Quote:How Student Loans Create Demand for Degree Programs

July 16, 2015 ?? Josh Grossman

Last week, former Secretary of Education and US Senator Lamar Alexander wrote in the Wall Street Journal that a college degree is both affordable and an excellent investment. He repeated the usual talking point about how a college degree increases lifetime earnings by a million dollars, "on average." That part about averages is perhaps the most important part, since all college degrees are certainly not created equal. In fact, once we start to look at the details, we find that a degree may not be the great deal many higher-education boosters seem to think it is.

In my home state of Minnesota, for example, the cost of obtaining a four-year degree at the University of Minnesota for a resident of Minnesota, North Dakota, South Dakota, Manitoba, or Wisconsin is $100,720 (including room and board and miscellaneous fees). For private schools in Minnesota such as St. Olaf, however, the situation is even worse. A four-year degree at this institution will cost $210,920.

This cost compares to an average starting salary for 2014 college graduates of $48,707. However, like GDP numbers this number is misleading because it is an average of all individuals who obtained a four-year degree in any academic field. Regarding the average student loan debt of an individual who graduated in 2013, about 70 percent of these graduates left college with an average student loan debt of $28,400. This entails the average student starting to pay back these loans six months after graduation or upon leaving school without a degree. The reality of this situation is that assuming a student loan interest rate of 6.8 percent and a ten-year repayment period, the average student will be paying $326.83 every month for 120 months or a cumulative total re-payment of $39,219.28. Depending upon a student's job, this amount can be a substantial monthly financial burden for the average graduate.

All Degrees Are Not of Equal Value

Unfortunately, there is no price incentive for students to choose degrees that are most likely to enable them to pay back loans quickly or easily. In other words, these federal student loans are subsidizing a lack of discrimination in students' major choice. A person majoring in communications can access the same loans as a student majoring in engineering. Both of these students would also pay the same interest rate, which would not occur in a free market.

In an unhampered market, majors that have a higher probability of default should be required to pay a higher interest rate on money borrowed than majors with a lower probability of default. In summary, it is not just the federal government's subsidization of student loans that is increasing the cost of college, but the fact that demand for low-paying and high-default majors is increasing, because loans for these majors are supplied at the same price as a major providing high salaries to its possessor with a low probability of default.

And which programs are the most likely to pay off for the student? The top five highest paying bachelor's degrees include: petroleum engineering, actuarial mathematics, nuclear engineering, chemical engineering and electronics and communications engineering, while the top five lowest paying bachelor's degrees are: animal science, social work, child development and psychology, theological and ministerial studies, and human development, family studies, and related services. Petroleum engineering has an average starting salary of $93,500 while animal science has an average starting salary of $32,700. This breaks down for a monthly salary for the petroleum engineer of $7,761.67 versus a person working in animal science with a monthly salary of $2,725. Based on the average monthly payment mentioned above, this would equate to a burden of 4.2 percent of monthly income (petroleum engineer) versus a burden of 12 percent of monthly income (animal science). This debt burden is exacerbated by the fact that it is now nearly impossible to have student loan debts wiped away even if one declares bankruptcy.

Ignoring Careers That Don't Require a Degree

Meanwhile, there are few government loan programs geared toward funding an education in the trades. And yet, for many prospective college students, the trades might be a much more lucrative option. Using the example of plumbing, the average plumber earns $53,820 per year with the employer paying the apprentice a wage and training.

Acknowledging the fact that this average salary is for master plumbers, it still equates to a $20,000 salary difference between it and someone with a four-year degree in animal science while having no student loans as a bonus. Outside of earning a four-year degree in science, technology, engineering, math or, accounting with an average starting salary of $53,300, nursing with an average starting salary of $53,624, or as a family practice doctor on the lower end of physician pay of $161,000, society might be better served if parents and educators would stop using the canard that a four-year degree is always worth the cost outside of a few majors mentioned above. Encouraging students to consider the trades and parents to give their children the money they would spend on a four-year college degree to put a down payment on a house might be a better use of finite economic resources. The alternative of forcing the proverbial square peg into a round hole will condemn another generation to student debt slavery forcing them to put off buying a home or getting married.

Loans Drive

The root of the problem is intervention by the federal government in providing student loans. Since 1965 when President Johnson signed the Higher Education Act tuition, room, and board has increased from $1,105 per year to $18,943 in 2014–2015. This is an increase of 1,714 percent in 50 years. In addition, the Higher Education Act of 1965 created loans which are made by private institutions yet guaranteed by the federal government and capped at 6.8 percent. In case of default on the loans, the federal government -- that is, the taxpayers -- pick up the tab in order for these lenders to recover 95 cents on every dollar lent. Loaning these funds at below market interest rates and with the federal government backing up these risky loans has led to massive malinvestment as the percentage of high-school graduates enrolled in some form of higher education has increased from 10 percent before World War II to 70 percent by the 1990s. Getting a four-year degree in nearly any academic field seemed to be the way in which to enter or remain in the middle class.

But just as with the housing bubble, keeping interest below market levels while increasing the money supply in terms of loans -- while having the taxpayer on the hook for a majority of these same loans -- leads to an avalanche of defaults and is a recipe for disaster.

Quote:Angry About Student Loan Explosion? Blame Federal Government

06:05 PM ET
Wed, Dec 23 2015


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Education: Student loans, once a minor nuisance for grads, have turned into a nightmare for many of the current college generation. But have no fear: The government is doing something about it. And that's the problem.

'Shaky Colleges Get Help On Bad Loans" blares a page one Wall Street Journal headline. The story details how the Education Department helps colleges that have so many students defaulting on their loans, the schools are at risk of losing access to federal aid.

The idea is to help troubled colleges improve bookkeeping and other accounting techniques to make their numbers more presentable to the federal government.

Once again, government to the rescue. But a major new study suggests that the federal government isn't the solution of the student loan crisis; it is the problem.

In a sweeping new study, "Accounting for the Rise in College Tuition," economists Grey Gordon and Aaron Hedlund conclude that "demand shocks" from federal loans, subsidies and aid "lead to higher college costs and more debt, and in the absence of higher labor market returns, more loan default inevitably occurs."

In a nutshell, federal loan aid to colleges is pushing up tuition faster than inflation. Students must take out ever higher amounts of debt to pay for their education, but starting salaries haven't kept up. If students don't get good jobs when they graduate, many will default.

The study, published by the National Bureau of Economic Research, shows conclusively that growth in one program -- the Federal Student Loan Program -- was more than enough to account for the entire rise in college tuition from 1987 to 2010 -- a stunning conclusion that suggests a massive market failure.

From 2006 to today, total student loan debt soared from $517 billion to $1.3 trillion, a 152% jump, to cover surging tuition costs. Over that same period, real starting wages for college grads were essentially flat.

Sadly, this should be no surprise, given recent history.

Whenever government gets involved in subsidizing anything -- from sugar to home mortgages -- higher prices emerge, leading to market disruptions and, often, a "crisis."

Protected by a phalanx of big government politicians and lobbyists, the federal government always blames the private sector for the crises that it creates. It then puts forth its "solution" -- always more federal spending, more rules, more subsidies, less private sector.

This, by the way, is precisely what happened with the financial crisis, in which government regulations, mandates and subsidies pushed up low-income homebuying to record levels -- with many people given mortgages that they couldn't possibly pay. The bust was painful, leading to what's now known as the Great Recession.

And yet our government never learns.

Fannie Mae and Freddie Mac still make up way more than half the market for all home mortgages, pushing up prices in the housing market — and sowing the seeds of the next housing crisis.

Today, education, like housing, is still considered by many -- especially "progressive" Democrats -- to be "too important to be left to the free market." It's a big reason why President Obama took over the student loan program in 2010 -- effectively nationalizing it -- and why it's drowning in red ink.

Paying for college education isn't too important to be left to the market. In fact, college education is too important to be left to an incompetent, overweening federal government's incessant meddling.

(12-24-2015, 11:01 AM)Martin?Eisenstadt Wrote: Hmmm, that's a tough one. Should I believe the 60-page study by two economists or the unsupported meanderings of a socialist loon?

Quote:Poll: Big Government Is The Biggest Threat To Our Future
Matt Vespa | Dec 24, 2015



Shocker! Gallup finds that 69 percent of Americans view big government as the biggest threat in the future. The figure is slightly down from 2013, where it stood at 72 percent. For those 'Feeling the Bern,' we regret to inform you that only 25 percent feel that big business is a threat, followed by big labor at six percent. Another interesting aspect is the number of Democrats and Independent voters who also feel big government is a problem.


Of course, almost every Republican--88 percent--agrees that big government poses the biggest threat to the country. But 53 percent of Democrats feel the same way, along with 67 percent of Independents. That's a double-digit gain from 2009-10, where only 32 percent of Democrats felt we should fear our government's power. Maybe that was before the gears of Obamacare started to move.

Nevertheless, it's interesting that the party who pushed through Obamacare, the epitome of big government policy, and one that thinks more government power concentrated in Washington would strengthen the socioeconomic fabric of the country feels that big government is our greatest threat.

Quote:While down slightly from 2013, 69% of Americans say big government is the biggest threat to the country in the future. This comes at a time when Americans name the government as one of the three most important problems facing the country and when 75% of Americans perceive widespread corruption in the government.

Further, only 8% of Americans in June said they have "a great deal" or "quite a lot" of confidence in Congress, far below the 24% who said they have that much confidence in organized labor and 21% in big business. But slightly more Americans said they have confidence in the presidency and the Supreme Court than said they have confidence in organized labor or big business.

Half of Americans say the federal government poses an immediate threat to rights and freedoms, and Congress' job approval continues to languish -- perhaps explaining why so many see big government as the biggest threat to the country.

(12-26-2015, 01:06 AM)twodocdoug Wrote: Happy Christmas!

Quote:The Formlessness of Progressivism



December 30, 2015 -- Yonathan Amselem

Progressives are often good people with good intentions. However, modern Progressivism has evolved into something so shapeless and amorphous as to amount to little more than a belief in "things that sound nice." Mainstream Progressives have done an abysmal job of outlining precisely, in their view, the proper role of government and what (if any) limiting principle(s) apply to the state as a whole.

Everything Is Now a Taxpayer-Funded "Right"?

Problems with today's leftism begin with the ideology's conception of "rights." In the common laissez-faire view, rights are universal because they do not impose a duty on others to act positively on our behalf. Simply put, the proper view of human rights is that they prohibit us from initiating coercion against others.

Moreover, not only are the rights universal, but they are inherent to being human. To argue that the state confers these rights suggests that the state, through whatever "legitimate" institutions it may possess, can also take them away. This is an unacceptable possibility in a society of free people.

Modern Progressivism, however, has so warped the entire nature of rights as to turn almost any desired good or service into a right.

In this view, private employers refusing to subsidize birth control purchases by employees are violating a woman's "right" to birth control. Business owners with religious convictions about homosexuality are denying "rights" by refusing to bake cakes for homosexual couples. Offering someone a job that pays wages below some arbitrary federal or state mandated minimum is now an act in violation of a "labor right."

A service once voluntarily offered to the public is now a duty enforced by the violent arm of the state.
The list of our newfound rights is almost endless, but ten conversations with ten different Progressives will yield ten different sets of absolute rights. Perhaps the only common thread among them all is the demand that the state coerce all members of society into paying for all the goods and services to which we now have a "right."

A Plea for More Precise Language

Pitching a wish list of other people's property naturally requires a total deformation of the English language. The left has recently adopted many vague, imprecise, but passionate words into their lexicon.
"Equality," "social justice," "appropriation," "racism," "climate justice," "micro-aggressions," and many other terms referencing broad, nebulous concepts are now battle cries for stuff.

In practice, being "for" something like social justice means to be for just about anything and against just about anything! Do any two people have the same idea about what social justice means?

Groups as diverse as American universities, the Green Party, Italian Fascists, and even the American Nazi party share a commitment to "social justice." This is not a minor point -- expressing a vague set of guiding principles means that almost all government objectives will be legitimate, no matter the destructive means used to achieve those professed ends. Much like Progressive "rights," terms like "social justice" can be used to justify the overwhelming majority of government action.

The Only Principle Is Faith in the Power of the State

As vague and misty as most modern leftist ideals can be, they do share one solid, bedrock principle: the need for continuous expansion of the government's role in our lives. The government's heavy handed regulation of our industries has imposed unbelievable barriers and costs to the supply of goods and services. No matter that this overhead hurts the poorest among us the most, to the Progressive, these costs are necessary in order to ensure we are protected from "greed" or "racism" or "sexism" or "wage injustice" or whatever word-clothing that particular government expansion merits. The goal of the policy is vague therefore the government impediment will last indefinitely. The crusade will never end.

Meanwhile, the trillions of dollars spent yearly on welfare programs have done astoundingly little to improve the economic outcomes of the poor since the 1960s. Not even Karl Marx could have imagined a program of wealth extraction and transfer as large (in real terms) as that of the United States government. Yet, poverty rates for African Americans and Native Americans (two groups many of these programs were specifically intended to help) have been stagnant since President Johnson's War on Poverty began.

The government's intervention into our financial markets, healthcare system, education establishment and other industries has created structural disorder and price confusion. Bailouts, mandates, licensing laws, arbitrary restrictions, taxes on capital, massive monetary expansions, allotments of unwarranted credit, and other gargantuan government schemes have destroyed the natural channels of capital flows. Costs for even the most basic medical treatments have skyrocketed, another housing and stock bubble is in the horizon, and the federal student loan program has created millions of worthless degrees and a mountain of debt. The Progressive is un-phased by the government's history of failure because he or she is certain that their vague principals simply require more action by our leaders. If we will only give the state and its army of foot soldiers more tax dollars and more power, the problem will surely go away.