August 13, 2010
A Guarantee on a Higher Degree
Anchor Rising commenter mangeek sends along this Huffington Post post on student loans:
A strange milestone was marked this week in the history of student loans. The total balance of all outstanding US student loans (given as $730 billion in DIY U, based on OMB estimates) is now estimated by Mark Kantrowitz of Finaid.org at more like $830 billion -- $605.6 billion in federally guaranteed student loans, which have interest rates fixed and in some cases interest subsidized by the government, and a further $167.8 billion in private student loans, with interest rates that hover around 18-20%. Furthermore, Kantrowitz says, $300 billion in federal student loan debts have been incurred in the last four years.This means the total balance of student loans has just surpassed the total balance of credit card debt for the first time in history. Each makes up roughly a third of the money Americans owe, mortgages excluded.
The writer, Anya Kamenetz, tags education loans as especially bad, because they aren't subject to bankruptcy extinguishment, and "and in the case of federal loans, that means being pursued until you die." Personally, I'm not so sure the measure of a particular form of debt should be how easily one can avoid paying it off.
Be that as it may, mangeek suggests getting rid of government guarantees for loans (and, presumably, government direct loans) "to all but the most promising students." For my part, the topic raises an idea: What if colleges were to begin differentiating themselves by offering some sort of loan forgiveness or guarantee themselves, based on graduates' ability to find and maintain the jobs to which their degrees are supposed to gain them access?
Higher-education consumers would surely find that proposition very attractive, not the least because it would indicate that the institutions aren't likely to let too much fluff and academic baggage interfere with the mission of imparting knowledge and preparing students for life as adults.
Thanks for posting, Justin!
Just to be clear...
I -don't- want to gut federally-backed loans, but it's silly to let an 18 year-old C-student get themselves $60K in debt for a degree in something that isn't likely to pay enough to make it worthwhile.
Starting your adult life with a mostly-useless degree and tens of thousands of dollars in debt is something we should avoid. I suspect all this debt is a reason we see such poor retirement saving practices amongst the young, and possibly a contributing factor to delayed marriage and childbearing, which I think are major social issues that will greatly skew our demographics over time.
Also, I can't help but think that all this 'easy money' getting pumped into schools is contributing to massive increases in the cost of education. We're putting ourselves into a death-spiral of high-priced education. The middle class is already priced-out of a loan-free college education.
$20K loans to straight-A students to go into prestigious pre-med programs? Absolutely!
$5K loans for average kids to get engineering degrees at State U? Absolutely.
$20K loans for average students to attend a $13K state U program in 'Recreational Arts', with $7K going right into the student's pocket? Absolutely Not.
The problem is that the debt from these loans is being collateralized and passed-off just like mortgages, the originator often has no reason to make a 'good loan', just a big one.
I also like Justin's idea of having the -schools- back the loan.
Posted by: mangeek at August 13, 2010 10:51 AMQuick primer on taking loans to get a college degree:
If your major has the word "Studies" in it, don't.
Higher education costs are on a bubble.
Posted by: chuckR at August 13, 2010 12:55 PM"Forgiveness" has been part of the game since the inception of student loans (originally from the "Defense" budget after Sputnik). As far back as the 60's student loans would be forgiven if you agreed to teach in "disadvantaged areas", North Attleboro, MA for instance.
Posted by: Warrington Faust at August 13, 2010 7:26 PMHigher education today is nothing more than a typical asset bubble - driven by an easy money policy. No different than the housing bubble. They made it easy to get loans, and there were plenty of suckers ready and willing to grab them, pushing prices to ridiculous levels. Take a look at the building boom at universities that took place over the last 20 years. The ability of these universities to sustain the overhead - particularly with respect to all of the tenured professors - is dependent on the easy money continuing. It won't.
The higher education industry is in for a huge reality check. A by-product of the new policy eliminating private student loan companies will hasten the demise. It's the typical law of unintended consequences the stupid government always ends up with. The funny thing is those who will be hurt the most will be the bunch of liberal snots that inhabit academia. Couldn't happen to a better bunch. I will definitely be watching and laughing.