The Obama administration is attempting to get private banks out of the student loan business. How much will this really save the government? Liberals like Matt think quite a lot. I'm skeptical.
It's not that I particularly care whether the government guarantees the loans, or makes them directly. Frankly, I think the whole idea of government sponsored student loans, and possibly even grants, is iffy, and suspect it's done little more than inflate tuition costs. But I don't see any a priori reason to believe that the private sector is doing a bang-up job.
That said, the government is not a bank. Originating loans is not merely a problem of issuing some t-bills and funneling the proceeds to students; it requires a fairly large administrative apparatus to manage the applications, disburse the money, track the funds, oversee repayments, provide customer service to borrowers, adjudicate requests for forebearance, collect bad debts, close out the loans and accurately forecast the need for all of the above. That's why government loan programs, from VA loans to SBA assistance to student loans, has traditionally been handled by banks rather than directly through the government.
I'm not predicting that it will be a debacle, although it could be--it's a lot harder than it sounds to start up a bank, which is why it doesn't happen that often. But I suspect that we'll find that the money the banks skimmed off goes to pay our own staff. Banking operations have scale and synergy; the government programs free ride on competencies developed to service other loan areas. Reinventing the wheel rarely proves as lucrative as it looks.
Update: Yes, I'm aware the government makes direct loans. I'm sure it's lovely. I just don't think it will be particularly cheap to expand.
Copyright © 2009 by The Atlantic Monthly Group. All rights reserved.
Our key error in the US was treating college affordability as a financing issue, rather than a costs issue. In fact, I've argued that finance and agency issues (college loan officers) pushed tuition higher, enabled by a financing infrastructure (nay, industry).
We'd be much better off returning to the costs, examining why education spending has outpaced inflation for the last decades. Information technology, at the very least, should have pushed it the other way.
(I've heard that Cal Sate Uni's suffer from a bloated middle management ... true?)
I had a direct loan from the U.S. Government in the mid-1990's for graduate school and the process seemed far more efficient than the private-sector loans I used for undergraduate school just a year earlier.
Point being that this isn't theoretical, there is already data & experience out there and all these proposals represent is a return to the system which many universities used during the 1990's. I suspect the only reason for the change then was the lobbying of lenders because of the profitable/not-dischargeable-in-bankruptcy loans.
The Government run Direct Student Loan program has been pretty effective -- I can say that as someone who sends them $500 a month and as someone who is usually skepitcal of government run programs. The rates are locked in by statute and almost everyone qualifies for up to borrow up to $17,500 a year. That leaves them with the job of taking my money each month, which unfortunately they are pretty good at doing.
The GOP Subsidized/Privatized Boondoggle was one of the biggest discgraces of Delay/Bonior crime spree of the early 2000's. To get their cronies a piece of the action, the government subsidizied the interest rate -- so if I paid 5%, they'd get my 5%, plus 3% from Uncle Sam. Plus the loans were fully guaranteed by Uncle Sam.
As someone who was carrying a decent amount of loans with the government, I recieved no less than a dozen letters in the mail each week trying to get me to go with one of these scams. I never did.
But I do think throwing more money at colleges in the form of grants is a waste. It will only encourage them to raise the tuitions. But allowing folks to borrow 17,500 a year despite being an uncertain credit risk is reasonable. Especially since, as someone once told me, the only way these loans can be discharged is if you die or you are so badly off, you wish you did.
"....and suspect it's done little more than inflate tuition costs"
Besides allow people who otherwise wouldn't be able to afford to go to college to attend you mean. Idiot.
Mike M, dial it back or I'll ban you. Just as in kindergarten, there's no name calling here. But in answer to your unspoken question, the reason so many people need a loan is that college costs have increased much faster than incomes for decades. It was well possible to work your way through school when my parents went--i.e. earn enough to make your tuition. Not any more.
Patrick, as I tried to say explicitly, I doubt it will make much difference one way or another. I don't think the government will be particularly bad, or awesomely good--I've had four different providers of student loans, and all had different drawbacks, but all managed to disburse and collect the money very efficiently. The subsidization goes back well before the 2000s, btw; that's how my business school loans were set up.
I used to work at a student loan guarantor, and although government funding may have recently driven up the cost of college - and I don't know that it did - at first the student loan programs served just to give access to college to people who couldn't afford it. Loans wouldn't be given to folks who wanted to go to college to get a better job afterwards; they weren't seen as good investments. So the guarantors stepped in.
Recently, though, guaranteeing became big money. Companies made more money from students being late on their loans, like with credit cards. Prompt repayment was not in the companies' best interests, even if it was in the students'. So of course companies started to gravitate towards the ways that they could make the most money.
The place I used to work had a special agreement with the federal government so that they would get paid not for collecting fees on late loan repayment, but for having as many students paying back on time as possible. They have tons of people dedicated to working directly with students, calling them to remind them to pay, setting up payment schedules so people don't default or end up in bankruptcy, etc. But the place I used to work was a non-profit, and their philosophy was not the one that drove most of the industry.
Interesting that McCardle links to such a radical leftist like Yglesias. Here'a nice gem to open his article:
"Since conservative ideology indicates that money should only be spent on killing people, preparing to kill people, and threatening to kill people it’s not surprising to learn that some members of congress are not enthusiastic about this proposal."
Is that really the kind of dialogue that you want to encourage McArdle?
Besides allow people who otherwise wouldn't be able to afford to go to college to attend you mean. Idiot.
Like every other hand-out, government-backed or funded student loans are just another example of a failed program wrought with unintended consequences.
They wreck the educational system all the way down to the grade school level because no government institution wants to be responsible for little Johnny not getting to go to college.
So you have the grade schools, middle schools, and high schools fudging their grading so everyone qualifies. And then you have the colleges - who want the money - dialing back the curriculum so that a reasonable number of students who would normally never have made it academically can not only graduate, but do so with a decent average that reflects not the quality of their intelligence, but the quality (or lack thereof) of their education.
Consequently, you have thousands of people out there with degrees who don't deserve them diluting the pool of people with degrees who do and you end up making all degrees worthless.
Now you have tons of people who owe tens of thousands of dollars for loans but can't hold a job in their field because they didn't deserve the degree in the first place. So they end up waiting tables or tending bar just to make the rent and payments.
Currently, "everyone needs to get a degree" is the mantra. By the time my eleven-year-old daughter is through with college, "everyone needs a PhD" will replace it. Where does it end?
Smokes Boehner took even better care of the student loan industry than he did the tobacco industry. Maybe those programs started before those crooks took over but they controlled the subsidies and during there tenure the subsidies were out of control.
There was also Medicare before Senator/Lobbyist Breaux got a hold of the program. But Medicare Part D was the most efficient program available to taxpayers, right Megan? Lucky the GOP saved us from the big spending Democrats. Wake up!
(See links:
http://www.realclearpolitics.com/Commentary/com-1_11_06_FH.html
http://www.slate.com/id/2174000/ )
M McArdle says
"Just as in kindergarten, there's no name calling here."
You should probably qualify this. There's plenty of name calling around here. Shouldn't it read:
"You don't get to call ME names around here."
No one disputes your right to ban posters who insult you after you write down some weird stuff.
If this goes through, all the student debtors should band together and identify one amongst themselves to start dating Barney Frank, and then pool funds to start a tuition account for Chris Dodd's young children, or whomever the appropriate House and Senate committee chairs are.
A bit more seriously, several million educated people with direct loans with the government, and some hay to make every other November, would be a ripe opportunity for some venture lobbying. I see another shiny new office filled with Gucci loafers on K street in our future.
Mike M:
"Besides allow people who otherwise wouldn't be able to afford to go to college to attend you mean. Idiot."
---leaving off the idiot comment, idiot, you forget the rapid rise in tuition since the 1980s when private loans became the rage. Private loans enable the fat wallets of deans across this country with no justification.
I remember one dean of mine who claimed to explain the increase, but onyl talked about "rising costs" without any delineation. Lying through his teeth, he was.
M. McArdle said: "But in answer to your unspoken question, the reason so many people need a loan is that college costs have increased much faster than incomes for decades. It was well possible to work your way through school when my parents went--i.e. earn enough to make your tuition. Not any more."
But why is this? Is it that government made loans easy to get, thus driving demand, thus driving inflation in the higher education market? If those loans were not available could colleges afford to have six figure tenured professors who teach 3 or 6 hours a week? Could the colleges afford to offer umpteen zillion "majors" that will offer kids little in the way of future earnings potential and paying the faculty in those useless majors?
I graduated from Fordham in 1970. Tuition was $1100 per year. I had a $350 scholarship, making the net I had to come up with $750. Working construction for 12 weeks in the summer grossed me about $2000. I went to school with any number of kids who managed to come up with the full $1100 each year. Today, that same school charges $28,000 and is nowhere affordable based on summer and part time work. ST. Johns and Manhattan are similar in cost to Fordham. What caused that hyper inflation? It's easy access to college loans.
With the exception of medical care, there is no other national market has had such insane inflation.
Easy access to loans caused the recent inflation in the housing market. The rise of widespread medical insurance, begun with Medicare and Medicaid, led to hyper inflation in health care costs.
Every market behaves the same. Increase demand and prices rise. The only reason that colleges have been able to get away with this is that there have been no market controls on them.
For any younger readers of this, the average cost of things like rent (NOT Manhattan), cars, food, etc in the New York area has risen about 7 to 8 times since 1970. Houses have risen a bit more, about 10 to 12 times, due to supply limits which, in turn are due to the place being fully built out. College tuition, even at SUNY, has risen by over 25 times.
The statement is breath-taking Megan. The question is whether it was uttered because you believe it to be true or just to provoke a response. And then Nick drops this little missive:
I guess that settles it.
It's so obviously a snowballing debacle: cheap/free money for college -> higher demand -> higher prices necessitating even more cheap/free money. Repeat.
Sounds familiar, no?
@Megan - your statement above says the only thing student loans have essentially accomplished is that they've driven up tuition costs. Then you state that the only reason people even have to take out loans is because college costs are so high.
Which is it?
Your statement is inflammatory and not very well thought out. What exactly are you trying to say? Riling up the troops against government programs that benefit the poor is like shooting fish in a barrel with this crowd. Do you really want to stand behind the idea that nobody has benefitted from student loans? If so, perhaps you should just come right out and say it.
I'll apologize for the name calling but frankly there's not much that can be defended with this level of shallow analysis.
What's the ROI for college tuition? Factoring in opportunity costs (lost wages for four years plus interest), I wouldn't be surprised to find out it has actually turned negative on average.
Government aid in financing luxuries obviously comes with some unintended consequences, as our current housing predicament shows.
College is overrated. Read a book or two, it's cheaper.
Mike M: How does driving the cost through the roof "benefit" the poor? Did you read my earlier posts where I quoted the exact costs at a number of private NYC colleges when I went to school? Did you see how a kid could work summers and part time and easily afford it?
Most of the kids I went to school with, commuters who were anything but wealthy, could even buy a used car.
Do you know what state colleges charged even well into the 70s? It was about 200 to 350 bucks a year. Then student loans took off and the sky was the limit as far as tuition went.
Did you see how a kid could work summers and part time and easily afford it?
My grandfather went to Berkeley in the 30's, and one summer he and his brother paid their tuition by panning for gold.
These were the sons of a Mexican immigrant driven from her village for marrying a white guy, whose husband had died when they were infants.
So it's not clear to me that student loans are doing wonderful things for the poor.
When I started college, I could cover the costs fairly easily through some fairly minor entrepreneurial behavior. By the time I was done, I actually needed to hire employees to generate enough profits to make the quarterly nut. These days, I'd need a helluva lot more, and some managers. This was during a time when student loans were exploding. No, I can't prove causation instead of correlation, but it makes me suspicious.
The problem is, I believe in the free market.
I knwo I made an error taking out private loans. THAT ERROR IS MY OWN FAULT AND I MUST PAY FOR IT (ARE YOU LISTENING, LIBERALS, COMMUNISTS, and SoV???)
if I could do it all over again, I would do 1 of 3 things:
1) join the army, get a free ride.
2) Go to a much cheaper state school on scholarship, natch.
3) forgo college and start a business.
College degrees must eventually come down in price because the market is diltued. Too many people have them to be worth anything, and the subjects they are in are piss-poor educationally noawadys with the victimology degrees. However, the problem is for a professional degree, you need undergrad. Professional degrees enable a true higher standard of living. It's a necessary stepping stone. unfortunately.
My grandfather went to Berkeley in the 30's, and one summer he and his brother paid their tuition by panning for gold.
This also speaks to the fact that people who actually wanted to be there could earn it, as opposed to the current state where about half (give or take) of the kids there wish they weren't, but go because either their parents or the media told them to and the USG gave them free money.
maxwell:
Thank you for acknowledging that without student loans (and other forms of financial aid), children of poor and middle income families would not be able to attend college.
Thank you for also admitting that neither you, nor your contemporaries with whom you attended college, had the need for such assistance.
Clearly, you have no idea how important that assistance is to students who want to attend college and possess the goods to get in, however, are without sufficient means to do so.
Basic Fact: My guess is that proverbial sh-t is gonna hit the fan sooner rather than later.
Do you know anybody who took out second mortgaes to pay for their kid's college? I do. I don't think you're going to see much more of that.
How about the people who tapped IRAs, etc for the money or "invested" for their kids tuition. Many of those funds have dropped like stones in value with the stock market drop.
I think a number of colleges are going to face the "you can't get blood from a stone" problem.
Sy, what do you want your grandchildren to have? Lower tuition or bigger loans? That's what we're talking about.
Of course "no college" is worse than either of those possibilities, but think how much better low tuition would be going forward!
In an age when lecture videos can be on iTunes/YouTube, should costs really be going up as fast as they are?
According to Sy, we should allow the colleges to raise the tuition to 250 Grand a year so kids could graduate owing a Million bucks.
God forbid that colleges be forced to become even remotely efficient.
Thank God the government didn't get involved in car loans. if they had, we'd all be driving $80,000 Corollas.
"join the army, get a free ride."
As a veteran, i can tell you that their are three types of servicemen:
1. slaves (draftees)
2. mercenaries (in it for the money)
3. Fools. (in it for ideology)
I was not drafted, so I am a mix of 2 and three.
I got my degree while in the Navy. It was not as commercially valuable as my six week course in truck driving school. But hey, thanks taxpayers!
Also, it's not a free ride if you get killed.
Mike M wrote: your statement above says the only thing student loans have essentially accomplished is that they've driven up tuition costs. Then you state that the only reason people even have to take out loans is because college costs are so high. Which is it?
It's both. It starts when the government, with all good intentions, makes extra money available by guaranteeing loans. The schools, correctly perceiving that the government will not tightly control the funding because the public mind is persuaded by arguments such as "increasing access for the poor", are able to raise their tuition and fees without tightly controlling their expenses. Students, having been told that a college education is required in order to properly expand their opportunities, increasingly seek college educations and take out loans to cover costs they can no longer afford in short-term cash and earnings.
Schools, seeing the demand for their services increase without regard to price, continue to expand their programs -- particularly in the humanities and some social and political sciences fields where laboratory and other capital/overhead materials costs are light -- and increase their tuition baselines to cover an expanding faculty and an administration with increasingly upper-class tastes and salary demands. Students continue to increase their loan obligations and the government continues to provide whatever is perceived necessary in the name of maintaining "access" and "opportunity", without a close auditing of whether either of those are really being granted or provided efficiently.
See where that goes?
Mike M wrote: Your statement is inflammatory and not very well thought out. What exactly are you trying to say? Riling up the troops against government programs that benefit the poor is like shooting fish in a barrel with this crowd. Do you really want to stand behind the idea that nobody has benefitted from student loans? If so, perhaps you should just come right out and say it.
And lo and behold...the death-spiral sustaining rhetoric of maintaining access for the poor! This is why young adults entering the professional workforce can now be carrying 10-year debt that is half or more the cost of a good 30-year mortgage, sometimes with a very dubious degree that contributes little or nothing to their professional competence, at a point in their life when many of them would barely qualify for a 5-year auto loan.
As someone who has taken out extensive loans to finance her education, I have to say that my experience with the government was far superior to that with private lenders. I could write for hours, but the short story is that one of my private lenders lied to try to keep me from consolidating my loans at a lower rate with the government. I knew enough to fight them, but I suspect most people would have accepted the private lender's false explanation for "why the loans weren't eligible for consolidation with another lender," sucked it up, and paid the higher interest rate.
The government people with whom I dealt says that happens all the time; private lenders put all sorts of obstacles in the paths of would-be consolidators.
I come from a low-income background and attended an inexpensive state school. Tuition was less than $3k a year, but I still needed to eat and manage living expenses. My parents didn't help, and my part-time jobs didn't pay nearly enough to cover the bills. Without grants and loans, I would never have graduated from college. Every day of my professional life, I am grateful to the government for enabling me to get an education, and I find reflexive anti-government sentiments to be profoundly irritating.
I don't think anyone is saying that AS OF THIS VERY MINUTE, poor students don't need student loans - subsidized loans - to get a college education.
The question is whether the ready availability of such loans has made them necessary for more students. I think it has, but can't prove causation. A student (rich or poor) could once earn a year's tuition in a summer's work. No chance of that now. Ergo, more need loans.
One the direct question: As long as the federal govt. is in the business of guaranteeing and subsidizing loans, they might as well do the administration. The "privitization" scheme foisted on us by Delay and company is pure corporate welfare, plain and simple. Unless we value that as a bank stimulus, let's keep it in house.
(And as a guy with >$100k in student loans, I agree that the Direct Loan service is better than private banks').
OK, all you folks who are making the government-loans-only-increase-tuition-therefore-don't-help-poor-people argument (including McArdle) seem to be making two pretty major assumpions:
1. People are not rational when it comes to student loans or don't expect to pay them back (if that's not true, supply-and-demand would still work to keep tuition down and/or top private school education today really is worth $40K).
2. A $40,000 education is the same as a $5000 (which I'm guessing what $1100 is now worth) education.
Now, I won't dispute that there is some truth to both of these arguments--certainly, many Americans have not behaved responsibly this past decade when credit was easy, and if you're spending money to interpret Yeats, then maybe spending $40K isn't required, but realize that the technology and faculty available at the top universities in the US these days is so much better than the rest of the world, which is not something that could be said in the '60's. In the '60's, maybe half of the top 10 universities in the world were American. These days, virtually all of them are (in fact, outside of the University of Tokyo, I'm hard-pressed to think of any foreign university that has the faculty to match a US top 10 school; certainly no university in Europe, since their best professors are inevitably drawn here due to the salary differential). If you argue that all that faculty, research, and technology spending doesn't improve the quality of the education, then you'd also have to argue that foreigners are also irrational, since foreign enrollment in US undergrad and professional schools has been surging, and they typically have to pay full fare or get private loans, since they don't get government loans or grants.
Furthermore, all of you seem to have forgotten about externalities. I would agree with you that government loans for education are silly if an educated populace produces no externalities (that's why I don't see any benefit in government-subsidized loans for homes, auto, refridgerators, etc., because people should go to the private sector if they care enough to spend that money, and buying an auto or home doesn't produce positive externalities), but I would argue that educating people produces vast positive externalities that benefit our society as a whole. Why is Silicon Valley Silicon Valley? They don't actually produce much of anything that is tangible, yet I daresay none of us would wish that Silicon Valley was outside the US and that the leadership in software/internet innovation that the US currently possesses belongs to another country. Yet if Stanford & MIT and Harvard Business School didn't charge some of the most expensive tuition in the world or if California and a bunch of Midwestern states hadn't given their public universities enough funding to build some of the best computer science departments in the world, would the US possess the vast lead in sofware & internet innovation that it currently possesses?
Richard, why do you think supply is elastic, especially among the very elite institutions you seem to focus on?
WHY CANT JOHNNY AFFORD COLLEGE?
BECAUSE HIS PARENTS SPEND UNWISELY, DEPEND ON DEBT,
AND HAVE UNREALISTIC EXPECTATIONS FOR FINANCIAL AID [pdf]. . .
. . .survey of 1,358 parents . . .participating in the poll had at least one child under the age of 18 who they identified as likely to attend college and household incomes of $50,000 or more. . .
. .among parents planning to contribute to their childrens education, the amount the typical parent plans to save for college is likely to cover 23% of their childrens undergraduate expenses, at best. . .
. . .Nearly all parents surveyed (95%) intend to help their kids pay for college, and 41% plan to cover all of their childrens college expenses. . .
. . .Of those who intend to fund at least some of their childrens higher education, most have spent more money on entertainment and/or discretionary purchases in the past year than they have saved for their childrens college costs. Specifically:
• 58% have spent more on eating out or ordering take-out;
• 49% have spent more on vacations;
• 38% have spent more on consumer electronics.
Thirty-one percent of parents who plan to contribute to their childrens education have put more money toward their childrens allowance in the past year than they have put in their college savings fund.
Almost three-quarters of parents (74%) admit they could be saving significantly more for their childrens education if they limited money spent on traveling, entertainment, electronics and impulse purchases. Two-thirds acknowledge that by reducing their discretionary spending on items such as toys, clothes and entertainment for their children, they would be able to save much more for their college educations.
"Six figured tenured professors" do much more than teach 6 hours a week. Even if their course schedule is only 6 hours per week, they most likely have grad students doing research -- grad students need advice and supervision. In order to pay for those grad students, the professors write grant applications all the time. Not to mention the fact that 6 hours of class a week probably entail 20 or so hours of prep time. So, chill a bit on the professors. They're not the drivers of increased costs.
Can anybody justifying the incredibly obtuse argument that student loans are the sole cause of increased tuition tie in the fact that everything else (food, sundries, concert tickets, etc) have increased 3-5 fold in the last five years with student loans as well.
Is there some other government program you guys can lay this on? I'd love to hear the twisted logic. C'mon - link the price of rice with student loans in the US. I know you can do it.
I think Mike M @ 11:34p might be on to something here.
Is there a correlation between the increase of tuition in public institutions and the increase of the general cost of living?
I'm not an economist, so the fancy number crunching is beyond me.
Hello Will,
Well, I'm hard-pressed to think of a non-necessity that is inelastic. If you can think of one, please let me know.
the fact that everything else (food, sundries, concert tickets, etc) have increased 3-5 fold in the last five years with student loans as well.
Funny, because I thought "everything else" would be captured by some measure of broad inflation, say CPI, PPI, or GDP deflator. But since you specifically cite food, concert tickets, and sundries (whatever that means, but if it's intended by denotation as a catchall than I'll default back to a broad measure of inflation) and say it's a fact that these things have increased 3-5 fold in the last five years (translating to annual price increases of 25-38%, WOW!) and facts are easy to confirm/refute, I went to the BLS website. From 2003-2008 the category "College Tuition and Fees" has increased 42%, "Food" has increased 19% and "Admissions" which includes the sub-categories "Admission to movies, theaters, and concerts" and "Admission to sporting events" has also increased 19%.
Loaning money to 18 year-olds on the scale we do is surely predatory lending, isn't it? Isn't it, Yglesias?
With the snark out of the way, I will only say this: anyone taking out a $100K loan for an undergraduate degree is wasting more than a $100K. Any parent that spends a $100K for their child's undergraduate experience is doing the same in the long run. There are ways to get a real higher education for far less, and those ways are going to become more and more popular as time goes by. Unless, of course, the politically connected college/university system buys enough laws to stymie those alternatives.
Patrick,
"Plus the loans were fully guaranteed by Uncle Sam."
Older loans offered only a guarantee of 80 percent on the principal. Try getting a copy of a 428(b) contract. See 20 U.S.C. 1078.
I have tried to isolate out the interest payment subsidies, and payments from the federal treasury on the same, up until the time of default. The Department of Education refuses to entertain an offer to repay this component, in isolation.
The Department of Education refuses, even via a FOIA request, to deliver to me a copy of 428(b) contract(s), applicable to my education.
It is my contention that the rights that the department gets when they make a payment on a defaulted loan should be confined to that which anyone could get by way of equitable subrogation, which is coupled with a rejection of claims that amount to unjust enrichment. Collection based on a now expired (non-renewed) state court judgment is really rather extraordinary . . . where government professes the authority to not be bound by a final court judgment and the limits within a state on enforcement of a state judgment.
When the government gets directly involved in lending or guarantees it is a recipe for arbitrary and capricious conduct, with little hope for a particularized remedy.
There are lessons too from the experience of student loans that should warn folks about the entire TARP scheme. When Uncle Sam buys some note for pennies on the dollar they will thereafter seek collection of the full face amount of the notes, and ultimately offset 25 percent of social security payments one might hope to get. TARP must be viewed as a backdoor scheme where insolvent citizens are forced to alienate their otherwise inalienable interest in social security.
Joseph Story's comments on bankruptcy are as useful today as they were in 1833.
The principal problem with direct government loans is that the government then loses its focus on being the principal protector of individual liberty.
I would suggest that the grants and loans increase the cost of tuition (selling price) and that the organizations claim their costs are going up would all be unionized bureaucracy unchecked.
p.s. professors need 20 hours a week to prepare to teach 6 hours? Sure, it takes 20 hours per week to use the same syllabus and course structure each year with minor modification. Uh huh.
"Well, I'm hard-pressed to think of a non-necessity that is inelastic. If you can think of one, please let me know."
Then please explain how we can link the increase in tuition to student loans. Bonus points if you can somehow justify the statement that the only thing student loans have ever accomplished is to drive up tuition costs.
This is what passes for business "analysis" at the Atlantic. All you need to do is pick a government program out of hat, make some outlandish statements about how it offers no benefit to society and then zombies will emerge from every crevice chanting "tax cuts".
My subscription renewal notices have been going straight to the trash.
Re: Originating loans is not merely a problem of issuing some t-bills and funneling the proceeds to students; it requires a fairly large administrative apparatus to manage the applications, disburse the money, track the funds, oversee repayments, provide customer service to borrowers, adjudicate requests for forebearance, collect bad debts, close out the loans and accurately forecast the need for all of the above.
So hire a loan servicing company the way most mortgage holders do.
Mike M,
It is basic economics: the increase in loans and grants increases the demand for a product whose supply is restricted to a great degree by legal cartelization and financial barriers to entry.
The consumers are also to blame, in my opinion. I look at most of them the way I do at people who buy automobiles that cost 150% of a year's salary, or pay 10 times their income for a house in Orange County.
However, I think the inflation in higher education is nearing an end. The cost of the standard product is rapidly escalating beyond the ability of the average family to pay for it. The response of government is 100% predictable- it will increase grants and loan subsidies, but with the financial holes that have opened up, these measures are sure fail and fail rapidly. The advances in information technology is going to do to higher education what it has been doing the newspapers the last 5 years.
Re: Consequently, you have thousands of people out there with degrees who don't deserve them diluting the pool of people with degrees who do and you end up making all degrees worthless.
OK, so we need hard standards as to who gets into college. But having a standard that only only relatively well off people can go to college is utterly illogical and unproductive.
I could never have gone to college without grants (note: not loans; grants paid my whole tuition, with a pittance left over which I supplemented with a 30 hr/week job.) My father was disabled and apart from our house we had no significant assets. At the risk of sounding boastful I'm one of the people you want to go to college.
IMO, the solution is fairly straight-forward: simply limit admissions and financial aid to people who show promise of academic achievment. Others can go if they want to pay their own way. I believe this works in Europe, so it's not impossible.
Richard: "If you argue that all that faculty, research, and technology spending doesn't improve the quality of the education, then you'd also have to argue that foreigners are also irrational, since foreign enrollment in US undergrad and professional schools has been surging, and they typically have to pay full fare or get private loans, since they don't get government loans or grants."
Why do you assume those foreigners are buying education? I strongly suspect that foreign students, like most Americans, are buying status, certification and networking opportunities.
In fact, status is more important to foreigners. A guy with a Purdue degree has a great shot at getting a job in the US. Getting the same education from the University of Tamil-Nadu won't get you a job in the US or even a good job in Mumbai.
I paid off my student loans about a year ago. They financed my grad school that enabled me to get a career with good earnings and that is the best utilization of my particular unique blend of talents. I'd hate to have lost out on this life, because of no loans, and be a file clerk at an insurance company in my hometown and miserable.
Part of the spiraling costs of education is the creation of special programs and services, and increased regulation, which requires the hiring of mega layers of middle management. I've noticed at our college's announcements of new employees every August, over the past decade it's light on instruction and heavy on middle management. I advocate sticking to the knitting.
Working with people starting college, what makes me mad is the lack of public awareness of the distinction between government student loans and private student loans. HUGE difference. But people use private lenders because they advertise on TV. It just makes me want to scream.
I forgot to mention--another part of the reason for increased cost of education in Catholic higher education (since someone mentioned Fordham)--vocations dropped precipitously, so colleges don't have a staff of people who took vows of poverty and celibacy. They have to pay salaries to lay people with families at market rates.
Also why Catholic K-12 education has become so very expensive probably unto extinction.
I share the concern about costs, and, yes, I'm a small college professor. No, I don't make six figures, but about $70K. I am *not* complaining about that sum, mind you-I consider myself well paid, even though I had to defer getting a real salary until age 30.
I typically work about 60 hours a week, 12 months of the year. Yes, actually lecturing is a small fraction of that-one of my favorite fractions, but grading, prep, meeting with students, writing rec letters, working with research students (even at a small college, this is a large time input) writing and reviewing papers, serving on committees, the inevitable meetings, answering student emails, mentoring first time faculty as they try to learn to teach, advising students both formally and informally, and trying to stay current in your field add up to quite a lot of work.
We have about 10 students for every faculty member, so if you imagine that the average small college professor makes $100k (giggle...if only), then that's $10K of the cost. ($40k is the average usually bandied around). So, yes, that adds up, but it's far from the whole enchilada. If you cut the salaries in half, you'd still have a *very* expensive education (and parents and students prize low student:faculty ratios VERY highly...that can't change while remaining competitive, and it has a huge educational benefit for students). At a state school, there are so few faculty for the gajillion students that those salaries are a drop in the bucket, and those professors bring in more research dollars than they cost (in fact, many are paid *purely* out of their grants).
So yes, our salaries are part of the problem (keep in mind I could make twice as much in industry, and compare us to other fields where you are in training until 30...), but a lot more can be attributed in my mind to the amenities which have blossomed on campuses (which are *far* less spartan than then were 20 years ago...Club Med has come to academe...it's really pretty shocking) and administrative costs (numbers and salaries of administrators have risen far, *far* faster than numbers and salaries of faculty).
So, if you must, give our lavish salaries part (but only a small part) of the blame, but *please* don't insinuate that I work 6 hours a week instead of the actual 60 that I do.
@Yancey
So is the argument here that if we just kept more people from getting an education the price would go down? So we should stop making college more attainable via government backed loans and grants?
Good luck selling that. I'm rapidly becoming convinced that the glibertarian crowd won't be happy until they're safely ensconced in a Versaille like tower of privelege in which they can congratulate themselves on their own self worth as they disdainfully complain about the proles grumbling over their lot below.
And of course none of this addresses the inane comment that the SOLE result of student loans is higher tuition. Most people would think that an educated populace is a nice side benefit if nothing else. Then again, most people think for 30 seconds before making such sweeping generalizations.
kentuckyliz: I'm the one who went to Fordham. The number of priests who taught was minimal in the later 60. Even the administration was mostly secular. It was the same at the other Catholic colleges in the NYC area. My older brother went to Columbia. His tuition was just a bit more than mine. In fact the entire cost of his medical degree from Columbia was less one year's tuition at a run of the mill private college today.
The lack of nums and brothers has effected the cost of Catholic grammar and high schools. However, they are FAR more cost effective, and successful, than public schools, at least in the NY area. On long Island, where I live, Catholic grammar school runs $3.500 per year and High school just about $6,000. Tuition funds almost all of their costs. The average spending per pupil in the public schools is about $17,000 per kid per year - much more than 3 times the cost average of the Catholic schools. 98% of Catholic high school graduates go to decent 4 colleges and graduate in 4 years. Public school graduates only have about a 36% rate.
In a way the Catholic - Public school comparison highlights the extreme inflation in the education industry due to easy access to public moneys. Catholic schools are constrained in costs because they receive no public funds, yet they produce a superior service. The public schools spend far more and produce an inferior product. If all the loans were not available, colleges would be constrained and be forced to be more efficient.
Perhaps a compromise: require transparency of all colleges that accept federal loans. If you accept student loans, you need to put your budget, admissions criteria, graduation rates with breakdowns, etc, on the college website.
Perhaps also a requirement that student loans may not be used at wasteful colleges.
Ninja Zombie:
I'm including "status, certification and networking opportunities" under "quality of education". In any case, those foreigners seem to believe that they are getting something for their high tuition costs.
Also, who the hell is suppose to define "wasteful"? Aren't you against governmental interference? For that matter, don't you believe in the free market and supply and demand? Students who get government loans still have to pay off those loans, so presumably they would be in a better position to judge whether to give their borrowed money to "wasteful colleges" or not rather than you, me, or the government.
Mike M:
Notice that I agree with you.
maxwell:
Mind providing some backing for those figures? Also, unlike K-12, college is more like a free market since there is no free option and college education isn't compulsary, so I'm not sure your comparison says anything about higher education.
Richard: "I'm including "status, certification and networking opportunities" under "quality of education". In any case, those foreigners seem to believe that they are getting something for their high tuition costs."
You can redefine words all day until their meanings are completely obscured. But you should at least make it clear when you are doing so.
"Also, who the hell is suppose to define "wasteful"? Aren't you against governmental interference?"
Eliminating government interference means eliminating federally subsidized student loans. If we are going to get government interference, I'd like it to be at least intelligent. Subsidize education rather than college administrators and the lavish 4 year party that college has become.
A guess from the tone of your post: are you a college administrator?
Great, another subsidy for overpaid underworked teachers who have grad students doing all the actual work.
Why do I get the feeling that if you're demographically like to be a Democrat, unionized gov't loan officials will be about 10x less likely to pursue you for nonpayment of a gov't loan?
Dave,
If there are subsidies for endlessly whining like a bitch about subsidies, would you be ok, given you would be a major recipient?
That's certainly true where I work. In 1976, dorm rooms were cinderblock painted with funky institutional pastels. There were no private bathrooms, nor were there private shower stalls in the communal bathrooms. And the square footage! Like living on top of a spread out book of postage stamps.
Fast-forward a third of a century. The new dorms have easily twice the square footage of the old ones. They have air conditioning. They have private bathrooms, higher ceilings, better furniture, wireless, paid-for basic cable, etc. Also, the students tend more often than not to have their own cars; back in the day, maybe one in three of four had their own on-campus wheels.
About the layers of management I don't think I need to say anything, save that it's mostly a middle-management expansion for things like 'outreach', with some extra flunkies for the higher-ups.
But there is something else to consider as well: As in so many debates of this nature, one has to make a distinction between the cost per student, and what the student actually pays in terms of fees. So, for example, the fees charged at my university outstrip inflation in part because even if the total cost was rising at exactly the rate of inflation, funding at the state level has been cut way back. Federal funds have not been cut back, but they haven't kept pace with inflation either. So who eats the extra cost? If you said 'the students' (or rather, their parents), you'd be spot on. And those costs, what fees the students are assessed, tuition, lab fees, etc, is usually what people are talking about when they complain about the costs rising higher than the general rate of inflation.
Like other people, I have a government student loan through the Department of Education.
One thing I found rather odd about it is that as soon as they found out that I had enrolled part-time in grad school, they deferred my loans without any contact from me. Which was very generous of them, but completely unnecessary, as my MBA was being paid for by my employer - I work for the college, and free tuition is one of the perks.
I wonder how much this kind of generosity will cost.
Ninja Zombie:
Uh no, I'm not connected in any way with any university or college (except as an alum and donor), but I do get annoyed at people to seem to dislike government interference but aren't free-market in their thinking (and you can't be if you believe there should be someone other than the consumers/students determining whether a college is wasteful or not).
As for the government interference/student loan issue, I would agree with you if there were no positive externalities to having a (more) educated workforce. That is why I don't support the income tax deduction of interest on mortgages (there are no positive externalities from increasing the number of homeowners at the expense of renters; if anything, it is disadvantageous, since high homeownership->less mobile workforce->less efficient allocation of resources; BTW I own a house). However, I would posit that having many more people educated than would be the case without government loans creates positive effects that can not be captured solely by the individual being educated.
Not talking about you, Ninja Zombie, per se, but in general, I find that conservatives who think that they are pro-capitalism actually aren't because they never progressed beyond Econ 101 and read up on externalities and network effects.....either that or they are just defending their own self-interests instead of caring about what is actually most efficient/best for society.
I would posit that having many more people educated than would be the case without government loans creates positive effects that can not be captured solely by the individual being educated.
Sure, but you're assuming both that more people are going to college than would without government loans and that they are getting educated in some meaningful way.
So, for example, the fees charged at my university outstrip inflation in part because even if the total cost was rising at exactly the rate of inflation, funding at the state level has been cut way back.
If you think it's bad now, just wait until some department or program other than football turns a profit accidentally.
I hate to say this Rob, but empirically speaking, winning football teams seem to attract revenue. The Tigers went all the way in '07; in 08 enrollment was way up because 'Mizzou is the home of the Tigers'. Likewise alumni donations. Depressing. And there seems to be fairly good evidence that this is a general phenomenon(although the evidence that the increase is not transitory even if the team continues to win seems to be somewhat weaker.)
That being the case, I don't begrudge the coaching staff their salaries, though it is a bitter pill to swallow when teaching salaries are stagnant or the teaching staff is actually laid off at the same time the head coach is getting a salary increase that is equal to the income of five full professors:
As I said, I don't like it, but the evidence is what the evidence is; this does seem to be a smart move on the Board's part.
I hate to say this Rob, but empirically speaking, winning football teams seem to attract revenue.
Indeed they do. My point is that if you think the state funding, academic standards, and plush student digs are bad now, wait until some engineering professor gets a cash-cow patent or the med school cuts costs so far they become revenue-positive.
Real education has positive externalities and is worth subsidizing; 4 years of parties for academically marginal students to puff up the general fund, not so much.
Richard, you may not realize it, but there are all manner of non-essential goods for which the supply has restricted elasticity, if not perfect inelasticity. If you've ever bought a wedding or enagement ring, for instance, you likely paid a non-trivial premium for the inelasticity of supply in the diamond industry, thanks to DeBeers. To state that there is no cartel-like behavior among the universities and colleges in the U.S., which results in restricted supply and higher prices, is naive.
As to related cartel-like behavior, it is perfectly rational for many universities to pay large sums of money for head football coaches, given that the college football cartel, with it's extremely low labor costs, and huge revenue streams, is a profit gusher, given the sort of coach who successfully recruits that low cost labor. I'll leave it to others as to whether taxpayer-supported institutions should be opertating an entertainment cartel.
OK, so Megan posted about government student loan programs WITHOUT KNOWING THAT GOVERNMENT ALREADY MAKES DIRECT LOANS. (See the transparent attempt at post facto ass-covering when she was called on it). How lazy, how careless, how stupid, do you need to be to do that? Ten minutes with google will turn up a half a dozen reports from non-partisan sources that will give you all the details on the history of student loans. This is what constantly amazes me about Megan -- how she consistently refuses to inform herself about the basic facts of anything she writes about? Is it deliberate, because she thinks the facts will cut against her ideology? Or is it just a lazy persons fear that the facts might contradict her random first impressions and require her to actually think about something?
For those who are curious, here is a CBO report , written back when CBO was run by a Republican employee, finding that direct loans cost the government 98 cents per dollar loaned out and FFEL loans through private lenders cost the government $1.15 per dollar loaned out.
Should have said: back when CBO's director was selected by a Republican congress...CBO's directors have been pretty non-partisan when in office. (Although Douglas Holtz-Eakin, the CBO director when that report was written, later became McCain's chief econ advisor).
Kudos to the President, the first president who actually had student loans.
The student loan industry is ripe with greed, arrogance, and corruption. The Sallie Mae CEO has taken nearly a half billion dollars personally as a middleman. He now owns three mansioned estates (annapolis, MD / Harwood, MD / Naples, FL), one with a private 18 hole golf course - although an old photo and the golf course is still under construction, you can see where taxpayer subsidy dollars go via Google Maps at coordinates 38°51'38.52"N, 76°40'4.47"W
Sallie Mae owns two private jets - they used to own three. The jets are tail numbered N50FD and N188AK.
You can see these jets at the following links:
http://www.airliners.net/photo/Israel-IAI-1125A-Astra/0523432/L/
http://www.airliners.net/photo/Israel-IAI-1124-Westwind/0841982/M/
That is where the taxpayer subsidies are going, private golf courses and private jets.
When a FFELP loan defaults, the taxpayer pays nearly twice the amount of the loan. Sallie Mae is allowed to attach fees, penalties, and crank the interest rate up to above credit card rates. After a period, they capitalize those fees, penalties, and interests and put the loan to the taxpayer for payoff. So, a 20k loan becomes more than 40k cost to the taxpayer. In the direct program, the 40k might still be the receivable, but it does not effect cash flow as we see with the middlemen involved. Why are we funding this madness?
Let's not forget the corruption that the subsidies fund. The following student aid administrators got into more than a little hot water for taking kickbacks and other inducements from the student loan industry - most lost their jobs:
Ellen Frishberg - Johns Hopkins
Catherine Thomas - USC
David Charlow - Columbia
Lawrence Burt - University of Texas
Walter Cathie - Widener University
Tim Lehmann - Capella University
Daniel Pinch - Emerson College
In 2008, more than 100 Universities were under investigation for more than 90% of their FFELP loans going to one provider. The notion that there is competition in this "market" is ridiculous - the student loan companies pay or induce schools for preferred lender status resulting in nearly all loans at any one school going to one provider. In the above instances, those inducements were to the administrators themselves. From "School as Lender" to call centers to printing - the inducements to schools are great and the payoffs for the middlemen even greater.
Of course, some in congress receive so much cash from the student loan industry, they will try to derail this improvement. Particularly, Buck McKeon and John Boehner receive the most from the student loan industry. Buck and Boehner have been the champions of the industry for years and are responsible for much of the elimination of competition and stripping of consumer protections for student loans - all to the benefit of the middlemen lenders. There are no student loan companies in Buck or Boehner's districts and no meaningful employment by student lenders in those districts. This is pure pay for play.