8 ms·

> Loans aren't at the root of the problem Loans absolutely are at the root of the problem. Not the abstract concept of loaning money, but the current implement

> Loans aren't at the root of the problem Loans absolutely are at the root of the problem. Not the abstract concept of loaning money, but the current implementation. The student loans legally allowed today are borderline usary. They provide a convenient way for lenders to sidestep bankruptcy protection. This leaves students with exact same problems society had before bankruptcy: it's far too easy for the unwary to sign their life away to crushing debt. They essentially become an indentured servant for the rest of their life, destined to die in poverty. These issues are a practically daily occurrence on r/personalfinance [1]. I personally know several people in this situation. Naive kids get too far over their head in debt, and the traditional protections for that situation have been taken away from them. Maybe it's time to cap total outstanding student debt to some reasonable expectation of when they can be repaid. That's the only way I can imagine tuition levels reverting to a sane level. 1. for a recent example, see http://redd.it/1kavq7 http://redd.it/1kavq7

ethanbond 13y ago
The overall price of education is the root of the problem, and the price of education has little correlation to the availability of student loans (contrary to popular belief). > Maybe it's time to cap total outstanding student debt to some reasonable expectation of when they can be repaid. I think that's a good start. Kind of resembling a loan-forgiveness mechanism (which there are already a few). It falls into the same trap most solutions do, though. What's "a reasonable expectation," and who decides it?
- burntsushi 13y ago
  > The overall price of education is the root of the problem, and the price of education has little correlation to the availability of student loans (contrary to popular belief). Did you read the article? It provided a fairly sound argument supporting the conclusion that the availability of student loans and the price of tuition are quite related.
  - sp332 13y ago
    Fixing the lending problem might influence the overspending, but fixing the overspending would solve the problem much more directly.
    - wmf 13y ago
      You're basically saying let's ask people not to accept free money that's being thrown at them. That's not impossible, but I think restricting bad loans is more compatible with human nature.
      - sp332 13y ago
        How are you going to restrict bad loans without asking people (the government) not to accept free money? It's the same problem.
        wmf 13y ago
        Sorry, I meant the universities are accepting free money and that's why they won't reduce prices. If the government refuses to make "underwater" loans on degrees that are not worth the cost, we should expect prices to go down.
        deleted 13y ago
        [deleted]
  - LargeWu 13y ago
    "Fixing the lending problem might influence the overspending, but fixing the overspending would solve the problem much more directly." You're missing the point. The overspending is a direct result of the lending problem. Lending is the root cause of the overspending problem. Students choose schools with lots of amenities because it's so easy to get loans, so why not? Because of this, schools have to continue to build plush dorms and state of the art fitness centers in order to keep their enrollment up. This, of course, drives up costs, which is passed on to students via tuition, who just continue to pay for it all with more readily available loans. A particular university can't just cut spending, because it would put them at a huge competitive disadvantage with everybody else. Only by reigning in lending will costs stabilize.
- positr0n 13y ago
  Since that is indeed popular belief, do you have any proof otherwise? I'd love to hear different theories.
  - ethanbond 13y ago
    First, the burden of proof actually isn't on the people saying there's no correlation. It's on those saying that there's direct causation. Baseless claims should be treated as such until there's something more behind them than "well it just makes sense." Secondly, there's a lot of sources at the bottom of this. http://www.washingtonpost.com/blogs/answer-sheet/post/the-urban-legend-of-the-bennett-hypothesis-or-why-student-aid-is-not-driving-up-college-costs/2012/05/31/gJQAFvEX5U_blog.html http://www.washingtonpost.com/blogs/answer-sheet/post/the-ur...
- macspoofing 13y ago
  >and the price of education has little correlation to the availability of student loans (contrary to popular belief)... That's just blatantly wrong. The easy availability of student loans is what's driving education costs. The fact that lenders are willing to lend enormous amounts of money to people who may not be able to pay them back, tells you right there that there is quite a bit of market-distortion going on. Couple this with a natural tendency to not consider future-risk by an 18-year old, strongly implies that colleges would be incentivized to exploit this, and in fact they do! I've read countless articles on private colleges charging insane amounts for tuition whose middle-class graduates end up with thousands in debt and no reasonable chance of making a salary to pay off those loans. Think about it this way, in a normal reality, there is no chance a responsible bank would lend a middle-class kid $100,000-$200,000+ to do a 4 year liberal arts degree.
  - ethanbond 13y ago
    http://www.washingtonpost.com/blogs/answer-sheet/post/the-urban-legend-of-the-bennett-hypothesis-or-why-student-aid-is-not-driving-up-college-costs/2012/05/31/gJQAFvEX5U_blog.html http://www.washingtonpost.com/blogs/answer-sheet/post/the-ur... Lots of sources down at the bottom. EDIT: Also, I've yet to actually see any study that concludes direct causation between availability of loans and tuition prices. Yet somehow the burden of proof is on the naysayers?
    - danielweber 13y ago
      "Government and colleges are not driving up college costs," government and colleges report. That blog post, by the way, the source of the quote that Taibbi references in TFA. It's not even an op-ed, it's a guest post written on one individual WaPo blog.
      - ethanbond 13y ago
        "Government and colleges are driving up college costs," random people on Internet report. I'm aware of what it is. That's why I didn't tell you to read the blog post. I told you to go to the sources.
- AnIrishDuck 13y ago
  > I think that's a good start. Kind of resembling a loan-forgiveness mechanism (which there are already a few). It falls into the same trap most solutions do, though. What's "a reasonable expectation," and who decides it? One simple change that would have drastic effects is modifying the forgiveness timeframe on income based repayment (IBR) for student loans. Right now, the expiration time is 25 years [1]. In other words, 99% of all kids going to college are on the hook for paying loans for longer than they have been alive. I think the government should shorten that period down to fifteen or even ten years for any loan that is not dischargeable in bankruptcy. Correspondingly, it might be a wise idea to up the current reduced payment amount from 15% of AGI [2] to maybe 25-50%. I'm throwing out numbers here, clearly some careful study would be warranted if this idea was seriously considered. This would probably mean a corresponding increase in loan forgiveness for public servents (teachers, firefighters, public defenders, etc). I'm not opposed to such an idea prima facie. My expectation is this will drastically reduce the availability of certain types of degrees. The upside is we won't have a ton of young kids floating around with degrees they can't use and loan burdens they can't meet. 1. http://studentaid.ed.gov/repay-loans/understand/plans/income-based http://studentaid.ed.gov/repay-loans/understand/plans/income... 2. http://en.wikipedia.org/wiki/Student_loans_in_the_United_States#Income-Based_Repayment_Plan http://en.wikipedia.org/wiki/Student_loans_in_the_United_Sta... EDIT: one more thing I forgot to mention: I think that, like many social systems with complex feedback, you cannot reduce this problem to "too much loans" or "too much spending". It's difficult to delineate cause from effect, but it's indisputable that the easy availability of credit has at least enabled recent skyrocketing tuition.
  - danielweber 13y ago
    IBR is just another way for colleges to more reliably price discriminate. If the average student gets a $500,000 NPV wage boost from going to college, the college can charge $499,000 and capture most of it. With IBR they can do even better. Instead of charging everyone the average, they can charge each and every person his/her exact wage premium. And it's all backed up by the IRS enforcing collection, too. I can see why schools would freaking love this. Why would any one else?
- wmf 13y ago
  There are studies about the lifetime value of various college degrees, so it should be possible to limit loans to some fraction of that.
- JackFr 13y ago
  "the price of education has little correlation to the availability of student loans" Sure. And the bubble in home prices was a purely secular affair, with no correlation to the introduction of option ARMs, low doc/no doc loans and subprime credit availability.
  - ethanbond 13y ago
    Sure. Because the actual statistics don't matter as long as you can draw loose parallels between two somewhat similar situations.
- jacoblyles 13y ago
  In the political world price is a feature, not a bug. You will not pass any proposal through congress that significantly lowers the price of a quality education, say through technology. If the government is giving out $800 billion/yr, there are MANY people with the incentive to see that continue and grow.

ethanbond 13y ago

The overall price of education is the root of the problem, and the price of education has little correlation to the availability of student loans (contrary to popular belief). > Maybe it's time to cap total outstanding student debt to some reasonable expectation of when they can be repaid. I think that's a good start. Kind of resembling a loan-forgiveness mechanism (which there are already a few). It falls into the same trap most solutions do, though. What's "a reasonable expectation," and who decides it?

burntsushi 13y ago
> The overall price of education is the root of the problem, and the price of education has little correlation to the availability of student loans (contrary to popular belief). Did you read the article? It provided a fairly sound argument supporting the conclusion that the availability of student loans and the price of tuition are quite related.
- sp332 13y ago
  Fixing the lending problem might influence the overspending, but fixing the overspending would solve the problem much more directly.
  - wmf 13y ago
    You're basically saying let's ask people not to accept free money that's being thrown at them. That's not impossible, but I think restricting bad loans is more compatible with human nature.
    - sp332 13y ago
      How are you going to restrict bad loans without asking people (the government) not to accept free money? It's the same problem.
      - wmf 13y ago
        Sorry, I meant the universities are accepting free money and that's why they won't reduce prices. If the government refuses to make "underwater" loans on degrees that are not worth the cost, we should expect prices to go down.
      - deleted 13y ago
        [deleted]
- LargeWu 13y ago
  "Fixing the lending problem might influence the overspending, but fixing the overspending would solve the problem much more directly." You're missing the point. The overspending is a direct result of the lending problem. Lending is the root cause of the overspending problem. Students choose schools with lots of amenities because it's so easy to get loans, so why not? Because of this, schools have to continue to build plush dorms and state of the art fitness centers in order to keep their enrollment up. This, of course, drives up costs, which is passed on to students via tuition, who just continue to pay for it all with more readily available loans. A particular university can't just cut spending, because it would put them at a huge competitive disadvantage with everybody else. Only by reigning in lending will costs stabilize.
positr0n 13y ago
Since that is indeed popular belief, do you have any proof otherwise? I'd love to hear different theories.
- ethanbond 13y ago
  First, the burden of proof actually isn't on the people saying there's no correlation. It's on those saying that there's direct causation. Baseless claims should be treated as such until there's something more behind them than "well it just makes sense." Secondly, there's a lot of sources at the bottom of this. http://www.washingtonpost.com/blogs/answer-sheet/post/the-urban-legend-of-the-bennett-hypothesis-or-why-student-aid-is-not-driving-up-college-costs/2012/05/31/gJQAFvEX5U_blog.html http://www.washingtonpost.com/blogs/answer-sheet/post/the-ur...
macspoofing 13y ago
>and the price of education has little correlation to the availability of student loans (contrary to popular belief)... That's just blatantly wrong. The easy availability of student loans is what's driving education costs. The fact that lenders are willing to lend enormous amounts of money to people who may not be able to pay them back, tells you right there that there is quite a bit of market-distortion going on. Couple this with a natural tendency to not consider future-risk by an 18-year old, strongly implies that colleges would be incentivized to exploit this, and in fact they do! I've read countless articles on private colleges charging insane amounts for tuition whose middle-class graduates end up with thousands in debt and no reasonable chance of making a salary to pay off those loans. Think about it this way, in a normal reality, there is no chance a responsible bank would lend a middle-class kid $100,000-$200,000+ to do a 4 year liberal arts degree.
- ethanbond 13y ago
  http://www.washingtonpost.com/blogs/answer-sheet/post/the-urban-legend-of-the-bennett-hypothesis-or-why-student-aid-is-not-driving-up-college-costs/2012/05/31/gJQAFvEX5U_blog.html http://www.washingtonpost.com/blogs/answer-sheet/post/the-ur... Lots of sources down at the bottom. EDIT: Also, I've yet to actually see any study that concludes direct causation between availability of loans and tuition prices. Yet somehow the burden of proof is on the naysayers?
  - danielweber 13y ago
    "Government and colleges are not driving up college costs," government and colleges report. That blog post, by the way, the source of the quote that Taibbi references in TFA. It's not even an op-ed, it's a guest post written on one individual WaPo blog.
    - ethanbond 13y ago
      "Government and colleges are driving up college costs," random people on Internet report. I'm aware of what it is. That's why I didn't tell you to read the blog post. I told you to go to the sources.
AnIrishDuck 13y ago
> I think that's a good start. Kind of resembling a loan-forgiveness mechanism (which there are already a few). It falls into the same trap most solutions do, though. What's "a reasonable expectation," and who decides it? One simple change that would have drastic effects is modifying the forgiveness timeframe on income based repayment (IBR) for student loans. Right now, the expiration time is 25 years [1]. In other words, 99% of all kids going to college are on the hook for paying loans for longer than they have been alive. I think the government should shorten that period down to fifteen or even ten years for any loan that is not dischargeable in bankruptcy. Correspondingly, it might be a wise idea to up the current reduced payment amount from 15% of AGI [2] to maybe 25-50%. I'm throwing out numbers here, clearly some careful study would be warranted if this idea was seriously considered. This would probably mean a corresponding increase in loan forgiveness for public servents (teachers, firefighters, public defenders, etc). I'm not opposed to such an idea prima facie. My expectation is this will drastically reduce the availability of certain types of degrees. The upside is we won't have a ton of young kids floating around with degrees they can't use and loan burdens they can't meet. 1. http://studentaid.ed.gov/repay-loans/understand/plans/income-based http://studentaid.ed.gov/repay-loans/understand/plans/income... 2. http://en.wikipedia.org/wiki/Student_loans_in_the_United_States#Income-Based_Repayment_Plan http://en.wikipedia.org/wiki/Student_loans_in_the_United_Sta... EDIT: one more thing I forgot to mention: I think that, like many social systems with complex feedback, you cannot reduce this problem to "too much loans" or "too much spending". It's difficult to delineate cause from effect, but it's indisputable that the easy availability of credit has at least enabled recent skyrocketing tuition.
- danielweber 13y ago
  IBR is just another way for colleges to more reliably price discriminate. If the average student gets a $500,000 NPV wage boost from going to college, the college can charge $499,000 and capture most of it. With IBR they can do even better. Instead of charging everyone the average, they can charge each and every person his/her exact wage premium. And it's all backed up by the IRS enforcing collection, too. I can see why schools would freaking love this. Why would any one else?
wmf 13y ago
There are studies about the lifetime value of various college degrees, so it should be possible to limit loans to some fraction of that.
JackFr 13y ago
"the price of education has little correlation to the availability of student loans" Sure. And the bubble in home prices was a purely secular affair, with no correlation to the introduction of option ARMs, low doc/no doc loans and subprime credit availability.
- ethanbond 13y ago
  Sure. Because the actual statistics don't matter as long as you can draw loose parallels between two somewhat similar situations.
jacoblyles 13y ago
In the political world price is a feature, not a bug. You will not pass any proposal through congress that significantly lowers the price of a quality education, say through technology. If the government is giving out $800 billion/yr, there are MANY people with the incentive to see that continue and grow.