Thursday, January 08, 2009

Do Students Deserve a Bailout?

So argues Jeffrey Sims in the Chronicle of Higher Ed today (unfortunately, the article's behind a paywall.)
So, too, argue the folks at Screw College Loans, who are trying to raise private money for the cause.

Here's the case: Students who made the decision three or four years ago to borrow $20,000+, including a rising proportion of private student loans, for college were borrowing under artificially free-flowing lending conditions. Loans were marketed aggressively, directly to students (pdf) , just like mortgages. There was a booming secondary market in student loans, which were bundled into securities just like mortgages; and loan consolidation was over marketed too, as aggressively as refinancing/home equity loans.
The federal government encouraged all of this by providing capital and subsidies to the lenders who did it in the name of increasing access to college. The sense of an irresponsible free-for-all was bolstered by the fact that Sallie Mae--the student loan equivalent to Fannie Mae and Freddie Mac--actually became a completely private corporation in 2004 in order to expand even more into private student loans and collections.

Above all, students and families assumed that the return on the degree would continue to increase. The experts all said so. The College Board releases a report titled "Education Pays" every year. Again, just like housing prices.
However, the median income of households headed by a person with a bachelor's degree has actually dropped slightly, in constant dollars, since 2000.
 2007 $77,605  
2006 78,013
2005 76,921
2004 75,101
2003 84,864
2002 79,705
2001 78,661
2000 80,208 Source: Census Bureau
So, students borrowed too much money, on expectations of high return that were not met by reality.
Does this add up to exploitation worthy of a bailout?


Anonymous said...

Supply and demand... when everyone has a degree it isn't worth as much as it was prior to becoming ubiquitous.

This is probably a reflection on the value produced by folks who have degrees from institutions you might classify as "degree farms."

So, do students deserve a bailout? No way! If so, maybe I should get a reward (courtesy of the gvt) for not taking out student loans to pay for 6 figures of tuition, fees, etc.

Anonymous said...

In a word: No.

I have some student loans incurred 2002-3 for a graduate program. I was careful to consider the returns before I embarked on a program costing me a significant amount of money. I believe I got a decent return on my investment - it is difficult to quantify but I feel it was worthwhile.

However, even if I didn't get a return on it, I signed the paperwork to get the loans and have a responsibility to repay the money as agreed. Why should I (or you) be taxed to pay the bill for people who didn't consider the return on their investment?

Anonymous said...

There is a flaw in your argument. The median income of households headed by someone with a bachelor's degree may be slightly smaller in 2007 than in 2000. However, how does the median income of households headed by someone with a bachelor's degree compare with that of households headed by someone lacking a bachelor's degree? That is what determines the return on college investment. There might be a lower return, but the statistics shown here do not say anything one way or another.

Anya said...

--Indeed, the relative return to higher ed is increasing because incomes for non-college grads have fallen even farther than for college grads. But if you're taking mortgages as an analogy, people borrowed more and more in anticipation of rising home values, not because they thought they'd lose even more money by renting. In the same way, students borrowed more and more for college, but the absolute return on a college degree has fallen.

Anonymous said...

The report to which you linked talks about the relative benefit, from reading the executive summary. The claims of the "Education Pays" report are still being met. I can not see that as exploitative.

To put the discussion a different way, and correct me if I am mistaken, while the absolute return on a bachelor's degree has decreased, the relative return has increased.

As for your analogy, it probably would be better framed as people borrowed more and more in anticipation of rising home values, not because they thought they'd gain less money by renting.

Anonymous said...

no, this isn't bailout worthy.

suck it up.


People in this situation should just consider it a paid lesson from the college of hard knocks. a "practicum in toughing it out" if you will. successful completion of the course teaches such lessons as "success isn't gauranteed, but hard work makes it more likely", "details matter, so read the fine print", and "you're ultimately the one responsible for the decisions you make" If you've truely learned these lessons a few years out of college, you've gotten your moneysworth and you're well ahead of many of your peers.

Anonymous said...

The dirty truth is that a college degree, despite "past" statistics, will not be worth much in the future. Unless you are entering a profession: teaching, health care, etc., forget it. How many millions of b.s. business degrees do we need? There simply aren't enough good jobs, sorry. The future economy will be much smaller, and it will all about whom you know and not what middle of the road college you went to. Like the first commmenter said, "too many degrees." A bachelor's degree, in this economy, doesn't mean crap. No bailout, no way. Just pay your loan off for the next 20 years, work at Starbucks, and realize that not all lives are fabulous. You are probably just "average" or below average anyway, suck it up. Keep working on your Facebook accounts.