

The High Cost of College - Megan McArdle - billswift
http://www.theatlantic.com/business/archive/2010/09/the-high-cost-of-college/63445/

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hristov
Megan McArdle misses the biggest reason why tuitions are sky-rocketing and
that is because Government funding is disappearing.

Basically this is what happened: Before the Bush administration, the fed
government would give out these huge grants to the states for education and
other purposes. When Bush became president he had to figure out a way to cut
taxes while drastically increasing spending at the same time (because he had
to have his war). Borrowing was a big part of the answer but he also severely
cut the grants to the states. Bush also transferred huge war costs to the
states by requiring that the national guard take an unprecedented part in the
war.

All of a sudden states budgets were trashed and the first thing they cut was
education subsidies.

Of course there were other things that destroyed state budgets such as the
slow economy, pension liabilities (which were caused by the slow economy),
etc., but it all started with the war.

It was always the large high quality state schools that kept tuitions down. If
you have the UC system (for example) that can take hundreds of thousands of
students, provides excellent education and charges only $5k per year (as it
did during the 90's), it is very difficult for other schools to raise tuition.
Of course few schools that were clearly better than the UC system could raise
tuition also few schools that specialised in serving rich kids, but most
schools could not.

Now of course the state schools are losing their state funding, which means
they must raise their tuition, which means that all other schools can raise
theirs too.

Now mind you student loans are an issue as well, but one has to mention the
disappearing state funding when discussing skyrocketing tuitions.

~~~
jacoblyles
Would love to see numbers and citations or just a good article on this.

~~~
hristov
[http://www.cbpp.org/cms/index.cfm?fa=view&id=1554](http://www.cbpp.org/cms/index.cfm?fa=view&id=1554)

<http://www.americanprogress.org/issues/kfiles/b34039.html>

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nkurz
Some of the discussion is reasonable, but I really dislike the reliance on
"Figure 4: Expected Lifetime Earnings by Educational Attainment". Certainly
there is a correlation here, but is there causation?

"But as you can see from the chart above, $1 million is close to the lifetime
value of a college degree (it's actually about $1.4 million), and colleges are
getting better at extracting quite a lot of that value for themselves."

To prove the point, you could make a parallel chart of "Lifetime Earnings by
Car Driven", and I'm sure that the BMW owners would on average earn more over
their lifetime than the Honda Civic drivers (like me). But this wouldn't imply
this is a good pricing model for cars.

Obviously, the actual chart used is better than this hypothetical. But
shouldn't one at least try to distinguish the value of the degree from the
skills that the person already had going in?

~~~
argv_empty
_Some of the discussion is reasonable, but I really dislike the reliance on
"Figure 4: Expected Lifetime Earnings by Educational Attainment". Certainly
there is a correlation here, but is there causation?_

Not demonstrated, but certainly plausible, since the different education
levels seem to point towards different career paths.

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wallflower
Repost here:

"But in 2005, during a major overhaul of the bankruptcy code, private student
loans were given an elevated status and thus couldn't be discharged. This
didn't make sense. If we are going to have a fair bankruptcy system, private
education loans should be treated the same as other private consumer debt.
That's the risk lenders take, similar to the risk borne by providers of loans
for cars, homes or other consumer purchases." [1]

"Lenders receive a 97 percent guarantee against default losses, which removes
almost all of the default risk of the loan to the lender. If a borrower does
not repay his or her federal student loan, the government pays the lender 97
percent of the outstanding principal and all of the accrued unpaid interest.
In other words, the lender assumes default risk for only 3 percent of the loan
principal." [2]

[1] [http://edlabor.house.gov/edlabor_dem/mt-
search.cgi?IncludeBl...](http://edlabor.house.gov/edlabor_dem/mt-
search.cgi?IncludeBlogs=11&limit=20&tag=student%20loan)

[2] [http://febp.newamerica.net/background-analysis/federal-
stude...](http://febp.newamerica.net/background-analysis/federal-student-loan-
subsidies)

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cageface
Subsidized student loans have been available for a long time. Why are they so
much more pernicious now? Are there solid numbers available for the growth of
loans over the last 50 years?

~~~
anthuswilliams
It's because you didn't need a subsidized loan when you could afford to pay
tuition yourself. Sure, they were available, but there were fewer people that
would be unable to attend school without them. I have an old teacher who went
to college in the seventies, and he says he didn't get a subsidized loan
because he was too lazy to walk down the street and fill out an application.

~~~
cageface
Isn't that kind of a circular argument? Loans are more common now because
tuition is more expensive because loans are more common?

~~~
jerf
It is temporally circular, not logically circular. It's a pernicious cycle. It
has been headed for disaster for a while, but like a lot of economic trends
that were (and are) obviously headed for disaster, people tended to think it
could go for another ten or twenty years, a horizon that has really shrunk due
to the fact that the economy has choked.

If the economy doesn't really pick up in the next year I think we're going to
see some very shocking numbers come next fall admission.

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argv_empty
_But beyond the high default rates, consider what a student loan does. In the
past, college degrees conferred higher incomes on those who earned them. But
almost all of that surplus went to the student rather than the college,
because aside from a small number of extremely affluent families, the students
were young and did not have that much cash. If colleges wanted to expand their
market, college tuition was constrained to what an average student, or their
family, could pay._

How far back do we have to go to get to a time when the "average [university]
student" was from not an "extremely affluent" family, but still well above
average?

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maximilian
FTA:

 _To make this product work on a mass scale, you need the government guarantee
--and the government's ability to shield those loans from bankruptcy. The
default rate on student loans is 7%, not all that much lower than the current
8.8% default rate on credit card loans--even though student loans are not
dischargeable in bankruptcy, are deferrable for hardship, and are supposed to
be made to people who end up with higher than average earning power._

How does one actually default on the loan if you can't default? Do they just
stop paying?

~~~
billswift
The law is that student loans cannot be discharged through bankruptcy. There
are several ways they can be legally defaulted on, for example if the person
becomes disabled and begins receiving SSI. Plus, as you said they can simply
not pay, but that completely and permanently trashes their credit, since it
doesn't go away (or so I understand - I could be wrong about whether it
eventually falls off their credit rating).

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billswift
Clearest discussion I have seen about why the cost has risen so much, and
keeps rising, and probably will continue for a while yet.

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twodayslate
That is funny... I am not paying a single cent for college. Sucks to be
everyone else.

