The Biggest Problem with Student Loans

As a purely economic matter, the principle of diminishing returns applies to education. Little Moonbeam almost certainly will be financially better off in life with her B.A. in women’s studies (the fact that one has an undergraduate degree matters more than what subject the degree is in), but the M.F.A. in creative writing on top of that probably will not pay comparable dividends, and the inevitable doctorate in social work is likely to prove a zero-return investment. We’re talking purely financial concerns here: Of course an intellectually curious man who makes a fine living as a specialist welder would be intellectually enriched by learning Homeric Greek, but he probably isn’t going to be financially enriched by it, because no prospective client is going to inquire as to whether he has read The Iliad in the original.

Diminishing returns to education, especially to higher education, apply collectively as well. A literate society is going to be better off than an illiterate society, and a highly numerate society is going to be better off than one that counts on its collective fingers. A society in which few barriers stand in the way of those with the talent and inclination to pursue the higher reaches of science, medicine, mathematics, music, literature, art, and other rarefied pursuits will be better off than one that stymies its talent. (You doubt the economic value of art, literature, and music? The U.S. video-game industry has 16 billion reasons a year — and growing — why you’re wrong.) But all that has its limits, like everything else, and the appearance of those M.F.A.s in creative writing and doctorates in being socially disappointed are an indication that some portion of your population is getting there.

But much of ours isn’t.

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I have a longstanding complaint that while class affiliation is not nearly as nefarious a force in American social life as it is in other countries, it does make itself felt from time to time, especially in public-policy matters. The fact is that our policymakers, the think-tankers and journalists and pundits and elected officials, are, give or take the odd Scott Walker, college graduates, graduates of the same sorts of colleges, largely from college-educated homes, and working in similar professions with similar educational requirements. It is for this reason, I suspect, that college education dominates our national debate about maximizing the value of our human capital. We spend a great deal of time talking about how to get more people into four-year programs, how to make those programs more affordable, how to relieve the debt burden associated with them, etc. My Manhattan-based intellectual friends are acutely concerned about the price of getting a B.A. at Columbia or NYU but think rarely, if ever, about the fact that the city’s government high schools have a dropout rate for black men pushing 70 percent.

The bias exhibits itself in amusing ways. Adam Davidson had a very good article in the New York Times headlined “Is College Tuition Really Too High?,” a fine piece of reporting and analysis. But going through the piece and seeing which institutions loom large enough upon the mind of the New York Times contributor to merit a specific mention, we see: Harvard, Princeton, Berkeley, UVA, the University of Texas system, the University of Massachusetts. . . . The only thing at all like a community college that bubbles to the forefront of his prose is the City University of New York.

#share#But from his Times colleague Susan Dynarski we learn an interesting — and startling — fact: That mountain of new student-loan debt we’ve been hearing about, and that spike in defaults? It isn’t coming from students taking on bigger loans to get through Harvard or Berkeley. Citing a study by Adam Looney of the Treasury Department and Constantine Yannelis of Stanford University, Dynarski reports:

The huge run-up in loans and the subsequent spike in defaults have not been driven by $100,000 debts incurred by students at expensive private colleges like N.Y.U.

They are driven by $8,000 loans at for-profit colleges and, to a lesser extent, community colleges. Borrowing for both of these has become far more common in recent years. Mr. Looney and Mr. Yannelis estimate that 75 percent of the increase in default between 2004 and 2011 can be explained by the surge in the number of borrowers at those institutions.

As usual, the policy-making class worries most about the people who most closely resemble it socially and economically. But the report finds that the people coming out of selective schools have an average loan debt at graduation of only $23,000, while their degrees provide an average annual wage premium of $20,000. “For most people who graduate from top-tier schools,” Dynarski writes, “debt is easily managed.”

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We have been having a very strange debate about income inequality in the United States for the past several years, one focused almost exclusively on the status of the hated “1 percent” or super-rich segments within it. From an economic point of view, this is deeply stupid: If Lloyd Blankfein takes a $100,000-a-year pay cut next year, that isn’t going to translate into two $50,000-a-year jobs for dropouts from P.S. 154 in the Bronx. But from a political point of view, concentrating on the 1 percent makes a great deal of sense to progressives: It is not, after all, conservative-dominated institutions run by Republican-affiliated unions that have failed the poor, the black, and the brown in practically every city in the United States.

#related#The Left’s answer to the challenge of targeting our expenditures toward those Americans who most need them is to subsidize another round of loans, which will pass through Little Moonbeam on their way to her $150,000-a-year women’s-studies professor and the university’s $800,000-a-year president. That’ll show those rich people!

The M.F.A.s can take care of themselves. So can those six-figure administrators and millionaire teachers’-union bosses. Meanwhile, the people who actually need our help get nothing.


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