I suppose I should comment on the proposal by Sen. Elizabeth Warren that all student debt should be forgiven and that higher education should be provided free of charge or, more precisely, the full cost of higher education should be borne by the taxpayer. I think those are very bad ideas, I will attempt to explain why, and repeat the proposals for reform that I’ve suggested in the past.
To understand why those proposals are bad ideas first consider who benefits from the status quo, then consider who benefits from Sen. Warren’s proposals, and who bears risk. Educational and lending institutions are the primary beneficiaries of the present system while students who wish to pursue courses of study which will not provide credentials with which to get a job are secondary beneficiaries, bearing no more risk than they would in any event.
Under Sen. Warren’s proposal educational institutions would be the primary beneficiaries and the secondary beneficiaries would be middle to upper middle class families for whom risk, other than the risk of time, would be eliminated. Lending institutions would lose as would the children of the poor (since money is fungible). Additionally, there would be a grave increase in moral hazard—students would have even greater incentives to pursue courses of study which would not qualify them for employment or even slack off altogether. There would be no risk in doing so.
I agree with Sen. Warren that our present system is desperately in need of reform but my proposal would be to align risks with rewards. The five largest states should each close one of their non-performing institutions of higher learning (they all have them) and the savings should be used to create a free, online degree-bearing institution. I am agnostic on whether it should be a two-year or four-year course of study and degree.
Taxpayers would bear no additional risks. If those trumpeting higher education as our sole industrial policy are right, the rewards should be enormous. If they’re wrong (as I believe), all that will have been lost is time.
I would also propose the following:
- A formula should be found by which student loan debt can be dischargeable in bankruptcy;
- No federally-subsidized loans should be provided for courses of study for which there are no jobs available. An example of this would be journalism. Every year the J-schools graduate a third as many journalism grads as there are jobs in journalism and every year the number of jobs for journalists decreases. We need fewer journalism, psychology, French, art history, and interest studies majors. Courses of study which would qualify for federally-subsidized loans would be determined annually by the Department of Labor in conjunction with the Department of Health, Education, and Welfare.
- Educational institutions should bear some of the risk. Presently they bear none. Presumably, the form that would take is that students who graduate from institutions but are unable to get a job in their chosen field should have a legal cause of action against their institutions.
” students who graduate from institutions but are unable to get a job in their chosen field should have a legal cause of action against their institutions.”
Schools can afford better and more lawyers than students. They can also benefit by delaying the suit while the student remains without work. I would prefer that underperforming institutions lose access to loans, meaning students who go to those schools dont get federally backed loans (or grants either.)
“the savings should be used to create a free, online degree-bearing institution.”
No one ha figured out how to get quality grads out of these programs. The kids who are bright enough and motivated enough (with rare exceptions) to benefit from these are getting into fist and second tier schools, often with financial aid. If you want to try this as an experiment then go ahead but monitor.
Steve
“Presumably, the form that would take is that students who graduate from institutions but are unable to get a job in their chosen field should have a legal cause of action against their institutions”
That. Especially since the institutions aggressively pursue student debtors, and even more so student debtors of color.
I think making loans dischargeable in bankruptcy alone would do a lot. Lenders will have a lot more skin in the game if their loans aren’t essentially guaranteed.
As I noted at OTB, Warren’s plan is a subsidy primarily to the wealthy and privileged as well as a crony hand-out to the education industrial complex. Only 1/3 of working-age Americans have 4-year degrees – why throw money at them and not anyone else?
I’m also skeptical of online programs. I did part of a master’s online and I personally hated it. It allows schools and professors to be completely lazy – most seem to be expensive self-study programs where you are buying a degree, not an education.
Hence the title of my post. Plus the reference to Shaw’s play. 😉
How many of you are aware that cosmetology schools receive government funding, and “students” can get loans. Shockingly, the tuition for the schools is wildly outsized to earnings potential.
Government.
Australia uses a system where you can effectively borrow the money from the Federal Government, which collects a fixed percentage of your future income (above a minimum threshold) via the tax system until the debt is repaid. The advantage is that the individual can never be financially buried under student debt, since they don’t have to repay if they don’t make a reasonable income. The disadvantage is that it doesn’t discourage useless courses of study (Australia handles that by tight government control over courses and numbers of places).
The problem could be fixed be sending a percentage of repayments to each person’s alma mater (replacing in whole or in part current public funding sources). Graduate a whole bunch of people with useless degrees and see your institution’s future public funding dry up.
Half serious thought.
In the spirit of another debated policy – UBI, how about the government gives each person turning 18 – 100k or what is the unsubsidized cost to attend a 4 year public university. The young adults can spend the money however they like – university, start a business, invest, or party and booze.
Somebody here (@Drew?) proposed making the schools co-signers for the student loans, but I have seen it elsewhere as well.
I would shorten the duration to fourteen years (4 years of school + 10 years of work).
I believe that since 2010 all student loan monies have come from the federal government. There are no private lenders in the student loan business.
Andy:
Why? Seems like they throw money everywhere. But for low wage or unemployable student loan debtors, the logic is the same as it’s always been for bankruptcy law. Unpayable, lifelong debt borders on peonage and gridlocks the economy. Many such loans now have been turned over to collection agencies, adding fees and charges and are not subject to the 6 or 7 year debt collection limit. The phone calls and garnishments employers must endure make these lifelong debtors less than quality employees. I personally know two who only work off the cuff so they can get paid.
Yeah, I know, it’s tough out there. Make a mistake, listen to the wrong guidance counselor, you pay with your life.
At least debt collection agencies do enjoy beating dead horses.
I’m probably beating a dead horse myself, but everything in your bullet list sounds like socialist engineering. (how many journalists, how many historians), instinct tells me this won’t work. The problem is Federally subsidized student loans themselves. The students are ignorant of the value of the degree, but assured by counselors of its worth, and mostly unprepared with a foundation in high school. Their parents are ignorant of the whole system, grandparents worse. Half drop out after two years with $25,000 in debt. They are disappointed in themselves, move back in with parents, and at best take job at the fast food window. Probably by now they begin to have dental problems with no way to pay, a wife or girlfriend, (maybe pregnant), more bills they cannot pay, consider marriage, but that would cut off medicaid for mom and the new baby. So they’ve lowered their ethical bar, now apply for snap benefits. Those school bills? What are you gonna do? Gotta make car payments to get to work. Down, Down, Down.
Might have just as well gone to Trump University.
OT- If you have time, what do you think of the USITC report on USMCA? It predicts a 0.35% increase in GDP, but the details are interesting. The deal proper, by their calculations (and this is a group Would expect to try to make this deal look positive) shows that it losses 0.12% of GDP. The predicted growth comes from a decrease in uncertainty. The uncertainty thing looks like a way to bail out the deal and make it look good, but maybe it is correct. Still, how did we manage to make a deal that will reduce economic growth without this correction. Is this proof that this was another managed trade deal not free trade?
Steve
The deal Steve is talking about is summarized here.
Provisions for ensuring the free flow of data are long overdue. I’m unimpressed by the provisions on behalf of the auto sector. As it is very few passenger vehicles are actually made in the U. S. The most you can say is that they’re assembled in the U. S. from parts made elsewhere. IMO we’re drastically understating our imports (designating them intracompany transfers which are not considered imports) but that’s a different subject.
The biggest trade problem for all three of the members isn’t any of the other members but China. China has particularly damaged Mexico’s economy. It has made it difficult for Mexico to maintain the industrial economy is should have had. It doesn’t appear to me that this agreement will do much to rectify that.