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21 Comments

  1. While I still don’t think its a good idea for one entity to have 90% market share for student loans, I do see a need for not completely privatizing the student loan market:

    I have a few other concerns about higher education:
    *Schools are spending lots of tuition money to build fancy amenities & pump lots of money into athletics programs that improve the campus quality of life but doesn’t necessarily relate to education
    *A college degree has become like the new high school diploma and enrollment has skyrocketed meaning colleges can raise tuition because somebody will pay it and the federal government will lend the money

  2. Great analysis, Drew!! But alas I am likely forever anti-government involvement in most stuff, including student loans. 🙂 Maybe my opinion will change when our 9th grader starts college in a few years. 😉

    • Mr. Groovy

      Imagine if grocery stores required every customer to buy $75 worth of processed food for every $25 worth of fruits and vegetables he or she wanted to buy. And then imagine that the corporate media claimed that food was expensive, not because of the ridiculous bundling practice of grocery stores, but because the government was short-changing the food stamp program. Well, this absurdity is exactly what’s going on with higher education. College would be a lot less expensive if a student only needed to take the 12-15 classes pertaining to his or her major. I’m with you, Laurie. I love Drew’s analysis, but it only makes sense in the context of today’s higher education business model. Take away the business model that forces students to take 25-28 classes they don’t need and the whole need for Pell Grants and student loans practically disappears. Save America, unbundle higher education!

  3. Ironically, the only loans available to me were private loans. 🙂 I was working at my job by day and attending grad school on evenings/weekends, but as a (then) non-citizen I didn’t have access to any of the subsidized/federal loan options.

    At the time, I wasn’t ecstatic about the fact that we had to work harder and pay higher interest rates just because we were born elsewhere. Of course, I now understand the risk factors better but still, it would have been nice to have a few govt.-backed alternatives. 🙂

    • Mr. Groovy

      Whoa! Excellent point, WO. I forgot how predatory the college-industrial complex is to foreign students. Sorry you had to endure that avarice. But I’m happy you’re part of our team now. Thanks for stopping by, my friend.

  4. Steve Poling

    It seems that someone other than an 18-year-old and a University Department Chair should decide the prudence of lending the student five-figures to pursue studies in Polka Theory. Perhaps such student loans should be underwritten by the big Polka factory they’re going to open at the edge of town.

    • Mr. Groovy

      Hahahahahaha! In one pithy paragraph, you explained why the current higher education business model is a freakin’ joke. Well done, sir.

  5. mary

    One of the main drivers of the increase in cost of higher education actually has been less government participation. States used to pay for the vast majority of public university costs, and now they don’t.

    Some research has suggested that the Bennett hypothesis – which says that availability of loans is an important factor in increased costs – has some validity in post-1980s cost escalation. Other research does not find that link, and I’m not aware of any research looking into the GI-Bill heyday right after WWII.

    Here are some interesting bits and bobs of research for your enjoyment and so you can evaluate yourself.

    1. layman-oriented, good overall summary: http://www.npr.org/2014/03/18/290868013/how-the-cost-of-college-went-from-affordable-to-sky-high

    2. Research conducted for Congress, National Center for Education Statistics report (one research question was the effect of aid on tuition) : https://nces.ed.gov/pubs2002/2002157.pdf

    3. Rizzo and Ehrenberg (which did find a Bennett like effect): http://www.nber.org/chapters/c10103.pdf

    4. Singel and Stone (no Bennett effect found): https://scholarsbank.uoregon.edu/xmlui/bitstream/handle/1794/114/2003-12.pdf?sequence=1

    • Mr. Groovy

      Thank you, Mary. I appreciate the links. I definitely have some learning to do in this area. From my layperson perspective, though, I’m very confused.

      First, if higher education knows the government is contributing less than it used to, why does it maintain the status quo? If it really cared about students and social mobility, wouldn’t it adjust its business model to make things less costly? After all, there’s no law saying all bachelor degrees must comprise 40 classes. Couldn’t many if not most majors be adequately addressed in 24 or 30 classes?

      Second, I don’t know why less government participation really matters. When I went to Buffalo University way back in 1979, my psychology 101 class had 600 students in it. Today, because tuition and fees are up to $334 a credit at UB, that same class will bring in $601,200 in revenue. If the typical adjunct professor makes around $3,000 per class, where does the remaining $598,200 go?

      Again, I’m just talking out of a certain part of my anatomy. But here’s one more thing that confuses me. Whenever gas prices spike, Congress invariably asks oil company execs to come to Washington and explain to the American people why gas prices are so high. How come Congress doesn’t do the same with college presidents? Every year tuition, fees, room, and board go up, but college presidents are never asked to testify before Congress. Why?

      Sorry for the rant, Mary. I guess I’m just getting too cynical in old age. Thanks for stopping by, Mary. I really appreciate what you had to say.

      • Mary

        Hi, Mr.G – There’s a lot in this, and I’m not a mind-reader, but I’ll toss in a few more thoughts for you to consider.

        1. “First, if higher education knows the government is contributing less than it used to, why does it maintain the status quo? If it really cared about students and social mobility, wouldn’t it adjust its business model to make things less costly? After all, there’s no law saying all bachelor degrees must comprise 40 classes. Couldn’t many if not most majors be adequately addressed in 24 or 30 classes?”

        I have two thoughts here. First, it depends on what you think the purpose of higher education is. The long tradition in Western democracies is to see it as a training ground for citizenship, in addition to skill building. So the core classes are a way of giving people a similar cultural context and broad base of information to help foster critical thinking. So, in this line of thinking, reducing the number of classes, just to give more people the letters behind their name, would fundamentally cheapen the degree.

        Second, as an engineer who has also run a business, I have never wished that I took fewer classes, because the business and engineering world is incredibly complex. You never know what piece of information is going to be useful, but more than that, what I’ve found is that the traditional model gave me a background in thinking across different fields to get answers.

        Third, I am not sure that higher ed is actually maintaining the status quo. For example, that adjunct you’re referencing. Universities have drastically increased their use of adjuncts and reduced the number of full time tenured faculty and made other changes to reduce costs.

        2. “Second, I don’t know why less government participation really matters. When I went to Buffalo University way back in 1979, my psychology 101 class had 600 students in it. Today, because tuition and fees are up to $334 a credit at UB, that same class will bring in $601,200 in revenue. If the typical adjunct professor makes around $3,000 per class, where does the remaining $598,200 go?”

        OK, I am not sure this is a comment you actually want a reply on – maybe it’s sarcastic? But let’s start with: “Government participation” = funding. The increase in tuition is directly tied to the decrease in State funding. State pays less, tuition gets higher.

        Next: How much did a cup of coffee cost in 1979? An apartment? So, overall inflation covers a part of it. Not all of it, because education costs have been rising faster than inflation, but some part of it is caused by inflation.

        Third, universities have astronomical overhead rates – mainly to pay for their facilities. Everyone wants to pay for the sexy research; no one wants to pay for the toilets. But without the physical plant, the research can’t happen.

        There’s probably more, but that’s what comes to mind at least.

        3. “Whenever gas prices spike, Congress invariably asks oil company execs to come to Washington and explain to the American people why gas prices are so high. How come Congress doesn’t do the same with college presidents? Every year tuition, fees, room, and board go up, but college presidents are never asked to testify before Congress. Why?”

        Well, assuming it’s true that oil company CEO’s have to testify – I have no idea. Maybe it’s because most of the population hasn’t been to college and has no plans to and so they don’t give a dang? But most of the population drives and notices price fluctuations of gas?

        Anyway, I wasn’t trying to start anything. Your blog, and all that. I just thought that you might be interested in other takes on the situation that might enrich your view.

        I know you say you rant a lot, but in the posts I see on Rock Star Finance, I usually see you as being someone who values numbers and facts. Sorry if I misinterpreted!

  6. Student loans are a bear and part of my current stressor. It is not the monthly payment that stresses me, just the knowledge I have a $170k sitting on top of my head (or maybe on my back?).

    Honestly, I would be happy if the government could figure out health care first and then focus on student loans. Unfortunately I don’t think either is going to happen and we will be stuck with the status quo.

    • Mr. Groovy

      I couldn’t agree more, DDD. A $170K in student loans is scary. Healthcare is sadly a bigger problem than higher education. And Congress won’t be able to fix either. We have 535 of the most formidable “critical thinkers” on earth gathered in DC, and they can’t figure out sh*t. Here’s their definition of critical thinking in a nutshell: grow the footprint of government, “tax” the rich, put on a dog and pony show for the middle-class and poor, and then cash in as a lobbyist when their “public service” is over. Sad. Pathetic. Infuriating.

  7. I agree with Drew on this one! My dad works for the branch of government that oversees these loans. Nothing is perfect, of course, but he’s mentioned many of these arguments against privatization. I’m glad we do have private loans as an option, but it would be rough if they were everyone’s sole option.

    I think we really just need to overhaul the idea of college as a necessary prerequisite to working. We’re seeing this huge crisis because we’ve told a generation that college is mandatory to have a good life.

    • Mr. Groovy

      So true, Mrs. PP. And what gets me is this: every major requires four years and 40 classes. Really? The sociology major and the engineering major both have to take 40 classes in order to master the fundamentals of their respective fields? My master’s degree in public administration was forty-two credits (14 classes). An MBA was sixty credits (20 classes). If master degrees can have varying credit requirements, why can’t bachelor degrees?

  8. Rather than privatizing loans, I have a (not surprising) regulatory tweak I’d love to make to the system. I think tying future federal loans to the school’s default rate was a good first step, but I’d love to see colleges have to be held partially financially responsible for their student loan defaults. I suspect that tweak would disincentivize predatory behavior and incentivize better career planning services. Both would help students better match loan burdens with earning potential.

    That said, the current administration isn’t going to go there, or anywhere remotely close.

      • Mr. Groovy

        Agreed, Lance. The ultimate solution would be college cheap enough to make student loans unnecessary. Take a college class of 30 students. At $500 per student, that class generates $15,000 in revenue. The adjunct gets approximately $3,000. Where does the extra $12,000 go?

    • Mr. Groovy

      Thank you, Emily. I love that idea. If colleges had skin in the game and would take a hit anytime one of their students were in default, a lot of nonsense would stop.