It's really too bad that the laws surrounding student loans make them artificially cheap. You can't get rid of college debt through bankruptcy so you're basically saddled for life.
Normally the interest you pay is the combination of three things:
1. The (inherent) time value of money
2. Expenses the lender incurs to keep up with the debt
3. The average default risk of those taking the loans
Student loans only price in 1 & 2 because of the near impossibility of not paying the loans back. Which is great in the short term as it means that more people are able to go to school because the interest rate is lower and thus they can afford more debt.
But a college education is a lot like a house. The price of a house isn't how much it's "worth", it's an artifact of how much money you have to pay every month for the privilege of living there. A house of a certain niceness is (everything else equal) going to cost the same amount of money per month whether the interest rate is 1% or 15%. A $1500/mo mortgage buys you $250k of house at 4% but only $150k of house at 9% and only $95k of house at 15% like in the early 80s. (http://www.bankrate.com/finance/mortgages/history-of-mortgag...)
By removing all the default risk from the pricing of student loans, more students are able to afford college which is exactly the intended effect of the laws. But the size of most academic institutions doesn't grow; most colleges don't admit twice as many students just because more are clamoring to get in. This excess demand and fixed supply means that colleges can raise prices. And thanks to the lowered interest rates those who could have afforded college prior to the law (and lower interest rates) are still able to afford it because the lowered interest rate has increased their borrowing capacity.
Those on the margin prior to the change in the law still aren't able to afford college once the price increases follow the increase in available money and additional demand for degrees.
A large part of the problem is all the shitty for profit schools. They get students to take out large government backed loans, then are defaulting, since they can't actually get a job.
I knew several people I grew up with who went to these schools. They took out huge loans, 10k plus, and they never landed any kind of job with their "certificates" / degrees.
[1] Half of all defaults are from these kind of schools.
>[1] Half of all defaults are from these kind of schools.
That means half of all defaults are from the "other" kind of school. And the loans from the "other" kind of school are much, much more than 10k +, and many of those students are "never landing any kind of job", too.
Sounds like a LARGER part of the problem is "conventional" higher education.
How many people go to real schools, and how many go to fake 'for profit' schools?
And isn't the median student debt something like 25k? Not really "much much more" in my book. Anyone with a real degree should be able to handle that sort of debt.
What we should be doing is allowing lenders to discriminate by major and school. Good school with a good degree? Lend. Good school with a shitty degree? Lend with extreme caution caution. Fake school with any sort of degree? Tell them to kindly fuck off.
> What we should be doing is allowing lenders to discriminate by major and school. Good school with a good degree? Lend. Good school with a shitty degree? Lend with extreme caution caution. Fake school with any sort of degree? Tell them to kindly fuck off.
No disagreement here.
I don't want to give the perception that I think "for-profit" higher education is problem-free. I do think they have severe problems, but putting a disproportionate amount of attention on them is distracting to the problem that the "non-profits" are - which has a bigger societal impact, since they are serving more people. "For-profits" are just an easy target because of the broad social perception that profits breed evil, where many of those evildoings are just as bad in the "non-profit" higher educational sector.
No, for-profits are a problem. They account for 10-13% of students, but 25% of student loans, and 50% of defaults. They have no academic standards, because they have no concern for academic reputation in the way traditional institutions do, and can seek to enroll the largest possible classes without worrying about keeping up GPA/SAT medians.
To put my objection more clearly: Don't use the IRS designation to whitewash "non-profits", which are in many ways acting just as atrociously as "for-profits" anyway. Your statistics miss something important - the socioeconomic class that is consuming the non-profit product comes with some inherently lesser risks vis a vis default (for example: I presume more "non-profit" college consumers are going to be able to cover their asses, debt-wise, with help from their parents). What happens when you correct for that, what is the magnitude of difference? The "non-profit" statistics also encompass schools where you are clearly going to have less of a problem getting a job afterward. What happens if you look at the LOWEST tier of "non-profit" university and compare it to the "for-profit"? I would presume that you would find very little difference.
"Last year California cut from its tuition aid program more than 130 private colleges with low graduation rates and too many student loan defaults. Some wonder if the federal government will follow the state's lead to hold colleges responsible for their performance.
Today, only 50 for-profit schools in California remain eligible for state-subsidized tuition; 115 do not"
For "workforce training" in Texas, we have a rolling average criteria (along with several other metrics). Which is good, because economic fluctuations affect the job market. Some classes just can't seem to catch a break.
To add to that, they tighten the noose with every legislative session. It appears to be the intention to make our pay proportional to "graduate success"; which will likely end up meaning GPA. That would put the same incentives in place for public college instructors that have existed in for-profit schools.
Am i the only person that see's those types of numbers, and correlates them with the type of students the school attracts - the student who did not - or could not - enter into an accredited 'regular' university?
Which is not to say that should necessarily impact the degree of scrutiny those schools receive. But perhaps worth considering - if they are serving students who are likely to get no education at all, is it better / worse? Honest, question - no implications here. Just think its something worth discussing.
these students are worse off. Because now they have a useless degree, some sunk time, and debt. But I think non-profits can be just as bad if not even worse, because the degree is still useless, there's just as much sunk time, and even more debt (since many nonprofits are more expensive than for-profits).
As soon as Wall St. reigns in their tendency to profit off just about every thing they can imagine, legal or not [1] - seeing as they can just buy off the regulators or lawmakers.
"Despite dismal outcomes and high defaults, for-profit colleges enroll between 10 and 13 percent of students but receive 25 percent of all federal financial aid dollars. In 2009-10, this amounted to 25 percent of the total Department of Education student aid program funds."
I'm not sure that "student aid" and student loans are the same.
This discussion also seems to be missing the fact that students who attend many of these for-profit schools are poorer and thus more likely to default, regardless of the quality of education obtained. Any study is useless without an adjustment made for median household income of the student (and perhaps high school GPA).
"Because 96 percent of students starting a for-profit college take federal student loans to attend a for-profit college (compared to 13 percent at community colleges), nearly all students who leave have student loan debt, even when they don't have a degree or diploma or increased earning power."
"Most for-profit colleges charge much higher tuition than comparable programs at community colleges and flagship State public universities. The investigation found Associate degree and certificate programs averaged four times the cost of degree programs at comparable community colleges. Bachelor's degree programs averaged 20 percent more than the cost of analogous programs at flagship public universities despite the credits being largely non-transferrable."
People going to public schools are getting loans for unjustifiably expensive 'educations' which are nearly universally absolutely worthless. That is why such a staggering number of people attending for-profit schools have trouble.
You can dig up more and more data, looking for a way to make for-profit schools look good, but all you are really doing is shoveling more data onto the heap of reasons why they are predatory shitheads.
we're not necessarily trying to make for-profit schools look good, we're just sick and tired of disproportionate attention being laid upon for-profit schools when non-profit schools (of a certain tier) are just as bad if not worse but seem to be escaping the amount of scrutiny they are due. The sins of for-profit schools are being used to whitewash institutions that hide under the nomenclature of their IRS designation.
How do you know that 'Regionally Accredited' is meaningful until you are educated? My high school guidance councillor certainly never talked about this.
My college actually shouted "we're accredited" at the top of their lungs, but I didn't give a fart until I was half way through the degree, and one of my profs talked to me about why they worked so hard ensuring accreditation (for the same reasons you state) - at which point I said, "pheww it's a good thing this place is accredited"
I had no difficulty getting a job after grad. But I certainly didn't know that accredited was important before I entered the course.
This is a mistake I made. My dad didn't go to college and my mom got a 2 year degree from a community college. A shitty for profit school sold me on the idea that I could get an awesome job in 2 years and then continue on to a bachelors program. Except that the credits don't transfer and you can only get the BS from the same shitty school. I also didn't see anyway I could pay for schooling without working full time and I didn't see how I could make that work at a traditional school.
Although I'm doing ok in my career I know many people who go to these types of schools do not. Now I don't know what to do. I would love to have gone or go to a 4 year state school. At this point in my life I make too much money and have too many responsibilities to be able to quit and go back to school. I also have 10 years in the field which I hope makes up for the education gap in some cases.
Are there any actually decent (accredited) programs that have hours for working people? The only way I see myself getting a BS is if there is a full night program somewhere but at this point I'm not even sure that it's worth taking on more debt.
Look into DePaul. They have decent distance learning and are accredited. The distance learning is like a second classroom that is remote (instead of like a MOOC). They record the lecture of the day and post it in the evening. If you have any tests, you often need to find a proctor. They also have restrictions on who can be a proctor (you can't just find a teacher friend).
The odd school here and there can get away without accreditation if their reputation allows it. For example, at least one of the founders of Pixar came from my former university, which has an unaccredited CS program (at least at the time I attended).
The focus in this discussion is on school accreditation. Program accreditation is a different beast of far more narrow interest. School accreditation is essential; program accreditation is a feature.
School accreditation is done by a regional accreditation organization and validates every diploma the school grants.
Program accreditation is only available for certain degrees to begin with, and is usually under the authority of a professional group in that area of study.
Practically every state university is an accredited institution, even if they offer (i.e.) accounting or engineering programs that are not accredited by a relevant organization.
Dunno how old you are, but I think most CS programs up until about 2003 werent accredited because no such program existed. Any BS from before that is just backed by the reputation of the school--which is basically the case save for the bottom of the barrel for every subject. (Because if you have to ask...)
As a sometime prof at a for-profit school, may I observe that 1/3rd of my students (on average) failed - not for any guilt by the school (me included), but because they just didn't do the work. Really, they didn't even try; I can't grade what's not submitted. Methinks there's a significant correlation between your complaint and the reality I observed, a correlation which nobody is taking into account.
the charge is that the school management knows damn well that a full third won't do the work, and admit them anyway, getting their monies and putting them into debt.
the issue is that public money is being used for this scheme, not that there's anything wrong with taking money from idiots in general.
Statistically you're correct, but objectively you can't identify which students won't do the work - ergo, you can't discriminate who to enroll (heavy on the consequences of involving the word "discriminate"). The government would come down hard on any school which says "you pass all the enrollment criteria, but we have a nagging feeling you won't complete the degree so we're not letting you in."
Hence the argument that public money[1] should not be involved. The school management can't say "no" to it (from any angle), and the would-be students think it's free; nobody, lender in particular, hammers home the point "if you don't do the work, you'll be in deep financial $#!^".
It's the borrower "putting them into debt". Society pressures kids into getting a degree, the school makes it easy to start the process, government makes it easy to borrow the money, but ultimately it's up to the enrollee to sign for the loan and do the work to make it pay off. Every self-appointed pundit is pointing fingers at the school (for "fleecing" students) or the government (for "wasting" public funds), but nobody is pointing at the students for not making the effort.
[1] - "public" insofar as it was legally confiscated from the public at implied gunpoint.
> but objectively you can't identify which students won't do the work - ergo, you can't discriminate who to enroll
I'm calling complete bullshit on this one: isn't that the very definition of admissions? Even if you claim it's not, I think that if you look at any student's previous grades / work experience / references, you can quite reliably determine who will do the work and who will not.
These schools simply don't want to: they want to admit everybody so they can take their money in exchange for basically nothing. I would fully support legislation to bar for-profit institutions from receiving any federal tuition aid (whether loans or grants).
> public money[1] should not be involved. The school management can't say "no" to it
This is false: schools are not required to accept federal loans.[1]
You'd be very surprised at who won't do the work. I was. Interacting with them, and knowing how they were admitted, I have no doubt of their previous grades / work experience / references, and yet am time & again stunned at their utter reluctance to take basic required initiative.
By "won't do the work", I mean really simple things. A student has a week to take a simple on-line 10-question multiple-choice quiz, but doesn't even look at it. For every creative assignment, I make clear "submit something - even if it's just a text file saying 'I have no idea', I'll work with you on it", but nothing is submitted. I'll take a submitted "program" of pure gibberish, write a detailed explanation of what's wrong and how to make it work, tell them to fix it, and give them until the very end of the course to do anything & everything to make it passable, but no resubmission is attempted. Online group discussion participation is required with a weekly N-post minimum (N very small) with very low content standards, a very simple requirement, but little or no participation occurs. These are students who passed high school, hold jobs, can hold competent conversations, show up for class, etc.; I have no reason to doubt they have references, adequate prior grades, and work experience. Yet...when given a very basic collegiate task, they won't do it to a mere 60% sufficiency.
There's a fundamental difference between high school and college: the latter is not obligated to pass you. Every opportunity is given, every task may be simplified to near-triviality, but if the student won't take the steps on their own, they reap the consequences of willful inaction.
But, of course, you refuse this experiential insight and insist it's all about malicious greed.
This is false: schools are not required to accept federal loans.
You miss my point: it's not about rejecting federal loans, it's about rejecting an applicant who does satisfy grade/work/references/funding criteria when there are openings, but the admissions personnel concludes admission still isn't a good idea. The mortgage industry knows what I'm referring to.
> "The government would come down hard on any school which says "you pass all the enrollment criteria, but we have a nagging feeling you won't complete the degree so we're not letting you in."
No it wouldn't. Admission to selective schools isn't based on criteria, it's competitive among the other applicants in the pool for a limited number of slots. Counselors routinely state that the vast majority of their applicants are academically qualified; students are selected based on interestingness (communicated through essays & recommendations), extracurricular talents, race, gender, and other factors. Sometimes even virtuosos are rejected because there are already enough virtuosos with that particular talent in the university.
As far as I know, it is only very low-end schools in the US that run admission solely off of standards.
It's not really about high end schools. Harvard, Yale, and MIT can turn down anybody they want because they have a million overly qualified candidates. They can be selective and still fill their all of classes ten times over.
But if tiny community colleges start turning people away when they have half empty classrooms, there will be a lot of negative press.
But it isn't about tiny community colleges, it's about for-profit schools, right?
They could probably figure out how to sell it as "raising the bar," talk about providing a more individualized education, ride the negative press as actually increasing the value of their degrees, etc.
I believe the issue stems from a lack of education about the loans themselves that the student borrows. Very few high schools around the U.S. are teaching personal finance, and I also suspect the public high school I went to wasn't the only one not properly preparing their students for the financial part of higher education.
The process of getting accepted to a school and receiving financial aid may be long, but considering the student is borrowing tens (and sometimes hundreds) of thousands of dollars it's also incredibly simple.
Very few high schools around the U.S. are teaching personal finance
If public schools are going to promote using public funds for continuing education, it's their responsibility to teach how to use those funds.
The for-profit schools being accused here have no way to not accept those monies. Public agencies advocate public school graduates use public funds for continuing education, but do not teach what not to do with those funds and punish any organization which does not accept those funds. Looks like it's the "public" at fault here.
My girlfriend attends a for profit school (because her employer covers it 100%), it's absolutely alarming how stunningly expensive these for profit schools are. As a comparison, the state school that I attend, even with over-priced books, sets me back about $1200/semester, and that's for 3 classes. A single class for her is billed at that same amount. Before books.
I don't know how anyone would look at the cost and their future earning potential and decide that paying for a for-profit is a good idea. I know people who have gone the that Full Sail program and ended up 100+k in debt, and with nothing useful to show for it.
Education in this country is in a terrible, terrible state.
Full Sail Graduate here. You are correct. Avoid Full Sail. It's designed to pump out students like crazy. I'd say it's one of the most greedy schools. In the end I wish I could take it all back and never go there.
The public university I attended was not much better. Tuition + Room and Board was 24k a year and rising. At the same time, an incredible amount of new university buildings are being built.
I couldn't agree more! Another unintended consequence is that people who previously wouldn't have been able to get loans at all due to default risk can get money. But they don't have the credentials to get into a fancy school. This means there is a lot of excess demand and it makes it possible for these for-profit schools to even exist (they probably wouldn't otherwise).
Since the job market doesn't necessarily need double the number of college grads it means that competition for the jobs that do need filling is fiercer. And that means that people who need to pay back loans for school don't necessarily have the ability to. A race to the bottom in terms of accepting a lower paying job ensues, and people are left with very little agency.
Sometimes it seems like the better-intentioned a social justice law is the worse it'll end up being years down the road.
Despite widespread knowledge of grade inflation and diploma devaluation, somehow a college degree is still used in discussions of employability.
If it's easy to graduate once you've been admitted, increasing the number of graduates isn't going to help alleviate the "shortage of college graduates" because the real shortage is in talent.
Uchicago math. Can't handle non integral mantissas or when they are greater than 6. At work, I do mostly biology, where everything is 1, 2, or 5 - close enough. One sig fig is par for the course, anything else would be an overoptimistic lie.
I'm only half joking. I'll make a buffer solution, recipe calls for 2.4 grams per liter of sodium phosphate monobasic. Ok, 2 is close enough; I'm making 500 ml, that's half, so I'll round down to 1 gram, etc etc etc.
Bubbles beget exactly this kind of opportunism. During the housing bubble there were builders who slapped up houses so poorly that they had to be demolished years later.
Money going back into the institution and improving research, attracting better staff, buying supplies, building facilities, and improving the quality of life is not profit, it's reinvestment in the organization.
Further, as easy as it is to be offended by brand-new facilities, you'll find that 1) many are paid for by oustide grants and the money never could have gone towards reducing tuition, and 2) those that are paid for with students' money amount to pocket change per student.
A for-profit college educates students as cheaply as possible (in terms of cost to the institution, not price to the student) to maximize the amount of surplus the owners can pocket.
Playing devil's advocate, isn't it fair to remove the ability to discharge student loan debt and in term the default risk due to the fact that there is no collateral? Unlike a car loan or a mortgage, a bank can't repossess your education.
Yeah that's a really good point. I'm not sure it really matters, though. The law allowed you to shed college loan debt through bankruptcy up until 1976/1978 and people went to college for at least 100 years prior to that law.
Furthermore a cheap college degree might be so inexpensive that the hit to your credit isn't worth the expense dodged. Banks can loan on cars worth as little as $5k even though their cost to repossess and auction it might approach the cost of the car. For small debts the shame factor can't be underestimated.
From this what can we conclude? Prior to the change in the law college had to be fairly cheap so that banks could make uncollateralized loans for people to go. Because students could only afford so much, colleges had to figure out how to deliver an education for that amount. If a college wanted to charge more, it had to pull risk out of the loan to the student so that a bank would issue it.
> people went to college for at least 100 years prior to that law.
This is the fallacy of comparing the upper classes of one period with the masses of another. A far smaller fraction of people went to college in the century before 1976, and those who did go from lower-class origins often did so through direct scholarships like the GI bill. The college loan market was not very viable at this time. None other than Milton Friedman discusses the problem in his 1962 book Capitalism and Freedom. Actually, he proposes some form of legally undischargeable debt as a solution.
I've heard plenty of people talk about working their way through school by having a summer job to pay for room and board and tuition and that it was possible to do it that way, even if it was uncomfortable. That really sounds great but maybe a little bit too great: it's a good narrative about how things were better back in the olden days when things were still good and not fucked up. I WANT to believe it but I'm not sure that I should. And it's all anecdote, no data.
I did some searching for pricing and I found this: http://www.collegeview.com/admit/?p=1858 It looks like a decent summary. In 1960 the minimum wage was $1.00/hr and the cheapest tuition I'm seeing is $960 for the University of Texas. If you made minimum wage for three months of summer that's a total of 40 * 4 * 3 * $1 = $480 pre-tax. So definitely not enough to pay for a whole year of school from just the summer job. At an Ivy League school you're at about 1/4 of your yearly total.
Today if you work a minimum wage job for a whole summer you'd get 40 * 4 * 3 * $7.25 = $3480 (pre-tax of course) which wouldn't even pay for your tuition (nevermind room and board and other expenses, that's another $5k per year at least) at the University of Florida, arguably the best deal in college tuition in the last decade. Comparing it to an Ivy League these days, it's not the 25% it used to be but rather about 10% if you go to one of the cheaper schools.
I went to one of the University of California campuses in the late '80s. Back then fees were about $500 per quarter my freshman year, and minimum wage was $3.35. I was able to cover all my fees and most of my living expenses by working summers at a job that paid about double the minimum (with lots of overtime). A job in the campus cafeteria during the school year covered the rest. I took out one $2500 student loan for a rainy day fund but never spent the money.
There are a few things that have changed since back then:
* College tuition has gone up faster than anything else in the economy. Anything. The UC system was a great deal at $1500/yr, but back then you could go to Stanford for $13k or so. The increase has been driven mostly by easy money from student loans, but also by administrative bloat related to government dictates. Books have become an extortion racket - $150 for a stack of unbound pages?
* Almost 20 million illegal aliens have entered the country since I went to college, completely wiping out the low end of the job market. My 1986 summer job is now done by illegals in their late 20s, and they're making about $0.50 more per hour than I made 25 years ago. My old employer doesn't pay more because he doesn't have to.
* The rise of unpaid internships. You work a summer for free so there's a chance you can get a job when you graduate. I think this is another consequence of easy loan money. If you offered me (or my classmates) an unpaid internship we would have declined - we needed to get paid so we could afford to go to school in the fall. Between the low wages and easy loan money today you can almost see the wheels turning - "What the hell. It's not like a job at Burger King will make a dent in my debt."
College tuition sticker price has gone up a lot. The actual amount that students pay hasn't gone up as much.
A half-decade ago, Stanford waived tuition for students from families of income less than $100k [1]. Median household income in the country is roughly $57k.
Stanford may now have more students on scholarship than off. But I know many of the Ivies have 40%+ of their students receiving no scholarship money, and it takes a family income of 150k+ (often more like 200k+) to not receive scholarship or loans. That means more than 40% of these schools' students come from families earning in the top 5% of household income (the 95th percentile is ~$190k). That is to say, the schools that offer the best aid, that have the potential to be the most affordable, aren't typically serving those who could most take advantage of the lower prices. Instead, private universities that do not guarantee to meet a student's need, state schools and for-profits tend to serve those students. Those are the schools where the sticker price is more likely to be the real price.
Where is the citation for the amount students pay hasn't gone up? College tuition was already past the "this math doesn't make sense" mark when I was in school a decade ago. One of my room mates couldn't borrow anymore money and had to drop out half way through. $90 textbooks back then are $150 now. And so on.
My dad worked his way though state schools (SUNY) for undergraduate and law school from 1968 - 1975.
A few things about your calculations. First back then, unlike now, no college degree didn't mean automatic minimum wage job. Second, he worked while in school, not just over the summer. Third small scholarships back then actually made a difference. Today if you get the national merit scholarship for doing well on the PSATs, it's meaningless at $2000. Back then he got a $500 a year regents scholarship and it really helped.
Yeah I'm not suggesting that I have a definitive answer to the question. I just wanted to do some back-of-the-envelope calculations to see the scale of the thing.
So if you work 15 hours/week during the year and 40/week during the summer and take the winter break completely off that would be 40 * 4 * 3 + 15 * 4 * 8 = 1140 hours. If you manage to bring in $2.00/hr that would be enough to pay your way at Harvard.
That sounds doable for a person who isn't a genius and willing to sleep only three hours a night or otherwise make really big sacrifices. Truly exceptional people will always be able to bootstrap. But one thing I think is important is to make it possible for those who are talented but not insanely talented (I don't know what the percentages are) to get a degree and learn enough to be useful to society. It's remarkable that people really could (at least in some cases) do that without going into debt.
I have a different perspective. Rather than thinking it's remarkable that they could do that back then, I think it's a disgrace that we can't do that today.
Harvard's tuition back then adjusted for inflation is around $18,700. Assuming 10 classes a year an using an average class size of 40 students (which is what Harvard reports), that's a budget of $74,800 per class. You should be able to run a college on that, even taking into account some overhead for libraries and such. Yet Harvard today charges more than twice that.
Harvard could afford to charge nothing for any of its students. However, by having a form of price discrimination where they gouge the wealthy, they then get to subsidize their low-income students, so that they don't have to miss out on as many of the non-economic opportunities that their classmates engage in, and still provide all the amenities (nice gyms, libraries, clubs and activities) that the upper-class students expect.
The issue is, after the most endowed schools ($/student), there is a steep drop where schools suddenly aren't able to provide the same opportunities for their low-income students, but still compete for students capable of paying in full. This leads to escalating costs, as schools construct nicer gyms, study areas and dorms, pricing out the mid-to-low income students.
With thier endowment Harvard could provide gyms, which aren't that expensive in the grand scheme of things, without gouging anyone. There is no good reason for an obstensible charitable non-profit to be engaging in tactics suited to an 19th century railroad monopolist. Also not every legal adult whose parents are wealthy have access to those resources.
Furthermore, you are letting them completely off the hook for exploding expenses. Check out the administrator to student ratio changes from 1960 to today. College payrolls are now stuffed to the gills with deanlings and deanlets with no educational purpose whatsoever.
I've had the impression that Harvard is very affordable for most applicants. They limit parental contribution to 10% at $150,000/yr, and require no parental contribution at less than $65,000/yr. And they do not bundle loans in there financial aid packages.
Right, but financial aid offices assume the parents will be supporting their children, and include that support in financial aid offers.
I just don't think we should be using Harvard as an example of the high cost of a college education when it seems to me that they are committed to making it affordable for their students.
I started college in 1993 and my parents (and the rest of my extended family) talked a lot about me getting a summer job to pay for college, that that was all I'd need to do. That was so far from the case (I did attend a university rather than a state school) but I remember pricing it out and coming to the conclusion that my family was really disconnected from reality.
All I know is that many people go bankrupt from medical expenses. I don't know the specifics of how they get into that sort of situation. Perhaps it happens when hospitals first treat people, then bill them afterwards.
1. US Healthcare is too expensive. Two weeks after I first came to the states, my wisdom teeth (all 4) started growing. I had to pull them out. That was a $2,000 bill and a good lesson to get insurance asap. If you get into a car accident and you don't have insurance, your bill might be about $25K. More if you need continuous care and more surgeries.
2. Doctors are doing unnecessary tests and operations. Sometimes, I feel like they just want you to test for every single disease with a similar symptom. What a joke.
3. Some patients are stupid. Why on earth do some people need to call ambulance for flu. Even if they don't have a ride, just find it, use a cab, or use a bus if you are that broke.
Common sense is like deodorant. People who need it most, never use it.
> 2. Doctors are doing unnecessary tests and operations. Sometimes, I feel like they just want you to test for every single disease with a similar symptom. What a joke.
Probably because you would rightfully have a slam-dunk malpractice suit if they didn't test you for diseases with similar symptoms and missed a diagnosis.
I think even people with insurance pay $2,000 or somewhere in that ballpark to have their wisdom teeth removed. Dental insurance operates differently from health insurance in that there’s usually a fairly low yearly cap, so it’s not really insurance in the normal sense, and it usually pays for maybe half the cost of certain types of treatment, and you pay the rest out-of-pocket. Upper-middle class people with health and dental insurance still spend a lot of money on orthodontics and cosmetic dentistry.
I had a different experience with my dental insurance. My insurance (offered through my employer) was only ~$30 per month. Most of the preventative treatments were absolutely free. Apparently insurance companies discount preventative treatments heavily, so teeth cleaning, xray, and other stuff that would cost about $200-300 per tooth/event was literary free. Hell, even crowns, implants, and alike were discounted by 60-80% if I wanted to do that. I also had a nice cap overall. I visited my dentist many times and never had to pay more than $40 per visit.
But I agree, ortho/cosmetics is a different beast to deal with.
A lot of credit card debt has no collateral either, but that can be discharged in bankruptcy; why not student loans? And I suppose credit card companies could try to re-possess the goods purchased with credit cards (obviously not the services), but they don't. (And it makes sense not to; not worth it financially).
FWIW, I have no student loan debt so I'm relatively neutral on this.
The issue is at the end of a normal Bankruptcy proceeding, assets are sold to repay the note. Lets say you go out and buy a rental property for $500k, if you never make a payment the bank can repossess the rental property and sell it to recover their loan. Your asset is gone, you have no way of making any kind of income from it after it has been repossessed.
With student debt its different, if you went to undergrad at MIT then did an MBA at Standford - you are probably looking at north of $100k in debt. If one year after college you defaulted and it was discharged, you would still retain the 'asset' (your education). You could go out the next day and get a nice job at google and continue to earn income from your asset. The bank has no recourse to prevent you from continuing to use the asset they loaned you money for. This is one of the main reasons that you can't discharge student loan debt. No one is going to come take your degree away from you if you don't pay.
This is retarded (pardon my french). Assets are only relevant with respect to security interest held by the lender. Slavery is illegal, and it is not legal to attach security interests to peoples lives. Of course, by making the discharge of debt itself illegal, the lenders have placed their security interests in a default position aking to the states right to tax all future income. Which is a hillarious (although not funny) abdication of government authority in a democracy (as its unaccountable, not to mention opaque and non-transparent).
I'm not advocating this, but why couldn't they take your degree away? They can't take your education away, but the degree is just an agreement/contract that says you upheld your part of the bargain - passed tests, etc, and paid the university, and they in turn give you a certificate of achievement. If you default on the loan which was a substantial portion of the payment clause of that contract, why can't they revoke the degree?
I realize the loan in these cases is not directly from the university.
If they could, what would be the point? They don't want to punish you; they want their money back. It's not like they could sell your degree to someone else.
I suppose just as an incentive to not default. If you keep the degree, in theory you are more employable. If you have to give it up to default on the debt, maybe you'd think twice?
If you implement it properly, there will be no transcripts or verification if bills are not paid.
I went to Harvard, its just I lost the degree in bankruptcy, so they claim I didn't go. Just call my references (which are actually burner phones held by my brothers)
Interestingly higher ed already requires all bills to be paid to graduate... they don't care if you default on your credit card the week after graduation, but you aren't getting the diploma until the library fees and tuition are paid off by "someone, somehow". Once its the loan servicers problem, they don't care and you get your diploma. I vaguely recall having to get a slip from some different offices proving I owe no money to the school, in order to graduate, and threats they wouldn't provide transcripts to students in collections, etc.
But your future employer may care about indications of your character and future behavior while under their employ. I've heard of companies running credit-history checks to discern whether a prospect is a risk of embezzlement.
I'm not saying the judgement / assumptions would be correct, but it's quite possible some employers would act this way all the same.
Therefore it's a big incentive to pay your money back.
But presumably if the employer cares about defaults it won't matter whether or not you get your degree since the default will show up on your credit record.
The degree is just proof that you have the education. Revoking the degree does not revoke the education which is, short of extenuating circumstances, deserving of certification. When you're hired, you're hired for the education; the degree is just convenient standardized proof you have it.
True, but claiming an education != having proof of it. Sure you're employable, but it's more difficult.
Plus, if the potential employer checks your credit history and sees you defaulted on your student loan, they may make assumptions about your behavior or character, having a definite impact on their hiring decision.
yes, and if you were offered a 25% interest rate, perhaps based on a poor choice of major, then the signal would be "don't go to college"; or "switch majors"; or "get better grades"
The original recipient / payee of the majority of college debt is a government college / university. Not always, but the vast majority. So why would the government make laws such that money owed to another government entity cannot be defaulted on?
Call it professional courtesy.
Regardless of the students' situation, that money going to get paid, come hell or high water.
Not really when other types of unsecured debt are wiped out by bankruptcy. Your credit card debt can be erased by chapter 7 bankruptcy even if you used it to fund an awesome vacation that no one can take back.
I know the credit cards companies have cut back on this, but. . .credit cards for students don't require credit. . .and are specifically crafted to be obtainable by students with no income or credit. Students with income and/or credit can get better deals with "non-student" credit cards.
I believe that the Credit CARD Act of 2009 changed much of that. IIRC if you are a student with no income then you need to give them a collateral the size of your credit limit.
No one expects them to. The point is the credit card company accepts the risk of default on no-collateral loans in part because they have confidence (credit report) in the chances of being paid back, while a student typically has no such supporting evidence to back their case.
I'm a college student. I have two credit cards with credit limits of $500 and $1700. My tuition (with room and board) is $58,000 per year. That's the difference.
Those cards generate lots of fees. How can the CC have confidence in the credit report when they issue cards to people with virtually no credit. They are wildcatting.
Are you assuming that every college student who is issued a $600 credit limit is a deadbeat? I don't think that's the case.
edit: My point in the post above was simply that _if_ it is possible on average for an 18 year old to have a 'good' credit rating, _then_ credit ratings are practically without meaning.
not only that but students usually have negative wealth upon graduation. Declaring bankruptcy is way more attractive than it is supposed to be at that stage.
No. Also, I believe they can garnish wages and repossess property to pay off loans if it looks like the client won't ever be able to pay the debt back.
In carrying out its fiduciary duty the firm that issued the loan came to the conclusion that the person would be reasonably able to pay the loan back with interest. Of course, since the risk of default is off the table with student loans, why not hand out a bunch of money that will get paid back with some accrued interest before it is discharged, if it ever is at all?
In a world where fake private schools didn't accelerate the loan bubble, and one that probably treats student loans like any other debt, it would be a different story. Boils down to whether or not they think the prospect of their client finding gainful employment after school is worth taking on the risk of the client defaulting.
>>Student loans only price in 1 & 2 because of the near impossibility of not paying the loans back.
That, and there is virtually no way to accurately measure the default risk of those taking the loans.
It would be very interesting to live in a world where your choice of major affected your loan rate. For example, as a political science major you would not be nearly as employable as a computer science major, which would translate to more risk of default. This would ensure that only those who are serious about a political science degree would pursue it, and at a big picture level things would shift so that people would think about the real value of their education much more carefully.
Imagine a situation where you are looking at a list of majors, and next to each item there is a percentage score, which is the loan rate. For electrical engineering it might be 2.5%, whereas for art it might be 9%.
But then you would also have to consider the risk that someone who is not qualified for or interested in electrical engineering would most likely drop out of it. So the formula would also have to take into account the person's background. If they scored high on their SATs and Advanced Placement tests for math and engineering, the loan rate for EE might further go down to 2%. For those coming from a non-technical focus in high school, it might go up to 3.5%.
It's no problem for the bank of they can't accurately measure your risk of defaulting, as long as they can assess a group risk. So, say 4% of students fail to repay, the bank would use that number.
Just like car insurance when you first start driving. They don't know (or care) if you're a good driver so they just average beginner drivers and base the price around that average.
It isn't quite true that student loans can't be discharged through bankruptcy. Student loans are not excluded from discharge if excluding the debt would "impose an undue hardship on the debtor and the debtor's dependents":
11 USC 523(a) Exceptions to discharge
...
(8) unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor's dependents, for --
an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or
an obligation to repay funds received as an educational benefit, scholarship, or stipend; or
any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual;
Per http://www.moranlaw.net/student_loan_brunner.htm, "undue hardship" means '(1) that the debtor cannot maintain, based on current income and expenses, a "minimal" standard of living for herself and her dependents if forced to repay the loans; (2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and (3) that the debtor has made good faith efforts to repay the loans.'
Potentially yes. But those colleges won't have the prestige and long history that a college needs to serve as some kind of credential, neither will the inherent network-building happen there either. What I mean is that because Harvard is such an elite school, many of the people you meet there WILL be involved in society at the highest levels and you'll already know them. That gives you a powerful advantage. University of Phoenix doesn't have that yet and may not for several decades. And the University of Phoenix doesn't carry much prestige or brand recognition with it.
Furthermore the job market doesn't necessarily support the need for additional college grads. In a "normally functioning" (total bullshit I know but go with it for a second) job market high wages and high employment does two things:
1. Increases people's ability to pay for loans post-graduation
2. Reduces the average default risk
When that happens, interest rates for college loans go down and more people are able to go to college based on fundamentals: the job market will (with some lag factor) still be good when they graduate and thus loaning to them is a good idea. This is a "natural market function" which, though imperfect, tends to balance out the supply of college with ability to demand. I would estimate that college loans would tend to lag the job market by somewhere between 2 and 10 years depending on how agile a bank was to react to the job market. So you would have a period of heightened wages for at least 4 years as people worked their way through school and then potentially a period of lowered wages for a few years as people slowly figure out that the crazy high wages are gone.
But with these subsidies you get all the downside of the glut with none of the upside of the scarcity. It's not awesome.
It would be if you assumed the purpose of college was to impart information. It's not. All that stuff about "teaching students to think" is just bullshit, frankly. The real reason you have to go to college to get a good job is the school you went to gives employers an indication of how smart you are.
Prior to Griggs v Duke Power employers could just give you an IQ test, and all the big ones did. If you wanted to work for IBM you could get a job even without a college degree if you did well on the IQ test. But with that single court ruling employers had to cast about for another way to rank applicants, and the most obvious solution was by college exclusivity.
So if you went to Harvard they want you. Not because you were likely to learn anything at Harvard you couldn't learn at State U. It's because they know you have to be pretty smart to get into Harvard as only one in about twenty applicants is actually accepted.
So Harvard (with the highest rejection ratio) can charge whatever it wants (and it's worth every penny), whereas schools that take everyone can't charge more than enough to keep the lights on.
It's hard to establish a new school. Parents will want to know "Is it a good school?" Since this is one of the biggest decisions in Junior's life, they're going to go conservative and try to get him into established colleges with solid reputations. Your new college has a chicken and egg problem - you can't get a lot of applicants unless you reject a lot of applicants.
I think this is a big part of it. I think of it as a signalling tax on the young extracted by the old. "Ah ya think you're smart eh? You want a job eh? Promise me $100k+ your future earnings and we'll talk".
If colleges raise prices, won't this make it more attractive/affordable for new colleges to open, thus increasing supply?
Yes. Hence "bubble".
The government did everything in its power to funnel money into housing back from 1999 through 2005. If someone was against this, they were against people having homes. This resulted in a housing boom.
Today, the government gives out giant loans to students who will never be able to repay them. If you are against this program, you are "against people getting an education".
Yes, which is why we have the large number of new for-profit institutions. Many of these new for-profits deliver degrees that aren't the paper used to print them because delivery a quality education isn't easy.
This is true for for-profit colleges. But some public and non-elite private colleges risk pricing themselves out of existence - or at least into dire financial straits - if they raise their prices too high and if student loans dry up.
Actually, the price increases are most likely not caused simply by the availability of loans.
In the case of public schools, the evisceration of public subsidies has left them operating as public schools in name only. Even in my very liberal state, state support for colleges and universities was cut in half as a share of budgets over two decades. Most states fared worse. At the same time, medical insurance costs for faculty and staff have been increasing by ten percent per year on average, causing this expense to crowd out other necessary costs.
In the case of private schools, the rising cost of public schools has contributed at least as much to their ability to charge more. For profit schools seem to be able to get away with ridiculous claims, leaving graduates jobless and defaulting on large loans. However, they would not be able to justify their prices if public schools were too much cheaper.
"A house of a certain niceness is (everything else equal) going to cost the same amount of money per month whether the interest rate is 1% or 15%. A $1500/mo mortgage buys you $250k of house at 4% but only $150k of house at 9% and only $95k of house at 15% like in the early 80s."
That doesn't make sense. In the short term, we can hold the housing stock and income as fixed, and as the interest rate varies, the amount of capital available to buy homes varies as does the price. That isn't to say it is the primary effect -- income, net household formation and the housing stock are the other main determinants -- but the level of interest rates is important.
"Politicians subsidize the purchase of a good or service, prices inevitably rise in response to this pumped-up demand, and then the pols blame the provider of the good or service for responding to the incentives the politicians created. Think housing finance and medical care."
...
"We've got a crisis in terms of college affordability and student debt," said Mr. Obama, without a trace of irony at the State University of New York at Buffalo. The same man who three years ago forced through a plan to add $1 trillion in student loans to the federal balance sheet over a decade said on Thursday, "Our economy can't afford the trillion dollars in outstanding student loan debt."
Adding "$1 trillion in student loans to the federal balance sheet over a decade" is a result of direct lending, ie cutting out the middleman. It is also saving the taxpayer money to the tune of $70B over ten years.
It doesn't save the taxpayers any money if the government makes foolish loans that can't be repaid that nobody would have ever lent out if their own money was on the hook instead, nor does it save the taxpayers any money if the government provides easy, free money that causes unnaturally skyrocketing tuition followed by an unnatural higher ed crash.
An awfully expensive $70B over ten years, I think.
The savings of $70B comes from eliminating a profit layer that was enjoyed by the banks.
The government insured the loans before and after the change in 2010. So the taxpayer was on the hook for losses. Now it is still on the hook for losses, but also benefits from profits.
The $70B is simply from cutting out the middleman.
A profit layer that also prevented those other things from happening. These things can not be considered in isolation. People are more careful with their own money than the free money the government provides. We prevented the eeeeeviiil profit mongering bank bastards from making money, at the cost of encumbering millions upon millions with debt, and who knows what damage we're going to witness to the higher ed system over the next few years.
Will it have been worth all this damage to prevent the eeeeeeviiiiil profiters? It really already wasn't, and the accounting for the evil of our current policy is only going to get worse.
Basically we are publicly subsidizing education. Will it be worth it? Well, history has shown education to be a better investment than subsidizing the risks of private institutions. I'm betting it will be.
We wouldn't behaving this discussion if we had not created a situation via government meddling in which education is frequently not a good investment.
Don't deal in the fuzzy-wuzzies of how wonderful education is in a perfect world. Deal with the world in front of you, the one on the news, the one generating a trillion dollars in crushing debt on those least able to pay it back. People are exploiting your willingness to hide in glib, pretty generalities.
I think the headline here implies that the said middleman is unsure about the viability of the market, so any savings figure is dependent on low loan default figure.
No, JP Morgan is NOT a middleman. These were cut out in 2010, and JP Morgan is lending directly now. Their loans are not subsidized nor backed by taxpayer money, and they are free to decide to stop lending, which is what appears to be happening now.
It also means that the government is now
1) the one making the laws
2) the organisation that would suffer if the assumptions ("guaranteed repayment") turn out less than perfect
So now we have : debt slavery where your debtor is actually the one making laws. This could be really good or really bad. Really good if it is decided that transferring the education debt to all taxpayers is deemed acceptable, really bad if the government gets into the business of debt collection from people with no assets (ie. actual slavery).
You do realize that the vast majority of slaves in, for example, the Roman republic were slaves by choice, right ?
Maybe there was a lack of alternatives available to them, or at the very least they didn't themselves believed other good alternatives existed (the same as with student loans), but it still required them to agree to it.
It's Dean Baker's critique on coverage of this type from the Post. The most important thing to take from it is that the housing bubble popping turned $22 trillion of household wealth into $14 trillion. The sum of all student loans add up to around $1 trillion.
Banks getting out of an industry because they don't find it profitable anymore (since the government turned off the free guarantee taps) has nothing to do with cascading defaults due to excessive leverage and lack of regulation.
If there's a bubble out there, it's in Asset Backed Securities (ABS) like auto loans and credit card debt. And housing is currently looking like the bubble that wouldn't die.
The student loan market is now valued at $867 billion, less than 1/25th the size of the housing market at its bubble peak. Furthermore, all of it will not default and the defaults that do occur will be spread over many years.
Also, just wanted to say that Dean Baker is great, that's all.
The pervasive third-party payment in higher education results in many distortions in incentives. Consultants to colleges advise setting high list prices, and offering "merit scholarships" that simply roll back the apparent price of the college to near its actual value as a revenue-maximizing strategy.[1] Very few parents shop for colleges with the free online resource from Education Trust, the College Results website,[2] which allows comparison of what various colleges actually spend per student on instruction. On the whole, most people assume colleges are more similar than they actually are, and that list price is a reliable guide to which colleges are somewhat better (as a value proposition for the student). Neither assumption is correct.
Maybe, just maybe, the root problem is our financial scheme for higher ed, in particular, the idea of foisting the cost on the student prior to enrollment (let alone graduation, or gainful employment). Say what you want about our K-12 system, but its costs haven't spiraled completely out of control. Nor have the costs of highly state-subsidized public universities in many other parts of the world. I don't think enough people are seriously considering the idea that we have shot ourselves in the feet by demanding that the government and private industry make a return on investment on a basic service that provided all sorts of positive externalities when people have access to it. We've encouraged colleges to compete with one another for market share.
Maybe the incentives that aren't working for us are a result of our cultural infatuation with winner-take-all competition.
It is amazing the number of comments that talk about the problems of defaulting on loans and then place the blame in all sorts of places other than the people defaulting on loans. Unless you were forced at gun point to sign loan papers (or other scandalous things transpired), there isn't a lot that can convince me you are not solely responsible for your loan. I don't care if it is for an education, a house, a car or a new pair of sneakers... if you accepted money with the condition that you would pay it back, you are responsible for paying it back or suffer the consequences of not paying it back. In some cases, the consequences of not paying it back might be better than what would happen if you did pay it back (like starving to death because you can't afford to eat. or freezing to death because you can't pay for a place to live). I'm not saying that people don't find themselves in financial hard times and some times only have really horrible options to choose from. But some times I feel like people start out with default as an actual option in their minds. Like it is no big thing... just Plan B. It very much is a big thing and should be your Plan Z!
I've never heard of anyone who planned on defaulting on their student loans. Most people go to school hoping to end up upwardly bound in a fulfilling and financially rewarding career, drawn in by stories highly slanted with survivor bias. Many end up in dead-end jobs or underemployed. They don't know anything about who they're competing with in these fields or what these employers want. Kids sign these papers barely 18 years old that will quite likely set them in a gigantic financial hole for their foreseeable adult lives. Not to mention the fact that much of this debt is held by people who had no major reason to believe that the economy would drop from underneath their feet.
And what's the viable alternative? Not going to college? The survivor's bias for people who that's worked out for is even worse!
Sure, people willingly sign these loan papers, but we should also be honest about the level of agency and information the average aspiring adult has.
Because simply blaming it on the people signing the loans isn't productive, it's just a statement of the status-quo with no solutions (shaming people isn't going to change anything).
Blaming it on the people signing the loans is productive if it makes people see they need to cover their debts. Nobody said anything about shaming anyone. The only shameful thing is trying to blame others and not taking responsibility for your decisions.
I really have to wonder if a lot of the changes made previously to the student loan system are at all linked to the huge campaign contributions made by the University of California system. Basically, any changes that have been made I think benefit greatly the schools (including the rising tuition/costs) to the great chagrin of students. You have a situation where the real people making out here are school administrative types and the students and teachers get the short end. I don't say this lightly, but I do wonder if the nearly $2 million donation each cycle [1] (making them the top contributor in both of the last two cycles) has something to do with how things have worked out.
As a previous (sadly I had to withdraw due to time and work commitments) UCSD student I can tell you that student per-quarter costs went up about 25% over the time I started and the time I left. During that period as well there were certainly no administrators begging to have their pay brought down, only calls to cut teachers, teaching hours, maintenance staff, etc.
During that same time period as well, there was a building boom on campus with no stopping in construction of many new campus housing projects (even some which have consistently NOT been anywhere near capacity), new administrative building and a few new campus buildings here and there (where they can fit them between all of the new administrative buildings and housing projects). Of course this was all going on during the period that UC regents were (and really continue to) say that the state was cutting far too much money and thus the reasoning for raising tuition year-over-year.
So, really I guess my question is: How much did/has money 'talking' in an election cycle contribute to the situation the entire student loan system now finds itself? I'm by far no conservative, but I can't help but personally see this as the public being sold out.
I'm not entirely certain how your link somehow conflicts with the points I raised. They're really entirely separate. The number of students paying no or reduced tuition really just affects that specific group. This exists across any university/institution and as far as I know has for quite some time...
Misplaced incentives all over the place. This one is going to be messy. But as many people have pointed out, much more slow moving than the previous financial bubble.
The solution is simple and obvious: All of us who have already paid off our loans are going to fund government-arranged loan forgiveness/reduction programs to those who over-leveraged their education.
As someone with student loans, I wish this wasn't the case for the previous generation. But at the same time, it's hard to blame current 23 year olds for decisions their parents and communities make about their kids' future finances when they're 16.
The majority of fault lies in the previous generation of parents, who both failed to vote out politicians supporting these policies and who pushed their kids into enslaving parts of their lives to lenders.
Agree 100%. I didn't mean to say the blame rests fully with the current generation, I'm just saying government policies going forward are just going to increase the moral hazard even more.
Off the top of my head, both the interest rate cap that passed this summer and the President's recent student loan proposals? What else would be under discussion here?
EDIT: nevermind, apparently both you and drcode are discussing hypotheticals only.
Those affect government loans, not the private ones which are the subject of the posted article. The loans issued by JP Morgan do not have their rate capped; indeed they float and are indexed to LIBOR.
I'm in the same boat. In the hospital, on the day of my birth my mother looked at me and said "college". Needless to say I did not do the proper cost/benefit analysis at the age of 17. I'm hoping my debt gets forgiven after 25 years. Being 80 years old and making student loan payments does not sound fun.
If making education free was the goal, why not stop messing up with student loans and provident students with scholarships. Every course you flunk or take incomplete, you pay out of your own pocket. Every course you pass you receive a partial (or total) refund based on the final grade. And if you keep your GPA above a threshold, you receive an living allowance about 3x-4x minimum wage (based on the number of credits you take).
This way students would get a free higher education... at least those that make at least some actual studying.
As someone who really hasn't thought about it very much, I'd love for someone to expand on this. What's the expected fallout? In the housing bubble, many people lost the places where they lived. But it's not like someone can "take back" your education if you default on the loan, so what happens instead?
The problem is that most money in circulation was manufactured by creating debt. When you destroy that debt through default, you destroy that money.
The fiction of student loans is tricky because under Bush they changed bankruptcy rules to exclude student debt. But fundamentally when banks are forced to write down bad student debt, their rosy asset picture becomes non-rosy. When that happens they are required by regulators to not lend. And this is ugly for the whole economy.
In 2008 we resolved the problem by having the US government find ways to lend tremendous amounts of money on very favorable terms, and then the Fed picked this up with a similar policy that they call quantitative easing. This creates lots of money in financial markets so that things like banks can continue to operate. The bigger long-term problem is how we'll ever exit the policy.
To give an idea how sensitive this situation is, a while ago Bernanke announced that if things continued to improve faster than expected, in a year the Fed would evaluate whether to exit QE 2 faster than originally planned. You can't come up with a milder statement that the policy might end. The markets went crazy. A few days later, Bernanke came out and said we won't be doing that after all, then markets calmed down.
There is no question, a student loan debt crisis will be responded to with more QE. The problem of exiting the mess will become bigger. Historically countries have exited this type of policy only after the crisis of a currency collapse. But so far the market players seem to be betting that they will get out of the USA before the other guy when the crisis hits, and in the meantime the USA looks safer than China and Europe.
However the financial economy is always a mess. And they are always finding another way to kick the can down the road. That will certainly happen again. And again. And again. Until it doesn't. Every time the doomsayers say, "We don't see how we can kick the can down the road again!" But we do. The dot com bust was resolved with easy interest policies that resulted in a housing boom that resulted in the financial crisis. That was resolved with QE.
Take your best guess as to whether we'll kick this can down the road as well...
The development of adult life is stunted. It takes longer to afford to rent an apartment on your own, buy a house, buy a car, get married, start a family, start a business, etc. If you're college educated you probably have a broad support network. So instead of being homeless, you move back in with your parents.
So instead of losing your home, you may never get it in the first place.
The consequences of defaulting on a student loan are also quite severe.
I am 25, and since my first serious job (I was 23) I've been in the government category for the most rich as possible in earning amount (the category is everyone in the top 5% of income... granted, there is still a GREAAAAT gap between the top and low of that... I reached the top 5% with 20k USD/year)
I don't own a vehicle (not even a bicycle), much less a living place.
I think if I sum all my possessions (literally, including my clothes, glasses, phone... without depreciation) and my debts, I am still negative.
According to my calculations, I will be able to buy my first apartment when I am about 35 years old, unless I move back with my parents and stop paying rent. Also I won't bother in buying a vehicle, unless it become really, really necessary (and then, I will buy a chinese QQ or J2)
When I think about that, it is really, really, really depressing and ridiculous.
The draconian terms are going to push some people to emigrate if they are forced to default. There are a lot of Americans teaching English in China who are running from problems like these.
Short version: The government makes money off student loans, and there is no defaulting on them (unless you die of course). There are no incentives to keep tuition costs in check because the lenders (government) are happy to put more money into the asset class. We're getting to the point where the price of education can't be made up with an eventual increased salary. The author considers this to be an unfair tax on the lower middle class and an eventual drain on the economy.
Students are getting loans from the government on terms that they wouldn't be getting from the bank. That creates more effective demand for schools which drives up the price of tuition.
If the banks did this and the student/graduate had to default, the bank would have to take a loss. The government isn't allowing default on the loans they themselves give the students, so they'll make sure they get their money back.
As far as I know it is impossible to default on a student loan. Even if you declare bankruptcy student loans have an exception so you can't get rid of them. If you stop paying them they can garnish your wages. The only way to end it is to pay it off or wait 25 years, after which they are forgiven.
It's not the impact on the individual who's defaulting that is the kicker, it's more the effect on the originating bank and the parts of the financial system that packaged up that loan with others of its type into financial products that are incorporated into the investment strategies of pension funds, mutual funds, municipalities, etc.
In the U.S. most of the outstanding student loan debt is held directly by the government. Pension funds and mutual funds don't really have exposure to student loans.
It's as if the value of a formal education has never been lower, the job market is swamped with people that would be more qualified and experienced than you, and the cost has never been higher.
The worst part of this thing is that students loans do not need to be that high because college costs should not be that high. Student loans are artificially high because of two reasons:
1. Government subsidies
2. Increasing college costs
Government subsidies are there because the government knows that a kid who goes to college will be able to give a better return on it 'public' investment, since lifetime earnings for a college educated individual are about 50-100% higher than a high school one. This will make them pay more taxes etc.
The schools on the other hand are taking the subsidized college loans in the form of tuition and fees and using them not to increase educational standards, but rather, invest in extracurriculars, building etc. The government does not tie college loan financing to college performance at all, so effectively it just subsidizes the borrowing costs for school in the form of cheap college loans.
(shameless plug) I wrote a blog post about this if anyone is interested to read more:
1. Government profits from student loans. I.e., it does not subsidize them as a whole-- rather, it makes money off them.
2. In theory, colleges compete on cost as well as other factors. There exist private colleges and even for-profit private colleges (although the data shows us that for-profit private colleges often have the worst outcomes).
It's easy to blame government for problems. Easy, but not always correct.
Government subsidies towards student loans is a well known fact. Just like government subsidized the cost of borrowing for mortgages, so has it inculcated a perverse system of college financing. Evidence of this can be seen in the largest increase in student defaults since 1990 at around 9.1%. whereas car, mortgage and credit card default rates are around 1-4%. That is called adverse selection run by a government system that is incentivized to give out bad loans due to the profit it sees in the long term.
Colleges, in a theoretical free market might compete on cost, but in real-life they actually are competing on providing amenities and extra curriculars, not in any way associated with how well kids are educated. College prices, inflation adjusted, have gone up by 120-130% in real terms, while median family income is stagnant. Most of the increase in Net revenues in colleges is NOT spent on paying educators since their wages and teacher/student ratios have been increasing linearly. The rise is mostly attributed to budgetary items for Other Employees, coaches adminstrators etc and large infrastructure funding.
This might be a foreign concept to some people, but banks are for-profit businesses. If one of their products is not making them (enough) money, they'll dump it... just like other businesses. The article describes JPMorgan's announcement as "spin". They aren't spinning anything. They are just end-of-lifing a poor performing product. Get over it.
Huge difference between student loans and mortgages - the only pain felt will be by the students and taxpayers who will (again!) make the lenders whole on their bad bets:
Student loans cannot be discharged even if you declare bankruptcy - while home owners could walk away and hand the keys to the bank.
Student loans are guaranteed by the government - the issuers just file for compensation.
The sickening part is that once the lender gets paid in full for a non-performing loan they buy loan back from the government for 10% or so and then file a lien on any future earnings.
Sure: Now they're funding the loan program directly. At the moment it's profitable, but if there are ever losses they'll come directly from the taxpayers' pockets.
And there are indirect losses, too: Imagine the government started running a program to pay people $20K+/year (think grants + loans) not to work for four years, provided they paid some of it back at low, capped interest rates. Surely a lot of people would take the government up on that offer, and instead of being productive taxpayers, contributing to the economy and to the treasury, they'll sit around playing XBox. Maybe it turns out that the average college degree program is a better investment than this, even accounting for the lost GDP and tax revenue. But there's no way to be sure, since there's no market at work.
The government insured those loans before AND after the change. It was on the hook for loan losses before and after.
The indirect effects are MASSIVE BENEFITS for taxpayers, not losses. College graduates have lifetime income of $1M+ more than non-graduates, and this income is of course taxed at each individual's highest marginal rate. They have half the unemployment rate of non-graduates so they consume less unemployment and incur fewer other costs to government.
Every kid I come across that plans to go to college I tell them to find the cheapest route possible. Start at either a good community college or go to a public in-state school. You can still go to a good college for a reasonable price, but it seems more and more that kids are taking the more expensive route (dorms, out-of-state, etc).
For kids from poor or middle class families, Princeton, Harvard, Yale and Caltech will usually cost less than an in-state public school when it comes to what the student and his family actually have to pay.
In-state public school has a lower sticker price, but have less non-loan need-based aid so students have to come up with a high percentage of the sticker price. The top private non-profit schools have higher sticker price, but provide a lot more non-loan need-based aid, so students have to pay a much lower percentage of the cost. At Princeton, for example, the average debt at graduation is only $5k.
That last example is meaningless in isolation. What percentage of Princeton students take out student loans (and how much)? I'd guess it's much smaller than in public schools.
Unfortunately you public in-state advice is almost now outdated; many privates are cost-competitive with public schools and it's not because the private schools are cheap. e.g.:
This is definitely a trend in private education pricing as sticker shock is a real problem for students considering private schools and the privates compete for the same students the publics do.
Not entirely. From the article - 31,440 for Seton, 10,104 for Rutgers. They are saying max merit aid is 21,000 at Seton, so tuition w/max merit aid is 10,440. I don't know about Rutgers specifically, but it's not uncommon for public state schools to offer up to 8,000-10,000 merit aid, covering the bulk of the tuition. So you'd be looking at paying 10k/yr vs 0-2k/yr, still a huge difference.
This assumes no need-based financial aid, and doesn't touch on housing, which is assumed to be 10-13k these days regardless of public or private.
The best college advice I ever received was from my middle school history teacher: Go to the cheapest college you can. Harvard doesn't have a secret extra organ to teach you about.
Just about everything in undergraduate education is well established enough that you'll learn the same material anywhere. You'll find variation in the material covered (e.g. Catullus versus Ovid), but it's mostly window dressing on the same core concepts. By the time you get to a graduate level, it becomes important to pick the right institution to ensure that your personal area of research was well represented, but paying extra for undergrad is simply a waste of money.
The problem with need-based aid is that the numbers they use don't make sense. When I went to college (not Harvard) the financial aid dept told my parents they made too much money to get assistance. My tuition was over 50% of their post tax income and I have a brother who was only 2 years behind me.
How are you supposed to afford spending that much on a single child's schooling and still have enough to afford the rest of the family, retirement, insurance, mortgage payments, etc? Sure they could have planned better and saved for 20 years but the reality is that a very small percentage of people do that.
Going to Harvard is less about learning things and more about meeting people. It's a lot easier to start a startup or join a big firm when your roommate's (girlfriend's, teammate's, etc.) daddy is a VC or a Partner.
Just because people shout "bubble" at any exponential growth phenomenon doesn't really mean we can tell when "the bubble bursts".
Crashes in growth curves are always unpredictable. You can predict that there will be a crash, but telling when it's going to happen, that's the hard part....
Student loans look like they should be easier to predict than anything else. You can't see a bubble burst untill the inability to default is lifted. Until then, there is no defaulting, so there is no loss of confidence. The only metric to measure is how few payments people are making on their outstanding loans. For example, I only pay the minimum since I'm unemployed. I've drained around $300 of my savings just on minimum student loan payments.
No, it's not. Not even close, and this is really terrible reporting. It's unfortunate that so many young people are carrying large amounts of student loan debt, but there is no sign of a "bubble" bursting any time soon. I don't even understand how the notion of a "student loan bubble" makes sense, since people don't "speculate" on college like they speculate on real estate.
There are so many things wrong with the idea of a "bubble" popping. People can't walk away from student loan debt, like they can walk away from real estate debt. Interest rates are expected to rise, but only slightly with the 90-day T-bill yield. Not the insane rates 20% rates that banks were hitting people with in the subprime crisis.
People may find diminishing returns for college vs the rising costs, but that isn't the same thing as banks suckering people in with ARMs and then using leverage to make huge speculations on CDO's that lost 90% of their value.
Here's a madeup example from the subprime crisis. Someone puts $0 down and buys a $500k home with a loan from the bank. The bank expects to make $500k in interest over the lifetime of the loan due to ballooning interest. Now, let's say variable interest rates from the loan kicks in, and the person can no longer make his monthly payments.
In the past, when the real estate market was good, he could just sell the house for $600k, and keep a profit. But, lets say now the price of the home dropped to $300k. There is no way you are going to expect someone who put $0 down on a home he bought 2 years ago to cover $200k in debt for a home he doesn't even own any more due to foreclosure. So, now, instead of having something worth $500k in profit, the bank owns something that is a $200k loss.
Banks lost over a trillion dollars worth of assets in a matter of weeks.
Look at what was happening for years before the crisis though. In those times, it was very likely that a home could increase in value from $500k to $600k in a few years. How was that happening? A lot of it was because people figured out that they could put $10k down, and do this to make $100k, or 10x their investment in a few years. The true speculators are the people who just bought real estate only because they thought the price would keep going up. This in turn drives up the price without being tied to any kind of intrinsic value.
You simply don't have that kind of pure speculation in the college loan industry because you can't just buy and sell college degrees.
Also, people aren't just going to declare bankruptcy from their student loans in the same way as the subprime crisis because they legally can't. Wages can be garnished from student loans, and it's extremely hard to have the debt erased due to bankruptcy.
The "bubble" scenario is sensational, because everyone sees a trillion dollars evaporate in a few weeks. Instead, in the case of student loans, I think that we may see something just as bad for the economy, but it will happen over years, not weeks.
In a lot of ways, I think that's why this problem may be worse, because it may be just as bad, but much harder to notice than the subprime crisis. Journalists think that the only sign of economic failure is when a "bubble" pops though, which just isn't true. Slowed growth over 20 years could be just as bad if not worse.
I think calling it a "bubble" is a way to put it into immediately recognizable terms for people. And according to your definition of what a bubble is, it could be an apt description. From wikipedia: "It could also be described as a situation in which asset prices appear to be based on implausible or inconsistent views about the future," which to me sounds a lot like the current student loan situation. The tuition costs covered by these loans do not seem to be based on their future value in any meaningful way.
It's an asset from the point of view of the bank or institution that made the loan. And they can transfer those assets from one investor to another. And the value of those assets can be based on unrealistic expectations about future default rates, so in that sense, student loans certainly can be a "bubble".
The real damage done to the economy by the mortgage bubble wasn't all of the people who lost money on homes when prices collapse. The most damage was due to the effect it had on banks' balance sheets when their assets (the value of debt-backed securities) lost value, which meant they had to call loans and restrict credit to make up for the difference. In that sense, a bursting of the student loan "bubble" could also have damaging effects on the economy.
When there's a decrease in the loans going out, there's a decrease on the payments coming in at a future date.
When there's a decrease in the loans going out, there's a decrease in the demand for education services causing a reduction in the quantity available.
Repossession isn't a necessary condition for something to be in a bubble. Pulling demand forward and using laws/regulations/programs to funnel money into certain parts of the economy is what causes bubbles.
And, as has been discussed in another area of this thread, repossession of a college degree is possible. I'm not advocating it, but it would have a definite effect on incentives on both sides when making decisions about which college to attend, what degree to study, how much debt to borrow, and whether or not to repay it.
If student loan debt were bankrupt-able, and the degree revoke-able, I can see how that might remove some current problems (not that it wouldn't introduce others).
Exactly. Plus you can change the ground rules. In this case it can apparently even be done without changing the law :
Student loans are not excluded from discharge if excluding the debt would "impose an undue hardship on the debtor and the debtor's dependents".
So it only requires a small attitude change of judges for the bank's assumption that non-repayment is impossible to blow up. Given the attitude changes towards student debt that are occurring in the papers, can this really be that far behind ?
Actually it is. Easy credit and the sentiment that any degree will pay off in the long run have inflated tuition prices to the point where they are not necessarily worth the investment. Similar to the house that was worth 600k and is now worth 300k the degree that costs 200k doesn't meet that value. It could potentially be worse than the housing market because there is no asset, just a piece of paper. Just like you said you can't buy and sell college degrees.
The point here is that banks are starting to get it. Just because you can't walk away from student loan debt doesn't mean you have to pay it. Sometimes the numbers just don't work out. The odds of someone with 400k in student loans from a PhD in Philosophy paying them off in a lifetime with their job is a barista are very low.
The question is "what's the consumer -- and thus larger macroeconomic -- impact?" The impact is that if you "bought" your education at the "high time," you lost nothing. What were you supposed to do? Wait until the bubble burst and hope to "cash in" on a cheaper education?
Student loans are so cheap that the marginal impact of such a burst really only stands to impact greater lifetime earning potential of two distinct groups of the population: pre-poppers and post.
While that's unfortunate for the pre's, it's hardly comparable to the economic divide that has grown between the educated and uneducated classes.
Universities are who's really going to take the hit here. When the free money dries up so will the number of students able to pay current prices for degrees. The effect on Academia and as a result research, innovation, etc. are still up in the air.
I think the notion of "bubble" simply comes from people's understand that the amount of money poured in for something doesn't amount to very much.
For example, say you go to top elite 4-year liberal arts college and receive a degree in gender studies dropping $40k a year. Is that really worth $160k + interest for you? If the perceived value of the degree is substantially lower than expected, you mostly likely wouldn't want to pay back the loan. Consider this sort of scenario for tens of thousands of people. Banks that were expected to get the money back will be left with tons of debters just defaulting on their debt. Principles lost.
The bubble aspect comes from the approaching brick wall for U.S. Treasury bonds. At some point the machine will stop handing out free money. Then the price of a gender studies degree will fall to historical work-your-way-through-college levels. There will be a lot of political pressure to reprice the principal on old student loans, which were only so expensive because the government blew a bubble.
I'm not arguing since you know way more about this than I do but I'm curious: I've thought of a lot of the problem with the college loan situation as exactly "speculation" since people are gambling that the job they get on the other side is going to let them pay off the giant loans easily. No, people don't buy and sell degrees but isn't there a lot of speculation type behavior going on?
I don't even understand how the notion of a "student loan bubble" makes sense, since people don't "speculate" on college like they speculate on real estate.
This is exactly what's going on. They're making the bet that they'll be in demand later and able to pay off their loans. Just like buying a house and being able to make money from it later. After all, everyone had a rationale as to why the price of their house would increase just like they do about the job market turning around for people with a degree/diploma in X.
Except that you can't declare bankruptcy and walk away from a student loan, like you can with a house. The idea of a bubble bursting is the idea that all of the money will disappear at once, but instead what will happen is people will be plagued with debt that they can't repay quickly causing long term growth problems because the college graduates will have less spending money.
I get your point at least. While one could argue that student loans are in a speculative bubble (in regards to their actual value), existing bankruptcy laws prevent the bubble from bursting.
Part of the collateral for student loans is, technically, your economic freedom. It's easier for banks to assume you will pay the principal of your debts, when government is the acting collection agency. It's very difficult to escape garnished wages.
However, if something changes and people have a way to shed their student loan debts, I think the bubble will pop very quickly.
I agree that that is exactly the gamble that a student is taking, that when finished there will be earning ability that will enable them to pay off the loans.
Is this a reasonable bet to make? What is the earning potential of someone with a college degree? Isn't it something like a $1M+ increase over one's lifetime?
The problem is that your debt, if measured at the end of your lifetime, will also balloon WAY out of control. Simple example, 30 years after college, 40k usd in debt gets you to 462k at 8.5% annual. That is, assuming you get a job immediately that truly translates in higher earnings, which a lot of times isn't true.
Well yes you have to pay it back before the end of your lifetime.
WSJ had article on student debt recently, with lots of data. Median debt load was 18-19k USD [1]
If it were all via Federal Stafford loan, the interest rate would be 3.9%. If the payback period was 10 years, the monthly payment would be a whopping $191 per month.
I think speculation roughly encompasses anything you buy for short or medium term gain. You don't put in four years of work to speculate on German bearer bonds.
There is already a bubble popping, but it's not measurably in the students finances since they have little assets to "pop". Look at the performance of for-profit colleges lately, and the desperate attempts of public schools to raise tuition. The easy money has caused many colleges to expand irresponsibly, and they could be one MOOC away from collapse once a percentage of students figure out they have an alternative. It's not a dramatic stock market style crash, but a drawn out deflating not unlike the housing "pop".
> People can't walk away from student loan debt, like they can walk away from real estate debt.
I hate to be the bearer of bad news, everettForth, but this isn't going to be true much longer. (Something has to give, and this is what's going to give, I predict.)
I agree -- it is nothing like the housing bubble. It's worse.
What's really happened is that a college degree has been transformed into a very expensive writ of indenture that is required to get a job. This undermines the fundamental value not only of college but of the job itself. Why go to college to get a good job if a good job does not actually pay off in the end. You don't actually earn anything from the good job-- you just maybe make a dent in the writ of indenture you had to purchase to get it.
That's horrible. It undermines the entire economy. It undermines the entire reason for participating in the economy.
What happens when the repayment power of those that took the loans is crippled by the loans in such a way that they can't fulfill their basic needs? it's gonna happen with a non negligible portion of people
The problem is not the fact that the debt can be wiped, the real concern is that for some people the debt will not be repaid at all and they can't do anything about it. That debt, whether refinanced ( http://www.nbcnews.com/business/obama-signs-student-loan-bil... ) or wiped out, will make banks lose money.
What it means is that people seem not be as interested/willing as before in taking out a student loan. From this point of view, yes, it is not a growth market any longer, as the Chase representative stated.
The question is: what will the universities do in face of lowering demand: keep tuition prices same or higher? Lowering them?
I'm not sure JPM getting out of the student loan market means it's about to burst. The government's entering the market means that simply no one is interested in getting private student loans.
Under the government's new program, PAY-E, your payment is capped at 10-15% of discretionary income and unpaid interest capitalization is capped at 10% above the original principal amount. Debt is forgiven after 20 years.
Basically, there is no way for private lenders to compete with these generous terms. For the moment, at least, the government's program is running solidly in the black (indeed, with a big profit margin).
The problem with student loans is that they drive up the cost of education by reducing the perception of up-front cost. The solution is to abolish them and let the market deal with it. Universities can switch over to being athletic clubs and government funded think-tanks or something.
It boggles the imagination that NYU charges something like $60,000 tuition per student per year on top of all its other sources of revenue.
Employers pay big money to find employees.
Students pay big money to get educated to get a job.
Hackers roll in with apps that allow students to do courses for free on the smartphone/tablet, sell the info of the students to employers, who then hire the students. Everyone wins. Hackers are proclaimed heros.
The only difference here is who is paying who. "Run an online university. Oh yeah, the university is an app, not a website, and therefore super trendy." is not a "perfect opportunity for hackers". The actual software involved with such a proposal is chump-work.
Writing a really good app that is both enjoyable for students and a rigorous test of ability that employers are looking for is not chump work.
If you can show employers that your app truly tests useful abilities they would be lining up. The current education system fails at producing workers with the right skills and employers are always complaining abou this.
What you are looking for is Khan Academy. Khan Academy with enough content, with sufficiently rigorous content, with sufficiently rigorous evaluation, to become accredited so that employers will value their assessment of a students worth. Actually, they would need to be better than merely being accredited, since employers sure aren't bending over backwards to pay accredited universities serious cash for access to their students.
See, what is Khan Academy really lacking at this point? Is the hard part their website with youtube hosted videos? Are they really just jonesing for some mobile developers? Or is producing quality content with broad coverage and depth their bottleneck?
Making an app is the easy part. Education is not failing for want of an app. Certainly not for want of a gamified app.
But hey, I can't stop you. Knock yourself out. Hell, pitch it to YC; I hear they are doing non-profits now.
1) The absolute last thing this world needs is more for-profit education, particularly for-profit education that has somebody else foot the bill. Do yourself a favor and try to sell this idea as non-profit; I was giving you the benefit of the doubt by assuming it was.
2) An app that teaches people things but doesn't have anything to teach them is worthless. Of course the software is the easy part...
If you really think a for-profit Khan Academy that teaches... nontraditional... curriculum, but doesn't actually have any content since you seem to be completely ignoring that problem... is what the world really needs, then pitch it to YC as a for-profit startup. I ain't stopping you...
Why would it need to be an app at all? It has zero benefits over being a website and requires students to buy an expensive piece of hardware to access it.
This link explains the "bubble" completely: The Most (And Least) Lucrative College Majors, In 1 Graph [1]. Make this a mandatory ACT / SAT question so that people quit making poor value decisions: STEM >> arts and humanities in terms of median earning power.
I am confused because you cant avoid atudent loans, theee is no bankruptcy - they will take your money before your employer pays you. How could it burst if studentsl will eventually pay all of it off?
Universities should issue the loans themselves so that they have an incentive to deliver a quality, useful education that has value in the marketplace to guarantee their repayment.
Or make the education free and a % of each graduate's future earnings (up to some max $ amount or limit it to 20 years after graduation) are paid back into the endowment to fund future students.
they even paid us a stipend - something at the level of a minimum wage - and we were such a lazy "lowest part of the back" students, it's a shame.
In the community college here (i went for ESL) i saw a bunch of youngsters who go to the college and work simultaneously, and some workers at the local Starbucks go to the state school. My respect to them.
MOOCs are solution for highly motivated students who are generally able to get accepted by traditional universities, ace classes and graduate with little to no debt. They are not the solution for sub-par students who go to for-profit universities, could not get a job afterward and could not repay loans.
I consider myself reasonably motivated, graduated with almost perfect GPA and I still struggle to complete MOOCs. It's just too difficult to force yourself to study without outside pressure and peer support.
There is a fixed number of existing jobs. Mooc, for-profit and state schools all produce people who have to compete for the same jobs. The only solution to debt and employment is to make certain processes/jobs more efficient so that the extra time can be used to create new and better products/services/companies.
MOOC's are a response by the market to some of the problems of the current system. Time will tell just how well the MOOC phenomenon will turn out for us, but I suspect we're better off with them than we were before.
Because if people can't afford to go (as in, can't get the money at all), demand goes down, universities lower tuition to attract more people? It's not perfect or necessarily what would happen, but it could happen.
Normally the interest you pay is the combination of three things:
1. The (inherent) time value of money
2. Expenses the lender incurs to keep up with the debt
3. The average default risk of those taking the loans
Student loans only price in 1 & 2 because of the near impossibility of not paying the loans back. Which is great in the short term as it means that more people are able to go to school because the interest rate is lower and thus they can afford more debt.
But a college education is a lot like a house. The price of a house isn't how much it's "worth", it's an artifact of how much money you have to pay every month for the privilege of living there. A house of a certain niceness is (everything else equal) going to cost the same amount of money per month whether the interest rate is 1% or 15%. A $1500/mo mortgage buys you $250k of house at 4% but only $150k of house at 9% and only $95k of house at 15% like in the early 80s. (http://www.bankrate.com/finance/mortgages/history-of-mortgag...)
By removing all the default risk from the pricing of student loans, more students are able to afford college which is exactly the intended effect of the laws. But the size of most academic institutions doesn't grow; most colleges don't admit twice as many students just because more are clamoring to get in. This excess demand and fixed supply means that colleges can raise prices. And thanks to the lowered interest rates those who could have afforded college prior to the law (and lower interest rates) are still able to afford it because the lowered interest rate has increased their borrowing capacity.
Those on the margin prior to the change in the law still aren't able to afford college once the price increases follow the increase in available money and additional demand for degrees.
The law was changed in 1978 and it's taken quite a few years for this unintended consequence to play out. It's really sad to see it happen. http://www.finaid.org/questions/bankruptcyexception.phtml