[This is the transcript of my regular KVMR commentary broadcast on 17 August 2016.]
Student debt and college costs are out of control. Under the passionate paeans of progressives over the last decades, we have been taught that we’re equal enough so that everyone will benefit from a college education and therefore everyone deserves a college education. A wider reading of this theology has also taught young people that everyone has a right to pursue their passion and then expect all practiced passions to command a more or less equal place in the compensated workforce. Well, that ain’t necessarily so, but blindly pursuing such a value system has landed us in a world of hurt with more of it on the way.
College costs that include tuition have increased about 4% annually, far outpacing inflation. To enable everyone to go to college, government has taken over the student loan business, and now lends equally to all students with no thought about their ability to repay the loans. Students majoring in art history and therapeutic recreation can borrow on the same basis as students majoring in physics or any of the other STEM fields. Subsequently the art history and therapeutic recreation majors can’t get jobs while the STEM graduates are in high demand. Each year there are about 1.3M openings in STEM fields, and fewer than half that many graduates in science, technology, engineering, or math.
Such realworld inequalities in the marketplace have yielded a student debt exceeding $1.3T that continues to grow at almost 7% annually. In ten years student debt will exceed $2.5T. Today about 30M students attend college. Of these, 22M students with outstanding loans are not making payments, with the inevitable result that at least half or over $600B of this debt will have to be written down and its repayment transferred to taxpayers. (more here)
And what did we buy for all these billions? According to the Federal Reserve Bank of New York almost half or our recent college graduates are un- and underemployed in jobs that do not require their earned degrees. With this y’all come policy only 48% of entering full-time students graduate within six years. Almost all of these dropouts and miseducated former students have borrowed from the government, and their repayment rates are close to zero simply because they are not working or cannot earn enough to pay down their debts.
More reasoned voices, such as finance academics S.P. Kothari of MIT and Korok Ray of Texas A&M, recommend incorporating credit risk into the student loan programs. (more here) The short of it is that students with better job prospects who can pay off their debt would then more likely get bigger loans. Listeners may recall that it was lenders ignoring credit risk that brought on the recent Great Recession from which we have yet to recover. However, for some reason it is still deemed politically prudent to ignore credit risk when the government lends trillions to students with unemployable majors.
To top this, along comes the next wave of promised socialism to make college free for everyone to pursue their value-free passions along with a carte blanche invitation to join the government bloat when the private sector rejects their skills. This ‘free’ program is estimated to cost somewhere between $100-200B annually.
As a conservetarian who has tracked institutions of higher learning and the evolution of the job markets, I don’t hold much hope for including credit risk to determine who should get to borrow how much. This for the simple reason that the Left has too much to gain from the legions of graduates with lightweight majors from institutions, already hopelessly in bed with socialism in all its forms, that turn out young people totally beholden to the state for their upkeep. These people daily demonstrate their fealty to the politicians and parties that promise to shield them from the uncertainties of the private sector through civil service jobs or rapacious regulation of their employers. And some still wonder why democracies are so fragile.
My name is Rebane, and I also expand on this and related themes on Rebane’s Ruminations where the transcript of this commentary is posted with relevant links, and where such issues are debated extensively. However my views are not necessarily shared by KVMR. Thank you for listening.