The Real Reason College Costs So Much

Discussion in 'General Distance Learning Discussions' started by Kizmet, Apr 5, 2015.

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  1. Kizmet

    Kizmet Moderator

  2. AV8R

    AV8R Active Member

    No surprise here.

    Too much administrative bloat.

    Colleges and universities seemed to manage just fine prior to the administrative personnel explosion.
     
  3. Kizmet

    Kizmet Moderator

  4. Rich Douglas

    Rich Douglas Well-Known Member

    College costs are so high because of an imperfect market. Even as supply soars, prices continue to rise because of the oligarchical nature of that market. That, and because so much extra money is thrown at the system with the "buy-now-pay-later" approach to student loans taken out against degree programs that may or may not have a good return. A good parallel is the housing market before the most recent bubble explosion. Lots of extra money tossed in, driving prices sky high, disconnected to actual costs. I contend that the spending you describe is a result of all that extra money, not the other way around.
     
  5. Kizmet

    Kizmet Moderator

    Hmm. Someone is saying that, I guess, but I don't think it's me.
     
  6. SteveFoerster

    SteveFoerster Resident Gadfly Staff Member

    That's a shame, because Rich is 100% right on this.
     
  7. Rich Douglas

    Rich Douglas Well-Known Member

    Quite right. So sorry!
     
  8. Tim D

    Tim D Member

    If Federal Student loans were given out more like most other loans the higher education market would look much different. As the government would have to have actuarial tables to figure out who and what is a good loan. The biggest issue with doing something like that is it would hurt the poor and underprivileged more so than anyone else. The best person to pay back a loan is the guy who doesn't really need one. Although, the loan system could be used to incentive people into various needed majors, I see the politics getting in the way. College costs more because the demand is higher regardless of ROI. People believe they need a degree at all costs. No one is willing to spend the time to educate them that taking out expensive loans as an Art History Major may not get them the 100,000 job they desperately need to pay off their Student loans. There is also the fact student loans are like herpes, you can't get rid of them. So unlike the housing bubble or most and other form of debt they can not be discharged. This is hurting the future not helping it!
     
  9. Ted Heiks

    Ted Heiks Moderator and Distinguished Senior Member

    As I've said before, as long as the federal government continues to loan $100,000 to a bunch of kids that haven't even gotten jobs yet, the universities (which are businesses like any other) will continue to raise prices to suck up all that guaranteed student loan money.
     
  10. major56

    major56 Active Member

    In dovetailing your comments Tim re WSJ article (12/06/2015)...

    Subprime lending-e.g., postsecondary education … ?

    Should Anyone Be Eligible for Student Loans? - WSJ

    With U.S. college-debt defaults surging, some economists say it’s time to introduce standards for federal aid, making it more likely borrowers will actually graduate

    By
    Josh Mitchell
    Updated Dec. 6, 2015 4:18 p.m. ET

    A surge in the share of Americans defaulting on their student debt is generating support for an obvious but controversial idea: restrict who can borrow for higher education.

    For decades, the federal government has imposed no underwriting standards in its student-loan program. Just about any American can borrow as much as $57,500 for college—and essentially unlimited amounts for graduate school—with little regard for the person’s ability to repay. Everyone taking out federal loans in a given year pays the same interest rate.

    Supporters of that no-questions-asked policy say it guarantees every American a shot at a degree and a secure middle-class income. Imposing underwriting standards would deny a higher education to many poor people who can’t get loans from private lenders, they argue.

    But a sharp rise in delinquencies in the $1.2 trillion federal student-loan program is drawing comparisons to subprime mortgage lending, which added to the housing crisis. It is also stirring debate on other ways to allot student aid.

    New research shows a preponderance of the millions of borrowers who have defaulted on student loans in recent years are poor, were unprepared for college, and attended troubled schools that offered little hope of leading to a decent job.

    “It’s not a gift to a poor person who is not going to be able to complete a degree program to give them a loan,” said Caroline Hoxby, a Stanford University economics professor, who calls the soaring load of student debt “a self-inflicted wound on the part of the federal government.”

    As of Sept. 30, just over 7 million borrowers had gone at least a year without making a payment on their federal student loans, Education Department figures show.

    The student-loan delinquency rate has jumped to around 12%, roughly double its level before the recession, according to the New York Federal Reserve. When excluding borrowers still in school, roughly a quarter of all student debt is at least 90 days behind on payments. The comparable number for home-mortgage debt never exceeded 9% after the housing crash.

    “It’s not a gift to a poor person who is not going to be able to complete a degree program to give them a loan,” said Caroline Hoxby, a Stanford University economics professor, who calls the soaring load of student debt “a self-inflicted wound on the part of the federal government.”

    As of Sept. 30, just over 7 million borrowers had gone at least a year without making a payment on their federal student loans, Education Department figures show.

    The student-loan delinquency rate has jumped to around 12%, roughly double its level before the recession, according to the New York Federal Reserve. When excluding borrowers still in school, roughly a quarter of all student debt is at least 90 days behind on payments. The comparable number for home-mortgage debt never exceeded 9% after the housing crash.

    [​IMG]

    A recent Brookings Institution study by Treasury Department economist Adam Looney and Stanford’s Constantine Yannelis attributes the rise in both borrowing and defaults since the recession largely to “nontraditional students” who enrolled at for-profit schools and community colleges. Those schools typically have low or no academic standards for enrolling.

    Such students made up more than two-thirds of defaults among those who left school in 2011, the study found, analyzing government tax records and student-loan figures. The defaulted borrowers tend to be older, from lower-income families, and more likely to be first-generation college-goers compared with students who attend four-year schools.

    Likewise, an October paper by Federal Reserve researchers linked defaults to those who had weak credit scores. About 30% of those who had credit scores of between 500 and 599 a year before they left school eventually became delinquent on their loans. But among those with a score of 680 to 729, only 9% became delinquent, according to the paper, by Fed economists Alvaro Mezza and Kamila Sommer.

    They and other researchers aren’t advocating underwriting based on credit scores—they point out that doing so would penalize high-achieving students from poor families, who are more likely to have bad credit.

    But some economists say the government should target more aid toward such borrowers—in the form of grants, which don’t have to be repaid, rather than loans. They also advocate underwriting criteria based on borrowers’ high-school grades and test scores, colleges’ graduation and job-placement rates, and the earnings potential of various majors.

    One under-appreciated problem is just how many students take on loans when they aren’t ready for college-level coursework, which makes them more likely to drop out. The average amount owed by those who default is relatively low—just under $9,000—largely because many borrowers have dropped out after one or two years, leaving them without a path to a good job.

    Neal McCluskey of the libertarian Cato Institute said the government should strive to avoid “saddling people with debt who have very little likelihood of completing a degree and being able to pay it back.” The way to do that, he said, is to lend only to students who meet minimum test and grade-point-average requirements.

    Others suggest giving less-accomplished students grants to cover the first year, then loans to cover subsequent years if they have demonstrated they can handle college-level work.

    Policy makers aren’t contemplating such big steps, but some plans might have a similar effect on a smaller scale. The Obama administration is implementing new rules that would cut off funding at career-training schools that leave students with high debt burdens and weak incomes. The plan, though, wouldn’t apply to most public or nonprofit four-year schools.

    Democratic presidential candidate Hillary Clinton has called for colleges to be held liable when their students default on loans, an idea that has gained traction among members of both parties as a way to control costs.

    Florida Sen. Marco Rubio, a GOP presidential candidate, has pushed to have all schools publish detailed data on their graduates so that future borrowers can make better borrowing decisions.

    Such plans, in a sense, are roundabout ways to keep borrowers from making bad investments, and make students think more carefully about which school to attend and what to study.
     
  11. Neuhaus

    Neuhaus Well-Known Member

    There are a variety of factors, as you note, that play into whether something is an acceptable risk or an unacceptable risk beyond an individual's credit worthiness. If we used that as a deciding factor then, again as you note, the economically disadvantaged student will have little means to pull him or herself out of such a disadvantaged state.

    One option would be to have ongoing requirements for loans similar to scholarships. Grades slip below a "B?" No more loans. Arrested while enrolled? No more loans.

    Another option would be to limit loans to be used only for tuition, books, fees, on-campus housing and a meal plan. So, no more taking out (private) student loans to get yourself a car, take a vacation or throw big parties. You can do all of that damage with appropriately named debt vehicles for those expenses as well (except you can discharge them in bankruptcy).

    We could also stop paying for certain degrees or provide them with lower loan caps. If your family can put you through school to earn that degree in Art History, awesome. But if you want to take out $100k in debt to earn it, not only should you be protected from yourself, but you need to sit down with a counselor and have them explain to you why $100k in debt for a degree in Art History is not a wise choice.

    Third, and I think this would really be a big deal, completely reform federal financial aid. If you made Neuhaus King for a day, I would probably cut off the water supply. Now, funding goes directly to public universities and only on the condition that tuition is free (or incredibly low cost). This would kill off a lot of small private universities. I don't care. If you can't survive (at the institutional level) without government welfare then that's the invisible hand digging your institution's grave.

    Public universities would have lots of funding. They would never have to compete for students. And people will still go to many private universities if they can afford them. We would also drastically reduce the glut of universities in this country. All of this, coupled with promoting public and non-profit universities with alternative credit models (Big 3, primarily) would put students in a very different situation.

    Personally, if my kid sat down with all of the resources available today and mapped out his or her degree through alternative credit at one of the Big 3, I'd be exceptionally proud. Moreso, I'd argue, than if he or she got into a top tier university where they proceeded to study "stuff" with no great sense of urgency and wasted their time protesting things like the fact that the napkins aren't fair trade certified. The former shows well developed life skills. The latter shows a desire to extend childhood by a few years.
     
  12. SteveFoerster

    SteveFoerster Resident Gadfly Staff Member

    While I'm not missing your overall point, the "invisible hand" refers to the higher level of efficiency and order that comes from free enterprise and enlightened self-interest. Going out of business because the government runs a competitor that doesn't charge any money doesn't count as that.
     
  13. Neuhaus

    Neuhaus Well-Known Member

    I know and I was attempting to use it in a slightly playful manner.

    I don't see why not.

    It's certainly free enterprise; I can open a university and compete with all other universities. The fact that Harvard might survive while Nova Southeastern might not would really just be the consequence of what individuals choose and what the market can support.

    The fact that the individual choice would shape that market is, at least by many interpretations of the "Invisible Hand" quote, the core of the concept.

    The government ensures that we have free access to radiowaves and yet, Sirius competes with that service.

    The government provides a number of free or very low cost postal solutions and yet, UPS and FedEx continue to survive. However, the US market could not support DHL as a third major private courier (the bulk of their current operations are outside of the US).

    These are all free markets in which the government, like individuals and other entities, are all allowed to trade. And we, as consumers, create a market climate which can support some of those trades but not others.
     
  14. SteveFoerster

    SteveFoerster Resident Gadfly Staff Member

    No, seriously, that's not what "free market" means. I say that not as a criticism of government intervention, just as a bulwark against the confusion that comes from using a term that means something specific to describe something else.
     
  15. Rich Douglas

    Rich Douglas Well-Known Member

    The government can be quite effective intervening in certain sectors at certain times. (See "Governing the Market" by Wade.) All forms of effective capitalism are moderated by the government to some extent. But Steve is right; the "invisible hand" was Adam Smith's way of saying that the market will take care of itself and balance out. But without the government representing ALL the people, the non-owners (most of us) can be quite vulnerable. See the Great Depression and the Great Recession for examples. On the plus side, government brought you--through oversight, not ownership--the TVA, the interstate highway system, the phone system, a lot of basic and applied research, and a lot of other things the market itself would not have done.

    Q: Capitalism or socialism?
    A: Both
     
  16. Neuhaus

    Neuhaus Well-Known Member

    Well, if we can agree on this definition:

    Then I fail to see how the government funding public universities would limit the market. Schools wouldn't go out of business because the government was giving away the same commodity for free because those private schools would be free to offer education that the government does not provide (like theological education, for example).

    If the government isn't telling me that I can or cannot get into the bible school business and my prices are determined by market tolerance rather than the government, that is a free market. The government can participate in a free market it just cannot alter pricing or create barriers to entry.

    If I foolishly try to compete directly against the free public universities then I either better offer superior quality or some other unique identifier which would allow me to lure students from free to come and pay me.
     
  17. SteveFoerster

    SteveFoerster Resident Gadfly Staff Member

    If government participates in a market, it inherently intervenes in the outcome. It's still a market, but it's no longer a free one. Your take on intervention appears not to exclude government completely undercutting any possible private provider, and that doesn't even pass the straight face test.

    So if you want to argue that government intervention is beneficial, great, do that. But that doesn't mean you get to unilaterally redefine "free market" also to include other types of markets -- because it simply doesn't.
     
  18. Neuhaus

    Neuhaus Well-Known Member

    My contention is actually, in this theoretical world where all of these changes have occurred, is that the government involvement in education exists in a separate market from the free market private education industry because they actually offer different (if similar) services to drastically different segments of the population.

    My contention is that the face of higher education could, or would, change to the point where the "product" you receive from a private university is so different from what you would receive from a public university that one cannot really say that one is influencing one or the other.

    As you noted earlier, I'm not really trying to redefine free market, we are simply in disagreement over what defines "government intervention." But these are also not economic terms, they are ideological which alone is reason enough not to pretend that their application is universally accepted to the point where a minor quibble could be described as "unilateral redefinition." We are going to disagree on this in the same way that two Christians can't agree on the finer points of the crucifixion. :swordfight:

    And besides, it was a casual usage likely lingering in my mind from the other day when I referred to ExpressScript's sidestepping of Shkreli's drug company as getting "bitch slapped by the invisible hand."

    Come on, Steve, can't we make up over a burning effigy of Hillary or something? :swordfight:
     

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