Asymmetrical Information

Jane, I always felt that social spending should be more of a last ditch/oversight then the "go-to" it is now. If people find themselves needing help, when they go to the government office, they first direct the person to most probable places of help among the private charities. "Well, this charity has been giving out alot lately, so lets try that place last since their probsbly low on funds. Here, lets try this, this, and this charity..." and if they can't get the funding *that* way, then go with government funded welfare. You get the idea..

Considering that we wouldn't have gone to grad school without student loans, I thinki that's a tad hypocritical, don't you Jane?

First of all, most of my loans were private, not government subsidized. Second of all, I would argue it's less hypocritical, since I'd be goring my own ox. And third of all, it's ridiculous. I'm against the mortgage tax deduction, but that doesn't mean I wouldn't take it; I have to, because the deduction has raised the price of housing so that I can only afford it with the tax break. Similarly, government loans have both raised the price for education, and crowded out the private market for school loans.

You're against student loans? Crimey! That would just about be the last program I'd cut and I'm a libertarian-minded Republican. Student loans meet most of my criteria:

1. They are presumably paid back over time.

2. They help poorer individuals get a leg up in society WITHOUT giving them a long-term free ride. They're attractive enough to use when needed, but people who don't need them don't use them. The perfect definition of what social spending should be.

3. They are a social equalizer. When asked what he'd do about allowing more people to college, Minnesota Governor Jesse Ventura said: "If you want to go to college, you can find a way." The perfect answer! Student loans are a key component in that.

Now, if you want to dictate stricter terms on what kind of student loans would be available (only to public colleges, no Comparative Folk Dancing majors need apply, etc), then I'd be all in favor of that.

Is there some better plan that you have in mind? Is the federal government's program making it prohibitive for most private banks to do it when they otherwise would?

At the very least, I'd like to hear more of your thoughts on this...

No student loan program? Wow, thanks!

I'm finishing my own education -- an engineering degree completed, and another semester to go in a political science-esque masters program -- thanks to over $20k in subsidized Stafford loans, so far. Not having to pay the interest until I've had adequate time to enter the job market is nice, too.

I paid heavily from my own savings the first three semesters in tandem with scholarships, and thereafter my savings were exhausted and I was dependent on loan aid and my folks' support. Oh, and I've been working part-time with the school since my fifth semester, too.

Can you explain how the private student loan market would have been better-able to keep me afloat this far?

(P.S. Like the new font better than the old one, by the way.)

Why bother with haggling over which social programs to keep or cut? Implement Art Laffer's flat tax proposal (12% flat tax rate for businesses and consumers) and then we'll talk.

There is an underlying assumption in social spending that it is possible to determine which interventions will be useful and that an authority can both legislate and execute those interventions. Arguments for and against particular interventions promote competing social views.

I question those assumptions as well as the authoritarianism. I question the wisdom and utility of selecting interventions supported by a majority to the exclusion of competing ideas. I question the ability of authorities to execute those interventions as designed.

It may be that the strongest argument against social engineering is the same as the one against other sorts of engineering in natural systems; we don't understand how these complex systems work and our interventions have most often resulted in degradation rather than improvement. They are at best 'poke and hope' interventions and the negative consequences are excused by the good intentions of the authorities who 'at least tried' to do good. The word hubris comes to mind.

About student loans: A (admittedly brief) study I did for my U back in 1992 or so showed a direct correlation between increased use of student loans and tuition *and* number of administrative personnel at the U. An interrupted time-series analysis showed a sloping impact that, at that time had not yet leveled off. The obvious explanation was that the U was using students' (especially grads, who were really getting charged up the wazoo) expected future earnings to finance an increase in the size of the Bozo Brigade, since very few of these new admins were aimed at any service provided to grad students. Needless to say, the study got "buried." ;>-=

A suggestion for private financing of college education: Link it to another problematic area, retirement plans. The problem with most retirement plans is that they involve trying to extrapolate both economic conditions and actuarial data 50 years ahead. If you spread your investments around, many of them will be worth something, but you have no idea how much you'll need to live on.

So my idea is that you make your investments in people - as student loans - and eventually you get paid back as a percentage of their income. To reduce the risk, you will need to form a pool, that is 100 investors of various ages contribute to a few students every year, and the graduates pay a few percent of their income back to the pool to be split among the retirees. This doesn't guarantee a luxury, but spread around sufficiently, it will give you a fairly predictable percentage of the average income for college-educated workers.

As I've posted before, the mortgage deduction encourages home ownership. This tends to benefit the middle-class, and a growth in this sector tends to stabilize society as a whole.

Oh...it wasn't a new font. Turns out the other machine doesn't have this installed and was defaulting to Tahoma.

'spose I'll just have to adjust...

Jane's notion of doing away with student loans could succeed in a broader context of rethinking the scope of higher education. Grad schools function in a lot of ways as barriers of entry to a guild. Law school is arguably two years too long. Med school is also arguably two years too long, and residency is freakishly over-regulated and underpaid. PhD programs are overlong so as to provide cheap teaching labor. Federal student loans, in this context, can be seen as a subsidy to the exclusionary professions.

I'll go two for three on her suggestions-I think student loans aren't a good way to subsidize education, for it discourages saving for college. I also agree that Medicare should be means-tested so that the wealthier elderly pay for it themselves. I'm not quite on board doing away with extra tax breaks for children, but if we needed to do that to get a good flat tax passed, I'd be willing to do that.

Mark: How do you justify that savings before college (money presumably used for lending purposes as part of a bank account with interest paid to the lender) are an economically better option than money loaned out for college (and repaid later with interest by the borrower)?

Second, as I noted earlier, I DID save (and came from a middle-class family background), and yet wouldn't be completing my education next semester (six years, two degrees) without the assistance of $20k in subsidized Stafford loans (at an in-state publically funded university, mind you). How would my needs have been better served by a private loan market?

Right, but education wouldn't cost as much without student loans. It used to be actually feasible to earn your tuition for the year by working hard all summer, combined with earlier savings and possibly, but not necessarily, a modest family contribution. The enormous increase in the cost of tuition tracks extremely well with the enormous increase in federally subsidized aid. So without the student loans, you wouldn't need the student loans.

Okay...how does tuition track next to inflation, ignoring the loan factor?

I mean, I could argue that it used to be feasible to buy a new middle-range car with only a modest amount of savings. The price of a new compact/mid-size car (i.e. not the tiny sub-compacts like the Metro and Paseo) is presently around twenty large. But I'm not sure what that would prove, although it's a similar argument.

Jane, can you walk me through your student loan argument - you've lost me somewhere. In most post-secondary schools in Canada tuition only covers something like 20% of the cost of education, with the rest of the cost being covered by government grants to the school. I understand that the situation for state schools in the US is about the same. So, unless you're going to a private school, student loans or no your education is highly subsidized by the goverment.

What would be your concern with increased tuition offset with enhanced student loan programs? Rather than subsidizing everyone the aid can be targeted to those who need it most. And I would think that forcing students to pay something closer to the true costs of their education would be a good thing from a strictly economic standpoint.

What am I missing?

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