Student Loans: Our Ticking Time Bomb
A recent study by Brian Tamanaha, a law professor at Washington University in Saint Louis (which came to my attention via Hans Bader at the Competitive Enterprise Institute), highlights yet another foolish form of industrial policy practiced by government: student loans and subsidized interest rates.
In this case, the source of alarm is the huge $100,000-plus debts incurred by students to go to law school. These debts are typically highest at the bottom-tier schools, where the earning prospects are the lowest. Often these debts have parental cosigners who could be liable for repayment just as retirement hits. The issue, moreover, is not confined to law schools. It is pervasive in other labor markets and in undergraduate education. We have already seen a mortgage bubble pop. Perhaps we are now in for round two.
Much of the source of this problem comes in federal government policies to subsidize student loans to the tune of billions of dollars per year. The usual argument is that education is an investment in the future, which it surely is. But what the massive infusion of government funds into the market does is to increase the level of unwise future investments. Cheap loans lead to excessive borrowing, which in turn leads to unwise career choices. If the government cut down on the loans that it subsidized, it could also cut down on the taxes needed to fund these programs. The extra money left in private hands could help finance better educational choices, which in turn would reduce the default rates at the end of the process.
Here, as in so many other places, a wise and sober second look at a dysfunctional educational system would turn away from public interventions at every level. Indeed, what is happening with student loans is also happening with state-provided education, as squeezed budgets create serious difficulties for flagship universities and community colleges alike. The Obama Administration has made it a priority to be tough on for-profit institutions. But a far better approach would be to strengthen those institutions, that, if properly run (and often that is a big 'if'), can contribute revenues to the public treasury instead of taking from it.
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Apr '12
Re: Student Loans: Our Ticking Time Bomb
I believe I read once that in Sweden, where education is highly subsidized, the money is found in skilled labor, such as plumbing. College & University graduates tend to find employment in coffee houses.
In switzerland, where less government is available, nearly every university student ends up being in a profitable job - finance, law, medicine, teaching...
Nov '10
Re: Student Loans: Our Ticking Time Bomb
Seeing how Kaplan University, a for-profit, provides 60 to 70% of the profits for the Washington Post Company, I would imagine the real heat won't come down until after the election.
I agree with all Richard says here. But is the higher ed business much different than any other industry that has headed for a bubble? Higher ed sets pricing subsidized by the government(s), controls costs through adjuncts, convinces the public you can't live with out its products and cheap and available credit to fund it all. Throw in the captive foundations and Government grants and you have an Industry UTOPIA! However sooner or later, like all industries, what comes around, goes around and it is time to face the music. Public unions, federal work force, and college employees, all stalwarts of the progressive party and coming close to being out of dance tickets.
Jan '11
Re: Student Loans: Our Ticking Time Bomb
Prices rise to meet the ability to pay. If, suddenly, everyone in your town saw their income increase by 100%, the price of every product would rise to take advantage of the increase.
When the federal government "backs" the ability of the student to afford college, they just drive the price up. More money available means more money asked for.
Dec '11
Re: Student Loans: Our Ticking Time Bomb
Is it so hard for our government to realize that when loaning money the ability of the borrower to pay back is important. In my humble opinion this is predatory lending. When government and universities enable young college students to take out these loans they need to be held accountable. In the real world as oppose to government and academia people lose jobs and companies go bankrupt for making these kind of loans.
Dr Epstein you are a lawyer. Would you consider this student loan system fraudulent in the legal meaning of the word?
Nov '10
Re: Student Loans: Our Ticking Time Bomb
You cite $100,000+ debts as though they were the maximum possible. In medicine, $250,000 is not uncommon. This has changed dramatically over a very short period of time: maximal debt at my medical school went from $85K when I was a first-year to $135K when I was a fourth-year. And unlike lawyers, young physicians can't really earn significant income during school, and are limited to relatively low salaries throughout their training, which is never shorter than three years and may easily extend for 7 or 8 years after graduation.
If you've got that kind of debt, life looks pretty bleak when the government is cutting back drastically on medical reimbursement.
Jul '11
Re: Student Loans: Our Ticking Time Bomb
Lucy Pevensie: You cite $100,000+ debts as though they were the maximum possible. In medicine, $250,000 is not uncommon. This has changed dramatically over a very short period of time: maximal debt at my medical school went from $85K when I was a first-year to $135K when I was a fourth-year. And unlike lawyers, young physicians can't really earn significant income during school, and are limited to relatively low salaries throughout their training, which is never shorter than three years and may easily extend for 7 or 8 years after graduation.
If you've got that kind of debt, life looks pretty bleak when the government is cutting back drastically on medical reimbursement. · 1 minute ago
And one wonders why primary care (who earn 25-50% of specialists salaries as you well know) is dying out.
Dec '11
Re: Student Loans: Our Ticking Time Bomb
Lucy Pevensie: You cite $100,000+ debts as though they were the maximum possible. In medicine, $250,000 is not uncommon. This has changed dramatically over a very short period of time: maximal debt at my medical school went from $85K when I was a first-year to $135K when I was a fourth-year. And unlike lawyers, young physicians can't really earn significant income during school, and are limited to relatively low salaries throughout their training, which is never shorter than three years and may easily extend for 7 or 8 years after graduation.
If you've got that kind of debt, life looks pretty bleak when the government is cutting back drastically on medical reimbursement. · 1 minute ago
Why are things so expensive? Maybe it is a bad comparison but computers have gotten cheaper and better over the years where medicine and higher education has skyrocket. Through the internet and technology knowledge has become incredibly cheap so why is education not lowering their prices?
May '10
Re: Student Loans: Our Ticking Time Bomb
DocJay
And one wonders why primary care (who earn 25-50% of specialists salaries as you well know) is dying out. · 4 minutes ago
Particularly when a substantial majority of the work can be done pretty effectively for a lot less money. Medicine, law, and education are the only remaining areas that have successfully used government to limit competition sufficiently to force expensive labor almost exclusively supplying largely automateable services.
Norman MacRae mentioned this in NR back around 1990 ("The Good Health Guide", not available on-line outside an NR paywall) and Walter Russell Mead has talked about it a lot more recently in his "Blue Model series.
Edited on April 16, 2012 at 9:22pmMay '10
Re: Student Loans: Our Ticking Time Bomb
A Facebook "friend" posted this video with a snarky comment: "when this crone went to college, it cost $85 a semester and she could get a job waxing mustaches or buffing stetsons for 25 cents an hour at any time."
I understand med school issues. But for most others, the debt is their own %#@&!!# fault. Tuition was cheap when I was in college, so were wages. I worked my way through at about $2 an hour, rejected the frats, lived at home, because my folks didn't have any money, and it took 5-1/2 years- but I knew it was not smart to go into debt.
I went to a state university instead of Yale- I knew it was not affordable. I paid for law school and nursing school one year at a time. My wife and kids went to a community college and then state universities, and no one got loans. You can still do things that way- forgo the "name" college.
People should make more sensible decisions. I have little sympathy for people who make stupid decisions and run up massive debt, whether on student loans or buying houses they can't afford.
Jul '11
Re: Student Loans: Our Ticking Time Bomb
Duane Oyen...spot on.
Point one, medicine and law are very much artificially expensive. Some other time we should go at it as to why.
Point two, I did the same as you. I worked through college and went to state undergrad and med school.
Young folks better look at the debt as an anchor unless the degree is darn marketable.
May '11
Re: Student Loans: Our Ticking Time Bomb
I spoke with a young cashier this past weekend. He said he is going to Community College this year and next year and then on to a 4 yr. University to minimize the amount of loans he will have to repay. He thinks he can keep it below $80,000.
He says he getting a degree in promotional communications of some sort and he wants to work for a non-profit.
I was saddened because IMHO he's going to go into major debt and then reality is going to crash in and he will end up working in a job making way less than he expected in a field having nothing to do with his major.
Apr '12
Re: Student Loans: Our Ticking Time Bomb
Pilli,
I share your sadness when I speak to fellow members of my generation (the Occupy Wall-Street generation) that try and pursue the ideal of mindless self sacrifice they were taught in public schools and by today's liberals...
Somehow, they believe, they will have a good life by choosing an unmarketable major, and working for a non-profit or special interest group. So much wasted talent that could be put into finance, law, medicine...
I don't want to seem unsympathetic to non-profits. Someone whose close friend dies of Leukemia and starts a nonprofit dedicating to fighting the disease, that's one thing. But if you ask these lost souls what cause they want to fight for, they can give no answer. This is because they are not interested in results, they are interested in the supposed morality of the liberal ideal of having no ambition or goals and being a good little worker bee for the commune... It is truly a tragedy.
Or if they do answer, they offer a cause that is fundamentally anti-humanity, such as animal rights or environmentalism. This speaks to the nihilism of the liberal ideology, but that's another topic.
Edited on April 16, 2012 at 11:24pmMay '10
Re: Student Loans: Our Ticking Time Bomb
Federal student loans at least have the advantage of holding the individual responsible for the benefit they receive. State funded institutions, including the oh-so-beloved community colleges are accountable to no one and the cost unproductive and/or half-completed degrees are born entirely by the taxpayers.
Nov '10
Re: Student Loans: Our Ticking Time Bomb
Duane Oyen
DocJay
And one wonders why primary care (who earn 25-50% of specialists salaries as you well know) is dying out. · 4 minutes ago
Particularly when a substantial majority of the work can be done pretty effectively for a lot less money. Medicine, law, and education are the only remaining areas that have successfully used government to limit competition sufficiently to force expensive labor almost exclusively supplying largely automateable services.
Norman MacRae mentioned this in NR back around 1990 ("The Good Health Guide", not available on-line outside an NR paywall) and Walter Russell Mead has talked about it a lot more recently in his "Blue Model series.
Hmm. I am not sure what you're implying here, and I can never remember how to get behind the NR paywall. But health care is increasingly delivered by non physicians in this country--nurse practitioners and physician assistants. Most of us who practice medicine, however, prefer not to have our family members seen by those people. Medicine is intellectually demanding even for those of us with 9 years of post-college education and training, and I would not want to try it with less.
Nov '10
Re: Student Loans: Our Ticking Time Bomb
Yes, that's a pretty good point. From an individual's point of view, attending state schools is wise. But from society's point of view, someone is still picking up the tab.
Nov '10
Re: Student Loans: Our Ticking Time Bomb
Lucy Pevensie
Duane Oyen
DocJay
And one wonders why primary care (who earn 25-50% of specialists salaries as you well know) is dying out.
Hmm. I am not sure what you're implying here, and I can never remember how to get behind the NR paywall. But health care is increasingly delivered by non physicians in this country--nurse practitioners and physician assistants. Most of us who practice medicine, however, prefer not to have our family members seen by those people. Medicine is intellectually demanding even for those of us with 9 years of post-college education and training, and I would not want to try it with less.
I should add that in the hospital, in contrast to the primary care setting, I think physician extenders are fabulous. I don't mean to imply disrespect for NPs or PAs as a group. The difference is that in a hospital setting they manage a narrower group of diseases or conditions, and they can get to know those conditions very well, and can be fabulous judges of when something unusual is going on and they need help.
May '10
Re: Student Loans: Our Ticking Time Bomb
You forgot to include the government-crippled economy that creates no jobs to provide alternative endeavors for new high school grads. High unemployment is a further incentive for marginal kids to go to school and scoop up some of that "free" government money.
May '10
Re: Student Loans: Our Ticking Time Bomb
It is a bad comparison. You're comparing two very different kinds of "products".
"Medical knowledge", like all sorts of knowledge, has, indeed, become very diffuse and cheap. Need to know what's bugging you? A half hour on WebMD and you can probably figure it out. (Of course, if it's an appendicitis, you may want to step up from the DIY approach to a real doc.)
"Medical service", however, is fraught with all manner of real world issues that must be paid for, from normal overhead to frivolous lawsuits for failure to run a particular test. All those costs, induced by the patients, have to be covered.
Nov '10
Re: Student Loans: Our Ticking Time Bomb
Tom Lindholtz
You forgot to include the government-crippled economy that creates no jobs to provide alternative endeavors for new high school grads. High unemployment is a further incentive for marginal kids to go to school and scoop up some of that "free" government money. · 13 minutes ago
And add in an increasingly credentialist society, where Joe the Plumber needs a plumbing license, physical therapy school is now a "doctorate," and there's an educational establishment just dying to create a new school, training program, degree, and licensing requirement before you can do anything at all.
Nov '10
Re: Student Loans: Our Ticking Time Bomb
Lucy Pevensie
Yes, that's a pretty good point. From an individual's point of view, attending state schools is wise. But from society's point of view, someone is still picking up the tab. · 2 hours ago
I hope it's not rude to reply to one's own comment. After I wrote this, I became increasingly annoyed at the fact that my taxes are going to subsidize the education of my neighbor's child, who is studying "Conflict and Peace Studies" at one of the state universities.