8 ms·

The Student Loan Crisis Is Overblown

26 points by BDGC 10y ago

squozzer 10y ago
What bothers me most about these discussions is that no one seems to advocate making college cheaper. The solution space always seems to gravitate towards finding more money. I do not see how that approach can sustain itself forever. Ditto for health care.
- jorge-fundido 10y ago
  Agreed. As much as I personally would like to see a smaller federal gov't, I think that if the federal gov't is going to concern itself with something big like energy, health care, or education, then it might as well take it over completely. As much as that scares me, it's probably better than this perversion of a free market society that we currently have.
awt 10y ago
The student loan "bubble" is essentially an attempt to paper over the lack of jobs and serves as a welfare program for youth funded (as are most government programs) with debt.
eganist 10y ago
This feels like when bankers thought mortgage default rates wouldn't crack 8% back in 2007.
irln 10y ago
For context, this is the ramp up of student loans: https://fred.stlouisfed.org/graph/?g=nQY https://fred.stlouisfed.org/graph/?g=nQY and https://fred.stlouisfed.org/series/TOTALGOV https://fred.stlouisfed.org/series/TOTALGOV.
- thatfrenchguy 10y ago
  This is enlightening, thank you.
- dursk 10y ago
  I think not being on a logarithmic scale makes that slightly misleading.
givinguflac 10y ago
Based on my personal experience and that of friends and acquaintances, 23-24 year olds with a bachelor degree working at Starbucks (or equivalent) is not at all rare. The 'crisis' may be overblown by the media a bit, but it is definitely not something that can be ignored. Every media and politic mouthpiece also said everything was perfectly fine, right up to the 2008 crash. I take anything like this with a healthy dose of salt.
- jackmaney 10y ago
  Yeah, I'm actually pretty damn disappointed that NPR would print such garbage. They used to be more respectable than that. Now, they'll apparently publish any idiotic claim, whether or not it has any evidence whatsoever to back it up.
- petsormeat 10y ago
  Heck, that's what I did--25 years ago. The low value of many bachelor degrees in terms of employment has been a common experience for a lot of Americans.
- erroneousfunk 10y ago
  It's not all that rare, but it's not as common workers without college degrees working as baristas. Here's a post from the New York Fed: http://libertystreeteconomics.newyorkfed.org/2016/01/working-as-a-barista-after-college-is-not-as-common-as-you-might-think.html#.V5oTmZMrLq2 http://libertystreeteconomics.newyorkfed.org/2016/01/working... Your odds of working in a low skilled service position or manual labor job without a college degree (as a young person) are a little over 50%. With a college degree, it's about 25%/
  - SerLava 10y ago
    Still, the remaining 25% have a lot worse financial situation due to student loans.
ScaryRacoon 10y ago
I think a big point that wasn't touched on in the article (maybe her book does, I haven't read it) is that the increased debt load on students means they are delaying or forgoing buying other major purchases, such as homes and cars. Both of which are huge economic drivers. It isn't that people can't afford the loan payments, it is that the loan payments are reducing the disposable income of those students for quite some time.
- seansrk 10y ago
  You nailed it on the head. Great post.
- rahimnathwani 10y ago
  I can see how car buying increases GDP (as each new car must be produced) but the same doesn't necessarily apply to home buying. Home supply is relatively fixed. Increases in demand cause asset price inflation, more than they do additional homebuilding. So home purchases don't 'drive the economy' in the sense of causing additional economic output.
  - Houshalter 10y ago
    Also if the car is manufactured in a foreign country it doesn't really benefit the US economy. Maybe in some complicated and indirect way it does. But if that's the strongest argument for subsidizing education, we should just give the money to car companies directly and skip the middle man. Or whatever economists say is the most effective use of that money, perhaps giving it directly to the poorest.
  - djrogers 10y ago
    This is completely wrong. Housing starts - the number of new home units which began construction in a given quarter - have long been a significant economic indicator. More specifically, new residential construction accounts for roughly 15% of the GDP, compared to the 3-3.5% from the automobile industry. Housing supply is so far from being 'fixed' that it contributes 5x more to the GDP than automobiles.
tribune 10y ago
Certainly some people are struggling with student debt, and I don't want to look down on their struggle. From a macroeconomic standpoint, though, the Student Loan "Crisis" is at least an order of magnitude smaller than the Mortgage Crisis.
- Phlarp 10y ago
  How many finance professionals were saying "I don't want to look down on struggling homeowners, but from a macroeconomic standpoint the housing loan "crisis" is at least an order of magnitude smaller than the early 2000's tech bubble or the S&L scandals of the 80's" in 2006?
  - dragonwriter 10y ago
    AFAICT, pretty close to zero. There were people that were denying a problem even existed, and people portraying it as an enormous bomb poised to go off anytime, and very few people in the middle.
pitt1980 10y ago
Yes, racking up $100K of debt may seem good because you now have a 6 figure job which is good for the economy. However, what they don't explain is why $100K of debt was needed, and not say $10K. Or why you shouldn't just take $1M of student loans out because wow you'd really be productive!
- gerbilly 10y ago
  I think universities are addicted to visa students and that drives tuitions through the roof.[1] Visa students don't require government funding, they just pay cash. And often those students, who come from the rich families of the entire world, money is no object, so tuition naturally rises to meet the price that they will bear. Of course government funding for domestic students does not keep up with that price inflation. Back in the late 80s, I paid for my Bachelors by working part time jobs, and I was a full time student. I don't think I could do that today, unless I worked nights and never slept. [1] Canadian universities anyway, may also apply to all north american ones.
api 10y ago
Maybe not in isolation. It has to be taken as part of a larger picture. There is tremendous downward pressure on wages and has been for a long time due mostly to outsourcing, foreign competition, and automation. All those things are deflationary in general. Central banks have tried to fight this via traditional inflationary monetary policy but it's not working. Since the pressure on wages is so deep and structural, those policies are just inflating other things. Chief among these are housing and education because these are financed with debt. I think this is the wider picture. It's not so much a student loan crisis as a larger breakdown of the entire 20th century economic formula.
Kenji 10y ago
A third of college students who earn a four-year degree graduate with no debt at all. Zero. Frankly, that is extremely alarming. Only a third? It's strange how people can look at the same numbers and draw completely different conclusions. Here's my take on the issue: The government inflated prices of education not unlike banks inflated house prices. All the loaners of student loans should start making provisions now, and big ones at that. People are defaulting or taking a longer time to pay back than anticipated. At the end of the day, I anticipate nobody will act until it blows up and then the state (and thus the common people) will pay up every single dime of this debt - just another case of privatized profit and socialized losses, it becomes boring to watch this game. I suggest a radically different form of funding education. I would start a pool for every branch of education and invite private companies to fund education and institutes they need (which is already happening at some scale). Then I would have the state multiply the collected amount of money by a number, say, 2 (or whatever the public agrees to and is reasonable), and pay that on top of the collected funds, and that is how much funding this branch of education gets. Maybe there's some minimum too. And I'd make tuition fees very low but still high enough to disincentivize just fooling around - full stipends would be granted to poor people who are doing well at school and show potential.
- cgearhart 10y ago
  > loaners of student loans should start making provisions now But it's vastly more difficult (i.e., nearly impossible) to discharge student loan debt. Even if it takes years and years, most students will be required to pay back what they borrowed. I don't think we need to be worried about the bubble popping, but rather the secondary effects that the weight of student loans will cause. For example, companies have a natural advantage negotiating with graduates carrying debt who need a job more urgently than those who have no debt. > I suggest a radically different form of funding education. I'm slightly less radical, but along the same lines -- fund institutions, not students. Making students into consumers forces schools to compete on features & amenities (things students care about) rather than focusing on providing quality education at low cost. Public colleges don't need to be country clubs to provide an education.
  - 10y ago
lintiness 10y ago
a few points: the same public unions that support clinton and sanders are the ones that created the "for profit" school debt problem. many union contracts offer mandatory pay raises for nonsense masters degrees pumped out online. the government subsidizing student debt with artificially low interest rates has increased the size of the load as well as the cost of said education.
- givinguflac 10y ago
  You do understand that a massive portion of this issue is private schools costing so much? Most private schools have nothing to do with the unions or politics you're talking about.
  - lintiness 10y ago
    private schools cost a lot for two very important reasons: (1) consumers believe they're worth it and (2) said consumers can borrow money to pay tuition at extraordinarily low interest rates.
    - Clubber 10y ago
      I think one of the biggest draws to private schools is they typically don't require admissions testing such as SAT, ACT, GMAT, etc. Of course, when you hear "private school," many people think private high schools, which are typically superior to public, particularly in southern US regions. The different is these are "for-profit," which can easily be confused, particularly by someone right out of high school. Finally large marketing expenditures and high pressure sales targeted at people who believe people are required, morally or legally, to be honest.
      - lintiness 10y ago
        stanford, harvard, yale, university of chicago, mit, williams, amherst, princeton, penn, cal tech, ... all private schools that not only require standardized test scores, but prefer top percentile.
zekevermillion 10y ago
Another overlooked problem is that easy debt financing (not to mention need-based aid) inflates the cost of attending university for those who have to pay full-price, including those who borrow the cost. This raises the sticker price required to remain competitive as an institution, and is terribly distorting as the many schools with no or poor endowments compete with wealthier universities for students, professors, and capital.
- fragsworth 10y ago
  That should only be temporary. Assuming there's competition (and it seems that there is - no university has a monopoly), the influx of money allows the industry to grow. The prices should level out over time.
  - zekevermillion 10y ago
    One would think that is true, that tuition is seeking a new equilibrium based on: subsidized lending; lack of bankruptcy protection from student loans; desire of high school grads to enroll in university. However, we do not seem to have reached a tuition plateau yet. Further, the expensive tastes of both public and private institutions, and the leverage undertaken by students, means that this system overall is fragile. If there is a rapid change in economic circumstances, we will find that overlevered students (including those that we thought had "reasonable" debt loads) and high-cost institutions will fail at an alarming rate. Endowments will shrink overnight. States will slash funding for state universities / research. Tuition will not possibly be able to come down fast enough, in those circumstances. Until then -- business as usual!
  - unprepare 10y ago
    only if cost is something they compete on. as it is, the most expensive universities are seen as better, more prestigious.
- superuser2 10y ago
  For better or for worse the social contract in this country is that parents finance their children's education commensurate with their ability to do so. We could lobby Congress to stop considering parents' resources in calculating financial need, but I doubt you will find much sympathy among voters for an agenda of "life is too difficult for children of wealthy families."
jorge-fundido 10y ago
When our federal government gets involved in something, the potential for corruption is too great - there's just too much money. We saw it with federally backed mortgages, federally backed student loans, and will see it with federally mandated health insurance. The intentions may be good but it's only a matter of time before opportunists screw it up. The figures at the end of the article seem to be cherry-picked in a way to hide the full details. Instead of telling us what a quartile looks like, why not show the full distribution?
- TheLarch 10y ago
  Why is the federal government more inclined to corruption than a corporation? On the subject of corruption I can't recommend reading this highly enough: https://www.amazon.com/Conman-Master-Swindler%C2%92s-Library-Larceny/dp/0767917375 https://www.amazon.com/Conman-Master-Swindler%C2%92s-Library...
  - jorge-fundido 10y ago
    I didn't mean to imply corruption strictly by the federal government. I meant more broadly that whenever there is a huge pool of money, many actors (individuals, corporations, government agencies) will do whatever possible to get a piece of that. A con man selling a book spilling the secrets of his cons? Sounds like a con - I'm kidding (mostly). Reminds me of how self-help superstars peddle their wares.
    - TheLarch 10y ago
      The book is a wild, wild ride. He regularly sold "investments" that would ostensibly benefit the Nazis, and never did a mark make moral objections to the investment. Another striking aspect is the value that con men put on their props: there were cottage industries at the time to produce formal-looking documents and fake telecommunications equipment. The Sting was surprisingly accurate, it turns out; there really were many cons of that sort.
RcouF1uZ4gsC 10y ago
Actually, this is a lot like the housing crisis. The banks lent money in excess of the value of the home to people that could not afford the debt. With the student loan crisis, the Federal government has been lending money to students assuming that the value of the education is equal to what the institution charges for it. This has resulted in severe tuition inflation and a massive debt burden. I think a good solution both now and going forward is to: 1) Calculate the value of the education based on the Institution, the Major, and the Degree. We should be able to calculate this based on the Federal student loan information cross-correlated with IRS data. 2) Forgive all debt in excess of the value of the education 3) Only finance student debt up to the expected value of the education. This will do a lot in terms of removing the tuition market distortion and in relieving the debt load.
- blahi 10y ago
  So you ignore and refuse the well argumented conclusions of the book author interviewed in the article and instead give some arbitrary opinions because...?
  - RcouF1uZ4gsC 10y ago
    Because, I am sure we could have found a mortgage expert in 2007 to assure us that there was no mortgage crisis. In addition, the concept of federal government offering loans with no independent verification (which we could easily do) as to the value of what they are giving the loan for seems like a good way to create a bubble (see Fannie Mae). I agree with the author that student loans are good in that it enables people who would otherwise have not been able to afford college to be able to get a degree. However, student loans are an issue that a major constituency in the United States think is an issue (see Bernie Sander's campaign). To dismiss that concern as just due to media scare tactics does not seem reasonable.
    - blahi 10y ago
      So your argument is that the author is wrong because somebody else might have been wrong for something that happened in the past. Makes total sense.
dailyrorschach 10y ago
I am surprised this interview seems to ignore that the larger problem is coming from students who take loans out, but then drop out of the program before graduating, making it even harder to pay back their loans. This is an interesting article in The Atlantic on that subject: http://www.theatlantic.com/business/archive/2016/07/the-scariest-student-loan-number/492023/ http://www.theatlantic.com/business/archive/2016/07/the-scar...
- blahi 10y ago
  I'm surprised you comment without reading the article. Not really though. >The problem is that we have a lot of people actually borrowing small amounts of money, going to college, not completing [a degree] or completing credentials that don't have labor market value. They tend to be older. They tend to come from disadvantaged, middle-income families and they're struggling. [But] not because they owe a lot of money.
  - TheLarch 10y ago
    Totally support you pointing this out. However I hope you will indulge a random person, and let me suggest that your angry, aggrieved tone diminishes your contribution.
  - dailyrorschach 10y ago
    Yes but the interview seems to imply that this diminishes or somehow makes the case for the problem overblown. It says yes this is a problem, but doesn't really go into any specifics on why it's a bigger problem for those borrowers or that this is where the defaults are coming from. I guess I could have worded my comment better to say that I felt it wasn't given enough attention or depth.
awt 10y ago
Ha. Overblown. His wife must not owe 100K+ after being kicked out of law school like mine.
GarrisonPrime 10y ago
Wow, such a misleading premise. The majority of readers will come away with the simplistic conclusion that "there is no problem with student loans, unemployment among the educated, etc." Music to NPR's ears.
- TheLarch 10y ago
  Sadly it appears we will reach the point where media must be dishonest to generate enough clicks to keep the doors open.
- jorge-fundido 10y ago
  NPR is my go-to radio station for news but more & more it sounds like National Propaganda Radio, but maybe I'm just turning into a grumpy old conservative.
yourareanidiot 10y ago
In France if I broke my leg it's free To fix. I can go to university for 500€ per year. People of USA open your eyes not your assholes.
- jbb555 10y ago
  It's not "free". Someone is paying for it? It's either people whop didn't gain the benefit of either, or it's you later on, only instead of a transparent loan, it's opaque taxes so you don't realize you are paying.
  - yourareanidiot 10y ago
    Yes I win less money because my employer pay tax. But on this way it's cheaper for everyone and everyone get health care and education. No matter they are rich or poor. If I get sick one day I can benefit from this system. And if i'm not someone else benefits.
  - damptowel 10y ago
    Gov can still be considerably cheaper depending on the structure of the underlaying circuit, how much intrest does the gov charge vis a vis the banks, I'm sure for profit institution charge a lot more, leading to a higher fraction of income going into repayments, depressing overall demand, thus GDP, thus higher gov debt ratio. etc ...
  - basch 10y ago
    buuut really, what is the cost to record the best roman history lecture in the world and put it on youtube. OR pay an editor to edit together all the best courses into a metacourse/documentary. what percent of college education is either lecture or textbooks? if curriculum includes video lectures, and can serve millions instead of hundreds per year, the cost should be drastically reduced. lecture portions can be reused from year to year. now college costs should just be discussion/lab/feedback/etc by clinging to live lectures, they can limit supply and control price. no matter how you spin it, college is overpriced, compared to how it could be if there were incentive to serve everyone and distribute all the information. its an exclusive club people pay to enter.
PaulHoule 10y ago
Another angle is to look at it from a business perspective. Early on, Lending Club introduced roughly 10 categories of loans, one of which was "Student Loan". In the first few years the risk models worked out pretty well for the other 9 categories of loans and they turned out to be pretty good investments from the viewpoint of the lender and roughly similar in return/risk profile. Student loans were a disaster, with the interest mostly eaten up with defaults. They stopped making student loans. People think abstractly that education is a good thing, but from the viewpoint of improving your job prospects it is a risky thing. If it wasn't for government guarantees and subsidization, however, student loans would not exist today except for people who don't need them. It just is not a good business (as a business) to make loans that have a high chance people can't pay them.
atkinswj 10y ago
The stats regarding the horrifying amount of student debt in this country speak for themselves. The stats regarding historically low levels of household formation and milestone purchases (home, car, etc.) among millennials also speak for themselves. This article is garbage.
forgingahead 10y ago
Related: "Credit Crisis: The Sky is not falling [2007]": http://www.brookings.edu/research/papers/2007/10/mortgage-industry-downs http://www.brookings.edu/research/papers/2007/10/mortgage-in... "Growing Foreclosure numbers don't spell doom [2007]":http://www.businesswire.com/portal/site/google/index.jsp?ndmViewId=news_view&newsId=20070618005881&newsLang=en http://www.businesswire.com/portal/site/google/index.jsp?ndm... You can find lots more, I just did a cursory search.
IanDrake 10y ago
I can't help feeling this is somewhat orchestrated. This author was an adviser to Clinton's campaign. Clinton has already said this is a problem, but the reality is that she will do nothing about it (for various reasons). So, it seems the best way to make that palatable to her base is to start a new narrative that says, "there is no problem". Like a Jedi brain trick, her followers will parrot the same thing and repeat the cherry picked statistics in these talking points.
- jorge-fundido 10y ago
  Especially considering how this started under Bill Clinton's administration (see Title IV) [1]. I remember watching how proud he was of it [2][3]. Maybe the intentions were good but coupled with the repeal of Glass-Steagall and rise sub-prime mortgage crisis makes me wonder. [1] https://www.congress.gov/bill/103rd-congress/house-bill/2264/text https://www.congress.gov/bill/103rd-congress/house-bill/2264... [2] https://youtu.be/b1TdC9g4XBQ?t=32m28s https://youtu.be/b1TdC9g4XBQ?t=32m28s [3] http://www.pbs.org/newshour/bb/politics-july-dec96-clinton_08-29/ http://www.pbs.org/newshour/bb/politics-july-dec96-clinton_0...
- maxerickson 10y ago
  Nothing is a pretty low bar. Offering a Federal refinance option wouldn't necessarily cost anything, it would just forgo revenue. Figuring out which schools are worthless and making it harder to spend federal loans at those schools is win-win-win. Incentivizes for public schools to limit cost increases can probably work. So there is enough room for improvement that expecting nothing is pretty pessimistic.

26 points by BDGC 10y ago

What bothers me most about these discussions is that no one seems to advocate making college cheaper. The solution space always seems to gravitate towards finding more money. I do not see how that approach can sustain itself forever. Ditto for health care.

jorge-fundido 10y ago
Agreed. As much as I personally would like to see a smaller federal gov't, I think that if the federal gov't is going to concern itself with something big like energy, health care, or education, then it might as well take it over completely. As much as that scares me, it's probably better than this perversion of a free market society that we currently have.

awt 10y ago

The student loan "bubble" is essentially an attempt to paper over the lack of jobs and serves as a welfare program for youth funded (as are most government programs) with debt.

eganist 10y ago

This feels like when bankers thought mortgage default rates wouldn't crack 8% back in 2007.

irln 10y ago

For context, this is the ramp up of student loans: https://fred.stlouisfed.org/graph/?g=nQY https://fred.stlouisfed.org/graph/?g=nQY and https://fred.stlouisfed.org/series/TOTALGOV https://fred.stlouisfed.org/series/TOTALGOV.

thatfrenchguy 10y ago
This is enlightening, thank you.
dursk 10y ago
I think not being on a logarithmic scale makes that slightly misleading.

givinguflac 10y ago

Based on my personal experience and that of friends and acquaintances, 23-24 year olds with a bachelor degree working at Starbucks (or equivalent) is not at all rare. The 'crisis' may be overblown by the media a bit, but it is definitely not something that can be ignored. Every media and politic mouthpiece also said everything was perfectly fine, right up to the 2008 crash. I take anything like this with a healthy dose of salt.

jackmaney 10y ago
Yeah, I'm actually pretty damn disappointed that NPR would print such garbage. They used to be more respectable than that. Now, they'll apparently publish any idiotic claim, whether or not it has any evidence whatsoever to back it up.
petsormeat 10y ago
Heck, that's what I did--25 years ago. The low value of many bachelor degrees in terms of employment has been a common experience for a lot of Americans.
erroneousfunk 10y ago
It's not all that rare, but it's not as common workers without college degrees working as baristas. Here's a post from the New York Fed: http://libertystreeteconomics.newyorkfed.org/2016/01/working-as-a-barista-after-college-is-not-as-common-as-you-might-think.html#.V5oTmZMrLq2 http://libertystreeteconomics.newyorkfed.org/2016/01/working... Your odds of working in a low skilled service position or manual labor job without a college degree (as a young person) are a little over 50%. With a college degree, it's about 25%/
- SerLava 10y ago
  Still, the remaining 25% have a lot worse financial situation due to student loans.

ScaryRacoon 10y ago

I think a big point that wasn't touched on in the article (maybe her book does, I haven't read it) is that the increased debt load on students means they are delaying or forgoing buying other major purchases, such as homes and cars. Both of which are huge economic drivers. It isn't that people can't afford the loan payments, it is that the loan payments are reducing the disposable income of those students for quite some time.

seansrk 10y ago
You nailed it on the head. Great post.
rahimnathwani 10y ago
I can see how car buying increases GDP (as each new car must be produced) but the same doesn't necessarily apply to home buying. Home supply is relatively fixed. Increases in demand cause asset price inflation, more than they do additional homebuilding. So home purchases don't 'drive the economy' in the sense of causing additional economic output.
- Houshalter 10y ago
  Also if the car is manufactured in a foreign country it doesn't really benefit the US economy. Maybe in some complicated and indirect way it does. But if that's the strongest argument for subsidizing education, we should just give the money to car companies directly and skip the middle man. Or whatever economists say is the most effective use of that money, perhaps giving it directly to the poorest.
- djrogers 10y ago
  This is completely wrong. Housing starts - the number of new home units which began construction in a given quarter - have long been a significant economic indicator. More specifically, new residential construction accounts for roughly 15% of the GDP, compared to the 3-3.5% from the automobile industry. Housing supply is so far from being 'fixed' that it contributes 5x more to the GDP than automobiles.

tribune 10y ago

Certainly some people are struggling with student debt, and I don't want to look down on their struggle. From a macroeconomic standpoint, though, the Student Loan "Crisis" is at least an order of magnitude smaller than the Mortgage Crisis.

Phlarp 10y ago
How many finance professionals were saying "I don't want to look down on struggling homeowners, but from a macroeconomic standpoint the housing loan "crisis" is at least an order of magnitude smaller than the early 2000's tech bubble or the S&L scandals of the 80's" in 2006?
- dragonwriter 10y ago
  AFAICT, pretty close to zero. There were people that were denying a problem even existed, and people portraying it as an enormous bomb poised to go off anytime, and very few people in the middle.

pitt1980 10y ago

Yes, racking up $100K of debt may seem good because you now have a 6 figure job which is good for the economy. However, what they don't explain is why $100K of debt was needed, and not say $10K. Or why you shouldn't just take $1M of student loans out because wow you'd really be productive!

gerbilly 10y ago
I think universities are addicted to visa students and that drives tuitions through the roof.[1] Visa students don't require government funding, they just pay cash. And often those students, who come from the rich families of the entire world, money is no object, so tuition naturally rises to meet the price that they will bear. Of course government funding for domestic students does not keep up with that price inflation. Back in the late 80s, I paid for my Bachelors by working part time jobs, and I was a full time student. I don't think I could do that today, unless I worked nights and never slept. [1] Canadian universities anyway, may also apply to all north american ones.

api 10y ago

Maybe not in isolation. It has to be taken as part of a larger picture. There is tremendous downward pressure on wages and has been for a long time due mostly to outsourcing, foreign competition, and automation. All those things are deflationary in general. Central banks have tried to fight this via traditional inflationary monetary policy but it's not working. Since the pressure on wages is so deep and structural, those policies are just inflating other things. Chief among these are housing and education because these are financed with debt. I think this is the wider picture. It's not so much a student loan crisis as a larger breakdown of the entire 20th century economic formula.

Kenji 10y ago

A third of college students who earn a four-year degree graduate with no debt at all. Zero. Frankly, that is extremely alarming. Only a third? It's strange how people can look at the same numbers and draw completely different conclusions. Here's my take on the issue: The government inflated prices of education not unlike banks inflated house prices. All the loaners of student loans should start making provisions now, and big ones at that. People are defaulting or taking a longer time to pay back than anticipated. At the end of the day, I anticipate nobody will act until it blows up and then the state (and thus the common people) will pay up every single dime of this debt - just another case of privatized profit and socialized losses, it becomes boring to watch this game. I suggest a radically different form of funding education. I would start a pool for every branch of education and invite private companies to fund education and institutes they need (which is already happening at some scale). Then I would have the state multiply the collected amount of money by a number, say, 2 (or whatever the public agrees to and is reasonable), and pay that on top of the collected funds, and that is how much funding this branch of education gets. Maybe there's some minimum too. And I'd make tuition fees very low but still high enough to disincentivize just fooling around - full stipends would be granted to poor people who are doing well at school and show potential.

cgearhart 10y ago
> loaners of student loans should start making provisions now But it's vastly more difficult (i.e., nearly impossible) to discharge student loan debt. Even if it takes years and years, most students will be required to pay back what they borrowed. I don't think we need to be worried about the bubble popping, but rather the secondary effects that the weight of student loans will cause. For example, companies have a natural advantage negotiating with graduates carrying debt who need a job more urgently than those who have no debt. > I suggest a radically different form of funding education. I'm slightly less radical, but along the same lines -- fund institutions, not students. Making students into consumers forces schools to compete on features & amenities (things students care about) rather than focusing on providing quality education at low cost. Public colleges don't need to be country clubs to provide an education.
- 10y ago

lintiness 10y ago

a few points: the same public unions that support clinton and sanders are the ones that created the "for profit" school debt problem. many union contracts offer mandatory pay raises for nonsense masters degrees pumped out online. the government subsidizing student debt with artificially low interest rates has increased the size of the load as well as the cost of said education.

givinguflac 10y ago
You do understand that a massive portion of this issue is private schools costing so much? Most private schools have nothing to do with the unions or politics you're talking about.
- lintiness 10y ago
  private schools cost a lot for two very important reasons: (1) consumers believe they're worth it and (2) said consumers can borrow money to pay tuition at extraordinarily low interest rates.
  - Clubber 10y ago
    I think one of the biggest draws to private schools is they typically don't require admissions testing such as SAT, ACT, GMAT, etc. Of course, when you hear "private school," many people think private high schools, which are typically superior to public, particularly in southern US regions. The different is these are "for-profit," which can easily be confused, particularly by someone right out of high school. Finally large marketing expenditures and high pressure sales targeted at people who believe people are required, morally or legally, to be honest.
    - lintiness 10y ago
      stanford, harvard, yale, university of chicago, mit, williams, amherst, princeton, penn, cal tech, ... all private schools that not only require standardized test scores, but prefer top percentile.

zekevermillion 10y ago

Another overlooked problem is that easy debt financing (not to mention need-based aid) inflates the cost of attending university for those who have to pay full-price, including those who borrow the cost. This raises the sticker price required to remain competitive as an institution, and is terribly distorting as the many schools with no or poor endowments compete with wealthier universities for students, professors, and capital.

fragsworth 10y ago
That should only be temporary. Assuming there's competition (and it seems that there is - no university has a monopoly), the influx of money allows the industry to grow. The prices should level out over time.
- zekevermillion 10y ago
  One would think that is true, that tuition is seeking a new equilibrium based on: subsidized lending; lack of bankruptcy protection from student loans; desire of high school grads to enroll in university. However, we do not seem to have reached a tuition plateau yet. Further, the expensive tastes of both public and private institutions, and the leverage undertaken by students, means that this system overall is fragile. If there is a rapid change in economic circumstances, we will find that overlevered students (including those that we thought had "reasonable" debt loads) and high-cost institutions will fail at an alarming rate. Endowments will shrink overnight. States will slash funding for state universities / research. Tuition will not possibly be able to come down fast enough, in those circumstances. Until then -- business as usual!
- unprepare 10y ago
  only if cost is something they compete on. as it is, the most expensive universities are seen as better, more prestigious.
superuser2 10y ago
For better or for worse the social contract in this country is that parents finance their children's education commensurate with their ability to do so. We could lobby Congress to stop considering parents' resources in calculating financial need, but I doubt you will find much sympathy among voters for an agenda of "life is too difficult for children of wealthy families."

jorge-fundido 10y ago

When our federal government gets involved in something, the potential for corruption is too great - there's just too much money. We saw it with federally backed mortgages, federally backed student loans, and will see it with federally mandated health insurance. The intentions may be good but it's only a matter of time before opportunists screw it up. The figures at the end of the article seem to be cherry-picked in a way to hide the full details. Instead of telling us what a quartile looks like, why not show the full distribution?

TheLarch 10y ago
Why is the federal government more inclined to corruption than a corporation? On the subject of corruption I can't recommend reading this highly enough: https://www.amazon.com/Conman-Master-Swindler%C2%92s-Library-Larceny/dp/0767917375 https://www.amazon.com/Conman-Master-Swindler%C2%92s-Library...
- jorge-fundido 10y ago
  I didn't mean to imply corruption strictly by the federal government. I meant more broadly that whenever there is a huge pool of money, many actors (individuals, corporations, government agencies) will do whatever possible to get a piece of that. A con man selling a book spilling the secrets of his cons? Sounds like a con - I'm kidding (mostly). Reminds me of how self-help superstars peddle their wares.
  - TheLarch 10y ago
    The book is a wild, wild ride. He regularly sold "investments" that would ostensibly benefit the Nazis, and never did a mark make moral objections to the investment. Another striking aspect is the value that con men put on their props: there were cottage industries at the time to produce formal-looking documents and fake telecommunications equipment. The Sting was surprisingly accurate, it turns out; there really were many cons of that sort.

RcouF1uZ4gsC 10y ago

Actually, this is a lot like the housing crisis. The banks lent money in excess of the value of the home to people that could not afford the debt. With the student loan crisis, the Federal government has been lending money to students assuming that the value of the education is equal to what the institution charges for it. This has resulted in severe tuition inflation and a massive debt burden. I think a good solution both now and going forward is to: 1) Calculate the value of the education based on the Institution, the Major, and the Degree. We should be able to calculate this based on the Federal student loan information cross-correlated with IRS data. 2) Forgive all debt in excess of the value of the education 3) Only finance student debt up to the expected value of the education. This will do a lot in terms of removing the tuition market distortion and in relieving the debt load.

blahi 10y ago
So you ignore and refuse the well argumented conclusions of the book author interviewed in the article and instead give some arbitrary opinions because...?
- RcouF1uZ4gsC 10y ago
  Because, I am sure we could have found a mortgage expert in 2007 to assure us that there was no mortgage crisis. In addition, the concept of federal government offering loans with no independent verification (which we could easily do) as to the value of what they are giving the loan for seems like a good way to create a bubble (see Fannie Mae). I agree with the author that student loans are good in that it enables people who would otherwise have not been able to afford college to be able to get a degree. However, student loans are an issue that a major constituency in the United States think is an issue (see Bernie Sander's campaign). To dismiss that concern as just due to media scare tactics does not seem reasonable.
  - blahi 10y ago
    So your argument is that the author is wrong because somebody else might have been wrong for something that happened in the past. Makes total sense.

dailyrorschach 10y ago

I am surprised this interview seems to ignore that the larger problem is coming from students who take loans out, but then drop out of the program before graduating, making it even harder to pay back their loans. This is an interesting article in The Atlantic on that subject: http://www.theatlantic.com/business/archive/2016/07/the-scariest-student-loan-number/492023/ http://www.theatlantic.com/business/archive/2016/07/the-scar...

blahi 10y ago
I'm surprised you comment without reading the article. Not really though. >The problem is that we have a lot of people actually borrowing small amounts of money, going to college, not completing [a degree] or completing credentials that don't have labor market value. They tend to be older. They tend to come from disadvantaged, middle-income families and they're struggling. [But] not because they owe a lot of money.
- TheLarch 10y ago
  Totally support you pointing this out. However I hope you will indulge a random person, and let me suggest that your angry, aggrieved tone diminishes your contribution.
- dailyrorschach 10y ago
  Yes but the interview seems to imply that this diminishes or somehow makes the case for the problem overblown. It says yes this is a problem, but doesn't really go into any specifics on why it's a bigger problem for those borrowers or that this is where the defaults are coming from. I guess I could have worded my comment better to say that I felt it wasn't given enough attention or depth.

awt 10y ago

Ha. Overblown. His wife must not owe 100K+ after being kicked out of law school like mine.

GarrisonPrime 10y ago

Wow, such a misleading premise. The majority of readers will come away with the simplistic conclusion that "there is no problem with student loans, unemployment among the educated, etc." Music to NPR's ears.

TheLarch 10y ago
Sadly it appears we will reach the point where media must be dishonest to generate enough clicks to keep the doors open.
jorge-fundido 10y ago
NPR is my go-to radio station for news but more & more it sounds like National Propaganda Radio, but maybe I'm just turning into a grumpy old conservative.

yourareanidiot 10y ago

In France if I broke my leg it's free To fix. I can go to university for 500€ per year. People of USA open your eyes not your assholes.

jbb555 10y ago
It's not "free". Someone is paying for it? It's either people whop didn't gain the benefit of either, or it's you later on, only instead of a transparent loan, it's opaque taxes so you don't realize you are paying.
- yourareanidiot 10y ago
  Yes I win less money because my employer pay tax. But on this way it's cheaper for everyone and everyone get health care and education. No matter they are rich or poor. If I get sick one day I can benefit from this system. And if i'm not someone else benefits.
- damptowel 10y ago
  Gov can still be considerably cheaper depending on the structure of the underlaying circuit, how much intrest does the gov charge vis a vis the banks, I'm sure for profit institution charge a lot more, leading to a higher fraction of income going into repayments, depressing overall demand, thus GDP, thus higher gov debt ratio. etc ...
- basch 10y ago
  buuut really, what is the cost to record the best roman history lecture in the world and put it on youtube. OR pay an editor to edit together all the best courses into a metacourse/documentary. what percent of college education is either lecture or textbooks? if curriculum includes video lectures, and can serve millions instead of hundreds per year, the cost should be drastically reduced. lecture portions can be reused from year to year. now college costs should just be discussion/lab/feedback/etc by clinging to live lectures, they can limit supply and control price. no matter how you spin it, college is overpriced, compared to how it could be if there were incentive to serve everyone and distribute all the information. its an exclusive club people pay to enter.

PaulHoule 10y ago

Another angle is to look at it from a business perspective. Early on, Lending Club introduced roughly 10 categories of loans, one of which was "Student Loan". In the first few years the risk models worked out pretty well for the other 9 categories of loans and they turned out to be pretty good investments from the viewpoint of the lender and roughly similar in return/risk profile. Student loans were a disaster, with the interest mostly eaten up with defaults. They stopped making student loans. People think abstractly that education is a good thing, but from the viewpoint of improving your job prospects it is a risky thing. If it wasn't for government guarantees and subsidization, however, student loans would not exist today except for people who don't need them. It just is not a good business (as a business) to make loans that have a high chance people can't pay them.

atkinswj 10y ago

The stats regarding the horrifying amount of student debt in this country speak for themselves. The stats regarding historically low levels of household formation and milestone purchases (home, car, etc.) among millennials also speak for themselves. This article is garbage.

forgingahead 10y ago

Related: "Credit Crisis: The Sky is not falling [2007]": http://www.brookings.edu/research/papers/2007/10/mortgage-industry-downs http://www.brookings.edu/research/papers/2007/10/mortgage-in... "Growing Foreclosure numbers don't spell doom [2007]":http://www.businesswire.com/portal/site/google/index.jsp?ndmViewId=news_view&newsId=20070618005881&newsLang=en http://www.businesswire.com/portal/site/google/index.jsp?ndm... You can find lots more, I just did a cursory search.

IanDrake 10y ago

I can't help feeling this is somewhat orchestrated. This author was an adviser to Clinton's campaign. Clinton has already said this is a problem, but the reality is that she will do nothing about it (for various reasons). So, it seems the best way to make that palatable to her base is to start a new narrative that says, "there is no problem". Like a Jedi brain trick, her followers will parrot the same thing and repeat the cherry picked statistics in these talking points.

jorge-fundido 10y ago
Especially considering how this started under Bill Clinton's administration (see Title IV) [1]. I remember watching how proud he was of it [2][3]. Maybe the intentions were good but coupled with the repeal of Glass-Steagall and rise sub-prime mortgage crisis makes me wonder. [1] https://www.congress.gov/bill/103rd-congress/house-bill/2264/text https://www.congress.gov/bill/103rd-congress/house-bill/2264... [2] https://youtu.be/b1TdC9g4XBQ?t=32m28s https://youtu.be/b1TdC9g4XBQ?t=32m28s [3] http://www.pbs.org/newshour/bb/politics-july-dec96-clinton_08-29/ http://www.pbs.org/newshour/bb/politics-july-dec96-clinton_0...
maxerickson 10y ago
Nothing is a pretty low bar. Offering a Federal refinance option wouldn't necessarily cost anything, it would just forgo revenue. Figuring out which schools are worthless and making it harder to spend federal loans at those schools is win-win-win. Incentivizes for public schools to limit cost increases can probably work. So there is enough room for improvement that expecting nothing is pretty pessimistic.