Peter Coy sums up the student debt debate

by on June 25, 2014 at 1:54 pm in Economics, Education, Uncategorized | Permalink

You can read his very useful overview here.  It is hard to excerpt but worth reading in full.  A Vox survey of the debate is here, also worth a look.  Here is a testy response from Choire Sicha, here is the original David Leonhardt piece.

AndrewL June 25, 2014 at 2:01 pm

Who are you going to believe? me? or your own lying eyes?

zbicyclist June 25, 2014 at 2:27 pm

So, Brookings misses you if you are living at home with your parents [definitionally as a dependent, but that may be hard to survey], and that’s increasing.
http://www.upi.com/Top_News/US/2014/06/03/One-third-of-millennials-are-living-with-their-parents/6651401816765/
Plus loans are longer now (13 yr vs 7), which lowers this month’s payment but means you pay longer (duh)
Plus interest rates are being manipulated to historic lows by the central bank.

Not much of a debunking of the ‘ticking time bomb’ theory..

Chris S June 25, 2014 at 2:30 pm

Sounds like Coy got pwned by Sicha.

NPW June 25, 2014 at 2:36 pm

Sicha isn’t really making much of an arguement either way, just mostly pointing out the holes in Coy’s. Coy gets pretty well thumped.

ummm June 25, 2014 at 2:35 pm

Finally, some more sober analysis of the student loan/bubble debate. Megan Ardle wrote a good article a few weeks ago, debunking some of the doom and gloom. College is a good deal for those intellectually capable of completing it, provided you don’t spend too much and you choose a high paying major.

KLO June 25, 2014 at 2:45 pm

The Federal Reserve Bank of New York recently calculated the delinquency rate among student debtors in repayment at 31%. This understates the extent of the distress of student borrowers, as at least some are not in repayment due to economic distress.

Anyone who thinks a delinquency rate of 31% is no big deal needs to have his head examined.

ummm June 25, 2014 at 3:33 pm

The good news is a large portion of government funding for student loans means that the exposure of the private sector to student loan defaults is limited. This is in contrast to the mortgage market, where, over the past 20 years, approximately 50% of mortgage risk has been assumed by the private sector.

Also the left has been predicting a student loan crisis for the past decade and they still keep being wrong, so maybe the odds are that things will continue being the way they were, as irrational as it may seem.

brad June 25, 2014 at 3:41 pm

> This is in contrast to the mortgage market, where, over the past 20 years, approximately 50% of mortgage risk has been assumed by the private sector.

That’s a pretty meaningless statement. What percentage of outstanding mortgage debt *today* is not either guaranteed by the federal government or owned by the federal government (including the Fed)?

Marie June 25, 2014 at 4:35 pm

I won’t be surprised if I’m missing something, but isn’t the huge difference between student loans and mortgages that in the case of default the bank at least owns a house?

Finch June 25, 2014 at 5:26 pm

Loss severity in mortgages is typically north of 50% of the amount of the original mortgage (not the unpaid balance at the time of default). Foreclosure sucks for the investors too.

Jan June 25, 2014 at 7:31 pm

What counts as a crisis? Delinquency rate is 31%. Default is not really an option, for fed loans at least, because I think you have to become permanently disabled or die.

Ted Craig June 25, 2014 at 7:39 pm

How do they define delinquency?

KLO June 25, 2014 at 7:45 pm

NYFRB defines it as number of borrowers in repayment who are at least 90 days delinquent. You can see this and more here:

http://www.newyorkfed.org/newsevents/mediaadvisory/2013/Lee022813.pdf

Thomas June 25, 2014 at 11:37 pm

“Anyone who thinks a delinquency rate of 31% is no big deal needs to have his head examined.”

What is the baseline delinquency rate? 31% is meaningless if 10 years ago 30% went delinquent once or more.

Jan June 25, 2014 at 7:17 pm

Yeah. It can still be a very good choice to go to college (if you finish), even with the debt. That doesn’t mean that paying it off isn’t becoming much more challenging.

KLO June 25, 2014 at 2:41 pm

A big problem not yet directly addressed is just how much outstanding student debt the Federal Reserve’s Survey of Consumer Finances (SCF) picks up. At the end of 2010, it showed total outstanding debt at $578 billion. The Federal Reserve Bank of New York’s Consumer Credit Panel (CCP) showed a total outstanding balance of $200 billion more, or roughly 1/3 more than the SCF. Most informed observers think that even the CCP underestimates total student debt.

This being the case, why would anyone report nominal figures from the SCF data as though they were accurate? You would either have to be uniformed about the data or mendacious. The only thing SCF is good for on its own is the trends it shows, which all depict ever increasing amounts if debt among an ever increasing proportion the population.

Tyler Fan June 25, 2014 at 2:41 pm

When other people outlandishly fudge the numbers (as appears to have been the case), you are entitled to be a little testy, though I would just call it being right.

Ricardo June 25, 2014 at 2:48 pm

Just being given the name “Choire” alone would make a person cynical.

Nathan W June 25, 2014 at 2:55 pm

“data in the Federal Reserve’s authoritative Survey of Consumer Finances “strongly suggest that increases in the average lifetime incomes of college-educated Americans have more than kept pace with increases in debt loads.””

However, if increased income is concentrated in a smaller number of high paying jobs, this could also be consistent with a story where many students face much higher debt, and only some of them reap higher gains.

Is this not the story? What share of 35-years olds, for example, still have a debt-to-income ratio in excess of 100%, even though they have peers already earning six figures?

And never mind that you can’t get a mortgage even for a tiny house if debt-to-income is over 100% and you haven’t managed to sock away loads of cash on the back of the paltry incomes earned by a comparatively high share of college graduates.

My guess is that this story is repeated several million times over in the USA alone.

Albigensian June 25, 2014 at 6:07 pm

I have two problems with this methodology.

The first is, comparing the earnings of those with a college degree to those without only makes sense if the two populations are essentially the same (except that one completes college and the other does not, of course).

But why would anyone suppose these populations are equivalent? If they are different, then the differences may account for some or all of the income differential.

The second is, there is no generic college degree: the actual value of degrees varies depending on what the degree is in and where it comes from.

Is a generic house a good value? That depends on where it is, what it is, what condition it is in and what you paid for it- and perhaps on what you intend to do with it ( rent it, fix-and-re-sell it, live in it, work out of it ).

Nathan W June 25, 2014 at 3:01 pm

Common budget of student loan holder:

20% of income towards student loan repayment
30-50% for housing
10-20% for food
10-20% telecommunications, electricity, heating

Is there any money left over for anything else?

So perhaps they miss payments in order to get teeth fixed or pay debts for emergency medical services (case of USA). Maybe even had the nerve to go on a date. Then, they cannot open a business because they missed a student loan payment or two and can’t get loans. Let alone get a mortgage or think about raising a family …

One million times over in USA? Two million?

And people wonder why some will finally say “screw it all” and decide to try to be happy with nothing.

Brian Donohue June 25, 2014 at 4:16 pm

So if you live at home you should be swimming in cash. Not a choice for everyone, but…

Marie June 25, 2014 at 6:08 pm

I wonder how many people living with parents pay rent. Likely reduced, but still not zero.

Brian Donohue June 25, 2014 at 6:22 pm

Fair point. In that case, struggling pre-retirees get an income boost. I wonder to what extent the “Bank of Dad” has become a source of these types of arrangements over the past several years, or how such transactions can even be measured, but anecdotally, it’s ginormous. Debt-laden youngsters plus old farts looking at 0% interest rates at the bank. Seems like a natural.

Marie June 25, 2014 at 7:12 pm

Hadn’t thought about the low return on savings being part of this, sounds right. What if a middle income couple could pay off a mortgage before retirement by paying down the principle with rent money? That would make sense.

Nathan W June 26, 2014 at 1:50 pm

And there are those who would pay several hundred dollars a month to get the kids out, lol!

Nathan W June 26, 2014 at 1:49 pm

Yeah, you often read about how more 20 somethings and even 30 somethings are living in their parents’ basements because they can’t get work and/or because downpayments on even small houses or condos are out of the budget of most people for many, many years after uni.

Jan June 25, 2014 at 9:16 pm

No, no, if they need to start a business they will just borrow the money from their parents.

Bob June 25, 2014 at 3:58 pm

Someone permanently screwed for life with 100k plus just checking in here, as an antidote to anyone saying it’s not a big deal because there’s only a couple million of us.

Joe Teicher June 25, 2014 at 4:39 pm

You have options. $100k of debt should not ruin anyone’s life in 21st century USA. It’s just not that much money.

Nathan W June 26, 2014 at 1:51 pm

Because decent high paying jobs grow on trees in the 21st century …

Easily Amused June 25, 2014 at 5:07 pm

You are a moron and deserve whatever is coming to you.

andrew' June 25, 2014 at 5:10 pm

As are/do your creditors!

Greg June 25, 2014 at 6:04 pm

Bob, I think the invective being directed to you is inappropriate and also just plain rude. But, I do wonder how you ended up with $100K+ in student debt. What I find off-putting about much of the debate around student debt is the apparent attitude of high debt holders that the debt is the result of some unforeseen event, rather than being the predictable result of deliberate choices. List price tuition for undergraduate studies at public universities is typically not so high as to accumulate to $100K+ in debt (professional schools may be an exception, but I generally interpret the debate to be about under-grad, not an MBA). In addition, scholarships appear to be available. I certainly understand that private school tuition can add up fast, but if private school tuition is the issue then that is really a different issue that “the cost of college.”

almond June 25, 2014 at 6:09 pm

Almost certainly law school. That’s a huge chunk of people with huge debts and little prospect of paying them off.

Willitts June 26, 2014 at 12:46 am

US Army JAG Corps paid off my considerable law school debt.

Four years at a private school or a public school in an expensive city can easily breach $100K.

Marie June 25, 2014 at 6:29 pm

What I have seen a fair amount of is young people getting way into debt on the advice of parents living in the last era.

Joe senior grew up in a time when it was hard to get into a “good” school, you didn’t squander that opportunity. The cost of college was much lower — you were likely to make it back once you finished and were employed, if you even took out a loan in the first place. And the value of college was much higher, so that there was a pretty strong correlation between a bachelor’s degree and an above average job.

Joe Junior is applying for college when he is 17 years old, and has just been through 4 years of a public high school so has been treated like an idiot child that can’t make any decisions for himself. He suspects it’s not wise to take out loans, but Senior is telling him he’s thinking small. Senior could never have been accepted for Prestige University, if Junior has been accepted it must mean he is destined for greatness (and the wealth Senior never had, which is why junior will have to take out loans). His guidance counselor wants to be able to add him to the list of advised students at prestigious universities, his AP teachers say he’d waste his life if he went to community college. He rightly knows he’s not exceptional enough to get good employment without a degree. He can certainly get the loans, that’s extremely easy, and if it were a bad idea would it be so easy? Everyone is doing it and, as a public school student, he is used to doing what everyone else is doing. He’s 17 and the only bill he’s ever paid has been contributing to the gas money for the vehicle he was given for his 16th birthday, he’s not really well versed on what these numbers are going to mean.

A lot of the advice parents give is based on how things were for them, or even for their parents. For example, I’ve known moms to tell college kids to sign up for a bunch of credit cards to build their credit so they can buy a house.

HL June 25, 2014 at 7:02 pm

Boomers win again

It's over June 25, 2014 at 7:24 pm

Right on, Marie. The people making decisions to borrower $100k+ are largely 17-22 year olds with no real concept of what the hell they’re doing, and their chief advisors are their parents. I made this stupid mistake myself, paying well over $100k for an expensive law degree from a private school. My parents loved the idea, as did nearly everyone else I talked to. Everyone is doing it, I’ll get a good job, paying that back will be a pain but no big deal. Oops. I learned a valuable life lesson. A lot of people, esp. law grads, learned this lesson the past few years.

I may have been a moron that deserves whatever is coming to me, but on the whole our benevolent federal government probably shouldn’t make it so easy for 17-22 year olds to borrow $100k+, no questions asked. Even if they can afford amortizing payments over 25 years. It won’t be until well after the loans are due that many of these 17-22 year olds will realize that the government-education complex kind of scammed them.

Thomas June 26, 2014 at 12:34 am

If you don’t mind my asking, which school did you attend, or which range (in ten number increments or so) is it ranked at?

Finch June 26, 2014 at 11:39 am

Marie has become one of my favorite commentors. I don’t always agree with her, but this sort of thing is a thoughtful contribution.

Marie June 26, 2014 at 6:58 pm

You’re very generous.
I’m pretty shocked, though, that you don’t always agree with me.

Nathan W June 26, 2014 at 1:53 pm

I think the size of final debt is rarely all that surprising.

The assumption that it is possible to find work above $10 per hour, however, may prove challenging for many people who owe 100k and are competent to hold many high paying jobs, but for some reason or another cannot get into those jobs.

toby June 26, 2014 at 4:44 pm

My parents (and the guidance counselor at one of the best charter schools in the country) gladly sent me off to an art school despite the fact it would cost roughly 100k to graduate. This was all the way back in 2002 and I’m sure it would have been possible to graduate with only 75k in debt if I had been able to find cheaper housing, but no one batted an eye at the planned six figures. Thankfully I dropped out once I was better able to assess the situation for graduates with my own eyes, but it never should have been even a possibility for someone of my age and ignorance to sign away so much.

The “deliberate choices” I was capable of making at the time were patently ridiculous.

BC June 25, 2014 at 10:23 pm

Bob, knowing what you know now with the benefit of hindsight, would you still say that it was worthwhile to incur 100k of debt for your education or would you have been better off not going to school? That seems to be the question facing us: are students better off having access to these loan programs or would they be better off if we got rid of, or at least sharply reduced, the number and/or amount of loans?

Nathan W June 26, 2014 at 1:54 pm

If 20 million students go to school, will you berate the 2-5 million who cannot find work in a crappy economy for their stupidity in thinking that there is value in education, or sympathize with them for the bad job market and the reality that their degree is not getting them a job?

Winston McGrain June 25, 2014 at 4:01 pm

The debt problem is only one aspect to full cost of college. Even if the students themselves don’t owe money afterward, how much did, say, their parents contribute – which could ultimately detract from the parents’ quality of life.

I get the sense that the price is college has been going up so fast for so long because they’re trying to claw back some of the money that they didn’t extract out of the earlier generation. They’re trying to get a slice of the previous generation’s increased earning capacity.

China Cat June 25, 2014 at 6:00 pm

I will love you for a few minutes for saying so succintly what I have been thinking for a few years.

China Cat June 25, 2014 at 6:01 pm

“succinctly”.

Bob June 25, 2014 at 4:02 pm

But we only sell 7% of our children into slavery by taking advantage of their immaturity at age 18. What’s the big deal?

andrew' June 25, 2014 at 5:11 pm

By the people claiming to sell wisdom, I like to always add.

Turkey Vulture June 25, 2014 at 6:57 pm

When the Revolution comes, the Academics and Administrators may find their backs against the wall. Send enough people into indentured servitude, and some of them will start to figure out who gained the most from the game they lost.

andrew' June 25, 2014 at 7:04 pm

I can imagne a futures market on major and debt forgiveness for those whose majors don’t pan out on average. It is harder to envision a cultural revolution by our students.

Turkey Vulture June 25, 2014 at 8:26 pm

That market is how I plan to make money pre-Revolution. Bet it all against psychology, sociology, and communications.

andrew' June 26, 2014 at 6:24 am

I wonder if a market could grow out of a betting market, if betting markets were not attacked by the government.

andrew' June 25, 2014 at 4:37 pm

Someone will sell you anything at whatever you want to pay. That isn’t unique. The government financing it, that’s kind of special.

It's over June 25, 2014 at 7:27 pm

Exactly

andrew' June 25, 2014 at 4:38 pm

>supply

Why Don't these Dang Kids get off my Lawn?! June 25, 2014 at 4:57 pm

The whole student loan issue is one of the the facts of modern life. You aren’t supposed to talk about it but the modern world is all about noticing things like this. Way back in olden tymes people used to go out and get jobs after college to earn money and respect. Nowadays millennials are spending all their money trying to look like George Michael. But that’s what you have to expect from the millennial generation – it’s a generation based on transactions so you shouldn’t be surprised that they just jump ship endlessly looking for self-actuating careers instead of buckling down and earning some real money to pay off their education. A friend of mine has a son in this millennial generation who went to school to study to be an accountant but the last time I saw him he kept jawing on and on about how he wanted to raise money to save the whales by selling Sea shells with nail-polish on them down at Battery Park. I tried to tell him that he should get a real job in accounting and take responsibility for himself but you can’t get through to kids like this. That’s one of the hallmarks of a fanatic when you put wierdo cultish things like saving the whales ahead of money and respect. But that’s what the left wants these days.

Brandon June 25, 2014 at 5:54 pm

what

I'll give it June 25, 2014 at 6:02 pm

a C- for effort.

Marie June 25, 2014 at 6:32 pm

I’ll give him points for the George Michael reference.

Nathan W June 26, 2014 at 1:56 pm

Yeah, kill the whales so accountants can tell us how much we could have appreciated them if we hadn’t destroyed nature completely.

Oh, except we will have no idea what it’s worth because it is difficult to value things you are ignorant about.

More accountants should seek to apply their skills to whales rather than helping rich people to evade taxes.

foobarista June 25, 2014 at 5:11 pm

A word I hate in all these discussions is “affordability”. Make college (and medical, etc) cheaper, and “affordability” will take care of itself. All too often, “affordability” means “cost shifting”, not actually making service delivery less expensive overall.

Nathan P June 25, 2014 at 6:03 pm

^^^Bingo

almond June 25, 2014 at 6:23 pm

Education used to be much cheaper, but then came the invasion of the deanlets and deanlings. It’s time for the government to withdraw tax advantages from organization run solely for the benefit of a segment of their employees.

Marie June 25, 2014 at 6:32 pm

“Cheaper” is a much, much, much better word.

Willitts June 26, 2014 at 12:49 am

I’m surprised the word “affordability” survived the financial and housing crisis.

Actually, I’m not surprised, but I need to preserve the pretense of shock to maintain my sanity.

Nathan W June 26, 2014 at 1:57 pm

True.

But if the billionaires want a pool of millions of highly educated people to help them make more billions, then they will have to share some up front so we can go to school.

Turkey Vulture June 25, 2014 at 6:22 pm

18 year olds aren’t responsible enough to make decisions about drinking, or in NYC, about smoking, but they can sign up for $100k in non-dischargeable debt.

HL June 25, 2014 at 7:02 pm

180

Turkey Vulture June 25, 2014 at 8:48 pm

I’ve never been a poaster, but I did become aware of your magical land during law school. That means this is my first “180.” I will cherish it.

Marie June 25, 2014 at 7:16 pm

When I noted while teaching them that teens certainly firmly believe they are bulletproof, my military dad said yes, that’s why we send the 19 year olds off to war.

I think you could also make a case that this is why we send them off to the financial aid office.

andrew' June 26, 2014 at 6:26 am

Probably part of why 18 is the draft age.

Chip June 25, 2014 at 7:24 pm

The cost of paying back a student loan is easy enough to understand.

But what of the cost of subsidizing degrees in subjects that will never lead to meaningful employment? Why are loans provided for four year degrees in archaeology from a third rate college?

Now, I love archaeology, but these kids will never find a job in this field.

Wouldn’t it be better to subsidize a two year internship program in which kids spend 4 months at 6 different companies in completely different fields, before they decide on a degree? Or subsidize a 6 month course on entrepreneurship, with classes on basic business principles and new tech like 3D printers and CAD software?

Locke June 26, 2014 at 12:27 am

Everything you said + a “minor” in archaeology. Archaeology is very compatible with 3D printing and CAD. No reason they can’t do that while learning both a marketable skill and an intellectual skill.

The entire concept of majors seems antiquated. Why invest all your time in one stock? Better to diversify.

Thomas June 26, 2014 at 12:37 am

Because “education isn’t about learning skills” or some other rubbish that we’ve been taught about “pursuing our dreams”.

Willitts June 26, 2014 at 12:55 am

The “liberal arts” got its name from the idea of academic pursuits done for their own sake rather than a profession.

Those capable of pursuing a life creating little economic value typically were the sons of wealthy men, taught by private tutors and well read in daddy’s private library.

Now, every schmuck thinks he’s Isaac Newton.

carlospln June 26, 2014 at 1:00 am

Why the hell do you need ‘do’ archaeology just because you took a bunch of courses in it?

Do you know what profession/major is the most highly sought by the CIA for analyst work?

A: Geology. Why? Because geologists must deal with extremely noisy data, and fit it together, to make a coherent picture of the history of the Earth.

At one time in US history, one went to university to learn how THINK.

From many of the comments in this thread, those days are long gone. (e.g., courses on ‘entrepreneurship’. The horror….

Chip June 26, 2014 at 2:51 am

I plucked archaeology out of the air but a quick Google shows it’s one of the least remunerative and employable degrees to get, with unemployment over 10% and median salary for grads of $28,000.

So the if you’re not going to ‘do’ archaeology what is the point of spending 4 years and 100 grand studying it?

And in the same breath you want students to learn how to think. What about basic math?

As for geology, well that makes total sense. As a hard science dependent on data a degree in this subject serves as a signal to employers. And that the CIA hires geologists is a pointer to students – and govts – that it is a subject worthy of attention.

I simply don’t understand your aversion to business and entrepreneurship.

Is this just knee jerk antipathy or do you have an argument explaining how entrepreneurship isn’t important?

Willitts June 26, 2014 at 10:41 am

CIA is well known for paying a pittance for analysts, even those with advanced degrees…except of course Geology majors who experience a noteworthy rise in their standard of living. They get to put tuna in their ramen.

prognostication June 26, 2014 at 5:12 pm

Geology majors often have the skills to work for big oil at obscene salaries. Even without a PhD.

Brian Donohue June 26, 2014 at 8:16 am

“At one time in US history, one went to university to learn how THINK.”

Amen.

I don’t know how much more of 21st century hipster culture I can take, but the oh so sophisticated habit of reducing education (and life) to mere status games makes me want to pull my hair out sometimes.

There are more things in heaven and earth, Horatio, than are dreamt of in your philosophy.

triclops41 June 26, 2014 at 4:43 pm

Serious question;
When was this time that you speak of?
I was born at the end of the 70s, and education, in my experience, is mostly about status to almost everyone I’ve known.
I could be wrong, but it sounds to me like the talk of the good old days that every generation in every culture so blithely indulges in.

Brian Donohue June 26, 2014 at 5:33 pm

I graduated college in 1987, but I think the idea is germane today. I cannot account for the uniformly shallow worldview of your circle.

Turkey Vulture June 26, 2014 at 7:40 pm

If you want atatus and a credential, go to college. If you want culture, read a book. You can combine the three, but you don’t have to.

Nathan W June 26, 2014 at 2:00 pm

Yeah, the world would be a better place if we were all software and civil engineers.

That’s what Salvador Dali said. And that’s why we need to get rid of all the arts majors. After all, reliably completing art project before due dates and learning to write concretely about abstract issues could never be relevant to anything in the real world.

Turkey Vulture June 25, 2014 at 8:42 pm

A not-insubstantial number of students at top law schools go $200k in debt, just for the purpose of signaling and buying a credential. They could signal the same thing by putting their LSAT score and undergraduate GPA on their resume, and acquire the same knowledge by self-teaching for the bar exam (which they largely do anyway), at minimal expense. But that is not how the system is set up.

Jan June 25, 2014 at 9:38 pm

Nothing is to keep people from trying it–some should give it whirl instead of actually going to law school.

Thomas June 26, 2014 at 12:39 am

Nothing except the government, Jan.

Jan June 26, 2014 at 7:55 am

No, someone could do all the things TV mentions without government interference.

If you are referring to government stopping people from being admitted to the bar without going to law school, that is partly true. But that is a state thing, not federal. I believe a number of states, including CA, will admit people who pass the bar exam without a law degree. And if those states have reciprocity with others, then one could practice in even more states.

Turkey Vulture June 26, 2014 at 10:22 am

The few States that allow a non-law-school route require an extensive “apprenticeship” in its stead. And it will be very difficult to get a job through that route since the entire system of hiring (for both public and private positions) is set up around law schools.

Cliff June 26, 2014 at 11:01 am

Jan, yeah you don’t understand it. There’s like 2 states that allow apprenticeships instead of law school which is illogical for anyone to do because you can always work during law school anyway.

Willitts June 26, 2014 at 1:27 am

Much of the value of a law degree is the quality of internship you get, and that quality relies heavily on the esteem and connections of your professors.

Turkey Vulture June 26, 2014 at 6:38 am

Prof. connections seemed most important for federal clerkships, and then I guess for some gubmit and public interest jobs. Pretty much every firm job was based on 1L grades and OCI. Get that callback and offer early in the Fall of 2L, and then don’t horribly screw up over the summer or in class, and you are BigLaw bound. Or at least that is my understanding, I didn’t participate because BigLaw sounded (and still sounds) like Hell.

Jan June 25, 2014 at 9:42 pm

Kids need some incentive to go to college. The opportunity to get a job that allows them to pay off the debt is that incentive. It’s so simple.

Marie June 27, 2014 at 12:39 pm

Not all kids have been trained until they are unable to learn through intrinsic incentives, but almost all have.

BC June 25, 2014 at 10:56 pm

Why are we focusing on college debt rather than total cost of college? If college costs $X, whether one finances the $X through borrowing or out of one’s (parents’) savings, one will be $X poorer. If one is $X in debt, then one will have to pay the interest on that debt. If one has $X less in savings, then one will lose the returns/interest that one could have earned on that $X. Sure, it’s better to graduate debt free than with 100k in debt. But, it’s also better to graduate with 100k in the bank than with 0 in the bank.

Isn’t the right analysis to look at cost of college vs. present value of education premium that one expects to earn as a result of going to that college and earning that particular degree? I am setting aside the issue of whether the education premium results from signalling or human capital accumulation and assuming that one needs the college degree to earn the premium regardless.

Locke June 26, 2014 at 12:32 am

You would be right, if one actually wanted to solve the problem. More often though people are just arguing that governments don’t spend enough. They don’t necessarily care how much it costs.

andrew' June 26, 2014 at 6:09 am

If it costs more that accelerates the need for government to make people equal.

Turkey Vulture June 26, 2014 at 6:46 am

It seems that the only problem that analysis solves is whether the higher education institutions have finally managed to extract every bit of consumer surplus that their services supposedly offer.

Thomas June 26, 2014 at 12:51 am

Aggregated statistics aren’t very useful in understanding the underlying problems: market-test-failure universities, market-test failure majors, market-test failure students, and the inflationary support of government-guaranteed loans. Not a single one of these things will be addressed by any policy proposed by those people who care about this “crisis”. It’s insane.

Nathan W June 26, 2014 at 2:18 pm

If you want to target underlying problems, then you get interested in puling apart the data in every possible way to find the most relevant subgroups and various interactions with other stuff.

The aggregate picture may tell you it’s worth doing that, although sometimes it will also completely hide the underlying problem hidden in the aggregate data.

So, when people oppose minimum wages, for example, they also oppose looking at the specific groups who are impacted by it, and prefer to only consider the aggregate picture, which obvious will understate the difficult situation of disadvantaged groups.

andrew' June 26, 2014 at 6:08 am

The solution is simple. Structure finance so that the “banks” take the demand risk and students get the tryhard risk.

I said simple. I didn’t say easy.

Brian Donohue June 26, 2014 at 8:20 am

Heh. A vast chasm there.

Consider the underpinnings of a $100 billion (made-up number) industry:

1. Don’t eat so much
2. Don’t eat so much crap
3. Exercise

What could be simpler?

C June 26, 2014 at 8:06 pm

As with everything in life, execution is everything.

Axa June 26, 2014 at 7:05 am

First, what’s the symptom for the diagnostic “there’s a problem with student default”.

If the symptom is having 100K+ in debt after college, there’s a problem as Bod stated. Some people does not like debt cause of personal beliefs, morals or whatever. For these people the increase in median and average student debt and some stories of troubled students are enough to confirm there’s a problem.

If the symptom is student loan default rate, the situation changes. A Multilevel Analysis of Student Loan Default (2014) http://alturl.com/gfcpk Results show that default is correlated to: a) students attending private colleges have higher default rates even after controlling that they may serve a high risk population, b) debt amount has a non linear relationship with default rate, students who abandon college without a degree have a low net debt but higher than average risk of default, students who finish a bachelor have a higher net debt but lower risk of default, students who continue to graduate school have even higher debt and higher risk of default that students that only obtained a bachelor through credit. c) like it or not african-american, hispanics and student with economic dependants (children) have a higher default rate.

From the literature review: science and technology majors and students with higher than average GPS have lower default rates than others.

The big question is why for profit colleges are recruiting low-income, minority, single-parents in low income after graduation majors.

triclops41 June 26, 2014 at 4:51 pm

So less expensive colleges have lower default rates? Knock me over with a feather!

And you are wondering why for-profit college would “go after” groups who aren’t already in college?

Maybe there is some deep level of analysis you have made that I missed….

this site July 1, 2014 at 4:25 am

hermes designer handbags replicas Peter Coy sums up the student debt debate

Randall Parker July 6, 2014 at 11:03 pm

Coy does not get anywhere near to the heart of the problem. So I will state it:

High IQ people who go to college do great in life. That’s far more because they have high IQs than college degrees. But then colleges market themselves as the purveyors of all the beneficial training will raise incomes. So students who can’t get much out of college and who have poor career prospects with or without college go into debt and walk away worse off after they drop out or graduate.

Making this whole thing worse: the high IQ kids who study engineering and other higher value subjects raise up average earnings of college grads. Then foolish commentators point to the overall higher incomes of college grads and ignore (along with the liberal arts schools) where the economic benefits come from.

Making the whole thing worse, Congress has made escape from college debts much harder than other forms of debt. So this con game by colleges creates a system of peonage.

Of course, the liberal delusion that environment can make all people smart provides the intellectual foundation for the higher education con game.

Higher education is quite the fraudulent racket.

Comments on this entry are closed.

Previous post:

Next post: