Occupy Your Common Sense

Rich Vedder writes:

In an informal survey of over 50 protesters in New York last Tuesday, blogger and equity research analyst David Maris found 93 percent of them advocated student-loan forgiveness. An online petition drive advocating student-loan forgiveness has gathered an impressive number of signatures (over 442,000). This is an issue that resonates with many Americans.

Economist Justin Wolfers recently opined that “this is the worst idea ever.” I think it is actually the second-worst idea ever — the worst was the creation of federally subsidized student loans in the first place. Under current law, when the feds (who have basically taken over the student-loan industry) make a loan, the size of the U.S. budget deficit rises and the government borrows additional funds, very often from foreign investors. We are borrowing from the Chinese to finance school attendance by a predominantly middle-class group of Americans.

But that is the tip of the iceberg: Though the ostensible objective of the loan program is to increase the proportion of adult Americans with college degrees, over 40 percent of those pursuing a bachelor’s degree fail to receive one within six years. And default is a growing problem with student loans.

Further, it’s not clear that college imparts much of value to the average student. The typical college student spends less than 30 hours a week, 32 weeks a year, on all academic matters — class attendance, writing papers, studying for exams, etc. They spend about half as much time on school as their parents spend working. If Richard Arum and Josipa Roksa (authors of Academically Adrift) are even roughly correct, today’s students typically learn little in the way of critical learning or writing skills while in school.

Moreover, the student-loan program has proven an ineffective way to achieve one of its initial aims, a goal also of the Wall Street protesters: increasing economic opportunity for the poor. In 1970, when federal student-loan and -grant programs were in their infancy, about 12 percent of college graduates came from the bottom one-fourth of the income distribution. While people from all social classes are more likely to go to college today, the poor haven’t gained nearly as much ground as the rich have: With the nation awash in nearly a trillion dollars in student-loan debt (more even than credit-card obligations), the proportion of bachelor’s-degree holders coming from the bottom one-fourth of the income distribution has fallen to around 7 percent.

Vedder goes on to list the top failings of the federal student loan program: artificially low interest rates are fueling a higher ed bubble very like the housing bubble; loan rates do not vary according to the prospects of the borrower; cheap loans are incentivizing skyrocketing tuition; financial disclosure rules that enable colleges and universities to engage in rampant price discrimination.

There are still dots to be connected, though.

1. Unless mommy and daddy are paying in cash, you are independently wealthy, or you’ve got yourself a fat scholarship, it’s asinine to go to a costly private college. Public schools are still affordable, and good educations are there for the taking.

2. Wherever possible, work to pay off college bills in real time, as opposed to borrowing to pay them off down the road.

3. It’s financial suicide to major in a subject without the job and income prospects that will allow you to make a living and pay off any loans you take out. Women’s studies–not looking so hot. Engineering–the best prospect out there if you can do the coursework. I have said it before and I will say it again: I think the financially smart way of the future for humanities-oriented, artsy undergrads is the double major. Go ahead and major in English–but also major in something that gives you the knowledge and the skills you will need to get a proper paying job. Liberal arts education doesn’t have to die–but it does have to co-exist better with more vocational training.

4. We need to re-think the “college for everyone” model. All that’s doing is turning college into the place under-educated high school graduates go for the remediation they should have gotten long before. Re-valuing the high school diploma, so that it really means something and really readies people for both the blue-collar and white-collar workplace is a vital piece of the puzzle here.

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10 Comments

  1. david foster says:

    Some people choose to use their time, money, and credit capacity starting businesses rather than going to college. I can’t imagine how anyone can justify taxing these people to pay for those who chose to go the college-loan route…which is what loan forgiveness in many cases would amount to…would meet elementary tests either of fairness or of rational incentive structure design.

  2. Michael E. Lopez says:

    1. Unless mommy and daddy are paying in cash, you are independently wealthy, or you’ve got yourself a fat scholarship, it’s asinine to go to a costly private college. Public schools are still affordable, and good educations are there for the taking.

    Not so fast.

    It’s just money, after all. There are advantages to a costly private college that cannot be quantified, and some that just can’t be quantified directly. For someone not raised in the academic/corporate/professional world, these colleges provide an immersion culture course that large public schools don’t have. Large public schools provide too many places to hide, too many students just like you, to ever force you to expand your social horizons. There are connections to be made at costly private colleges that can’t be made elsewhere. I would *never* have met people like my Wesleyan friends if I had gone to Cal State Fullerton. That’s not to say I’d not have met interesting and fascinating people, but an entire world of experience would have been cut off from me. I learned things from the Professors’ and Ambassadors’ and CEOs’ kids that I wouldn’t learn at a state school.

    So don’t be so quick to deride things as asinine.

  3. Erin O'Connor says:

    It’s asinine if you cannot pay it off. Just like it’s asinine to buy a home you can’t pay for. Of course both are wonderful things, with marvelous benefits. But those benefits are not worth going broke for.

  4. Eveningsun says:

    Does anyone here really consider stuff like this to be serious analysis?–

    “Moreover, the student-loan program has proven an ineffective way to achieve one of its initial aims, a goal also of the Wall Street protesters: increasing economic opportunity for the poor. In 1970, when federal student-loan and -grant programs were in their infancy, about 12 percent of college graduates came from the bottom one-fourth of the income distribution. While people from all social classes are more likely to go to college today, the poor haven’t gained nearly as much ground as the rich have: With the nation awash in nearly a trillion dollars in student-loan debt (more even than credit-card obligations), the proportion of bachelor’s-degree holders coming from the bottom one-fourth of the income distribution has fallen to around 7 percent.”

    I mean, we’re talking about a very complex history in which decisive roles have been played by many, many factors besides student loan policy. To just pluck a few statistics out of that history and string them together in support of a value-laden and politically charged thesis is just hackwork.

  5. Brett says:

    I would agree that expensive private schools offer some things that large public ones don’t. I would never obstruct someone who wants to make that choice from doing so, but I am equally certain I shouldn’t have to help pay for their opportunity.

  6. Erin O'Connor says:

    I totally agree, Brett.

  7. Erin O'Connor says:

    Eveningsun — just to play devil’s advocate: let’s say I agree with you on this observation, and that everyone else who sees your comment does, too. Does that invalidate Vedder’s larger point?

  8. Eveningsun says:

    Vedder’s larger point seems to be that federally subsidized student loan programs have been a failure, and no, my comment does not invalidate that claim. But so what? Maybe that claim is true, and maybe it’s not. I don’t know. But I do know Vedder has not even come close to demonstrating it.

    Maybe you believe the claim is right. If so, do you believe it on the strength of Vedder’s argument, or for other reasons?

  9. Erin O'Connor says:

    I’m mostly interested in his argument about how federal student loans have helped produce a higher ed bubble very like the housing bubble.

  10. david foster says:

    It would be useful to compare the impact of student loans with the effect of the GI Bill immediately after WWII. My perception is that the GI Bill really did have a positive economic effect by allowing people who otherwise wouldn’t have been able to attend college to fully develop & use their talents.

    The more recent expansion of student loans and college attendance has occurred in a considerably different environment, encompassing the weakening of preparation in K-12 schools, reduced admission standards for colleges, and the 1960s-legacy hostility toward traditional academic disciplines and authority. As ACTA and other studies have shown, many attendees are not learning anything much, and of course “signaling” benefits are a zero-sum game which cancels out as the number of attendees grows.

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