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This is a really interesting addition to the literature if you dig through it, with subtle distinctions between income gains and wealth gains and interactions w

This is a really interesting addition to the literature if you dig through it, with subtle distinctions between income gains and wealth gains and interactions with demographics. It's not a simple "college ain't what it used to be" story. The biggest puzzle is how to explain why recent grads still command significantly higher incomes than nongrads without accumulating significantly more wealth. Increasing tuition is a factor, as is the declining return on capital gains over successive generations. Limited financial literacy and predatory lending seem to be hurting recent grads too. Most notably, the inability to discharge school debt in bankruptcy since 2005 may have had strong effects. That last legal change remains bewildering to me. You have three parties: schools, financial institutions, and teenagers. So uneducated teenagers are expected to know whether or not their choice in school, degree, expenses, and personal background will make their education worth it? When the other parties have all the data and experience? And if it turns out everybody was wrong, the now barely-employed twenty-something is least prepared to absorb the burden. More importantly, the least susceptible to incentives to improve this endemic situation for other future students. It creates a moral hazard which drives schools to overprice courses of education that are higher risk, and removes any incentive for lenders to educate borrowers on expected returns from different choices. Policy circles are hotly debating right now how to overhaul the entire system. Maybe we should acknowledge the policy changes that helped break everything in the first place, and reverse those as soon as possible.

macspoofing 7y ago
>Policy circles are hotly debating right now how to overhaul the entire system. No guaranteed federal loans would fix everything. This means tuition loans could then be discharged and the lender would be more discerning about loaning to a student heading to some boutique private college with sky-high tuition and ending up with a humanities degree.
- Retric 7y ago
  Discharable loans would also increase interest rates by about 2%. That’s 100$ a month for 60k worth of loans, which makes them even harder to pay back.
  - macspoofing 7y ago
    The key here is that you wouldn't get a loan to a college that won't provide you a useful degree for the tuition rate they charge the student. You want the lender to be discerning and not give out bad loans. Right now, the entire industry assumes students are not price conscious and you only need to sell them on the college experience instead of the price and value of the degree. Having said that, the government can always provide grants to make things more equitable.
    - LoSboccacc 7y ago
      and once profitability gets in the lenders' equation you'll see lot of art colleges and similar reduce their tuition costs to match their value in the job market
    - vegetablepotpie 7y ago
      >you only need to sell them on the college experience instead of the price and value of the degree. I think this is a good point because the problem with college recruiting is that they simultaneously advertise that they are an experience and a good investment, while shrugging off the responsibilities of being a good investment. I disagree with the idea that financial institutions should be in the business of determining what a “useful degree” is because a Debian Developer I know has a degree in philosophy. He does development because he happens to like programming and the mission of the project. He doesn’t need a CS degree and I think him having a philosophy degree let’s him bring something unique to the table. Education is abstract enough that you can’t put it into discrete boxes. If you tried Universities would become business schools. Borrowing money for college isn’t bad if the loans are low. College is expensive because of ballooning administration. Federally subsidized loans arguably gave an incentive for this. The right policy is to give Universities a disincentive to adding overhead.
      - deleted 7y ago
        [deleted]
- learc83 7y ago
  Loans aren't federally guaranteed anymore. They are made directly by the government.
  - macspoofing 7y ago
    Ooof. That's worse, but the equation is the same. The lender does not evaluate the value of degree given the loan amount. That's the market distortion taking place, and why administrative costs (and consequently cost of education) has skyrocketed.
- scarface74 7y ago
  How “discerning” could you be when making loans to teenagers with no income and no credit history? The only thing that would happen is that the banks would force all loans to be co-signed. Guess who is statistically unlikely to get loans in that scenario?
  - macspoofing 7y ago
    >How “discerning” could you be when making loans to teenagers with no income and no credit history? Very. They may very well take into account your grades and SAT score to determine feasibility of repayment. >The only thing that would happen is that the banks would force all loans to be co-signed. They may and why shouldn't they? This will deter expensive colleges and push students to cheaper alternatives like trade schools, community colleges and state schools. What's wrong with that? >Guess who is statistically unlikely to get loans in that scenario? People who can't pay back loans? I don't follow your point. Are you saying that loans should be made without consideration of feasibility of repayment?
    - rayiner 7y ago
      All of the policies you propose would have a disproportionate impact on black and Hispanic students, who generally come from families with less means to qualify for credit. Policies that disproportionately channel these students to trade schools and community colleges is a political non-starter.
      - macspoofing 7y ago
        What are you really trying to say? That black and Hispanics families are disproportionally a higher risk of defaulting but should still get loans they cannot afford? Is that your argument? Loans are not grants nor gifts. You're not doing anyone a favour by giving them a loan they cannot afford to repay. There are other ways to subsidize education rather than distorting the lending market.
        ak217 7y ago
scarface74 7y ago
You have three parties: schools, financial institutions, and teenagers. You have four - parents. Students can’t get a loan without filling out FAFSA which requires their parents involvement. Parents could guide children in the right direction.
- asah 7y ago
  Only if they're financially literate, AND their experience (often from their era) applies to their kids.
- tjr225 7y ago
  The teenagers in this party have no way of making sure their parents are savvy enough to guide them in the right direction- unless of course they themselves are clever enough to know.
- deleted 7y ago
  [deleted]
kryogen1c 7y ago
>Most notably, the inability to discharge school debt in bankruptcy since 2005 may have had strong effects. >That last legal change remains bewildering to me. I have done no research on the matter, but my parents told me that doctors would go to school on loan for 7+ years, start a practice, and discharge all their loan debt through bankruptcy.
- sanj 7y ago
  Student loans typically cannot be discharged through bankruptcy: https://www.creditkarma.com/advice/i/student-loans-in-bankruptcy/ https://www.creditkarma.com/advice/i/student-loans-in-bankru...
  - sokoloff 7y ago
    Prior to the law change it was much more common to get them discharged in bankruptcy. That’s why the law was changed.
- brownbat 7y ago
  Interesting... that led me to this article: https://www.savingforcollege.com/article/history-of-student-loans-bankruptcy-discharge https://www.savingforcollege.com/article/history-of-student-... It's skeptical of those claims of abuse that seemed to originate in Congress, but nonetheless discusses some of the other historical approaches to solve for that, such as requiring a 5-7 year waiting period for bankruptcy after graduation. I think rayiner added some compelling points above too, income based repayment may be a substitute here to solve for this issue while preventing abuse.
rayiner 7y ago
The three parties are schools, teenagers, and the government. More than 90% of existing student loans, and nearly all new loans, are issued by the government. The student loan system will cost the government $170 billion in losses over 10 years, because interest doesn’t cover money written off due to hardships and loan forgiveness. The non-dischargability of student loans protects the government from further losses. Non-dischargability is a reasonable feature given the other aspect of federal student loans: they offer income-based repayment. Under Obama’s REPAYE, your loan payments are capped at 15% of your discretionary income.
- dahart 7y ago
  > The student loan system will cost the government $170 billion in losses over 10 years I don’t doubt this, but it’s a statement that focuses only on losses and completely ignores the economic benefits of the educated workforce. $170 billion over ten years is on the order of 1% of education spending. Since graduates and postgraduates are earning, on average, roughly 2x and 3x non-graduates respectively, the extra income taxes paid by the non-defaulting group of college graduates alone makes the loan forgiveness losses a drop in the bucket, the income makes up for the losses many times over.
  - rossdavidh 7y ago
    Once the job market got better a couple years ago, the percentage of job postings which required a college degree dropped. In other words, the "requirement" was mostly a way of filtering, not something that actually increased productivity. Speaking as a person with two degrees myself, I can say that non-degreed programmers seem to be just as productive as those with degrees. In fact, CS majors in particular have a problem just solving the problem in front of them, and often want to over-engineer things using the techniques and patterns they learned in school that are applicable to huge systems, whereas non-degreed programmers often just solve the actual problem they have without trying to justify (in their own minds) years spent learning other techniques. I am not at all convinced that a college-educated workforce is more productive, for more than half the jobs in which it is required.
solatic 7y ago
> The biggest puzzle is how to explain why recent grads still command significantly higher incomes than nongrads without accumulating significantly more wealth. Is it? Permit this armchair economist a theory: People with degrees tend to use those degrees in pursuit of career development. Career development causes people to move to "cluster" regions e.g. Silicon Valley, New York "Cluster" regions tend to have a high cost of living due to insufficient housing and transportation infrastructure which didn't grow at the rate of other economic development The high cost of living eats up the additional income from the degree, preventing wealth accumulation. Add on long-term macroeconomic effects of the fall in entrepreneurship and other indexes of economic dynamism, aligned with increases in consumer spending, and you have a high-income, relatively comfortable serfdom. To test the theory, try controlling for geographic area - there should be a clear increase in wealth accumulation of degree-holding entrepreneurs in low cost of living areas, compared to non-degree holders who still somehow eke out a living in high cost of living areas.
- xapata 7y ago
  Why do you specify degree-holding entrepreneurs instead of simply degree-holders? That might hide some survivorship bias.
- JMTQp8lwXL 7y ago
  Some things cost the same nationwide, for example the MSRP of a new truck. A college degree means higher income and certain higher expenses (e.g, housing), but not others. Your college debt balance is the same regardless if you earn $70,000 in an entry level Software Engineering job in Philadelphia or $120,000 in SFBA. That creates room for some arbitrage and wealth building.
mnm1 7y ago
People aren't allowed to drink or even smoke now till 21. Seems logical. So why do we expect a 17 year old to have the financial knowledge and understanding to take out a loan that could buy a house in a not so cheap city? With zero education about finances (they are not generally taught in schools). The availability and government guarantees of such loans are hurting everyone except these schools that are making bank while offering education of highly questionable quality.
- Nasrudith 7y ago
  The reason is the same that they can enlist in the military, that is something desired by the people making the laws because it has some utility.
erik998 7y ago
Funny, every time I hear these stories about the declining value of college I always think why that is. Is the premium declining because so many people can at least have a chance to finance an education now? Is that really bad? Whenever I hear someone say they don't need to go to college, I remind them Mark Zuckerberg was at Philips Exeter (2019 tuition 49k), Bill Gates and Paul Allen at Lakeside School (2019 tuition 36k), Reid Hoffman attended Putney School (2019 tuition and boarding 56k). Many of the people that make pronouncements about college not being a necessity came from wealthy backgrounds or went to the upper crust of private high schools in America. In fact whenever someone makes these crazy suggestions I suggest you look up their background and it will usually be wealthy family/private high school. I will grant Bezos and Thiel being the exception to private schools but still they came from upper middle class / wealth backgrounds... These individuals could do without college. The hard work and preparation at their high schools put them through a grueling curriculum. If they have enough discipline to graduate from these high schools they would have been a success with or without college. Unless you are in similar situation, please go to college and graduate. Specific degrees do not really matter just graduate so you don't get sidelined late in your career. I still hear people say it is not necessary. It probably isn't really necessary for most IT roles but once youthful enthusiasm runs out, every employer will look to replace you. Do not think they will value your experience and loyalty. Another counterpoint, if it was the case a college education is not necessary to succeed at Silicon Valley, why do these firms have a difficult time hiring black or hispanic employees... Sure college may be useless for some but please don't peddle this garbage in the face of reality. So either the Silicon Valley firms are racist and are OK with having employees that never went to college as long as they look a certain way or this is all bunk in an effort to hire young enthusiastic employees that have no room to negotiate after a certain age... As we just saw many wealthy families bribe their children into an Ok college... I bet all the wealthy people above will make sure their children attend college. I will bet all their wives and friends went to college. I will bet they never shared a beer with friends that never went to college. Please don't be stupid. Finish college, learn something that interest you, give back to society. Maybe all these policy discussions are bunk and every child in America should expect the same quality of education a student at Exeter would demand.

macspoofing 7y ago

>Policy circles are hotly debating right now how to overhaul the entire system. No guaranteed federal loans would fix everything. This means tuition loans could then be discharged and the lender would be more discerning about loaning to a student heading to some boutique private college with sky-high tuition and ending up with a humanities degree.

Retric 7y ago
Discharable loans would also increase interest rates by about 2%. That’s 100$ a month for 60k worth of loans, which makes them even harder to pay back.
- macspoofing 7y ago
  The key here is that you wouldn't get a loan to a college that won't provide you a useful degree for the tuition rate they charge the student. You want the lender to be discerning and not give out bad loans. Right now, the entire industry assumes students are not price conscious and you only need to sell them on the college experience instead of the price and value of the degree. Having said that, the government can always provide grants to make things more equitable.
  - LoSboccacc 7y ago
    and once profitability gets in the lenders' equation you'll see lot of art colleges and similar reduce their tuition costs to match their value in the job market
  - vegetablepotpie 7y ago
    >you only need to sell them on the college experience instead of the price and value of the degree. I think this is a good point because the problem with college recruiting is that they simultaneously advertise that they are an experience and a good investment, while shrugging off the responsibilities of being a good investment. I disagree with the idea that financial institutions should be in the business of determining what a “useful degree” is because a Debian Developer I know has a degree in philosophy. He does development because he happens to like programming and the mission of the project. He doesn’t need a CS degree and I think him having a philosophy degree let’s him bring something unique to the table. Education is abstract enough that you can’t put it into discrete boxes. If you tried Universities would become business schools. Borrowing money for college isn’t bad if the loans are low. College is expensive because of ballooning administration. Federally subsidized loans arguably gave an incentive for this. The right policy is to give Universities a disincentive to adding overhead.
    - deleted 7y ago
      [deleted]
learc83 7y ago
Loans aren't federally guaranteed anymore. They are made directly by the government.
- macspoofing 7y ago
  Ooof. That's worse, but the equation is the same. The lender does not evaluate the value of degree given the loan amount. That's the market distortion taking place, and why administrative costs (and consequently cost of education) has skyrocketed.
scarface74 7y ago
How “discerning” could you be when making loans to teenagers with no income and no credit history? The only thing that would happen is that the banks would force all loans to be co-signed. Guess who is statistically unlikely to get loans in that scenario?
- macspoofing 7y ago
  >How “discerning” could you be when making loans to teenagers with no income and no credit history? Very. They may very well take into account your grades and SAT score to determine feasibility of repayment. >The only thing that would happen is that the banks would force all loans to be co-signed. They may and why shouldn't they? This will deter expensive colleges and push students to cheaper alternatives like trade schools, community colleges and state schools. What's wrong with that? >Guess who is statistically unlikely to get loans in that scenario? People who can't pay back loans? I don't follow your point. Are you saying that loans should be made without consideration of feasibility of repayment?
  - rayiner 7y ago
    All of the policies you propose would have a disproportionate impact on black and Hispanic students, who generally come from families with less means to qualify for credit. Policies that disproportionately channel these students to trade schools and community colleges is a political non-starter.
    - macspoofing 7y ago
      What are you really trying to say? That black and Hispanics families are disproportionally a higher risk of defaulting but should still get loans they cannot afford? Is that your argument? Loans are not grants nor gifts. You're not doing anyone a favour by giving them a loan they cannot afford to repay. There are other ways to subsidize education rather than distorting the lending market.
      - ak217 7y ago

scarface74 7y ago

You have three parties: schools, financial institutions, and teenagers. You have four - parents. Students can’t get a loan without filling out FAFSA which requires their parents involvement. Parents could guide children in the right direction.

asah 7y ago
Only if they're financially literate, AND their experience (often from their era) applies to their kids.
tjr225 7y ago
The teenagers in this party have no way of making sure their parents are savvy enough to guide them in the right direction- unless of course they themselves are clever enough to know.
deleted 7y ago
[deleted]

kryogen1c 7y ago

>Most notably, the inability to discharge school debt in bankruptcy since 2005 may have had strong effects. >That last legal change remains bewildering to me. I have done no research on the matter, but my parents told me that doctors would go to school on loan for 7+ years, start a practice, and discharge all their loan debt through bankruptcy.

sanj 7y ago
Student loans typically cannot be discharged through bankruptcy: https://www.creditkarma.com/advice/i/student-loans-in-bankruptcy/ https://www.creditkarma.com/advice/i/student-loans-in-bankru...
- sokoloff 7y ago
  Prior to the law change it was much more common to get them discharged in bankruptcy. That’s why the law was changed.
brownbat 7y ago
Interesting... that led me to this article: https://www.savingforcollege.com/article/history-of-student-loans-bankruptcy-discharge https://www.savingforcollege.com/article/history-of-student-... It's skeptical of those claims of abuse that seemed to originate in Congress, but nonetheless discusses some of the other historical approaches to solve for that, such as requiring a 5-7 year waiting period for bankruptcy after graduation. I think rayiner added some compelling points above too, income based repayment may be a substitute here to solve for this issue while preventing abuse.

rayiner 7y ago

The three parties are schools, teenagers, and the government. More than 90% of existing student loans, and nearly all new loans, are issued by the government. The student loan system will cost the government $170 billion in losses over 10 years, because interest doesn’t cover money written off due to hardships and loan forgiveness. The non-dischargability of student loans protects the government from further losses. Non-dischargability is a reasonable feature given the other aspect of federal student loans: they offer income-based repayment. Under Obama’s REPAYE, your loan payments are capped at 15% of your discretionary income.

dahart 7y ago
> The student loan system will cost the government $170 billion in losses over 10 years I don’t doubt this, but it’s a statement that focuses only on losses and completely ignores the economic benefits of the educated workforce. $170 billion over ten years is on the order of 1% of education spending. Since graduates and postgraduates are earning, on average, roughly 2x and 3x non-graduates respectively, the extra income taxes paid by the non-defaulting group of college graduates alone makes the loan forgiveness losses a drop in the bucket, the income makes up for the losses many times over.
- rossdavidh 7y ago
  Once the job market got better a couple years ago, the percentage of job postings which required a college degree dropped. In other words, the "requirement" was mostly a way of filtering, not something that actually increased productivity. Speaking as a person with two degrees myself, I can say that non-degreed programmers seem to be just as productive as those with degrees. In fact, CS majors in particular have a problem just solving the problem in front of them, and often want to over-engineer things using the techniques and patterns they learned in school that are applicable to huge systems, whereas non-degreed programmers often just solve the actual problem they have without trying to justify (in their own minds) years spent learning other techniques. I am not at all convinced that a college-educated workforce is more productive, for more than half the jobs in which it is required.

solatic 7y ago

> The biggest puzzle is how to explain why recent grads still command significantly higher incomes than nongrads without accumulating significantly more wealth. Is it? Permit this armchair economist a theory: People with degrees tend to use those degrees in pursuit of career development. Career development causes people to move to "cluster" regions e.g. Silicon Valley, New York "Cluster" regions tend to have a high cost of living due to insufficient housing and transportation infrastructure which didn't grow at the rate of other economic development The high cost of living eats up the additional income from the degree, preventing wealth accumulation. Add on long-term macroeconomic effects of the fall in entrepreneurship and other indexes of economic dynamism, aligned with increases in consumer spending, and you have a high-income, relatively comfortable serfdom. To test the theory, try controlling for geographic area - there should be a clear increase in wealth accumulation of degree-holding entrepreneurs in low cost of living areas, compared to non-degree holders who still somehow eke out a living in high cost of living areas.

xapata 7y ago
Why do you specify degree-holding entrepreneurs instead of simply degree-holders? That might hide some survivorship bias.
JMTQp8lwXL 7y ago
Some things cost the same nationwide, for example the MSRP of a new truck. A college degree means higher income and certain higher expenses (e.g, housing), but not others. Your college debt balance is the same regardless if you earn $70,000 in an entry level Software Engineering job in Philadelphia or $120,000 in SFBA. That creates room for some arbitrage and wealth building.

mnm1 7y ago

People aren't allowed to drink or even smoke now till 21. Seems logical. So why do we expect a 17 year old to have the financial knowledge and understanding to take out a loan that could buy a house in a not so cheap city? With zero education about finances (they are not generally taught in schools). The availability and government guarantees of such loans are hurting everyone except these schools that are making bank while offering education of highly questionable quality.

Nasrudith 7y ago
The reason is the same that they can enlist in the military, that is something desired by the people making the laws because it has some utility.

erik998 7y ago

Funny, every time I hear these stories about the declining value of college I always think why that is. Is the premium declining because so many people can at least have a chance to finance an education now? Is that really bad? Whenever I hear someone say they don't need to go to college, I remind them Mark Zuckerberg was at Philips Exeter (2019 tuition 49k), Bill Gates and Paul Allen at Lakeside School (2019 tuition 36k), Reid Hoffman attended Putney School (2019 tuition and boarding 56k). Many of the people that make pronouncements about college not being a necessity came from wealthy backgrounds or went to the upper crust of private high schools in America. In fact whenever someone makes these crazy suggestions I suggest you look up their background and it will usually be wealthy family/private high school. I will grant Bezos and Thiel being the exception to private schools but still they came from upper middle class / wealth backgrounds... These individuals could do without college. The hard work and preparation at their high schools put them through a grueling curriculum. If they have enough discipline to graduate from these high schools they would have been a success with or without college. Unless you are in similar situation, please go to college and graduate. Specific degrees do not really matter just graduate so you don't get sidelined late in your career. I still hear people say it is not necessary. It probably isn't really necessary for most IT roles but once youthful enthusiasm runs out, every employer will look to replace you. Do not think they will value your experience and loyalty. Another counterpoint, if it was the case a college education is not necessary to succeed at Silicon Valley, why do these firms have a difficult time hiring black or hispanic employees... Sure college may be useless for some but please don't peddle this garbage in the face of reality. So either the Silicon Valley firms are racist and are OK with having employees that never went to college as long as they look a certain way or this is all bunk in an effort to hire young enthusiastic employees that have no room to negotiate after a certain age... As we just saw many wealthy families bribe their children into an Ok college... I bet all the wealthy people above will make sure their children attend college. I will bet all their wives and friends went to college. I will bet they never shared a beer with friends that never went to college. Please don't be stupid. Finish college, learn something that interest you, give back to society. Maybe all these policy discussions are bunk and every child in America should expect the same quality of education a student at Exeter would demand.