An Idea for Student Loans: Get Rid of Them

[Muda69]

https://www.nationalreview.com/2019/04/eliminate-federal-student-loans/

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Here is a three-part plan for something practical the federal government could do to relieve college-loan debt. Step 1: The federal government should stop making college loans itself and cease guaranteeing any such loans. Step 2: It should prohibit educational lending by federally regulated financial institutions or, if that seems too heavy-handed, require the application of ordinary credit standards in any private educational lending, treating the student himself as the main credit risk in all cases, including those of secured or unsecured loans taken out by parents or other third parties for that student’s educational expenses. And 3: It should make student-loan debt dischargeable in ordinary bankruptcy procedures.

The most likely end result of this would be the effective abolition of government- and bank-based financing of college education in all but the most narrowly defined circumstances. Good riddance. That leaves about $1.5 trillion in existing debt on the table, a very large number from which the federal government derives very little income, about 0.1 percent a year, or $1.5 billion — a fact that should enter into our calculations about whether we attempt to collect every nickel of that money or, perhaps, slowly forgive some of that debt for students who keep up with their payments and are otherwise good citizens, maybe at a rate of 2 percent of the principal a year.

It is time to shut down the Bank of Uncle Stupid.

Colleges will have two choices: Bring their tuitions down to a more reasonable rate or, if they are so inclined, work out financing arrangements of their own. This would not present too much trouble to splendidly endowed schools such as Harvard and Princeton, or to public schools with substantial resources at their disposal. A senior official of my alma mater, the University of Texas, once caused a stir by confessing — in public — that UT Austin doesn’t need to charge tuition at all but does so mainly as a population-control mechanism. The problem, he said, wasn’t money as such but the fact that the state would not let him raise admissions standards. Admittedly, UT has become a little more selective in recent years.

I have a theory about why there has been so much tuition inflation: inflation.

When we talk about “inflation,” we generally mean to denote a general rise in consumer prices; but, properly understood, that is the result of inflation, not inflation itself. Inflation itself is an increase in the money supply, and its effects need not necessarily be general. You can inflate the money supply by printing money, but you can also do it by expanding credit. Our friends at the National Association of Realtors and other charter members of the Committee to Reinflate the Housing Bubble, for example, have a keen understanding of the relationship between loosey-goosey mortgage-lending standards and brisk sales in the face of rising housing prices (and rising commissions). Your local new- or used-car dealer knows that he can charge higher prices for vehicles that are to be financed by people who care more about their monthly payment than about the total cost. There are some critics of the federal response to the 2008–09 financial crisis who believe that the recent run-up in the stock markets and the prices of other assets is fundamentally the result of inflation through quantitative easing and other measures. (You don’t have to believe that that was a necessarily bad policy to believe that this is true, incidentally.) Easy credit contributes to higher prices.

If you make a few gazillion dollars available to finance tuition payments with underwriting standards a little bit lower than those of the average pawn shop, you create a lot of potential tuition inflation. Another way of saying this is that if Uncle Stupid puts a trillion bucks on the table, there are enough smart people at Harvard to figure out a way to pick it up.

We managed to provide college educations to those wanting them for many generations without creating a body of debt larger than all of the credit-card bills in the nation combined. Our colleges have become faintly ridiculous places, in terms of their modest academic ambitions (lookin’ at you, journalism majors, women’s-studies departments, undergraduate programs in business administration), their top-heavy administrative structures (the number of administrators per student has exploded along with college debt, suggesting that colleges are being treated as full-employment programs for the politically connected classes), their resort-style amenities, etc. We accept more students but educate far fewer of them — at much greater expense.

The best way to impose a little discipline on that mess is to make students, their families, and, most important, the institutions themselves carry their own water. The current system is exploitative: The students essentially function as a conveyor belt carrying government money into the universities, leaving borrowers instead of taxpayers on the hook because it looks better from an accounting point of view: If we just gave the universities money, that would show up on the books as an expenditure; lending it to students allows us to pretend that we have created an asset when all we have actually created is a great deal of debt and horses**t.

And, hard as it is to believe, it’s even worse in the so-called trade schools and “professional” programs advertised in subways and buses from coast to coast. If you want to know how much money has been transferred to the nation’s bartending academies, the Professional Golfers Career College, or the Northwest School of Wooden Boat Building under the guise of student lending, look here.

So, let’s cut the Gordian knot here. Don’t reform student lending, don’t try to lower the interest rates or create special debt subsidies for college graduates who follow careers of which the people with political power approve. Just get rid of it. With a meat ax.

There are lots of smart people at the universities. Or so we’re told. If they can’t figure out how to teach the liberal arts or accounting without dipping into the Bank of Uncle Stupid with both hands and all available snouts, then maybe somebody else should give it a try.

A fine plan, and one that I support.  Government needs to get out of the education business, and that includes financing education.

 

[swordfish]

Who can forget this display of brilliance from Ms. Waters......

"What are you guys doing to help us with this student loan debt?"  Who would like to answer first?"  "Mr. Moynihan - Big Bank?"

 

[Impartial_Observer]

3 hours ago, swordfish said:

Who can forget this display of brilliance from Ms. Waters......

"What are you guys doing to help us with this student loan debt?"  Who would like to answer first?"  "Mr. Moynihan - Big Bank?"

 

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The U.S. House Financial Services Committee also has jurisdiction over the country's monetary policy (i.e., oversight of the Federal Reserve Board), international finance (i.e., the foreign exchange markets), international monetary organizations (i.e., the IMF and World Bank) and laws regarding terrorist financing.

The committee also oversees reserve banks, the U.S. Treasury and the production of currency, as well as the Federal Depository Insurance Corporation (FDIC), the Securities and Exchange Commission (SEC), the NCUA, the Office of the Comptroller of the Currency, HUD, the Federal Housing Finance Agency and the Export-Import Bank

 

And Maxine Waters is the chair of the committee. This is why we can't have nice things. 

[Muda69]

Government Spending on Colleges in the US Is Higher than in the Countries with "Free" College: https://mises.org/wire/government-spending-colleges-us-higher-countries-free-college

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Presidential candidates Bernie Sanders and Elizabeth Warren have both come out in favor in "free" public colleges and universities. The scheme could be funded, as CNN describes it, by "drastic increase in federal spending on higher education."

Much of the rhetoric around swirling around this issue relies on the idea that government spending on higher education in the United States is significantly lower than most other wealthy countries.

The narrative goes like this: "everyone knows that Americans are incredibly stingy when it comes to spending on government services. 'Public spending' on higher education is much lower here than in Europe and Japan, and because of this, people must spend much more on higher education."

But here's the rub: that statement isn't true. Governments in the United States pay more (as a percentage of GDP) toward higher education than many other so-called "peer" countries.

According to the OECD's 2018 "Education at a Glance" report, public spending on higher education in the United States is 1.3 percent of GDP. That's equal to public spending in Switzerland and the United Kingdom. And it's higher than spending rates found in Germany (1.2), France (1.2), Canada (1.2), Spain (1.0), Italy (0.8), and Japan (0.7).

Source: "Public expenditure on education as a percentage of GDP, total tertiary," Table C4.1, Education at a Glance, 2018. Similarly, see UNESCO: Government expenditure on education as a percentage of GDP. (http://data.uis.unesco.org/index.aspx?queryid=3373.)

But how can this be, since we're told constantly how expensive it is to attend a higher education institution in the United States?

One factor is that American colleges and universities spend much more on educating each student — assuming "education" is the proper term here. In the US, adding together both government and private sources together, we find far more funds pouring into US colleges, than is the case elsewhere. According to the OECD, "total expenditure on educational institutions per full-time equivalent student" clocks in at $30,003 in the US. That's second only to Luxembourg which is off the charts at $48,907. The UK — where residents often complain about the cost of higher education — comes in right behind the US at $26,000. But few other countries even crack the $20,000 mark. Total spending on higher education in France is $16,145. It's $17,036 in Germany. Higher education institutions in Spain require only $12,605 per student.1

Moreover, what's driving much of the spending — in terms of both government spending and private-sector spending — is the fact that colleges and universities in America spend far more on administration and ancillary services than higher education institutions elsewhere. Writing for The Atlantic last year, Amanda Ripley noted:

The U.S. ranks No. 1 in the world for spending on student-welfare services such as housing, meals, health care, and transportation, a category of spending that the OECD lumps together under “ancillary services.” All in all, American taxpayers and families spend about $3,370 on these services per student—more than three times the average for the developed world. ... One reason for this difference is that American college students are far more likely to live away from home. And living away from home is expensive, with or without a lazy river. Experts say that campuses in Canada and Europe tend to have fewer dormitories and dining halls than campuses in the U.S.

This helps keep costs down. As Marketplace reported back in 2015, "Students in Germany ... tend to stay local, so there aren't any dorms. There are no active student clubs, or big football stadium. And every lecture hall looks huge ... All of this translates to savings..." (For more on how "free" European colleges economize, see "'Free College' Comes at a Price."

But it's not just physical amenities like dorms. Ripley adds:

U.S. colleges spend, relative to other countries, a startling amount of money on their nonteaching staff, according to the OECD data. Some of these people are librarians or career or mental-health counselors who directly benefit students, but many others do tangential jobs that may have more to do with attracting students than with learning. Many U.S. colleges employ armies of fund-raisers, athletic staff, lawyers, admissions and financial-aid officers, diversity-and-inclusion managers, building-operations and maintenance staff, security personnel, transportation workers, and food-service workers.

Oddly, Ripley tries to argue colleges spend too much on amenities because they too market oriented and compete for students with other colleges.

But, if this were true, why do colleges only compete in terms of adding ever-more opulent services and facilities? Couldn't they also attract more students by lowering prices?

The fact is colleges don't compete on prices because, thanks to subsidized student loans, potential students aren't nearly as price sensitive as they would otherwise be. In a functioning marketplace, highly-priced luxury colleges would lose students to more meat-and-potatoes schools. The result would be declining enrollment at the more expensive schools. But, with so many student-loan dollars available, students can more easily justify — in their minds — taking on debt so they can go to a school with all those amenities Ripley lists.

Regardless of the details of what exactly is being bought at an American college, the fact remains that students aren't going into debt or finding college "unaffordable" because governments in the US spend so little on higher education.

On the contrary, they spend very large amounts of money on higher education through programs that include direct subsidies to schools, and grants to both students and schools.

As with health care in the US — a sector in which US government spending per capita outpaces most other countries, the facts simply don't support the idea that "too little government spending" is the cause of high prices.

Indeed, if government agencies in the US really wanted to make an education more affordable, they'd be slashing the "diversity" staff, getting rid of their on-campus housing and dining halls, and privatizing all athletic programs.

The college administrators, of course, would complain that without all the extras, they'll be unable to attract as many students — who bring with them their precious student loans. This would nonetheless be a boon to the more clever students who are more interested in an education than a four-to-six-year summer camp.