Should Wall Street pay off student debt

[Dill]

(07-02-2019, 02:09 PM)Aquapod770 Wrote: I am so glad you asked this. 

1) Lets look at scenario. Lets say you build chairs for a living. Would you rather build 10 chairs and sell them for $10 a piece because that's what your customers can afford, or would you rather build one chair and sell it for $100 because the federal government lends your customers and extra $90 for chair-related expenses? It may not be the only cause for the skyrocketing cost of higher education, but federal student loans are a big reason why. 

2) The federal government holds a vast majority of student loan debt. As of 2018 student loan debt from private sources made up about 7.63% of total outstanding student loans. This helps explain why federal loans have been a driving force behind college costs. In fact, interest rates for federal student loans are quite low. Usually 4-7% range. They're often higher in the private sector because they carry higher risk. You can't reposes someones diploma if they default on their loans. 

Unfortunately there really isn't an easy solution to the problem. We have kind of backed ourselves into a corner here. The government is pretty good at creating problems in which the solution is almost always more government. 

Regarding #1, I have heard Tom Shilue, Rush and other conservative pundits make this claim, framing rising tuition as a government created problem. (It's called "the Bennett hypothesis" first articulated by Reagan's secretary of ed. back in '87.) Like you, they make the same analogy to a for-profit business, as if college administrators looking for a profit respond to a market of increasing money supply. And (they say) that's why tuition rises at private schools as well. On their view, freely flowing government money and irresponsible students are the problem, not Republican legislatures shifting previously socialized costs back on students.

If you and they are correct, and I am wrong that state disinvestment is the primary driver of tuition cost in private universities, then you should be able to find data which support your claim in the form of longtitudinal correlation between tuition increases and loan availability.  Conversely, you should not find a correlation between state defunding and tuition increases.  Do you agree that is how we each would establish our claims? Have you checked this out?

(I add that the dynamic is very different for for-profit schools, which do respond directly to money supply, and to which accrue the lion's share of loan defaults; also, I am not claiming that ready availability loans could play no role in rising tuition--just that it is not THE primary driver, or even secondary.)

Regarding #2, until 2010, most student loans were made  by private lenders, just guaranteed by the gov. Predatory lending has driven the shift from private lending to federal (the afore-mentioned default rate at for-profit institutions being one reason for the shift). Since many of those previous loans are still outstanding, I am curious as to where you got the ascription of 7.63% of outstanding loans to private lenders. From the US Dept of Ed. website? 

In any case, the vast majority of students still don't borrow at all. 

The central problem for all, borrower or non-borrower, is still too high and rising tuition. It is the cause of other problems like high student debt, and to get control of that you have to get control of rising tuition. And you do that by shifting costs back to the state--i.e. socializing the cost.