4 ms·

Something that has bothered me for a while is the cost structure of college. At least at my school, everyone paid the same amount, plus or minus three or four t

by lumb63 2y ago

Something that has bothered me for a while is the cost structure of college. At least at my school, everyone paid the same amount, plus or minus three or four thousand dollars. Meanwhile, a computer science major will earn on the order of double what a psychology major might earn, both as a starting salary, and that will compound over their careers. This is also true of loans. There is one flat interest rate for (federal) student loans. That rate does not reflect the creditworthiness of the borrower at all. It doesn’t consider their major at all. Any intelligent lender would never operate this way; who would give both a computer science major and basket weaving major the same amount of money and claim (via interest rate) that both loans are equally risky? We have the concept of prices to serve as tools to encourage or discourage people from pursuing ventures society needs (or, really, is willing to pay for) more or less. It seems to me that in the context of higher education the economics are fundamentally broken. This causes a lot of grief for a lot of people, who then claim socialized higher education is the answer. It might be better than what we have; I’m not sure. That said, I’m inclined to think the free market would solve a lot of the problems seen in the current student loan situation in the US. There would be no kids with low-value degrees in $250k of debt graduating with a job paying $30k/yr. That simply shouldn’t happen.

mdnahas 2y ago
As an economist, I totally agree. Funding of high-return majors by good students should have rock-bottom interest rates. The govt should only be stepping into the loan market if the market isn’t happening. (Not that the market is doing loans wonderfully, but there are some new innovators.) The govt should be helping the poor and investing in strategic capabilities. But the whole loan market and helping school rob parents of as much as they can pay? No.
skhunted 2y ago
It seems to me that in the context of higher education the economics are fundamentally broken. There are lots of examples of this type of situation in the U.S. Suburbia is subsidized through the road system. Gas taxes and vehicle registration aren’t enough to pay for the road system. K-12 education is subsidized by non parents. Police services are subsidized. There’s a ton of corporate welfare too. There are some things for which a free market solution is advisable and some things for which it not advisable. I think education falls into the “not advisable” group.
sidewndr46 2y ago
Interest rates not reflecting the creditworthiness of the borrower is a design feature of federal loans. The idea being the government should at least subsidize loaning money to people for education. In practice it just allows universities to raise tuition to the moon.
- ethbr1 2y ago
  Exactly. Equality of opportunity, to the extent achievable, is important to preserve. But it needs to be done in a way that universities don't simply absorb any funding by raising tuition. IMHO, we should start by taking the ACA approach on admin overhead. I.e. If you want federal loans/grants to be usable on tuition at your institution, here's the administrative cost ("funds not directly spent on teaching") cap. If you exceed that, then you must rebate students the overage.
  - johnnyanmac 2y ago
    >But it needs to be done in a way that universities don't simply absorb any funding by raising tuition. Again, who's going to stop them? The government? No one in power has the incentive to change the system. And they wont until it's too late.
    - ethbr1 2y ago
      The federal and state governments, as primary funders, certainly have the power to stop them. And the incentive, to the extent funding goes to private institutions.
coldtea 2y ago
>Meanwhile, a computer science major will earn on the order of double what a psychology major might earn, both as a starting salary, and that will compound over their careers. So? Assuming a fair charge (not the US kind of exorbitant tuition), the costs are similar (salaries from professors, administrative stuff, buildings, libraries, labs, and so on). You're not paying to buy a career, you're paying to buy an education. >There would be no kids with low-value degrees in $250k of debt graduating with a job paying $30k/yr. That simply shouldn’t happen. Yes. Or we could forbid poor people from getting their desired degrees altogether, what you describe is the same thing but with more steps.
- ethbr1 2y ago
  > Or we could forbid poor people from getting their desired degrees altogether, what you describe is the same thing but with more steps. We probably should. There's little difference between "I graduated with an uneconomic degree, and then failed to get a job in that market and/or labored under student debt I'll never be able to pay off" and "They wouldn't give me money for an uneconomic degree". If anything, the latter is kinder because it nudges the college student into either funding their own uneconomic degree up-front (if they can find the money) or making other decisions. It's always seemed insane to me that we let 18-year olds, sometimes with little financial education, make decisions that will benefit or haunt them for the rest of their life with so little guidance. (And college counselors have very conflicting incentives)
  - nebula8804 2y ago
    It may be better to tackle this issue at the school level than to pick and choose what constitutes a valuable degree because that can change depending on what the market wants. What may be true at student entrance may be totally false at student graduation. Isn't this a solved problem in Europe? The state treats public colleges as a utility to invest in the population. So the schools may not be as glamorous but they are easily and cheaply available for people who want to put in the work regardless of major.
    - 2y ago
Fredkin 2y ago
The prices thing doesn't work well here because 1) the government has intervened, and 2) it's based on debt - the price of which is also controlled by the government/central bank. It's a skin-in-the-game problem. If education was at least partially funded by equity, the investor in the person receiving the education, be it a private investor, company they'll work for, or even the university itself, would have taken on the risk for failure to produce any sort of ROI. I say partially, because I believe there is some merit in government subsidy for certain fields, but more of that should go towards reducing the cost of university facilities, on-campus accommodation, labs, libraries etc. rather than student finances.
BeFlatXIII 2y ago
The people entering the workforce with $250k in debt are mostly physicians. It’s mosrly people with $20–60k in debt that are stuck in underemployment (or didn’t graduate, so never got the salary bump to pay off such loans).
tzs 2y ago
> There would be no kids with low-value degrees in $250k of debt graduating with a job paying $30k/yr. Very few people incur anywhere near that much debt for an undergraduate degree. Getting into the $200k+ debt neighborhood generally happens from law school or medical school.
- nradov 2y ago
  It's pretty common for students to incur that much debt if they get both a Bachelor's and Master's degree from private colleges. Obviously this is not a smart financial decision, and the federal government shouldn't be encouraging it with subsidized student loans. "More than 800 people applied this year for roughly 72 spots in the film MFA program, which can total nearly $300,000 for tuition, fees and living expenses." https://www.wsj.com/articles/financially-hobbled-for-life-the-elite-masters-degrees-that-dont-pay-off-11625752773?st=l3805noeik0fmhd&reflink=desktopwebshare_permalink https://www.wsj.com/articles/financially-hobbled-for-life-th...
- xboxnolifes 2y ago
  I did not end up taking these particular college offers, but ~10 years ago I had offers for ~$50,000 a year after financial aid from multiple colleges. In 2024 I wouldn't be surprised if the same offer to me would be $75,000 a year. The year after year price adjustments I've see colleges make are insane.

by lumb63 2y ago

mdnahas 2y ago

As an economist, I totally agree. Funding of high-return majors by good students should have rock-bottom interest rates. The govt should only be stepping into the loan market if the market isn’t happening. (Not that the market is doing loans wonderfully, but there are some new innovators.) The govt should be helping the poor and investing in strategic capabilities. But the whole loan market and helping school rob parents of as much as they can pay? No.

skhunted 2y ago

It seems to me that in the context of higher education the economics are fundamentally broken. There are lots of examples of this type of situation in the U.S. Suburbia is subsidized through the road system. Gas taxes and vehicle registration aren’t enough to pay for the road system. K-12 education is subsidized by non parents. Police services are subsidized. There’s a ton of corporate welfare too. There are some things for which a free market solution is advisable and some things for which it not advisable. I think education falls into the “not advisable” group.

sidewndr46 2y ago

Interest rates not reflecting the creditworthiness of the borrower is a design feature of federal loans. The idea being the government should at least subsidize loaning money to people for education. In practice it just allows universities to raise tuition to the moon.

ethbr1 2y ago
Exactly. Equality of opportunity, to the extent achievable, is important to preserve. But it needs to be done in a way that universities don't simply absorb any funding by raising tuition. IMHO, we should start by taking the ACA approach on admin overhead. I.e. If you want federal loans/grants to be usable on tuition at your institution, here's the administrative cost ("funds not directly spent on teaching") cap. If you exceed that, then you must rebate students the overage.
- johnnyanmac 2y ago
  >But it needs to be done in a way that universities don't simply absorb any funding by raising tuition. Again, who's going to stop them? The government? No one in power has the incentive to change the system. And they wont until it's too late.
  - ethbr1 2y ago
    The federal and state governments, as primary funders, certainly have the power to stop them. And the incentive, to the extent funding goes to private institutions.

coldtea 2y ago

>Meanwhile, a computer science major will earn on the order of double what a psychology major might earn, both as a starting salary, and that will compound over their careers. So? Assuming a fair charge (not the US kind of exorbitant tuition), the costs are similar (salaries from professors, administrative stuff, buildings, libraries, labs, and so on). You're not paying to buy a career, you're paying to buy an education. >There would be no kids with low-value degrees in $250k of debt graduating with a job paying $30k/yr. That simply shouldn’t happen. Yes. Or we could forbid poor people from getting their desired degrees altogether, what you describe is the same thing but with more steps.

ethbr1 2y ago
> Or we could forbid poor people from getting their desired degrees altogether, what you describe is the same thing but with more steps. We probably should. There's little difference between "I graduated with an uneconomic degree, and then failed to get a job in that market and/or labored under student debt I'll never be able to pay off" and "They wouldn't give me money for an uneconomic degree". If anything, the latter is kinder because it nudges the college student into either funding their own uneconomic degree up-front (if they can find the money) or making other decisions. It's always seemed insane to me that we let 18-year olds, sometimes with little financial education, make decisions that will benefit or haunt them for the rest of their life with so little guidance. (And college counselors have very conflicting incentives)
- nebula8804 2y ago
  It may be better to tackle this issue at the school level than to pick and choose what constitutes a valuable degree because that can change depending on what the market wants. What may be true at student entrance may be totally false at student graduation. Isn't this a solved problem in Europe? The state treats public colleges as a utility to invest in the population. So the schools may not be as glamorous but they are easily and cheaply available for people who want to put in the work regardless of major.
  - 2y ago

Fredkin 2y ago

The prices thing doesn't work well here because 1) the government has intervened, and 2) it's based on debt - the price of which is also controlled by the government/central bank. It's a skin-in-the-game problem. If education was at least partially funded by equity, the investor in the person receiving the education, be it a private investor, company they'll work for, or even the university itself, would have taken on the risk for failure to produce any sort of ROI. I say partially, because I believe there is some merit in government subsidy for certain fields, but more of that should go towards reducing the cost of university facilities, on-campus accommodation, labs, libraries etc. rather than student finances.

BeFlatXIII 2y ago

The people entering the workforce with $250k in debt are mostly physicians. It’s mosrly people with $20–60k in debt that are stuck in underemployment (or didn’t graduate, so never got the salary bump to pay off such loans).

tzs 2y ago

> There would be no kids with low-value degrees in $250k of debt graduating with a job paying $30k/yr. Very few people incur anywhere near that much debt for an undergraduate degree. Getting into the $200k+ debt neighborhood generally happens from law school or medical school.

nradov 2y ago
It's pretty common for students to incur that much debt if they get both a Bachelor's and Master's degree from private colleges. Obviously this is not a smart financial decision, and the federal government shouldn't be encouraging it with subsidized student loans. "More than 800 people applied this year for roughly 72 spots in the film MFA program, which can total nearly $300,000 for tuition, fees and living expenses." https://www.wsj.com/articles/financially-hobbled-for-life-the-elite-masters-degrees-that-dont-pay-off-11625752773?st=l3805noeik0fmhd&reflink=desktopwebshare_permalink https://www.wsj.com/articles/financially-hobbled-for-life-th...
xboxnolifes 2y ago
I did not end up taking these particular college offers, but ~10 years ago I had offers for ~$50,000 a year after financial aid from multiple colleges. In 2024 I wouldn't be surprised if the same offer to me would be $75,000 a year. The year after year price adjustments I've see colleges make are insane.