The Problem With Elizabeth Warren’s Student Loan Idea

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Sure, there’s that problem that she’s only suggesting that extant student loan debt gets wiped out. Those who were prudent and paid it off gain nothing. Which is a lovely little bit of moral hazard, don’t you think? Further, we might even suggest that the people with the worst debt problems are those who attended fly by night for profit trade schools. Thus we’re subsidising fly by night trade schools by writing off the debt.

However, here’s the real and large problem:

“No, what I’m saying is there was a $50 a semester option for me. I was able to go to college and become a public school teacher because America had invested in a $50 a semester option for me,” she responded.

“Today that’s not available, and our kids have taken on a trillion and a half dollars in student loan debt. We have got to back that up, and say we’re doing better going forward. That we’re not going to say the next generation has to take on 2 trillion dollars in debt, and what? The next one 3 trillion or 4 trillion, or 5 trillion?” she continued. “We don’t build an America by saddling our kids with debt. We build an America by saying we’re going to open up those opportunities to kids to be able to get an education without getting crushed by student loan debt.”

Those costs of college don’t go away simply because it’s the taxpayer picking up the bill. It just means that taxpayers are picking up the bill.

So, we’ve socialised that cost therefore. Everyone in America must be burdened with a larger tax bill. Rather than the people who actually benefit from college – those with the college degrees – picking up the cost.

This is not the correct solution. The actual right answer is to make college cheaper. We could start by firing the 50% of the staff that are administrative bloat. We could move on to the idea that perhaps 50% of the age cohort shouldn’t be going to college in the first place. After all, the effect of their doing so has just been to raise the entry level qualification needed for many jobs without raising the knowledge level needed for those same jobs.

We could even make the system cheaper by abolishing all grievance studies. Killing tenure would also be an interesting idea to explore. So would the idea that all who teach in college should also be doing research. After all, how many more queer studies in Jane Austen PhDs do we need?

The thing being that if something is expensive – which American college is – why not work to make it less expensive rather than just insisting that the population as a whole must pick up the bill?

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Spike
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Spike

For-profit colleges are not the problem. There is hyperbole in their advertising and fast-and-loose play with post-degree employment statistics, but everyone expects that the product be of use to the customer. Most of them don’t have majors in Grievance Studies. State universities receive funding not because they do such a good job of teaching, but because legislators want to prove that “we care” about higher education.

TD
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TD

We should dust off the colleges’ 1970 budgets, bring admin staff to student ratios back in line with 50 years ago, allow some factor for inflation and some of the new equipment science labs might need, and look long and hard at some of the majors offered today that weren’t offered then. I’d guess many of the new STEM majors would survive but many of the arts majors could be cut along with their teaching staff. In a country where half the college age kids are minorities and with minority populations growing faster than white, how much need is there… Read more »

Pat
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Pat

To answer your question, because a politician wants support from colleges. A more rational approach, which would likely force the other reforms, would be to require colleges to provide an estimate of future earnings for each student in each course before a loan could be granted, the college being liable for a shortfall after say 10 years. Student who could pay cash would carry on as now. But colleges would not be overselling the value of their courses, and courses not providing sufficient value to justify a loan would not get one. Similarly colleges would not be accepting unsuitable students… Read more »

TD
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TD

could be simpler to just require colleges to guarantee payment of the loan.

Mohave Greenie
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Mohave Greenie

The problem with that is that for state run schools, it drops the problem back on the taxpayer.

TD
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TD

True that. We should just do away with federally guaranteed student loans. Let lenders make their own assessment of whether they’ll get paid back or not. There will still be loans, but for a limited number of students and their courses of study. Colleges will need to figure out how to cut their costs to accommodate that new world.

Phoenix44
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Phoenix44

It’s always interesting that when it’s the private sector stuff must be capped or made cheaper, but when it’s the public sector (broadly speaking) taxpayers should pay more.

Its extraordinary in the UK that housing is far too expensive and so must be made cheaper but the NHS isn’t and instead must be given more money.