6 ms·

I respect your position, and agree with parts of it. But I am bothered by the vast amounts of grant and loan money that get absorbed directly by colleges, rais

by quesera 14y ago

I respect your position, and agree with parts of it. But I am bothered by the vast amounts of grant and loan money that get absorbed directly by colleges, raising the cost for everyone and creating a positive feedback loop that requires endlessly more taxes and debt to sustain. I feel we've been sold a bill of goods ("opportunity through higher ed -- don't let your kids fall behind in the new global economy, etc etc") that is way past the point of rationality.

chii 14y ago
I think its a balancing act - but i guess grants is worse than loans. Granting "free" money will indeed cause problems, but a loan that is required to be repaid seems like the right way to go in the long term, provided that after the higher education is completed the individual in question is able to actually provide value.
- luu 14y ago
  This has it exactly backwards. Consider this simple (and very simplified) example. The NPV of college is $100k. The marginal student can scrape together $10k to go to college. The marginal cost of a student is less than $10k for the college. How much will the college charge? $10k. What's the benefit to the student? $90k. What if an $89.9k subsidized grant is available? Now the college can charge $99.9k. What's the benefit to the student? Still $90k. Now lets say an $89.9k loan is made available. The college can still charge $99.9k. What's the benefit to the student? $.1k. This is actually happening (though it isn't quite so extreme). The existence of loans is allowing colleges to capture more of the value of college from student. The real world is actually worse than this simplified example in a lot of ways. Many degrees aren't worth it (from a purely monetary perspective), and the result is probabilistic, but student loans can't be discharged in bankruptcy, and payment is up front (w.r.t. a person's career), so the student takes on the risk, but the college gets the reward regardless.
  - droithomme 14y ago
    Also, considering all college students nationally, a minority of student loan recipients manage to graduate from college. Yet they are required to pay back the loans whether or not they graduated. Let's assume your value is correct, the NPV per graduate is $100k. Let's take a 50% graduation rate nationally for students admitted. Let's consider the college charges $99.9k over 4 years. We also know that students are taking 4-6 years to graduate and 4 year graduations are rare. If your chance of graduating in 4-6 years is 50%, it becomes not a $.1k average pay out, but on average, weighted for actual outcomes, an overall loss.
  - chii 14y ago
    lets assume the cost of educating a student is going to cost X. The colledge is going to get some percentage of X as profit, no matter what policy the gov't decides. Now, the question is, what party _should_ be covering for the cost X? In the grant scenario, it is society/tax payers who cover the cost of education. In the load scenario, it is the individual being educated that is covering the cost, deferred to the future. Either way, it is not the case that the college recieves less profit for the service of educating. To me, incentive alignment is critical to the success of a policy, and i feel that a loan tends to incentivize those who works ultra hard to make it, whilst a grant will not. Now, i m not saying all grants are bad, but grants should be based on academic results, as a reward incentive, where as loans should be made available to all who wants an education.
    - luu 14y ago
      There are two reasons I disagree with you. Let me start with the one that has some chance of changing your mind. I believe that spending on education is positive sum. That surely isn't always and everywhere true, but I believe that it's true at the margin, considering the conditions in the U.S. The book that originally convinced me of this was _Children as Pawns: The Politics of Educational Reform_, by Hacsi. It details, along with a lot of other evidence, a longitudinal randomized controlled trial (which is very rare in educational policy) which shows a positive benefit from additional education spending (admittedly, of a very specific type, and in one particular context). There's no way to provide a good summary of the evidence in the book, so let me just say that my opinion is that while the evidence is tenuous, the overall weight of the evidence indicates that the gains from education in tax revenue are greater than the costs. If you like, you can check out the book and decide for yourself. If you agree, then government funding of education seems like an obvious solution. And, of course, the overall gains to society are much greater than the increased tax revenue. I don't mean to say that our educational system is particularly good. In fact, I think it's very inefficient in many ways. That doesn't preclude the previous conclusion, though. The second reason is that, in the model above, college administrators capture much of the value added by subsidies. Some gain goes to "good" students, and "bad" students are severely penalized. I believe that's apparent from looking at the practical results, and you can see that in the model by adding student ability and graduation rate to the simple model above. You get an even more extreme result if you add types of degrees (hard vs. easy, with hard degrees resulting in more compensation. Typing out the entire "proof" would be tedious, but I can do it, if you disagree with the result of the model, given the premises. But, in the end, this is a philosophical difference. I don't think that we should be subsidizing college administrators (who are already much better off than average) and really good students (who, on average, will do fine in life anyway) at the expense of bad students (who, IMO, could use some help). I understand that a lot of folks would prefer that people are rewarded purely on talent. Having subsidized loans with a random probabilistic outcome magnifies that, so perhaps you think that solution is fair and just. If that's the case, and you're not convinced that spending on education is a net positive, then there's no hope my line of reasoning will convince you, and we'll have to agree to disagree. I agree that incentive compatible solutions are important, but I don't think that creating a system that's efficient (in the sense that an econ 101 student would use the word) is the only thing we should consider. P.S. Your original comment has been downvoted, but it wasn't by me. I disagree with your position, but I don't think you're arguing in bad faith or presenting even presenting a fallacious argument, which are the things I would downvote someone for.
  - khuey 14y ago
    Indeed. Since the colleges control most of the cards here (via accreditation bodies and what not; students are replaceable, loan companies are replaceable, colleges are not) if left unchecked you would expect them to capture all of the value generated through college attendance.
    - intended 14y ago
      This assumes a thoroughly mercenary/market oriented focus of colleges, and ignores altruistic or societal motives of many if not most colleges/universities/educators and professors.
      - davorb 14y ago
        I don't think that it's a good idea to build a system on the premise that people have to act nice. It's much better to incentivize them to do so.
        dalke 14y ago
        True. It's better to build a system which assumes that most people will act nice, knows that incentives can cause them to act worse, and has a fallback mechanism to handle those which don't act nice.
      - michaelt 14y ago
        Lots of educators and professors are great, but they have no say in tuition policies. Every college and university presents itself as altruistic and socially motivated in its publicity material - but if you judge colleges and universities by their actions instead of their words, which is to say in terms of inflation-adjusted tuition costs, they seem pretty mercenary/market oriented to me. According to [1] the same public college 4 year education rose in cost by more than 300% between 1988 and 2008, while median family income rose by only 90%, and the cost of a new car by just 20%. I don't blame them for this in a market-driven system - a free market actor maximizing its share of the economic surplus is like a dog humping your leg, it's just being a dog. But I don't think it's wise to deny that it's happening. [1] http://www.deltacostproject.org/resources/pdf/Trends-in-College-Spending-98-08.pdf http://www.deltacostproject.org/resources/pdf/Trends-in-Coll...
  - alttag 14y ago
    I agree with the points in your analysis, but putting your example in a competitive marketplace should cause prices to reduce to the marginal costs. Perhaps some of the local colleges can provide at that price, but we've created a system that values name-brand education, and the artificial scarcity at the top (partly, to protect brand identity) mitigates some of the downward price pressure. Even still, if marginal costs are a fraction of tuition (and I believe they are, often) why are tuition rates increasing so rapidly?
001sky 14y ago
Earning enough to pay for 2 kids is almost getting impossible for the middle classes. Whatever you have saved will get "swept" by college when corrected for financial aid. Financial aid levels, in that context turns into an odd-kinda-wierd thing. A hybrid of forced donation to a charity and a stealth tax.

by quesera 14y ago

chii 14y ago

I think its a balancing act - but i guess grants is worse than loans. Granting "free" money will indeed cause problems, but a loan that is required to be repaid seems like the right way to go in the long term, provided that after the higher education is completed the individual in question is able to actually provide value.

luu 14y ago
This has it exactly backwards. Consider this simple (and very simplified) example. The NPV of college is $100k. The marginal student can scrape together $10k to go to college. The marginal cost of a student is less than $10k for the college. How much will the college charge? $10k. What's the benefit to the student? $90k. What if an $89.9k subsidized grant is available? Now the college can charge $99.9k. What's the benefit to the student? Still $90k. Now lets say an $89.9k loan is made available. The college can still charge $99.9k. What's the benefit to the student? $.1k. This is actually happening (though it isn't quite so extreme). The existence of loans is allowing colleges to capture more of the value of college from student. The real world is actually worse than this simplified example in a lot of ways. Many degrees aren't worth it (from a purely monetary perspective), and the result is probabilistic, but student loans can't be discharged in bankruptcy, and payment is up front (w.r.t. a person's career), so the student takes on the risk, but the college gets the reward regardless.
- droithomme 14y ago
  Also, considering all college students nationally, a minority of student loan recipients manage to graduate from college. Yet they are required to pay back the loans whether or not they graduated. Let's assume your value is correct, the NPV per graduate is $100k. Let's take a 50% graduation rate nationally for students admitted. Let's consider the college charges $99.9k over 4 years. We also know that students are taking 4-6 years to graduate and 4 year graduations are rare. If your chance of graduating in 4-6 years is 50%, it becomes not a $.1k average pay out, but on average, weighted for actual outcomes, an overall loss.
- chii 14y ago
  lets assume the cost of educating a student is going to cost X. The colledge is going to get some percentage of X as profit, no matter what policy the gov't decides. Now, the question is, what party _should_ be covering for the cost X? In the grant scenario, it is society/tax payers who cover the cost of education. In the load scenario, it is the individual being educated that is covering the cost, deferred to the future. Either way, it is not the case that the college recieves less profit for the service of educating. To me, incentive alignment is critical to the success of a policy, and i feel that a loan tends to incentivize those who works ultra hard to make it, whilst a grant will not. Now, i m not saying all grants are bad, but grants should be based on academic results, as a reward incentive, where as loans should be made available to all who wants an education.
  - luu 14y ago
    There are two reasons I disagree with you. Let me start with the one that has some chance of changing your mind. I believe that spending on education is positive sum. That surely isn't always and everywhere true, but I believe that it's true at the margin, considering the conditions in the U.S. The book that originally convinced me of this was _Children as Pawns: The Politics of Educational Reform_, by Hacsi. It details, along with a lot of other evidence, a longitudinal randomized controlled trial (which is very rare in educational policy) which shows a positive benefit from additional education spending (admittedly, of a very specific type, and in one particular context). There's no way to provide a good summary of the evidence in the book, so let me just say that my opinion is that while the evidence is tenuous, the overall weight of the evidence indicates that the gains from education in tax revenue are greater than the costs. If you like, you can check out the book and decide for yourself. If you agree, then government funding of education seems like an obvious solution. And, of course, the overall gains to society are much greater than the increased tax revenue. I don't mean to say that our educational system is particularly good. In fact, I think it's very inefficient in many ways. That doesn't preclude the previous conclusion, though. The second reason is that, in the model above, college administrators capture much of the value added by subsidies. Some gain goes to "good" students, and "bad" students are severely penalized. I believe that's apparent from looking at the practical results, and you can see that in the model by adding student ability and graduation rate to the simple model above. You get an even more extreme result if you add types of degrees (hard vs. easy, with hard degrees resulting in more compensation. Typing out the entire "proof" would be tedious, but I can do it, if you disagree with the result of the model, given the premises. But, in the end, this is a philosophical difference. I don't think that we should be subsidizing college administrators (who are already much better off than average) and really good students (who, on average, will do fine in life anyway) at the expense of bad students (who, IMO, could use some help). I understand that a lot of folks would prefer that people are rewarded purely on talent. Having subsidized loans with a random probabilistic outcome magnifies that, so perhaps you think that solution is fair and just. If that's the case, and you're not convinced that spending on education is a net positive, then there's no hope my line of reasoning will convince you, and we'll have to agree to disagree. I agree that incentive compatible solutions are important, but I don't think that creating a system that's efficient (in the sense that an econ 101 student would use the word) is the only thing we should consider. P.S. Your original comment has been downvoted, but it wasn't by me. I disagree with your position, but I don't think you're arguing in bad faith or presenting even presenting a fallacious argument, which are the things I would downvote someone for.
- khuey 14y ago
  Indeed. Since the colleges control most of the cards here (via accreditation bodies and what not; students are replaceable, loan companies are replaceable, colleges are not) if left unchecked you would expect them to capture all of the value generated through college attendance.
  - intended 14y ago
    This assumes a thoroughly mercenary/market oriented focus of colleges, and ignores altruistic or societal motives of many if not most colleges/universities/educators and professors.
    - davorb 14y ago
      I don't think that it's a good idea to build a system on the premise that people have to act nice. It's much better to incentivize them to do so.
      - dalke 14y ago
        True. It's better to build a system which assumes that most people will act nice, knows that incentives can cause them to act worse, and has a fallback mechanism to handle those which don't act nice.
    - michaelt 14y ago
      Lots of educators and professors are great, but they have no say in tuition policies. Every college and university presents itself as altruistic and socially motivated in its publicity material - but if you judge colleges and universities by their actions instead of their words, which is to say in terms of inflation-adjusted tuition costs, they seem pretty mercenary/market oriented to me. According to [1] the same public college 4 year education rose in cost by more than 300% between 1988 and 2008, while median family income rose by only 90%, and the cost of a new car by just 20%. I don't blame them for this in a market-driven system - a free market actor maximizing its share of the economic surplus is like a dog humping your leg, it's just being a dog. But I don't think it's wise to deny that it's happening. [1] http://www.deltacostproject.org/resources/pdf/Trends-in-College-Spending-98-08.pdf http://www.deltacostproject.org/resources/pdf/Trends-in-Coll...
- alttag 14y ago
  I agree with the points in your analysis, but putting your example in a competitive marketplace should cause prices to reduce to the marginal costs. Perhaps some of the local colleges can provide at that price, but we've created a system that values name-brand education, and the artificial scarcity at the top (partly, to protect brand identity) mitigates some of the downward price pressure. Even still, if marginal costs are a fraction of tuition (and I believe they are, often) why are tuition rates increasing so rapidly?

001sky 14y ago

Earning enough to pay for 2 kids is almost getting impossible for the middle classes. Whatever you have saved will get "swept" by college when corrected for financial aid. Financial aid levels, in that context turns into an odd-kinda-wierd thing. A hybrid of forced donation to a charity and a stealth tax.