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The Burgeoning Student Debt Problem

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Even though other consumer debt-bombs have done more damage, student debt is producing significant social and economic distortions. One is so useful to the authority structure that it seems certain that they will keep this type of bondage in place. Heavy debt loads pressure young people into making conservative choices. If you carry a lot in the way of student loans, you have to worry about employability. That doesn’t simply push graduates into bigger ticket (hence more conventional) career choices; more important, it makes them far less likely to step out of line. In particular, an arrest record, which is often a by product of protesting, is an automatic out with a lot of employers.

But the level of student debt, now estimated at over $1 trillion outstanding, is having an impact on spending. First time home buying is running below the level expected given new household formation, and a big culprit is student debt loads, since many young people are too leveraged to take on a decent-sized mortgage on top of their existing obligations. In addition, the 25 to 39 year old cohort is the top target of advertisers, but the more debt service they have, the less they can buy in the way of goodies.

Adam Levitin has taken his first serious look at student debt. Aside from grumbling at the dearth of academic research, he offers some useful observations. The big one is that the problem is the level of debt: student debt rates are generally pretty favorable, and the loans also offer a lot in the way of payment flexibility.

He also made a modest suggestion:

Why we are financing education via debt? It’s not obvious that we have to do so, and that’s the easiest way to avoid leverage going forward. Milton Friedman proposed equity financing some years back, meaning that the school got a % of future income, rather than a fixed amount. It could be as progressive or regressive as a school wanted.

Yale tried such an experiment in the 1970s, but with poor results–the alumni didn’t pay. Yale didn’t want to sue its alums, and let them convert to debt at a favorable rate. But that’s an easily surrmountable problem–we could have education payments rolled into tax bills and collected by the IRS, which would then remit to the schools. Non-payment isn’t stiffing the school. It’s stiffing Uncle Sam, who is much better at collecting. It’s not such a radical idea–Australia collects student loans via its tax service.

There’s an entrenched education bureaucracy that would have a lot of trouble changing to an equity financed system (alumni fundraising would surely suffer, for example). But it would mean that people take the jobs they want, rather than the jobs that pay the student loans. That might be a very good thing for society, even if it would certainly hurt some employers (think those who pay recent graduates outsized “hazard pay”).

The biggest problem with equity financing is that it has no maturity. So will graduates keep paying their entire lives, or until retirement? That seems awfully long, but limiting the time frame (say to 20 years) guarantees income deferral by those able to do so.

But a lot of the other incentives seem positive. Schools administrators would not wind up misrepresenting the attractiveness of investing in education as they do now by telling students of average increases in earnings power, which is probably a misleading metric if you choose to major in musicology or civil engineering. And graduates would not have to worry about the consequences of taking an entrepreneurial or social-service oriented job.

And putting schools at risk for future payments might lead them to focus on delivering more cost-effective education rather than edifice and overhead building. Cheaper education would clearly be a better solution, but it’s hard to stuff that genie back in the bottle.

What is your reaction? And if you don’t like equity as a remedy, what fix do you propose?

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88 comments

  1. Blayne Sapelli

    “(think those who pay recent graduates outsized “hazard pay”).”

    What employers pay recent graduates hazard pay? I’m not sure I’ve ever heard of this before … Does he mean things like dangerous short term jobs that pay quite well? (eg: working in the Australian mines, private military contracting, etc.)

  2. Elliot

    Sounds like just a different flavor of peonage to me. Nobody is going to stand up and examine why education is so freaking expensive, compared say to the same kind of degree in that exotic land, Canada? You could foot an entire law degree in Canada for what one year of it costs here.
    Schools see students as profit centers, so do banks. Tuition has risen all out of proportion to the rest of things (except that other profit center, health care). When I was in grad school (put myself thru via a combination of job/workstudy/scholarship (which paid for my books)………… that was the waning of Pell Grant era (1980′s) and the beginning of debt slavery as the norm. Bill Moyers had a wonderful speaker on last month, on this topic, (cannot remember her name but she was fascinating).
    We need to fight the unexamined assumption that just because banks and schools want students to have to take out whopping loans that are not dischargeable, that it is either good for the nation or is appropriately priced.

    1. jabre

      Elliot – ‘stand up and examine why education is so freaking expensive’

      Thanks for a voice of reason among all these comments.

      How about a quick look at any major public university operating budget? They post their budgets online. The University of Texas at Austin, just a part of the overall UT system, is a good example of fraud and waste. Their budget (http://utdirect.utexas.edu/budget/pdf/UTAustin_Budget_VolI_11-12.pdf) indicates a $2.1B operating budget for approximately 50K students. That is approximately $42K per student. This in an environment where the average class size is conservatively approximately 100 students. Keep in mind, this does not include research funding. The individual research labs are responsible for their own funding from Federal and private sources.

      Not to worry though. It’s for the kids.

    2. Moneta

      The joke is that in Canada, we’re following in your footsteps.

      Quebec students have started a mini-revolution and the rest of Canada thinks the kids are just entitled.

      http://www.cyberpresse.ca/actualites/dossiers/greve-etudiante/201204/21/01-4517646-des-personnalites-publiques-appellent-quebec-a-negocier.php

      Never mind that the kids are expected to buy overpriced houses, their old Age Security was just cut but the boomers were spared, tolls are about to be set up everyhere to pay for the crumbling infrastructure while boomers retire and stop using the roads, that defined benfit plans keep on getting closed to the young but maintained for the boomers, that CPP premiums will be going up from 10 to 15% to pay for boomers’ retirements. The list goes on.

      Somehow, the boomers don’t get it. They think the kids are entitled and fail to see they are just a chip off the old block. I think it’s because real estate is in a bubble. The boomers up here in Canada do not realize that they are about to get the rug pulled from under their feet and it’s just a matter of time.

      1. Roland

        All Canadian provinces are rapidly hiking tuition, esp. for professional programmes.

        In most respects, Canada is hastening towards the US model in all things: more jails, more weapons, more surveillance, private healthcare, and high student debtloads.

        And our property/consumer debt bubble is proportionately bigger than the one in the USA.

        Note to American liberals: Canada is nothing but a trailing indicator of the USA.

        As in the USA, Canadian voters have a free choice of neoliberal parties (however it is true that we have three neoliberal parties to choose from, and not just two. So yay for Canada!)

    3. different clue

      How much of the price-rises at public Universities and Community Colleges and so forth are reciprocally linked to state governments’ reduction of tax-funding-support to those public institutions? Over the past 20 years at least these institutions have had their public taxfunding support steadily reduced, have they not? Leaving them to make up the money by raising tuition, fees, etc., yes?

      So how much has the cost of education actually gone up, as against how much has it simply been shifted from taxpayers who were collectively investing in subsidized college-education-affordability for those state residents who showed promise of being able to perform well at it . . and shifted directly to the education-seekers themselves?

  3. Bob Haugen

    > if you don’t like equity as a remedy,
    > what fix do you propose?

    Pay people to go to school.

    Oh wait, that would require a different economic system…

    1. rjs

      you’re right; if the corporatocracy needs educated workers, then they should pay for it; as it is now, college is just a vehicle used by the finance machine to sell young people into debt slavery…

      and even if young people are attending a university to be prepared for a career as a hamburger flipper at mcdonalds, then mcdonalds, as the ultimate beneficiary of that education, should be the one subsidizing it…

  4. David

    The Australian scheme, known as HECS, is also set up so that one would not have to pay any money if for the year ones salary was less than a certain amount which last time I checked was about $30,000 per year. The percentage that one would pay was something like 2 percent of gross salary.

    1. dearieme

      The British scheme is like that too: if I remember correctly it was modelled on the Aussie. The minimum annual salary for paying has been 15,000 GBP (now being increased) and the repayment rate is 9% of the amount by which annual salary exceeds that minimum. If you’ve not cleared your debt by a certain age (45, I think) it evaporates.

      1. taunger

        These schemes point toward why equity rather than debt is important, because, believe it or not, our system is quickly approaching the ones you cite. Income based repayment plans are available for grads making under $80K, and payments are capped at a percent of “disposable income” (heh, wish I had some of that). After 25 years (little later than 45 for undergrads, but not miuch), the debt is discharged, but may be taxed (no one knows, because the program is <25 years old).

        So Yves is right about flexibility. But with te debt loan, choices are strongly effected.

        1. Cedric

          Under the Income-Based Repayment Plan, there is no fixed income at which you become ineligible. All that matters is that the amount you would pay under the plan is less than what you would pay under a 10-year amortization of the loan. That works out to mean that, if you have a debt-to-income ratio of equal to or greater than 1:1, then you will be eligible for the plan and your payments will be capped at 15% of discretionary income.

          So, your cap might be $80,000, but mine is $170,000 because of my debt load.

          1. mcgee

            IBR is a valuable tool for the student debt holder with one major caveat…the interest on the original principal, and thus the amount of principal owed, continues to accrue. After 25 years the loan can be forgiven if you maintain an income low enough to be eligible for the IBR plan but it is then reported to the IRS and taxes will be assesed on what has grown to be an even larger debt.

            Nice catch-22 for the debt holder.

  5. IF

    This is a very good idea with which I wholeheartedly agree. Of course net it is mostly equivalent to charging a higher tax rate for the educated, which is probably why the suggestion is unpopular. Unfortunately, unlike a higher tax rate paying for free education for all, it punctures holes in both ends. Uneducated would not pay. And the rich would the option to pay a fixed amount upfront. (And the ones with good job prospects would probably lever up with a loan.) This would allow them to get out of livelong profit sharing with their alma mater, making this proposal somewhat regressive.

  6. bmeisen

    Equity financing without maturtiy is the method preferred by many societies that treat education, both higher and lower, first and foremost as a public good, and not, as in the US, as primarily a personal choice. The result is a trained labor force that upon completion of their trainiing can contribute fully both as consumers and as producers, free of burdensome repayment obligations. Using equity financing without maturity in the form of taxation, states provide training for current generations while securing funding for the training of future generations.

  7. Vincent Vecchione

    The only real solution is 100% government subsidies for all higher education. It would cost a slim fraction of what we spend on the defense budget. The only obstacle is political. Obviously (and disgustingly) that’s a very high obstacle, though.

  8. jake chase

    The whole system is ridiculous. Most of the “education” is without economic value. Students absorb drivel from worthless books and clueless lecturers. Most of their time is spent partying, competing on ballfields, cheering at competitions. Higher education originally was a hiatus for rich men’s sons. Then at least it made some sense, added a bit of cultural polish, forged next generation connections. It was marketed to the middle class as a ticket to upward mobility. Today it has evolved into a millstone.

    A large percentage of business minded students major in economics, a subject which Steve Keen has demonstrated to be complete nonsense with no real world application except to those going into propaganda.

    All the education anyone needs is available from books. Learn to read. Avoid the debt trap.

    Incidentally, the interest rate on student loans runs as high as 9% for those who “refinanced” at any time in the 1990s. My wife is paying for her nursing education twice: $60,000 for one year at a third rate institution. And she needed this to find employment here after six years studying medicine in Spain (She finally quit because student protests kept closing the school)

    1. bmeisen

      Good students learn quickly that much of the “college experience” isn’t about learning – it’s about negotiating a complex system. Average students seem to figure this out a little too late, which is understandable given that organizational constraints prevent their schools from acknowledging this salient fact, and that professors, especially those in the US, are sufficiently compromised by the benefits they receive from this system to inhibit them from betraying the truth.

      Instead schools tend to eagerly participate in a narrative that leads its audience away from reality. The reality is not that you shouldn’t study. The reality is that learning will be the exception and that success brings formal qualification that should be relevant for employment.

      The current challenge for higher ed across the first world is to provide employment qualification while offering some of the benefits of classical “liberal education”, i.e. an opportunity to explore alternatives, to read criticism. This is a difficult task for universities, given increasing numbers of students and in the US the devolutionary effects of Disney-individualism on the labor market, i.e. de-skilling, debt peonage, and the tyranny of individual choice.

      1. jake chase

        Higher Ed is just another rent extractor. Expecting it to worry about anything except getting paid is absurd. It is people who need to pursue alternatives. College is just another fraudulently represented overpriced commodity; graduate school is worse. People should get just enough formal education to obtain an entry level (sales) job in a sound company. Despite what they say, companies don’t want people who appear to be “too smart”. I would not be surprised if one or two years of junior college is quite enough. Truly educated people continue learning all their lives. What education is really about is understanding what’s what. Nobody ever got that at Harvard or anywhere else.

        1. gol

          in a “sound” company?

          Unfortunately, there are not too many left that haven’t been cannibalized by unsound ones.

          A high school education done right should be enough for most jobs, but that assumes a student work ethic like in times past and HR managers who focus on something other than degrees.

          As far as Harvard education goes: that’s a special case. Harvard is in the business of brainwashing its graduates. It generally takes them most of their lives to unlearn what they were taught there. Then in their retirements they can finally learn a few things. While they were laboring under various Harvard-induced delusions, they serve a useful function in society of doing some very distasteful dirty work.

    2. Cameron Hoppe

      LoL. Hilarious post.

      I don’t know when or where you went to college. I just completed my undergrad and am 1/2 way to my MS. From my experience, the group of people who spend most of their time partying, cheering, etc, make up less than 10% of the student population. Probably closer to 5%. Most college students I know spend most of their time in class, working low-paying jobs, and wrestling with very difficult assignments. Just making ends meet is a struggle for most students because $9 to $10 an hour doesn’t go far when it comes to housing, clothing, medical care, and textbooks. The few I know who have all sorts of time for partying either have upper-income family members footing all (and I mean all) their bills or are on athletic scholarships. And the athletes, they only party during the off-season for fear of losing their scholarships.

      Like I said, I don’t know when or where you went to college, but your perspective sounds just like the stereotype Hollywood uses to sell movies. Like virtually everything else portrayed in mass media it has precious little to do with reality.

      1. proximity1

        I generally agree with your reply. The image to which you object is in certain ways much out of date and probably does come from one who attended college sometime from the 1970s to the mid or late 80s. That said, there’s still much room to criticize a great deal of what many students are proposed in their studies–though exceptions abound, of course.

        Here’s a recommendation –part of my current reading:

        by Guy Debord: The Society of the Spectacle (and his sequel commentaries on that text.) Though it isn’t easy reading, it has much, much to say to us today and even offers us an example of a work from the 1960s which is still ahead of our time.

        1. Cameron Hoppe

          Chemical Engineering on both. What can I say? Social work would be great, but who can afford to pay off a $40,000 student loan debt on a social workers salary? Assuming you can even get a job, of course…..

          1. proximity1

            thank you for the reply. It puts your comments in perspective. That’s because Chem Engineering, like other “hard (in numerous senses of that term) sciences,” is a field in which the curriculum is quite determined by what simply must be mastered–in a way that the humanities and so-called social sciences are not.

            And so, from your perspective, whether we’re focused on these days or twenty or thirty or more years ago, students in your field are now and were then with very few exceptions, very hard at work because they simply have to be just to make the cut. Those students clearly don’t and didn’t make up much of the large cohort of students who spent (or today spend) even more of their time socializing and drinking than studying; but when I went to college–at a major state university system’s “flag-ship” campus, there were _many_ such students and I noticed them but wasn’t one of their number.

            ( I majored in those so-called social sciences–with emphasis on history and politics. ) So I suspect that you’d never come near Guy Debord’s writing in your course of studies–nor would you be very likely to understand it if you did read it.

            But also an important part of the context is the fact–and it’s a fact across the board, from the “highest” to the “lowest” ranks of the socio-economic scale–that ALL students today, a very few excepted, read far, far less of _anything_ than was the case previously–and this holds true as you go back ten, twenty, thirty, forty, fifty years. Television technology has devasted the reading habits of Americans and anyone who says it hasn’t is either ignorant or lying. Thus, students today, though some are working very hard–esp if they’re in engineering fields–simply have come to college (in the reduced numbers that get there these days) having read vastly less and often of vastly less quality than their peers of two, three, four or more decades ago. I don’t state this merely to “blame” these students. Indeed, for the most part, I regard most of them as very much victims of American social trends and habits. They are that along with all the rest.

            In addition, today, outside the hard sciences (which, in their own ways, also stunt, deforem and short-change– denying their students a better, rounder, scope of knowledge and awareness and try to excuse that as inevitably due to the terribly large and difficult load their students are required to master) many students in arts and humanities are handed a puny excuse for an “education” because, mainly, the society produced such a reduced complement of people capable of interesting themselves in and tackling things that are “beefier” in content and difficulty. In that respect, the critic above, to whom you addressed your previous comments, has it largely correct.

            What Guy Debord saw and wrote so brilliantly of (with all his faults and errors, notwithstanding) was that we’re in a system which is in nature and character one that is what he called of, by and for the ever-more dominant place of “spectacle” to the exclusion of anything that was previously substantive.

            It’s a shame that english translations–especially the first two or three of them since his “La Société du Spectacle” first appeared in 1967 are so poor. They improved after that according to Debord himself in the preface he wrote for the 1978 Italian edition translated by Paolo Salvadori.

            In the original french edition, the text begins by,

            ” (1) Toute la vie des sociétés dans lesquelles règnent les conditions modernes de production s’annonce comme une immense accumulation de spectacles. Tout ce qui était directement vécu s’est éloigné dans une représentation.”

            Or, as I translate it,

            (1) The whole of life in those societies where there reigns the modern conditions of industrial production presents itself as one great accumulation of “spectacle.” All that was once experienced more directly has since become experienced in what is only a kind of secondary representation of its formerly-lived aspects.

            Where I believe that your previous correspondant had it right is in, as I see it, the fact that today, to an even greater extent than was true in the 1970s and 1980s–to say nothing of the 1950s and 1960s from which Debord’s observations spring– every miodern society’s empty and vapid “spectacle” existence is entirely and indispensibly supported and maintained by the work done by the professoriate in its colleges and universities, and this, without exception.

            For that reason, no matter how much or how little they apply themselves, and no matter what the ostensible topics to which they devote their attention, today’s students continue to be “had”–formed and made and fashioned in the image and service of the society of the spectacle in which not only they but their professors, as well as the institutions to which they are joined, were themselves formed and trained.

            This is not a world in which no one ever leaves “Plato’s cave” or suspects that the images projected in shadow on the walls are other than their actual reality. It is a much more subtle situation than that allegory suggests. Because the spectacle is at once its own cause and effect, and has no other object or purpose than its self while, at the same time, can and does metamorphise dynamically as attempts to gain insight into its nature and operation approach it and threaten to reveal something of that to common sense’s view.

            (25) (A profoundly fundamental sense of ) “Separation is the alpha and the omega of the spectacle.”

            and, today, what we are allowed to see to an even greater extent than did Debord–though he was particularly astute in his early awareness of this–is that technology lies at the very heart of this society of the spectacle. It is, in a sense, its central nervous system, and, as mentioned above, its dynamic and metamorphasizing in character.

          2. SidFinster

            Dood, chem-e is, like, hard bro.

            Just bag it, dude. Get, like, an MBA, and you’ll be driving a BMW.

      2. gol

        Hi Cameron,

        I’ve been at this higher education game much longer than you
        and I haven’t noticed any changes in how much students party vs. study since the 1980s It’s true Hollywood portrayals were always wrong. And more students probably work more now than then.

        But you are missing Jake Chase’s point, which is that college as it’s currently constituted is almost completely worthless as an endeavour whether due to partying or studying. It’s hard to see this during and immediately afterwards. It takes some time to realize just how much you were misled, and frankly for your sake I hope you never do.

      3. Up the Ante

        “Like I said, I don’t know when or where you went to college, but your perspective sounds just like ..”

        You forgot to add your college costs were acceptable, wished you could have paid more.

        Gol’s last sentence may apply, “It takes some time to realize just how much you were misled, ..”

        You may now come back and say that being misled was the most enjoyable of all, and leave implying that it’s our fault you chose to mislead yourself. And as Gol said at 11:18, affirm that you must “retire” before learning to learn, another choice for which we are responsible, implied, of course.

        change your username to DeProp’d InsideOut

    3. gol

      “Most of the “education” is without economic value.”

      That’s not necessarily a bad thing. Economic value has never been and should never be the criteria for evaluating any education other than trade school. However, the situation is much worse: most of current higher education comes with net social negative value. It is a millstone not only for students strapped with debts, but also for society at large.

      What you are seeing now is student loans replacing social welfare. Most students returning to school now do so because student loans are easy to come by after they lost their jobs. It’s a very dangerous way to carry out a social welfare program. Expect outstanding loans to go into the trillions as the depression drags on.

      “All the education anyone needs is available from books. Learn to read.”

      The problem is the “worthless books” you mention and knowing where and how to start. It takes many years of reflecting and many false starts and dead-ends to do this on your own. With the state of education as it is, there may be no alternative however.

      1. jake chase

        An excellent place to start is with American fiction written after 1850. Mark Twain,Frank Norris, Upton Sinclair, John Dos Passos, Fitzgerald, Hemmingway, Sinclair Lewis, Thomas Wolfe, John Steinbeck, Saul Bellow, Joseph Heller, Phillip Roth, William Gaddis. Of course I am leaving quite a few worthies out (memory loss), but if you read all the books written by all these guys you will be way ahead of what I knew after four years of college and three of law school in the Ivy League. This was back in the Sixties. If you need economics throw in Thorstein Veblen’s Theory of Business Enterprise and Theory of the Leisure Class.

        If you are short of time you can just read JR by Gaddis. It explains pretty much everything.

        1. ctct

          jakechase

          i agree with you 100 percent… even someone with a ‘worthless’ degree (phil) like myself… everything i ‘know’ from college was learned via extra-curricular reading and observation of the university politics and tenure game… not to mention witnessing the foibles, excesses, and indulgences of the staff and faculty, both tenured and the envious non-tenured… i started reading the ‘classics’ when i was 12-13 and haven’t given them up in the last twenty years… i had to comment because JR is a personal favorite of mine… hilarious, sad book

          as a further note… i found most of my courses to be very shallow ‘surveys’ with a few 400-500 level exceptions that were run as seminars in which I quickly acquired more ‘expertise’ than the instructor… don’t get me started on ‘law school’ … a horribly bad joke… of course the joke’s on me with the 50k i owe…

      2. Up the Ante

        The best place to get an education is to glean from sources of books you’ve found of high worth.

        Quality thought of adults will develop. It will not land in your lap.

    4. Moneta

      A few centuries ago, most higher education took place in monastic schools with some developing into universities. At around the same time, many universities with a form of guild structure started to pop up. These were created so artisans could share their knowledge as their skills increased to the point where the master/apprentice structure did not make sense anymore. A little later, many universities were founded by kings or municipal administrations as the need to train new leaders emerged.

      Academic freedom must have surely been different in these 3 environments. Room and board was offered to students and the latter did not need to lever themselves to the hilt to get that education.

  9. ac

    Why don’t we examine why education ( like healthcare) costs are rising so fast. With technology and increased demand you would think they should be falling. But that is just a starting point for a solution

    My suggestion is to incentivise more vocational schools that offer paid internships in different industries ( like northern Europe does) after high school for 2-3 years. Then let mature students decide if they really need higher education afterwards ( 1 or 2 year masters)

    But it will never happen.

    But clearly useless for profit schools is not the answer. The invisible hand needs some help.

    1. JerryDemim

      Easy. That’s because in both cases somebody else is paying. In the instance of higher education its either Mom and Dad, OR Its Sallie Mae or the US Government. With healthcare its either your insurance company or once again the government. Nobody cares about the prices on the menu if someone else is picking up the check. Later might as well be never in the mind of a eighteen year old.

  10. F. Beard

    What is your reaction? And if you don’t like equity as a remedy, Yves Smith

    Equity in people sounds like slavery. Cause it is? So Milton Friedman was in favor of slavery? It appears so. Milton had things reversed. The schools should not own their students; the students (and general population) should own the schools.

    what fix do you propose? Yves Smith

    Educational costs, like everything else, are driven up by the counterfeiting cartel, the banking system. So abolish it. That would result in non-negative real interest rates which would:

    1) Allow parents and students to more readily save for college costs.
    2) Force the owners of capital including colleges to issue more equity and thus “share” more wealth with the general population.

    In addition, we need an equal bailout of the entire population with new fiat till all debt to the counterfeiting cartel is paid off. That would eliminate existing student debt as well as mortgage debt, credit-card debt and auto loans. The national debt should be paid off with new fiat too as it comes due.

    1. mansoor h. khan

      F. Beard said;

      “In addition, we need an equal bailout of the entire population with new fiat till all debt to the counterfeiting cartel is paid off. That would eliminate existing student debt as well as mortgage debt, credit-card debt and auto loans. The national debt should be paid off with new fiat too as it comes due.”

      Also, since credit money creation will be stopped per your (F. Beard) recommendation. We need to either:

      A) Have fundamental money reform and allow competing currencies to exist so the populace can “truly” save their purchasing power so then they can afford higher ed for their kids without the banking cartel diluting their purchasing power via credit driven inflation.

      or

      B) Give money to the citizens via social credit which will also help to stop deflation when credit creation stops and the bailout restitution checks stop. Social credit citizen’s dividends will also help people pay for college.

      more at:

      http://aquinums-razor.blogspot.com/2011/11/here-is-how-bankers-game-works.html

      mansoor h. khan

    2. Carla

      @F Beard: “In addition, we need an equal bailout of the entire population with new fiat till all debt to the counterfeiting cartel is paid off. That would eliminate existing student debt” etc…

      I agree, but am afraid this will not happen. In the meantime, there is a train wreck coming: boomers, especially women who divorced (or were divorced by their husbands) and went back to school to become qualified for decent jobs. Of course many or even most had to take out student loans to do so.

      All too often, those jobs paid less than they had been led to believe, they have been unable to pay back the loans, and interest has accumulated. Now they face an impoverished old age made worse by the fact that student debt is non-dischargeable. Once they start collecting Social Security, the only “pension” many of them will ever have, anything over $750 a month will be garnished at 15% of the amount in excess of $750 to repay any outstanding student debt.

      This is outrageous, and I hope Yves, or anyone else here, might have a creative way to address it. I know women who are facing this right now.

      As I said, F. Beard’s solution is optimal, but I fear, unlikely to occur.

  11. Fiver

    Public financing for a system that is actually intended to “bring out the best” by creating solid, informed, caring citizens just might be worth the price over a decade if so much of the $$ was not destined for the wrong pockets.

  12. petridish

    Ideally an educated population would be economically beneficial to the entire society, regardless of the level of education attained, and the opportunity to attain the highest levels would be purely a matter of ability (not family income or social status.) Under those circumstances, the cost of education would be a reasonable responsibility of the government and one that would be acceptable to the public.

    But for this to be the case, the character of “education” would need to change radically.

    That’s the problem here. Any discussion of the student debt burden immediately conjures up images (and in many cases rightly so) of drinking binges, lavish football stadiums and worthless “classes” that come with an exorbitant price tag. The “education system” in this country has become yet another profit center with a built in sense of urgency, and the resultant opportunity to charge perpetually rising prices while delivering less and less. (Healthcare, the security state, the housing market anyone?)

    Under THESE circumstances, the answer is to let student loans be discharged in bankruptcy and get on with it. When the free money dries up, the prices will necessarily come down.

    Any discussion of paying for eduction in the future must begin with a reset of the definition of education–schools must provide one and sudents must be committed to getting one.

  13. Brian

    One repayment method for Federal student loans already functions a little like equity: Income-based repayment. Capped at 15% of income, it’s high compared to the British and Australian systems, but still floats according to job prospects, etc. By combining IBR in the lean years and switching to a flat 10-year plan in flush years, it gives students the best of both worlds. Additionally, after 25-years, the loans are cancelled (and, if working in public service, the debt is forgiven after 10 years of payments in the IBR program).

    I’m not sure an equity-solution would cure the problems young graduates are having re: obtaining a mortgage, avoiding marriage, as the obligation to repay would remain and cut into available income.

    Simpler options that would help fix the problem include: allowing discharge of student loans through bankruptcy, capping tuition increases, and better pre-loan education (including both information about how much the payment will be, what the realistic salary prospects are, and what repayment methods are actually available).

  14. Dan B

    “Heavy debt loads pressure young people into making conservative choices. If you carry a lot in the way of student loans, you have to worry about employability. ” This is true as long as the system continues to work well enough to give hope for finding suitable employment. Once student debtors define the system as denying them a decent life they will shed conservatism/conformity. We are on the path of energy descent and this has massive implications for the legitimacy of the system, including higher education’s structure, knowledge content and socioeconomic significance.

    1. Georgina Masonic

      Worry about getting a lame, life sucking, corporate job? Wow, yes, that will keep people from being creative. (and thereby overthrowing the status quo)

      1. ambrit

        Dear GM;
        Therein lies the beauty of propaganda. Few realize, until it is ‘too late,’ yet another propaganda coup itself, that these life paths are devoid of true “meaning.” (Some people thrive in such environments. For them, illusion has become reality. See Joseph Hellers, “Something Happened.”)
        At base, your question is one of Philosophy and The Meaning of Life. But that’s another story…

  15. Georgina Masonic

    Just keep in mind that in better run nations SCHOOL is FREE, not a source of rentier income. Just the idea makes the owner/ruler class blood pressure rise, lobbying money flies, media propagandizes and nothing changes. (for burgeoning decades)

  16. Benjamin Sheridan

    Student loans are really a proxy for failing state sponsorship of public universities. Fixing it, it’s a piece of cake. Simply forgive most of the loans upon successful completion of a degree. This would require some rearranging of america priorities though back to see education at important. Important that is at a public good.

    1. Joe Rebholz

      “Simply forgive most of the loans upon successful completion of a degree”

      This would amount to paying people to educate themselves which is what we should do. This idea has the specific incentive to complete the degree program and this should help.

      1. Benjamin Sheridan

        I apologize for the grammer in my first post. I let the voice recognition program on my Android phone do it.

        Yeah, I like the way your thinking. I don’t know if we’ll ever see paychecks for going to school, but the idea can be retooled to work just fine. We can either require states to actually commit to providing free or very low cost education, or we can leave the burden for education cost on the student, via student loans, but relieve it if they complete the degree. Bet you a dollar retention rates would go up.

        The downsides are this means federal funding of an education system that was mostly state funded at one time, and there are a lot of bad apple private schools out there, who would benifit the most from this kind of system. It’s hard to get approval for any federal spending that doesn’t kill people, even to benifit our kids. Also, some political groups will likely nickle and dime the thing citing the private schools with poor employment rates as examples of how it’s wasteful spending.

        But just because there are problems doesn’t mean it’s not worth doing. And it’s certainly the easiest and most workable system, because it requres very little change in the current system. The reality is, most the current debt wont every get paid anyway! It will be written off in 25 year forgivnesses. Remember, less than half of college grads are finding real jobs anyway!

  17. duffolonious

    How about just don’t go to school? At least 4 year colleges. While there are useful majors it’s either a) hard sciences, or b) masters/phd/post-doc in soft sciences, otherwise why go?

    I think trade/tech (2 year) schools are under appreciated. They often work with businesses to see what people want (some 4 years do this as well, but often it takes professors that care). When we want certain types of people we just call contacts at the local tech schools and get some quality people – it’s worked incredibly well.

    That said, maybe I’m a special case, but the traditional 4 year worked really well for me (in the ’00′s) in CompSci. Got jobs at the school and my last one even paid for tuition (money+free tuition+health care). But CSci has a lot of avenues for doing things outside of school as well (FOSS projects for one). A good *nix programmer appears to go at a premium now.

  18. mark stevens

    A few years ago I was laid off and then decided to go back to school to learn a new field. I had graduated from university 25 years before. So I took all the upper division courses for a BS in molecular biology. My experience was that after 25 years not much had changed, except that the cost of tuition, fees, books was literally 10 times what it was 25 years ago. Classes were virtually the same. I even took a bunch of chemistry courses that I had taken 25 years earlier. The books now had better pictures and were much thicker, but the course work was nearly identical. I also found that students were ill prepared for their upper division courses, not having mastered the basics of math, chemistry. There were a few changes like clickers, which the students had to buy, for interactive feedback to the professor, but they are just gimmicks. The real question, which this article does not address, is why is college 10 times more expensive with nothing to show for it????

    1. ambrit

      Mr. Stevens;
      I would suggest that the phenomenon you encountered is an artificial scarcity of labor produced by the increasing, again artificial, raising of the barriers to entry into the field. That, and our degenerate ages’ tendency to worship before the altar of Moloch.

    2. gol

      Accounting of the 10x greater cost:
      90% administrators
      20% sports and other non-academic activities
      20% facilities

      It’s greater than 100% since core academic funding has been slashed.

    3. Wayward Sabado

      Kudos Mark, folks grinding through these course loads in their 40s and it is really unbelievable. If you love the subjects great, some people climb rock faces to get to the top, everything else be dammned. That too should be encouraged. To each his own gluttony of punishment (or pleasure) as each case may be.

    4. ctct

      admin admin admin… ‘educators’…

      curious how that course worked for you…? i recently read in the comment section here that the chemist market was not good… on the other hand, i see a lot of job postings from staffing agencies for medical field chemists here in NC…

      1. Carla

        I think college costs began to rise right along with the whole college-as-debt concept, and then exploded when the federal government got into the student loan business, and then exploded again when the federal government PRIVATIZED federal student loans. Obama now seems to have taken student loans back, but I’m sure the banks are getting their cut somehow.

  19. ambrit

    Friends;
    Am I hopelessly out of touch, or don’t we have Apprenticeship programs in the major industries anymore? In the Big Boxx Store where I work, there are cases of people with degrees who started work at the store to pay the bills during University, and kept on because there were no jobs available at a reasonable wage in their field after they graduated. A completely perverse allocation of resources if there ever was one. That said, the best solution for the problem is political, because the problem has an impact on society as a whole. One place to start would be to make it illegal to require a degree for any job that can be done by someone with a High School education. Again, a matter of political will. Find the key to effecting change in the political arena, and you have the game.

    1. ECON

      I like your issue of having jobs for those who are Secondary School graduates (Gr 12). In Toronto Canada there are none! The undergraduate university degree is the standard for ANY job except the certified plumbers, carpenters, electricians and other skilled vocations in engineering and construction.
      What a mess that we are permanently selecting a part of the potential labour force ie: Gr 12 grads, to unemployment forever.Too many jobs are credential heavy.

      1. Francis Scott Bourbon

        Corporations profit by preventing hires. Their excuse is always “credentials”. Please, don’t be fooled by their lies.

  20. Joe Rebholz

    Pay people to educate themselves. Pay for education as if it were a real job because it is a job. It’s work. It takes time and the benefits to the individual in our present system are highly uncertain. But the benefits to the rest of society of having ever larger numbers of educated people are the increasing progress of all of humanity. Humanity has many problems: widespread poverty, wars, resource depletion, environmental destruction, global warming, an uncoordinated, undesigned, unstable globalized economic system, etc. Humanity needs and will continue to need increasing knowledge and wisdom spread to larger and larger numbers of people to solve these problems.

    So we should pay people to educate themselves because the greater beneficiary of an individual’s education is not him or herself but rather the beneficiaries are all of us, so that we can evolve our systems to be more stable, more just (more fair in the distribution of goods and services), more efficient in the use of natural limited resources, etc., so that as more and more people have their basic human necessities assured, more and more people will have time to be creative, to work at jobs they like (which means they will put more effort into their work since if you love your work it no longer seems like work), more time for sports, music, writing, videos, socializing, exploring the world, all those good things and more.

    Making people pay to get an education is ass backwards.

  21. Dave of Maryland

    There is no known connection between education and income. Name me one bankster or billionaire with a Ph.D.

    Education for those who want education.

    Money for all of us.

    1. SidFinster

      Nicholas Nassim Taleb.

      Not sure if he is a billionaire, but he is far from poor. He did work for various banks before setting off on his own.

    2. ac

      James Simon’s ….renissnace hedge fund. Probably the best performing fund of all time ( yes better than soros buffet etc) PhD in math.

  22. gol

    “Cheaper education would clearly be a better solution, but it’s hard to stuff that genie back in the bottle.”

    It’s easier than you think. For example,

    class-central dot com

    is a site containing a directory of complete interactive college courses on various mostly technical subjects.

    The only thing missing is formal recognition of
    the class certificates.

  23. Chris Cook

    Yves

    This is an interesting challenge.

    My approach would be equity: not equity as we know it, Jim, but rather the creation of a networked and localised ‘School Pool’ fund in public custody and oversight, but professionally managed.

    The Pool would provide ‘equity’ to finance young people through college; professional training (possibly extending to life-long learning); and possibly start-ups, depending upon aptitudes and assessments. The assessors would get paid a basic cost, plus outcome related bonuses, possibly tied in with continuing mentoring.

    The deal is that investment would receive a ‘dividend’ of a %age of gross income, collected via the tax system, and the recipient would be entitled (but not required) to buy back proportional equity shares each year on the basis of a multiple of that year’s taxable income.

    So an investment of $100,000 might be subject to a ‘capital rental’ dividend of (say) 2.5% of income in the first year, and each year for 25 years this could be reduced by 0.1% as ‘equity shares’ are bought back from the Pool at a multiple of the year’s income. So if the income doubles, the cost of the equity share buy-back price would double.

    There are plenty of additional policy options possible. eg equity share credits for public or overseas service or military service. Since private sector employers benefit from trained employees, they might also be expected to contribute to, or participate in the Pool.

    It’s also possible to imagine the transformation of unions as quasi-guilds for networked self-employed IT contractors or other professionals, configured around funding from such a source.

  24. Ed

    One possible reform, government takes over the student loans from the schools. The government pays the schools some % or maybe all of the value of the loans. The debtors now own the loans to the government, and their income taxes are garnished for the purpose. They pay the same tax as normal, so “owning” the government has no practical effect. If you are really worried about free riding, make these people first in line for various government imposed duties such as jury duty, poll watching, conscription (!) until the debts are discharged.

    Then implement a real long term solution for higher education and its financing.

    (though I agree that making student loans non-dischargable is outrageous)

  25. Dean

    Throwing debt based money at anything inflates the price and causes a bubble. Paying as you go is well nigh impossible for buying a house or an buying an education.

    Loans are readily available though! Don’t forget your 529 savings plans! Throw on the prospects of indentured servitude for a good part of one’s youth or beyond! What could go wrong?

    The only control I have in this debate is what I do when my children prepare to matriculate. As of right now, I would insist that they live at home and attend the local (yet impacted) junior college for two years and then transfer to a yet another local college to complete their studies.

    Does it make for good cocktail party conversation with other parents who sent their kids off to a private four year university on the opposite coast? Sadly it does not. I guess I can’t keep up with the Jonses.

    1. Dean

      As if on queue another market distorting “solution” to the problem: prevent the rates from rising!

      The student loan debt debate is framed as whether rates should be allowed to rise or not. The premise of student loans continuing or being a cause for concern is not even questioned. With this issue though Obama can tour the campuses and try to reignite his youthful flank in time for fall elections. Problem solved…

      http://thehill.com/video/administration/222897-obama-gop-needs-to-prevent-doubling-of-student-loan-rates

  26. Fiesty

    My master sent me to obedience school.

    But I got kicked out for peeing on the professor’s leg.

    My master thinks we have free college already.

    It is just a matter of time until student debt is “forgiven” by the government…and then we get the tax bill for all these $200,000 degrees for unemployed people.

    Then college economists will tell us what went wrong.

    1. F. Beard

      and then we get the tax bill for all these $200,000 degrees for unemployed people. Fiesty

      Learn some MMT, you dumb dog!

      1. Fiesty

        I know what that is.

        Master said the government has a printing press and they just give the stuff to people.

        But I am a pooch.

        And not that dumb!

        1. F. Beard

          and they just give the stuff to people. Fiesty

          No. The government should just give money to everyone so the debtors can give theirs to the banks to keep the banks from TAKING their stuff.

          Were you bought on credit?

          1. Fiesty

            My master says the government gives the money straight to the banks and just skips these middle humans – debtors.

            My master says he bought me with money he got working for an employer – not credit – and he has a whole bank account full of it – for now.

  27. Gil Gamesh

    Providing “free” education (certainly through university) for all competent students is well within our means as the wealthiest society in world history.

    Our encumbered young should not only repudiate their debt, but ensure that the basic issue is fixed.

  28. Everythings Jake

    The fix is obvious, restore the system of public education that produced incredible well distributed wealth for decades and that would of course mean restoring a system of progressive taxation that supported same. No further discussion needed.

  29. F Libertarians!

    Here’s my idea – raise the marginal tax rate of the f’ing corporations and CEOs who are shipping American jobs overseas at 99.9% and use that new tax revenue to give more grants to students pursuing college educations and to properly fund U.S. public colleges and universities. The student debt problem is more a symptom of America’s jobs and wage problems. Middle class wages have fallen over the last 40 years. Too many good, high paying middle class jobs such as engineering, law, and other professional jobs are being shipped overseas. As a result, worker wages have been falling and, in the midst of inflation, familes have a harder time saving for their children’s education. Thus, with no access to grants, they have no choice but to take out loans in order to send their children to college. Add to problem the deindustrialization of the U.S. economy which prevents Americans from moving up the social ladder with just a high school or Associates degree and more Americans some of whom probably would not otherwise want to attend college or should really avoid college because they don’t have the aptitude or discipline to pursue higher education will look to attend college. In addition, many college grads are being forced to take on more debt by attending graduate school in order to delay searching for jobs infutility. That will only add to the large student debt overhead. The major cause of problems such as student debt is that American jobs and workers have been under attack. Stop flooring worker wagers, stop shipping U.S. jobs overseas, and solve the jobs problem and I guarantee that this student debt problem will not be such a big problem in the end.

    1. F Libertarians!

      I also want to add the following – FUCK Milton Friedman! His equity financing idea is STUPID just like most of his other economic ideas and dogma. Equity financing is only going to erode the ability of American consumers to buy products and services lowering overall domestic demand. Friedman was a sell-out charlatan who only received fame and attention because his fucking idiotic ideas benefited the rich and the people in power. The only problem is that average workers and Americans who are currently being fucked over by Milton Friedmanish economic policy are so stupid so as to blindly accept Friedmanite economic theory as Gospel without thinking and without any ability or due diligence to examine that shit economic theory critically. I certainly hope Milton Friedman is burning in FUCKING HELL RIGHT NOW!

  30. chris m

    One can attend MIT online for free. One must be willing to do so without ‘earning’ a degree.

    Badges? We don’t need no stinking badges.

  31. Lune

    Yves,

    As other commenters have noted, we already have an equity-based financing system: it’s called taxes, and we should use it to pay for education. It is, after all, a public good that benefits the individual, the corporations that need skilled workers, the government that needs increased tax revenue, and even society that could benefit from educated citizens in a democracy.

    That said, I’m not sure that the propensity of new graduates to take on unconventional careers is a function of their debt levels so much as a characteristic of the culture they grow up in. For example, college education in India and other Asian countries is largely govt financed, yet everyone there focuses on becoming either a doctor or an engineer. The humanities are sneered at far more vigorously than here in the U.S.

    Similarly, European countries publicly finance their colleges, but along with that comes early tracking and segregation of students in high school and earlier so that by the time they’re finished with primary schooling, their career decisions (and prospects…) are essentially already decided.

    In the U.S., the unconventional “rebel” who strikes it big while thumbing his nose at boring societal norms is considered a hero. Most countries would view him/her as at best foolish, at worst a criminal. That cultural difference is, IMHO, what drives young Americans to take risks and get off the beaten path. As long as that culture doesn’t change, I don’t think finances will make too big a difference. After all, student loans or not, artists have always been starving…

  32. rps

    The simple facts of economics: There are more adults than available living wage jobs in the USA. A large percentage of jobs do not require a degree, but on-the-job training. The degree requirement for non-technical jobs creates another layer of discrimination to perpetuate the lie that the non-college non-degree unemployed are the problem. Even though there are too many unemployed people with degrees. Simply, there are many layers of institutionalized discrimination to keep-out a percentage of adults from applying for the limited number of jobs available.

    As FDR said in the 1932 “Forgotten Man” speech, “Every man and woman who gives any thought to the subject knows that if our factories run even 80 percent of capacity, they will turn out more products than we as a Nation can possibly use ourselves.”

    I could go on with the underground economy such as the “War on Drugs” wouldn’t exist, much less gangs,or poverty if there were enough living wage jobs. A percentage of the population is deliberately cut out of the workforce. Ghettos are economic crime zones. Capitalism is the quintessential TBTF monolithic dinosaur.

  33. JerryDemim

    Equity financing strikes me as an incredibly cynical solution which would result in many unintended consequences and further market distortions.

    It seems that schools would rather quickly start eliminating liberal arts programs and other low paying career tracks such as social work or primary school teaching immediately. Do we really need that many more MBA’s, CPA’s and Finance professionals in the US? Do we want to make life here any more about money than it is already?

    Secondly, just like with health care there is no education access problem in the United States but rather an affordability problem. Why is college so damn expensive? Simple, because people can get huge loans easily. Why not make it incredibly easy for student debtors to default on their student loans then lenders will stop giving irresponsibly outsized loans to kids majoring in a low-paying or typically dead-end careers. If universities can’t line up a stack of applications of willing new debtors they will have to adjust their pricing accordingly. Our government is complicit in creating this bubble by throwing the full weight of our judicial system behind the lenders/profiteers and by writing the tax codes in such a way as to encourage student loan debt and reckless lending. A loan default is a tax write-off for Sallie Mae no?

    There are common sense ways to fix this problem that don’t involve complicated schemes like equity financing and getting the IRS involved in collecting Sallie Mae’s peonage money.

  34. diptherio

    No on equity financing with no maturity. Perhaps if it was only assessed once your salary reached a certain level and would eventually expire or have some maximum repayment amount I would be ok with it. School administrators need to take pay cuts (the ones making $150,000+ even at small public institutions) and public institutions need better funding. Whatever has caused prices to double since I graduated in ’07 needs to be taken care of.

  35. tatere

    Subsidizing individual students, in any form, just increases demand without affecting supply – the price will go up. As it has over the last 40 years or so.

    What we should be doing with public funds is providing a low-cost public alternative – subsidize and expand the supply.

    I think, though, that once the soak-the-students model has been in place for some time, it has a corrupting effect on the institutions. You would not want to put public money into supporting the bloated costs of current public higher education, but knocking down those costs would be a battle. You couldn’t rely on the people who run the schools now to do it. You couldn’t bring in new people *before* reducing executive compensation or they’ll quickly discover how vital their role is, versus those deadweight teachers. It gets pretty utopian.

    That’s what makes the situation in Quebec so infuriatingly tragic. The examples of their stupid future if they go down that path are staring right at them from the south….

  36. Jeff N

    Great point:
    “Heavy debt loads pressure young people into making conservative choices. If you carry a lot in the way of student loans, you have to worry about employability. That doesn’t simply push graduates into bigger ticket (hence more conventional) career choices; more important, it makes them far less likely to step out of line. In particular, an arrest record, which is often a by product of protesting, is an automatic out with a lot of employers.”

  37. Greg Taylor

    Equity financing would provide institutional incentives to put students into “high earning” programs and to restrict or eliminate others.

    Equity financing for medical students and licensure-based programs that produce high-earners might be a reasonable tradeoff for the distortions produced by government enforced credentialing in many lucrative fields. If applied institution-wide, it would quickly drive out many socially useful programs.

    As for other suggestions – there’s no getting around the need for all parties to have skin in the student debt game. Lenders, students, and institutions should share the pain of default. This would cut education funding but the biggest losers would be in the for-profit sector and others with high default rates. Cutting their air supply might not be all bad.

    I’ve posted some additional thoughts. Would New Financing Models Drive Useful Higher Education Reforms?

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