Posted on 10/11/2011 8:18:53 AM PDT by SeekAndFind
As the Wall Street protests grow and expand beyond New York, growing scrutiny of the nascent movement is warranted. What do these folks want? Alongside their ranting about the inequality of incomes, the alleged inordinate power of Wall Street and large corporations, the high level of unemployment, and the like, one policy goal ranks high with most protesters: the forgiveness of student-loan debt. In an informal survey of over 50 protesters in New York last Tuesday, blogger and equity research analyst David Maris found 93 percent of them advocated student-loan forgiveness. An online petition drive advocating student-loan forgiveness has gathered an impressive number of signatures (over 442,000). This is an issue that resonates with many Americans.
Economist Justin Wolfers recently opined that “this is the worst idea ever.” I think it is actually the second-worst idea ever — the worst was the creation of federally subsidized student loans in the first place. Under current law, when the feds (who have basically taken over the student-loan industry) make a loan, the size of the U.S. budget deficit rises and the government borrows additional funds, very often from foreign investors. We are borrowing from the Chinese to finance school attendance by a predominantly middle-class group of Americans.
But that is the tip of the iceberg: Though the ostensible objective of the loan program is to increase the proportion of adult Americans with college degrees, over 40 percent of those pursuing a bachelor’s degree fail to receive one within six years. And default is a growing problem with student loans.
Further, it’s not clear that college imparts much of value to the average student. The typical college student spends less than 30 hours a week, 32 weeks a year, on all academic matters — class attendance, writing papers, studying for exams, etc. They spend about half as much time on school as their parents spend working. If Richard Arum and Josipa Roksa (authors of Academically Adrift) are even roughly correct, today’s students typically learn little in the way of critical learning or writing skills while in school.
Moreover, the student-loan program has proven an ineffective way to achieve one of its initial aims, a goal also of the Wall Street protesters: increasing economic opportunity for the poor. In 1970, when federal student-loan and -grant programs were in their infancy, about 12 percent of college graduates came from the bottom one-fourth of the income distribution. While people from all social classes are more likely to go to college today, the poor haven’t gained nearly as much ground as the rich have: With the nation awash in nearly a trillion dollars in student-loan debt (more even than credit-card obligations), the proportion of bachelor’s-degree holders coming from the bottom one-fourth of the income distribution has fallen to around 7 percent.
The sins of the loan program are many. Let’s briefly mention just five.
First, artificially low interest rates are set by the federal government — they are fixed by law rather than market forces. Low-interest-rate mortgage loans resulting from loose Fed policies and the government-sponsored enterprises Fannie Mae and Freddie Mac spurred the housing bubble that caused the 2008 financial crisis. Arguably, federal student financial assistance is creating a second bubble in higher education.
Second, loan terms are invariant, with students with poor prospects of graduating and getting good jobs often borrowing at the same interest rates as those with excellent prospects (e.g., electrical-engineering majors at MIT).
Third, the availability of cheap loans has almost certainly contributed to the tuition explosion — college prices are going up even more than health-care prices.
Fourth, at present the loans are made by a monopoly provider, the same one that gave us such similar inefficient and costly monopolistic behemoths as the U.S. Postal Service.
Fifth, the student-loan and associated Pell Grant programs spawned the notorious FAFSA form that requires families to reveal all sorts of financial information — information that colleges use to engage in ruthless price discrimination via tuition discounting, charging wildly different amounts to students depending on how much their parents can afford to pay. It’s a soak-the-rich scheme on steroids.
Still, for good or ill, we have this unfortunate program. Wouldn’t loan forgiveness provide some stimulus to a moribund economy? The Wall Street protesters argue that if debt-burdened young persons were free of this albatross, they would start spending more on goods and services, stimulating employment. Yet we demonstrated with stimulus packages in 2008 and 2009 (not to mention the 1930s, Japan in the 1990s, etc.) that giving people more money to spend will not bring recovery. But even if it did, why should we give a break to this particular group of individuals, who disproportionately come from prosperous families to begin with? Why give them assistance while those who have dutifully repaid their loans get none? An arguably more equitable and efficient method of stimulus would be to drop dollars out of airplanes over low-income areas.
Moreover, this idea has ominous implications for the macro economy. Who would take the loss from the unanticipated non-repayment of a trillion dollars? If private financial institutions are liable for some of it, it could kill them, triggering another financial crisis. If the federal government shoulders the entire burden, we are adding a trillion or so more dollars in liabilities to a government already grievously overextended (upwards of $100 trillion in liabilities counting Medicare, Social Security, and the national debt), almost certainly leading to more debt downgrades, which could trigger investor panic. This idea is breathtaking in terms of its naïveté and stupidity.
The demonstrators say that selfish plutocrats are ruining our economy and creating an unjust society. Rather, a group of predominantly rather spoiled and coddled young persons, long favored and subsidized by the American taxpayer, are complaining that society has not given them enough — they want the taxpayer to foot the bill for their years of limited learning and heavy partying while in college. Hopefully, this burst of dimwittery should not pass muster even in our often dysfunctional Congress.
— Richard Vedder directs the Center for College Affordability and Productivity, is an adjunct scholar at the American Enterprise Institute, and teaches at Ohio University
And it is simple to almost go for free - don't begin college right after high school - work for a few years, move out - get a subsidy for housing, possibly food stamps and qualify for a pell grant and other need based scholarships. If that fails, claim you can't find a job and apply for "Income Based Repayment" - you can work as a community organizer and pay as little as $50 a month on your $150,000 loan and it is considered repaid in full after 20 years. In other words, you and I are giving them almost a completely free ride and they are still whining.
I guess I was stupid to find a job, work hard and pay my student loans back.
I hope these whiners get a dose of reality soon.
these morons should be protesting against "big eductaion" - there is no legitimate corporation that could of scammed them into taking out 6-figure loans for semi-worthless degrees.
The problem is that those that are the most harmed are too stupid to realize what has happened to them. They wander about like huge grass-eating dinosaurs, navel-gazing mindlessly. And like the multi-ton, 80-foot herbivore Brontosaurus, they have brains the size of walnuts. They are so dumb that, even when the body experiences physical death, it takes 20 minutes for the walnut sized brain to realize it.
I would also take to task the ineptness (or outright predatory malpractices) of the academic advisors that gleefully allow student to burden themselves with debt for majors they are not suited for or even if they could be the best in their field they'd never find any jobs, 'green' comes to mind.
But on the other hand many trillions have been handed out to people, companies, and even foreign central banks who are equally undeserving of the money.
The likes of Henry Paulson, Ben Bernake, and Timothy Geitner are still in their jobs sitting pretty, while knowing full well they've put us in a mighty bad position. Is that ethical? Is that proper? I think not.
None of this should have been done in the first place - but since it has, on what basis will the gov’t say ‘no’?
And not one person was forced to buy a house at the peak of the bubble. Yet many people did, and now there’s a big problem, regardless of whether it was a good idea to begin with.
These clueless asses somehow figure they are ENTITLED to other people's money, and it should be HANDED TO THEM, just for showing up.
NO ONE forced them to go to school if they couldn't afford it, Major in "Diversity Studies", or "Minority Feminine Studies", or "Marxism for Fun and Profit" studies......Liberal-indoctrinated parasites do NOT represent Americans.
In China, they have to pay “donations” to attend the free university??? Oh my gosh........Is Chairman Mao turning in his grave?????? This is happening in a worker’s paradise??????????
I know it’s a novel concept, but I got through college by working summers at the mill.
Got through graduate school on the GI bill.
Maybe they should try that route instead!
Why do you think Obama took over and put the Feds in direct control of student loans?
If next September comes and he is down double-digits in the polls, I guaran-damed-tee you that he’ll float a Student Loan Forgiveness scheme and the young skulls o’ mush will come flocking to the ballot boxes for him.
Student loans should be abolished
The worst thing to happen to higher education PERIOD
All they did was allow colleges to jack up tuitions far above inflation rates and expand by offering BS courses that do NOTHING to prepare for any kind of job
Same here. I paid on `em for about ten years, balance never seemed to budge, so I took out a home equity loan and finally paid them off.
Most of these kids can write off the interest, thanks to President Beelzebubba—if they had the income, which they don’t because they’re screwing off at demonstrations!
I had a long series of low-paying, dirty, menial jobs for many years. I have no sympathy for these kids. Nothing worthwhile is ever given to you, as they seem to think.
“Get a job you young hobos!” Grandpa Simpson
Rant ............. over
American would be a lot better off with a lot less college graduates of the wrong kind. We need more hard sciences and less liberal arts.
We’re pumping out attorneys, social workers and teachers at an astounding rate and they all want top dollar as they promote making even more copies of themselves.
A couple weeks back I saw a social worker on the news complaining that the poor were being cleansed from Michigan and if it keeps up she’ll lose her job. If little miss social worker really cared about the poor, she would look forward to the day when she could walk away from her job.
true to the Steven Lerner/Cloward and Piven plan, they are organizing a student debt cartel.
http://www.forgivestudentloandebt.com/node
I don’t suppose any of the idiots would consider the Military College Loan Repayment Program. Because then they would have to work for a living.
This was a planned organizing technique of Democrat Party.
In WA state the Democrat legislators went further, they made tuition increases and budget cuts, the job of the individual institutions, insulating the Democrats who are in control, from the fall out, claiming that the Republicans have tied their hands by requiring a voter referendum for tax increases.
We need to get past the idea that “everyone” needs to attend college. That’s one reason we have dopes with $50k in student loans with a degree in “Gender Studies”.
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