This can all get complicated, but risk assessment is a normal business practice for lenders. The government would probably be crappy at it, but a few simple rules would substantially reduce taxpayer risk compared to now.
For example, no loans for puppetry degrees. We had the absurdity of an Occupy protester complaining that his student loan should be forgiven because he couldn’t find a job in puppetry when he left school.
We should also stop student loans for law degrees temporary until the market for lawyers tightens. Right now, law students have very little chance of ever paying off their law school loans due to the glut of lawyers.
This doesn’t mean destroying kids’ dreams either, it’s actually helping them. An advisor could say, “I know you like puppetry, but have you considered computer science?”
And I thought that that quote was about student loans in the first place. Student loans, like discount window loans, should be cheap because there is less risk from default than with other loans because you can’t discharge them in bankrupcy. So 6.4% seems unreasonably high considering a car loan, which IIRC is collateralized by the value of the car which rapidly depreciates, is much lower than 6.4% currently (again unless I’m mistaken.) Heck, house loans are also taken against an asset which normally depletes over time except in a rising real estate market and they can be discharged in bankrupcy.
Unless they’ve changed the law in the meantime and it is possible to declare bankrupcy on your student loans. Which isn’t to say there isn’t some risk from default, namely not getting your money back in a timely fashion, just that there isn’t a risk of your principal vanishing from bankrupcy.
This would be a sensible way of looking at it if the goal of our federal student lending system was to provide a solid investment vehicle for pensions and hedge funds, and a tidy profit for the government.
But you see, the real goal is supposed to be providing the means for students to get a higher education. You know, so they can get the skills needed to compete in our global, 21st century economy, skills that employers argue they can’t afford to provide. That need for education doesn’t go away simply because the loan rates go up. So what you’re really saying is that, just as an investor will have to deal with bear markets from time to time as part of the normal operation of the business cycle, young adults should be priced out of borrowing for college from time to time solely due to their poor timing in graduating high school. So we randomly condemn a cohort to stagnate because at this moment we can’t figure out anything productive to do with them, we let them wither on the vine until Congress finally decides it feels like getting off its ass and doing its job.
If the government wants to make money off its investment in education, the sensible way of making it back would be through income taxes. That would be more in line with the conventional wisdom of “If you go to college, you’ll likely get a better paying job.” But a generation of people who got a cheap higher education handed to them on a silver platter doesn’t want to do that.
It’s worth noting some facts about Joe Thierren, the puppeteer the right likes to pillory for his poor life choices:
[ul]
[li]He was already a full-time drama teacher in NYC. Prior to the 2008 crash, he went to get his MFA–in part because teachers with Master’s degrees earn an extra $10K–and focused on his personal passion (the kind of risk-taking advice wealthy entrepreneurs like Steve Jobs have been doling out for years).[/li][li]When he went back to his old school, the principal wanted to bring him back full-time, but an across-the-board hiring freeze (brought on mainly by the recession) forced him to take a substitute’s position; he did the same job he did before, but for half the pay and no health insurance.[/li][li]He joined the OWS protests after it started, and applied his puppetry skills as part of the protest; his collaborative efforts drew interested crowds, and he seems to have taken the protests as an opportunity to showcase his talent. IMO this creative impulse seems to be at the heart of his interest, not some vague anger at the system or particular political causes.[/li][li]I can’t find anywhere where he commented on student loan debt–much less asked that his be forgiven. Perhaps others made that argument on his behalf, but if so the “absurdity” wasn’t his.[/li][/ul]
The common-sense interpretation of this guy is that he had a steady job, took an entrepreneurial gamble on the MFA that didn’t work out, took responsibility for that decision and has tried to make the best of the situation–a situation that rich bankers never have to face because the consequences of their failures are routinely absorbed by the American taxpayer or powerless stockholders.
Meanwhile, the right-wing snickers at Thierren’s choice–presumably it’s just unbelievably hilarious to them that a grown man would be interested in puppets–reinterpret the facts to fit their world view, and store it as a convenient factoid to deploy in future arguments. Yet another example of how they routinely distort and over-simplify a complicated reality for their own political ends.
Which would seem to go hand in hand with stipulating what degree plans are eligible for student loans and which are not. If the return on investment comes only after the student graduates then it is the fiscal responsibility of the government to ensure that that return happens (by stipulating what you get to learn about)
Puppetry degree wanters need not apply.
In other words there is a risk to taking out student loans but you seem to only want the government to be the one taking that risk.
There is no less risk from default. Federal loans have a whopping 13% default rate. Yes, they can garnish your wages or take back money from your tax return, but really, if the borrower had enough money for the government to take its share and him/her to live a satisfactory life, the default wouldn’t have occurred in the first place. And there are costs to going after that debt too.
It’s not complicated. This fool had a safe, high paying job as a teacher that he walked away from to go to puppet school for three years. When he came back his job was gone. That’s his choice, and it was a foolish one by any measure.
Then as your own cite points out he goes to Occupy every day and whines about how the sub position was the only job he could find.
If he was worried about having a job he should have kept the one he already had. If he wanted to improve his job prospects he should have gotten a marketable degree.
That only makes sense if our unemployment problem is structural, which would be evidenced by wage inflation in particular industries, say STEM industries. But we’re not seeing that. We’re seeing wage stagnation and unemployment that cuts across all industries. Yes, even in STEM jobs.
And if you think the government is that adept at efficiently allocating labor and investment, then I assume you’d have no problem with the government hiring more people directly and putting them to work. But I don’t think you actually believe that.
So if students get into a ton of debt getting the “right” degree, and they still can’t find appropriate employment that allows them to pay off that debt…then what? Nobody should go to college anymore?
Way to jump of the slippery slope there. There’s a difference between, “Too many college enrollments” and “No college enrollments.”
Student loans cause several related issues. Because they’re hard to discharge in backruptcy, they can wreak havoc for the students after they graduate - and student loans are frequently sizable, and start coming due before the student can adequately repay. They persist for some time and drag the individual down during prime working years when they need to be starting families and
But more importantly, the evidence that college degrees are financialy worthwhile has been diminishing over time. College is so common that it’s effectively a meaningless marker, simply implying that you’re not too stupid to live. Degree inflation, not surprisingly, makes degrees less valuable in the market. There’s the general assumption that of course you’re going to college and of course it’s beneficial. But not every individual or career realy benefits from that.
Finally, you have to look at who is actually benefiting from the loans. I’m sure some students do… but it’s the colleges and universities who really rake in. They don’t necessarily have to provide a worthwhile product, only convince potential students it is necessary. If the student benefits, good; if not, the college gets the same cash. And while incomes may be stagnating, colleges and universities continue to expand and expand their administrations…
Elizabeth Warren’s proposal is founded in inaccurate assumptions, wild leaps of insane troll logic, and really stupid equivalencies, to fill a need which may not exist at all.
Your link doesn’t seem to address the question of how many discount window loans defaulted then, or now. How many discount window loans have not been repaid by the borrower or by the collateral?
Hint: far far fewer than the number of student loans that haven’t been repaid.
No, you’re quite confused if you believe that Steve Jobs’ advice is fairly interpreted as urging someone to quit a full-time job to gain mastery of puppeteering.
What they heck are you talking about? The people who benefit from student loans are the students. It’s like saying the mortgage interest deduction only benefits the mortgage companies. It’s short-sighted and doesn’t take into account how home ownership helps the customer as well as the economy.
I don’t necessarily disagree with the notion that there are too many people attending college. And I definitely agree that universities have taken advantage of the guaranteed financing available to increase their costs, to the overwhelming benefit of administrators. The question is what to do about it, and who should bear the burden. As long as a college education remains the clear path for upward mobility, people will rationally determine that they must attain it, whatever the cost. After all, we only have this one lifetime to live, and it imposes a timetable on all of us. An 18 year old doesn’t want to wait until he’s 23 to go to college, hoping that the economic situation is more ideal.
But I think the whole cost-benefit discussion is an enormous red herring. It really comes down to values. Do we value an educated populace? Is that worth achieving in and of itself? Because there’s a whole host of money sinks our society tolerates. Stuff like agricultural subsidies and military spending. We do it to achieve some aim, not because we make money off of it. Shifting ever-increasing burdens on to the students isn’t the inexorable result of our government’s fiduciary duties to the fisc, it’s a choice, just like providing cheap liquidity to the banking system is a choice. And that choice means that student borrowers bear all of the costs and the risks personally for a chance of a middle class life.
All Elizabeth Warren’s bill says is that the government should stop treating student borrowers as a profit center (estimated to be over $50 billion this year). Where’s the “insane troll logic?” I’d listen to an expert in bankruptcy and consumer finance like Elizabeth Warren on higher education issues before I’d listen to any of you.
I’ve always been of the opinion that we should subsidize community colleges as we do k-12 education up to a 2 or maybe a 4 year degree. That way people can go to post-secondary school if they choose and/or switch careers if necessary.
I don’t know exactly how that would happen. I’m sure a lot of people would have an issue with their school taxes going up by 20-30%. But I think a free alternative to universities would provide an enormous downward pressure on higher education prices as well as being good for the populace in general.
I do know that college is free in several other countries, and I’m not sure exactly how it’s funded, but it’s definitely possible.
The insane troll logic is linking the student loan rate to the discount window rate. There is absolutely no connection between the two, and neither you nor anyone else has offered any good reason why they should be linked.
Right, because a politician never has any ulterior motives. But since you won’t take my word for it, try to find ANY “expert” out there who has come out in favor of the bill.
Are there no such things as part-time MFAs? :dubious: AFAIK there are all kinds of part-time, evening, summer, and/or online options for teachers wanting to upgrade their credentials.
Yeah, because all that money shoveled into home loans, laws passed to favor home ownership, pressure from government officials to expand lending, and quasi-public entities making dubious loans helped us a lot a few years ago. I mean, it’s a great thing they did that, otherwise we might have had a massive recessions, possibly even depression, which could continue to hinder economic growth even now. I mean, we might have seen millions of Americans completely drop out of the labor market, and then they’d be having problems repaying student loans.
Sure, that’s one sarcastic observation - but the point is the same. You cannot go from “This is Hypethetically Good” to “It’s Not Being Grossly Abused And Causing Major Problems”. Look at how average tuition has risen vastly faster than inflation, or at the swelling ranks of college admistrations compared to actual faculty.
That’s two problems:
(1) Why the Holy Hell do people think they MUST go to college to get ahead. Tradesmen can do extremely well; vast numbers of well-paid skill workers don’t need colllege.
(2) Whether or not you can hypthetically benefit from a degree doesn’t mean you benefit from college. Frankly, even the best-educated people I know forgot most of the crap they learned in college. Not everyone finds academia very interesting, and frankly most of academia is ultimately trivial.
First off, that has changed radically in in the last two generations. My grandfather(s) didn’t go to college. Nor did they need to. They lived happy and interesting lives of success in jobs which today might require degrees, even advanced ones. They weren’t ashamed of being degree-less.
Second, comparing it to agricultural subsidies and military spending isn’t a wise idea. Almost anybody you mentioned would oppose at least of those in some measure, and would have some limits on the other. This is the essential point, too, because degrees have real-world value. Sure, it’s not about money - but the benefits offered by degree-holders both personally and socially isn’t infinite. It may not actually be very large, or even be more than non-degree-holders. Even if we all agree that everybody in the entire country thinks studying advanced academic study is good, it doesn’t follow that we can or should shove everyone into getting one.
More to point, following what I said before, you’re flooding the system with money on the theory that this won’t change things fundamentally - that we’ll get more of we (supposedly) want. But this is never the case. Change the environment, and the animal evolves. And it doesn’t necessarily evolve in the way you like.
“Some people say that we can’t afford to help our kids through school by keeping student loan interest rates low,” said Senator Warren. “But right now, as I speak, the federal government offers far lower interest rates on loans, every single day–they just don’t do it for everyone. Right now, a big bank can get a loan through the Federal Reserve discount window at a rate of about 0.75%. But this summer a student who is trying to get a loan to go to college will pay almost 7%. In other words, the federal government is going to charge students interest rates that are nine times higher than the rates for the biggest banks–the same banks that destroyed millions of jobs and nearly broke this economy. That isn’t right. And that is why I’m introducing legislation today to give students the same deal that we give to the big banks.”
“Big banks get a great deal when they borrow money from the Fed,” Senator Warren continued. “In effect, the American taxpayer is investing in those banks. We should make the same kind of investment in our young people who are trying to get an education. Lend them the money and make them to pay it back, but give our kids a break on the interest they pay. Let’s Bank on Students… Unlike the big banks, students don’t have armies of lobbyists and lawyers. They have only their voices. And they call on us to do what is right.”
Are you kidding?
She might be a politician, but her vita (without pubs) outclasses every single person here, including yours. If we are to take your opinion over hers, could you post your vita for us to see?
Because we live in a world where doing back-breaking labor doesn’t pay much. I don’t mean to be a grammar nazi nor to personally attack you, but I think it’s ironic that you decry the benefits of college when your post is riddled with misspellings.
Your grandparents would not last very well in present world, then. How can you sign an on-line application for a job if you don’t know how to type, how to use a mouse, or use a computer. Sorry to break it to you, but laborers went out of style in the 1990’s and employers want people with college degrees.