A meme on Facebook has been viral in the last 24 hours. It states:
“If your liberal arts degree doesn’t have enough value for you to pay it off, it certainly doesn’t have enough value for me to pay it off.”
When one libertarian friend posted it, another libertarian friend answered:
This is true of all degrees; there’s no reason to pick on liberal arts. I know computer science and biology and psychology and marketing grads who are out of work. Either debt forgiveness is a good idea or it’s a bad idea, but either way it wouldn’t depend on what your major was.
Good point and well said.
Another libertarian friend on the same thread wrote:
Libertarians: the reason tuitions are so high is because government subsidies and government credentialing make them artificially high.
Also libertarians (now): if you can’t pay off that high tuition yourself, that’s totally on you.
I agree with him that government subsidies and government credentialing artificially increase the demand for education and that pushes up tuition substantially. Those aren’t the only factors. Economist Richard Vedder has written on the causes in his 2004 book Going Broke by Degree: Why College Costs Too Much. Moreover, Vedder proposes some solutions. I highly recommend at least perusing his book, which is free on line as a pdf.
Vedder discusses the vicious circle of more government aid leading to higher tuition leading to more government aid, etc. Here’s a key paragraph on page 193 of his book:
To this point, the response of governments to the rising cost of education has been largely to throw more money at the problem. Recall the vicious circle. Tuition charges rise, so the public complains loudly. The federal government increases guaranteed student loans and other programs to help students finance the rising cost of attending college, while state governments increase subsidies to universities. More financial aid increases the demand for higher education, enabling universities to raise prices further. With no profit-based “bottom line,” universities try to maximize their income or their prestige—the latter often pursued by spending more money to improve their standings in the USN&WR or other ratings. The universities then increase spending more, necessitating still further tuition increases.
So I agree with the second libertarian friend. But here’s what I said in response:
I’m not sure where you go with this. You’re right that the government subsidies and credentialing are a huge part of this. But who’s more responsible for a student taking on debt: the student or taxpayers in general, almost none of whom had an appreciable role in formulating that policy?
I think it’s the former.
READER COMMENTS
Brandon Berg
Apr 29 2022 at 3:58am
The thing that nobody really wants to talk about is the fact that typical student loan debts are actually quite reasonable. For bachelor’s recipients in 2020, 45% of recent graduates graduated debt-free, and for the other 55% graduated with an average of $28,400 in debt. These numbers have been flat for a decade, and have been trending downwards since the mid 2010s.
See page 43 here:
https://research.collegeboard.org/media/pdf/trends-college-pricing-student-aid-2021.pdf
Paying off $30,000 in debt over 10 years costs about $4,000 per year. For comparison, starting salaries for college graduates are about $15,000 per year higher than starting salaries for high-school graduates, and mid-career earnings are $30,000 per year higher.
Average tuition and fees at public 4-year universities net of grants (i.e. price discrimination) is on the order of $3,000 per year, and total cost of attendance is dominated by room and board (page 18). Even at private 4-year universities, with published prices averaging nearly $40,000, average net price paid for tuition and fees is on the order of $15,000 per year (page 19).
The sensational stories of $60,000-per-year universities that we hear are not what average students are actually paying for undergraduate degrees, and are an order of magnitude higher than the debt they’re actually incurring.
Debt rates are higher for people with graduate degrees, but people with graduate degrees make more money. For example, average debt for doctors after finishing medical school is about $240,000, but median starting salary for doctors after residency is $200,000. Even with $40,000 per year in student loan payments, they end up with take-home incomes well above average.
In short, the national student loan debt crisis is a hoax.
So who actually has problems with student loan debt? Surprisingly, it’s often the people with the lowest balance. Default rates are highest for people with less than $5,000 in debt (Trends in Student Aid 2016, Figure 12B) and lowest for people with over $40,000 in debt. I suspect that the main reason for this is that the former group consists mostly of people who dropped out; their problem is not that their debt loads are too high, but that they have incomes that are too low to service any debt at all.
I can’t find data on this, but anecdotally, it seems that the other class of people struggling with student loan debt are people who took out loans to get expensive graduate degrees (sometimes more than one!) with no viable plan for paying off the debt. MFAs, social workers, non-profit lawyers, etc.
So while there’s no national student loan debt crisis, my tentative (because I’m not really an expert here) plan to help the small minority of borrowers who get into situations like this would be:
Impose federal lending limits for graduate degrees in fields with low earning potential. Currently the undergraduate lending limits are doing a good job of keeping net tuition prices in check, but you can pretty much go nuts when borrowing for graduate school.
No loans for PhD programs, period. If you can’t get into a funded PhD program, you’re not PhD material.
Maybe slightly loosen restrictions on discharging student loan debt in bankruptcy, but it’s not clear to me why the existing income-based repayment options aren’t sufficient here.
Jon Murphy
Apr 29 2022 at 7:49am
I just completed my Ph.D. and let me tell you: this formulation is incorrect.
I was fully funded but still needed to take out some loans simply to live. My funding covered everything and gave me just $16k a year to live, plus the restriction that I could not work more than 5 hours per week outside the institute that was funding me. You try living in Washington DC area on $16k.
Loans, when used responsibly, can be a good thing. That one takes out loans in graduate school is not a sign of failure.
Brandon Berg
Apr 29 2022 at 9:09am
I didn’t realize that half-funded PhD’s were a thing, but insofar as there are, that seems like a more reasonable thing to provide lending for. My main goal here is to avoid people taking out six-figure loans for unfunded PhDs, which I’ve been lead to believe are pretty much always a bad idea.
I really only have access to the big-picture stats, rather than the facts on the ground for niche situations, which is exactly why I labeled my suggestions as tentative.
Jon Murphy
Apr 29 2022 at 9:12am
They are, but note that wasn’t my situation.
Jack QR
Apr 29 2022 at 4:25pm
I did my PhD in the mid-late 2000s at a top-tier university. I was fully-funded. That meant 18K per year, plus tuition.
Robert Bliss
Apr 30 2022 at 1:38pm
“In short, the national student loan debt crisis is a hoax.”
Look at the delinquency and default rates and the cost to the government of these factors and various loan forgiveness programs (if you can find reliable numbers).
nobody.really
May 18 2022 at 11:26am
FINALLY someone is willing to talk about the thing I want to talk about!
Good to hear from you, guy. Let’s go, Brandon!
Matthias
Apr 29 2022 at 6:50am
Student loan forgiveness is a bit of a weird issue.
In order to have student loans, you must already be middle class enough to have tertiary education (or similar).
If the government has too much money burning a hole in their pocket, they could help poor people instead?
vince
May 1 2022 at 1:58pm
Not just middle class, but those above it. Heck, why should a parent use their own money when it can yield a higher return than a student loan? But your point is a good one. College graduates have an advantage over nongraduates. Forgiving the debt gives them an even greater advantage. So student loan debt forgiveness promotes income inequality.
Kevin Corcoran
Apr 29 2022 at 7:37am
Many people who know me are confused that I’m opposed to student loan cancellation, because if student loans were canceled, I’d benefit quite a bit. (I personally have no student loan debt, but my wife, who got her degree in Europe, has a large amount.) In turn, I’m confused about why that particular fact makes it surprising to them that I’d still oppose student loan cancellation. I guess for some people it’s just taken as given that “beneficial for me personally” is somehow supposed to lead me to think “therefore, good public policy.”
But it’s never seemed that way to me. Libertarians are often accused of having an overinflated sense of self, to the detriment of things like community and cooperation. But that’s always struck me as being exactly backwards. Much of my libertarian intuition is described well by Dan Moller in his Governing Least: A New England Libertarianism where he argues that libertarianism is rooted “not [in] an exaggerated sense of our rights against other people, but modesty about what we can demand from them.” To me, the idea that I can unload my burdens or responsibilities onto other people is anathema. My wife knew when she took out her loans that repaying them would be an expensive and lengthy process. I knew about her debts when we got married and that a sizable fraction of our income would be dedicated to paying those loans off. For either of us to throw our hands up and complain about the unfairness of it all, and insist that our neighbors and community should be forced to pick up the tab for our benefit, and to insist that it is our right to stick them with the bill – that is what always struck me as the antisocial and self-centered position. I can’t imagine insisting on forcibly passing my financial burdens onto other people, and being able to feel good about myself after that.
vince
May 1 2022 at 2:09pm
How sad that so many look at their selfish interest and then work backwards into what is good policy.
Jon Murphy
Apr 29 2022 at 8:59am
I agree, not the least of which is because no fraud has occurred. Yes, there is a terrible incentive system that cause loans to be higher than they otherwise would be. But each student borrower gets loan agreements and details on what the loan is, expected loan repayment, and the like. Everything is above board and the students agree to it. Thus, they are indeed responsible for those loans.
Robert Bliss
Apr 30 2022 at 1:27pm
Jon’s idea that because borrowers are given the loan agreement caveat emptor should apply. The problem with that is that very few students (or their parents) are capable of understanding contracts. The degree of financial literacy, in this country and the rest of the world, is truly appalling. And who can think clearly about what their situation will be over the next 20 years?
There is no credit risk analysis anywhere in the loan origination process. The government does not care about losses; witness the rush by Democrats to forgive loans. Private student loans have government guarantees. The government gives loans for any school and any major. Giving loans for (undergraduate or graduate) engineering majors might make sense if loan forgiveness is stopped; giving loans to English majors makes no financial sense. Though lending to everyone may make political sense.
The solution is to get the government out of the student loan business and let private lenders decide and price the risks. If there is a way to get universities to bear the risk, such as by making the loans, that would be even more incentive compatible.
Elsewhere it is claimed that college graduates earn $15,000 more than non-graduates. This may be strictly true, but not all college graduates earn $15,000 more than non-graduates. Back to the engineers versus English majors issue. Also, the statistic ignores the direct costs of the college education and the opportunity cost of lost income. Properly calculated, the net present value of many college and graduate degrees may be negative. Ask the taxi drivers and barristas with PhDs.
As a retired professor (finance) I have no trouble saying that far too many people go to college, have a great time, and learn little.
Jon Murphy
May 1 2022 at 9:19am
I disagree with this statement on empirical and legal grounds. College students are legally adults. They are allowed to understand, discuss, and vote on numerous more complicated issues. What is it about finance that means they are “incapable” of understanding it?
Second, most colleges now have student loan counseling. Before signing loans, many schools require students to go through these classes.
Now, I agree financial literacy is a problem in the United States (just look at the economic proposals of the Left and Right). But that doesn’t mean people are “incapable” of understanding. We shouldn’t make group judgements based off individual characteristics
vince
May 1 2022 at 1:50pm
By that argument, very few students or their parents should be held to *any* contract. Also, if you don’t want to read a contract, you can hire an attorney to do it for you.
vince
May 1 2022 at 2:01pm
By that argument, very few people would be held to *any* contract. Help is available. Hire an attorney.
vince
May 1 2022 at 2:05pm
They didn’t realize they should go to college to learn? They had a great time. Then they, not someone else, should pay for it.
Floccina
Apr 29 2022 at 12:08pm
And looking at figure 10 here, it looks like some states spend double what Florida spends and I think that the University of Florida is in the top 10 raked public universities so it looks like they could spend a lot less with little harm to education.
Everett
Apr 30 2022 at 3:07pm
Florida public college and university enrollments:
Total Grad students (most expensive): ~78,600 (~6.8%)
Universities (more expensive): ~275,000 (~23.8%)
Community Colleges (least expensive): ~800,000 (~69.3%)
Michigan public enrollments:
Total Grad students (most expensive): ~30,500 (~10.4%)
Universities (more expensive): ~82,000 (~28%)
Community Colleges (least expensive): ~180,000 (~61.5%)
Particular majors are more or less expensive to educate. I’m not even going to try sorting that out. However it looks like in part Florida is less expensive than Michigan because it has more of the cheaper to educate students and fewer of the more expensive to educate students. I doubt this adds up to all of the difference in cost.
Everett
Apr 30 2022 at 3:09pm
And I’m also not factoring in the fact that some of the revenue will go toward material costs for research facilities, and have effectively nothing whatsoever to do with student education.
Floccina
May 2 2022 at 3:30pm
One of the things Florida does is push more students to do 2 years in community college before university, so that is part of other states could emulate.
TGGP
Apr 29 2022 at 3:17pm
Economist Jeremy Horpedahl says
That seems a priori implausible to me, but I haven’t looked into the cited research.
Everett
Apr 30 2022 at 3:14pm
I haven’t looked at it either, but plausible arguments in its favor:
A lot of universities were built new in the mid part of the 20th century using government funds that students did not have to pay for directly. Now those facilities need maintenance that students have to pay part of.
The average taught discipline needs more and more expensive equipment, field trips, safety devices, etcetera, especially as research is introduce into undergraduate learning. Not just for the sciences and mechanical disciplines, but for the fine arts and humanities too.
vince
May 1 2022 at 2:34pm
Per Wikipedia: “Bennett hypothesis” claims that readily available loans allow schools to increase tuition without regard to demand elasticity.
Are empirical studies necessary before determining that a targeted increase in the money supply (student loans) will increase the price of its target product?
Mark Barbieri
Apr 29 2022 at 3:52pm
What astounds me is that everyone is talking about forgiving existing student loans, but not talking about reforming the loan programs that are leading to this situation. It seems crazy to me that you wouldn’t start by reforming the student loan programs and then figuring out how to address the people “harmed” by the old program. Maybe I’m crazy for paying for my kid’s schooling rather than financing it.
Everett
Apr 30 2022 at 3:16pm
To be fair various of the worst institutions leading to crisis for some borrowers have been shuttered, barred from the federal loan program, or otherwise disaccredited.
Thomas L. Knapp
Apr 29 2022 at 8:05pm
“You’re right that the government subsidies and credentialing are a huge part of this. But who’s more responsible for a student taking on debt: the student or taxpayers in general, almost none of whom had an appreciable role in formulating that policy?”
The answer to that question isn’t as slam-dunk as it appears.
Many of “the taxpayers in general,” who were supposedly competent adults — parents, teachers, et al. — hectored their kids to go to college, period, no matter the cost, no matter the loan obligations, etc. And voted in the office-holders who passed the student loan guarantees.
I’m 55 years old. If I apply for a bunch of credit cards tomorrow, then go out and max them out on hookers and cocaine, I can declare Chapter 7 bankruptcy and walk away with a damaged credit rating (and STDs, deviated septum, etc.).
But that 18-year-old high school senior who was told by pretty much everyone around her “sign here, you’ll be rolling in dough four years from now and paying it back will be no problem” can’t.
Just make student loans eligible for discharge in bankruptcy like other things — and get the government out of the business of making or guaranteeing them in the future.
David Henderson
Apr 30 2022 at 5:27pm
I agree that student loans should be eligible for discharge in bankruptcy. But only loans in the future, not current ones. The lenders lent on the terms within the law at the time, which included not being able to discharge the student loans in bankruptcy.
By the way, I don’t think that parents hectoring their kids to go to college should mean that other kids’ parents and other nonparents should be responsible.
vince
May 1 2022 at 1:53pm
As if high school kids routinely obey their parents’ advice.
Michael Yacenda
Apr 30 2022 at 9:44am
The universities should also be held responsible. They sold a defective product and should be held accountable by refunding some of the tuition. If the defaults are in certain majors, the related professors should bear some burden (i.e. reduced salaries).
Jon Murphy
Apr 30 2022 at 10:31am
Elaborate on this please. What, precisely, do you mean by “defective product?” It’s unclear what “defective” means in the context of education
vince
Apr 30 2022 at 1:26pm
How would you possibly implement this refund system?
Professors should bear some burden–how much, and who bears the rest? Which students qualify? Is there a statute of limitations? How much is refundable? Does the student’s grade figure into it? What about the student’s effort level? What about the student’s subsequent efforts to get a job and advance their career?
For fairness, of course, this refund should apply to every student–even those without student debt.
vince
Apr 30 2022 at 1:11pm
Who’s responsible for student loans? What’s the question: 1. Who is responsible for repaying student loans, or 2. Who is responsible for a situation in which many students are having difficulty repaying their loans?
The first question is simple. It’s the student who agreed to the contract.
The second question is a philosophical one, but why stop with student loans? Who’s responsible for poverty? Who’s responsible for inflation? Who’s responsible for obesity? Who’s responsible for the military-industrial complex? Who’s responsible for Biden being elected?
Do we look at each situation, and many many more, and compensate those who have been inconvenienced?
JK Brown
Apr 30 2022 at 3:34pm
The arguments to forgive student loans are often made by the same people who say everyone should go to college because you will have higher lifetime earnings. Of course, if you forgive the student loans, you are transferring the cost to those who don’t go to college and therefore are supposedly going to have lower lifetime earnings. Sure, there are more of the unfortunate by a 70/30 split, but still they will pay higher taxes while the college graduate gets the higher earnings.
And we should consider that college no longer is producing what is valuable in the market place. True, the magic parchment does retain its signaling capacity, but AI has mooted the “copy of the professors” concept of the college education to one where the graduate needs problem solving skills.
I haven’t seen a better explanation that this from an Econtalk
It’s not foolproof, but I now see my ENG 101/102 was less about redoing high school Physics, now with Calculus and more problem solving, problem solving, problem solving. Our brains were being rewired to take a problem, break it into pieces and slowly process each until we could reconstitute an answer. It’s a skill I’ve used all my life, even though I got my degree in Physics and did my career at sea and administration and seldom formally used what was listed on the syllabus.
David Henderson
Apr 30 2022 at 5:28pm
Nicely said.
vince
Apr 30 2022 at 7:49pm
That approach is up to the student too. If the student just wanted to get a good exam score, yes. If the student wanted to learn, too, he would go beyond that mechanical approach. I paid for my college, mostly by working part-time (30 hours a week) throughout. At that cost, I wanted an education, not just good exam scores. If you put enough effort into it, you can have both. And if you care more about a GPA than an education, don’t bitch that you weren’t provided problem solving skills and then blame it on your professors or others. Signaling as the purpose of college is an excuse of the lazy.
vince
Apr 30 2022 at 7:55pm
My college didn’t teach me how to quote on econlib. Another attempt.
vince
May 1 2022 at 2:21pm
Who would truly believe that a college degree, per se, magically provides higher lifetime earnings? Someone who shouldn’t go to college, that’s who.
Davis Parks
May 1 2022 at 2:17am
I’m of the mind that the government is responsible for the abnormally high price of tuition. *But* that doesn’t absolve the college attendees. It’s not the students’ fault that the tuition is high, but it is their fault for buying an overpriced product when there are plenty of alternatives out there.
I think the bigger question is who holds the most responsibility for these bad decisions: the students, their parents or their high school advisors.
I have a hard time blaming 18-year-olds for being irrational. I think there needs to be a lot of blame put on the people guiding these young people to poor life choices, like paying for an overpriced and useless degree.
vince
May 2 2022 at 2:18pm
That’s an argument for raising the age of majority. Right now they can legally enter into contracts. It’s absurd to allow that, and then not hold them accountable.
Everyone is investing in the stock market, so I will too. Will I get bailed out when it crashes.
What was the hogwash excuse for the Great Financial Crisis? As long as the music keeps playing, we keep dancing. Yeah. Keep dancing, and then let taxpayers bail you out.
Frederic Bastiat says it best: The state is that great fiction by which everyone tries to live at the expense of everyone else.
Mike
May 1 2022 at 11:52am
I watched a documentary a month ago called “Borrowed Future” that explored this issue, and what was telling was that many of the students had this attitude of “everyone goes to college so I have to go too, no matter the cost.” Two of them had the foresight to get scholarships and work a side job to help, but most of them did not. We need to make sure that students are financially literate enough to do the math, calculate the expected cost/benefit, and make the smart decision, instead of defaulting to what “everybody else does.”
Vivian Darkbloom
May 3 2022 at 8:08am
Who’s Responsible for Student Loans?
At the risk of keeping this too simple, I’d say it’s the person(s) signing or co-signing the loan agreement.
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