Writing at the New York Post, UT law professor Glenn Reynolds makes a modest proposal:
It’s officially a crisis. Student loan debt has hit the $1 trillion mark, exceeding Americans’ total credit card indebtedness. Unemployed graduates with huge loan balances are camping out in “Occupy” camps — the Hoovervilles of our age — around the nation. And President Obama, perhaps afraid those camps will be dubbed “Obamavilles,” as indeed they have already been by some, has unveiled a new proposal that promises to help graduates who are drowning in debt.
Unfortunately, “promises” is the correct word. Though unveiled with much fanfare, the Obama proposal doesn’t really do much. First, as the Chronicle of Higher Education pointed out in an article characterizing it as mostly political, “The benefit is available only to current students. Those jobless college graduates who are protesting on Wall Street and at similar events elsewhere won’t qualify.”
Second, even for those who do qualify, the benefit doesn’t amount to much. Daniel Indiviglio of The Atlantic Monthly calculated that the president’s plan will save the average grad less than $10 a month. (Even those with $100K in debt will save only $28.50 a month). You can make that sound like more — and the White House tried — by touting total savings over the life of the loan, but this isn’t going to rescue anyone who’s financially underwater. It’s a beer and a slice a month, more or less.
At best, it’s a band-aid solution. The real problem is that we’ve been running a higher education bubble, one that — like the real-estate bubble — has been pumped up by cheap government money. Since 1999, student loan debt has increased by 511%, while disposable income has increased by only 73%.
That’s because when the government subsidizes something, producers respond by raising prices to soak up as much of the subsidy as they can. College is no exception. Tuition has been increasing much faster than disposable income, and families — believing that a college education is a can’t-lose investment, much as they used to think houses were — have been making up the difference with debt. After all, we’re told, student loan debt is “good debt,” because a college degree guarantees more earnings.
Tell it to the Occupy Wall Street protesters, many of whom note that they’re deep in debt for fancy degrees that didn’t get them jobs.
The problem is, “college” isn’t an undifferentiated product. Companies can’t hire enough mechanical engineers, but there’s no bidding war for majors in Fine Arts or Women’s Studies, degrees that cost just as much, but deliver a lot less in terms of employment. In an economically rational market, it would be harder to borrow money to finance fields of study that were unlikely to produce enough income to pay back the loans. But since the federal government subsidizes everything — and makes student loans un-dischargeable in bankruptcy — there’s no incentive for lenders to care, and even less incentive for colleges and universities to care. They get their money up front, after all — just like the people who wrote the subprime loans that fueled the housing crisis.
For serious student-loan reform, we’re going to have to look well beyond the Obama proposal. We need something that aligns incentives with reality. Here’s my proposal:
I think we should return to the days when student loans were dischargeable in bankruptcy, starting five years after graduation. This will allow graduates who are unable to pay to get out from under what is otherwise a potential lifetime of debt-slavery. If you buy a house to flip, and wind up losing your shirt, we let you go bankrupt, take a credit-rating hit, and scrub the debt away. Why should graduates be forbidden from doing the same? The five-year delay means that you can’t use immediate post-graduation poverty as an excuse (as some medical students used to do), but still provides an out.
But the real incentive-alignment part is this: Put the institutions who issued the degrees on the hook for the money they received. Making them eat the entire loan balance would probably bankrupt a lot of colleges (though that should tell us something about the problem right there), but sticking them with even a small fraction — say, 10% or 15% — would be enough to inspire a much greater degree of concern for how much debt students take on while in school, and for how likely they are to find gainful employment after graduation.
One way or another, the higher education bubble is going to deflate. Better that it should do so without crushing the students it was supposed to benefit — or the taxpayer.
I was so happy to see him say this: “In an economically rational market, it would be harder to borrow money to finance fields of study that were unlikely to produce enough income to pay back the loans. But since the federal government subsidizes everything — and makes student loans un-dischargeable in bankruptcy — there’s no incentive for lenders to care, and even less incentive for colleges and universities to care.”
I’ve said it before and I will say it again: The liberal arts does not have to be threatened by this. It can, in fact, be revived. We need to usher in the era of the double major–one job-oriented, heavy on necessary skills and practical knowledge; the other centered on all that wonderfully fun and well-rounding but less applicable artsy stuff, like English. Folks who can do both — who can manage the coursework, cultivate skills on both sides of the brain, and maintain a GPA all the while, will be top candidates for scarce jobs.
We also need to bring back strong core curricula, so that that everyone, whether they can handle a double major or not, has some solid, essential grounding in subject matter across the disciplinary spectrum. It should not be controversial to say that every college graduate should have some strong coursework in math, science, history, foreign language, economics, writing, literature, and social science. A core curriculum that more than does justice to these areas can be completed in two years, with room to spare–leaving the final two years of college for a major (or two). There’s a lot of resistance to that idea, though. Conservatism takes many forms–and as “liberal” as colleges and universities are reputed to be, they are, procedurally, some of the most hidebound, change-resistant institutions we’ve got.
If we make some of these curricular adjustments, ancillary problems like campus party culture, grade inflation, and general lack of intellectual seriousness on campus could begin to resolve themselves.