
Student Loans Are A Drag On The Economy - ck2
http://business.time.com/2014/02/26/student-loans-are-ruining-your-life-now-theyre-ruining-the-economy-too/
======
patmcguire
It's not the interest, it's the principal. And I don't understand how the
principal got so high.

Is calculus ten times more expensive to teach than it was thirty years ago? Is
Shakespeare? Supply is totally inelastic, because it's almost impossible to
get a new college accredited (for profit schools all started with an already
accredited school and expand them). Same with demand - not having a college
degree puts you on a lower track that's almost impossible to break out of, and
the connections, etc. mean that MOOC's aren't a good substitute for
undergraduate education, while the professions all require specialized
schooling afterwards.

So where does all the money go? At a non profit university it goes to
faceless, non-teaching administrators to play the school prestige game, and
maybe a little research.

A generation is broke because they're not paying for education, they're paying
for education that can't be unbundled from empire-building.

~~~
nowarninglabel
Sort of, it's a bit more complex than that. Tuition costs and textbook costs
have skyrocketed (see [http://www.usnews.com/news/articles/2013/10/23/charts-
just-h...](http://www.usnews.com/news/articles/2013/10/23/charts-just-how-
fast-has-college-tuition-grown) ) while faculty salaries have stagnated or
even gone down in real terms (
[http://www.aaup.org/NR/rdonlyres/C2BAFA70-057E-4097-908B-6E4...](http://www.aaup.org/NR/rdonlyres/C2BAFA70-057E-4097-908B-6E4A6B5A6D38/0/TABB.pdf)
)

Empire-building is correct though in the sense that public institutions are
the ones raising their tuition costs by so much (78%!), and a big reason for
this is do to college's building new infrastructure, which often times they
have no need for. Take SF State University who I used to work for, they built
a brand new gymnasium and a brand-new library at a cost of over a billion
dollars for a student population in which 78% are commuter students who hold
down part-time jobs and spend no time on campus. It just doesn't make
financial sense. That said, faculty costs are still the primary problem and
why community colleges get the taxpayer a much better bang for the buck. See
[http://www2.ed.gov/about/bdscomm/list/hiedfuture/reports/dic...](http://www2.ed.gov/about/bdscomm/list/hiedfuture/reports/dickeson2.pdf)

~~~
bradleyjg
Though I agree cancerous physical plant growth is an issue, a couple of
additional points:

1) Spending on non-faculty salaries have gone through the roof with the
exponential growth of well paid but educationally marginal deanlets,
deanlings, and administrators.

2) Although total salaries for the tenured professoriat hasn't necessarily
exploded, salary per classroom-student hour has as tenured professors have
seen their teaching requirements fall, and as large lectures are increasingly
taught by poorly paid adjuncts.

A generation ago a 3-3 or 4-4 was typical for a tenured liberal arts or social
sciences professor, and most freshmen seminars were taught by full faculty.
Today many teach 2/2 or even 2/1, and they might well be all be graduate /
upper class seminars and supervising student research.

------
joezydeco
This is an interesting NPR Planet Money podcast where they try to break down
why Duke's tuition costs $60,000/yr (and Duke claims that the _actual_ cost of
a student is really $90,000/yr).

[http://www.npr.org/blogs/money/2014/02/26/283018555/episode-...](http://www.npr.org/blogs/money/2014/02/26/283018555/episode-520-dukes-30-000-tuition-
discount)

One of the most interesting points is that colleges are in a unique inverted
position when it comes to price vs. demand. Cutting their tuition price would
actually _decrease_ the perceived value of the degree, and thus lower the
demand for their product.

You can grind your teeth at the rest of the podcast where the administrators
claim a lot of this cost is building amenities and facilities that students
now expect out of a high-tier college like all-single dorms, a myriad of
cafeteria options, and 24/7/365 library and IT staffing. I'll go back to my
lawnchair now.

~~~
snogglethorpe
> _You can grind your teeth at the rest of the podcast where the
> administrators claim a lot of this cost is building amenities and facilities
> that students now expect out of a high-tier college like all-single dorms, a
> myriad of cafeteria options, and 24 /7/365 library and IT staffing._

I've seen a fair number of universities in the U.S. and other similarly
developed countries, and one of the most striking differences I've noticed is
that U.S. university physical plants tend to be _really nice_ — super well-
maintained and frequently renovated, "deluxe" feeling — whereas even top-tier
universities in other countries often feel a bit threadworn and sometimes even
kind of run-down, even if they have beautiful old buildings. The latter
function perfectly well as universities, mind you, but the impression is that
they're being pretty careful with their maintenance budget....

~~~
danielweber
When your customers are price-insensitive, it becomes stupid to not go all out
on amenities.

~~~
joezydeco
And the price-insensitivity comes from the easy availability of student loans,
I take it. So we've effectively closed the loop.

------
transfire
The issue is even worse than this article suggests. The article focuses on
graduates. But students who fail to graduate, for whatever reason, are even
worse off. They usually can't payoff their debt, so they go into default and
have their credit destroyed for the rest of their lives. They can't try to go
back to school later because they can't get new loans, and, with the latest
laws, can't even transfer the credits they had. It becomes a catch-22 and
downward spiral.

~~~
fredgrott
its even worse than that..

Currently, if you have no income you are harassed to get into the payment by
income program but that program requires you to make payments on previous loan
payment program to become fully qualified for that lower payment plan.

So guess what happens? Congress in their wisdom limited said plan to one try.
That is right most of the people on that default list could have been avoided
if the limit income plan was implemented properly.

~~~
chiurox
Soon we will start seeing news of young graduates committing crime to pay off
their student loans. Heck, it would be interesting to see a movie with this
plot line.

~~~
maxerickson
If you squint, "Falling Down" is sort of this movie, where ordinary guy loses
his shit because of forces beyond his control.

[http://www.imdb.com/title/tt0106856/](http://www.imdb.com/title/tt0106856/)

------
ck2
It blows my mind that it costs $400k to become a quality dentist in the USA
these days.

No wonder I see people train overseas and then just get a license here.

How is health care ever going to be affordable in this country if the doctors
and dentists have to carry so much debt?

~~~
SixSigma
It boggles the mind. By the time I graduate I will owe about 1 year's
projected income (about $70k) and I think that's a pretty good return.

If a dentist can make back nearly half a million then something needs to be
done about the cost of dentristry, something doesn't add up.

~~~
jjoonathan
I don't know how it works for dentists, but my understanding is that for
doctors we've essentially given the doctors' guild the ability to legally
dictate how many medical graduates they will allow, making them the envy of
unions around the world (and schools, who are very happy with an arrangement
that allows them to auction off a restricted supply of meal tickets).
Sometimes you'll hear the AMA blame congress because they've gotten congress
to pay for part of the education process and it hesitates to periodically
increase the handout, but the reality is that they could change things
tomorrow if they wanted to. Which they don't, because they rather enjoy the
sky-high salaries that come from the artificial scarcity they've created.

The market is slowly working around this constraint by allowing nurses to
train and take on some of the responsibilities that were previously subject to
the artificial labor scarcity.

Unfortunately this only represents about ~1/3 of the problem with our medical
industry by market share. The other two thirds come from drug price overruns
(US drug buyers pay twice as much as single-payer countries which have much
more size = bargaining power) and the medical insurance industry (a textbook
case of "costs of competition" dramatically exceeding the benefits in a
measurable way).

~~~
carbocation
> The other two thirds come from drug price overruns (US drug buyers pay twice
> as much as single-payer countries which have much more size = bargaining
> power)

As an infuriating elaboration on your point, the United States has a huge
single payer in Medicare that is by law prevented from effectively negotiating
drug price.

~~~
refurb
Medicare isn't allowed to negotiate, but it automatically gets the average
selling price, inclusive of all discounts. Disproportionate share hospitals
get 23.1% discount. It's not like the US gov't isn't extracting it's share.

Medicaid IS allow to negotiate and has federally mandated discounts. Medicaid
covers more people in the US than ANY of the Canadian provinces who do
negotiate. What does that tell you?

~~~
jjoonathan
Methodology is important. See here:
[http://www.law.cornell.edu/uscode/text/42/1395w-3a](http://www.law.cornell.edu/uscode/text/42/1395w-3a)

> the manufacturer’s “average sales price” means ... sales to all purchasers
> ... in the United States ... divided by the total number of such units

So it looks like the ASP is fixed to the shit price that results from
fragmented bargaining by US companies. A 23% discount on a 100% markup = drug
companies laughing all the way to the bank.

As for Medicaid, I'm not familiar enough to answer. Do they get decent prices
or is there similar corruption at play?

~~~
refurb
Corruption? Calm down.

The top 3 insurers (who negotiate these prices) in the US cover nearly 100 M
people. Medicare gets those discounts included as well.

As for Medicaid, it often pays the lowest price of all purchasers in the US.
For many doctors, Medicaid reimburses them so little, they _lose_ money on
drugs. That's why many doctors don't want to take Medicaid patients.

------
tn13
The root of this problem is that the liberals have been paddling relatives
good sounding notions such as "everyone needs to go to college" thing and the
subsequent government moves to ensure that every tom dick and harry can go to
college.

This was about to happen.

~~~
toomuchtodo
Everyone gets to drive on roads in the US because we each pay a bit per gallon
of gas.

Couldn't we all go to school if we each paid a little bit for it and you just
had to show up?

~~~
belovedeagle
Tell me: where did you get your free car?

------
superJoy
At what point do these students realize the cost indicates they should stay
from that school? Like, "Oh wait, even though X is a better school than Y, it
will cost 5x more, and my starting salary will only be 5% less." Is that
happening? It just seems some of these people are naive. Another example is
ones that are unaware of the economy of the city they aspire to live in, and
get a degree with little value in that city. And then they're unemployed...

Now that doesn't mean the college system isn't flawed or unfair. I think that
it is. But some of the discussion should be on how we tell young adults to
best navigate their way through the system, as it exists at present. Picking
your dream school, a "good" school, whatever, should not be independent of
some analysis on what the return on investment is. For students that can do
that, there are still opportunities out there... I say that because I've made
decisions where I got in but didn't go to my dream school. It sucks. But the
extra value from the quality of the education didn't seem worth $100k in debt
once I get on the job market.

~~~
aaron-lebo
How many 18 years olds are making rational decisions about return on
investment in 10-15 years time?

I'm not sure how you go about adequately informing students about a major life
decision they are making.

~~~
existencebox
At this point; I'd accept "more than not at all."

Anecdotes ahead, proceed with caution: Very average PA public school; had a
"home ec" course, in which we did hilariously outdated calculations on things
like interest vs compound interest. Not a single mention of what I'd call
"practical economics"; e.g. actually balancing a real budget (which, FWIW,
I've heard is becoming more a thing in certain districts), calculating the
costs of goals, and perhaps touching on long term financial planning. When I
first had to handle retirement fund options; you could have handed me a live
squid for all I knew what to do with it. I got _lucky_. I had parents who
filled in many of the gaps, and were willing to be a resource as I got older,
as well as some more informed friends; but I worry about how people with less
might have gotten by.

~~~
thesimpsons1022
why is it the schools job to teach their finances? I see school as more
academic, while personal matters like that should be taught at home.

~~~
lawnchair_larry
Are you kidding? What home?

Oh, you mean the people who the banks gave giant loans to that it turned out
nobody could afford and put everyone into foreclosure? Or their kids, who
signed their life away to bankruptcy-proof loans on a degree they never
finished, and can't get a job good enough to pay it back?

Have you _seen_ what passes for a parent?

Yes, let's have those people teach their kids personal financial management.

------
higherpurpose
So stop letting the government guarantee the loans. Watch how the prices fall
once only a small fraction can afford to take a $200,000 loan to pay for their
college, afterwards. US colleges have been spoiled. That's why prices are so
high.

~~~
crucifiction
More likely, you will just see the proportion of foreign students increase
dramatically. College these days is already mostly made up of semi-rich kids
from America and actually-rich kids from China. With loans at least some
middle class American kids get a shot.

~~~
judk
If the government+voters emergent system had any sense of responsibility,
public schools would expand/reserve space to serve their public.

------
Glyptodon
Meh. This is (mostly) the students' and the families' who abet their stupid
decisions fault.

If you go to an in-state community college and then matriculate to an in-state
university in my state the total cost of college is (~$4500 for 2 years of CC
living at home + ~$25000 for 2 years of closest to home in-state school)
~$30000 + the cost of living at home.

Meanwhile people continue to whine about sending their kids to school in
places where they wrack up that much in debt per academic year before
accounting for housing and travel expenses.

If you don't want to be in debt and you aren't rich or dirt poor make
reasonable decisions and stop whining. If you can afford to replace your mini-
van with a Prius, you can probably afford to send your child to college,
especially if you save the difference during the CC years.

The real issue is that people feel entitled to the best schools and will so
make absurd decisions to enable it regardless of what their child is studying
or how well they actually do in college.

And all of the above said, I do agree that college is increasing in price more
than it should. I think it's because research and lifestyle costs are getting
pushed into tuition combined with state legislatures who don't want to support
colleges in their state budgets that are really doing it. This has many
pernicious effects, like transforming the college meal plan into a clone of
your closest mall's food court.

~~~
enraged_camel
Wow. I like you blamed this entire mess on students and parents.

>>The real issue is that people feel entitled to the best schools and will so
make absurd decisions to enable it

Nonsense. People want to send their kids to the best schools because the best
schools are the gatekeepers to the upper class. Someone who graduates from an
Ivy League school gets to build a network with affluent alumni and has a high
chance of landing a job that pays six-figures right off the bat. Someone who
goes to a merely good state school though? There is a very good chance they
won't even find a job after graduation.

~~~
Glyptodon
You exaggerate. Mostly it's people who don't do well at their colleges that
have trouble. At Ivy Leagues it's fewer people because they have the worst
grade inflation and don't accept many borderline students.

For state schools there are lots of people at the margin - IE they don't do
well enough to really reap a benefit from their degree.

Maybe getting good grades at a public won't get you 6 figures in your first
job, but in most fields you aren't going to get that from an Ivy League,
either.

But if you do well or choose a good major your in state school will be fine -
you'll get a job, and it'll pay alright.

This is 3 or 4 times as true if you're planning on being something like a
Nurse or a Teacher and less true if you're planning on being a hedge fund
manager, but frankly if I were a student I'd be happy for the future hedge
fund managers of the world to go somewhere else.

~~~
eropple
I have a degree from a cow college. I'm very good at what I do. But I'm at a
disadvantage: my network doesn't include people who are valuable to know. The
dudes who started Dropbox are dudes friends of mine knew in college. People
like that aren't in my rolodex. That's what these colleges are for: social
entry into that class of mover shaker, be it MIT for tech or an Ivy for
politics. This stuff is the difference between having doors open to you and
needing a crowbar to get anywhere. I happen to be both good enough to demand
attention and savvy enough recognize when there's an opening, but I get that
getting where I am now has been a luck-based thing.

And that's a tech degree, mind. I get the feeling you really have no idea how
hard it is to find a livable-wage job if aren't in tech or cleaning bedpans.
The idea that fundamentally irrational people - teenagers! - should be
expected to make decisions to actively limit their upside based on a downside
risk they literally cannot contextualize is a failure to understand humans.

~~~
Bahamut
Hope is not lost in this situation - you just have to work at it more. I'm a
stellar mind who also went to public schools for undergrad and grad, but I
focused on self-development and networking after.

I went from $50k a year to likely over $120k (that is in negotiation) in the
span of 1 1/2 years of hard effort &learning.

I too racked up lots of debt from school, about $200k total. I am forced to
focus on money because of this. I made the decision to go all in on developing
my career & making the decisions I deferred until after grad school.

~~~
tostitos1979
You got into 200K debt with a CS degree? I assume you did a Masters from
Stanford or some other elite place?

~~~
Bahamut
Math actually - it was a top 15 program

------
eranation
All I can hope is that more universities follow what GA Tech started. I'm
doing an MSc in CS for less than 7,000$. This is the total cost, not per year.
They did get 2 million $ from AT&T and close partnership with Udacity in the
making, but still if they eventually manage to make this program break even
and even profit (which no one knows for sure yet) then this should be the
start of a movement that demands other top ranked universities to offer low
cost MOOC versions as well. (there is also the aspect that GA Tech is a public
university, but I don't think this matters. Profit is profit, and the costs
are the same costs, or am I missing some basic difference?)

p.s. The main fear of "why would students want to take our 40-60K$ on-campus
program if we offer the same degree online for a fraction of the price" is
being put to a test here. So far I didn't see evidence that the number of on
campus GA Tech graduate students decline, but I don't know for sure, time will
tell.

Future will tell if this model works (I realy hope it does), but if one
university can do it, others can as well.

------
bluedino
How much of a typical student loan is tuition and books, and how much of it is
room, board, computers, Starbucks and partying?

I know tuition and books have skyrocketed but at the same time I know people
who spent student loan money on flat screen televisions, computers, spring
break trips, and used cars.

~~~
eropple
This is the "poor people have refrigerators" thinking writ large. Tuition and
room and board can easily crack $100k at the schools that are social
gatekeepers for the upper class (that people want to go to for that reason).

~~~
bluedino
Time magazine piece on that exact topic -

[http://healthland.time.com/2012/08/02/are-college-kids-
blowi...](http://healthland.time.com/2012/08/02/are-college-kids-blowing-
their-student-loan-money-on-clothes-and-beer/)

~~~
eropple
"Informal research" is my favorite kind.

~~~
magicalist
Seriously.

> _When I asked my stepson, who graduated last winter, if he knew of kids
> using their student loans for non-school-related purchases_

Might as well ask your stepson if he knew anyone doing drugs instead of going
to class. It's a drug pandemic! Do you know anyone who has cheated on a test?
It's a cheating pandemic! Do you know anyone that sleeps around?
Promiscuousness pandemic!

People love to gossip, and they love telling stories about outliers. Asking
directly for stories that stand out is about the worst kind of "informal"
research you can get.

------
bedhead
College tuition is the perfect alignment of the stars, economically speaking.
There's no new supply of public universities. Reputations are _extremely_
sticky. A college degree is often a job requirement. The highest paying jobs
mostly recruit out of the top universities, so students are extremely price
inelastic at certain levels. The government subsidizes student loans at
artificially low rates. More and more foreign students want to attend US
universities. Etc.

Hell, it's almost a surprise that college tuition hasn't grown at an even
faster pace. In ten years this is going to become a _serious_ national issue
and I think you'll see the federal government step in to cap the tuition
increases. It's gonna happen.

------
rahimnathwani
_On the plus side, more students than ever before are attending college, which
is a certainly a good thing, as van der Klaauw points out, even if it is a
contributing to factor to overall debt increasing. A degree is usually worth
the cost of college, even if the price tag is increasingly tough to bear._

It's not clear to me that 'a degree is usually worth the cost' but even if it
were the case that going to college were the optimal decision for each
individual who chooses to go, this locally optimal decision doesn't mean that
it's good that 'more students than ever before are attending college'.

A college credential could have a positive NPV for each person thinking of
getting one, but still be negative for the group overall. For each individual
it's rational to participate in the credentials arms race only because if they
don't, but everyone else does, they will be at a disadvantage.

(I acknowledge that many people get more from a college degree than just
credentials.)

------
narrator
Somebody somewhere is getting the interest payments on all that debt.

~~~
dlp211
Yes, the US government, $41.7B last year.

------
mkhpalm
I'm always amazed that all these articles seem to miss the fact that the dept
of education is the one who decides loan caps for federally backed student
loans. Its easy to see that the increase in tuition is directly related to
those increases when you're in, say, medical school. Its not so easy to see
tuition increases when you're at a 4 year school with many disciplines to
obfuscate the increases. The only question I have is _why_ does the government
believe that so many of these fields have graduates seeing 300% increases in
salary? No number I've seen even remotely suggest the rate that they're
approving things. So why are they doing it?

That is the question journalists should be asking.

------
ontheinternets
it's not just the principal, it is the interest: loans get up to 6.8 and 8.0
percent. still subsidized rates, but much higher than less valuable
investments like houses.

Rates are also fixed with no possibility to refinance. you have to make other
decisions, like buying a house and borrowing extra to pay off your student
loan. this could have other repercussions and is not very "free market."

but in the end, the degree itself is supposed to be worth about a million in
lifetime earnings. for professional degrees it is multiple millions. maybe it
is all worth it anyway and the price of education is still too low.

------
snowwindwaves
My father was an economics prof at a Canadian university. In canada a large
part of the tuition cost is the actual professors. What the student pays
doesn't even cover the professor salaries, the rest is made up by the
government.

Consider that a tenured prof makes about 120k and teaches only 2 courses per
semester, 2 semesters per year, while an undergraduate might have 6 courses
per semester and pay 6-10k. My faculty had 2400 undergraduate students and
while some classes in first year had 100 students, most were 20-30 students
per class.

~~~
ahi
Outside of a few programs most tenured profs dont make anywhere near 120k. In
my area, UMich is 80-100 and 2nd tier schools like Eastern Michigan pay 50-70.
Getting a phd in most liberal arts fields does not pay, even if you manage to
avoid adjunct hell.

------
qwerta
I have question how young students can give legal consent for such loan? Most
teenagers can not legally drink or have a sex, but they can agree to this sort
of commitment?

~~~
ck2
I believe most freshmen in US college are 18.

Cannot drink but everything else is legal.

------
rahimnathwani
_by the time he graduates in 2016, he’ll face $400,000 in student loans_

Why choose to study in New York? I imagine one could train to be a dentist for
~30% of that cost (including living expenses) in Central Europe or in India.
Perhaps you'd need to do an extra exam before being licensed to practice back
home, but avoiding that doesn't seem worth a > $200k premium.

------
gtani
this was a good article about how quickly loan balances multiply after
default, and how discharing in bankruptcy or otherwise is basically impossible
[http://www.nytimes.com/2008/08/24/business/24loans.html?page...](http://www.nytimes.com/2008/08/24/business/24loans.html?pagewanted=all)

------
bakhy
whenever something starts to get paid by loans, the prices rise. fractional
reserve banking means loans are created almost out of thin air, it's the
fiatest of fiat money, and it creates a push to increase prices. banks
constantly need a sure thing, something to actually create the value to back
that money. and when they all start jumping on a bandwagon, the wheels
eventually break. i hope something will be done here, but if recent history
has taught us anything, US government will pay most of the bills, saving the
banks, and then be heavily attacked for - being in debt! the economic scene
today is a bad joke.

------
EGreg
"Chris Rong did everything right."

LOL

------
nirnira
Why are student loans so high, the market so ridden with defaults, and the
price of education so high? I think (well, I'm a little more certain than
that) the answer is basic economics. Here's my take:

You (America) have a government that offers discount loans - i.e. loans with
poor prospects/low interests rates - in the hope of driving a higher
allocation of capital to education than would occur in a pure private lending
market (i.e. the government takes risks with the taxpayers' money that private
lendors would not take with their own.) (Also, might be worth noting the
psychological effect of borrowing from the government - I think people tend to
feel safer doing this than borrowing from an obviously competitive private
firm. If you read the article, the casual attitude of student debtors to
defaulting on their loans shows this - the government has no teeth. The
private firm goes bankrupt if it doesn't get a return on investment. The
government just devalues the dollar if it gets in a tight spot.)

The justification here would be that the positive externalities of education
are high, and an equilibrium capital allocation following purely upfront costs
would be suboptimal.

However because humans are humans, the availability of below-market price
loans means that people are willing to spend more on education than they would
if they were forced to pay a market price. And again, because humans and
humans, colleges, which in America have little government oversight as to
pricing, raise their pricing. Why? Because people will still pay it. For
whatever reason, colleges are able to bank on their prestige and identity, on
the promise of access to important social circles, and so pure pressure for
price is diluted.

Forget all the shit about increasing salaries for professors, or construction
frenzies. Basically the final equilibrium price for a college is the price
that they can get away with charging. And this price happens to be far higher
than it would be in a purely private education market. Because students can
gamble with taxpayers' money. And the universities can sense that there's cash
on the ground - and if they don't rush for it, another will just take it. This
is why your institutions glorify the most profligate administrators - the ones
with the most grandiose investment schemes, the ones who can create an
appearance of money well spent - because the best administrators help draw in
as much cash as possible.

So the result is that what started as an incentive to encourage education
actually creates a toxic market with widespread debt defaults. Instead of more
education, you just wind up enriching university administrators (definitely)
and professors (maybe) and creating way more university facilities than
private demand would have ever warranted. So congratulations: as a country,
you've just spent XX billion building a shitload of luxurious dubiously-useful
education infrastructure. Because as a country, you shoulder the cost -
through your government's wasteful allocation of capital.

Congratulations. The whole country just gave a shitload of money for nothing
to university administrators and contractors. You wanted to push capital into
educations, but instead you got rich universities. Well done eh?

See, this is why America's model of mixed-capitalism is so poisonous. If you
want to give cheap loans for education, you need to control prices at the
institutions where they're valid. Though even that doesn't work - you'll find
state-controlled institutions in countries that practice this still constantly
pushing for the maximum tuition increase every single year, using every excuse
they can.

The better solution is probably no public loans or grants whatsoever. Though
that doesn't address the positive externality of education (which I do believe
in.)

~~~
ds9
"the psychological effect of borrowing from the government - I think people
tend to feel safer doing this than borrowing from an obviously competitive
private firm. If you read the article, the casual attitude of student debtors
to defaulting on their loans shows this - the government has no teeth. The
private firm goes bankrupt if it doesn't get a return on investment. "

All of the above is incorrect.

(a) Student loans in the US are mostly not from the government in the first
place, they are from private investors or banks that the schools have made
deals with. The USG role is guaranteeing them.

(b) Generally, in classical capitalism, firms will go bankrupt if they don't
get adequate returns on investment - but this situation has been distorted by
the government guarantees. They get reimbursed if the debtor defaults, and
carry on. By exploiting this subsidy they make big profits, that's why they're
in it.

(c) I don't know about student-loan-borrower attitudes, but their debt and
enforcement of it are not casual. The GSLs are _not dischargeable in
bankruptcy_ , so they are basically a lifelong burden unless paid off. And
defaulters are subject to wage garnishment and other onerous court judgments.

~~~
nirnira
Thanks for the clarification, but it sounds like the net effect is exactly the
same: bad loans are made, money is lost, the taxpayer is forced to subsidise
the indiscriminate purchase of education.

As always with such schemes, there is an ongoing push to implement them in as
complicated and opaque a fashion as possible, to try and hide the naked fact
of what is going on. So no one will admit "we take money from taxpayers and
make loans no sane private investor would ever consider," they'll just talk
about FDCRP-approved rates this and Fannie Mae-that and fiduciary-backed iron
bond multiplexing high-yield 7.5% rederived blahblahblah.

Same bullshit that happens when bank deposits are federally insured.

~~~
srean
It seems to me that you have a-priori decided to whip a particular horse
regardless of the context/relevance. Not arguing that particular horse should
not be whipped, but its not the main horse in the race that is being
discussed.

~~~
nirnira
Sorry, I have no idea what you're talking about. I've simply been trying to
show that these allegedly disconnected economic phenomena (government lending,
high fees, high students loans, defaults, political pressure to drop interest
rates) are actually all the result of a single misguided policy direction.

------
goggles99
There is really three simple reasons that we have this 'problem' today.

1\. People who cannot afford it are choosing very expensive universities.

2\. The government is giving money away like candy, there is a definite bubble
here because this money will be defaulted on. I know a professor at an art
school who says his students easily get $150k to go study art. Many won't even
get a degree with that money. Getting a degree or being on a path to get a
degree in x years is not a requirement of getting the money. He says that
these students will graduate and be lucky to go on to make $25-30k a year.
That is pretty rough. This also drives tuition way up because schools know
they can just charge more and the thanks to the govt. students and money will
still funnel in by the truckload.

3\. Students with student loan money live like rock stars. These are teenagers
here. They suddenly have a bunch of money. do you thing that they are
carefully considering that every dollar they spend will have to be paid back
with interest? Teenagers... I have seen this over and over again personally.
Luxury apartments, nice cars, buying, spending... "A part time job? are you
kidding? who has time for that, I've got to focus on my party life.. Errrr
studies".

------
goggles99
>* $400,000 in student loans. “If the money weren’t a problem I would live on
my own,” says Rong. “My debt is hanging over my mind. I’m taking that all on
myself.”*

How typical, someone complaining that education is so expensive and yet they
are going to the most expensive school. This is ridiculous. This is like
complaining that your Mercedes was too expensive when you could have bought a
more reliable and efficient car for less money.

The article states that the average year at college today costs $18,497, yet
this guy is going to rack up $400k in dept over 6 years? by my math that is
$111k. This guy is spending 4 times the average and crying foul.

I personally know a dentist who worked part time all through school, he went
to community college, state university, private grad/dental university and has
the same diploma that this guy will have on his wall... The difference - the
guy I know only had $40k in debt upon exiting school. He paid it off in two
years (by the time he was 26). I'd say he did things the right way.

