exists to further private college interest and would she would never, ever argue something that would be counter to those interests), I have to ignore it. There's only 24 hours in a day, and because I don't have the energy to fact check her, I have to dismiss it.
>Most importantly, a simple increase in demand: Students need to do something to give them an edge in the job market. The safest way to do that is still, by far, to go to college.
That's your guess??!?!?! Of course kids want to go to college, just like all kids want a luxury car and fly first class everywhere, so no, demand isn't a great answer. If tuition is high, and you don't have money and you can't get a loan, you don't go to college. Responsible lenders certainly wouldn't lend to everybody, regardless of credi score or repayment ability, but they do. Does that not sound like it could be a problem?
What I don't understand from your perspective is how you can not even imagine that $1.2 trillion in outstanding federally back loans (with around half of it NOT being repaid) would not contribute to the increased tuition costs?!? That's over a trillion dollars that may otherwise have been available if the private lenders had to take on all the typical lending liabilities. That's over a trillion dollars to divvy up between all the colleges and universities (and lenders)! It's insane that tuition outpaced all other costs, including medical costs which are crazy. It looks clear as hell that there is a huge market distortion happening.
Okay, forget I linked to the blog post. Here are sources.
U.S. Department of Education National Center for Education Statistics, Dec. 2001, Study of College Costs and Prices 1988-89 to 1997-98, Vol. 1
National Commission on the Cost of Higher Education, February 1998, Straight Talk about College Costs & Prices
Government Accountability Office, May 2011, Federal Student Loans: Patterns in Tuition, Enrollment, and Federal Stafford Loan Borrowing Up to the 2007-08 Loan Limit Increase
Sandy Baum, Policy Analyst for the College Board, New York Times, Feb. 3, 2010
Bridget Terry Long, Education Economist, Harvard University, Testimony, Senate Finance Committee hearing “College Tuition Pricing and Federal Financial Aid: Is There a Connection?” Dec. 5, 2006
What I don't understand is how you think it matters what I "can imagine." It doesn't. You're hounding me for an answer that I never said I have. You are way too eager to find conclusions which may not even exist. You don't have evidence to back those conclusions. You don't want to find evidence to back them up. You don't read evidence that conflicts with your conclusions. And then you act like I'm stupid for not arriving at a conclusion (because, spoiler alert: there isn't one, yet).
I never said it "doesn't sound like a problem." I said that there's no evidence that availability of funding increases tuition. Until you provide something beyond gut feeling, to combat the statistics that contradict you, it's not worth talking about.
One simple change that would have drastic effects is modifying the forgiveness timeframe on income based repayment (IBR) for student loans. Right now, the expiration time is 25 years [1]. In other words, 99% of all kids going to college are on the hook for paying loans for longer than they have been alive.
I think the government should shorten that period down to fifteen or even ten years for any loan that is not dischargeable in bankruptcy. Correspondingly, it might be a wise idea to up the current reduced payment amount from 15% of AGI [2] to maybe 25-50%. I'm throwing out numbers here, clearly some careful study would be warranted if this idea was seriously considered.
This would probably mean a corresponding increase in loan forgiveness for public servents (teachers, firefighters, public defenders, etc). I'm not opposed to such an idea prima facie.
My expectation is this will drastically reduce the availability of certain types of degrees. The upside is we won't have a ton of young kids floating around with degrees they can't use and loan burdens they can't meet.
1. http://studentaid.ed.gov/repay-loans/understand/plans/income... 2. http://en.wikipedia.org/wiki/Student_loans_in_the_United_Sta...
EDIT: one more thing I forgot to mention: I think that, like many social systems with complex feedback, you cannot reduce this problem to "too much loans" or "too much spending". It's difficult to delineate cause from effect, but it's indisputable that the easy availability of credit has at least enabled recent skyrocketing tuition.
With IBR they can do even better. Instead of charging everyone the average, they can charge each and every person his/her exact wage premium.
And it's all backed up by the IRS enforcing collection, too.
I can see why schools would freaking love this. Why would any one else?
Sure. And the bubble in home prices was a purely secular affair, with no correlation to the introduction of option ARMs, low doc/no doc loans and subprime credit availability.
If the government is giving out $800 billion/yr, there are MANY people with the incentive to see that continue and grow.
I know a few baristas in their 30s with six figure loans. Similar story for all of them. Barely 18, pressure to go to a good college, parents proud of their kid who encourage it more, who themselves are not the most financially savvy either. Throughout their college years, school administration makes it very easy to help them request another 10k or so at a time. Between parents, loan officers, and school administration, everyone is just whisking them through to sign and the money is theirs. Since it seems so normal and unquestioned, by people who are supposed to be providing guidance, many kids don't seriously consider the feasibility of the whole thing.
I'm a believer in personal responsibility, but I think when it becomes adversarial and systemically designed to provide all the rope necessary to hang themselves, it's hard to put the blame on some of the kids.
When they went to college it was inexpensive enough to work your way through and most of the faculty was full time moderately paid professors. Now tuition at many places is more than the national median household income, and the most of the faculty is made up of very poorly paid adjutants with a thin gerontocracy layer of tenured professors taking up most of the faculty salary pie. And they're all loaded to the gills with deanlets and deanlings.
When 1) employers are allowed to discriminate against the non-college educated, 2) going to college becomes the default instead of the exception, and 3) there is no downward price pressure on educational costs, I think the results are inevitable.
Here is something really shocking we could do: make education something that most employers are not allowed to consider, like marital status or a handful of other things. (They mostly cannot consider IQ, because of Griggs v Duke, but they can use your degree, which uses an IQ test (the SAT) to decide if you get in.)
Who then? Boomers have had all of the political power for the last thirty years. They will probably hold it for another decade.
As the article points out, all those new buildings they're always building aren't free and the posh dorms are unnecessary. But everyone is paying for them anyway, because why not?
But more to the point, the problem is pretty much the opposite of what you describe. Since money for education comes from taxes, education doesn't get nearly as much money as it does in the US. Some buildings are in a pretty lousy state, and teachers don't get paid much. The private sector sometimes invests in universities that will prepare people for the jobs they need, but even that is sometimes protested by the faculty and students since it can be seen as influencing in the curricula. Not to say it's all bad. We certainly could use more money, but we are still giving some of the best education this country offers, for free. In a lot of fields, the only reason to go to a private college is because it's easier to graduate.
The choice between no loans or bad loans is fallacious.
> I'm not sure which evil is worse, but I'm damn glad I was offered those loans.
You are stacking only two options against each other. There are countries where there are no schools and countries where school is being paid by the community via taxes.
Of course between no school and school with loans the choice is clear (in an (post-)industrialized country, mind you).
Doesn't always seem clear to me. The whole point of the article was that you could be saddled with loan payments for a very, very long time with little to no improvement in job prospects.
Yes it is because grand-parent stated he wanted to go to school (that's how I read it) and that statement of mine is a follow-up to that train of thought where I pointed there are more than 2 options.
That's because in some countries you won't be paying more than 5k to go to a decent college.
Either you have parents who can help, then it doesn't really matter whether we are talking about 5k, 25k or 50k (from a structural perspective), or you don't. If you don't have anybody who can help, it doesn't matter whether you cannot come up with 5k, 25k or 50k.
One of the reasons German students protested 600€ a term (1200€ a year) fees was that it furthered the divide between people who could afford university and those who needed loans or other money. If you could already afford it either way, 1200€ didn't make much of a difference either. If you already struggled massively to keep yourself afloat before that, coming up with 1200€ more was sometimes quite impossible.
If you cannot take out a loan (any form of loan), then you are screwed unless you are already privileged enough to study. If you are, 5k, 15k or 50k make little actual difference.
There are, in my opinion, two possible ways: no fees & affordable student loans for living cost OR no loans, and in the latter case, you already exclude based on wealth, so you might as well just charge whatever it is you want or whatever artificial treshhold you would like to enforce.
And you would be earning a fraction, say $120 per month, that automatically makes the 5k college dream, a dream.
That's impossible, because around here the minimum wage for an adult working a full time job is around 10x that figure.
50 years ago, if you wanted to go to college, you went, and the prices were reasonable because people could not afford a lot of money for it, and no one would lend it to them.
There is almost no downward price pressure on college costs, and there is upward price pressure: since the students don't care about the price, they always want the school with better and more modern facilities, which cost money.
"Where the supply curve is more inelastic than the demand curve, producers bear more of the tax and receive more of the subsidy than consumers as the difference between the price producers receive and the initial market price is greater than the difference borne by consumers." [1] http://en.wikipedia.org/wiki/Effect_of_taxes_and_subsidies_o...
"Part of the reason," yes, but take a look at Why Does College Cost so Much? by Archibald and Feldman (http://www.amazon.com/Why-Does-College-Cost-Much/dp/01997445...). Their short answer is "Baumol's cost disease. The long answer is the book.
This stands in contrast to virtually every kind of loan out there, which can be discharged (written off). As a result, there is less risk for the lender to give a loan to any old fool out there, regardless of the major they choose, regardless of the quality of school they go to, etc. anything that might correlate with the ability to pay it back.
you might say, great, they don't discriminate against liberal arts students at no-name schools. and that might be something that suffers if reforms were made. but perhaps that student might be better served if funding were hard to come by. complain now versus complain more later, kind of thing.
the great sin in the student loan market is the online degree mills, which target relatively vulnerable segments of the population, all funded by loans. for example: did you know that online universities cost almost the same as physical ones? that makes absolutely no sense when you think about it, but i don't think many of their students do. online only should be a fraction of the rate.
Perhaps the online university is a market to be disrupted. not unstructured MOOCs, but credentialed degree schools that are a fraction of the cost of current ones. i can see the ycombinator startup already.
and student loans should be dischargeable. it's the only fair thing to do.
Not only will this necessarily force lenders to increase the cost of these loans to borrowers, a lot of folks apparently don't understand that the biggest lender in this market is the federal government. Of the more than $1 trillion in student loans outstanding, about 85% have been provided by the federal government. Just over one in five federal student loans is already in default or delayed default. If the law is changed to permit discharge of these loans in bankruptcy, Student Loan Debt will become Mortgage Market 2.0.
if loans are able to be discharged the federal government wouldn't be handing them out like free candy to anyone that wants it.
It's exactly that there is no downside for the government that the situation is the way it is.
But the problem is bigger than the trillion dollars in debt you and I are already on the hook for. A lot of people like free candy, and if you take it away here, we'll go from "Tuition costs are too high, and I have too much debt!" to "Washington politicians are denying me an education!" The education lobby is strong and too many people are dependent on federal student loans for this to be "fixed" in a logical fashion. Everybody has been sold the idea that a college degree is a prerequisite for access to the middle class, and government-subsidized student loans are practically seen as an entitlement.
As much as one can hope for a better system, it isn't likely to come. We're well beyond the point of no return.
Well, in so far as the people (and our government) who are already in debt, I can't disagree. We're in bad shape.
However, I do have hope. The online instruction revolution is still in its infancy, and I have much hope that quality education will be spread far and wide (at low cost). And that anyone with a reasonable amount of motivation can learn and grow and become more productive and wealthy as a result.
As I noted in another comment, one in five federal student loans outstanding is already in default or delayed default, and that number does obviously not include the number of loans that are in deferral still accumulating interest. Put simply, there are a lot of people out there who likely could and would consider filing for bankruptcy if it allowed them to discharge this debt.
We can't have it both ways: if you want everybody who wants a college education to be able to obtain one, the federal government has to be in the lending business and it has to be all but impossible for borrowers to discharge their debt.
Good.
Then people will stop lending students tens or hundreds of thousands of dollars. Then schools will lower their prices.
Let's make your comment a little more accurate:
Then the federal government, which is responsible for ~85% of the student loan market, will have to stop lending students tens or hundreds of thousands of dollars, and there will be no end to the cries that millions of young Americans are being denied a college education by well-to-do politicians who are out-of-touch with the economic realities of the average American.
You don't make society's huge education bills go away just because the government is paying for them.
We're in a lose-lose situation here. If student loans are plentiful, tuition costs rise and the debt must be secured by laws preventing discharge in bankruptcy, which leads to complaints about the cost of an education and debt levels. If student loans become less plentiful, the complaints will shift to focus on lack of access to education. Even if costs decrease substantially from today's levels, there is sadly a sizable market of would-be students who simply don't have the funds to go to college. Telling them they can't go to college and major in [insert wacky subject here] is political suicide for politicians.
I'm not convinced it would happen as you say, since the crippling burden of college loan debt described in this article is increasingly familiar to many Americans. Once it begins affecting us personally, it becomes significantly harder to sweep these things under the rug.
No doubt, they would try their best, perhaps suggesting that reduced loans will result in higher taxes for average Americans and will shift the financial burden onto the older generations. That would be much easier (and more desirable, to special interests) than attempting to tackle the underlying issues that have resulted in hyperinflated tuition costs.
If only there were a way to broadcast the views of an intelligent, non-partison, and informed demographic to the average American household. Though I'm not sure anybody would tune in, as people find Fox News' fear-mongering and political divisiveness so entertaining.
What, don't you want to become a botanist???
So... your prediction is wrong.
There are way too many factors that cannot be ignored, but that you choose to ignore. You need to look at the interest rate environment (which determines the cost of capital), banking regulations (which have changed dramatically in the past several years), the unemployment rate (you might have noticed we're in the slowest "recovery" since the Great Depression) and inflation-adjusted wage growth (hint: there basically is none), amongst other things.
Finally, you fail to note that the federal government was a participant in the student loan market well before 1996, so you cannot look at the history of private student loans without understanding that the government has influenced the market to varying degrees for some time.
If you want to assume that private lenders would rush to provide student loans at low rates at the same pace the federal government has in this economic environment and without the discharge restrictions currently in place, I'd love to introduce you to someone looking to sell you his 100 year J.C. Penney bonds. They yield over 11% and you can buy them at ~70 cents on the dollar - a great deal!
I believe part of this is the convenience issue. I finished my MBA 4 years ago, and at the time the school was pushing online classes pretty hard. And the online classes cost more than regular classes.
(Faculty also commented that they were pressured to give higher grades than they believed were earned because of the profit component, and few argued they learned better online. But they sure can be convenient.)
The question "What makes a degree valuable?" is at the heart of its success. All these companies that demand a four year degree - what are their criteria? When they see that someone got their degree at a very inexpensive online school, will that hurt the perception of value?
Think of it as a perverse incentive for collusion between the schools and finance providers to milk the students through the mechanism of easier credit.
1) You have capital seeking a return.
2) There exists a basic need that can be facilitated by the application of capital (a degree for a "good job").
3) You remove all the risk out of providing capital for filling the need through government guarantees.
4) You provide a rate of return that is higher than the government guaranteed rate on their own capital instruments (treasury bills).
#4 there, which gives you higher returns on low risk investments, creates a demand for those instruments. And that demand causes a supply of instruments to be created. And the regulation on that supply is minimal.
The result is you get financial institutions giving loans to students for useless degrees at inflated cost institutions knowing that the government has made defaulting nearly impossible (hence the low risk) and they can offer better rates than t-bills.
Students are being exploited exactly like unqualified home buyers were being exploited in the mortgage fiasco of 2008.
What annoys me about the journalistic coverage is that the 'rage views' are "Students are graduating with few prospects from college and a mountain of debt" whereas the bigger story is that "Rich people demanding higher returns, enslave unsuspecting youth through their loan seller proxies."
What's UC tuition nowadays? $3700 for resident tuition. $4900 when you include all the fees (which my $1000 figure did). Push everything forward 20 years and my parents would have no expectation to be making much more money now than they did then. I would be carrying more debt.
Pick your narrative for explaining what happened in the meantime. "Rich people demanding higher returns, enslave unsuspecting youth through their loan seller proxies" works for me.
What's even worse, is that the money just goes right to the colleges inflated overheads. No student ever "sees" the money from the loans. In this case, the cost of the schools just keeps going up so that the loans remain ~80pc of the cost of a degree. Now, how much money is in the Harvard Endowment? Stanford? Princeton? Massive amounts growing far in excess of inflation, and all Tax free. Why are these places even allowed to charge fees for tuition??
Some doctors graduated from med school with $100ks in loans. So they immediately filed for bankruptcy and cleared the debt. After a few years of work they were back in the bucks and debt-free.
The loan industry had congress write some new laws (was it 2008 ish?). The package clamped down on debt-collectors calling at all hours. It also eliminated clearing college loans with BK.
The loan industry celebrated - nothing like sure bet! Indentured servitude - Yahoo! They started giving away loans like candy.
Then the schools noticed all the free-flowing money and joined the party.
Doesn't seem to be unintended consequences at all.
That's inherently unfair. It may sound reasonable to ask wealthy families to pay more in order to subsidise poor families, but there's no reasonable method to actually determine a family's wealth.
The usual practice is to look at the parents' savings. If a family has saved $200,000, they will be asked to pay a higher tuition rate than a family that only saved $20,000. But that's crazy: it penalizes families that save for higher education.
That's particularly harmful to middle class families. If you don't have any money, then you can go to an Ivy League school for free (via financial aid). If you have a great deal of money, then you can pay the full tuition rate and still have assets left over. But if you only have some savings, then a college bill can easily wipe out everything you have.
We hate it when the auto dealer tries to extract as much as we can afford from us, but for some reason people are happy to let the schools do it.
I went to one of the most expensive private not-for-profit schools in the US (top 20 net-cost, going by http://collegecost.ed.gov/catc/#) and had exactly fuck-all for scholarships. I didn't shell out anywhere near $250k.
Are you assuming med school or something? As far as I can tell, the median debt for med school grads from private schools is barely half of $250k. The most expensive I can find still falls short (barely, to be fair): http://grad-schools.usnews.rankingsandreviews.com/best-gradu...
I was a grad student there in 1999-2000, and the tuition for the year was only a little over $4,000. It's much higher than that now, about $15,000 for the year. That's still relatively low, assuming that you're an academic student. Professional schools can charge what they like ("data science" is 60K!)
It's still possible to get an excellent education for less money. Part of this is that we need a cultural shift as well as an institutional one. Four years of cal is now very expensive (about 60K in tuition). But a lot of immigrants (many in my neighborhood) go to 2 years of community college (while living at home to keep costs down), finish at a UC, and study something with good job prospects. That's not reading poetry by the the leafy glen next to a beautiful old building, but at least it is affordable. I suppose I shouldn't just say "immigrants", I do know california natives who do this to, plenty of them, but it doesn't really fit the traditional middle class notion of "4 years of college, away from the parents".
Also - Cal has a good name, but rankings like US News and World Report haven't helped either. They reward colleges for everything that costs money, but they don't reward colleges for keeping costs under control or for enrolling low income students. Not a single public institution in the USNWR undergrad top 20, including UC Berkeley.
Bill Bennet, the republican and quite conservative former secretary of Education, made some very good points about this in a recent book "is college worth it". His take on it is, if you get into stanford, go. If you are inclined to study petroleum engineering, go (PE used as a stand-in for highly employable majors), even if you go to a small college in South Dakota (though if it's engineering you're studying, state schools are often more prestigious than their private counterparts, especially in the western states).
The danger is in between. Don't go to an unknown third tier school and run up a huge debt studying liberal arts - or, if you do, make sure you double major with something that will lead to better employment.
One thing - I don't want to give the impression that I think a cultural shift is all that is needed. Students do need to turn away from the high-cost model, but the government did play a role in this problem. Unfortunately, making loans available wasn't helpful to many students. By guaranteeing the loans, the government made it possible for students to borrow far more than a private lender would have considered prudent. By changing the bankruptcy laws around student loans, the government created a far more poisonous form of debt for students. And then lastly, by making the money so freely available, the government allowed institutions to raise their prices - so even if students wanted to "just say no" to high prices, institutions knew they could charge this cause someone would take out the loan. In short, the gov't may have ensured that the low cost education that would have been demanded never emerged.
In some countries, like mine (Uruguay) university-level education is free :) (though postgraduate studies are paid).
I think China is the biggest example of free university education. EDIT: I was wrong, about U$ 2000/year and rising apparently.
At least our bazillion psychologists and communication majors (equivalent to the dreaded "English majors" in the U.S.) are not saddled with debt, though a non-specialist psychologist can expect to earn less than a store clerk or McDonald's employee.
Continuing edit: Sweden and other countries also have "free" college education:
http://www.theatlantic.com/international/archive/2013/05/the...
http://en.wikipedia.org/wiki/Free_education
List of countries with free post-secondary education (from Wikipedia)
Algeria
Argentina
Bhutan
Cuba
Denmark
Egypt
Estonia
Finland
France
Greece
Italy
India
Malta
Mauritius
Morocco
Norway
Oman
Pakistan
Russia
Saudi Arabia
Scotland
Spain
Sri Lanka
Trinidad and Tobago
Turkey
Barbados
Kenya
United Arab Emirates
Uruguay
I was wrong about China, but apparently it is free in India.
One major difference is that here in Uruguay you don't have entrance exams, and it's free for foreigners (we get several Chilean students, where it is not free).
I'm 100% sure we don't have tuition here in Uruguay, and poorer students get state help.
However, five years after you graduate, you have to pay a mandatory special "university graduate tax" called "Fondo de Solidaridad" which helps pay for the poorer students, etc., so I guess it is a form of debt :) .
It's about U$ 200 every six months currently.
However, the rich still benefit from the system. Here's how it works:
1) Kids with money go to the best prep-schools and get in the public universities through hard entrance exams. 2) Kids that can't get in the public system, but still have money, can pay for medium-level education. 3) Kids with no money due to poor basic education can't get into a public university and can't afford a private alternative.
(And I imagine money can be used to "open" a spot, but that won't appear in tuition summaries.)
Yeah, if you can get into the limited government education programs. Most people pay oodles of money to be educated in private colleges 'affiliated' to universities.
Let's take the example of Tamil Nadu (a prosperous Southern state in India). Compare the colleges that comprise Anna University (http://en.wikipedia.org/wiki/Anna_University#Campus_and_coll...) and the colleges _affiliated_ to Anna University (http://en.wikipedia.org/wiki/List_of_Colleges_%26_Institutio...).
Education is NOT free in India, has never been. This is exactly why Wikipedia should not be a citation source. Anyone can edit wrong information and it never gets corrected, perpetuating wrong information. Here are better links to newspaper articles: * http://www.indianexpress.com/news/from-unemployment-to-innov... * http://www.thehindu.com/opinion/open-page/who-should-be-ente... * http://www.thehindu.com/news/national/financial-muscle-buys-... * An earlier HN thread "Students are the victims and culprits of India’s broken higher education system", https://news.ycombinator.com/item?id=5756142 , http://qz.com/86903/students-are-the-victims-and-culprits-of... * An Open Letter to India’s Graduating Classes, By MOHIT CHANDRA, http://india.blogs.nytimes.com/2012/05/23/an-open-letter-to-...
In India, some government education institutes are heavily subsidized (think IIT and the state REC's) but the rest of the private colleges you have to BUY seats - so your parents financial clout decides if you get to study at a good university or NOT.
Edit: Ironically, Wikipedia has a page on Capitation fees in India: https://en.wikipedia.org/wiki/Capitation_fee#Capitation_fees...
Education has NEVER been free in India. You have to pay a lot of money at the University level. Almost all education is now privatized.
Germany, OTOH, has FREE education upto the PhD level and it does not figure on the Wikipedia page - This is exactly why Wikipedia should not be a citation source. People submit wrong information and it never gets corrected, perpetuating lies.
Indeed.
If, for example, Rolling Stone were to approach this story as others have approached stories about the high cost of healthcare in America, i.e., by comparing the costs there with the costs in other countries with similarly high standards of living, it might produce a more interesting perspective. Readers might see that there are students in certain other countries who are having their educations financed under far more financially-friendly terms than those now presented to American youths.
When a journalist shows the reader the healthcare costs in her country compared to those in other comparable countries, maybe it sends a powerful message to the reader. Journalists covering education costs should perhaps consider this approach.
Oh and don't get me started on the college textbook scam.
...our overall educational rank in the world hasn't improved.
If you just look at the top end, it isn't actually possible for the USA to improve its rank. ( http://www.timeshighereducation.co.uk/world-university-ranki... ) I know there are some awful lower-level schools, but I assume there are all over the world as well.
You could also short servicers and lenders like Apollo Group (NASDAQ:APOL) and Nelnet (NYSE:NNI). If you asked me for a compelling short in the space, I would say DeVry (NYSE:DV), but do your own due diligence before entering a trade
They are a GSE, though both Freddie and Fannie were as well.
And don't forget the timeless Kenyes quote: "Markets can remain irrational longer than you can remain solvent." (paraphrased)
That would get rid of a lot of people that find out the hard way that they've borrowed themselves into a very deep hole. Job prospects, interest rates, cumulative interest, evaluating the small print and so on. There are many ways to get burned on a student loan and there is only one way you can get out, and that way out takes not just skill but also considerable luck and long term stability.
A few of our Canadian employees were saddled with long term versions of these and we managed to get rid of those, and we managed to keep one intern out of debt by paying him enough that he didn't have to apply for a loan.
I don't think student loans are bad in and of themselves, they just don't work out for everybody and for quite a few people that get squeezed by them the risks were not readily apparent when they entered into the agreement.
Student loans are a tool, and like any other tool they required some study and mastery to make the most of them.
edit: I recently discussed this with a friend who just received an MBA with an emphasis on finance. He was complaining that the interest rates on his loans had gone up every year, even before he started graduate school. It's disgusting that he could be accepted to a graduate school to study finance and didn't see that one coming.
Good for you. I don't mean to be unsympathetic either but not everybody has an intuition for numbers.
I know people that have serious problems relating even simple numbers, doing multiplication of anything over two digits (even with the help of pen and paper), you can just forget about compound interest.
That doesn't mean that such people should not be able to apply for loans, it means that the consequences would have to be explained to them in terms that they can understand, not the mathematical equivalent shorthand for those consequences.
I know that to some people the fact that others can't quite handle numbers is a shocking concept but I've seen this on more than one occasion in people that were otherwise functioning just fine and I definitely don't envy their inability to deal with figures.
See my reply to the same OP: https://news.ycombinator.com/item?id=6225690
I think even explaining the math in Explain-Like-I'm-Five words would not be sufficient for most people because they might not be in a situation to fully grok it. What does $833/mo for 10 years mean to a student training to be a Radiologist? They hear salaries like $120k/yr and think $833/mo isn't a big deal. Then you end up with too many unemployed, qualified Radiologists, salaries plummet to $52k/yr, and suddenly $833/mo is significant.
My point is that when people signed up for these loans, they were told it was a risk-free investment in their own life. Every investment comes with risk. That is the entire point of investments. Nobody ever treats student loans as a risk on the student-side of things. That's what needs to be conveyed more clearly.
I had no idea if $100/mo for 10 years is a lot or very little to pay for student loans because I had no job, no car payments, no mortgage, no healthcare costs, no hobbies, and no personal obligations. But I did have some side income and I could easily make $1000/mo making websites if I needed to. So I signed up. Would I have signed up if it was $2000/mo? No. But had my payments been $600/mo instead of $100/mo, I would have gone bankrupt because my starting salary after college was pretty low.
Just like a small percentage of people who abuse welfare, Medicare, and other social programs, a small number of students abuse the student loans by spending them on luxury goods. But most of the students take out loans because they have no alternative and regardless of the interest rate, social/family/economic pressure discourages them from choosing any other path.
And in this particular instance, the economy was pretty good 2000-2008. So the students who took out $80k loans for an Art degree from the Ringling School of Arts in 2006 did not think they would be stocking shelves in 2010. Ringling Graduates from the past two decades had done pretty well for themselves, finding work in Disney, ILM, and many other creative agencies around the country. Now nobody thinks twice before telling them "Well you should've thought twice before signing up for a useless art degree instead of something useful like STEM"
It gets worse. He'd patiently explain the numbers to the customer, and they'd still sign up for the most expensive option. (They were motivated by the monthly payment amount - the term or the interest rate simply meant nothing to them.)
Being math challenged has severely negative consequences for ones' financial prospects.
Every time, people have to be reminded that few people start out in communications degrees. Someone makes it to college, trying pre-med. Then they realize that, while not failing, they do not have the grades to make it into medical school, and they don't have an aptitude for the sciences.
So, if they quit at this point, they will have no degree and 20k of debt. The marginal cost:benefit analysis for a social sciences degree is high. We talk about sunk cost fallacies, but the risk profile looks like this:
drop out | 20,000 in debt, 2% chance of job that can pay it off, and a soft limit on class mobility. continue in social sciences | 60,000 in debt, 35% chance of job that can pay it off, and a better chance of staying in the middle class over a career.
I see my sister run into this. She can't advance in her career because she made the decision to drop out. She is intelligent enough to finish a social sciences degree, and intelligent enough to do the work of a college graduate, but she is filtered out of many jobs because of the requirement. ___
Full disclosure: I have a communications degree (CS minor) and am a developer and am not ashamed to say I've used my communication degree to my advantage as a programmer. What I learned about organizational communication and conflict management have helped solve problems.
I feel that the anthropology, communications, biology, history, etc. classes I took in college were great and really opened my eyes to other things. However, I didn't pursue degrees in them because I knew it probably wasn't a good ROI (investment being time and money).
It worked out for me. If I hadn't had the option, I could have retaken a few math classes and been fine. I could have made it, but I return to the question: what happens when people aren't cut out for STEM? Do you charge 20k and say "thanks for trying,?"
The only solution is bringing costs down. Plain and simple. If a majority of students can't pay for in-state college alone or with help from family the system is not working as intended.
EDIT: butchered that last sentence by missing one word (now in italics)
I grew up in another country and do not really know what the process is for american would-be college students. Could you please explain to me what the process is for getting a student loan?
I'm imagining that it works just like any other loan. "We will give you this much money. We will charge an annual interest rate of x%. Interest will not accrue until you graduate". Is it not like that?
It's pretty much exactly like that, in most cases.
But I think an underlying issue is that many teenagers now enter college with no concept of money. Many haven't worked before and haven't paid their own bills (they can't deal with that as teenagers because they need to focus on getting into a good college). They don't understand how fast money spends and how slow it accrues. When they think of the salary they may earn after graduating, they don't account for the government shaving 20%-30% off the top. All of this knowledge comes later, with experience.
When you're 18, and the government starts mailing you $3,000 checks every semester, it feels like free money and it's hard to quit. It's not until four or five years later (well, better make that six or seven, because you'll need a master's degree to set yourself apart and land the job you really want) and you're $40,000+ in debt with interest accruing, that reality starts to set in. When the free money stops, and you need to pay your rent, car insurance, groceries, health insurance, loans, etc., etc., with your hard earned money, that's the first real dose of reality for many kids today.
Was it irresponsible of them? Yes. But it's not surprising, all things considered.
> Historically, the humanities have been central to education because they have rightly been seen as essential for creating competent democratic citizens. But recently, Nussbaum argues, thinking about the aims of education has gone disturbingly awry both in the United States and abroad. Anxiously focused on national economic growth, we increasingly treat education as though its primary goal were to teach students to be economically productive rather than to think critically and become knowledgeable and empathetic citizens. This shortsighted focus on profitable skills has eroded our ability to criticize authority, reduced our sympathy with the marginalized and different, and damaged our competence to deal with complex global problems. And the loss of these basic capacities jeopardizes the health of democracies and the hope of a decent world.
I know this is Hacker News and any non-STEM field is generally disrespected, but the liberal arts are quite important.
After all, STEM fields have a built in reality check for one's thoughts. If you design an airplane and it doesn't fly, you're forced to develop critical thinking skills so that doesn't happen again. Physical reality isn't going to bend to your thoughts.
One of the most important things STEM provides one is the most important tool to determine truth from garbage - the scientific method. This is applicable far beyond just the physical world.
Another thing I learned from STEM is the opposite of compartmentalization - I learned how fundamentally similar hydraulics, electronics, mechanics, etc., are. The rules, processes, math, methods of solving problems, are all transferrable between the disciplines.
I took an economics course once, and was a bit puzzled by two pages of equations in the textbook until I realized that they were doing the equivalent of a simple derivative. The textbook was written under the assumption that economics majors didn't know calculus. I thought it was rather sad.
[1] This would likely involve a lot of pinning down just what STEM curricula and just what alternative curricula you are considering, unless you're able to establish there is no overlap in the distributions - a premise which I doubt.
Also, it's precious to describe a market that the government has exited as then having "no competition".
I can't count the number of Facebook statuses I have seen that say "So proud I'm graduating!!!!" or something to that effect, without having even a vague concept of what to do after that are cheered on and congratulated by similarly clueless people. Add in a mix of pictures in those $70 graduation caps and gowns effing everywhere, and you have the recipe for something younger students will rush into doing without thinking of the consequences.
I think an immediate lessening of the adulation showered on people who have graduated from college, and an increase in the respect for those who have actually learned a useful trade or done something (note: a summer exchange program in Europe that your parents or the Govt. paid for does not count) would go a long way towards getting people to think carefully before signing up for one of these predatory loans.
The problem with fixing this, however, is that any measure that makes loans less available will be seen as a negative, since it will limit who can go to college. In a country where people have declared that everyone should be able to go to college, this will be a very unpopular position. We need social acceptance of some viable alternative, like vocational schools to fill our ever dwindling ranks of skilled workers.
* Note, this comment is focused on the US. I don't know enough about other country's systems to comment on them.
This is not so bad in a society where 10% of the people have a college degree. Because there are still a lot of smart -- to say nothing of hard-working -- people who don't go to college.
It is bad in a society with 70% of people have a college degree. What kind of idiot weirdo doesn't go to college?[1]
[1] NB: I really don't subscribe to that view, but employers do, for rational reasons.
Guess who pays for this? Students and their families.
Some of these people are in way over their head and beyond just the government loans. A few of them went to smaller private colleges and accrued well over 150K.
Luckily I was in a technical degree (Information Systems but I didnt graduate from the business school ;-), Math and Science school along with the CS majors) and was able to get a few job offers before settling on what I considered the best one.
Second, the very idea that college "upgrades" the asset is specious at best. http://www.amazon.com/Academically-Adrift-Limited-Learning-C...
Third, people with degrees do earn more, but remember that they actually take four years or more off. That's 4 years of taxes and raises that the government doesn't get. Given wages in a lot of non-degree jobs that don't require degrees (public employee unions and public safety work come to mind), this is not an insignificant amount.
> The New York Times did a story earlier this year declaring the college degree to be the "new high school diploma"
I have developed this view from reading links from Hacker News, that every reader/contributor taught themselves how to code from the age of ten and subsequently freelance/consult/sold their startups for decent money, and would therefore find that statement laughable.
Yet in my experience this view is so entrenched within the middle class - that in order to learn a skill you have to have information spoon fed to you, that people who are self-taught anything are geniuses. I'm a pharmacist learning how to code and when I tell my coworkers that I would someday like to be an entrepreneur web developer, they say "but you have to go to school for that... "
Yet most knowledge is a few Google searches away. Maybe the first few searches you don't really know what you're even looking for, but as you read and gain familiarity with the vocabulary of your subject of interest, it's all there.
So the idea of a college diploma as a surrogate marker for aptitude/potential/diligence is very much the perspective of my family and coworkers.
There's got to be a better way of finding data, ranking it in terms of credibility/robustness, and testing for knowledge (startup idea?). With all the stuff that's available out there shouldn't we all be building solar-powered Arduino robots that can produce food and defend our family? Information is more accessible now than ever with more powerful tools to gather them, and many people still buy into showing up physically to a lecture hall and then filling in bubbles on a narrow strip of paper for four years for a beautiful piece of parchment.
Somethine
Trouble is, everyone involved is tied to the mast. The admins can't find other work for this kind of money, the profs have tenure, the grad students can only otherwise work slinging dope or burgers, and the undergrads have even worse prospects than the grads. Its a mess. And it can't continue, and everyone knows it.
One real wave generator is the MOOCs. The profs know it. At UCLA they just started allowing kids to take classes completely virtually. If the class is too full for the fire marshal, you can opt to take it online completely. The profs fought it, but lost. They all knew that was the camel's nose in the tent. Look to see MOOCs take the place of degrees real soon. Man though talk about a 'flat world'
Still, the days of the professor-preacher are coming to a close. The days of the super-star explainers and lots of grunt lab assistants are coming. Sort-of like Turbo-Tax and the accounting industry.
Even if college was cheap and guaranteed to graduate, it would still be the poor who could least end up able to sacrifice 4-9 years of their life on it.
Eventually most growth curves falter or crash every so often. Then the same people will say "Ha! I knew it was a bubble for the last ten years!"
But no, your tax money goes to more important issues, like https://en.wikipedia.org/wiki/List_of_countries_by_military_...