$1.65 trillion in outstanding student loan debt (of which $64.2 Billion is from private lenders).
Too much tuition is funded with loans. Whether lent by the government or by private lenders, the money is easy to get & flowing at a ridiculous rate. Both types of lenders benefit from the bankruptcy exception for student loans,
Again thanks for the cite, but we will just have to agree to disagree. (I am a bit shocked by the $1.65 trillion figure in outstanding student loan debt. I think that supports my position.)
@Publisher: Appreciate the counterpoint, although not necessarily the delivery I am neither an author nor an editor / publisher of the article. I am not affiliated with the magazine in any way, shape or form. I was simply trying to read the article with an open mind, like I would read a scientific publication.
If you believe that the author’s point about 50 disparate education systems is incorrect, please provide a reference to a federal regulatory document stipulating how tuition, compensation or other university funding, curriculum, staffing or resource/hardware allocation should be decided at state level, and I will take my assertion back.
While I agree with you that (unreasonable) demand can drive up the price of a good (cf. the Dutch tulip mania in the XVII century), and that the availability of easy credit can stoke that fire (US housing bubble circa 2008), I do believe that costs do determine the price of a good to a large extent. If you can scientifically prove that this is not the case, I will take my assertion back as well (that, in my opinion, would be a major discovery in the field of economics).
Without the availability of easy loan money, colleges & universities could not sustain their current level of spending & would greatly reduce course offerings, compensation, amenities offered & any other cost cutting measures deemed appropriate. If you consider this to be a major discovery in the field of economics, then you are mistaken.
Yes, public school systems are run by each state & community colleges by each county. The cost varies widely depending upon state funding. The University of Florida and many other flagship state universities charge a fraction of private school tuition. And this is my point: While state supported institutions of higher education do provide a great value to the consumer, the private sector has been fueled in very large part by the availability of easy money via student loans. This is very similar to the pumped up housing market of about a decade ago. Easy loan money resulted in excessive housing prices which eventually burst. Not only do colleges & universities benefit from easy money, but the over trillion dollars of student loans gets protection from bankruptcy.
My point remains that your posts in this thread fail to see the big picture. Same lack of understanding as shown by the author & editor of The Atlantic article.
The government student loans are limited to $5,500 to $7,500 per year for undergraduates (these limits have been the same since 2008). The expensive private schools charge tuition of $45,000+ (with total cost up to around $70,000 after adding in other expenses), so the amount of government student loan money that students can use is only a small part of that amount. Whether or not you think government student loans are too generous, they do not appear to be the driver for increasing college costs, which have been rapidly increasing even though government student loan limits have remained the same (slowly decreasing in real value due to inflation).
@Publisher It appears that your first paragraph states, “In the absence of cheap financing, the price of education becomes elastic”. Agreed. Worth noting, however, that you cannot sell a car below cost for too long. If your argument is that cheap loans created artificially high inflation in higher education compared to the rest of the economy, I agree as well. Again, worth noting, that if professors are not paid well, they will choose to work in the industry instead, like some did in the heyday of quantitative finance, and then the quality of education will eventually suffer (ditto for pensions, healthcare benefits etc.)
Your second paragraph agrees with the author’s original point of disparity between state education systems. Looks like we now agree on that.
The third paragraph is not substantiated with any factual arguments, so no qualified response is possible.
@ucbalumnus: The high cost of college & university education is fueled by easy money whether you agree with that or not.
You cited an article which claims that the outstanding student loan amount is at $1.65 trillion dollars of which over $64 billion is in private loans.
Am I correct in understanding that private universities also make direct loans to their students ? I wonder where that substantial dollar amount is revealed. Or if it is revealed in the figures cited.
There will be a bailout, likely within the next decade. I always advise people to delay paying principal to whatever extent practicable for as long as possible. Don’t be that chump who paid off all her loans when others get to skate!
@SatchelSF: Actually I spoke with a political consultant yesterday who asserts that all that the Democrats need to do in order to regain the House & Senate is to address the student loan debacle in a manner similar to what you suggest only with legislative authorization.
““In the absence of cheap financing, the price of education becomes elastic”. Agreed.”
I’m not at all convinced that elasticity applies across the board whether or not loans are easy or hard to get. There are way too many threads on this site from parents who aren’t taking loans, but don’t consider making college choices via an ROI calculation (exemplified by saying that college savings should not be treated as fungible between spending it on college or spending it on a house or car for your kids).
In fact pretty much the only time commenters on CC criticize posters for wanting to attend an expensive college is if the poster and/or their parents would have to take out loans to do so. If their parents have the money, commenters instead typically say the choice should be all about fit and some will throw in an opinion about how much worse it is to be in big impersonal classes at (much cheaper) state flagships. I hardly ever see a comment advising a poster “save your money, Ivy League schools are overrated” or “why on Earth would you choose to pay $70K for Stanford rather than $35K for Berkeley?”. Far more often it’s “if you’d lived more cheaply you could have saved enough to pay for Georgetown”.
Private residential four year colleges are a luxury good, some would suggest even a Veblen good, so demand may increase rather than decrease for the most expensive private colleges as their price goes up. Low end non-selective commuter colleges are not necessarily the same, but also are not necessarily overpriced compared to international benchmarks, at least according to this article.
Theoretical bailouts would be to save lenders who are “too big to fail”, not borrowers.
The amount of private student loan debt is probably only about 1/20 of the amount of subprime mortgage debt in the mid-2000s (total student loan debt is about 1/9 of the amount of total mortgage debt). And while mortgage lending and mortgage securities are widely done by banks, student loan lending and student loan securities are much less common. So the chance and magnitude of a financial crisis relating to private student loans is far smaller than that relating to subprime mortgages.
Government student loans obviously impact the government budget, but it is not like a trillion dollars is a big deal for legislators who are willing to give away that amount in deficit-increasing tax cuts for big business and the wealthiest individuals.
There are no private lenders to speak of. The lenders are us. The US government. The beneficiaries of the bailout will be those people who borrowed. The losers will be those people who didn’t, or who already paid off their loans. I’d rather be in the first group if possible.
“Private residential four year colleges are a luxury good, some would suggest even a Veblen good, so demand may increase rather than decrease for the most expensive private colleges as their price goes up”
Agree. This HAS been happening. So much that even less selective private colleges are in the 60k sticker price range. periodically we see posts on CC asking “is college X lower-quality because the sticker price is $5,000 less than others?” If you are a private college and the sticker price isn’t 60k you must be a crappy college.
Wealthy families that are paying 60 to 70k do sometimes feel like chumps especially when other students at said colleges are paying very little.
In other words, no, funding degrees in communications, political science, the various “studies” fields, education, etc. at ever higher costs is not going to lead to the sort of increased productivity required to service this debt, at least in real terms. And unlike mortgages, which are at least in theory secured by repossessable assets, student loan debt is secured by nothing.
Note the chart in the below link, which shows annual increases in government-backed borrowings that exceed the entirety of outstanding private loan debt. All you need is a slight slowing of this sort of trajectory to create a crisis for educational institutions. My guess is that small non-elite LACs will be the first to crack. A little Schumpeterian creative destruction.
^ As a lender, I’d rather take my chances on someone who went to Phoenix for a B.A. in Health Informatics than someone who went to an LAC to study Peace Studies
I am neither an author nor an editor / publisher of the article. I am not affiliated with the magazine in any way, shape or form. I was simply trying to read the article with an open mind, like I would read a scientific publication.