The subprime problems continue to spill over into other credit markets. Now student loans may be hit. Pete Davis has a long post that explains what's going on in the market:
What's behind all of this?First, the mortgage crisis has driven investors away from securitized assets, including student loans. That has driven up the cost of financing student loans beyond the interest income and fees from those loans.
Second, last year, the law on student loans was changed, effectively cutting the federal subsidy in half.
Third, a pitched battle has been fought mostly between Republicans and Democrats over who should make student loans. When President Clinton came to office in early 1993, he was able to establish direct lending from the taxpayers to students, but just about every student loan bill until last year's pared back direct lending in favor of private lending.
Now that the mortgage crisis has spilled over into student lending and private lenders are pulling, you have to ask yourself, "Why are we going through this?"
I've been asking myself that about student loans for quite some time. It's still not clear to me how much, if at all, they benefit the students they are supposed to help. It seems at least equally plausible that they're simply feeding the tuition inflation which makes it impossible for a normal kid to work his way through college--that is, that all the benefits of the student loans are not being appropriated by the students, but by the faculty and administration, and the non-borrowing students, who get to enjoy the shiny new facilities that tuition inflation helps pay for.
In fact, by relieving immediate price pressure, they may make poorer kids worse off, because they have to pay back all that inflated tuition with interest--they can't even discharge the debt in bankruptcy.
That's just one story you could tell, of course; I've no doubt that college administrators can come up with a rousing defense of tuition inflation. But I find it hard to believe that the relief from price pressure hasn't had at least some effect.
"It's still not clear to me how much, if at all, they benefit the students they are supposed to help"
um, by allowing them to attend college????
But they might be able to work their way through college and not owe out the wazoo without the tuition inflation caused by student loans, Nutty.
Nutella -- the alternate perspective on Student Loans that MM has favored in the past, and which has a fair bit of historical data to vouch for it, is that the broad and easy availability of student loans have allowed colleges to disproportionately jack up their prices and feed the additional revenue primarily into administrative salaries and/or polishing the campus facilities.
These may not all be bad goals in abstract, but they divorce the school's tuition pricing from the price sensitivity of the students they are trying to attract. The students then wake up after graduation with an enormous debt hangover that will chissel away at their earnings for years, negating a very large portion of the salary advantage they gain from attending college in the first place.
In other words, in the big-picture perspective, it doesn't "help" students attend college; it's a complex, tapayer-funded means of helping the school administration to collect rents.
Nut,
I would rephrase that just a bit- by allowing them to attend the colleges they want.
In general, one really doesn't have to borrow money to attend college, but one won't end up at Harvard or The University of Chicago.
For law, business, or medical school, borrowing is a more general occurance, but for those there is a heftier future income to back it.
Well student loans certainly helped me. I couldn't pay for college without them. Student loans also financed my entire graduate education. While student loans have inflated tuition, even if tuition was cut in half I would have been unable to attend college if I had to pay out of my pocket.
So, for one data point, student loans do help people attend college.
"Considering the positionality of the good we offer, and the increasing importance of position, we know damn well that'll you'll pay the inflated tuition price. Now, let us get back to moaning about the less-fortunate."
Why is it that the same people who demonize pharmaceutical companies for the rising costs of health care never seem to demonize colleges for rising tuition costs? With healthcare, the emphasis for many is to lower costs by putting purchasing pressure on pharmaceutical companies and other healthcare providers. This would of course come at the expense of innovation and research. With higher education, the policy solution is always to find more grant money and subsidized loans to help students pay whatever colleges want to charge.
The rising costs of pharmaceuticals have funded new treatments that have improved and extended lives tremendously over the last 40 years. Would anyone seriously argue that college education has improved similarly in that time? So much of the new spending for colleges seems to go to additional dining options, or for varsity level ultimate frisbee teams. Why is there no desire apply pressure on colleges receiving ferderal assistance to cutback on these ancillary activities? I'm not saying there should be; I just find the difference in standards between the two industries to be inconsistent.
"It's not clear to me..."
"It seems at least equally plausible..."
"They may make poorer kids worse off..."
"That's just one story you could tell..."
"I find it hard to believe..."
What a fascinating non-argument. Hedge much?
Speaking from a position of total ignorance is so persuasive! God forbid doing the smallest amount of research into the causes of tuition inflation then writing from a position of at least minor expertise.
It seems equally plausible to me that this post was written by someone slamming their face on a keyboard a couple of times.
even if tuition was cut in half I would have been unable to attend college if I had to pay out of my pocket.
Just for the hell of it, I looked up in-state rates at my hometown university. $6,375 for the 2007-8 year. Books would no doubt be extra, and granted there are 50 states, so maybe the tuition in some of them is higher. But...
You're seriously asserting you (or parents and relatives) couldn't possibly have come up with maybe $4,000 over and above your living expenses for a few years to get a BA? Wow. Either you can't hold a job or you live rather more lavishly that I do.
The real issue is academic institutions by and large produce a commodity product and charge extremely high prices for it.
Little or none of the ideas in the regular economy, like lean manufacturing, total quality management, etc. have made it to academe.
Not a single institution would offer a warranty for their product / service.
If there is ever an example of a market failure, academe is the one.
Margalis... you need to chill out. Harping on every post whether you have anything to say or not makes YOU the asshole, not Megan.
Well Rob, I may have been able to swing it, if I lived at home and worked full time. Now, the loans afforded me to go to a better school. They also afforded me the ability to live away from my parents. Believe me, I don't feel the slightest regret when I pay my 300 dollar student loan bill every month because my time in college was much better than living in the suburbs like I did for the prior 18 years.
As for graduate school, I'm very certain that I would have been unable to go if I did not have access to student loans.
Another point about student loans on which I'd like to hear Megan's toughts: You can't refinance them.
By way of personal example: I had the misfortune of going through grad school when rates were locked at around 8%; I consolidated after grad school with that as the approximate weighted average. Then, in the early 2000s, rates were at historic lows--in the 2% range, if memory serves. So, while I could and did refi my mortgage at the lower rates then available, my student loans were locked in at 8% because (a) I'm not allowed to "reconsolidate" at the lower rate, and (b) there is no other market for refinancing student loans (apart from, say, paying them off with home equity--but that's not a true refi of the loans, in the usual sense of the term).
Is there any compelling financial reason prohibiting refinancing student loans? None that I can see. Nonetheless, it is my understanding that written into the legislation creating the student loan programs is a prohibition on refinancing outside of consolidation programs.
Keep in mind that the feds have guaranteed these student loans.
So, the student/consumer is locked in at a rate that cannot be changed even if market conditions change; the fed guarantee program assumes greater risk because of this higher rate; and the biggest beneficiary is the loan holder who gets this guaranteed rate essentially risk free (i.e., federally guaranteed and unable to be discharged in bankruptcy). I can see this as nothing more than a sop to the student loan industry.
I assume that if there were an open market for refinancing student loans while maintaining the federal guarantee, then the borrowers and the guarantor would benefit. The only loosers would be the current holders of the debt who wouldn't get above-market rates guaranteed for the life of the debt.
Lest I sound like my grapes are sour, I am grateful that student loans permitted me to get through grad school. And, I took on my level of loan debt knowingly. But that doesn't excuse the absurdity of cutting off the market for refinancing student loans.
Care to tilt at this windmill with me, Megan?
Jim, normally when you make a deal, you don't get to go back to the seller and change the price later just because the market changed. Look at it from the other side: if you bought a five year certificate of deposit, you wouldn't expect the bank to be able to reduce the interest rate after two years because the market had changed. (Even though your deposit is government-guaranteed.)
It is true that, as the law and the market have evolved, home loans are freely prepayable. But that isn't a generic characteristic of debt obligations.
Meanwhile, if anyone besides Jim is worried about excessive, government-guaranteed, profits, the story Megan linked to relates how lenders are exiting the student loan market because it isn't profitable.
I don't feel the slightest regret when I pay my 300 dollar student loan bill every month
I'm sure you don't, but that's different from saying you couldn't have gone to college.
Grad school, I can more easily believe. Wake me when the politicians start hyping grad school for everyone.
But its not different from saying I wasn't helped by readily available student loans.
But its not different from saying I wasn't helped by readily available student loans.
Whether or not you were helped depends on how much the loans inflated the cost of your chosen school, and how much utility you derived from attending that school as opposed to one which would have been cheaper in the no-loan alternate universe.
As far as I can tell, it's far to hypothetical to draw a conclusion. The only thing we can say with confidence is, given the existing student loan regime, you were better off with the loans than without them.
RickM, the point is that the student loans may have jacked up the price of college to the point where you need student loans to pay for them. The question isn't whether you need them in this market--you do--but whether they are actually making college more accessible in aggregate.
I certainly think you're right about the rise of loans creating the conditions that allow for increased tuitions at colleges, Megan. The problem is, I have a hard time endorsing any kind of a plan to make student loans harder to obtain, and as college has become more and more a signaling mechanism for the middle class lifestyle, it seems unfair to make college less accessible. I would turn again to my old saw that we have to recreate industries in this country that provide a living wage (one on which two working parents can expect to own their own home, raise a family, and give their children the means to attend college) to people who didn't attend college. But as usual I have no idea how to go about doing that.
As for structural reasons for tuition inflation, the major culprit is the enormous and enormously expensive physical expansion being undertaken by most elite colleges and many colleges of all stripes. These expansions, for new and better facilities, are massively expensive.
As usual, the culprit is the inane and pointless drive for superior rankings and "exclusivity" that has come to dominate collegiate spending philosophy at every level. Colleges give exit surveys after visits and tours, they spend a ton of money generating survey data, they obsess over exit surveys seniors fill out. And what you see over and over again is the "college as Club Med" attitude. Your gym isn't as nice as Brown's, the dining hall isn't as luxurious as Bowdoin's.... And college administrators, being obsessed about idiotic statistics and numeric rankings, are very sensitive to those complaints. Of course, how nice the inground pool is and how many Internet kiosks are in the student center are at best incidental to the actual mission of the academy, but I digress.
Another facet is the fact that when people donate money to a college, big money, they want to see something for their investment, which usually means a building to put your name on. Hiring superior faculty or administrative staff, which will directly effect educational experience, doesn't rate. The exception is endowed chairs, which are usually named. But the problem is, most universities aren't actually that much improved by attracting a single new superstar faculty member; they would be much better served by attracting many of the best young doctorates coming up out of the universities. But, again, that's not sexy for donors. What's more, endowed chairs are funny in that the more of them there are, the perceived value of them declines, so if you're trying to attract top-flight physics prof X, it doesn't help if he's one of 3 endowed physics profs.
Of course, all of this could be at least possibly fixed, if colleges would actually act their consciouses. But as always, universities are more concerned with keeping up than standing up, and why, we can't stop spending so much on new tennis courts and movie theaters until Williams and Amherst and Swarthmore does.... Breaking free of the US News and World Report tyranny would be an absolute boon for colleges and students, but no one wants to be first.
One point and one question:
Student loans go a long way toward allowing students to pay living expenses, not just tuition, while attending school full time. Therefore, the argument that loans leave students worse off by causing tuition inflation seems to be missing an important part of the picture. I would not have been able to afford my current graduate program without student loans.
Why must the government support student loans. Students seem like a pretty reliable bunch, and school quality / program / major seems like a very strong indicator of income potential. Why is it so hard for students to get large enough loans from private institutions at humane rates?
rickm was helped by student loans. If you want to argue that he wan't *really* helped because loans drove up the cost of his education to the point where it exactly offset the loan you can argue that, but saying "this could be true, who knows?" is not an argument.
Nobody has provided any evidence that loans inflate tuition costs at all. Is it plausible? Sure. It's also plausible that without loans tuition would be unchanged, or that without loans tuition would drop but quality of education would drop proportionally. (Or even more than proportionally) Or that without student loans tuition at top-tier institutions would increase.
There might be an interesting argument to be made here but without actual research and data the technical term for this sort of thing is "hand-waving."
As far as student loan repayment goes, when I took out loans I didn't have any maximum monthly payment amount. (Or if I did it was very high) I paid off all my loans in a couple of years. My rate was low but had I wanted a lower rate I could have taken out a private loan and used that loan to immediately pay off the higher-rated student loans.
ugh. consciences
Why is it that the same people who demonize pharmaceutical companies for the rising costs of health care never seem to demonize colleges for rising tuition costs?
This is one of the most interesting comparisons I've heard in ages.
college has become more and more a signaling mechanism
And that's why the colleges obsess over rankings. The rankings (and perceived "exclusivity") are also a signaling mechanism, and the one that students turn to when they want to pick colleges. Just as students run up big debts to get the degree, colleges run up big bills to get the students. How else do you signal that you're a great school than a #1 ranking and the fact that everyone wants to go there?
I agree that the "college as Club Med" attitude is destructive, but it's coming from the students, not the colleges.
Also, I don't know about undergrad education, but the ABA insists on all sorts of stupid things like wireless internet in its accreditation reviews for law schools. When your very viability as a school depends on it, you go ahead and put in the damn wireless internet.
I wonder if the physical expansion boom isn't related to how, for instance, airlines behaved when fares were regulated. When you can't compete on price, you compete on service. If student loans and generous financial aid packages are taking price competition out of the picture for colleges, then they fall back on services like fancy gyms. Yes, I'm hand-waving, boo-hoo.
Finally, there is a big for-profit education sector out there. Can anyone say anything useful about the price vs. payoff for ITT Tech or City University?
Um, re: my repliers. You're begging the question. If student loans create the need for student loans, why were there ever student loans to begin with?
Obviously, people needed them before they existed or else they'd have never been created.
Also, considering that a lot of Universities are just barely scraping by, and the huge increase in technology that accounts for a big cvhun of the increasing cost of education, I don't really see how you can accuse them of profiteering.
Well Netellaon of course there were people who could not afford college prior to student loans. If someone is arguing that getting rid of student loans would lead to the same # of students attending cheaper colleges they are obviously overstating their case.
But at MU as of last year, the gym had approximately an acre of plasma screens and exercise machines with personal dvd players.
I think you could make a pretty good argument that the easy accessibility of student loans has lead to a lot of spending that does not have a direct correlation to educational quality, whereas if loans were more restrictive you would see more competition on price.
Of course, if you really are price sensitive you can attend any number of pretty cheap community colleges or Devry or something.
I agree that the "college as Club Med" attitude is destructive, but it's coming from the students, not the colleges.
Sure. But colleges don't have to capitulate.
Let me point out also that these phenomena are self-reinforcing. As tuitions skyrocket, the expectations of parents rise with them-- "It costs $40,000 a year, it damn well better come with a great gym"; the colleges feel more pressure to expand, that expansion costs more money, the colleges raise tuition....
Well, tuition at SUNY was around $200 a semester back in the sixties. Minimum wage was $1.25 an hour, so a summer job for ten weeks would cover it, with a little left over for books.
Today, it's more than twenty times as expensive, but the minimum wage isn't $25.00 an hour.
It may be worth it - there's more history now, but my vote is that student loans have increased what the colleges can charge.
Of course, if you really are price sensitive you can attend any number of pretty cheap community colleges or Devry or something.
Where you would likely get the same or better education, and profs who are adjuncts actually working in their fields full-time, too. But you would miss out on having that top-name college on your resume. This would be the equivalent of selecting a Honda Accord over a BMW.
My guess is that for most undergrads, the value of the brand - as it is in clothes/music/cars/etc - exceeds the actual value of the education received...both in perception and reality.
Minimum wage was $1.25 an hour, so a summer job for ten weeks would cover it, with a little left over for books.
Oh, don't even get me started on the massive boondoggle known as the college textbook....
Toxic,
exercise equipment is generally covered by endowments and student activities fees.
Seriously, why do you people talk? You don't KNOW anything. AT all. Seriously, nothing.
Being at college is nothing like being a club med. It's just not. That's just a fundamentlally wrong thing to say.
Sure. But colleges don't have to capitulate.
Sure. And GM doesn't have to build cars that people actually want to buy, they can just churn out eco-friendly three-wheeled electrics all day.
It would be nice if ordinary economic and market considerations didn't apply to education, but they do.
That's a pretty powerful response Nutella. It's "fundamentally wrong" to say that colleges have devoted increasing resources to cable in dorm rooms, private rooms for freshman, more sophisticated exercise equipment, more meal plan options, etc? It may not be Club Med, but it isn't exactly roughing it.
I think you wanted to use a different example than GM. I'm pretty sure GM sells cars that people don't want to buy (but that's a separate issue).
I think you could make a pretty good argument that the easy accessibility of student loans has lead to a lot of spending that does not have a direct correlation to educational quality, whereas if loans were more restrictive you would see more competition on price.
If you could make that argument then make it already instead of merely repeating that you believe it to be true sans any actual evidence.
While we're at it let's argue that home loans have driven up the cost of homes, and that the easy accessibility of home loans leads to a lot of spending that does not directly correlate to protection from the elements. I mean really, the purpose of a home is to provide shelter and all you need for that is 4 walls and a roof, none of the superfluous flim-flammery like multiple rooms, a toilet, beds, windows, etc.
While we're at it let's argue that home loans have driven up the cost of homes
We've been doing exactly that for weeks in threads discussing how loose credit created the housing bubble. Where have you been?
On a side note anyone who thinks college is like Club Med clearly didn't attend Cornell University.
I partially disagree, Rob, and I believe if you think about it a bit you'll see there are problems with that analogy. To begin with, while it's true to a degree that college is a service industry, it's also true that colleges-- and college as a system-- hold significantly more power over students then in a normal consumer-producer relationships. Whats more, there's aspects of exclusivity that elite schools have access to that just can't be appropriated by newer universities. GM always has to deal with the possibility of a new auto manufacturer developing a more appealing car. But elite colleges have a tradition and longevity that goes a long way towards creating their perceived cachet, which is why they are the ones capable of producing change. When the Yales and Harvards and Princetons change (and bear in mind that I list those as the biggest names, not the "best" schools), it creates the space for the Williams, Amhersts and Wesleyans to change, which creates the space for the Bates, Bowdoins, and Vassars....
Not that I think it will change. But it could and it should.
Beyond loose credit, the mortgage interest deduction, similar to federal subsidization of college loans, has possibly encouraged people buying larger houses than they otherwise would and driven up costs.
Guys, I said that the attitude among students and parents is that college should be Club Med plus class, and I said it disparagingly. The fact that colleges, as a general statement, have undergone large-scale physical expansions, and that this expansion has helped fuel rising tuition, is just objectively true. The consequences are debatable, and like I said, I don't like it. But please don't mischaracterize what I'm saying.
Quote the entire sentence please. I haven't seen anyone argue that loose credit created windows. If you have the URL to that discussion handy please share it.
Nor have I seen anyone argue that home and car loans are a net negative, which appears to be the argument here.
I was clearly mocking the argument that loans lead to "Club Med" conditions; the parallel sentence construction should have given that away.
Oh, you're right about the value of the names and the exclusivity attached to them. But then there's this:
When the Yales and Harvards and Princetons change...
That's 3 schools. And there are probably several more you could include in the same category, (Stanford and MIT, say). So even if they could potentially reform the academic marketplace by acting in concert, (a somewhat dubious proposition), how will they do it alone? And keep in mind that collusion over which students to admit or how much aid to offer them will get them nailed on antitrust grounds.
(As an inside baseball aside, I think it a little odd that you conflate a string of NESCAC schools with three major research universities; I wonder if a better comparison isn't Berkeley and UVA)
(As an inside-inside baseball aside, Williams' weight room sucks. But I don't know anybody who picked Middlebury for its undeniably fabulous weight room)
Yes, they do, and it's one more case of the free market picking winners and losers in an "industry" (which makes educated citizens) where it's not necessarily a good thing to let that happen.
You've all named causes that have input into the effect. I'm sure that "signaling" i.e. ranking-whoring, recruitment costs of students and faculty, and the relentless march of inflation in the larger economy are all factors in the phenomenon of tuition inflation. It costs more to run a successful university now than it did before, for all of these reasons, so tuitions have to increase. I think that's pretty clear.
The question is not whether student loans affect tuition rate increases at all; I think it likely that they do. But I also think that their influence is far less significant than these other influences. Student loans do increase the ability of the "market" to bear higher costs, and therefore make it conceptually easier to rationalize raising tuition; "they'll be able to cover it with loans" is very easy to say. Whether that actually is true and actually happens is a different question, and I don't know of any evidence one way or the other.
I think this is very important. Privatizing of Sallie Mae has been a hugely controversial process, with the usual suspects defending and attacking the idea. The "fact on the ground" is that Sallie Mae has been privatized, and now we are seeing the effects.
Boston Globe editorial, "Privatizing and Profiteering"
Heckuva job.
Guys, I said that the attitude among students and parents is that college should be Club Med plus class, and I said it disparagingly.
Many students live at the college they attend, and in many places the college itself is pretty much the only thing in town. It seems reasonable to expect that the place you live for years be somewhat nice.
Why not disparage people for wanting radios in cars? Those don't help get people from point A to B.
This is getting close to "back in my day we played with wooden blocks and we liked it!" and is dangerously low on specifics. I would note that at Harvard the freshman dorms don't have cable (last time I heard). That's hardly Club Med.
I haven't seen anyone argue that loose credit created windows.
That may be because windows precede loan securitization. But it may not; I concede I do not have a link showing when windows were invented.
The parallel argument is that loose credit led people to buy more house than they required; more rooms, more granite countertops, more Viking appliances. Or for cars, more AC, more power windows (again, assuming for the purposes of argument that car windows predate car loans), more horsepower. In doing so, they took on more debt than was rational for either habitation or transportation.
Whether this is a net negative or net positive for aggregate home and car ownership rates, I don't claim to know. Perhaps the mortgage interest deduction doesn't increase homeownership, it merely makes existing property more valuable, or encourages extravagant cabinetry.
And keep in mind that collusion over which students to admit or how much aid to offer them will get them nailed on antitrust grounds.
If the feds were gonna go after colleges on antitrust grounds, they have plenty of reason to do so already.
(As an inside baseball aside, I think it a little odd that you conflate a string of NESCAC schools with three major research universities; I wonder if a better comparison isn't Berkeley and UVA)
I did so deliberately. My point is that from the Ivies flow the trends that the Little 3 take up, and from them the other small northeastern liberal arts colleges, and those small northeastern liberal arts colleges disproportionately create trends and impressions of "college" as an entity. But you're right, and it's a point well taken.
(As an inside-inside baseball aside, Williams' weight room sucks. But I don't know anybody who picked Middlebury for its undeniably fabulous weight room)
Maybe not, although I'm enough of a cynic to imagine that they might. But they do pick Middlebury because its ranked higher than another school in US News, and Middlebury's ranking is dependent on the senior exit survey to an absurd degree, and enough people saying "Man I loved the weight room" inflates the ranking....
(Someone remind me why I'm pursuing a career in higher education again....)
If the feds were gonna go after colleges on antitrust grounds, they have plenty of reason to do so already.
I believe that the DOJ has both sued some schools and threatened to sue others on a price-fixing theory because they used to meet and coordinate their financial-aid offers.
I graduated from college a few years ago, and paid from $900 a semester at the beginning to $1200 per semester by the time I left. While this was affordable without student loans, I took them out because I had little help from my parents for living expenses. Living on my own was expensive and student loans made it so I didn't have to work full-time so it was easier to go to school full-time.
Anyways, state colleges are very affordable so I don't think we should lump state and private universities together in this discussion. While their tuition has gone up, I don't think it's so unaffordable that many people decide not to go because of the cost.
Why not disparage people for wanting radios in cars? Those don't help get people from point A to B.
I don't disparage people who want radios in cars. Unfortunately, you can't select the "no expensive-ass student center" option when paying for college. If having radios was pricing many people out of buying cars, or saddling them with crippling amounts of debt, and you couldn't choose not to buy the radio, and how expensive of a car you bought had profound effects on your earning potential for your entire life, yeah, I'd be unhappy about that too.
I don't disparage people who want radios in cars.
I think you should start. Whenever you see a blog post about car radios, you should leave some sort of insulting comment. Bonus points if you tie it to going off the gold standard.
The US News ranking has too many problems to list. It's an interesting example of a fundamental problem with many rankings systems (such as the BCS): the formula is basically arbitrary and designed to match an existing mental ranking.
Every year the formula is tweaked to make the rankings more "correct" but what "correct" really means is "close to what we all know is the right ranking." (nudge nudge)
Of course if the point of your formula is to mimic your mental ranking you might as well just publish that ranking and be done with it.
Due to recent turmoil in the student loan market, precipitated by predatory lending, new solutions are starting to emerge. However, these solutions require the involvement and good will of alumni and society and depend upon the assumption that eduction must be a priority in society.
www.CapAlly.com
CapAlly.com is a peer-to-peer student loan marketplace and social network that links students to the financial support and professional guidance needed to succeed in the classroom and beyond. Here, students can obtain lower interest rates on private student loans while building a network of professionals vested in the success of the student. Investors (comprised of alumni, parents, strangers, businesses, educational institutions and charitable orgnaizations) can either donate to realize tax benefits for charitable contributions or lend at competitive fixed-income returns.
This company, set to launch in early 2009, is built upon the assumption that education is a cornerstone to the future progress of our society.
Due to recent turmoil in the student loan market, precipitated by predatory lending, new solutions are starting to emerge. However, these solutions require the involvement and good will of alumni and society and depend upon the assumption that eduction must be a priority in society.
www.CapAlly.com
CapAlly.com is a peer-to-peer student loan marketplace and social network that links students to the financial support and professional guidance needed to succeed in the classroom and beyond. Here, students can obtain lower interest rates on private student loans while building a network of professionals vested in the success of the student. Investors (comprised of alumni, parents, strangers, businesses, educational institutions and charitable orgnaizations) can either donate to realize tax benefits for charitable contributions or lend at competitive fixed-income returns.
This company, set to launch in early 2009, is built upon the assumption that education is a cornerstone to the future progress of our society.
Speaking of Harvard:
Harvard announces new initiative aimed at economic barriers to college
If there is an aversion to loans, and universities are aware of that aversion, wouldn't that mitigate the effect of the availability of loans on tuition hikes? (Assuming of course that the universities are rational actors...)
Stanford drops tuition for some students
One driver for this newfound generosity: double-digit growth in tax-deductible endowments:
Nor have I seen anyone argue that home and car loans are a net negative, which appears to be the argument here.
There may be some confusion of terms going around in the thread. I doubt most of the people arguing the point here would, across the board, argue that the possibility of taking out a loan to fund education is a bad thing. However, federally subsidized loans with non-negotiable fixed rates, enormous caps, and ten year repayment schedules might be a bad thing because they allow the market to inflate its prices in correspondence with availability of easy credit.
The only other kind of invidual loan market that tolerates those kinds of terms for non-business loans to individuals has been the real estate, and until recently, those sorts of loans were not handed out indiscriminantly. When that level of credit suddenly got easy with the indiscriminate dispersal of subprimes, lo and behold, we got a real estate bubble with significant price inflations.
If you want to, say, buy a car on credit, credit will be extended to you in proportion to your means and risk. That is to say, the principle balance and interest rate will be guaged by the lender according to what you can reasonable be expected to pay back and how soon. The more you want to borrow, the fewer willing lenders you will find, and the more onerous their terms will be. This builds price senitivity into the market for both buyers and sellers, because buyers will have a maximum range of cars they can reasonably afford and sellers will build cars according to the markets.
The present, subsidized student loan market looks nothing like this, and colleges are engaged in an inflationary "race to the top" in proportion to the easy availability of credit.
Nor have I seen anyone argue that home and car loans are a net negative, which appears to be the argument here.
There may be some confusion of terms going around in the thread. I doubt most of the people arguing the point here would, across the board, argue that the possibility of taking out a loan to fund education is a bad thing. However, federally subsidized loans with non-negotiable fixed rates, enormous caps, and ten year repayment schedules might be a bad thing because they allow the market to inflate its prices in correspondence with availability of easy credit.
The only other kind of invidual loan market that tolerates those kinds of terms for non-business loans to individuals has been the real estate, and until recently, those sorts of loans were not handed out indiscriminantly. When that level of credit suddenly got easy with the indiscriminate dispersal of subprimes, lo and behold, we got a real estate bubble with significant price inflations.
If you want to, say, buy a car on credit, credit will be extended to you in proportion to your means and risk. That is to say, the principle balance and interest rate will be guaged by the lender according to what you can reasonable be expected to pay back and how soon. The more you want to borrow, the fewer willing lenders you will find, and the more onerous their terms will be. This builds price senitivity into the market for both buyers and sellers, because buyers will have a maximum range of cars they can reasonably afford and sellers will build cars according to the markets.
The present, subsidized student loan market looks nothing like this, and colleges are engaged in an inflationary "race to the top" in proportion to the easy availability of credit.
Freddie: Colleges would no doubt resist "a la carte" as much as any other provider who thrives on "bundling". Many colleges require students to get a minimum size dining plan, paying overinflated prices for campus food, and some colleges even require students to live in university housing for one or two years. It would be interesting to see what fees students would elect to skip out on; if student activity fees could be decreased by a student willingly forgoing the use of the gymnasium.
Many schools do have modified pricing for academics; lab fees for science classes, and different tuitions for different colleges (e.g. college of engineering, college of arts, college of basic sciences, college of business). There, I think that students are aware of the price differentials and accept it as a difference in the cost of the education.
People here sure love talking about what "might" and "may" be true, or what is "possible" or "plausible", or what they "believe" or "doubt."
You want to argue that federal loans are a bad thing? Then do the research and argue it.
So if we just got rid of subsidized student loans, tuitions would stop going up? I don't buy it.
Beyond that, this "markets will determine everything" approach is not a good idea from a social perspective:
So you would be much more likely to be able to get financing for an education if you were pursuing a high-return career such as lawyer or doctor, and much less likely to get financing for a career as a teacher or social worker. Added on top of that will be risk analyses based on your background (e.g. if you come from a poor background you are less likely to be a successful student, less able to pay off the loan if you don't succeed, and thus a greater risk). This to you is a great way to run an educational system?
Welcome to the blogosphere. At least we seem to have gotten beyond the "you're a poopyhead" style of argumentation. For now.
But doesn't this contradict your position vis a vis vouchers? A little consistency please.
Further: the fact that tuition has gone up does not mean necessarily mean that the cost of attending has gone up as a consequence. A lot of colleges and universities, such as my own, are dependent upon state and federal largess to keep running as well as direct payments from the students. If that source of funding dries up, the administration may feel it has no alternative but to raise tuition.
And believe me, some state legislatures, such as those currently running the great state of Missouri, are actively hostile to education. We've had the Mohela fund raided by our Boy Governor, Matt Blunt. We've had legislation that slashed funding for the college TV station, KOMU for the sordid deed of not letting on-air personnel where flag pins (doubtless folk like rwe heartily approve of this.)
So to get an accurate picture, you can't look at tuition alone.
Welcome to the blogosphere.
I read plenty of blogs that are based on facts rather than assumptions and speculation. This is not a blogosphere problem, it is a Megan's place problem.
librob wrote: So you would be much more likely to be able to get financing for an education if you were pursuing a high-return career such as lawyer or doctor, and much less likely to get financing for a career as a teacher or social worker.
Not quite. Colleges will still make acceptance offers on the same criteria that they always have: is this student motivated and interested in the field s/he desires to enter, and will s/he make a positive contribution to this school's reputation and legacy?
However, right now the schools can demand that the student stay in the residence halls for two years and buy a gold-plated food service plan (post-facto schtick justification: "We want the students to be relaxed and have time to focus their energy on their studies"), pay seventeen different student recreation and activities fees in exchange for the use of the school's exciting new recreation center, and so forth. I have nothing against this lifestyle if someone can afford it, but many cannot, but are transitioned into it anyway because, first, the subsidized student loans will pay the bulk of the balance; and second, the same degree programs offered at Upstate U. will rip a new wallet hole of equivalent size. Then they wake up after four years and discover that in exchange for living rather well and getting a BA, they have $15-150k in debt to work off.
What if that student could succeed living off-campus and eating most meals at home, taking a reduced credit load, paying reduced fees in exchange for reduced access to peripheral campus facilities, and then graduate in five or six years while working part-time to cover all or at least part of the bills? The current system doesn't allow for much of that at the university level, and there is very little pricing pressure forcing the colleges to consider whether they should be offering a Cobalt and an Impala in addition to the fully-optioned Corvette.
Margalis wrote: You want to argue that federal loans are a bad thing?
Not "want"; "did". Feel free to address any of the arguments presented on their own merits.
Margalis wrote: Then do the research and argue it.
I turned down hotter numbers than you back in high school, and they were proposing beer and sex. What do you suppose your odds are?
No, Mouse, it hasn't. It seems to be something of regular problem here that bald assertions are held to be equivalent to 'arguments'.
They aren't. To make an argument, you need a clearly delineated statement, a set of sourced facts, and some sort of logical argument that gets from the facts to your statement.
Why would you think otherwise? And what does that say about any 'arguments' you may make?
No, Mouse, it hasn't. It seems to be something of regular problem here that bald assertions are held to be equivalent to 'arguments'.
You mean like that one?
You've got a peer-reviewed study showing this problem, right?
What mouse actually said was that federal loans "might be a bad thing." Which is true -- they might! Or they might not!
Neither Megan nor most of her fans see any difference between simply stating something, making an argument based on plausibility, and making an argument based on research and analysis of data.
One thing you learn in the hard sciences is that "common sense" arguments that sound "plausible" are often wrong, which is why you do the work instead of just bloviating.
Neither Megan nor most of her fans see any difference between simply stating something, making an argument based on plausibility, and making an argument based on research and analysis of data.
Meanwhile, persons such as yourself fail to see the difference between a laboratory environment and a casual conversation between persons who have an interest in a subject and a wide range of individual experience to bring to the table.
Unsatiable demands for "prove it" in this type of context usually have two points of origin:
1. People who are sincere, and don't understand why they never get invited to dinner parties.
2. People who are charlatans, and attempt to advance their own intellectual credentials purely by deriding people who refuse to indulge their demands for evidence -- which proves to be a fools' errand anyway, because the point was never to get the evidence, it was merely to bluff until the other person got tired and stopped challenging the bluffer's reinforced prejudices with alternate points of view.
That said, I have a bit more work to finish up before I can leave the office for a dinner party with friends, so I bid you a sincere good night, capped by my optitimistic hope that you are still capable of having one.
A far more interesting question in my mind is whether college is still a good deal for many students at the current level of cost (which should rightly include financing costs).
We consistently see statistics rolled out about how much more a college graduate makes than a high school graduate over their lifetime, and this is generally used to argue that college is a worthwhile investment for a student.
The problem with this (beyond some indications that the number quoted is systematically inflated) is that it does not differentiate the return on college by various pertinent factors like field of study, or quality of university.
Take for example field of study... most of the folks I am still in touch with from college who majored in a hard science or engineering are making 2-4 times as much a decade later as those who majored in liberal arts. This leads me to suspect there is an enormous divergence in lifetime earnings by major, much larger than even what might be suggested by the starting salary surveys.
If this is so it is very likely that there are a whole lot of folks going to college and taking out student loans for whom a college education is a net liability, rather than a net asset.
What this translates into is millions of students who are actively being harmed by encouraging them to take out crushing student loans to pay for degrees that will never be worth what they paid for them. It's OK to get into that situation with your eyes open... but I think we can all agree it's a pretty rough deal to trick folks into by claiming they are going to earn a million dollars more over their lifetime, when the number may be much much lower, particularly if they choose their major poorly.
A far more interesting question in my mind is whether college is still a good deal for many students at the current level of cost (which should rightly include financing costs).
The thing is, attending college is both such fun (and it is) and such a benchmark of middle class lifestyle in this country that I doubt any financial argument could really dissuade people from going. That's not to say that students aren't price sensitive at all, but I think that as long as they can use loans to subsidize college, they're going to go, even if it can be conclusively shown that they aren't benefiting financially.
Margalis write "One thing you learn in the hard sciences is that 'common sense' arguments that sound 'plausible' are often wrong, which is why you do the work instead of just bloviating."
This is exactly true, and very important in science. Indeed, when I was a Math student many of my best (homework) proofs came when the assignment was "Prove X," my common sense said "X has to be false," I worked real hard to prove X was false, and eventually found the correct result and corresponding proof. "Just because X seems obviously true does not mean X really is true" has been beaten into me.
In in hard sciences, however, and more so in life, there is a time and place for random speculation, thinking about ideas that seem interesting but may not go anywhere, and generally just playing around. This is partly where new hypotheses come from, even though in the early steps it looks an awful lot like bloviating. Many a blog, and especially many a blog comment section, is exactly such a place.
Chuckle. You have a very peculiar idea of what constitutes a laboratory environment.
Er, no. First of all 'Prove it' is just a leetle bit different from 'What is your evidence for this?' You haven't given the latter, let alone the former.
Really? Funny, I wasn't working late at the office, and I daresay my friends - mathematicians, engineers, physicists, statisticians, theater producers, etc are a _great_ deal more interesting than yours. Certainly they don't spout the bull you seem to habitually engage in.
How much faster than inflation is college expenditures rising again?
Oh. That's right: you never said.
Evidence is for squares, not for super-popular social-butterfly dinner partiers like mouse.
Isn't there some sort of pomo in there? 'Evidence for squares' is getting there, but not quite. Hmmm, how about "You squares and your . . .evidence." Still not right, but better.
There is not only a factual issue here, but one of consistency across a range of positions: On the one hand, vouchers won't serve to merely inflate the price of a private school by the amount of the voucher - but student loans for colleges will. 'Conservatives' are constantly exhorting the rest of us to get educated and grab the brass ring, if we lower orders want a better life. But when that happens, when apparently this advice is listened to, there is shock, shock that increased demand drives prices higher than inflation.
Wha!?!?!?!
There are other marvelous inconsistencies, but these issues are the ones that seem to surface the most here.
The way I look at it is that a college education is a tool, and like any other tool you can spend a large sum buying it but never use it to your advantage. But I do wonder (if I'm allowed to do that here) if ROI is explained by the degree allowing the graduate to earn more, or people who are already likely to earn more (because of other intrinsic qualities) are also the most likely to attend college.
Well, here's some interesting data...
http://www.finaid.org/savings/tuition-inflation.phtml
Statistically, there is no correlation between college inflation rates and general inflation rates.
the college cost inflation rate has run from a high of 6.5 times the general inflation rate to a low of half the general inflation rate, with an recent average of about twice the general inflation rate.
it would be reasonable to expect an average college inflation rate of 7% or 8% per year for the next ten years
from 1958 through 1996...the college inflation rate runs between one and a half to two times the general inflation rate
http://www.inflationdata.com/inflation/Inflation_Articles/Education_Inflation.asp
the overall inflation rate since 1986 increased 92.32%, which is why we pay nearly double for everything we buy. On the other hand, during the same time, tuition increased a whopping 343.81%
I work at an online university, and our tuition is directly linked to the amount available via subsidized loans. I would be surprised if other colleges (traditional and non-traditional) didn't take this into account.
The amount of money that the government makes available sets the basement for demand. Why would a university go lower?