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Rant: I feel like most people haven't really thought about why colleges are so expensive now. It is because of the federally guaranteed student loans. It means

Rant: I feel like most people haven't really thought about why colleges are so expensive now. It is because of the federally guaranteed student loans. It means there's pretty much no downside to banks loaning an arbitrarily large amount, because if the student doesn't pay it back, the government will. And since most 18 year old students have pretty much zero price sensitivity, and they now have unlimited funds, colleges are free to charge whatever they need to entice students to come to their college. No expense needs to be spared. If people really cared about letting disadvantaged students go to college, they would figure out a way to give them scholarships or grants. Federally guaranteed student loans are a horrible and predatory idea and they are ruining young peoples' financial futures. If you just took away the guarantee on the loans, and made them dischargable in bankruptcy, colleges would be forced to compete on price again, and the price of college would start to drop.

deleted 4y ago
[deleted]
lotsofpulp 4y ago
>It means there's pretty much no downside to banks loaning an arbitrarily large amount, because if the student doesn't pay it back, the government will. Obama administration ended this in 2010: https://en.wikipedia.org/wiki/Federal_Family_Education_Loan_Program https://en.wikipedia.org/wiki/Federal_Family_Education_Loan_... The problem that remained, of course, is the federal government itself lends students a blank check as long as the check is deposited at an “accredited” university.
- nonethewiser 4y ago
  Am I crazy or did Biden just try to pay for a bunch of student loans? Legality still pending AFAIK. Just because Obama may have ended one policy doesn’t mean they aren’t backstopped by the government. Either way the point remains that the debt cannot be dispelled through bankruptcy which makes them less risky for banks.
  - lapcat 4y ago
    > Am I crazy or did Biden just try to pay for a bunch of student loans? Forgive, not pay for. > Legality still pending AFAIK. Oral arguments were heard by the Supreme Court a few weeks ago. > the debt cannot be dispelled through bankruptcy It can, actually, though it's difficult.
    - nonethewiser 4y ago
      Therefor still pending.
      - lapcat 4y ago
        Yes. I was just adding some detail. We don't know exactly when the court will decide, but the case has been heard.
    - karmelapple 4y ago
      It’s forgiveness, but it will still cost federal money, correct? https://www.npr.org/2022/09/27/1125272287/student-loan-forgiveness-cost-billion https://www.npr.org/2022/09/27/1125272287/student-loan-forgi...
      - WoahNoun 4y ago
        There would be no payments from the treasury so no direct cost for the government. The "cost" would be an opportunity cost of collecting payments. Which from a government perspective is offset by the spending and savings in the broader economy for not collecting those payments.
      - lapcat 4y ago
        It would cost in the same sense that it costs to lower the tax rate: a lower amount of future payments to the federal government from that particular revenue source. Of course, a lot of student loan debt will never be paid anyway for various reasons, such as deferment, default, or death of the borrower. Loan forgiveness won't result in any immediate payments from the federal government, because these loans are held by the federal government rather than by banks, something that a lot of people seem to misunderstand. The payments were already made years ago when the loans were disbursed.
nonethewiser 4y ago
Yea, pretty much entirely due to the loan system. It’s also sustains worthless departments.
lapcat 4y ago
> Rant: I feel like most people haven't really thought about why colleges are so expensive now. It is because of the federally guaranteed student loans. I've heard this thousands and thousands of times. I suspect that most people have heard it already too. > It means there's pretty much no downside to banks loaning an arbitrarily large amount, because if the student doesn't pay it back, the government will. This is a misunderstanding of the current student loan system, which is mostly direct loans from the federal government rather than private bank loans. That's why student loan forgiveness by the federal government is a current issue.
spacephysics 4y ago
Fully agree. And to continue this, I think one step that would be accepted across the aisle (in lieu of total debt forgiveness) is to either severely cut or get rid of interest rates on school loans. The compound interest working against students is a major part of the predation in these loans. But banks need to make money? Have a one-time interest tacked onto the total loan amount that doesn’t change over time. This incentivize banks to not loan out as much to just about anyone, and thereby forcing schools to spend less on frivolous staffing and social issues/needless expansion. Then, slowly reduce the federal student loan amounts to some arbitrarily low amount, something enough for someone on the median salary to comfortably pay back if they went to a state school. Blue collar jobs are in desperate need of apprenticeships. And there’s good money to be made. But it is legit hard, physical work. And work that needs to get more respect, because without it, water doesn’t run, lights don’t turn on, roads crumble, and buildings aren’t built.
- nonethewiser 4y ago
  > Fully agree. And to continue this, I think one step that would be accepted across the aisle (in lieu of total debt forgiveness) is to either severely cut or get rid of interest rates on school loans. I dont understand how you agree with the post yet come to this conclusion. If debt is the source of the problem why encourage more of it? The point is colleges can always raise prices because students can just take out bigger loans. This gets worse if you get rid of interest rates.
  - spacephysics 4y ago
    You also put a cap that the median income worker can pay off reasonably. So anything above would need private loans
- everforward 4y ago
  Getting rid of interest on loans dramatically changes incentives. On loans with interest, the debtor is incentivized to pay as much as they can as quickly as they can to bring the principal (and resulting interest) down. On loans without interest, the debtor is incentivized to pay as little as possible and let inflation bring down the value of the principal. > But banks need to make money? Have a one-time interest tacked onto the total loan amount that doesn’t change over time. Again, as a student, wouldn't it make more sense for me to just not pay for like a decade and wait for inflation to halve the real value of the loan?
downrightmike 4y ago
Also, if the colleges give out a certain amount of grants to students who can't afford the artificially high tuition, they become non-profits and can bank all that cash into their endowments. That's really the why of tuition hikes. Greed. Thanks MIT who took this to the supreme court in 91 and fucked all future generations!
- doctorwho42 4y ago
  And their endowment is over 25 billion.... And why again, are their salaries lower than industry again?
  - downrightmike 4y ago
    The amount of tuition that the incoming Freshman class pays is more than enough to pay for all other edu classes expenses.
charlieyu1 4y ago
Am I the only one who want government intervention on college fees?
Nifty3929 4y ago
Upvoted, but I have a slight difference as to the best way to help the underprivileged: it’s better to just give money without any strings or designated purposes. This preserves the full competition and downward cost pressure since people can always use some or all of the money elsewhere. If you provide funding (loans or cash) that is earmarked, then it serves as a price floor and upward cost pressure on that thing. Let’s just give everybody $20k per year between ages 18-22, with no strings.
conductr 4y ago
> If people really cared about letting disadvantaged students go to college > If you just took away the guarantee on the loans, and made them dischargable in bankruptcy, colleges would be forced to compete on price again You'd also see many people couldn't afford college because they wouldn't be approved for the loan without the federal guarantee. I feel like the solution is universal education, we dance around it because it's not politically feasible but it's the solution. Set some rules around who can attend (grades, testing, etc). Setting reimbursement rates will control costs (like Medicare does). Force the universities to collect from the government (like hospitals do). Force 'quality control'/compliance on education standards (also expected of hospitals).

deleted 4y ago

[deleted]

lotsofpulp 4y ago

>It means there's pretty much no downside to banks loaning an arbitrarily large amount, because if the student doesn't pay it back, the government will. Obama administration ended this in 2010: https://en.wikipedia.org/wiki/Federal_Family_Education_Loan_Program https://en.wikipedia.org/wiki/Federal_Family_Education_Loan_... The problem that remained, of course, is the federal government itself lends students a blank check as long as the check is deposited at an “accredited” university.

nonethewiser 4y ago
Am I crazy or did Biden just try to pay for a bunch of student loans? Legality still pending AFAIK. Just because Obama may have ended one policy doesn’t mean they aren’t backstopped by the government. Either way the point remains that the debt cannot be dispelled through bankruptcy which makes them less risky for banks.
- lapcat 4y ago
  > Am I crazy or did Biden just try to pay for a bunch of student loans? Forgive, not pay for. > Legality still pending AFAIK. Oral arguments were heard by the Supreme Court a few weeks ago. > the debt cannot be dispelled through bankruptcy It can, actually, though it's difficult.
  - nonethewiser 4y ago
    Therefor still pending.
    - lapcat 4y ago
      Yes. I was just adding some detail. We don't know exactly when the court will decide, but the case has been heard.
  - karmelapple 4y ago
    It’s forgiveness, but it will still cost federal money, correct? https://www.npr.org/2022/09/27/1125272287/student-loan-forgiveness-cost-billion https://www.npr.org/2022/09/27/1125272287/student-loan-forgi...
    - WoahNoun 4y ago
      There would be no payments from the treasury so no direct cost for the government. The "cost" would be an opportunity cost of collecting payments. Which from a government perspective is offset by the spending and savings in the broader economy for not collecting those payments.
    - lapcat 4y ago
      It would cost in the same sense that it costs to lower the tax rate: a lower amount of future payments to the federal government from that particular revenue source. Of course, a lot of student loan debt will never be paid anyway for various reasons, such as deferment, default, or death of the borrower. Loan forgiveness won't result in any immediate payments from the federal government, because these loans are held by the federal government rather than by banks, something that a lot of people seem to misunderstand. The payments were already made years ago when the loans were disbursed.

nonethewiser 4y ago

Yea, pretty much entirely due to the loan system. It’s also sustains worthless departments.

lapcat 4y ago

> Rant: I feel like most people haven't really thought about why colleges are so expensive now. It is because of the federally guaranteed student loans. I've heard this thousands and thousands of times. I suspect that most people have heard it already too. > It means there's pretty much no downside to banks loaning an arbitrarily large amount, because if the student doesn't pay it back, the government will. This is a misunderstanding of the current student loan system, which is mostly direct loans from the federal government rather than private bank loans. That's why student loan forgiveness by the federal government is a current issue.

spacephysics 4y ago

Fully agree. And to continue this, I think one step that would be accepted across the aisle (in lieu of total debt forgiveness) is to either severely cut or get rid of interest rates on school loans. The compound interest working against students is a major part of the predation in these loans. But banks need to make money? Have a one-time interest tacked onto the total loan amount that doesn’t change over time. This incentivize banks to not loan out as much to just about anyone, and thereby forcing schools to spend less on frivolous staffing and social issues/needless expansion. Then, slowly reduce the federal student loan amounts to some arbitrarily low amount, something enough for someone on the median salary to comfortably pay back if they went to a state school. Blue collar jobs are in desperate need of apprenticeships. And there’s good money to be made. But it is legit hard, physical work. And work that needs to get more respect, because without it, water doesn’t run, lights don’t turn on, roads crumble, and buildings aren’t built.

nonethewiser 4y ago
> Fully agree. And to continue this, I think one step that would be accepted across the aisle (in lieu of total debt forgiveness) is to either severely cut or get rid of interest rates on school loans. I dont understand how you agree with the post yet come to this conclusion. If debt is the source of the problem why encourage more of it? The point is colleges can always raise prices because students can just take out bigger loans. This gets worse if you get rid of interest rates.
- spacephysics 4y ago
  You also put a cap that the median income worker can pay off reasonably. So anything above would need private loans
everforward 4y ago
Getting rid of interest on loans dramatically changes incentives. On loans with interest, the debtor is incentivized to pay as much as they can as quickly as they can to bring the principal (and resulting interest) down. On loans without interest, the debtor is incentivized to pay as little as possible and let inflation bring down the value of the principal. > But banks need to make money? Have a one-time interest tacked onto the total loan amount that doesn’t change over time. Again, as a student, wouldn't it make more sense for me to just not pay for like a decade and wait for inflation to halve the real value of the loan?

downrightmike 4y ago

Also, if the colleges give out a certain amount of grants to students who can't afford the artificially high tuition, they become non-profits and can bank all that cash into their endowments. That's really the why of tuition hikes. Greed. Thanks MIT who took this to the supreme court in 91 and fucked all future generations!

doctorwho42 4y ago
And their endowment is over 25 billion.... And why again, are their salaries lower than industry again?
- downrightmike 4y ago
  The amount of tuition that the incoming Freshman class pays is more than enough to pay for all other edu classes expenses.

charlieyu1 4y ago

Am I the only one who want government intervention on college fees?

Nifty3929 4y ago

Upvoted, but I have a slight difference as to the best way to help the underprivileged: it’s better to just give money without any strings or designated purposes. This preserves the full competition and downward cost pressure since people can always use some or all of the money elsewhere. If you provide funding (loans or cash) that is earmarked, then it serves as a price floor and upward cost pressure on that thing. Let’s just give everybody $20k per year between ages 18-22, with no strings.

conductr 4y ago

> If people really cared about letting disadvantaged students go to college > If you just took away the guarantee on the loans, and made them dischargable in bankruptcy, colleges would be forced to compete on price again You'd also see many people couldn't afford college because they wouldn't be approved for the loan without the federal guarantee. I feel like the solution is universal education, we dance around it because it's not politically feasible but it's the solution. Set some rules around who can attend (grades, testing, etc). Setting reimbursement rates will control costs (like Medicare does). Force the universities to collect from the government (like hospitals do). Force 'quality control'/compliance on education standards (also expected of hospitals).