There are many obvious steps that could be taken to improve the student debt situation, but Americans seem to have lost the knack for obvious policy reform. Three changes that would help:
1) Reverse the special status of student debt as not subject to bankruptcy relief.
2) Imitate the Australians and make debt repayments contingent upon income.
3) Student loan interest rates used to be much cheaper than other debt, and now is often much more expensive. Drop the rate to something like inflation plus 1 per cent, with a 10 per cent cap.
Leaving debt aside, if you want to "go big or go home" in higher education: make junior college and vo-tech programs free (or repayable through contingent income) across the country.
Excellent piece, Zaid Jilani. Well making the case that student debt forgiveness is a particularly lousy return on the dollar. And, includes additional downsides.
Some others come to mind. A good chunk of that $50,000 per student would indirectly move into the pockets of schools themselves relieving pressure for their reform to get costs in line and provide a better service. Politically it's an awful path for the Democrat to venture down as it reinforces the half truth that the party is all about the university elites -- remember that Elizabeth Warren lost horribly.
Containing the relief package to covid keeps its strength while extraneous stuff weakens it -- as well as further legislation. Note however, that we can certainly learn in the process what can possibly work more generally and in non-corona times -- to change our world for the better.
I think this discussion needs to be viewed in context. A large part of the situation with student debt needs to be understood within two political choices. First is the Great Recession brought on by the mortgage crisis. Republican stonewall refusal to provide adequate aid to the states drastically impacted state budgets as most states are prohibited by statute from running deficits. Law makers cut budgets for state schools and increased tuition. This pushed prospective students further into dependence on the financial services industry that had created the situation in the first place. Second is the legal structure of student loans which is another give-away to the financial services industry, in that such loans are unusual in that they cannot be ended by bankruptcy. Effectively this turned the students into a revenue stream for the financial industry and their loans into simply another asset class. Monetizing their access to education in this way creates a private good (the income stream to the financial industry) while depriving society of a public good which is the education which these students would ultimately use in society (students deterred from college by cost are a societal loss) and their lack of the freedom to apply this in creative ways that they might be able to do if not saddled with debt.
If we look at it instead from social benefit perspective then it is not really in the interest of the society to create another asset class that benefits a small, already wealthy financial sector. However it is in the interest of society to have as large a group as possible able to think critically as this is a further support for democracy and a bulwark against authoritarianism. Certainly college is by no means the only way to learn critical thinking, but it is _one_ way and it provides this educational opportunity to many people who would otherwise not have it. It is also in the interest of society to have the broadest possible access to the widest array of talented people to obtain as high an education as the aspire to and can complete. This produces benefits not only for the individual but for society as a whole in the form of new ideas, new solutions, and of course new financial ventures and non-profit enterprises.
For this reason and ideal situation would be one in which there is no tuition and thus no financial barrier to matriculation. Alternatively the (already mentioned) Australian model is a possibility, in which the loan is paid back via taxes, payment is never more than a certain percentage of income and payments are suspended during periods of unemployment or financial hardship.
Coupled with this would need to be an examination of the cost structure of universities. At the moment there is an increase in well compensated high level administrators coupled with increasing tuition and an ever expanding sub-class of low-pay/no-benefit adjuncts who keep the wheels turning. Both students and adjuncts are squeezed financially in system that rewards a higher administrative segment. An adjustment to this model coupled with a significant re-commitment to public support for universities would reduce the cost of tuition.
A discussion of whether tuition is desirable from a societal point of view could then proceed. In any case making our talented, curious, young people into debt servants would cease.
I agree with the 10,000 not 50,000 but I do not think that this should happen without fixing the system! That would only ask for more trouble in the future. Also I think that in the case of outstanding loans students should have the right to refinance just like mortgage holders. That students are paying these extremely high interest rates now with the bank rate so low is simply outrageous.
Student loans should be handled like standard commercial loans are handled; each banker should be held responsible for the loan that he/she makes. The past system rewarded everyone involved in making the loan, the banker, the bank and the university (which often got kickbacks) and the student got the raw deal.
An effective loan program would loan an amount that the student could pay back based on data projecting their future earnings. That does mean that the English major would be eligible for a smaller loan than an Engineering major. Students that want to attend an educational/training enterprise, including for profits, would be eligible for loans based on graduation rates and earnings of the graduates. These for profit enterprises have the worst track record and have attracted many minority students with false promises.
But this is not really about the needy when it really comes down to it. It is about opening the doors of top universities to the brightest students in America and ultimately competing in the robotics and AI world marketplace. The country with the most brain gain wins. The problem is how dishonest this is, since it pretends to be about helping the needy.
I’m a little late to this discussion, so apologies. One thing to keep in mind is the well intentioned policy that the government guaranteed a majority of these loans, which caused a huge increase in college building and growth in the name of attracting new students — they knew how much money they could rely on. One school built a lazy river on campus so their students could be lazy when it suited. The policy also increased tuition costs to fund future growth. In general this was a good thing for universities which needed better libraries and livable dorm space, but students and their parents bore the cost. It has been a concern of congress for several years. Congress recognizes that students are overpaying tuition because guaranteed funds are a boon to the school. For those who decided to avoid college because of the cost, I understand your feelings, but I urge you to consider that policy decisions are for the benefit the country as a whole. Being for or against a policy just because it doesn’t benefit you personally is maybe not the best way to think about its value.
There are many obvious steps that could be taken to improve the student debt situation, but Americans seem to have lost the knack for obvious policy reform. Three changes that would help:
1) Reverse the special status of student debt as not subject to bankruptcy relief.
2) Imitate the Australians and make debt repayments contingent upon income.
3) Student loan interest rates used to be much cheaper than other debt, and now is often much more expensive. Drop the rate to something like inflation plus 1 per cent, with a 10 per cent cap.
Leaving debt aside, if you want to "go big or go home" in higher education: make junior college and vo-tech programs free (or repayable through contingent income) across the country.
Excellent piece, Zaid Jilani. Well making the case that student debt forgiveness is a particularly lousy return on the dollar. And, includes additional downsides.
Some others come to mind. A good chunk of that $50,000 per student would indirectly move into the pockets of schools themselves relieving pressure for their reform to get costs in line and provide a better service. Politically it's an awful path for the Democrat to venture down as it reinforces the half truth that the party is all about the university elites -- remember that Elizabeth Warren lost horribly.
Containing the relief package to covid keeps its strength while extraneous stuff weakens it -- as well as further legislation. Note however, that we can certainly learn in the process what can possibly work more generally and in non-corona times -- to change our world for the better.
I think this discussion needs to be viewed in context. A large part of the situation with student debt needs to be understood within two political choices. First is the Great Recession brought on by the mortgage crisis. Republican stonewall refusal to provide adequate aid to the states drastically impacted state budgets as most states are prohibited by statute from running deficits. Law makers cut budgets for state schools and increased tuition. This pushed prospective students further into dependence on the financial services industry that had created the situation in the first place. Second is the legal structure of student loans which is another give-away to the financial services industry, in that such loans are unusual in that they cannot be ended by bankruptcy. Effectively this turned the students into a revenue stream for the financial industry and their loans into simply another asset class. Monetizing their access to education in this way creates a private good (the income stream to the financial industry) while depriving society of a public good which is the education which these students would ultimately use in society (students deterred from college by cost are a societal loss) and their lack of the freedom to apply this in creative ways that they might be able to do if not saddled with debt.
If we look at it instead from social benefit perspective then it is not really in the interest of the society to create another asset class that benefits a small, already wealthy financial sector. However it is in the interest of society to have as large a group as possible able to think critically as this is a further support for democracy and a bulwark against authoritarianism. Certainly college is by no means the only way to learn critical thinking, but it is _one_ way and it provides this educational opportunity to many people who would otherwise not have it. It is also in the interest of society to have the broadest possible access to the widest array of talented people to obtain as high an education as the aspire to and can complete. This produces benefits not only for the individual but for society as a whole in the form of new ideas, new solutions, and of course new financial ventures and non-profit enterprises.
For this reason and ideal situation would be one in which there is no tuition and thus no financial barrier to matriculation. Alternatively the (already mentioned) Australian model is a possibility, in which the loan is paid back via taxes, payment is never more than a certain percentage of income and payments are suspended during periods of unemployment or financial hardship.
Coupled with this would need to be an examination of the cost structure of universities. At the moment there is an increase in well compensated high level administrators coupled with increasing tuition and an ever expanding sub-class of low-pay/no-benefit adjuncts who keep the wheels turning. Both students and adjuncts are squeezed financially in system that rewards a higher administrative segment. An adjustment to this model coupled with a significant re-commitment to public support for universities would reduce the cost of tuition.
A discussion of whether tuition is desirable from a societal point of view could then proceed. In any case making our talented, curious, young people into debt servants would cease.
I agree with the 10,000 not 50,000 but I do not think that this should happen without fixing the system! That would only ask for more trouble in the future. Also I think that in the case of outstanding loans students should have the right to refinance just like mortgage holders. That students are paying these extremely high interest rates now with the bank rate so low is simply outrageous.
Student loans should be handled like standard commercial loans are handled; each banker should be held responsible for the loan that he/she makes. The past system rewarded everyone involved in making the loan, the banker, the bank and the university (which often got kickbacks) and the student got the raw deal.
An effective loan program would loan an amount that the student could pay back based on data projecting their future earnings. That does mean that the English major would be eligible for a smaller loan than an Engineering major. Students that want to attend an educational/training enterprise, including for profits, would be eligible for loans based on graduation rates and earnings of the graduates. These for profit enterprises have the worst track record and have attracted many minority students with false promises.
But this is not really about the needy when it really comes down to it. It is about opening the doors of top universities to the brightest students in America and ultimately competing in the robotics and AI world marketplace. The country with the most brain gain wins. The problem is how dishonest this is, since it pretends to be about helping the needy.
I’m a little late to this discussion, so apologies. One thing to keep in mind is the well intentioned policy that the government guaranteed a majority of these loans, which caused a huge increase in college building and growth in the name of attracting new students — they knew how much money they could rely on. One school built a lazy river on campus so their students could be lazy when it suited. The policy also increased tuition costs to fund future growth. In general this was a good thing for universities which needed better libraries and livable dorm space, but students and their parents bore the cost. It has been a concern of congress for several years. Congress recognizes that students are overpaying tuition because guaranteed funds are a boon to the school. For those who decided to avoid college because of the cost, I understand your feelings, but I urge you to consider that policy decisions are for the benefit the country as a whole. Being for or against a policy just because it doesn’t benefit you personally is maybe not the best way to think about its value.