Higher Education for All?
In my column this week for Defining Ideas, I argue that the federal government needs to rein in the business of making student loans.
In his recent speech at Washington-Lee High School, President Obama turned to the role that the federal government should play in education. Predictably, he urged the Congress, including those stubborn Republicans, to keep the lid on these interest rates, which would otherwise double at the end of the year to 6.8 percent. Interest rates are low in this economy, so this figure may well be high, relative to risk—or it may not be, for some borrowers. But the President never wants to understand how a program should best work. He wants to lash out at everyone who stands in the path of an expansion of yet another government subsidy.
It makes no sense to argue in terms of absolutes by insisting that the national interest is to ensure that a college education “is available to everyone and not just a few at the top” (in the President’s words). There is a lot of ground between the education of the few elites and college for all. For some young people, education is a means to holding down a regular job. For others, the goals should be far higher. So in a sense, the economic situation is worse than we thought. Even if the President was making the right investments in human capital, they would only start to pay off years from now. If, as there is every reason to fear, subsidized loans misdirect long-term investment, then the nation faces a double whammy that further dampens the overall prospects for an economic recovery. I explain further over at Defining Ideas.
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Comments:
May '10
Re: Higher Education for All?
In the President's defense Richard, he never says that everyone should have a degree. He says that everyone should have a post-secondary education and I would heartily defend that point. I find conservatives -- often on this site -- setting up this straw man; there is no one on any side of this issue that believes every single person should have a BA. But for those that don't receive a BA, they should receive training in a marketable skill.
The trouble, in a free society, is figuring out who decides. Limiting student loan dollars only serves to deny those without means. Of course no one really wants the government deciding who should go to college and who to vocational school.
I believe the real answer on student loans is for the government to behave more like a lender. Students need to understand better from whom they are borrowing and the consequences of non-payment.
But of all the government programs, Title IV is among the best we have. It requires individual responsibility and provides a much more effective use of public dollars than welfare or prison which is in all serious, often the potential alternative.
May '10
Re: Higher Education for All?
And though you've used the term "subsidized" in your essay. Subsidies only come in the form of delayed interest charges based on need. Most student loans are unsubsidized and the only subsidy comes from their low interest rate relative to the market. But of course even the super low 3.4% rate that the President wants to preserve still affords the government a nominal profit relative to its own borrowing costs.
There are, of course the costs of collection and default but these go unmeasured. (The defaults you read about are percentages based on students, not dollars, and only measure a finite point of time.) The last estimate by OMB was that actual uncollectable amounts were in the low single-digits given the incredible collection powers of the U.S. government.
The program could undoubtedly be improved, but relative to a straight transfer payment, the program has a great deal to recommend it.
Apr '11
Re: Higher Education for All?
I would argue with you in that the subsidy comes in the form of an artificially low interest rate assumed by the student. For example if a master of fine arts candidate in english lit came to you and asked to borrow $25,000 at 3.4% for 15 years what would be your response?
I agree that a worthy function of the federal government is to invest in the education of the population, however some oversight as to what those funds are used must be used.
Trace Urdan: And though you've used the term "subsidized" in your essay. Subsidies only come in the form of delayed interest charges based on need. Most student loans are unsubsidized and the only subsidy comes from their low interest rate relative to the market. But of course even the super low 3.4% rate that the President wants to preserve still affords the government a nominal profit relative to its own borrowing costs.
There are, of course the costs of collection and default but these go unmeasured. (The defaults you read about are percentages based on students, not dollars, and only measure a finite point of time.)· 2 hours ago
May '10
Re: Higher Education for All?
Crab bait:
I agree that a worthy function of the federal government is to invest in the education of the population, however some oversight as to what those funds are used must be used.
56 minutes ago
If the student is responsible for paying the money back then who better to decide than she what she should study. Moves toward "forgiving" student debt for certain careers are anaethma but the truth is some English lit major go on to work at Goldman Sachs and some to work at Starbucks. They have to decide for themselves if the loan is worthwhile. Surely you are not suggesting that this job should belong to Congress? Or worse still the Department of Education?
Edited on May 8, 2012 at 10:34pmFeb '12
Re: Higher Education for All?
We eschew drilling in Alaska because the benefits won't be seen for a decade. But we subsidize a $60,000.00 sociology degree, so that the government can hire the grad as a social worker, but he won't make enough to pay federal income taxes, so the "investment" never pays off.
Joy.
Jul '11
Re: Higher Education for All?
I figure that before it is over we will end up with a government sponsored or a government ran higher education system. Initially it will be open to all but eventually there will be some sort of means testing to restrict this education system to just the smartest (liberal) minds and a few affirmative action group members for looks.
Apr '11
Re: Higher Education for All?
What kind of oversight is there for who receives loans? Do you actually believe that someone from the federal government is making certain that these loans go to individuals that pursue degrees that will pay well enough to repay the loan? Otherwise why don't we give every high school grad $60,000 in 'party' money and hope for the best?
Trace Urdan
Crab bait:
I agree that a worthy function of the federal government is to invest in the education of the population, however some oversight as to what those funds are used must be used.
56 minutes ago
If the student is responsible for paying the money back then who better to decide than she what she should study. Moves toward "forgiving" student debt for certain careers are anaethma but the truth is some English lit major go on to work at Goldman Sachs and some to work at Starbucks. They have to decide for themselves if the loan is worthwhile. Surely you are not suggesting that this job should belong to Congress? Or worse still the Department of Education? · 2 hours ago
Edited 2 hours ago
Feb '12
Re: Higher Education for All?
Trace Urdan: And though you've used the term "subsidized" in your essay. Subsidies only come in the form of delayed interest charges based on need. Most student loans are unsubsidized and the only subsidy comes from their low interest rate relative to the market. But of course even the super low 3.4% rate that the President wants to preserve still affords the government a nominal profit relative to its own borrowing costs.
There are, of course the costs of collection and default but these go unmeasured. (The defaults you read about are percentages based on students, not dollars, and only measure a finite point of time.) The last estimate by OMB was that actual uncollectable amounts were in the low single-digits given the incredible collection powers of the U.S. government.
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· 5 hours ago
The low interest rates for student loans are a form of subsidy, don't you think?
Also, most blue collar job training (which i think is what's in view when you say all people should have the opportunity for post secondary-school education) could take place in the confines of high school, no?
May '10
Re: Higher Education for All?
Crab bait: What kind of oversight is there for who receives loans? Do you actually believe that someone from the federal government is making certain that these loans go to individuals that pursue degrees that will pay well enough to repay the loan? Otherwise why don't we give every high school grad $60,000 in 'party' money and hope for the best?
5 hours ago
The loans cannot be discharged in bankruptcy so the actual default rates are quite low. The IRS garnishes your wages or withholds social security if needs be. I don't want someone from the government deciding what is worthwhile training and what is not. The decision good or bad is the student's. So we can work at better consumer education so the students choose wisely. But the program is about as far from a handout as you could want. For an unskilled student who barely made it through high school, the chance to receive vocational training is money well spent.
May '10
Re: Higher Education for All?
Shane McGuire
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· 5 hours ago
The low interest rates for student loans are a form of subsidy, don't you think?
Also, most blue collar job training (which i think is what's in view when you say all people should have the opportunity for post secondary-school education) could take place in the confines of high school, no? · 4 hours ago
Yes they are a subsidy in terms of opportunity cost, but then I ask you what else is the government spending money on that is more worthwhile.
You would replace a system in which the student who benefits from the education pays for it him or herself (loans cannot be discharged in bankruptcy) by granting our nation's miserable schools more responsibility??
The truth is that many need to work in retail for a few years before they figure out which end is up and then approach vocational training with the rigor to benefit and the maturity to get hired.
Feb '12
Re: Higher Education for All?
Trace Urdan
Shane McGuire
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· 5 hours ago
4 hours ago
Yes they are a subsidy in terms of opportunity cost, but then I ask you what else is the government spending money on that is more worthwhile.
You would replace a system in which the student who benefits from the education pays for it him or herself (loans cannot be discharged in bankruptcy) by granting our nation's miserable schools more responsibility??
The subsidized interest rate, and the guarantee of the loan, combined with the lack of dischargeability of the debt, combine to encourage lenders to loan ridiculous amounts of money for education and encourage schools to increase tuition, to ensure they maximize revenue. Cut the loan subsidization and you will end up with increased interest rates for student loans, certainly, but the cost of college will decrease overnight because colleges will want to attract students, and there won't be enough students to go around without a reduced cost.
Regarding worthwhile use of federal dollars: every other week I look at my paycheck, and see a ridiculous amount taken out. Lower the number confiscated from me, and that'll be a better use.
May '10
Re: Higher Education for All?
There is some misinformation here.
The only lender is the government. (There used to be third parties but that was eliminated by the Obama administration in 2009.)
The "subsidy" exists relative to a commercial loan but does not take anything out of your paycheck. The government makes a nominal profit on the loans which is not as great as it believes it to be, but is something.
The amount of the loan is capped and legally every student is permitted to borrow the maximum regardless of the tuition price and nearly all do. (Any "extra" goes to living expenses.)
You are undoubtedly right that the loan program encourages tuition increases, but you are not correct that commercial lenders would step into the gap if the government exits. Student loans rank low on areas to pay back and commercial loans ARE dischargeable in bankruptcy. But more importantly, the unskilled workers most in need of training are sub-prime and would never be able to secure a commercial loan.
So the government is doing something that the private sector will not do and is holding the beneficiary responsible. For those that like voucher programs -- Title IV is a self-funding voucher program .
Feb '12
Re: Higher Education for All?
The government should be making a profit off of most students loans. If the education is so the person can get a better job, it is worth it if and only if the person finds it a good investment if he has to pay the market interest rate.
On the other hand, some kinds of education have externalities, spillover benefits for the rest of society. I would put liberal education, science, math, and classics into that category; others of you might put different things. But nobody should get a subsidy to learn to be a diesel mechanic or an investment banker.
May '10
Re: Higher Education for All?
Eric Rasmusen: The government should be making a profit off of most students loans. If the education is so the person can get a better job, it is worth it if and only if the person finds it a good investment if he has to pay the market interest rate.
On the other hand, some kinds of education have externalities, spillover benefits for the rest of society. I would put liberal education, science, math, and classics into that category; others of you might put different things. But nobody should get a subsidy to learn to be a diesel mechanic or an investment banker. · 21 minutes ago
It's just too difficult to parse. My classmates at HBS took out the loans and invested the money, effectively arbitraging the low rate. They paid back their loans. Wrong, perhaps -- but no one harmed.
But lenders will not participate in the vocational market. So that is an area where the government is the lender of last resort and society is made better because otherwise that person has no skills and when there are no jobs at KFC s/he goes on public assistance or worse.