19 ms·

Student Loans Are A Drag On The Economy

86 points by ck2 13y ago

transfire 13y ago
The issue is even worse than this article suggests. The article focuses on graduates. But students who fail to graduate, for whatever reason, are even worse off. They usually can't payoff their debt, so they go into default and have their credit destroyed for the rest of their lives. They can't try to go back to school later because they can't get new loans, and, with the latest laws, can't even transfer the credits they had. It becomes a catch-22 and downward spiral.
- fredgrott 13y ago
  its even worse than that.. Currently, if you have no income you are harassed to get into the payment by income program but that program requires you to make payments on previous loan payment program to become fully qualified for that lower payment plan. So guess what happens? Congress in their wisdom limited said plan to one try. That is right most of the people on that default list could have been avoided if the limit income plan was implemented properly.
  - chiurox 13y ago
    Soon we will start seeing news of young graduates committing crime to pay off their student loans. Heck, it would be interesting to see a movie with this plot line.
    - sjg007 13y ago
      That explains the bitcoin thefts.
    - maxerickson 13y ago
      If you squint, "Falling Down" is sort of this movie, where ordinary guy loses his shit because of forces beyond his control. http://www.imdb.com/title/tt0106856/ http://www.imdb.com/title/tt0106856/
- qwerta 13y ago
  I think one can not go into personal bankruptcy for student loans...
  - scarecrowbob 13y ago
    You are correct, but you can default, which carries worse penalties and still does not discharge the debt: http://www.asa.org/in-default/consequences/ http://www.asa.org/in-default/consequences/
- dredmorbius 13y ago
  The (usually Libertarian AFAIU) Library of Economics and Liberty isn't my usual stomping grounds, but Bryan Caplan writes well there on just that aspect in "What Bad Students Know that Good Economists Don't" The college premium skyrocketed over the last three decades. B.A.s now out-earn high school grads by 70-80%. College graduation, in contrast, barely rose. In econospeak, the supply of college graduates looks bizarrely price-inelastic. Over the last two months, I've read virtually everything ever written on this puzzle. All of the compelling stories converge on a single factor I've emphasized for years: The return to trying to get a degree is far lower than the return to successfully getting a degree. Why? Because marginal students routinely fail to graduate. The single best paper on this theme: "The Education Risk Premium" by Janice Eberly and Kartik Athreya. http://econlog.econlib.org/archives/2014/02/why_the_college.html http://econlog.econlib.org/archives/2014/02/why_the_college.... For various reasons, I've been saying for a year or so now that "we're not going to educate our way out of this mess". Education helps, yes, but it's also pretty distinctly limited, and I'm seeing increasing evidence that there's only so much potential among most students. Though there are notable exceptions: see "Stand and Deliver". More of my own take: http://www.reddit.com/r/dredmorbius/comments/1y5aq0/the_college_premium_graduation_rates_and/ http://www.reddit.com/r/dredmorbius/comments/1y5aq0/the_coll...
ck2 13y ago
It blows my mind that it costs $400k to become a quality dentist in the USA these days. No wonder I see people train overseas and then just get a license here. How is health care ever going to be affordable in this country if the doctors and dentists have to carry so much debt?
- SixSigma 13y ago
  It boggles the mind. By the time I graduate I will owe about 1 year's projected income (about $70k) and I think that's a pretty good return. If a dentist can make back nearly half a million then something needs to be done about the cost of dentristry, something doesn't add up.
  - ck2 13y ago
    I think that is the point, they cannot easily make back the $400k I have to go to the dental college because I do not have insurance, it is impossible to go to a dentist without insurance these days. I usually am seated among many other people at the college who actually have insurance, it is just their deductible is far too high unless they go to the dental school for work.
  - jjoonathan 13y ago
    I don't know how it works for dentists, but my understanding is that for doctors we've essentially given the doctors' guild the ability to legally dictate how many medical graduates they will allow, making them the envy of unions around the world (and schools, who are very happy with an arrangement that allows them to auction off a restricted supply of meal tickets). Sometimes you'll hear the AMA blame congress because they've gotten congress to pay for part of the education process and it hesitates to periodically increase the handout, but the reality is that they could change things tomorrow if they wanted to. Which they don't, because they rather enjoy the sky-high salaries that come from the artificial scarcity they've created. The market is slowly working around this constraint by allowing nurses to train and take on some of the responsibilities that were previously subject to the artificial labor scarcity. Unfortunately this only represents about ~1/3 of the problem with our medical industry by market share. The other two thirds come from drug price overruns (US drug buyers pay twice as much as single-payer countries which have much more size = bargaining power) and the medical insurance industry (a textbook case of "costs of competition" dramatically exceeding the benefits in a measurable way).
narrator 13y ago
Somebody somewhere is getting the interest payments on all that debt.
- dlp211 13y ago
  Yes, the US government, $41.7B last year.
higherpurpose 13y ago
So stop letting the government guarantee the loans. Watch how the prices fall once only a small fraction can afford to take a $200,000 loan to pay for their college, afterwards. US colleges have been spoiled. That's why prices are so high.
- dlp211 13y ago
  That's not the only reason that costs are increasing and to imply that it is, is dishonest.
  - dredmorbius 13y ago
    Curious, but what other reasons do you see?
    - dlp211 13y ago
      I go to a research university so there are 4 main sources of funding in no particular order: 1) State funding (public tax dollars) 2) Student tuition 3) Research Grants 4) Alumni donations State funding is down, research grants are down, and alumni donations are down. The autonomous costs of a university don't decline, so that loss in revenue needs to be made up elsewhere, thus it comes from student tuition.
      - dredmorbius 13y ago
        That sounds vaguely in line with the dynamic I'm recalling now with public university funding.
- aaron-lebo 13y ago
  How do you balance that with giving access to college to individuals who wouldn't have it otherwise? It isn't black and white.
  - judk 13y ago
    Community college and tuition waivers. This is a solved problem, but needs more funding in some parts of the country.
bedhead 13y ago
College tuition is the perfect alignment of the stars, economically speaking. There's no new supply of public universities. Reputations are extremely sticky. A college degree is often a job requirement. The highest paying jobs mostly recruit out of the top universities, so students are extremely price inelastic at certain levels. The government subsidizes student loans at artificially low rates. More and more foreign students want to attend US universities. Etc. Hell, it's almost a surprise that college tuition hasn't grown at an even faster pace. In ten years this is going to become a serious national issue and I think you'll see the federal government step in to cap the tuition increases. It's gonna happen.
superJoy 13y ago
At what point do these students realize the cost indicates they should stay from that school? Like, "Oh wait, even though X is a better school than Y, it will cost 5x more, and my starting salary will only be 5% less." Is that happening? It just seems some of these people are naive. Another example is ones that are unaware of the economy of the city they aspire to live in, and get a degree with little value in that city. And then they're unemployed... Now that doesn't mean the college system isn't flawed or unfair. I think that it is. But some of the discussion should be on how we tell young adults to best navigate their way through the system, as it exists at present. Picking your dream school, a "good" school, whatever, should not be independent of some analysis on what the return on investment is. For students that can do that, there are still opportunities out there... I say that because I've made decisions where I got in but didn't go to my dream school. It sucks. But the extra value from the quality of the education didn't seem worth $100k in debt once I get on the job market.
- aaron-lebo 13y ago
  How many 18 years olds are making rational decisions about return on investment in 10-15 years time? I'm not sure how you go about adequately informing students about a major life decision they are making.
  - superJoy 13y ago
    My high school counselors frequently came by classes and spoke about college---while they didn't talk about the financials in detail, they easily could have. It'd be as simple as doing a quick calculation on the board of how long it will take to pay off some amount of debt. Now whether that advice would stick in the students' heads, I don't know, but they should at least try. There's also high school economics classes that should be discussing this. I was required to take one and my teacher actually did a better job of explaining the cost of college than the counselors.
    - vacri 13y ago
      Now whether that advice would stick in the students' heads Certainly not all, by a long shot. Here in Australia, you get a couple of grand to help you out when you have a baby, helping cover various initial costs, purchasing prams or whatever. A friend of mine mentioned that he'd heard his 17-year-old daughter talking with her friends about having a baby because then you get that baby money. They saw it as a huge windfall and don't understand that all that money and more is needed to set yourself up for a child, nor that a child significantly changes your lifestyle and activity choices, especially for someone around 20. It's not to say that everyone at that age has no forethought, but as a demographic, they're not good at long-term planning.
qwerta 13y ago
I have question how young students can give legal consent for such loan? Most teenagers can not legally drink or have a sex, but they can agree to this sort of commitment?
- ck2 13y ago
  I believe most freshmen in US college are 18. Cannot drink but everything else is legal.
Glyptodon 13y ago
Meh. This is (mostly) the students' and the families' who abet their stupid decisions fault. If you go to an in-state community college and then matriculate to an in-state university in my state the total cost of college is (~$4500 for 2 years of CC living at home + ~$25000 for 2 years of closest to home in-state school) ~$30000 + the cost of living at home. Meanwhile people continue to whine about sending their kids to school in places where they wrack up that much in debt per academic year before accounting for housing and travel expenses. If you don't want to be in debt and you aren't rich or dirt poor make reasonable decisions and stop whining. If you can afford to replace your mini-van with a Prius, you can probably afford to send your child to college, especially if you save the difference during the CC years. The real issue is that people feel entitled to the best schools and will so make absurd decisions to enable it regardless of what their child is studying or how well they actually do in college. And all of the above said, I do agree that college is increasing in price more than it should. I think it's because research and lifestyle costs are getting pushed into tuition combined with state legislatures who don't want to support colleges in their state budgets that are really doing it. This has many pernicious effects, like transforming the college meal plan into a clone of your closest mall's food court.
- deleted 13y ago
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- aaron-lebo 13y ago
  You are absolutely right about the relative value of community college, but you pointed out the major problem: community colleges are not thought of highly at all, even though 2 years of CC credited to a bachelor's degree at a more prestigious university counts just the same. I'm not sure how CC's get over the stigma attached to them, but it really needs to happen. They are good value.
  - judk 13y ago
    Because when there are fewer jobs than candidates, artificial distinctions are used to judge them, and rent seekers exploit that to extract all the economic surplus. This is basic stuff, people. If everyone is going to college, everyone should know this.
patmcguire 13y ago
It's not the interest, it's the principal. And I don't understand how the principal got so high. Is calculus ten times more expensive to teach than it was thirty years ago? Is Shakespeare? Supply is totally inelastic, because it's almost impossible to get a new college accredited (for profit schools all started with an already accredited school and expand them). Same with demand - not having a college degree puts you on a lower track that's almost impossible to break out of, and the connections, etc. mean that MOOC's aren't a good substitute for undergraduate education, while the professions all require specialized schooling afterwards. So where does all the money go? At a non profit university it goes to faceless, non-teaching administrators to play the school prestige game, and maybe a little research. A generation is broke because they're not paying for education, they're paying for education that can't be unbundled from empire-building.
- deleted 13y ago
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- nilkn 13y ago
  It is more expensive now to teach calculus than it was thirty years ago, simply due to inflation. But of course the problem is that college has outpaced inflation by a large margin. Another unmentioned factor is simply how nice many university campuses have become. Lots of state of the art buildings are being built in often quite expensive metro areas as parts of college campuses. New dorms are often really surprisingly nice, even upscale. Consider that the dormitory that I lived in even had maids who would take out your trash daily and clean your bathroom and shower weekly!
- bryanlarsen 13y ago
  University tuition going up faster than general inflation is due in part to Baumol's cost disease[1] which cannot be avoided without structural changes like MOOC's. So some people wring their hands, say "can't be helped", and walk away. But I believe that the causes that you and others have noted are more prominent. 1: http://en.wikipedia.org/wiki/Baumol%27s_cost_disease http://en.wikipedia.org/wiki/Baumol%27s_cost_disease
- j2kun 13y ago
deleted 13y ago
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snowwindwaves 13y ago
My father was an economics prof at a Canadian university. In canada a large part of the tuition cost is the actual professors. What the student pays doesn't even cover the professor salaries, the rest is made up by the government. Consider that a tenured prof makes about 120k and teaches only 2 courses per semester, 2 semesters per year, while an undergraduate might have 6 courses per semester and pay 6-10k. My faculty had 2400 undergraduate students and while some classes in first year had 100 students, most were 20-30 students per class.
- ahi 13y ago
  Outside of a few programs most tenured profs dont make anywhere near 120k. In my area, UMich is 80-100 and 2nd tier schools like Eastern Michigan pay 50-70. Getting a phd in most liberal arts fields does not pay, even if you manage to avoid adjunct hell.
bluedino 13y ago
How much of a typical student loan is tuition and books, and how much of it is room, board, computers, Starbucks and partying? I know tuition and books have skyrocketed but at the same time I know people who spent student loan money on flat screen televisions, computers, spring break trips, and used cars.
- eropple 13y ago
  This is the "poor people have refrigerators" thinking writ large. Tuition and room and board can easily crack $100k at the schools that are social gatekeepers for the upper class (that people want to go to for that reason).
  - bluedino 13y ago
    Time magazine piece on that exact topic - http://healthland.time.com/2012/08/02/are-college-kids-blowing-their-student-loan-money-on-clothes-and-beer/ http://healthland.time.com/2012/08/02/are-college-kids-blowi...
    - eropple 13y ago
      "Informal research" is my favorite kind.
      - magicalist 13y ago
        Seriously. > When I asked my stepson, who graduated last winter, if he knew of kids using their student loans for non-school-related purchases Might as well ask your stepson if he knew anyone doing drugs instead of going to class. It's a drug pandemic! Do you know anyone who has cheated on a test? It's a cheating pandemic! Do you know anyone that sleeps around? Promiscuousness pandemic! People love to gossip, and they love telling stories about outliers. Asking directly for stories that stand out is about the worst kind of "informal" research you can get.
ontheinternets 13y ago
it's not just the principal, it is the interest: loans get up to 6.8 and 8.0 percent. still subsidized rates, but much higher than less valuable investments like houses. Rates are also fixed with no possibility to refinance. you have to make other decisions, like buying a house and borrowing extra to pay off your student loan. this could have other repercussions and is not very "free market." but in the end, the degree itself is supposed to be worth about a million in lifetime earnings. for professional degrees it is multiple millions. maybe it is all worth it anyway and the price of education is still too low.
eranation 13y ago
All I can hope is that more universities follow what GA Tech started. I'm doing an MSc in CS for less than 7,000$. This is the total cost, not per year. They did get 2 million $ from AT&T and close partnership with Udacity in the making, but still if they eventually manage to make this program break even and even profit (which no one knows for sure yet) then this should be the start of a movement that demands other top ranked universities to offer low cost MOOC versions as well. (there is also the aspect that GA Tech is a public university, but I don't think this matters. Profit is profit, and the costs are the same costs, or am I missing some basic difference?) p.s. The main fear of "why would students want to take our 40-60K$ on-campus program if we offer the same degree online for a fraction of the price" is being put to a test here. So far I didn't see evidence that the number of on campus GA Tech graduate students decline, but I don't know for sure, time will tell. Future will tell if this model works (I realy hope it does), but if one university can do it, others can as well.
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joezydeco 13y ago
This is an interesting NPR Planet Money podcast where they try to break down why Duke's tuition costs $60,000/yr (and Duke claims that the actual cost of a student is really $90,000/yr). http://www.npr.org/blogs/money/2014/02/26/283018555/episode-520-dukes-30-000-tuition-discount http://www.npr.org/blogs/money/2014/02/26/283018555/episode-... One of the most interesting points is that colleges are in a unique inverted position when it comes to price vs. demand. Cutting their tuition price would actually decrease the perceived value of the degree, and thus lower the demand for their product. You can grind your teeth at the rest of the podcast where the administrators claim a lot of this cost is building amenities and facilities that students now expect out of a high-tier college like all-single dorms, a myriad of cafeteria options, and 24/7/365 library and IT staffing. I'll go back to my lawnchair now.
- j2kun 13y ago
  Grind grind grind grind
- magicalist 13y ago
  > Cutting their tuition price would actually decrease the perceived value of the degree, and thus lower the demand for their product. Even if you accept this as true (which is interesting but is also a bit of a stretch), it certainly doesn't explain why tuition consistently rises at a rate several times that of inflation. The latter items certainly do.
  - joezydeco 13y ago
    Well I think danielweber (above) got it right. Customers (students) have been allowed easy access to student loans, which makes them less picky about price differentials and closes the loop. Closing the loop allows it to accelerate beyond the scope of inflation.
- snogglethorpe 13y ago
  > You can grind your teeth at the rest of the podcast where the administrators claim a lot of this cost is building amenities and facilities that students now expect out of a high-tier college like all-single dorms, a myriad of cafeteria options, and 24/7/365 library and IT staffing. I've seen a fair number of universities in the U.S. and other similarly developed countries, and one of the most striking differences I've noticed is that U.S. university physical plants tend to be really nice — super well-maintained and frequently renovated, "deluxe" feeling — whereas even top-tier universities in other countries often feel a bit threadworn and sometimes even kind of run-down, even if they have beautiful old buildings. The latter function perfectly well as universities, mind you, but the impression is that they're being pretty careful with their maintenance budget....
tn13 13y ago
The root of this problem is that the liberals have been paddling relatives good sounding notions such as "everyone needs to go to college" thing and the subsequent government moves to ensure that every tom dick and harry can go to college. This was about to happen.
- redoacs 13y ago
  I think everybody benefits from more education. And public higher education should be a cornerstone of a developed country. But sadly it appears that the USA does not agree.
  - jkelsey 13y ago
    I don't think it's fair to say that. We have a highly partisan divide right now that causes crippling inaction on some of our biggest problems (including the cost of education), but if you removed that partisan political framing and nailed down most American on the issue directly, I think you'd get an opinion that is in-line with what you said. America's problem is that we treat our political parties like our favorite sports team, and the parties themselves react accordingly favoring electoral dominance over policy achievements. Case: health-care -- polling shows that most Americans are in favor of the sort of things that the Affordable Care Act basically accomplishes (universal coverage, everybody pays something, subsidization for poorer people). When it's framed as Obamacare or a Democratic Party program, the numbers change to reflect the partisan divide. It's still stupid, but it's not the same thing as not wanting it.
- toomuchtodo 13y ago
  Everyone gets to drive on roads in the US because we each pay a bit per gallon of gas. Couldn't we all go to school if we each paid a little bit for it and you just had to show up?
  - belovedeagle 13y ago
    Tell me: where did you get your free car?
bakhy 13y ago
whenever something starts to get paid by loans, the prices rise. fractional reserve banking means loans are created almost out of thin air, it's the fiatest of fiat money, and it creates a push to increase prices. banks constantly need a sure thing, something to actually create the value to back that money. and when they all start jumping on a bandwagon, the wheels eventually break. i hope something will be done here, but if recent history has taught us anything, US government will pay most of the bills, saving the banks, and then be heavily attacked for - being in debt! the economic scene today is a bad joke.
nirnira 13y ago
Why are student loans so high, the market so ridden with defaults, and the price of education so high? I think (well, I'm a little more certain than that) the answer is basic economics. Here's my take: You (America) have a government that offers discount loans - i.e. loans with poor prospects/low interests rates - in the hope of driving a higher allocation of capital to education than would occur in a pure private lending market (i.e. the government takes risks with the taxpayers' money that private lendors would not take with their own.) (Also, might be worth noting the psychological effect of borrowing from the government - I think people tend to feel safer doing this than borrowing from an obviously competitive private firm. If you read the article, the casual attitude of student debtors to defaulting on their loans shows this - the government has no teeth. The private firm goes bankrupt if it doesn't get a return on investment. The government just devalues the dollar if it gets in a tight spot.) The justification here would be that the positive externalities of education are high, and an equilibrium capital allocation following purely upfront costs would be suboptimal. However because humans are humans, the availability of below-market price loans means that people are willing to spend more on education than they would if they were forced to pay a market price. And again, because humans and humans, colleges, which in America have little government oversight as to pricing, raise their pricing. Why? Because people will still pay it. For whatever reason, colleges are able to bank on their prestige and identity, on the promise of access to important social circles, and so pure pressure for price is diluted. Forget all the shit about increasing salaries for professors, or construction frenzies. Basically the final equilibrium price for a college is the price that they can get away with charging. And this price happens to be far higher than it would be in a purely private education market. Because students can gamble with taxpayers' money. And the universities can sense that there's cash on the ground - and if they don't rush for it, another will just take it. This is why your institutions glorify the most profligate administrators - the ones with the most grandiose investment schemes, the ones who can create an appearance of money well spent - because the best administrators help draw in as much cash as possible. So the result is that what started as an incentive to encourage education actually creates a toxic market with widespread debt defaults. Instead of more education, you just wind up enriching university administrators (definitely) and professors (maybe) and creating way more university facilities than private demand would have ever warranted. So congratulations: as a country, you've just spent XX billion building a shitload of luxurious dubiously-useful education infrastructure. Because as a country, you shoulder the cost - through your government's wasteful allocation of capital. Congratulations. The whole country just gave a shitload of money for nothing to university administrators and contractors. You wanted to push capital into educations, but instead you got rich universities. Well done eh? See, this is why America's model of mixed-capitalism is so poisonous. If you want to give cheap loans for education, you need to control prices at the institutions where they're valid. Though even that doesn't work - you'll find state-controlled institutions in countries that practice this still constantly pushing for the maximum tuition increase every single year, using every excuse they can. The better solution is probably no public loans or grants whatsoever. Though that doesn't address the positive externality of education (which I do believe in.)
EGreg 13y ago
"Chris Rong did everything right." LOL
gtani 13y ago
this was a good article about how quickly loan balances multiply after default, and how discharing in bankruptcy or otherwise is basically impossible http://www.nytimes.com/2008/08/24/business/24loans.html?pagewanted=all http://www.nytimes.com/2008/08/24/business/24loans.html?page...
mkhpalm 13y ago
I'm always amazed that all these articles seem to miss the fact that the dept of education is the one who decides loan caps for federally backed student loans. Its easy to see that the increase in tuition is directly related to those increases when you're in, say, medical school. Its not so easy to see tuition increases when you're at a 4 year school with many disciplines to obfuscate the increases. The only question I have is why does the government believe that so many of these fields have graduates seeing 300% increases in salary? No number I've seen even remotely suggest the rate that they're approving things. So why are they doing it? That is the question journalists should be asking.
goggles99 13y ago
>* $400,000 in student loans. “If the money weren’t a problem I would live on my own,” says Rong. “My debt is hanging over my mind. I’m taking that all on myself.”* How typical, someone complaining that education is so expensive and yet they are going to the most expensive school. This is ridiculous. This is like complaining that your Mercedes was too expensive when you could have bought a more reliable and efficient car for less money. The article states that the average year at college today costs $18,497, yet this guy is going to rack up $400k in dept over 6 years? by my math that is $111k. This guy is spending 4 times the average and crying foul. I personally know a dentist who worked part time all through school, he went to community college, state university, private grad/dental university and has the same diploma that this guy will have on his wall... The difference - the guy I know only had $40k in debt upon exiting school. He paid it off in two years (by the time he was 26). I'd say he did things the right way.
goggles99 13y ago
There is really three simple reasons that we have this 'problem' today. 1. People who cannot afford it are choosing very expensive universities. 2. The government is giving money away like candy, there is a definite bubble here because this money will be defaulted on. I know a professor at an art school who says his students easily get $150k to go study art. Many won't even get a degree with that money. Getting a degree or being on a path to get a degree in x years is not a requirement of getting the money. He says that these students will graduate and be lucky to go on to make $25-30k a year. That is pretty rough. This also drives tuition way up because schools know they can just charge more and the thanks to the govt. students and money will still funnel in by the truckload. 3. Students with student loan money live like rock stars. These are teenagers here. They suddenly have a bunch of money. do you thing that they are carefully considering that every dollar they spend will have to be paid back with interest? Teenagers... I have seen this over and over again personally. Luxury apartments, nice cars, buying, spending... "A part time job? are you kidding? who has time for that, I've got to focus on my party life.. Errrr studies".
rahimnathwani 13y ago
by the time he graduates in 2016, he’ll face $400,000 in student loans Why choose to study in New York? I imagine one could train to be a dentist for ~30% of that cost (including living expenses) in Central Europe or in India. Perhaps you'd need to do an extra exam before being licensed to practice back home, but avoiding that doesn't seem worth a > $200k premium.
rahimnathwani 13y ago
On the plus side, more students than ever before are attending college, which is a certainly a good thing, as van der Klaauw points out, even if it is a contributing to factor to overall debt increasing. A degree is usually worth the cost of college, even if the price tag is increasingly tough to bear. It's not clear to me that 'a degree is usually worth the cost' but even if it were the case that going to college were the optimal decision for each individual who chooses to go, this locally optimal decision doesn't mean that it's good that 'more students than ever before are attending college'. A college credential could have a positive NPV for each person thinking of getting one, but still be negative for the group overall. For each individual it's rational to participate in the credentials arms race only because if they don't, but everyone else does, they will be at a disadvantage. (I acknowledge that many people get more from a college degree than just credentials.)

86 points by ck2 13y ago

The issue is even worse than this article suggests. The article focuses on graduates. But students who fail to graduate, for whatever reason, are even worse off. They usually can't payoff their debt, so they go into default and have their credit destroyed for the rest of their lives. They can't try to go back to school later because they can't get new loans, and, with the latest laws, can't even transfer the credits they had. It becomes a catch-22 and downward spiral.

fredgrott 13y ago
its even worse than that.. Currently, if you have no income you are harassed to get into the payment by income program but that program requires you to make payments on previous loan payment program to become fully qualified for that lower payment plan. So guess what happens? Congress in their wisdom limited said plan to one try. That is right most of the people on that default list could have been avoided if the limit income plan was implemented properly.
- chiurox 13y ago
  Soon we will start seeing news of young graduates committing crime to pay off their student loans. Heck, it would be interesting to see a movie with this plot line.
  - sjg007 13y ago
    That explains the bitcoin thefts.
  - maxerickson 13y ago
    If you squint, "Falling Down" is sort of this movie, where ordinary guy loses his shit because of forces beyond his control. http://www.imdb.com/title/tt0106856/ http://www.imdb.com/title/tt0106856/
qwerta 13y ago
I think one can not go into personal bankruptcy for student loans...
- scarecrowbob 13y ago
  You are correct, but you can default, which carries worse penalties and still does not discharge the debt: http://www.asa.org/in-default/consequences/ http://www.asa.org/in-default/consequences/
dredmorbius 13y ago
The (usually Libertarian AFAIU) Library of Economics and Liberty isn't my usual stomping grounds, but Bryan Caplan writes well there on just that aspect in "What Bad Students Know that Good Economists Don't" The college premium skyrocketed over the last three decades. B.A.s now out-earn high school grads by 70-80%. College graduation, in contrast, barely rose. In econospeak, the supply of college graduates looks bizarrely price-inelastic. Over the last two months, I've read virtually everything ever written on this puzzle. All of the compelling stories converge on a single factor I've emphasized for years: The return to trying to get a degree is far lower than the return to successfully getting a degree. Why? Because marginal students routinely fail to graduate. The single best paper on this theme: "The Education Risk Premium" by Janice Eberly and Kartik Athreya. http://econlog.econlib.org/archives/2014/02/why_the_college.html http://econlog.econlib.org/archives/2014/02/why_the_college.... For various reasons, I've been saying for a year or so now that "we're not going to educate our way out of this mess". Education helps, yes, but it's also pretty distinctly limited, and I'm seeing increasing evidence that there's only so much potential among most students. Though there are notable exceptions: see "Stand and Deliver". More of my own take: http://www.reddit.com/r/dredmorbius/comments/1y5aq0/the_college_premium_graduation_rates_and/ http://www.reddit.com/r/dredmorbius/comments/1y5aq0/the_coll...

ck2 13y ago

It blows my mind that it costs $400k to become a quality dentist in the USA these days. No wonder I see people train overseas and then just get a license here. How is health care ever going to be affordable in this country if the doctors and dentists have to carry so much debt?

SixSigma 13y ago
It boggles the mind. By the time I graduate I will owe about 1 year's projected income (about $70k) and I think that's a pretty good return. If a dentist can make back nearly half a million then something needs to be done about the cost of dentristry, something doesn't add up.
- ck2 13y ago
  I think that is the point, they cannot easily make back the $400k I have to go to the dental college because I do not have insurance, it is impossible to go to a dentist without insurance these days. I usually am seated among many other people at the college who actually have insurance, it is just their deductible is far too high unless they go to the dental school for work.
- jjoonathan 13y ago
  I don't know how it works for dentists, but my understanding is that for doctors we've essentially given the doctors' guild the ability to legally dictate how many medical graduates they will allow, making them the envy of unions around the world (and schools, who are very happy with an arrangement that allows them to auction off a restricted supply of meal tickets). Sometimes you'll hear the AMA blame congress because they've gotten congress to pay for part of the education process and it hesitates to periodically increase the handout, but the reality is that they could change things tomorrow if they wanted to. Which they don't, because they rather enjoy the sky-high salaries that come from the artificial scarcity they've created. The market is slowly working around this constraint by allowing nurses to train and take on some of the responsibilities that were previously subject to the artificial labor scarcity. Unfortunately this only represents about ~1/3 of the problem with our medical industry by market share. The other two thirds come from drug price overruns (US drug buyers pay twice as much as single-payer countries which have much more size = bargaining power) and the medical insurance industry (a textbook case of "costs of competition" dramatically exceeding the benefits in a measurable way).

narrator 13y ago

Somebody somewhere is getting the interest payments on all that debt.

dlp211 13y ago
Yes, the US government, $41.7B last year.

higherpurpose 13y ago

So stop letting the government guarantee the loans. Watch how the prices fall once only a small fraction can afford to take a $200,000 loan to pay for their college, afterwards. US colleges have been spoiled. That's why prices are so high.

dlp211 13y ago
That's not the only reason that costs are increasing and to imply that it is, is dishonest.
- dredmorbius 13y ago
  Curious, but what other reasons do you see?
  - dlp211 13y ago
    I go to a research university so there are 4 main sources of funding in no particular order: 1) State funding (public tax dollars) 2) Student tuition 3) Research Grants 4) Alumni donations State funding is down, research grants are down, and alumni donations are down. The autonomous costs of a university don't decline, so that loss in revenue needs to be made up elsewhere, thus it comes from student tuition.
    - dredmorbius 13y ago
      That sounds vaguely in line with the dynamic I'm recalling now with public university funding.
aaron-lebo 13y ago
How do you balance that with giving access to college to individuals who wouldn't have it otherwise? It isn't black and white.
- judk 13y ago
  Community college and tuition waivers. This is a solved problem, but needs more funding in some parts of the country.

bedhead 13y ago

College tuition is the perfect alignment of the stars, economically speaking. There's no new supply of public universities. Reputations are extremely sticky. A college degree is often a job requirement. The highest paying jobs mostly recruit out of the top universities, so students are extremely price inelastic at certain levels. The government subsidizes student loans at artificially low rates. More and more foreign students want to attend US universities. Etc. Hell, it's almost a surprise that college tuition hasn't grown at an even faster pace. In ten years this is going to become a serious national issue and I think you'll see the federal government step in to cap the tuition increases. It's gonna happen.

superJoy 13y ago

At what point do these students realize the cost indicates they should stay from that school? Like, "Oh wait, even though X is a better school than Y, it will cost 5x more, and my starting salary will only be 5% less." Is that happening? It just seems some of these people are naive. Another example is ones that are unaware of the economy of the city they aspire to live in, and get a degree with little value in that city. And then they're unemployed... Now that doesn't mean the college system isn't flawed or unfair. I think that it is. But some of the discussion should be on how we tell young adults to best navigate their way through the system, as it exists at present. Picking your dream school, a "good" school, whatever, should not be independent of some analysis on what the return on investment is. For students that can do that, there are still opportunities out there... I say that because I've made decisions where I got in but didn't go to my dream school. It sucks. But the extra value from the quality of the education didn't seem worth $100k in debt once I get on the job market.

aaron-lebo 13y ago
How many 18 years olds are making rational decisions about return on investment in 10-15 years time? I'm not sure how you go about adequately informing students about a major life decision they are making.
- superJoy 13y ago
  My high school counselors frequently came by classes and spoke about college---while they didn't talk about the financials in detail, they easily could have. It'd be as simple as doing a quick calculation on the board of how long it will take to pay off some amount of debt. Now whether that advice would stick in the students' heads, I don't know, but they should at least try. There's also high school economics classes that should be discussing this. I was required to take one and my teacher actually did a better job of explaining the cost of college than the counselors.
  - vacri 13y ago
    Now whether that advice would stick in the students' heads Certainly not all, by a long shot. Here in Australia, you get a couple of grand to help you out when you have a baby, helping cover various initial costs, purchasing prams or whatever. A friend of mine mentioned that he'd heard his 17-year-old daughter talking with her friends about having a baby because then you get that baby money. They saw it as a huge windfall and don't understand that all that money and more is needed to set yourself up for a child, nor that a child significantly changes your lifestyle and activity choices, especially for someone around 20. It's not to say that everyone at that age has no forethought, but as a demographic, they're not good at long-term planning.

qwerta 13y ago

I have question how young students can give legal consent for such loan? Most teenagers can not legally drink or have a sex, but they can agree to this sort of commitment?

ck2 13y ago
I believe most freshmen in US college are 18. Cannot drink but everything else is legal.

Glyptodon 13y ago

Meh. This is (mostly) the students' and the families' who abet their stupid decisions fault. If you go to an in-state community college and then matriculate to an in-state university in my state the total cost of college is (~$4500 for 2 years of CC living at home + ~$25000 for 2 years of closest to home in-state school) ~$30000 + the cost of living at home. Meanwhile people continue to whine about sending their kids to school in places where they wrack up that much in debt per academic year before accounting for housing and travel expenses. If you don't want to be in debt and you aren't rich or dirt poor make reasonable decisions and stop whining. If you can afford to replace your mini-van with a Prius, you can probably afford to send your child to college, especially if you save the difference during the CC years. The real issue is that people feel entitled to the best schools and will so make absurd decisions to enable it regardless of what their child is studying or how well they actually do in college. And all of the above said, I do agree that college is increasing in price more than it should. I think it's because research and lifestyle costs are getting pushed into tuition combined with state legislatures who don't want to support colleges in their state budgets that are really doing it. This has many pernicious effects, like transforming the college meal plan into a clone of your closest mall's food court.

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aaron-lebo 13y ago
You are absolutely right about the relative value of community college, but you pointed out the major problem: community colleges are not thought of highly at all, even though 2 years of CC credited to a bachelor's degree at a more prestigious university counts just the same. I'm not sure how CC's get over the stigma attached to them, but it really needs to happen. They are good value.
- judk 13y ago
  Because when there are fewer jobs than candidates, artificial distinctions are used to judge them, and rent seekers exploit that to extract all the economic surplus. This is basic stuff, people. If everyone is going to college, everyone should know this.

patmcguire 13y ago

It's not the interest, it's the principal. And I don't understand how the principal got so high. Is calculus ten times more expensive to teach than it was thirty years ago? Is Shakespeare? Supply is totally inelastic, because it's almost impossible to get a new college accredited (for profit schools all started with an already accredited school and expand them). Same with demand - not having a college degree puts you on a lower track that's almost impossible to break out of, and the connections, etc. mean that MOOC's aren't a good substitute for undergraduate education, while the professions all require specialized schooling afterwards. So where does all the money go? At a non profit university it goes to faceless, non-teaching administrators to play the school prestige game, and maybe a little research. A generation is broke because they're not paying for education, they're paying for education that can't be unbundled from empire-building.

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nilkn 13y ago
It is more expensive now to teach calculus than it was thirty years ago, simply due to inflation. But of course the problem is that college has outpaced inflation by a large margin. Another unmentioned factor is simply how nice many university campuses have become. Lots of state of the art buildings are being built in often quite expensive metro areas as parts of college campuses. New dorms are often really surprisingly nice, even upscale. Consider that the dormitory that I lived in even had maids who would take out your trash daily and clean your bathroom and shower weekly!
bryanlarsen 13y ago
University tuition going up faster than general inflation is due in part to Baumol's cost disease[1] which cannot be avoided without structural changes like MOOC's. So some people wring their hands, say "can't be helped", and walk away. But I believe that the causes that you and others have noted are more prominent. 1: http://en.wikipedia.org/wiki/Baumol%27s_cost_disease http://en.wikipedia.org/wiki/Baumol%27s_cost_disease
j2kun 13y ago

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snowwindwaves 13y ago

My father was an economics prof at a Canadian university. In canada a large part of the tuition cost is the actual professors. What the student pays doesn't even cover the professor salaries, the rest is made up by the government. Consider that a tenured prof makes about 120k and teaches only 2 courses per semester, 2 semesters per year, while an undergraduate might have 6 courses per semester and pay 6-10k. My faculty had 2400 undergraduate students and while some classes in first year had 100 students, most were 20-30 students per class.

ahi 13y ago
Outside of a few programs most tenured profs dont make anywhere near 120k. In my area, UMich is 80-100 and 2nd tier schools like Eastern Michigan pay 50-70. Getting a phd in most liberal arts fields does not pay, even if you manage to avoid adjunct hell.

bluedino 13y ago

How much of a typical student loan is tuition and books, and how much of it is room, board, computers, Starbucks and partying? I know tuition and books have skyrocketed but at the same time I know people who spent student loan money on flat screen televisions, computers, spring break trips, and used cars.

eropple 13y ago
This is the "poor people have refrigerators" thinking writ large. Tuition and room and board can easily crack $100k at the schools that are social gatekeepers for the upper class (that people want to go to for that reason).
- bluedino 13y ago
  Time magazine piece on that exact topic - http://healthland.time.com/2012/08/02/are-college-kids-blowing-their-student-loan-money-on-clothes-and-beer/ http://healthland.time.com/2012/08/02/are-college-kids-blowi...
  - eropple 13y ago
    "Informal research" is my favorite kind.
    - magicalist 13y ago
      Seriously. > When I asked my stepson, who graduated last winter, if he knew of kids using their student loans for non-school-related purchases Might as well ask your stepson if he knew anyone doing drugs instead of going to class. It's a drug pandemic! Do you know anyone who has cheated on a test? It's a cheating pandemic! Do you know anyone that sleeps around? Promiscuousness pandemic! People love to gossip, and they love telling stories about outliers. Asking directly for stories that stand out is about the worst kind of "informal" research you can get.

ontheinternets 13y ago

it's not just the principal, it is the interest: loans get up to 6.8 and 8.0 percent. still subsidized rates, but much higher than less valuable investments like houses. Rates are also fixed with no possibility to refinance. you have to make other decisions, like buying a house and borrowing extra to pay off your student loan. this could have other repercussions and is not very "free market." but in the end, the degree itself is supposed to be worth about a million in lifetime earnings. for professional degrees it is multiple millions. maybe it is all worth it anyway and the price of education is still too low.

eranation 13y ago

All I can hope is that more universities follow what GA Tech started. I'm doing an MSc in CS for less than 7,000$. This is the total cost, not per year. They did get 2 million $ from AT&T and close partnership with Udacity in the making, but still if they eventually manage to make this program break even and even profit (which no one knows for sure yet) then this should be the start of a movement that demands other top ranked universities to offer low cost MOOC versions as well. (there is also the aspect that GA Tech is a public university, but I don't think this matters. Profit is profit, and the costs are the same costs, or am I missing some basic difference?) p.s. The main fear of "why would students want to take our 40-60K$ on-campus program if we offer the same degree online for a fraction of the price" is being put to a test here. So far I didn't see evidence that the number of on campus GA Tech graduate students decline, but I don't know for sure, time will tell. Future will tell if this model works (I realy hope it does), but if one university can do it, others can as well.

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joezydeco 13y ago

This is an interesting NPR Planet Money podcast where they try to break down why Duke's tuition costs $60,000/yr (and Duke claims that the actual cost of a student is really $90,000/yr). http://www.npr.org/blogs/money/2014/02/26/283018555/episode-520-dukes-30-000-tuition-discount http://www.npr.org/blogs/money/2014/02/26/283018555/episode-... One of the most interesting points is that colleges are in a unique inverted position when it comes to price vs. demand. Cutting their tuition price would actually decrease the perceived value of the degree, and thus lower the demand for their product. You can grind your teeth at the rest of the podcast where the administrators claim a lot of this cost is building amenities and facilities that students now expect out of a high-tier college like all-single dorms, a myriad of cafeteria options, and 24/7/365 library and IT staffing. I'll go back to my lawnchair now.

j2kun 13y ago
Grind grind grind grind
magicalist 13y ago
> Cutting their tuition price would actually decrease the perceived value of the degree, and thus lower the demand for their product. Even if you accept this as true (which is interesting but is also a bit of a stretch), it certainly doesn't explain why tuition consistently rises at a rate several times that of inflation. The latter items certainly do.
- joezydeco 13y ago
  Well I think danielweber (above) got it right. Customers (students) have been allowed easy access to student loans, which makes them less picky about price differentials and closes the loop. Closing the loop allows it to accelerate beyond the scope of inflation.
snogglethorpe 13y ago
> You can grind your teeth at the rest of the podcast where the administrators claim a lot of this cost is building amenities and facilities that students now expect out of a high-tier college like all-single dorms, a myriad of cafeteria options, and 24/7/365 library and IT staffing. I've seen a fair number of universities in the U.S. and other similarly developed countries, and one of the most striking differences I've noticed is that U.S. university physical plants tend to be really nice — super well-maintained and frequently renovated, "deluxe" feeling — whereas even top-tier universities in other countries often feel a bit threadworn and sometimes even kind of run-down, even if they have beautiful old buildings. The latter function perfectly well as universities, mind you, but the impression is that they're being pretty careful with their maintenance budget....

tn13 13y ago

The root of this problem is that the liberals have been paddling relatives good sounding notions such as "everyone needs to go to college" thing and the subsequent government moves to ensure that every tom dick and harry can go to college. This was about to happen.

redoacs 13y ago
I think everybody benefits from more education. And public higher education should be a cornerstone of a developed country. But sadly it appears that the USA does not agree.
- jkelsey 13y ago
  I don't think it's fair to say that. We have a highly partisan divide right now that causes crippling inaction on some of our biggest problems (including the cost of education), but if you removed that partisan political framing and nailed down most American on the issue directly, I think you'd get an opinion that is in-line with what you said. America's problem is that we treat our political parties like our favorite sports team, and the parties themselves react accordingly favoring electoral dominance over policy achievements. Case: health-care -- polling shows that most Americans are in favor of the sort of things that the Affordable Care Act basically accomplishes (universal coverage, everybody pays something, subsidization for poorer people). When it's framed as Obamacare or a Democratic Party program, the numbers change to reflect the partisan divide. It's still stupid, but it's not the same thing as not wanting it.
toomuchtodo 13y ago
Everyone gets to drive on roads in the US because we each pay a bit per gallon of gas. Couldn't we all go to school if we each paid a little bit for it and you just had to show up?
- belovedeagle 13y ago
  Tell me: where did you get your free car?

bakhy 13y ago

whenever something starts to get paid by loans, the prices rise. fractional reserve banking means loans are created almost out of thin air, it's the fiatest of fiat money, and it creates a push to increase prices. banks constantly need a sure thing, something to actually create the value to back that money. and when they all start jumping on a bandwagon, the wheels eventually break. i hope something will be done here, but if recent history has taught us anything, US government will pay most of the bills, saving the banks, and then be heavily attacked for - being in debt! the economic scene today is a bad joke.

nirnira 13y ago

Why are student loans so high, the market so ridden with defaults, and the price of education so high? I think (well, I'm a little more certain than that) the answer is basic economics. Here's my take: You (America) have a government that offers discount loans - i.e. loans with poor prospects/low interests rates - in the hope of driving a higher allocation of capital to education than would occur in a pure private lending market (i.e. the government takes risks with the taxpayers' money that private lendors would not take with their own.) (Also, might be worth noting the psychological effect of borrowing from the government - I think people tend to feel safer doing this than borrowing from an obviously competitive private firm. If you read the article, the casual attitude of student debtors to defaulting on their loans shows this - the government has no teeth. The private firm goes bankrupt if it doesn't get a return on investment. The government just devalues the dollar if it gets in a tight spot.) The justification here would be that the positive externalities of education are high, and an equilibrium capital allocation following purely upfront costs would be suboptimal. However because humans are humans, the availability of below-market price loans means that people are willing to spend more on education than they would if they were forced to pay a market price. And again, because humans and humans, colleges, which in America have little government oversight as to pricing, raise their pricing. Why? Because people will still pay it. For whatever reason, colleges are able to bank on their prestige and identity, on the promise of access to important social circles, and so pure pressure for price is diluted. Forget all the shit about increasing salaries for professors, or construction frenzies. Basically the final equilibrium price for a college is the price that they can get away with charging. And this price happens to be far higher than it would be in a purely private education market. Because students can gamble with taxpayers' money. And the universities can sense that there's cash on the ground - and if they don't rush for it, another will just take it. This is why your institutions glorify the most profligate administrators - the ones with the most grandiose investment schemes, the ones who can create an appearance of money well spent - because the best administrators help draw in as much cash as possible. So the result is that what started as an incentive to encourage education actually creates a toxic market with widespread debt defaults. Instead of more education, you just wind up enriching university administrators (definitely) and professors (maybe) and creating way more university facilities than private demand would have ever warranted. So congratulations: as a country, you've just spent XX billion building a shitload of luxurious dubiously-useful education infrastructure. Because as a country, you shoulder the cost - through your government's wasteful allocation of capital. Congratulations. The whole country just gave a shitload of money for nothing to university administrators and contractors. You wanted to push capital into educations, but instead you got rich universities. Well done eh? See, this is why America's model of mixed-capitalism is so poisonous. If you want to give cheap loans for education, you need to control prices at the institutions where they're valid. Though even that doesn't work - you'll find state-controlled institutions in countries that practice this still constantly pushing for the maximum tuition increase every single year, using every excuse they can. The better solution is probably no public loans or grants whatsoever. Though that doesn't address the positive externality of education (which I do believe in.)

EGreg 13y ago

"Chris Rong did everything right." LOL

gtani 13y ago

this was a good article about how quickly loan balances multiply after default, and how discharing in bankruptcy or otherwise is basically impossible http://www.nytimes.com/2008/08/24/business/24loans.html?pagewanted=all http://www.nytimes.com/2008/08/24/business/24loans.html?page...

mkhpalm 13y ago

I'm always amazed that all these articles seem to miss the fact that the dept of education is the one who decides loan caps for federally backed student loans. Its easy to see that the increase in tuition is directly related to those increases when you're in, say, medical school. Its not so easy to see tuition increases when you're at a 4 year school with many disciplines to obfuscate the increases. The only question I have is why does the government believe that so many of these fields have graduates seeing 300% increases in salary? No number I've seen even remotely suggest the rate that they're approving things. So why are they doing it? That is the question journalists should be asking.

goggles99 13y ago

>* $400,000 in student loans. “If the money weren’t a problem I would live on my own,” says Rong. “My debt is hanging over my mind. I’m taking that all on myself.”* How typical, someone complaining that education is so expensive and yet they are going to the most expensive school. This is ridiculous. This is like complaining that your Mercedes was too expensive when you could have bought a more reliable and efficient car for less money. The article states that the average year at college today costs $18,497, yet this guy is going to rack up $400k in dept over 6 years? by my math that is $111k. This guy is spending 4 times the average and crying foul. I personally know a dentist who worked part time all through school, he went to community college, state university, private grad/dental university and has the same diploma that this guy will have on his wall... The difference - the guy I know only had $40k in debt upon exiting school. He paid it off in two years (by the time he was 26). I'd say he did things the right way.

goggles99 13y ago

There is really three simple reasons that we have this 'problem' today. 1. People who cannot afford it are choosing very expensive universities. 2. The government is giving money away like candy, there is a definite bubble here because this money will be defaulted on. I know a professor at an art school who says his students easily get $150k to go study art. Many won't even get a degree with that money. Getting a degree or being on a path to get a degree in x years is not a requirement of getting the money. He says that these students will graduate and be lucky to go on to make $25-30k a year. That is pretty rough. This also drives tuition way up because schools know they can just charge more and the thanks to the govt. students and money will still funnel in by the truckload. 3. Students with student loan money live like rock stars. These are teenagers here. They suddenly have a bunch of money. do you thing that they are carefully considering that every dollar they spend will have to be paid back with interest? Teenagers... I have seen this over and over again personally. Luxury apartments, nice cars, buying, spending... "A part time job? are you kidding? who has time for that, I've got to focus on my party life.. Errrr studies".

rahimnathwani 13y ago

by the time he graduates in 2016, he’ll face $400,000 in student loans Why choose to study in New York? I imagine one could train to be a dentist for ~30% of that cost (including living expenses) in Central Europe or in India. Perhaps you'd need to do an extra exam before being licensed to practice back home, but avoiding that doesn't seem worth a > $200k premium.

rahimnathwani 13y ago

On the plus side, more students than ever before are attending college, which is a certainly a good thing, as van der Klaauw points out, even if it is a contributing to factor to overall debt increasing. A degree is usually worth the cost of college, even if the price tag is increasingly tough to bear. It's not clear to me that 'a degree is usually worth the cost' but even if it were the case that going to college were the optimal decision for each individual who chooses to go, this locally optimal decision doesn't mean that it's good that 'more students than ever before are attending college'. A college credential could have a positive NPV for each person thinking of getting one, but still be negative for the group overall. For each individual it's rational to participate in the credentials arms race only because if they don't, but everyone else does, they will be at a disadvantage. (I acknowledge that many people get more from a college degree than just credentials.)