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
sounds like a LOAD of crap.
WAHHHH! Sorry, kids, you borrowed it, you pay it back. That’s life in a free society.
I want my car notes and mortgage forgiven.
Isn’t it my right to have a home and a car?
(these people are spoiled rotten whiny little brats.)
Not forgiven outright, but certainly the current bankruptcy rules that make them well nigh nondischargeable should be relaxed - it shouldn’t be harder to discharge a student loan than it is to discharge unpaid federal income taxes.
Jaysus! Is ANYONE responsible for themselves anymore?
I think they should take up their grievances with the Universities and Colleges that gave them overpriced, worthless degrees.
So let me understand: If I saved for 3 decades and paid cash for my kids to go to school, giving up vacations, new cars, and all of the other things Americans find normal too bad for me: their peers who just borrowed the money from the evil banks can just not pay for it ?
The great irony, of course, is that if the USA had free, state-run education as they demanded - these “occupiers” would never be able to attend university.
Places like France and China, who have “free” state run universities are hyper-competitive for very limited spots. Moreover, In France, university facilities basically look like typical run-down state housing projects. In China, “free” university now is quite expensive, as one finds one needs to pay a lot of “donations” to get the school, teachers or program one really wants.
Of course, these clowns protesting would never recognize this reality.
I do agree with part of the article that schools drastically raise their prices to reflect the free availability of money.
They suck these people in with utopian dreams of getting a degree and a great job.
Borrowers are responsible for their own choices, granted, but if schools were forced to live within their means you wouldn’t have public university employees pulling in six figures, etc....let them earn their money through patents and publications instead of taxpayer dollars.
I think their angle is...if the banks got a bailout why not them? After all they are “tax payers”.
And that’s where it all breaks down. They really aren’t paying their “fair Share”. Under the 999 plan everyone would pay in to the system and then I bet people would expect our government to be more frugal with our money. Those that don’t pay in, get an entitlement mentality and do stupid things like these protesters.
I want a flying unicorn with side mounted 20mm cannons and craps skittles .
Universities are horribly overpriced, and student loans are largely responsible.
Richard Vedder makes a case that the federal student loan program is deeply flawed but the fact remains that the money was loaned and promised to be paid back. These protestors are just looking for a free ride on the backs of others. I’m sick of it.
Its all about not wanting to pay for what they’ve taken. The fact that one of their top demands is to outlaw credit reporting agencies says it all.
The dirty little secret is that most "financial aid" comes from overcharging non-minorities and using the excess to fund "financial aid" to Eric Holder's people.
An intended consequence of this is that non-Eric Holder's people bury themselves in student loans that are now owned by the federal government.
Get this: student loans are the ONLY debt you cannot escape through personal bankruptcy.
This means that the vast majority of kids graduating from college these days are indentured slaves to the federal government.
If you don't think Washington has plans to exploit this situation, you must be from some other planet.
While College cost made Health Care increases look meager.
Colleges are like Government a huge sink hole of wasting money.
make the borrower and lender interact without gubmint middlemen and make student loans dischargeable under personal bankruptcy.
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