How America's universities became debt factories

Taking our a vast loan to study English literature might seem unwise, but it’s something I could definitely see a starry eyed 17 year old deciding to do.

Things can go wrong without people scheming to do evil. It's not helpful to twist "these and these circumstances combined to produce a bad outcome" into a plan description unless you bring at least some evidence that it was, in fact, planned to go like that.

That means there is no risk (for the lender) to give out student loans. The taxpayers take on the risk

5) Don't educate young people on what their degree would earn them.

So many young people think their hobby can become their career and pay for a nice life style. Unfortunately, it's not the case for many majors.

> Lenders keep issuing loans without regard for the borrower’s ability to repay, knowing the debt can’t be discharged. ... Meanwhile, lenders—both government and private—keep the money flowing. Why wouldn’t they? With loans that can’t be discharged in bankruptcy, they’re guaranteed a return, even if it takes decades to collect.

From the first chapter of David Graeber's "Debt: The First 5000 Years".

> “But,” she objected, as if this were self-evident, “they’d borrowed the money! Surely one has to pay one’s debts.” It was at this point that I realized this was going to be a very different sort of conversation than I had originally anticipated.

Sounds like the perfect way to create a system where the only way out is some kind of black swan bubble burst. I (genuinely) wonder who will be protected from the shockwave when it does: the number of people on the debt side is presumably enormous.

You have some really perverse incentives too if you allow loan forgiveness by the executive branch, something close to buying votes.

You present this as though it doesn't make sense, but as far as the federal government is concerned forgiving a debt is spending (which is why the IRS will tax you for forgiven debts, income is the other side of spending). And spending is explicitly under Congress's authority.

That’s because these loans are made using standards that aren’t applied to other loans. The government basically does not consider credit risk or traditional underwriting standards when making student loans.

The economic law of comparative advantage means that expenses go to where they are the cheapest.

The solution is not to punish companies, because if you do then the entire company moves out of the country.

The solution is to look at why foreign labor is cheaper, and what can be done to make domestic labor more competitive.

6) Only allow help for families making under a certain amount, so those from abusive homes are shit out of luck.

You've hidden very carefully the causality in this sentence. Who moved them? Why? Its perhaps implied that since shareholders benefited, that they did it. Yet a careful examination reveals quickly the elephant in the room in that thesis: why did outsourcing now, and not before, if the benefit to shareholders has always been there? why did this happen mostly in the US, and not other countries?

Of course, the reality is far more complex and reveals that the road for manufacture hollowing in the US was a road paved with good intentions. History is there for anyone who wants to read it.

5) Systematically under-build housing so that future generations will be unable to simultaneously repay these loans and afford a place to live.

That's because other types of debts are backed up with collateral. 18 year olds have no collateral, and so can easily just declare bankruptcy - and what is the note holder gonna do about it?

That means the note holder needs some sort of guarantee to get paid back, otherwise they are simply not going to grant the loan.

SCOTUS ruled that the President exceeded the authority over this that was authorized by Congress. I.e. it's Congress' purview to do this, not the Executive. The Executive does not get to make up laws.

Yes, because the power of the purse rests solely with the House of Representatives.

Despite terms like "the President's budget", the White House has next to no authority in regards to what budget they get and how it will be spent. The legislature (House of Representatives) legislates and the executive (White House) executes; the executor cannot legislate.

This is why the often mentioned PPP loan forgiveness was fine (it was codified by the House) but Biden unilaterally deciding that certain debts to the government are forgiven is not.

It's really amusing how the unitary executive oscillates in fashionability according to which political tribe is currently in power. Congress is responsible for appropriations. Full stop. Whenever this has been bypassed via some loophole, by Bush, by Trump, by Biden, etc, it has been at its core unconstitutional. And it is in our collective interest that it remains that way.

And then society turns around and mocks them later on for being “stupid” and “lazy” or whatever… fuck that shit. Society strongly told kids that college, any college, was the only way to have a future.

Yes but I'm conflicted on this for a couple reasons.

The second part, became less true for anyone graduating after 2004 or so.

Where I still get -vexed- are the people I know who, about to hit or are into their 30s, start in a program for (or, wind up finishing with) a non-marketable degree as their first degree.

And the best example I can think of, was a specific not-colleague that started in some sort of program because they wanted to get into prostetics (I warned them about 3d printing upsetting the industry, they yelled at me for raining on their parade,) the 3d printing paradigm shift, surprise surprise, caused an upset into the marketability of their program, and they shifted into, at least last I was on speaking terms with them, women's studies.

I think part of the reason for the second half however, is an odd balance of 'younger people can be naive' and it's better to have them think that and finish than drop out a year or two because their major isn't panning out, i.e. switch to something else.

I say -that-, mostly because I know a lot of folks in my school would wash out from Engineering into Business or something else and while it's possibly not 'ideal', finishing some semi-useful degree is better than dropping out with some percentage of the full debt and nothing to show for it. I will note that almost everyone I saw 'leave' an engineering/CS/STEM type major flipped to something that was still, on some level, marketable.

> 3) Have next-to-zero standards for public funds used in grant and loan programs for college education, meaning people can take out loans for any sort of degree program at almost any sort of institution

This is a large blowback effect of various laws to prevent discrimination/etc against historically ethnic universities and programs. Unfortunately it's led to the 'Underwater Basket Weaving' meme.

> 4) Hold these debtors to standards that aren't applied to other types of debtors. You cannot discharge them through bankruptcy, it's very difficult to renegotiate, and SCOTUS has said that the chief executive of the note-holding institution (in this case, the President of the United States) cannot use discretion in deciding who he gets to forgive for loans.

Well, there's the 'flip' side, which ironically, due to all the other arms of the Kraken, contributes to the problem.

They are difficult to negotiate but have various outlying circumstances, i.e. IBR and time periods associated with that, certain discharge conditions (I have a colleague who's student loans were completely forgiven because she had ADA paperwork and they neither offered her a reasonable accommodation nor warned her when she started said program, at least -that- part of the system worked,) and the lovely 'indentured servitude with extra steps' Nonprofit forgiveness program, where if you work for a nonprofit long enough, you can get a discharge.

But then, you do get all these folks that 'wash out' into non-marketable degrees, they keep working at Starbucks or low paying jobs so they get the IBR, what does that do to the rest of the system though? it puts a fuckton of stress on it that we see in the rates.

All of that said, I feel like there's a 'number' where the loan should just be treated like any other debt. e.x. oh you've got $4000 in student loan debt and $50,000 in other debt? Fine wash it too. Or 'hold' the degree till it gets paid back, IDK.

If we are going to forgive student loans, tax payers should not be on the hook. The loan originators and most importantly the schools should pay since they are both the primary beneficiaries of this disastrous policy.

Universities will have to start focusing on ROI. Universities that provide a poor ROI will shut down. Universities will need to reduce costs for traditional coursework, cut courses with poor returns, add courses with higher returns.

The inflation in higher education that has run rampant due to subsidized demand being removed.

1. Provide a counterbalance to private industries by having the government player to be a significant player in that market. That means a free or near-free high-quality state higher education system like the California system used to be until it was made an explicit political goal to avoid an "educated proletariat" [1]. It also goes for housing, hospitals, banks, ISPs and so on;

2. Nationalize failing industries rather than providing them loans for no reason. Banks fail in 2008? Well, you belong to the state now. Just like the FDIC does with failing banks.

3. Federal dollars for pharma research should come with an equity stake in the private corporations that monetize it. Most drugs are developed with Federal grants.

> I love a good market as much as anyone

Just curious: where do you see markets actually working?

[1]: https://www.bestcolleges.com/news/analysis/threat-of-educate...

It's tempting to just agree with your sentiment, but I think that day dreaming about an unrealistic solution sucks energy away from more effective actions. The main challenge of solving a difficult puzzle is to avoid dead ends and red herrings.

A more promising plan involves explicitly strategizing against the agents who have the opposite agenda.

God going after just one is liable to get you a fate worse than Daphne Caruana Galizia

The problem with student loans is that they are not driven by markets. If they were, absolutely nobody would give a loan to an 18 yo to spend 4 years and $160k to study psychology.

Let the market forces decide. Eventually people will realise college doesn't work and will stop going there. Seriously problem is that too many people think they are smart and can benefit from a degree, when most can't. If 10% top graders go to college from school as it was in the boomers' era, ROI of higher education will be enormous (as there won't be an oversupply of useless graduates), and costs will be low (as low demand always reduces prices).

We shouldn't punish people who take the money because people are willing to pay it. Who's fault it is that they are dumb? Do we see much say, annoying advertisement to the tune of "go study X with us, you'll be rich and women will love you"? No. People are doing it because they are dumb. If we try to build a system that prevents smart people from taking money put on the table by dumb people, we will make the whole system dumber by incentivising dumbness.

I went to an unremarkable state school where I had classes with a hundred other students. Even my senior level courses were about a dozen to one teacher ratio. I still remember my professors and specific moments during their lectures when I was able to ask a follow up question which triggered that Eureka moment we're all looking for.

I wish I was able to just sit down with a textbook and learn a meaty subject but that doesn't work for me. I, and many others, need (or at least it helps a lot) the academic structure to learn effectively. The academic calendar, lectures, textbooks, homework, and other students you can study with all work in concert. The way you're dismissing all of that strikes me as really myopic.

There are many examination authorities but employers basically ignore all of them and have gone all in on college degrees as the signal for employment. In that way colleges are gatekeepers to higher level jobs, but they're hardly the only actor here.

Except for EE and other engineering students, who require lab and other equipment for their education

Except for chemistry, biology, and other science students, who require chemistry equipment, etc. for their education. You get the idea.

Even for fields that require no specialized facilities, frankly, I don't see any Fields Medal or Turing Award winners that are self-taught nor do I have any reason to expect to see any in my lifetime.

> Now, maybe there is already an authority that does this, I don't know. But it isn't very well known or authoritative.

Western Governors University operates this way. You can get a full, recognized degree that way (in a limited set of topics).

I feel compelled to link the quote from Good Will Hunting here, I will refrain. However I agree completely. I also went to a “great” school, and I learned everything from overpriced books on my own time. In fact, in my entire tenure of undergrad I never attended a full week of class, not even the first week.

Otherwise, for people who want to learn arcane technological skills and curious knowledge for the science and engineering world, community colleges and research universities are the way to go. Two years in a community college at low cost, ideally some kind of grant/scholarship for 2-3 years more at a research university, preferably in collaborative/teamwork situations with actual professionals in their fields. You also have access to tools and equipment that you'd never get to use otherwise, and experience with such setups can lead right into a good R & D job.

It's not worth being weighed down with debt at the end, though, since the loan payments will eat up revenue that could have gone to savings for a home, founding a startup, etc.

Students should thus view the academic finance system as a hostile adversary that's always trying to force them to take on as much debt as possible. Student loans are traded like subprime mortgages were in 2008, I imagine tranched into pyramid schemes, and the industry always needs fresh meat.

I had paid for university almost entirely out-of-pocket with earnings from co-operative internships in software; when "real-life" problems started to rear their ugly head, the choice came down to incurring debt or working in a (still to this day) lucrative industry.

What was the point? Why join the rat race of my peers who would rush through the material, only for it to be forgotten amidst the torrent of next semester's information? Does this style of studying actually produce a level of erudition equal to or greater than one who obsessively pores over the literature at their own pace, taking their time to slowly digest and process and crystallize the information in their mind? Or have they just found the most expedient route past the gatekeepers of higher education and diplomas?

I would much rather do exactly what I did in university - read through the material on my own terms and take time to digest it at my own pace, but without the crippling debt. That said, I still very much view education as a privilege, open to those of financial means, who have the opportunity to put aside several years' worth of earnings and time to pursue academic studies, irrespective of practical application. I am reminded of a second-year philosophy professor who took half a lecture to explain how the purpose of higher education is not as a vocational school to bring one wealth and employment (taking shots perhaps at the career focus of the institution's co-operative program), but rather to give one a more fulsome perspective of the world and enrich their intellectual life - not in hopes of some mundane, worldly reward, but for its own sake.

Had I the wealth, I would love to go back to complete a degree, not for practical employment prospects or even prestige, but to (at least attempt to) feel intellectually whole. A merit based system of standardized testing that awards degrees based on examination performance would be right up my alley, for I could prepare myself to meet its demands at my own pace and according to my terms; I consider the hacker spirit of measuring the quality of a software solution not according to the attributes of its author (wealth, status, degree, or otherwise), but on whether or not the code works correctly and efficiently adjacent to this sentiment. For everyone else, there's debt - and I can't justify making that decision.

I wasn't an engineering major, I was a computer science major, but I still asked and was allowed to work evenings in the facility.

I got on the job training from experienced experts on orbital mechanics, the practical operation of spacecraft, and the infrastructure behind space flight activities. I also got to write some software that is used in the command and control of spacecraft.

Going to school gave me access to supercomputers and mainframes, practical hands-on experience that cannot be learned from a book.

Also, my university is somewhat unique in that it has an extremely rigorous writing requirements for all graduates, including creative and business writing. A comment I received multiple times at the beginning of my career is that my writing skills were extremely advanced compared to my peers. This is a double-edged sword because now, decades later, coworkers send me paragraphs to edit before being sent out.

I also minored in studio art, because as a young freshman I figured it was an easy A. Little did I realize that free and easy access to studios, models, screen printing equipment, and photography labs would lead to several lifelong hobbies.

My school also had telescopes I got to use as a member of the astronomy club, and amateur radio equipment far beyond my ability to afford as a member of the ham radio club. There is an exact and precise 0.0% chance that I would have ever gotten to even touch a 20" reflector, high quality CCD cameras, or sophisticated mounts and star trackers without going to school. Ditto for 1.5kW amplifiers and vast fields of specialized antennas for radio communications.

After I realized that staring at an IDE window all day was actual, literal, hell to me I transitioned to being an aerospace engineer. No degree, I just explained to people what I knew and did in school, what programs I had worked on, and they said "good enough, here's a board assembly drawing start spec'ing out space-rated micro- and nano-d connectors for it" and decades later I'm a senior principal engineer designing satellites.

Hell, just understanding what SWR is, what multiplexers and other RF terms meant, and knowing about polarization, propagation, and effective radiated power from my university ham radio club days went a long way to getting me to where I am today.

All of this is possible to learn autodidactically.

It would require a level of income (to gain access to the tools), foresight (to focus on specific subjects relevant to your goals), and drive (to have realistic goals laid out and to actually do it) not typically found in young adults, or old adults.

I assert it is easier, and outcomes are more favorable, if you pay someone to do all of this for you.

My perspective may be warped. I used the GI Bill and paid $0.00 for all of this. But if I had to pay the $54k it cost it would have been worth it 100 times over (I make a lot of money now).

If you can drop 90% of administrators and real estate by moving online, student loans become a thing of the past. College becomes a halfway house commune for young people to who want to leave their parents nest.

So the way you fix a broken system is to replace it with something cheaper and better. The issue of course is that 99% of people who start online courses don't finish them. Universities provide motivation for learning, which is required for many learners.

2) it would be unfair to make universities participate in the downside but not the upside. Perhaps the federal government should also turn the interest earned over to universities. This could actually go some way towards lessening resistance.

Another theory: The value creation is not linked to the value capture. So market forces make a bad feedback loop.

Look, I'm totally pro business, but business is only "good" at allocating capital when value capture and creation are linked. Education isn't like that. The closest we have are the bootcamp schools, where they take a cut out of your first 2 year's salary if you find a job or nothing if you don't.

When capture/creation are not linked, you need a different social organization method. "Government" or "Religion/non-profit" come to mind. Perhaps others have additional suggestions.

All the schools have access to loans that are guaranteed to be repaid. We still have the mindset that degrees are required for employment (I'm not commenting on whether that's good or bad; that's just the current cultural mindset). Because of this, schools have no incentives to control costs. The students will go regardless because they have access to money that will pay for the tuition, no matter how much it costs. There's no penalty for the universities to raise costs because they will get students anyways.

You buy a car so you can work and eat. These are very straightforward causes and effects. No car no job. Buy car that costs << than job. Done. Buy an education and you get more bills, not more income, for years. You might not even finish.

Academia does predate its role as employment gatekeeper, but it was privately funded then.

Yes. These schools need to eliminate or drastically reduce the economically useless degrees that they have produced in such grotesque surplus for the past 40 years. They should absolutely have an incentive to produce an education that is useful to society. They’ve miseducated Americans for generations on the lie that all education is inherently good.

I wouldn't particularly enjoy this... but at the same time, the alternative seems to be students that "don't know what they're doing" taking out loans over $100k to get degrees that are not in demand. These people will then claim they were ignorant of the true cost, job prospects, potential salary, etc.

The elephant in the room is that many degrees simply don't leave students with a lot of earning potential. I never understand why the discussion seems to trend (not implying your comment did this) towards how we can pay for these degrees or make them affordable. It sounds harsh but I don't know how to see it any other way.

So the age thing goes both ways - 17 year olds are too young to make smart financial decisions, both about whether to get a loan, and how to spend it.

It's never about today.

The competition then switches from spending direct financial resources to the university to spending financial resources to out compete other students vying for the same university. In China there's usually 1 seat per 50 candidates for good university spots, and the only thing that matters is your ranking in the entrance exams. It's not exactly uncommon for high school students to be spending 14 to 19 hours a day 7 days a week for 3 to 4 years preparing academically to win a spot.

Trading one bad situation for another one really.

If your constitution includes provisions for free education, it might also be super hard to fix. (E.g. Poland.)

That's the twist though. If your first job is better, the second job is likely better too. It took me a decade before I made it to a first class job, sitting next to people who worked there straight out of college.

Mortgaging yourself into decades of indentured servitude shouldn't be an option that's available to young adults.

why not a % until the cost of the degree is paid back? Why does there have to be a forgiveness component?

Im guessing that you’re probably not representative of the target audience, or the author doesn’t know his audience well.

The image is thematically appropriate. I don’t think the author is trying to bamboozle anyone with that image.

this probably mattered less when the debt load was much lower

somebody has to pay it - whether it's the students themselves via loans, or via tax payers.

> Harvard, for example

so may be harvard, if they should so feel charitable, could pay for their student's costs via their endowment funds. But what about _every other uni_?

Not to mention that the endownment's a private source of funds - you're just as well be asking why don't billionairs just fund more public costs?

You aren't making this point directly, but I think it's worth pointing out: not everyone is entitled to attend Harvard, Princeton, (etc.) any more than they are entitled to a Maserati.

There are, and should always be, affordable public options, so that anyone who wants a college degree can get one. We need to stop romanticizing elite universities, and acknowledge that you can get a great education, with hard work, at almost any university.

Again, people don't understand how endowments work. When endows a specific program at Harvard, their money must be used for that program alone. The funds can't be sent to the general pool for the entire university.

There are many ways to criticize wealthy educational institutions, but calling them "hedge funds" makes no sense. Which hedge fund subsidizes their clients' expenses with donations?

1- https://projects.propublica.org/nonprofits/organizations/421...

Here in Sweden university education costs less per head than highschool education (we of course pay for research separately). In Russia there's even one university, the Independent University of Moscow, which is just a bunch of mathematicians who give courses.

University education can be made into something really hardcore but simultaneously incredibly cheap.

For example, I think the IUM has exactly zero administrators.

When I think not huge, I think low single digits. Not “most of the way to a third”

Students' parents would need to co-sign, and if the parents were poor, the student would be out of luck.

But a 0% interest rate has some quite significant implications. The value of non-extracted rock in earth's crust and the mild steel it eventually becomes are equivalent, despite being separated in time. Capital requires energy to operate, which also comes from the earth's crust. In other words, everything that exists today is just a long winded transformation of one chunk of the universe into another. Nothing is ever "produced". All wealth is based on the direct or indirect ownership of land and its resources playing out over the ages. Mind you, in this framework, owning an expensive machine is equivalent to having the mining rights to dig out the materials and energy sources. It is not literal ownership of land that is important, but the access to its benefits.

Basically, we will never escape feudalism.

Loans are supposed to be inherently risky to the bank issuing the loan. Managing that risk is their business, and the reward for doing it right is the interest payments.

I remember people back then talking about "if the loans are non-dischargeable, then the bank is pretty much guaranteed it's money back, making it a no risk proposition to them. What's stopping them from becoming student loan mills? What's stopping colleges from asking for more and more money if the banks just lend it no risk?"

These ideas were out there, but get drowned out by the voices of the big pocket companies that are proposing the legislation. Tons of articles talking about the risk being overblown, the results are wonderful, etc. Think about the kids, good for 'murica, etc.

The big messages you hear over and over again in the media are being payed for by groups that aren't particularly interested in benefiting you. This is not a new problem, it's been this way for a long while.

And here we are 25 years later. Wondering how we got here. When anyone with a brain at the time knew this was coming.

The problem is only getting worse because of media consolidation and the vast reach of the internet into everyone's eyeballs. Be skeptical very of what you read.

That's exactly what political parties in a democracy should do.

You know who never says no to handouts from the government? Wealthy people. In fact, they don't just say no, they demand handouts. It's only when the government gives money to poor people that it suddenly becomes a moral hazard.

> debt forgiveness was a hot topic

... until a politicized Supreme Court killed it because it was giving money to poor people.

For example, I took out undergraduate and graduate loans to train for a career that, due to a freak health event (I got MS) in my last semester of grad school, I couldn't actually do. Currently, the disability discharge works in a way where if you can do any work at all you're on the hook for the full amount.

So someone who went to school to become an actuary/doctor/lawyer/etc, suffered a severe head injury and afterwards can only work a retail or fast food job is still on the hook for all their loans and has to pay them off on poverty wages.

Another case is people for whom the economic landscape changed so drastically so quickly that the decisions they made when entering school might not be relevant when they leave school. Think people who started undergrad in 2005/2006/2007 - they might have made perfectly reasonable decisions about what college to go to and how much debt to take out based on expected future return, and then that return tanked while they were in school + there were several years of scraping by during which interest accumulated due to no fault of their own.

The long and arduous process of going through bankruptcy proceedings. Have you or do you know someone who has gone through that? It's not fun nor is it a guaranteed ticket out of your debt.