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Student loans

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Rick's thoughts: 

If you want to open a can of worms, try to figure out how much Washington spends each year sending people to college. As is usual in Washington, there are numerous programs, each of which has its own name (usually that of a former politician), each of which has different rules and regulations, some of which are bizarrely accounted for (in a financial sense). Even the 'watchdog' organizations can't always figure out the answer to this simple question, and that's their specialty. We don't have to know the details, however, to know this - the cost of a college degree has gone up 1120% in the last 30 years, and student debt now tops $1 trillion - more than total credit card debt. Surely the government has to do something about this, right? Well, yes, it does. It has to stop driving up the cost of college tuition by subsidizing it! Don't get me wrong - I think college can be a very valuable experience for some people, sometimes. But couldn't we knock off those first two years of binge drinking - or at least quit charging tuition to participate in it - without much loss to society? The economics is simple. When goods are subsidized, people consume more of them. When the government subsidizes education, people consume more of it and - quelle surprise! - the people who provide it are able to ... jack up their prices! Which is exactly what has happened. Congress tells young people they 'have' to go to college, then writes them a big check to do so. When many of those students graduate they find themselves with a huge debt load and a piece of paper that won't get them a job they couldn't have gotten with only a high school diploma. Let's solve the higher education problem the simple way. Get the government out of the business of subsidizing it. Quit telling everyone they 'have' to go to college (don't you think people can figure that out on their own?). And let the private market for higher education figure out the right match of quantity (students) and price (tuition) that will provide the most value to everyone.

Students like short videos, so this is for them.


John Nennig's picture

Right on! As an Industrial Technology instructor in a high school I saw too many young people go through the system with no interest or parental motivation to develop the skills, knowledge or values that American business has been starving for. Germany had a smart system in that it demanded that you had a skill, before you went on to study medicine, law, or other professional pursuit. When students fail to achieve, they have a career to fall back upon.
A.T.'s picture

I don't quite understand this issue, what exactly are education subsidies? Does eliminating government subsidies mean that state universities would close? Also, is government funded academic research a subsidy? Thanks!

Hey - no kidding, it's quite the topic. Who could possibly figure it out without spending a few months trying ... . So, any money the government spends on education is a 'subsidy,' in that it is a political decision to allocate that (always scarce) resource, not a market decision. This generality applies to everything else the government spends money on, too, for instance we could say the military is subsidized, and wouldn't be so big if people had to buy their defense department(s) directly. Moving on, there are federal subsidies and state subsidies and local subsidies of education. In the past K-12 was handled exclusively at the local level, gradually the states got involved with both K-12 and universities (Federal land grant universities, e.g., Iowa State University and MIT, were jump started with Federal money, dating back to 1862). The specific subsidies I am ranting about in my statement above are Pell Grants (cash, doesn't need to be repaid) and guaranteed student loans. They reduce the out of pocket expense students have to pay for college, thus causing them to consume more college than they otherwise would. And they cause colleges to raise their tuitions, of course, because that's how things work in real life. Eliminating them both would probably cause state universities to squeal and scream, as to whether or not they would close their doors I think it is safe to assume they would not (or, if they did, perhaps that would be a good thing). Government funded academic research is a subsidy to research, i.e., professors and graduate students, not so much to undergraduates. There is a much stronger argument to be made that this is economically efficient, i.e., produces a net national benefit, although that is by no means a unanimous opinion among economists. Thanks for your questions - they generate discussion, discussion generates thinking, thinking generates better solutions. We need more of all of this ...
Angi's picture

I get where you are coming from with this, but the one thing you overlook is that student loans help equalize economic disadvantage--coming from a poor family that cannot help send you through college (let's be honest, scholarships are not an equalizer). I think there is better middle ground then eradicating all college funding, such as limiting it to an AA degree, or making it so one degree has to be fully paid back before more loans can be taken. I note in your biography you attended college(s) sporadically and (several) unsuccessfully until you "grew up". Did you pay fully out-of-pocket for all your higher education, or did you partake of some "subsidies" along the way? (It's okay if you did and still are against them--attitudes and ideas do change over time).

In re-reading my own comments I see I have not clearly emphasized the end results of government education subsidies. I do not see how they can possibly help relatively poor families/students one bit, because they don't change the Expected Family Contribution (EFC), the basis of financial aid awards. If the family can afford to pay $X,XXX, the colleges are going to expect the family to pay $X,XXX. So - if it doesn't change the amount the family has to pay - how does it help? [Perhaps I am wrong on this - I haven't fully investigated the details - but I'll bet a pint of microbrew I'm not. I filled out the 'quick form' on a random website I found, and the calculation of how much a family/student must pay has nothing to do with whether or not they are eligible for a Pell Grant or student loan.] As for my own schooling, back in 1970 my mother took out a $500 loan on my behalf (I have no idea from whom, but the government is a prime suspect), then paid it off when it was due (I had dropped out of college and was nowhere to be found). When I returned home two years later I paid her $1,000 for her trouble. My eventual undergraduate degree was earned by attending night classes over many years. My employer paid half my tuition, I paid the other half (everyone in the company was eligible for the same deal). My MBA was 100% paid for by my employer, an agreement I negotiated in lieu of a salary increase. When I graduated, my salary was increased by an amount greatly in excess of the amount of the school expenses, so either my eduction was well worth it to my employer, or I was a poor negotiator for agreeing to the lousy deal in the first place. Smile ...
Angi's picture

OK, I *think* you are saying that because subsidies do not lower the amount if tuition, they are not helpful. That is both true and untrue. A Pell Grant *does* lower the total amount a person has to pay. It is still possible in some places to get an AA with only the funds of a Pell Grant and no additional funds if your income is low enough to qualify for the full grant. Pell Grants do not have to be paid back. Subsidized and Unsubsidized loans, on the other hand, must be paid back and can often create substantially more debt than the tuition itself, both through interest and through over-funding for "living expenses," even if the person is living in their own home, going to school online, etc. Again, if the person qualifies for Pell Grants, those are paid first and reduce the amount required to be paid back by up to $5500 (I think?) per academic year. As you note, employer agreements are not rare, but they are rarer than they used to be because employers expect entry-level workers to have minimum of a Bachelors degree to even be hired most of the time. Even to be an entry level welder at Deere's, they want an 18 month certificate. Some things for you to think about, there.

Subsidies not only do not lower the amount of tuition, they raise it by exactly the amount of the subsidy. Then you get the subsidy, and you think it lowers the amount you have to pay, but in fact it only lowers it to the amount you would have paid in the first place. Thus - no gain by the student, but the college got more money. This can be verified by filling out the application for aid - when I did it a few weeks ago there was no question relating to how much aid you were getting, from any source, only questions about how much you were going to have to pay yourself. So, you will always be asked to pay the maximum, with or without the existence of Pell Grants. Perhaps a graphic would be useful ... but the logic, and the math, and the data, is solid.
Amy Fordham's picture

I disagree with your views on student loans and grants, while some people may abuse this service others do not! I would not have had the opportunity to go to college if it were not for these things, yes I do have some college debt now but I studied to be a teacher and do currently teach, so for people like me who are able to realize their dreams, student loans and grants are a blessing!! I love my job and am thankful for the help I received and understand that the debt is mine to pay back, I did however attend a community college and then a bigger university so my debt may not be a great as some others. I am currently studying for my Masters Degree!!!

It is not a question of abuse, it is a question of whether or not these grants actually made it possible for you to go to college. My claim is that all subsidies did was allow colleges to raise the price of tuition, and then collect exactly that amount from the government, so the cost you had to pay yourself was exactly the same as you would have had to pay if the aid was not available in the first place. My claim is supported by the historical record - colleges actually announced, in print, they were raising their tuitions by exactly the amount of the increase in aid. And it is supported by logic - why would colleges ever let students get by without paying the maximum they are able to pay? And as you know from having done it yourself - they don't! I admire students like you who understood what they were doing when they took out the loans, and used their education to prepare them for work, then took a job and are paying back their loans. But it wasn't because of federal subsidies - it was in spite of them.

Learning doesn't happen when a bureaucrat in Washington writes a new regulation, or when an administrator in a school writes a memo. Learning happens when there is an interaction between a teacher and a child. This is never perfect - there will always be some teachers who aren't good at teaching and some children who aren't good at learning. But - it happens more often when teachers aren't burdened with the latest good idea from their principal, or from their elected official. I say get Washington out of education entirely, and put teachers back in charge of it.
william brandt's picture

The best idea I've heard for higher education reform is to make eligibility for aid dependent on results, using a ROI (return on investment) calculation. Basically, students would only be eligible for grants/loans to pursue a degree program if that program has a history of strong career prospects. And it would be a ratio, so a $100,000 degree would have to be 5 times as effective (based on whatever ROI equation is used) as a $20,000 degree in order to maintain the same eligibility. It would cut down on the number of useless* degrees people get using federal loans (which usually make them worse off than before, thanks too all the debt), while also strongly encouraging universities to improve the actual effectiveness of their programs, and reduce costs/tuition, to maintain eligibility for federal loans/grants. *Economically useless. Even seemingly useless degrees can be great if it's what interests you and you have the money to pay for it, but you shouldn't be getting those degrees on the taxpayer's dime when you probably won't be able to pay it back, and it defeats the purpose of education assistance.

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