Some good ideas for the college loan problem

Hey, if you want to get a degree in a field with little or no demand* then don’t be surprised if you end up with a lot of debt and no job.

The government has been the problem here, not the solution.  The part in bold is a must-read, as it gives a simple explanation of how the government has wreaked havoc with the student loan crisis and the housing crisis in typical “ignoring human nature and the law of unintended consequences” style.  Via Glenn Reynolds: Let’s put colleges on the hook for loans that their students can’t repay:

How do you solve the problem of young adults earning worthless degrees and a truckload of debt? Three ways. One: The Chinese way, which, while characteristically direct, is probably too authoritarian for most Americans’ tastes. Two: End federal student loans. Let kids take their chances with private lenders, who’ll need assurances up front before they lay out the cash that they’ll get a return on their investment after graduation. This idea would, I assume, die a grisly death after the first round of “all Jimmy/Sally wanted to do was go to State but he/she couldn’t get the money” stories. Three: The Reynolds way.

This is a simple case of inflation: When you artificially pump up the supply of something (whether it’s currency or diplomas), the value drops. The reason why a bachelor’s degree on its own no longer conveys intelligence and capability is that the government decided that as many people as possible should have bachelor’s degrees.

There’s something of a pattern here. The government decides to try to increase the middle class by subsidizing things that middle class people have: If middle class people go to college and own homes, then surely if more people go to college and own homes, we’ll have more middle class people.

But homeownership and college aren’t causes of middle-class status, they’re markers for possessing the kinds of traits — self-discipline, the ability to defer gratification, etc. — that let you enter, and stay in, the middle class.

Subsidizing the markers doesn’t produce the traits; if anything, it undermines them. One might as well try to promote basketball skills by distributing expensive sneakers…

For higher education, the solution is more value for less money. Student loans, if they are to continue, should be made dischargeable in bankruptcy after five years — but with the school that received the money on the hook for all or part of the unpaid balance.

* that is, degrees such as Lesbian Astrology (it is possible I made that up) or Women’s Studies (sadly, I didn’t make that up).

3 thoughts on “Some good ideas for the college loan problem”

  1. Good post. My sister (who is a high school guidance counselor) and I were talking and one thing we agreed that was needed is some sort of measure of ROI on education. If you get a degree at State, how long will it take to pay back the cost? What will the payback be in 30 years? Unfortunately, most students entering college don’t look at the long term effect, they just assume they have to get a degree and look at it as four (usually more) years of riding the gravy train.

    In past years, there was some push to get out as student’s couldn’t be carried on their parents’ insurance. Now, students aren’t required to take a full load and can continue until age 25. There goes that law of unintended consequences.

    One part of your post requires me to think more, that’s about allowing student loans to be bankruptable. I’m not 100% certain I agree. I’m planning a post on Occupy Wall Street, I plan to address that in my post in a few days…

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  2. I have another idea. Cut the subsidized loans and grants. Not make cuts, cut them, as in make them go away entirely. Some will claim I am perpetuating a culture of have and have-nots, but I believe it will do nothing but lower costs.

    Right now, colleges and universities charge whatever they want with the reasonable expectation that they will get their money – students will just take out loans. But if it was a significant drop-off of enrollment because the cost was too high, those same colleges and universities would be scrambling to find ways to lower tuition because it then becomes a question of making little money or losing money. (If nobody enrolls, teachers and professors still have to be paid, the building still has to be kept up, etc.)

    Of course, the high schools need to also end their motto of “every kid goes to college” mentality. My brother-in-law, a high school graduate with a drug crime conviction, makes a very good living as a housing contractor – and his only formal education in that field was a course in HVAC, the only reason for that being that he was required to for one of the sites. He took a job as a day laborer, worked hard, and learned everything he could. His boss’s boss eventually retired and directed his clients my BIL’s way. But the k-12 Cartel hears that and edits the story to, “He didn’t go to college and he has to do manual labor.”

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