Student Loan Interest: Worst Idea Ever?

[_cinepro]

The Federal Government guarantees student loans. Therefore, banks should receive from students essentially the same return as a government-issued callable bond, plus a nominal fee for account maintenance. To the extent they make more than that, they are getting an arbitrage profit. Taking that away from them would hurt them.

That makes much more sense, but it isn't the argument that Warren is making. It also raises the question of whether tax payers should be committed to backing such loans.

The most frustrating thing is for people to talk about "fairness" or saying "student loan rates are too high" without providing any kind of context in which to judge the rates in the first place.

But in reading up a little more on the whole student-loan industry, it's a little more interesting than I expected:

http://www.huffingtonpost.com/2013/05/0 ... ir=College

[_cinepro]

Curiouser and curiouser...

The Obama administration is forecast to turn a record $51 billion profit this year from student loan borrowers, a sum greater than the earnings of the nation's most profitable companies and roughly equal to the combined net income of the four largest U.S. banks by assets.

Figures made public Tuesday by the Congressional Budget Office show that the nonpartisan agency increased its 2013 fiscal year profit forecast for the Department of Education by 43 percent to $50.6 billion from its February estimate of $35.5 billion.

Exxon Mobil Corp., the nation's most profitable company, reported $44.9 billion in net income last year. Apple Inc. recorded a $41.7 billion profit in its 2012 fiscal year, which ended in September, while Chevron Corp. reported $26.2 billion in earnings last year. JPMorgan Chase, Bank of America, Citigroup and Wells Fargo reported a combined $51.9 billion in profit last year.

The estimated increase in the Education Department's earnings from student borrowers and their families may cause a political firestorm in Washington, where members of Congress and Obama administration officials thus far have appeared content to allow students to line government coffers.

http://www.huffingtonpost.com/2013/05/1 ... 76428.html

[_Res Ipsa]

Curiouser and curiouser...

The Obama administration is forecast to turn a record $51 billion profit this year from student loan borrowers, a sum greater than the earnings of the nation's most profitable companies and roughly equal to the combined net income of the four largest U.S. banks by assets.

Figures made public Tuesday by the Congressional Budget Office show that the nonpartisan agency increased its 2013 fiscal year profit forecast for the Department of Education by 43 percent to $50.6 billion from its February estimate of $35.5 billion.

Exxon Mobil Corp., the nation's most profitable company, reported $44.9 billion in net income last year. Apple Inc. recorded a $41.7 billion profit in its 2012 fiscal year, which ended in September, while Chevron Corp. reported $26.2 billion in earnings last year. JPMorgan Chase, Bank of America, Citigroup and Wells Fargo reported a combined $51.9 billion in profit last year.

The estimated increase in the Education Department's earnings from student borrowers and their families may cause a political firestorm in Washington, where members of Congress and Obama administration officials thus far have appeared content to allow students to line government coffers.

http://www.huffingtonpost.com/2013/05/1 ... 76428.html

I find the article confusing. It suggests both that there is too much student debt and that the government is making money because the price charged is too high. It also worries about defaults while noting the very low rate of default (which is in part responsible for the increased profitability). It also seems to be a scandal when the government invests in something that loses money (Solyndra) and when it invests in something that makes money. Some times it's tough to sort it all out.

And yeah, Warren's argument was nutty.

[_Kevin Graham]

Obama is on pace to make more profit in this area than we spend annually on Food Stamps. But the right wing propaganda industry forgot to input that data in their spin machine.

I have to wonder how can the "my taxes shouldn't pay for your education" folks make an argument now? Because of the federal student loans, government income has increased, not decreased.

[_Analytics]

The Federal Government guarantees student loans. Therefore, banks should receive from students essentially the same return as a government-issued callable bond, plus a nominal fee for account maintenance. To the extent they make more than that, they are getting an arbitrage profit. Taking that away from them would hurt them.

That makes much more sense, but it isn't the argument that Warren is making. It also raises the question of whether tax payers should be committed to backing such loans.

The most frustrating thing is for people to talk about "fairness" or saying "student loan rates are too high" without providing any kind of context in which to judge the rates in the first place.

But in reading up a little more on the whole student-loan industry, it's a little more interesting than I expected:

http://www.huffingtonpost.com/2013/05/0 ... ir=College

A clear unintended consequence of student loan guarantees is causing the price of a college education to go through the roof. Another consequence is too many kids borrowing too much for educations that don't make financial sense (e.g. the guys working for you for $12 an hour in temp jobs with $150,000 in debt for their USC degrees in filmmaking).

Personally, I'd be inclined to do away with student loan guarantees and replace them with the government identifying degrees that will be in high demand in the future (medicine, nursing, engineering, etc.), and then providing merit-based scholarships for people who go into those fields. If you don’t want to go into those fields because you have a passion for underwater basket weaving, feel free to go for it—just don’t expect the government to subsidize that choice.

[_ajax18]

A clear unintended consequence of student loan guarantees is causing the price of a college education to go through the roof. Another consequence is too many kids borrowing too much for educations that don't make financial sense (e.g. the guys working for you for $12 an hour in temp jobs with $150,000 in debt for their USC degrees in filmmaking).

Wow, that sounds exactly right.

Personally, I'd be inclined to do away with student loan guarantees and replace them with the government identifying degrees that will be in high demand in the future (medicine, nursing, engineering, etc.), and then providing merit-based scholarships for people who go into those fields. If you don’t want to go into those fields because you have a passion for underwater basket weaving, feel free to go for it—just don’t expect the government to subsidize that choice.

Every now and then you say something that sounds exactly right. You're still a Marxist right? Don't you think this would be hard to swallow for the Democratic party. There are so many college professors whose livelihood depend on selling useless degrees and most of them are liberals, correct? I've ranted and raved about useless college degrees since I was in high school only to be dismissed with arguments like, "Money isn't everything. My husband won't mind paying my loans... and from BYUs student manual, "College is to educate people, not to prepare them for the workforce."

Secondly, how is the government going to know what degrees will be in demand? It seems like the unseen hand of the free market would do better at answering and helping people accept difficult answers to this question. The only thing more difficult to do than figuring out what to do for a living is trying to tell someone else what career path they should pursue.

[_Analytics]

A clear unintended consequence of student loan guarantees is causing the price of a college education to go through the roof. Another consequence is too many kids borrowing too much for educations that don't make financial sense (e.g. the guys working for you for $12 an hour in temp jobs with $150,000 in debt for their USC degrees in filmmaking).

Wow, that sounds exactly right.

Personally, I'd be inclined to do away with student loan guarantees and replace them with the government identifying degrees that will be in high demand in the future (medicine, nursing, engineering, etc.), and then providing merit-based scholarships for people who go into those fields. If you don’t want to go into those fields because you have a passion for underwater basket weaving, feel free to go for it—just don’t expect the government to subsidize that choice.

Every now and then you say something that sounds exactly right. You're still a Marxist right? Don't you think this would be hard to swallow for the Democratic party. There are so many college professors whose livelihood depend on selling useless degrees and most of them are liberals, correct?

In general, I think Democrats would be warm to the idea of making college education freely available to a broad group of people. A few Democrats might want to throw a little bit of affirmative action into the merit-based scholarships, but otherwise they’d love the idea. In general they would be against getting rid of student loans, but if that program was replaced with enough scholarships so that the opportunity of college was still widely available, they might go along with it.

I've ranted and raved about useless college degrees since I was in high school only to be dismissed with arguments like, "Money isn't everything. My husband won't mind paying my loans... and from BYUs student manual, "College is to educate people, not to prepare them for the workforce."

Money isn’t everything, but until the Revolution is complete and the world-wide system of true Communism is implemented, it is the way limited resources are allocated. If somebody wants to go to college and they have the money, that is their choice.

Secondly, how is the government going to know what degrees will be in demand? It seems like the unseen hand of the free market would do better at answering and helping people accept difficult answers to this question. The only thing more difficult to do than figuring out what to do for a living is trying to tell someone else what career path they should pursue.

I’m not suggesting that the government tells specific individuals what careers they should choose. What I’m suggesting is that they say, “in order for us to have a great society, we need lots of people in the following professions: engineering, nursing, chemistry teachers, etc. We will provide a free education in those fields to the most-qualified people who apply. If you’d like to do something else, you are totally free to.”

The government isn’t going to know every degree that will be in demand in the future. But it can predict many of the needs of society. For example, you can look at our current demographics and predict how much health care we’re going to need in the future, and predict how many doctors and nurses will be needed to fulfill that demand.

Currently, we subsidize college pretty indiscriminately—a below-average student taking the misguided path of majoring in anthropology has the same access to student loans as the bright student majoring in civil engineering. I think it’s in society’s best interest to support the latter’s education pursuits, but not the former's.

[_Res Ipsa]

A clear unintended consequence of student loan guarantees is causing the price of a college education to go through the roof. Another consequence is too many kids borrowing too much for educations that don't make financial sense (e.g. the guys working for you for $12 an hour in temp jobs with $150,000 in debt for their USC degrees in filmmaking).

Wow, that sounds exactly right.

Personally, I'd be inclined to do away with student loan guarantees and replace them with the government identifying degrees that will be in high demand in the future (medicine, nursing, engineering, etc.), and then providing merit-based scholarships for people who go into those fields. If you don’t want to go into those fields because you have a passion for underwater basket weaving, feel free to go for it—just don’t expect the government to subsidize that choice.

Every now and then you say something that sounds exactly right. You're still a Marxist right? Don't you think this would be hard to swallow for the Democratic party. There are so many college professors whose livelihood depend on selling useless degrees and most of them are liberals, correct? I've ranted and raved about useless college degrees since I was in high school only to be dismissed with arguments like, "Money isn't everything. My husband won't mind paying my loans... and from BYUs student manual, "College is to educate people, not to prepare them for the workforce."

Secondly, how is the government going to know what degrees will be in demand? It seems like the unseen hand of the free market would do better at answering and helping people accept difficult answers to this question. The only thing more difficult to do than figuring out what to do for a living is trying to tell someone else what career path they should pursue.

Ajax, this is why it makes no sense to evaluate ideas based on slapping a label like "liberal" on someone. Good ideas are everywhere, as are bad ideas. I think Marx's critique of capitalism contains some very good ideas worth thinking about, but I'm not sold on "the people" owning the means of production as the solution (or, as Marx would say, an inevitable progression.)

One question I do think we need to ask is whether a democracy runs better with educated or uneducated people. From my own observations, I'm concerned that an education through high school doesn't give young people the tools they need to make the choices they are faced with in our political system. So, I do think that education has a value beyond preparing someone for a job.

As an example, one thing that my degree in economics taught me was that the notion that the whole notion of the "invisible hand of the free market" is completely misguided, especially in the modern world. It is based on completely unrealistic assumptions about how humans behave, the flow of information, the concentration of market power, etc. Markets are good at some things -- terrible at others. But believing that the invisible hand is the solution to all problems is like believing in magical fairies.