The Elizabeth Warren And Bernie Sanders Student Loan Problem
It seems generations in college, heading to it, or just out, believe there is a big golden goose egg coming to them in the form of student loan forgiveness.
At James Martin Center, Richard Vedder writes:
For years I have railed against the dysfunctional federal student loan program. The availability of cheap federal student loans has enabled universities to increase tuition fees aggressively, helping fund an unproductive academic arms race that, among other things, has led to sizable administrative bloat on most campuses.The proportion of recent college graduates from the lowest quartile of the income distribution is lower than it was in 1970, suggesting that student loans have not been a successful vehicle for providing college access to those from low-income backgrounds--a primary program goal.
Default rates on student loans are high because standard commercial lending standards are ignored. Schools that encourage students to take out loans have no "skin in the game," facing no financial consequences when their students disproportionately default on their obligations. In short, the student loan program is dysfunctional and in need of substantial modification--arguably elimination.
The New York Federal Reserve Bank has led the way in researching the loan programs, and a new study details that things are actually far worse than stated above.
Here are a few additional problems:
•Thinking the federal government is going to forgive student loan debt, a majority of students are not reducing their loan balance--at all;
•A very small portion (7 percent) of borrowers have huge debts (over $100,000), but owe over one-third of the $1.5 trillion in student loan debt outstanding;
•College graduates in 2010 had repaid only 9 percent of their loan balances five years later;
•College loan debt rose twice as fast as tuition fees from 2008 to 2018; much student borrowing appears not to meet direct instructional costs;
•People living in high-income ZIP codes have accumulated far more debt than those living in lower-income areas, suggesting relatively affluent borrowers are disproportionate participants in the student loan program.
In prosperous, low-unemployment times, loan balances usually fall--they have fallen for other types of loans. However, balances for federal student loans have continued to grow, largely because borrowers have very little incentive to repay them.
He argues (in his "perfect world" option) for phasing out "federal student loan programs while sharply reforming and curtailing Pell Grants as well."
We would see a private lending market blossom with more sane and realistic lending policies. Profit-maximizing private lenders would vary interest rates charged to borrowers with perceived risks, and some borrowers with poor repayment prospects might be denied loans, reducing loan defaults.We would no doubt see new private initiatives like income-share agreements grow exponentially in popularity, perhaps after some clarifying legislation confirming their contract enforceability. Four senators (Republicans Todd Young and Marco Rubio, Democrats Mark Warner and Chris Coons) have introduced such legislation. The elimination of federal student loans likely would lead in the short run to some enrollment decline (and some possible school closings). I would view that as a plus given the large number of underemployed recent college graduates.
Other possible solutions he suggests:
An alternative second-best strategy would be to downsize federal financial assistance programs, for example, getting rid of PLUS loans whereby parents borrow to support their children's education, end student tuition tax credits (lowering taxes to parents of students attending college), and put more stringent limits on the number of years and the amounts one can borrow. For example, a lifetime limit of six years borrowing and a maximum amount of $75,000 might be established.Also, put in some minimal academic standards for continual loan eligibility. Students with less than a 2.0 ("C") average after one year's attendance, for example, might be barred from borrowing, or allowed to borrow for one more semester contingent on improved grades.
Finally, make colleges become at least limited co-signers on loans--require them to have some skin in the game. Perhaps make the school liable for the first $5,000 of a defaulted loan, plus 20 percent of the balance over $5,000.
I will now annoy Crid who has pointed out that I am smugly abroad, by smugly suggesting something that they do here.
Apprenticeships.
Obligatory full-time school ends at age 16 here. At that point you either go on to Gymnasium, which is College Prep, (not sports), or you get an apprenticeship with a company.
If you get an apprenticeship, the company pays you and you work three days a week. You have classes 2 days a week, in basic things like French, German, English and Math. Maybe a course specific to the job you're learning, too, like accounting.
You get paid, the company gets a cheap worker they train up, and the state only pays for school 2 days a week instead of 5.
If you go to Gymnasium (again, it is the name for school, not a place you do sports) it is free. University is not free, but it's under a grand per semester. The fees are a bit higher for foreign students. The reason it is cheap is because the schools are very selective, and then a lot of students drop out. Also, there isn't the same cloistered experience that American universities have. Most people live at home and just show up for class.
To sum it up, to keep uni costs down:
1) Business-school relations to sponsor learning a career
2) Less people go to school
3) School is just school, not your entire social world and living situation for 4 years
But having everyone go to cloistered 4 year universities? Not cheap, not affordable, not possible to fund everyone.
NicoleK at December 13, 2019 12:20 AM
I spent four years working in student loans and concluded from that experience that the problem is that there is too much free money in the system.
In the '80s, Ted Kennedy led the expansion of the program into proprietary trade schools, most of which were fly-by-night affairs that lasted in business just long enough to collect several hundred thousand dollars in "tuition" and declare bankruptcy. The owners would then open a new school in a new location with a new name and repeat the process. The tuition at these schools just happened to match the highest one-semester loan amount available in the program.
Public and private universities saw what these proprietary trade schools were doing and got into the act themselves, raising their tuition as much as the trustees / regents would also to get as much of the free money as they could. The long-term result of the free-money grab is that tuition kept rising - making college no longer affordable with savings and working part-time.
The solution would be to end the program in its entirety; take the free money out of the equation and make universities compete on the product they offer, the education. Perhaps later another program can be implemented to assist struggling students, more in line with the original intent of the FSLP, but this one is broken beyond repair.
Conan the Grammarian at December 13, 2019 4:11 AM
A while ago, I read a biography of Otto von Bismarck (Germany) and it took a little while to get used to references to "gymnasium" referring to a school or educational experience and not a sports complex.
Conan the Grammarian at December 13, 2019 4:16 AM
"or you get an apprenticeship with a company."
We used to have sort of the same thing: it was called co-op students. That's how I went through school. There were two ways it could work: you could either alternate semesters working and going to school, or work about 20 hours per week while going to school. (I did the latter.) Co-oping seems to have disappeared now. One reason is that student loans are being handed out like candy, so students don't think they have to work. But the other reason is that companies are figuring out that most students today are unemployable because universities are mal-educating them, and attempting to employ them will actually result in a decrease in productivity.
Cousin Dave at December 13, 2019 6:38 AM
The apprentices don’t go to University, they start at age sixteen
Nicolek at December 13, 2019 7:07 AM
We do have apprenticeships in skilled trades. HVAC, welding, etc. Most other areas they've been made illegal. Mainly as a union holdover.
Ben at December 13, 2019 7:38 AM
What money problem?
https://freebeacon.com/politics/warren-pressed-on-spending-theres-always-money/
I R A Darth Aggie at December 13, 2019 8:45 AM
I like the scheme NicoleK outlines.
I'd also like to see emphasis on college not being for everyone — vo-tech schools, apprenticeships in skilled trades, etc. are no less worthy than university. And a helluva lot more practical.
Kevin at December 13, 2019 10:27 AM
I think the problem is that the attitude is: You go to college to prove you have a high-school education.
So young people have good reason to fear not being taken seriously by employers if they want to live in a safe neighborhood but don't have that college diploma - and/or don't want a blue-collar job.
(Note: High schools weren't necessarily better in the 1950s - even if you were white. IIRC, author Peter McWilliams wrote about a grim dropout rate, in one of his books.)
lenona at December 13, 2019 1:02 PM
A college degree is nothing more than a credential for employers -- which became necessary after aptitude tests were outlawed because not all groups performed equally well.
The road to hell ...
Jay R at December 13, 2019 1:46 PM
✓ Lenona, Coney
> suggesting something that
> they do here.
You meant 'what we do here,' certainly.
:)
Crid at December 14, 2019 11:32 PM
> I spent four years working in
> student loans and concluded
> from that experience that the
> problem is that there is too
> much free money in the system.
Once again, Coney's judgment is:
Crid at December 15, 2019 12:16 PM
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