"Game Of Loans" -- Beyond The Hysteria On The Supposed Student Loan Crisis
That's the name of a book by Beth Akers, co-authored with Matthew M. Chingos. It's about student debt and debunks a number of widely held myths. A bit from the writeup on the book:
Typical borrowers face affordable debt burdens, and ... the truly serious cases of financial hardship portrayed in the media are less common than the popular narrative would have us believe. But there are more troubling problems with student loans that don't receive the same attention. They include high rates of avoidable defaults by students who take on loans but don't finish college--the riskiest segment of borrowers--and a dysfunctional market where competition among colleges drives tuition costs up instead of down.
I heard Akers speak on Thursday night, courtesy of Manhattan Institute think tank.
Some illuminating stuff she said, from my notes:
"People are reading loans as if they're grants." Not as if they're spending their own future money -- which they are. "You're giving people access to their own (future) money."
Because they instead see it as "free money," they go to much more expensive colleges.
Any giveback -- loan forgiveness, for example, paid for by taxpayers -- will end up being a giveaway from the poor to the rich. (That's occurred to me and probably many of you.)
Here's more of her myth debunking -- from a piece she wrote at City Journal:
Some student borrowers are struggling -- especially those who drop out before they complete their degrees. But many borrowers are thriving, with earnings afforded to them by their degree that far exceed the cost of paying for their education. Researchers have repeatedly found that the individual reward of going to college, which comes in the form of more consistent employment and higher earnings, far exceeds the cost of college. The estimated rate of return on associates and bachelors degrees is approximately 15%; that's about double the return you'd expect in the stock market.And borrowers with large balances aren't who you'd expect. Those who amass the large balances we often read about in the media tend to have graduate or professional degrees. The typical undergraduate tends to finish with only about $30,000 in debt. And not all who borrow do so just to make ends meet. My research shows that students who borrow large sums for their undergraduate education often come from the most well-off families because they attend the highest-cost institutions. These are the people who will benefit from Warren's proposed loan forgiveness scheme.
But what about those who are truly struggling? They certainly exist. We're seeing about one million borrowers default on their federal student loans each year, a sign that many borrowers aren't able to make ends meet. What they and many observers of higher education don't realize is that we already have in place a robust safety net that relieves borrowers of their obligation to repay when it is truly unaffordable.
Income-based repayment ties a borrower's monthly payment to their ability to repay (based on their income and family composition) and forgives balances for borrowers who maintain an inability to repay for an extended period of time (10 or 20 years based on employment sector). Warren fails to mention this part of our current lending system in her Medium post announcing the platform, which is not surprising since its existence undermines her argument that student debt is "crushing" borrowers.
The real student debt problem likely isn't the one you thought it was -- and certainly isn't the one that Warren is describing. So we have to ask: Is this really the "problem" we want to spend tax dollars solving?
Only about one third of workers in the U.S. economy benefit from the earnings boost afforded by a four-year degree. How do we tell the other two-thirds that their problems will have to wait so that the already privileged don't have to suffer the indignity of delaying the purchase of their first home in order to pay for their own education?
Warren's proposal is yet another example of our collective misunderstanding of the real problems facing higher education in this country. Instead of bailing out those who don't need it, our attention and tax dollars should be focused on those who are truly struggling -- with degrees and without.
She also pointed out that "education does not underwrite," as mortgage issuers do, meaning look at whether there will be an ability to pay back the money, in the wake of, oh, getting that Ph.D. in Tibetan feminist dance.
More: "College isn't too expensive; it's too financially risky."
Income share agreements are one way to fund college. From USNews:
Income-share agreements, known as ISAs, are students' contracts with colleges to pay a percentage of their future earnings for a fixed period after graduation in exchange for funds to pay for their education.
...Purdue was the first school among four-year institutions to introduce an ISA program. Under the school's Back a Boiler program, which started in 2016, students who exhaust federal loans can fund their education with an agreement to sign over a share of their future income, typically between 3 to 4 percent for up to 10 years after they graduate; repayments are capped at 2.5 times the initial funding for the ISA.
While ISAs don't charge interest, that doesn't mean students will repay the exact amount they borrow. That's because an ISA repayment rises and falls based on students' incomes during a prearranged period.
And there is a cap. I think Akers said they wouldn't end up paying more than two times what they were given (financially), even if they turned out be Zuckerberg 2.0.
Wait...there are feminists in Tibet that dance? I am skeptical.
I R A Darth Aggie at October 4, 2019 6:53 AM
Colleges should not be allowed to offer degrees in studies that leave you unemployable. Colleges should be co-signers on EVERY student loan.
Bruce Garrick at October 4, 2019 10:05 AM
The thing is, I get why colleges do this. Make a gullible fool drown itself with a massive debt for an Anthropologyt Major in Pigmy tongue-clicking poetry.
One person is nothing, but the sheer amount of idiots who are taking these useless degrees ensure a steady flow of cash for decades to come.
And if the former students start complaining? Societal mockery will take care of that because they're adults and should have known better than to make such a stupid decision.
Sixclaws at October 4, 2019 12:03 PM
Hi tranny
john jacob at October 4, 2019 1:06 PM
I worked for a student loan servicing company when I was fresh out of college and having colleges cosign loans won't work. I can't tell you how many parents were blindsided by their own children skipping out on the payments of a loan the parents cosigned. The parents never imagining they'd be on the hook for the payments and hadn't budgeted for that or couldn't afford it.
If these borrowers will dump their debt onto their own parents, what makes you think they won't happily and even more quickly do the same to the ol' alma mater? And when they do, you can bet the expense of covering graduates' defaults will be passed on to the students (future borrowers) in the form of higher tuition.
Do you really want the government telling you what you can study? And what is your definition of "unemployable?" Anyone can work.
Museums hire art history majors. Not many jobs to go around, but those graduates are not "unemployable."
The solution is not to increase the already-heavily regulation of student loans, it's to get rid of them. Take the free money out of the system and you'll reduce tuition almost immediately as universities will no longer be able to simply accept students and rake in their loan monies.
And, while you're at it, reduce the oversight demands on universities as well. That Dean of Diversity costs money and wields far too much power.
Universities are facing demands by activist bean counters, government and NGO, to increase diversity. Need more black students and professors? Endow an African-American Studies department or chair.
So, the university gets more students. More students = more enrollment = more student loan money. Keep in mind that more students need more professors, more dorms, more student life amenities, etc. so expenses rise with enrollment, especially enrollment of less-prepared students.
However, more professors and students in grievance studies departments mean more activist students and professors. That means more lawsuits, more protests, and more appeasement of the diversity mavens with money, physical space, and more.
The Obama Admin's abuse of Title IX in the infamous "Dear Colleague" letter increased the colleges' expenses as well. Colleges had to hire staff to adjudicate an increase in sexual assault claims, hire staff to increase awareness and education as to what constitutes sexual assault these days, and hire staff deal with an empowered activist culture (lawsuits, protests, etc.).
Conan the Grammarian at October 4, 2019 2:58 PM
The problem with that Sixclaws is that the tax payers paid for that useless degree. If they can't pay the loan back then it is those people mocking them that pay for it.
This was the problem people pointed out when the government took over the student loan market. The government doesn't do any risk management. If it loses money (which it is) it doesn't care. The schools don't care either. They get paid either way, so it isn't their problem. The best solution is for the government to phase itself out of the student loan business. But there is a lot of politics pushing to prevent that.
Ben at October 4, 2019 2:59 PM
You see it as a problem, I see it as a slimy way of getting away with the scam. After all, if you're smart enough, you'll be long gone when karma hits back at the colleges, and the blame will fall on the administrator that replaced you for failing to stop the fraud.
Sixclaws at October 4, 2019 5:01 PM
I was just saying it is pretty foolish to go all hurr de durr should have known better!!! when you are the one paying for that bad decision. Essentially you are saying you should have known better than to waste my money for me.
That said, lots of people still do it.
Ben at October 5, 2019 6:41 AM
Ben,
You know what they say:
A fool is born every minute.
Sixclaws at October 5, 2019 9:34 AM
> having colleges cosign loans
> won't work.
Well, it won't cause the loans to be paid, but it might cause the colleges to stop administering worthless degrees to kids who are falling into career paths without thoughtful consideration... And presumably that's BG's actual goal.
We're supposed to think carefully about how we can be useful to each other. This is not merely a Biblical injunction toward kindness: It's the quintessence of civilization. What will people pay me for? is perhaps the finest question that young, eager people can ask.
> you can bet the expense of covering
> graduates' defaults will be passed
> on to the students (future
> borrowers) in the form of higher
> tuition.
Naw, eventually the jig will be up. Any political environment which compelled that kind of risk by overfed and sanctimonious educators will have recognized that academe's useless administrators and instructors are (essentially) on the federal payroll. It would be a fine day, with crisp air and bright sunshine.
> Do you really want the government
> telling you what you can study?
Agreed, but perhaps... I mean, if the government's paying for it, maybe it should... I'm just saying, when people provide money for things, they'll always have thoughts about how it should be spent.
Crid at October 5, 2019 11:12 AM
If there's no pressure on them to pay the loan back, why would colleges stop administering "worthless" degrees? After all, if they can still collect the money.... Again, the solution is not to merely shift the burden of payment, but to eliminate the free money distorting the system.
Besides, who gets to say what's "worthless?" What criteria will determine that? Is gainful employment the sole goal of going to college? If so, why have a liberal arts track for the first two years? If we're not teaching kids to appreciate art, music, drama, philosophy, and literature, what are we teaching them to appreciate?
Awhile back, I read an interview with a German who lived through the Nazi era. He was asked how German society could embrace such madness. His reply was that German schools had stopped teaching liberal arts and had concentrated solely on technical education, you know, employable degrees.
Conan the Grammarian at October 5, 2019 2:23 PM
Can we talk about John Jacob yet?
Pus that can comment would seem to be an important evolutionary leap!
Radwaste at October 6, 2019 10:49 AM
> Again, the solution is not to
> merely shift the burden of
> payment, but to eliminate the
> free money distorting the
> system.
Two birds, one stone. The problem with academe is its witless disregard for economic realities. The people who feel the burden of payment should be the ones who can benefit, no?
I don't understand your objection. If we taxpayers off the hook, much balance will be restored.
Crid at October 6, 2019 11:29 AM
Several commenters have hit the nail on the head: the only reason college is unaffordable is that the tax money dumped into the system bids the price up. It's time to shut off the subsidies. This will at least save students from getting trapped in debt that can't be discharged in bankruptcy.
As for degrees that make you unemployable, it would be very helpful if government required every school to publish, for each major it offers, not only the cost but also the fraction of entering students who receive degrees, how long it takes (average and median), and the average and median income of graduates in subsequent years. Make all this public and consumers can shop around intelligently.
And finally, of course, require every school -- and maybe every employer of any kind -- publish in advance all its rules that amount to political or religious discrimination, and make it illegal to add any rules to that list and have them apply to students who signed up before they were published. That way both parents and students can avoid the places that subject you to forced indoctrination such as those idiotic "privilege workshops."
jdgalt at October 6, 2019 9:16 PM
As long as millions are available for the taking, college tuition will rise to take advantage of that. Any expenses from defaults will be passed on as tuition increases or funded by state governments (for public universities) - i.e., the taxpayers will not be "off the hook."
Besides, once tuitions rise, the public will demand the student loan amounts be increased to keep up - a vicious circle. Too many parents are using student loans in lieu of college funds, making Junior pay for his own education with his future income.
While making schools effective cosigners on student loans may trap some of the fraudulent smaller proprietary trade schools - at least until they declare bankruptcy and start again as new schools - it won't make a dent in the problem of students graduating with degrees in subjects meaningful only in academic circles.
In addition, making schools pay for defaults is not going solve the secondary problem driving tuition up; the problem of pressure being put on universities to increase diversity, pressure which leads to expensive grievance studies departments, deans of diversity and equality, and activist students and faculty protesting everything from conservative speakers to single-sex bathrooms.
==================================================
Au contraire, mon ami, student loans can be discharged in bankruptcy. It's a difficult process, based on meeting a difficult, court-applied standard - the Brunner Test.
The Brunner Test
Conan the Grammarian at October 7, 2019 4:16 PM
Leave a comment