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The government has distorted the market by subsidizing college with guaranteed student loans unable to be discharged in bankruptcy. I’m confident that a fully

by p_roz 7y ago

The government has distorted the market by subsidizing college with guaranteed student loans unable to be discharged in bankruptcy. I’m confident that a fully private market would limit student loans to those with a positive ROI. Of course, that’s politically unpalatable in the US.

joejerryronnie 7y ago
Yep, it’s essentially the same mentality that lead to the 08 housing crisis. People’s hearts are in the right place, i.e. we should make it easier for disadvantaged people to get an education/purchase a home. But when you only walk through the use case half way (as politicians always do) and don’t really follow the policies through to their natural conclusions (as politicians never do), you get all kinds of unintended consequences and ultimately end up hurting the people you’re trying to help. This is my biggest fear with the current rise of progressive/socialist interest among young people. All they can see is the free stuff being promised, not the inevitable fallout down the road (the wealthy will be fine, they always are - it’s the young, poor, and disadvantaged who will be stuck with the bill).
- moorhosj 7y ago
  Meanwhile, other rich countries offer college that is significantly more subsidized, sometimes even free. How do Norway, Sweden, Germany, France and Slovenia offer almost free university tuition without the same problems [1]? Certainly those countries have politicians. EDIT TO ADD: Argentina, Brazil, Poland, Spain, Turkey, Panama, Kenya, Egypt and more [2] [1] https://www.investopedia.com/articles/personal-finance/080616/6-countries-virtually-free-college-tuition.asp https://www.investopedia.com/articles/personal-finance/08061... [2] https://www.edvisors.com/plan-for-college/money-saving-tips/colleges-with-free-tuition/countries-with-free-tuition/ https://www.edvisors.com/plan-for-college/money-saving-tips/...
  - joejerryronnie 7y ago
    I’m pretty sure the way these countries provide much cheaper education is not through unfettered access to loans.
    - moorhosj 7y ago
      If you give something away for free, you don’t need to hand out loans. Why is it so much cheaper? What can we learn from their policies?
  - stale2002 7y ago
    The answer is that the colleges in other countries offer significantly less to the students. It's easier to do stuff for cheaper when you just provide less stuff.
    - moorhosj 7y ago
      Then maybe that is the real discussion we should be having. Do publicly funded colleges really need brand new student unions, exercise facilities and dorms every 10 years?
      - vonmoltke 7y ago
        That is the real discussion we (US society) should be having. Unfortunately, things like giving up fancy new facilities or making admissions stricter are a very hard sell as nobody is willing to make those sacrifices, so the conversation revolves almost exclusively around who should be paying for an increasingly unsustainable system.
    - rightbyte 7y ago
      Are there any proof of say german university degrees offers less than american?
  - badpun 7y ago
    As a Polish person who got a free CS degree in Poland, I want to add a counterpoint, namely, as usual, when people are given something for free, they don't appreciate it. In Poland's case, there are stupendously large numbers of people studying various branches of humanities (literature, psychology, pedagogy, law) which have poor job prospects in our country. After graduating, a lot of these people just work service jobs or emigrate to Western Europe (to work the same crappy jobs there, but for more money). It's an enormous waste of taxpayer's money, which is happening because the the students are spending out of somebody else's pocket. Meanwhile, the governing parties eviscerated the trade schools, because "we need educated people", "we're entering knowledge economy" etc. The result being, a median plumber making more than a median law graduate.
    - moorhosj 7y ago
      ==In Poland's case, there are stupendously large numbers of people studying various branches of humanities (literature, psychology, pedagogy, law) which have poor job prospects in our country. After graduating, a lot of these people just work service jobs or emigrate to Western Europe (to work the same crappy jobs there, but for more money). It's an enormous waste of taxpayer's money, which is happening because the the students are spending out of somebody else's pocket.== This leads to an entirely different discussion about whether universities exist to educate the populace or to train future workers. ==The result being, a median plumber making more than a median law graduate.== Which should entice more people into the trades. Is that happening?
      - ivanhoe 7y ago
        It will eventually, but public perception on what jobs are "cool" has a lot of inertia - especially since students are under a huge influence and pressure from their parents whose perspective is usually lagging 10+ years behind the actual situation on the job market...
        badpun 7y ago
        Yep, that's exactly the case. Parents know that blue-collar work is back-breaking, and they want their children to have a "better life", which they associate with a college degree and office work. The memo that this office work will sometimes pay as little as stocking shelves in Tesco has not reached them yet. On top of that, the trade schools were criminally neglected over the past 20 years, so it's very possible to go there and not learn much practical skills...
  - manigandham 7y ago
    Subsidizing the education is different, and far easier and cheaper, than guaranteeing the loans which students use to purchase that education. Taking out those extra layers, bank transactions, interest fees, and incentive for universities to charge more can drastically reduce the total price. In the US, there are thousands of community/local/junior colleges where people earn degrees for a fraction of the cost. This can easily be covered by govt if there was political will to do so.
    - TheBeardKing 7y ago
      Yes but who in private industry is demanding these community college degrees which are now free and provided by the government? The only reason 4-year community college degrees are de facto requirements and readily accepted is because they're so commonplace and subsidized. If there were less 4-year graduates, the demand would diminish at all the smallish businesses wanting bachelors and associates in business where they provide little to no value beyond just working for those few years anyway. Community college is junk, go to trade school or into a real profession and stop inflating entry-level job requirements at tax-payer expense.
      - moorhosj 7y ago
        ==If there were less 4-year graduates, the demand would diminish at all the smallish businesses wanting bachelors and associates in business where they provide little to no value beyond just working for those few years anyway.== Or companies may shift their workforce into higher-educated countries. ==Community college is junk, go to trade school or into a real profession and stop inflating entry-level job requirements at tax-payer expense.== The idea that 2 years of post high-school education is "junk" is alarming. What is a "real profession" and who gets to define it? Wouldn't all the new trade school graduates just inflate entry-level job requirements in those fields and decrease wages?
        TheBeardKing 7y ago
        Removing subsidies will produce more accurate education demand than the current situation. We have too many college graduates who are under-employed, and that's simply because we've subsidized and cheapened the quality of college education. Sometimes community college is worse than junk, it's downright harmful. The most-recommended method in the US to get an engineering degree is to transfer 2 years of core credits from an easy community college to a harder engineeering school. That cheapens the quality of the degree, as the resulting degree is the same. I've done it - physics at engineering school and physics at community college is night and day. Apart from that, unless you're going to get a teaching certificate or something else in STEM, the resulting degree would not be in demand from private industry if they weren't so commonplace. Those kids would've been better off working for those 4 years or learning a trade. But instead we have people pushing to fund those 4 years completely at taxpayer expense further inflating the problem. edit: Hell yeah wages in trades would decrease, they need to. Have you not paid a plumber or electrician lately? The guys going into plumbing right out of high school are a lot smarter than the history majors working at Starbucks.
  - Qasaur 7y ago
    >Meanwhile, other rich countries offer college that is significantly more subsidized, sometimes even free. It's not free, it's financed by exorbitantly high tax rates, which in the long-run is arguably more expensive.
    - smileysteve 7y ago
      > it's financed by exorbitantly high tax rates You mean like 35% Federal, 15% Payroll, 5-10% state? and then a 9% sales tax? And then still "needing" to save 15% for retirement, company paying 15% for healthcare? Seems pretty short sighted to be thinking other places having higher tax rates when the middle class top marginal is approaching 90%.
  - sgeisler 7y ago
    German student here: sure, university is mostly free, but that leads to people taking their time, resulting in regulations about how long you are allowed to study, leading to all kinds of bureaucratic tricks like switching majors, getting your semester counter decremented for work in the student council, etc. But generally my life as a student is quite pleasant (didn't fail exams, so I'm still on track time wise). The thing that I'm worried about is the reaction of these all-inclusive countries once they see a rise in "education arbitrage": get your degree in Germany, then move to the US to pay less taxes (and make more money in case of CS) and optionally move back once you want/have children. On a long time scale that could bleed a country of resources. And I fear they could get the idea of making people stay somehow.
- pnutjam 7y ago
  You know that was not the cause of the 08 housing crash. https://www.thebalance.com/what-caused-the-subprime-mortgage-crisis-3305696 https://www.thebalance.com/what-caused-the-subprime-mortgage...
  - joejerryronnie 7y ago
    The loosening of loan standards played a significant role in creating an environment in which the hedge funds, banks, and insurance companies exploited.
    - MaupitiBlue 7y ago
      I think his point was that the loosening of standards wasn’t because of anyone had a good heart, or because of the reinvestment act, it was simply the shortsighted greed of the lenders.
      - User23 7y ago
        It was a classic accounting control fraud, just like the S&L scandal. William Black wrote the book on them if you want to learn more.
    - pnutjam 7y ago
      Another myth is that the Community Reinvestment Act created the crisis. That's because it pushed banks to lend more to poor neighborhoods. That was its mandate when it was created in 1977. In 1989, FIRREA strengthened the CRA by publicizing banks' lending records. It prohibited them from expanding if they didn't comply with CRA standards. In 1995, President Clinton called on regulators to strengthen the CRA even more. But, the law did not require banks to make subprime loans. It didn't ask them to lower their lending standards. They did that to create additional profitable derivatives.
- coldpie 7y ago
  > This is my biggest fear with the current rise of progressive/socialist interest among young people. All they can see is the free stuff being promised No. Nobody wants "free stuff." I see this all the time and all I can think is the right-wing media has really succeeded on this point. Are you also afraid of people who want "free roads" and "free police" and "free K-12 education"? What we want is for services like healthcare and education to be provided by the government, as it's clear the market cannot supply those needs in a way that serves everyone.
- hyperbovine 7y ago
  > All they can see is the free stuff being promised, not the inevitable fallout down the road (the wealthy will be fine, they always are...) The current progressive plan being floated on the left (socialist is a scare word cooked up in the 1950s and still bandied about by conservatives who have no clue how outdated it makes them sound to younger voters) is to greatly increase taxes on the rich and use it to fund social services like college. So, by your own logic, this can work.
  - joejerryronnie 7y ago
    It won’t work for the following 2 reasons: 1) The wealthy have the resources to fight back against much higher taxation and play the long game. Even if a spate of progressive candidates are elected and drastically raise taxes, the wealthy will just wait until the political pendulum swings back and will get themselves a better deal than they had originally. 2) Even if higher taxes on the wealthy stuck, there is not nearly enough money there to fund every progressive pipe dream (education, healthcare, housing, environment, inequality, reparations, etc, etc). So once again, the working middle class gets stuck with the tax bill, just like every other time we’ve tried something like this. And speaking about conservatives sounding outdated, there’s nothing that highlights the naivete of youth more than hearing them say “this time it’s different”.
  - thrower123 7y ago
    There's just not enough money in raising taxes on the rich to pay for what people want to do, even discounting the effects of capital flight and other restructurings that will be inevitably employed to dodge such exactions. The federal tax code, at least, is already massively progressive, and the rich pay far above their share of the revenue already.
    - JetSpiegel 7y ago
      Not just individuals, companies too. Not to mention Bezos and other billionaires keep getting richer even with a ʾmassively progressive' tax code. It's not progressive enough!
- wpietri 7y ago
  I don't think that's what led to the '08 housing crisis. Mortgage-backed securities didn't exist because of some do-goodery; they were part of a much bigger rise of unregulated derivatives (including credit-default swaps, which caused huge damage). It definitely wasn't socialism that caused the rating agencies to give implausibly good ratings to tranches of mortgage-backed securities; that was good, old-fashioned short-term capitalist greed.
iguy 7y ago
I guess every market needs someone to set the rules (at least, any legal market in an advanced economy), but I agree that the rules we have chosen for this one are truly terrible. My favorite suggestion is to cap the repayments (of non-dischargeable loans) at something like 15% of income above poverty line, and time-limited to 20 years. And let lenders use all the information they can lay their hands on when making offers (schools, majors, test scores). Then the offers made to 17-year olds will reflect pretty well the earning potential of different paths. Some luxury degrees will, like other all-expenses vacations, only be available to the wealthy, which is OK. In courses which represent a gamble (is that Spanish Lit. en route to the State Department or to Starbucks?), those who do well will subsidise (a bit) those who do less well, but nobody's payments will be unaffordable.
- notfromhere 7y ago
  What's going to happen is that unsubsidized lenders will only lend to wealthy families with collateral. Given how closely family income and educational attainment run, lenders simply won't bother.
- wpietri 7y ago
  That might be a step forward, but the problem with this is that it will under-lend to things that are societally valuable but not personally lucrative. For example, we want lots of teachers and librarians, social workers and nurses. But if we only pay based on personal income, we'll get lots of people with low social value but high income. E.g., corporate lawyers, investment bankers, corporate raiders, advertising executives. I think the better thing to do is publicly fund education and the have the government capture the gains via taxation. That's harder to tune, but I don't have reason to believe the outcome will be more lopsided than a purely market-driven approach, and has the big advantage of not funding a whole industry of student lenders.
mnorton 7y ago
guaranteed lending == bad idea
- padobson 7y ago
  guaranteed lending ⊂ bad ideas FTFY
oh_sigh 7y ago
If you set up a fully private market for student loans, you'll find that you are now making it more difficult, in general, for African Americans to go to college. What kind of people will not be able to secure a private loan? The kind of person from a poorer family with bad/no credit, unable to find any acceptable cosigners for a loan.
wpietri 7y ago
A fully private market would be very small, because student loans don't work well with bankruptcy protection. Every MBA and lawyer in the world would just get their degree and then declare bankruptcy. You're also confusing various kinds of ROI here. Education generates both individual and societal ROI. Governments can capture part of theindividual ROI through taxation. And the whole point of government is to create societal ROI. But what a fully privatized educational funding system would be optimized for is lender ROI. As we see with student loans, and even more clearly with loan sharks, who are the true unregulated lenders, maximizing lender ROI is not great for the health of either the loan recipient or society at large.

by p_roz 7y ago

joejerryronnie 7y ago

Yep, it’s essentially the same mentality that lead to the 08 housing crisis. People’s hearts are in the right place, i.e. we should make it easier for disadvantaged people to get an education/purchase a home. But when you only walk through the use case half way (as politicians always do) and don’t really follow the policies through to their natural conclusions (as politicians never do), you get all kinds of unintended consequences and ultimately end up hurting the people you’re trying to help. This is my biggest fear with the current rise of progressive/socialist interest among young people. All they can see is the free stuff being promised, not the inevitable fallout down the road (the wealthy will be fine, they always are - it’s the young, poor, and disadvantaged who will be stuck with the bill).

moorhosj 7y ago
Meanwhile, other rich countries offer college that is significantly more subsidized, sometimes even free. How do Norway, Sweden, Germany, France and Slovenia offer almost free university tuition without the same problems [1]? Certainly those countries have politicians. EDIT TO ADD: Argentina, Brazil, Poland, Spain, Turkey, Panama, Kenya, Egypt and more [2] [1] https://www.investopedia.com/articles/personal-finance/080616/6-countries-virtually-free-college-tuition.asp https://www.investopedia.com/articles/personal-finance/08061... [2] https://www.edvisors.com/plan-for-college/money-saving-tips/colleges-with-free-tuition/countries-with-free-tuition/ https://www.edvisors.com/plan-for-college/money-saving-tips/...
- joejerryronnie 7y ago
  I’m pretty sure the way these countries provide much cheaper education is not through unfettered access to loans.
  - moorhosj 7y ago
    If you give something away for free, you don’t need to hand out loans. Why is it so much cheaper? What can we learn from their policies?
- stale2002 7y ago
  The answer is that the colleges in other countries offer significantly less to the students. It's easier to do stuff for cheaper when you just provide less stuff.
  - moorhosj 7y ago
    Then maybe that is the real discussion we should be having. Do publicly funded colleges really need brand new student unions, exercise facilities and dorms every 10 years?
    - vonmoltke 7y ago
      That is the real discussion we (US society) should be having. Unfortunately, things like giving up fancy new facilities or making admissions stricter are a very hard sell as nobody is willing to make those sacrifices, so the conversation revolves almost exclusively around who should be paying for an increasingly unsustainable system.
  - rightbyte 7y ago
    Are there any proof of say german university degrees offers less than american?
- badpun 7y ago
  As a Polish person who got a free CS degree in Poland, I want to add a counterpoint, namely, as usual, when people are given something for free, they don't appreciate it. In Poland's case, there are stupendously large numbers of people studying various branches of humanities (literature, psychology, pedagogy, law) which have poor job prospects in our country. After graduating, a lot of these people just work service jobs or emigrate to Western Europe (to work the same crappy jobs there, but for more money). It's an enormous waste of taxpayer's money, which is happening because the the students are spending out of somebody else's pocket. Meanwhile, the governing parties eviscerated the trade schools, because "we need educated people", "we're entering knowledge economy" etc. The result being, a median plumber making more than a median law graduate.
  - moorhosj 7y ago
    ==In Poland's case, there are stupendously large numbers of people studying various branches of humanities (literature, psychology, pedagogy, law) which have poor job prospects in our country. After graduating, a lot of these people just work service jobs or emigrate to Western Europe (to work the same crappy jobs there, but for more money). It's an enormous waste of taxpayer's money, which is happening because the the students are spending out of somebody else's pocket.== This leads to an entirely different discussion about whether universities exist to educate the populace or to train future workers. ==The result being, a median plumber making more than a median law graduate.== Which should entice more people into the trades. Is that happening?
    - ivanhoe 7y ago
      It will eventually, but public perception on what jobs are "cool" has a lot of inertia - especially since students are under a huge influence and pressure from their parents whose perspective is usually lagging 10+ years behind the actual situation on the job market...
      - badpun 7y ago
        Yep, that's exactly the case. Parents know that blue-collar work is back-breaking, and they want their children to have a "better life", which they associate with a college degree and office work. The memo that this office work will sometimes pay as little as stocking shelves in Tesco has not reached them yet. On top of that, the trade schools were criminally neglected over the past 20 years, so it's very possible to go there and not learn much practical skills...
- manigandham 7y ago
  Subsidizing the education is different, and far easier and cheaper, than guaranteeing the loans which students use to purchase that education. Taking out those extra layers, bank transactions, interest fees, and incentive for universities to charge more can drastically reduce the total price. In the US, there are thousands of community/local/junior colleges where people earn degrees for a fraction of the cost. This can easily be covered by govt if there was political will to do so.
  - TheBeardKing 7y ago
    Yes but who in private industry is demanding these community college degrees which are now free and provided by the government? The only reason 4-year community college degrees are de facto requirements and readily accepted is because they're so commonplace and subsidized. If there were less 4-year graduates, the demand would diminish at all the smallish businesses wanting bachelors and associates in business where they provide little to no value beyond just working for those few years anyway. Community college is junk, go to trade school or into a real profession and stop inflating entry-level job requirements at tax-payer expense.
    - moorhosj 7y ago
      ==If there were less 4-year graduates, the demand would diminish at all the smallish businesses wanting bachelors and associates in business where they provide little to no value beyond just working for those few years anyway.== Or companies may shift their workforce into higher-educated countries. ==Community college is junk, go to trade school or into a real profession and stop inflating entry-level job requirements at tax-payer expense.== The idea that 2 years of post high-school education is "junk" is alarming. What is a "real profession" and who gets to define it? Wouldn't all the new trade school graduates just inflate entry-level job requirements in those fields and decrease wages?
      - TheBeardKing 7y ago
        Removing subsidies will produce more accurate education demand than the current situation. We have too many college graduates who are under-employed, and that's simply because we've subsidized and cheapened the quality of college education. Sometimes community college is worse than junk, it's downright harmful. The most-recommended method in the US to get an engineering degree is to transfer 2 years of core credits from an easy community college to a harder engineeering school. That cheapens the quality of the degree, as the resulting degree is the same. I've done it - physics at engineering school and physics at community college is night and day. Apart from that, unless you're going to get a teaching certificate or something else in STEM, the resulting degree would not be in demand from private industry if they weren't so commonplace. Those kids would've been better off working for those 4 years or learning a trade. But instead we have people pushing to fund those 4 years completely at taxpayer expense further inflating the problem. edit: Hell yeah wages in trades would decrease, they need to. Have you not paid a plumber or electrician lately? The guys going into plumbing right out of high school are a lot smarter than the history majors working at Starbucks.
- Qasaur 7y ago
  >Meanwhile, other rich countries offer college that is significantly more subsidized, sometimes even free. It's not free, it's financed by exorbitantly high tax rates, which in the long-run is arguably more expensive.
  - smileysteve 7y ago
    > it's financed by exorbitantly high tax rates You mean like 35% Federal, 15% Payroll, 5-10% state? and then a 9% sales tax? And then still "needing" to save 15% for retirement, company paying 15% for healthcare? Seems pretty short sighted to be thinking other places having higher tax rates when the middle class top marginal is approaching 90%.
- sgeisler 7y ago
  German student here: sure, university is mostly free, but that leads to people taking their time, resulting in regulations about how long you are allowed to study, leading to all kinds of bureaucratic tricks like switching majors, getting your semester counter decremented for work in the student council, etc. But generally my life as a student is quite pleasant (didn't fail exams, so I'm still on track time wise). The thing that I'm worried about is the reaction of these all-inclusive countries once they see a rise in "education arbitrage": get your degree in Germany, then move to the US to pay less taxes (and make more money in case of CS) and optionally move back once you want/have children. On a long time scale that could bleed a country of resources. And I fear they could get the idea of making people stay somehow.
pnutjam 7y ago
You know that was not the cause of the 08 housing crash. https://www.thebalance.com/what-caused-the-subprime-mortgage-crisis-3305696 https://www.thebalance.com/what-caused-the-subprime-mortgage...
- joejerryronnie 7y ago
  The loosening of loan standards played a significant role in creating an environment in which the hedge funds, banks, and insurance companies exploited.
  - MaupitiBlue 7y ago
    I think his point was that the loosening of standards wasn’t because of anyone had a good heart, or because of the reinvestment act, it was simply the shortsighted greed of the lenders.
    - User23 7y ago
      It was a classic accounting control fraud, just like the S&L scandal. William Black wrote the book on them if you want to learn more.
  - pnutjam 7y ago
    Another myth is that the Community Reinvestment Act created the crisis. That's because it pushed banks to lend more to poor neighborhoods. That was its mandate when it was created in 1977. In 1989, FIRREA strengthened the CRA by publicizing banks' lending records. It prohibited them from expanding if they didn't comply with CRA standards. In 1995, President Clinton called on regulators to strengthen the CRA even more. But, the law did not require banks to make subprime loans. It didn't ask them to lower their lending standards. They did that to create additional profitable derivatives.
coldpie 7y ago
> This is my biggest fear with the current rise of progressive/socialist interest among young people. All they can see is the free stuff being promised No. Nobody wants "free stuff." I see this all the time and all I can think is the right-wing media has really succeeded on this point. Are you also afraid of people who want "free roads" and "free police" and "free K-12 education"? What we want is for services like healthcare and education to be provided by the government, as it's clear the market cannot supply those needs in a way that serves everyone.
hyperbovine 7y ago
> All they can see is the free stuff being promised, not the inevitable fallout down the road (the wealthy will be fine, they always are...) The current progressive plan being floated on the left (socialist is a scare word cooked up in the 1950s and still bandied about by conservatives who have no clue how outdated it makes them sound to younger voters) is to greatly increase taxes on the rich and use it to fund social services like college. So, by your own logic, this can work.
- joejerryronnie 7y ago
  It won’t work for the following 2 reasons: 1) The wealthy have the resources to fight back against much higher taxation and play the long game. Even if a spate of progressive candidates are elected and drastically raise taxes, the wealthy will just wait until the political pendulum swings back and will get themselves a better deal than they had originally. 2) Even if higher taxes on the wealthy stuck, there is not nearly enough money there to fund every progressive pipe dream (education, healthcare, housing, environment, inequality, reparations, etc, etc). So once again, the working middle class gets stuck with the tax bill, just like every other time we’ve tried something like this. And speaking about conservatives sounding outdated, there’s nothing that highlights the naivete of youth more than hearing them say “this time it’s different”.
- thrower123 7y ago
  There's just not enough money in raising taxes on the rich to pay for what people want to do, even discounting the effects of capital flight and other restructurings that will be inevitably employed to dodge such exactions. The federal tax code, at least, is already massively progressive, and the rich pay far above their share of the revenue already.
  - JetSpiegel 7y ago
    Not just individuals, companies too. Not to mention Bezos and other billionaires keep getting richer even with a ʾmassively progressive' tax code. It's not progressive enough!
wpietri 7y ago
I don't think that's what led to the '08 housing crisis. Mortgage-backed securities didn't exist because of some do-goodery; they were part of a much bigger rise of unregulated derivatives (including credit-default swaps, which caused huge damage). It definitely wasn't socialism that caused the rating agencies to give implausibly good ratings to tranches of mortgage-backed securities; that was good, old-fashioned short-term capitalist greed.

iguy 7y ago

I guess every market needs someone to set the rules (at least, any legal market in an advanced economy), but I agree that the rules we have chosen for this one are truly terrible. My favorite suggestion is to cap the repayments (of non-dischargeable loans) at something like 15% of income above poverty line, and time-limited to 20 years. And let lenders use all the information they can lay their hands on when making offers (schools, majors, test scores). Then the offers made to 17-year olds will reflect pretty well the earning potential of different paths. Some luxury degrees will, like other all-expenses vacations, only be available to the wealthy, which is OK. In courses which represent a gamble (is that Spanish Lit. en route to the State Department or to Starbucks?), those who do well will subsidise (a bit) those who do less well, but nobody's payments will be unaffordable.

notfromhere 7y ago
What's going to happen is that unsubsidized lenders will only lend to wealthy families with collateral. Given how closely family income and educational attainment run, lenders simply won't bother.
wpietri 7y ago
That might be a step forward, but the problem with this is that it will under-lend to things that are societally valuable but not personally lucrative. For example, we want lots of teachers and librarians, social workers and nurses. But if we only pay based on personal income, we'll get lots of people with low social value but high income. E.g., corporate lawyers, investment bankers, corporate raiders, advertising executives. I think the better thing to do is publicly fund education and the have the government capture the gains via taxation. That's harder to tune, but I don't have reason to believe the outcome will be more lopsided than a purely market-driven approach, and has the big advantage of not funding a whole industry of student lenders.

mnorton 7y ago

guaranteed lending == bad idea

padobson 7y ago
guaranteed lending ⊂ bad ideas FTFY

oh_sigh 7y ago

If you set up a fully private market for student loans, you'll find that you are now making it more difficult, in general, for African Americans to go to college. What kind of people will not be able to secure a private loan? The kind of person from a poorer family with bad/no credit, unable to find any acceptable cosigners for a loan.

wpietri 7y ago

A fully private market would be very small, because student loans don't work well with bankruptcy protection. Every MBA and lawyer in the world would just get their degree and then declare bankruptcy. You're also confusing various kinds of ROI here. Education generates both individual and societal ROI. Governments can capture part of theindividual ROI through taxation. And the whole point of government is to create societal ROI. But what a fully privatized educational funding system would be optimized for is lender ROI. As we see with student loans, and even more clearly with loan sharks, who are the true unregulated lenders, maximizing lender ROI is not great for the health of either the loan recipient or society at large.