Are we in a student loan crisis? What should be done about it?
The overall consensus is that on the whole education in these United States is no longer globally competitive. That implies our society should be spending more on education, including college education. But should that be in the present form of privately made loans backed by federal government guarantees?
The Long Recession has meant that students graduating starting in 2008 and apparently continuing through at least this summer of 2012 have mostly not been able to get jobs of any kind, much less the higher-paying jobs that normally come with a college degree. Hence many regret about having taken out loans, and some have called for all student loans to be forgiven.
The American system of financing education is itself complex. There is a public sector that is typically fully taxpayer subsidized through high school. At the college level, how much taxpayer subsidy there is in public universities varies not just state by state, but in tiers depending on college (or junior college) attended. Private education exists to give children and families a competitive advantage over the uneducated and publicly educated. Despite that, it too receives public subsidies, though they tend to be tax breaks rather than direct subsidies. Student loans are a major source of income for private colleges, but are generally not available for private K-12 education.
All colleges, public and private, are supposed to offer a competitive advantage to their graduates. Most people do not have 4-year college degrees. In effect taxpayer money that goes to higher education helps the richest one-third or so of the population, which largely corresponds to adult citizens with college degrees.
Aside from, but not unaffected by student loan programs, we have the escalating cost of college educations. If college educations benefit society, and not just the money-seekers who buy those educations, then this can be a problem in itself. Within the sector janitors, professors and administrators may argue how to cut up the pie, but arguably the pie is expensive out of proportion to the benefits it provides society. It has been argued that when more loans and grants are made available by the government, the result is simply higher tuition charges, leaving us on a treadmill.
It should also be noted that degrees are also part of an important anti-competitive part of our national economy. Degrees are often a prerequisite to professional licensing. Thus those with certain types of degrees are able to, with their fellow professionals, engage in monopoly price-setting for their services. These segment monopolies, most notably in the health field, also drive costs to society in a way that is unbalanced and arguably unethical.
Thus talking about student loans, we should see that not everything should be lumped together. A $50,000 in loans to a Film Studies major does not have the same economic effect as $50,000 in loans to a medical student or to an accounting student. A loan to a student at a private college may just enable the cost of education to rise. A loan to a student at a public university may only shift the economic burden from taxpayers to the student, even if it does not cause the university to inflate its tuition and fees. A government-backed loan raises somewhat different public policy questions than purely private loans would.
We should probably look at the various state college systems for some insights into what works (defined as getting a good education to cost ratio). In general neither the state systems nor the private colleges have been immune to cost inflation. In the state systems wage inflation seems to be driven by unions, but caps on taxpayer support limit overall costs. In the non-system of private colleges costs seem to be driven by administrators and increased demand for student luxury. In both cases we have exceptions: private universities that keep their costs reasonable and pass that on in reasonable tuition, and public state systems where the public (taxpayers) and students get a better return for their money than in the average state. We should look at those exemplary colleges and use them as models. [I hear professors and administrators screaming: but that would mean a pay cut for me! And yes, that is what I am advocating: a life devoted to scholarship and teaching, an exemplary low-environmental impact, low luxury, no-frills occupation. Or at least in that direction, from where we are now.]
My back-of-the-envelope impression is that there are relatively few particular families who benefit from wealth transfers through taxation and the distribution of public education (including tax breaks & other subsidies of private institutions). If a student's parents can afford for the student to go to college, with or without loans, they probably pay substantial taxes. The middle and upper classes of the U.S. currently pay very little in taxes that subsidizes the children of the lower classes at the college level. If anything, those who do not attend college pay taxes that subsidize those who do.
Fixing the current system is different from designing a blueprint from scratch. The current system works for the powerful. The most powerful can send their children through college (and usually graduate school) without loans. These children start work where anyone else might aspire to finish life: debt free, with high-salary jobs and a "it's not what you know its who you know" safety net. But those who go through college on loans have little room to complain, given that, if they are not at the very top of the system, they at least have an opportunity to exploit the lower classes with their degree. They just have to work harder at it.
Banks may be essentially predatory, but I don't see why they should forgive student loans when the point of the loans was to try to get a leg up the economic ladder. There is even less ethical reason for the government, which is really the taxpayers, to rescue banks and debtors alike.
Stop government guarantees for student loans and the short-term economics side of the problem will resolve itself in a few short years. Banks will stop making the loans. Some parents will pitch in more, but many students will drop out. Colleges will face budget contraction. They will deal with it in different ways, some keeping tuition high, but many will choose to lower tuition. That, in turn, will make college more accessible, at least for the middle class. Degrees, being rarer, will become more valuable.
High tuition, with or without student loans, cuts off class mobility and causes talent to be misallocated. But lower tuition just changes the situation a shade of gray. There is no particular correlation between talent at birth and parental economic or academic status. Nurturing the academic and intellectual talents of children is good, but it is a limited good, grabbed by the same people who grab most goods in America, the entrenched elite of professionals and capitalists, large and small.
It follows that even if the states provided free college educations for those who qualify, many slots would end up occupied by "legacy" students, who only make it because of major parental support during their pre-college years. Private colleges like Stanford would continue to turn out new generations of predators that specialize in eating other kid's lunches.
Reforms should be supported. Tax the rich and use some of the taxes to make college free for those who qualify. Recognize that private colleges are businesses and should be taxed; discouraged, not encouraged.
The real goal should be a society in which the environment is respected, and all people are respected too, regardless of who their parents are, or what occupation they end up in. The only way we are going to realize that is "nationalization." In this case, however, it is the states that should take over the private colleges, enabled by national legislation.
Probably the single biggest educational mistake in American history was made in 1819 by the Supreme Court in Dartmouth College v. Woodward. The state of New Hampshire tried to turn Dartmouth from a private corporation into a state-run college. The Supreme Court said No. Thus we became a nation with two tiers of college, a private tier for the slave owners, professionals, landlords and (later) the industrial capitalists, and a public tier for the rest of us.
Making that change, short of armed insurrection, would be difficult. The current Supreme Court would have to be replaced in its entirety by some President representing a different set of values than those held by the Democratic and Republican parties.
The only viable long-term solution is to nationalize the nation itself. Think about that, graduates, especially those of you opting not to go to college.