I would find it pretty tempting when graduating to ... default. You've got plenty of time to fish your way out of bankruptcy as you're young, you don't have much for assets or anything...
If they basically shut down all student funding, that doesn't seem like a huge problem either - it's a fairly bad model and I think society would benefit for from the pressure to find a better way to educate people.
It's a difficult question, it would have a lot of unpredictable knock-on effects. But subjecting the industry to market pressures seems a move in the right direction.
Banks [...] can work out under what conditions they're
willing to loan money to students [...] If they
basically shut down all student funding, that doesn't
seem like a huge problem either
For deeper socioeconomic reasons, pretty much everyone in the truly lucrative fields like law and medicine is already quite well-off, and people who graduate from other degrees generally either end up in poorly-paying fields like academia, or else in careers that half a century ago didn't require tertiary education at all.
In general it's a lot easier to see the flaws of a new proposal than take notice of the problems with the status quo.
So doing things really gradually also has a cost.
I'm not convinced the politics of subsidizing education get better after that. There's a very high risk that a large and powerful swath of the country reacts to it with "I worked my ass off to pay for my kids to go to college, why should I subsidize yours?" The resulting increase in inequality is bad for society as a whole, but honestly it's a feature for most upper income parents.
It would probably put some pricing pressure on college, but the predictable knock-on effects are really really bad.
Just because the loans can't be discharged during bankruptcy proceedings doesn't mean the lender gets their money back. Default rates are high (and rising). The lender may get some money, but that doesn't mean they get their principal back, let alone a sufficient interest to justify giving out the loan in the first place.
Some people never make enough money to pay it off, after which the government will pay the loan off after a few years. The lender gets payed anyway. These are risk free loans for lenders.
I think you may be confusing the terms 'default' and 'discharge', and have the ordering wrong.
You may be in default, which may lead to bankruptcy, which may lead to the debt being discharged.
Discharging the debt does not lead to defaulting on it.
This helpful Wikipedia paragraph should clear things up for you:
https://en.wikipedia.org/wiki/Default_(finance)#Distinction_...
Note that 'default' is simply 'a debtor has passed the payment deadline on a debt they were due to pay'. 'Bankrupt' is 'a legal finding that imposes court supervision over the financial affairs of those who are insolvent or in default'.
See how 'bankrupt' is done to someone who is already either insolvent or in 'default'?
This is absolutely, completely, 100% wrong. Defaulting on a loan means that the borrower has failed to repay according to the agreed-upon terms.
> Some people never make enough money to pay it off, after which the government will pay the loan off after a few years. The lender gets payed anyway.
This isn't really true either. The lender is not guaranteed to be paid their principal back.
> These are risk free loans for lenders.
If these were truly risk-free, then the interest rate on private student loans would be roughly equal to the current actual risk-free rate of investment (because any new lender could always capture additional loans by undercutting their competitors and still make a profit).
Except, that's not true at all. The interest rate on private loans is quite high. In fact, it's significantly higher than the interest rate on mortgages, which are loans backed by collateral that can actually be seized.
This may apply for personal loans, where real money is given up; but, it's not really correct to call a bank, the originators of most private student loans, as far as I know, a 'lender'; as, banks don't lend their own money, but create new money through promissory notes.
It is 100% correct to refer to a bank as a lender. This is standard use of terminology.
If you check the Promissory Notes, I'd guess they probably don't say "lender", except as possibly an alias for a definition that is not equivalent to the standard definition -- wherein, one forgoes actual physical property (cash, for example) for another's use; with the expectation that the property will be returned at some point (possibly with some form of payment to compensate for the real loss of property).
Edit: Do you think Wells Fargo has myriad $100k bundles just sitting around waiting for students to take? I don't think so. They use their power to create new money, rather than loan out the entire principal from their reserves.
There's one "but" however: this does absolutely nothing to improve affordability, so some mechanism needs to be devised to reduce overhead costs, and put a cap on profits. I would prefer if that mechanism were market-based as well.
First, education is chock full of positive externalities, which will never be realized correctly. While "the economy" doesn't need underwater basket weaving - or art history, or literature - society still does. Even if people don't work in their field, the world is better for the increase in knowledge. Man does not live on engineering alone.
Second, the invisible hand can only do its work in a world where the effects of decisions are predictable. Given the long lead time on a choice of major affecting your income - at least four years, arguably more if you factor in choice of AP classes on high school - that's never going to be the case. Say this system had been in place in the 90s, and say you're okay with underwater basket weaving students getting the short end of the stick because, well, they signed up for it. Fine. But what do you say to the computer science class of 2001?
The problem with every economic system is information -- though that is far less of a problem in a capitalistic society with constitutional freedom of speech (capitalism helping to prevent the black box that forms around centralized economies like socialism, communism, or crony capitalism/fascism). This problem is on full display with those liberal arts degrees. Students leave high school knowing practically nothing about society or how money works (the fault of our education system removing most practical courses from the curriculum). What they have been taught from an early age though, is that getting a degree is the path to success. They hear about making X thousands of dollars more per year if they get one (without the nuance that a select few degrees making a lot more than average offset the entire liberal arts division) and they want to be successful so the go without any real-world knowledge to provide balance.
Instead of getting directed to a degree that will ensure their livelihood, they are told to "follow their heart" and "do what makes you happy". Unfortunately, the definition of a job is "something you wouldn't do for free" and people work jobs to get money to do the things they want so much they'll pay for them.
The simple fact is that most kids aren't cut out for college. They are much more suited for technical schools where they can learn the trades that keep the world turning (and they could leave making far more than a liberal arts degree with practically no debt). But they aren't told about that and instead wash out of the hardest degrees into meaningless degrees that offer a kind of debt slavery without any reward whatsoever. If they had gone to technical school, they could work less, make more, and spend that excess to culture themselves however they like.
That's just, like, your opinion, man. Society certainly does not need so many graduates in English Literature: there are only so many open positions at McDonalds, and they as a rule do not require a degree.
If there's market demand, society can pay real cash money for it. It used to be that most writers, painters, historians, etc, etc, had to also have an useful day job. _Albert Einstein_ had a day job up to a point. There's nothing wrong with that if the market can't support full-time work in a certain profession.
The second part of your argument I do agree with: there are a lot of details to flesh out. Maybe it will compel the colleges to teach broader sets of skills, since if they teach a narrow profession that's not useful they don't get paid.
This strikes me as a deeply sad view of the world. As an individual, a well-rounded education is a life-enriching thing, even if it doesn't directly tie into your professional career. As an overall society, having a more highly-educated populace is a net positive for everyone.
> It used to be that most writers, painters, historians, etc, etc, had to also have an useful day job.
And if you look even farther back in time, most artists were supported by a rich patron who believed in the value of art.
That's not a "view of the world", that's _objective reality_. There aren't enough jobs for those folks to take, so they end up at proverbial McDonalds. Those that do get jobs often don't get a wage that a degree that's in higher demand would command. That's the world that already exists, you can't will it away no matter how you finance people's education.
That's just, like, your opinion, man. Setting aside arguments as to the mere existence of "objective reality". You're essentially saying "the way I see it is the only way to see it", which does not help convince someone who sees it differently.
The point of my argument is that this is one of those cases where that's not going to happen, because we're talking about positive externalities. A generally educated populace, especially in the liberal arts (reading, critical thinking, political science, etc.) is a powerful but diffuse societal benefit in a way that doesn't really have a buyer.
What that likely means is that society needs to collectively come up with a powerful institution to serve as a patron of education and the arts. We could all pay in some token amount of money, and then experts could redistribute it in more globally-optimal ways. While we're at it, that institution could probably take care of a lot of other externality-related problems, like building roads and maintaining some sort of conflict-resolution system. And we should probably all get a say in how it runs. Hey, wait a minute, this sounds familiar...
I wouldn't use the stern-faced "useful" language, but I agree with you about it being perfectly fine to have a day job and pursue literary/artistic interests on the side. TS Eliot insisted on keeping his job as a bank clerk. Gladstone wrote serious history at night after discharging his duties as the English PM. Etc, etc.
Regarding choice of degree, the value of a liberal arts degree is difficult to argue for---and against. It's not like, say, math where you can do the proof or you can't. You can model the system such that transformations actually map onto transformations in the target domain or you can't. But I can often tell when someone has a (successful!) liberal arts degree by, to give one example, how careful they are with imprecise language. And, to give another, how light of a hold imprecise concepts have on them, how flexible and playful they are in such thinking (this has nothing to do with being unable to be "rigorous").
But also the fact is the system did not work for most people. Partly because most students just aren't suited for it...and that's fine. And especially with how broken college is now (for one, non-STEM subjects tend to allow the student to choose from a smorgasbord of unrelated courses instead of systematic growth over years). IMO far fewer people need to go to college, we should increase the funding and prestige of vocational school, and non-STEM subjects need to more regularly be taught again in a demanding way.
The law responsible for this situation (the Bankruptcy Abuse Prevention and Consumer Protection Act) was passed in 2005. Prices had already been rising for decades. I'm not saying it hasn't had an effect, but it can't possibly be the "main factor," because it literally didn't exist when prices started to rise.
Though I question why an AEI schill should be considered a credible source on anything.
Both student loans and the housing loans leading to the crisis are blinding examples of the government interfering with the risk assessment process of large loans resulting in a failure.
Students get loans they can't realistically payback because the issuers know they are (mostly) safe from bankruptcy.
In the early 2000s the 'gift' of the affordable housing bill was to issue a bunch of mortgages to people who realistically couldn't pay them back either. Leverage against loans by the banks made it systemic, but the root cause of the housing crash was trash loans that would never have been issued if it weren't for the government offering guarantees.
With students able to get loans of nearly any amount, the schools have no reason not to raise tuition prices, and that extra money ends up feeding a bunch of administrative bloat, a significant amount of which gets turned around into crazy marketing and advertising schemes to trick more fresh highschool graduates into taking out loans to pay for the crazy tuition. The first time in most of these people's lives where they are expected to take out a significant loan of money and are easily manipulated into potential financial traps. For many of them it is the first financial decision in their entire life and it rivals the cost of buying a house.