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.