I’d like to hear your take on Student Loans. Specifically, do you think access to student loans is enabling these costs to spiral out of control? I mean I couldn’t have gone to university without them, but I also majored in something where I knew I could pay them off when I was done. I also think it’s a little odd that this is the only type of debt that can’t be wiped clean with bankruptcy, so it’s an incentive to banks to loan as much as possible. In fact, when I was in college, they were actually trying to lend me more money than I needed.
It is well known that college costs are increasing at a rate faster than inflation. Though this increase isn’t as large as many people think because often people compare the sticker costs of private colleges rather than the actual realized costs of college once grant-based financial aid has been applied.
I’m not sure if we’ve really nailed down the answer here. One explanation I’ve seen links the increasing costs of college to the increasing costs of health care. As developed nations become richer, there’s only so much more stuff we can get, so we start paying more for services like better health and education. We’re paying more, but that’s because we’re demanding more and we’re getting more in return.
A big factor at the public university level in terms of increasing costs is the loss of government support for public education. States are sending less money to the state universities and the universities have to make that money up.
It is true that dorms have gotten fancier and more expensive, but apparently that’s only a small share of the increased costs, and can’t explain it, as much as we’d like that to be an explanation. In addition, Dean Dad points out that colleges keep getting unfunded mandates: such as keeping track of mad details for financial aid; more services for disabilities, returning students, veterans, students with families, etc… enrollment verification for employment; tutoring centers for the mountains of remedial students… these are great things for schools to have but are often not funded in a budget line, so money has to come from students.
We do know that the loan situation is keeping for-profit institutions in business that should not be in business. Some of them prey on potential students and return very little for high tuition. We definitely need better regulation there.
I don’t think we know so much about publics and non-profits. They have different functions. If we cut student loans, would colleges get less expensive? Well, many of them would go out of business. Rich people would still get degrees. Poor people would probably still get grants, though many people wouldn’t even apply because they wouldn’t realize they could get grants, or they couldn’t afford the tiny amount they still needed to be funded without loans. The middle class would probably be the biggest losers. The return to a college degree would also get larger as fewer people got degrees. Economic inequality would increase. Productivity would go down. Companies would have to offer more on-the-job training. It would be the reverse of the GI bill.
Economic theory suggests that loans for college are a good thing– we lose a ton of efficiency when people would benefit economically from getting education but are credit constrained so they can’t pay for it. Borrowing from future earnings allows people to jump into higher income brackets and is good for the economy.
However, given that we’re in a world without perfect information, and teenagers and 20-somethings can’t be trusted to have their long-term best interests in mind (ex. spending high interest loan money on beer and fancy dorms because they don’t understand compound interest with their unsubsidized loans), caps for non-subsidized loans can still be argued for. Some of these debts are so large that it would be incredibly difficult to pay them back given most post-college situations and the interest rates are high. Subsidized loans don’t get you in too much trouble given their current constraints and the fact that they don’t compound while you’re not paying them off.
So in our opinion, subsidized loans probably aren’t enough. We could probably give out a bit more than what we do. But we wouldn’t increase that much more (and really, we’d expand the Pell grant first!) We should look more at unsubsidized debt and reform that. Maybe we should cap interest rates or allow bankruptcy defaults on it. It’s generally thought that the lending agents are getting far too sweet a deal on the unsubsidized stuff, and predatory for-profit agencies are taking advantage as well. Though, of course, we also have to think about how much we want to protect people from themselves (specifically from their past selves). And that’s a big philosophical problem.
What are your thoughts on student loans, grumpy nation?