May 17, 2007
A Better Way To Do Student Loans
Robert Reich hits on one of my pet obsessions: The job lock caused by student loans. "Several of my students who will graduate next week," he writes, "tell me they would have liked to go into social work or into the non-profit sector or provide legal services to the poor. One had his heart set on becoming a painter. Another became passionate about archeology and had wanted to go on a dig in the Sahara. But they can’t do any of these things because they have tens of thousands of dollars of debt. They need jobs that pay the rent while they repay their loans."
Our increasing reliance on loans as a primary funding source for college has nasty side effects, forcing lower-income students to go into more-renumerative professions in order to pay off debt that, mind you, was originally granted so they could go to college and figure out what they wanted to do for the rest of their lives. Anything, it turns out, as long as they can pay the government back.
Reich has a better idea: "Make repayment of government-subsidized loans depend on how much money [graduates] earn. Say that everyone has to pay ten percent of their income for the first ten years of their full-time work. And then the loans are considered paid off. My student who’s landed that private-equity job would pay ten percent of his income for ten years, which would be a hefty sum. My students who go into social work or become artists would pay ten percent of theirs, which would be far less."
There's got to be a better solution than that one, its a license to loaf.
Posted by: slickdpdx | May 17, 2007 11:43:22 AM
I think there's an income-contingent element to UK student loans.
Posted by: otto | May 17, 2007 11:47:29 AM
Actually, I would prefer that loans be limited to an amount that would result in payments of 20% of the median income received by a graduates in the field of study (computer science students get to borrow more than nursing students who get to borrow more than social work majors). Universities would realize that they would need to offer grants to keep students in those departments rather than encourage them to take more loans to stay in the programs. The student loan system is borderline usury--for some loans, interest will compound while the students are in school, and the schools don't place any brakes on students that want to keep borrowing more. Such loans can never be discharged into bankruptcy, even if there is no chance of their being paied back in the borrower's lifetime and if the loan is by that point mostly compounded interest.
No, the solution is to stop budding social workers from borrowing $50,000 for their MSWs and to put pressure on politicians to increase salaries for social workers.
Also, I'd actively discourage people from going into the non-profit industry until those organizations are able to offer competitive salaries to their entry-level workers.
Posted by: Constantine | May 17, 2007 11:53:38 AM
Why is it a license to loaf? Presumably you're not going to become a painter just so you ensure poverty and pay less in absolute terms to the government.
Posted by: Ezra | May 17, 2007 11:54:59 AM
I agree, that's a dreadful proposal.
And by the way this is not so new a story, unless one is going back more than twenty years to call this "recent" - kids have been saddled with high loans since at least when I was in school, and certainly before; the two factors that probably have changed is that a) education costs have skyrocketed in the same period, and b) college grads, especially right now, are walking into a pretty rough job market.
Lots of lefty people will want to take on b), but it's a) that really appalls me, as we continue to accept the piss-poor excuses of colleges and universities that their runaway inflation in tuition and expenses is somehow okay and justified by something like "a continuing commitment to quality". Schools sitting on huge endowments are doing far too little to subsidize students, and are under almost no pressure to improve their economics by cost cutting or economizing in any way. And so, we get kids floored by large loan debt, and what do we do? We blame... the loans. Not the problem. Not by a long shot.
And by the way, there's only so much that can be done to recover on bad student loans - life doesn't necessarily preclude becoming a social worker or a painter just because of loan debt; but loan debt tends to suggest that the people don't have the resources to cover a few years or so of really rough times to do what they love. They can't take money you don't have. I think one less discussed aspect of this is that a lot of kids have an outsized level of expectation here - "I want to do social work that pays like investment banking" or "paint while earning the kind of money Johnny Depp does." That's not how it works. I don't want to press this too far, because I think it smacks of a generational churlishness I'd rather avoid; but (and though I know akaison hates it) there are choices here. I don't think all of the resistance to them can be blamed on "oh, my student loans."
Posted by: weboy | May 17, 2007 12:03:34 PM
What about a scholarship that pays tuition and and student fees at all public schools (including public trade schools) for all admitted students? They are public schools; make them truly public the way high schools and elementary schools are.
Posted by: Gar Lipow | May 17, 2007 12:04:20 PM
The problem is the cost of the education- not the loans.
Posted by: akaison | May 17, 2007 12:08:30 PM
Ezra, it's not so much the loafing proper that's the problem; you're right, nobody is going to be poor on purpose just to avoid paying off higher gross loans that are an equal percentage one way or the other. It's that loan takers who otherwise have to consider the financial impact of the loans won't have to make such considerations before choosing to take them. I'm not entirely sure this is terrible, really, since you'd be hard-pressed to convince me that a lot of these people do give them their due consideration before deciding whether the local state school or the Ivy League education is a better bet.
However, one potential consequence that would offset the above is that loan makers will be far less apt to give loans to people who -- at age eighteen -- don't have "high earnings capacity" written all over them. I guess that means more artists coming out of state schools and fewer out of private schools, which you may be fine with, but the 10% rule is the sort of policy that would impact school demographics pretty heavily, and I'm not convinced in an entirely positive way.
Posted by: jhupp | May 17, 2007 12:16:21 PM
Shorter Constantine: Let's return to the Dickensian model of delivery of social services -- that was right and proper.
Posted by: paperwight | May 17, 2007 12:17:43 PM
Student loans are a relatively recent 'feature' of a college education (in decades), and while better than no college at all, they do skew the exiting students into professions that may not be best for society overall, or even good for the new grad.
Why do we do this? Yes, college has become extremely expensive. That is the problem. Contrast the generation that relied upon free education until the GI bill after WWII and Korea, where the new grad was not under the economic pressure of a huge debt to choose one kind of job over another. That worked out very well for country and the people.
It is well known that states have dramatically cut the percentage of university funds they provide through taxes - a major contributor to the overall cost increase. The cost burden has been moved from all taxpayers to only the graduates - a movement that is not good for society.
The Reich solution is the solution to the wrong problem. The problem isn't that students want to take on huge debt and therefore have their life choices channeled. The problem is that the society previously recognized (since the beginnning of state universities) that society was the gainer along with the graduate, and society isn't doing the right thing if we are serious about more education being a major portion of the response to globalization of jobs.
The debt belongs (mostly) in the national debt - as it was with the GI bill - paid for by all and creating the opportunity society that all bow down to but recently don't want to pay for. A college education is not really different in terms of societal needs than elementary and secondary education, which also are society's tax burden (and also starved for funds).
Reich's solution sounds like a DLC solution. Government paid tuition is the progressive/liberal solution. And yes, we can afford it because our economic future depends on it.
Posted by: JimPortlandOR | May 17, 2007 12:18:02 PM
Who says painters even need to go to college anyhow? Lack of imagination, that.
In answer to Ezra's question: needs based financial assistance doesn't have the problem as much, families don't make less so as to get college aid (although it may discourage saving to some degree). This is on the opposite end. Under the Riehl plan, I don't need to pay off my loans at all, if I don't want to. That's why its a license to loaf. How many will take that license, I admit I can't say. The obligation can't be optional and the percentage plan is manifestly unfair. The harder you work - the more you pay. Two people with the same job pay different amounts based on the ovetime they work or the amount of success they meet with. That seems like a bad idea.
Posted by: slickdpdx | May 17, 2007 12:22:05 PM
This sounds like a terrible idea to me. For one, I knew just plenty of people who tried to do as little as possible coming out of college, because they didn't mind poverty nearly as much as they minded the idea of having to ever having to wake up before 11 AM. For another, this seriously increases the motivation for cheating on your taxes (being paid under the table, etc.)
And really, is this such a horrible thing? Decisions have, you know, consequences. You want to have a really big house? You want to drive a really fast car? You want to go to a really good school? You need a job that pays lots of money. Nothing says you can't slave away for 5 or 6 or 8 years at some soul-sucking job then enter the nonprofit workforce afterwards, all the more able to appreciate the benefits your good-for-the-world work is doing.
Posted by: David S | May 17, 2007 12:29:12 PM
paperwright, I had no idea that in the Dickensian era, there was a push to pay social workers more money and policies to provide bankruptcy relief to debtors.
The main problems are that there is no downward pressure on tuition costs and no upwards pressure on public-interest salaries. A loan cap based on projected salaries would help do both.
Also, one of Ezra's issues is the lack of social mobility in the USA. I would claim that if we wanted to see more social mobility, the LAST think we would want would be for people saddled with education debt to go into low-paid professions. Leave the non-profit industry to hire those who can be comfortably downwardly-mobile.
Posted by: Constantine | May 17, 2007 12:31:51 PM
1. The 10% idea seems like it would hurt the painters, social workers, etc. If you're making $20,000 a year, $2,000 is a huge loss of income, whereas someone making $200,000 can better afford to pay $20,000. Plus, what if the person who makes $200,000 only had $18,000 in loans? Asking that person to keep paying the amount of their loans and then some every year for 10 years strikes me as, well, nuts.
2. It's already possible to defer your repayments for reasons of economic hardship or if you go back to school for an advanced degree (Masters, PhD, etc.). Yes, you'll have to pay them back eventually, but as a grad student putting those payments off for a few years is far preferable than paying 10% of one's TA salary.
3. There are also already ways to have part or all of your loan forgiven if you do things like Teach for America or (I think -- it's been a LONG time since I worked in financial aid as an undergrad) the Peace Corps. Expanding the range of socially beneficial activities that let you do this seems like a much more sensible -- and achievable -- proposal.
Posted by: Chris G. | May 17, 2007 12:32:25 PM
"The problem is the cost of the education- not the loans."
Yep. The two are not unrelated though. The incredibly easy access to subsidized student loans and government backed student loans coincides with the tuition increases that have occurred.
States can "dramatically cut the percentage of university funds they provide through taxes" without cutting at all because they often control only one side of the equation. It would be one thing if these massive increases in tuition were delivering a massively superior education, but I don't think there's much evidence to support that.
Posted by: Alex | May 17, 2007 12:41:34 PM
Constantine - you are either stupid or lying. The chances that "politicians" will fund social services any more are essentially zero. Or haven't you been paying attention to the Republican war on social services? I suspect you have, and you approve.
So, preventing people a priori from going into those professions will basically eliminate those professions, leaving them to private charities run by the wealthy (Are there no workhouses?) just as we already see with the non-profit sector, where people either choose to be poor, or are already wealthy (as you so snidely note with the "comfortably downwardly-mobile" crack).
So, yes, what you propose is a return to the model of social services described in Dickens -- the difference of course, is that he disapproved.
Posted by: paperwight | May 17, 2007 12:41:49 PM
paperwright, sue me for thinking that social workers should be paid like any other graduate-level professional. If universities want more students, they need pressure to either decrease their tuition, or those universities need to lobby politicians to pay social workers decently which would allow their students to borrow more money.
What I don't want is young graduates to be taken advantage of by industries that demand expensive education credentials and then underpay them. What we're doing is just arguing over what we think the government can do. If the government can pass some sort of complicated student loan scheme, then certainly there's room to, you know, pay their public service workers a decent salary. Meanwhile, it wouldn't necessarily be a bad thing to tell people to stay away from such professions until the pay increases.
Posted by: Constantine | May 17, 2007 12:47:51 PM
Sounds similar to what we have in Australia. About twenty years ago we changed from offering free university places to a government debt scheme. Repayments start when the student is earning an average wage with the repayment being a percentage of their earnings. I think the interest on the debt is kept at CPI or something similar, and additional payments are rewarded with a discount of the total fee. Full fee paying places are available for overseas students and those who don't 'make the cut'.
As far as I'm aware this has worked quite well with the majority of graduates (and non-graduates) being able to repay the debt in a reasonable period of time.
Posted by: Peter | May 17, 2007 1:05:45 PM
I think the better solution is granting students some really high amount of money, say $50,000.00 for students with a BA and $100,000.00 for students with post-grad degrees, conditioned on five years of public service. This could be done through Teach for America, service in the military, or other programs we can dream up to put educated kids to work. While working they earn some comparatively low salary, say somewhere in the $20k-$25k range, though perhaps salary would vary by local.
Posted by: Ben | May 17, 2007 1:09:01 PM
What is supposed to be wrong with not wanting to get up before 11:00 a.m.? I just woke up about half an hour ago, at 11:30 a.m. I can do that because I quit my job at a law firm, and I could do that because I was lucky enough to have parents who paid for most of my education. And the quality of my life is immensely higher than it used to be. It is unfair that most people, lacking such fortunate circumstances, remain slaves to their jobs.
The idea that anyone who doesn't want to spend 10 hours of almost every day doing work they don't enjoy is a lazy loafer is really pernicious.
Posted by: Christopher M | May 17, 2007 1:13:24 PM
"Reich's solution sounds like a DLC solution. Government paid tuition is the progressive/liberal solution. And yes, we can afford it because our economic future depends on it."
I question your last assumption. A very high percentage of the U.S. population already attends college, higher than in any European country. And state universities are still quite cheap. Subsidizing higher education will probably have a limited impact on the amount of people who actually go to college. Possibly universities will have raise their entrance standards to cope with increased demand and poorly educated kids will have an even lower chance of getting into college. The reality is that most of the people who don't currently attend college don't do so because they aren't ready for it academically and/or emotionally.
Sure it would be nice if college was free, I personally wouldn't have so many goddamn loans (I attend a private college). But does our economic future really depend on enabling some person to go on an archeology dig in the Sahara instead of becoming a doctor or accountant? Hardly. And how much would paying for all higher education, or just all public higher education, cost anyway? Would it worth the revenue lost from a couple thousand dollar yearly tuition fee? Obviously I haven't look at the data closely but it's not as clear-cut as you say.
The real problem with education in this country is at the grade-school, middle school and high school levels. Really that's what needs to have money thrown at and fixed; the U.S. higher education system is just fine, the best in the world.
Posted by: Korha | May 17, 2007 1:14:05 PM
The Clinton administration campaigned on something like this. Yale tried in the '60s and '70s.
It doesn't work.
Partial or full loan forgiveness/takeovers for people who agree to take specific jobs post college is a more practical way of getting an equivalent result.
Posted by: Nicholas Beaudrot | May 17, 2007 1:24:43 PM
It does seem that the costs of education are the prior and more pressing problem. Unfortunately, while student loans are a good thing, they probably make it easier for education costs to rise, by reducing pressure for lower costs, so in that respect trying to deal with the problem by making loans easier might serve to make the overall problem worse.
Part of the problem appears to be the hypercompetitive nature of education. Schools compete over the best or, rather, most prestigious faculty and students in ways that drive salaries too high for the professors who, on the whole, probably do the least for students. (An unfortunate irony of this is that to make up for the high salary of the glamour profs, far, far more students end up being taught by grad students and other less prepared teachers who are paid poorly, often less than a living wage.)
The cost of research/publishing is also very high, and is overemphasized at the cost of classroom teaching. I know the reasoning that it makes for better teachers, but that isn't as true as it ought to be, and we could still encourage some research and publishing without giving it equal weight to or more weight than teaching. (A pleasant side effect of less emphasis on publishing would be less twaddle in journals.)
I think public schools should focus more on costs and teaching excellence than prestige.
Shorter Constantine: Let's return to the Dickensian model of delivery of social services -- that was right and proper.
Constantine - you are either stupid or lying.
Huh? Paperwight, I know you experience pretty much everyone you disagree with as stupid, dishonest and/or immoral, but this is very silly even for you.
Posted by: Sanpete | May 17, 2007 1:24:58 PM
I seem to remember, back when I was starting law school a few years ago, getting information from loan companies that actually worked like Ezra suggests: in return for the money, you just promised a certain percentage of your income for 10 or 20 years. Of course, law students have prospects of very high salaries, so it's not obvious that the model would work in other contexts.
Posted by: Christopher M | May 17, 2007 1:28:16 PM
No one has any issue with you not wanting to work. No big deal as far as I am concerned. Now, if you don't want to work, but you want me to pay for stuff that you want, such as a college education, then I do have an issue with it and consider you a loafer.
Ezra has the problem entirely backwards. He claims that socially desirable jobs are being passed over because their renumeration is too low to afford student loan repayment. Granting, for the sake of arguement, that these jobs are in fact that socially desirable, the problem isn't the loan repayment, it is that they are undercompensated based upon their true worth. Numerous schemes could be propossed to address this, ranging from increased government funding of these activities to private sources(for example, if Ezra wants more artists he could buy more paintings.) Work to make the renumeration cosistant with the 'social value' and your problem is solved.
Of course, most won't agree with you social value analysis, so you will probably still be unhappy that you can't remake society in your image.
Posted by: Dave Justus | May 17, 2007 1:36:16 PM
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