October 25 2011
One of the (few) positive things to come out of Occupy Wall Street is that it has put the spotlight on the horrendous college loan debt with which many young people enter the workforce. But the discussion is going in the wrong direction.
Although President Obama's forthcoming executive order on college loan debt won’t be anything near what the left wants (forgiveness of loans), it is likely to treat people who bought educations they can’t afford as being victims in much the same mode as the administration regards people who bought houses they can’t afford as victims.
This is not to say I don’t sympathize with young people who have these debts. But I was hoping that the discussion would focus on basic issues such as: Why is college tuition so high? Is a college education worth its astronomical price tag (both in terms of finding employment and entry into “the fellowship of educated men and women”)?
Josh Barro had a post a few weeks ago on The Corner that asked the $64,000 question (is tuition for one or two years?), which is why tuition is so high:
The persistence of this runaway inflation is mysterious to me. Consumers are not imposing discipline on the market in the way I would expect—they fail to shop around for the best education value, and sometimes they buy education products that are worth less than their cost. People keep paying small fortunes to attend Tier 3 law schools even though the job market for their graduates is terrible.
I don’t know how to get them to stop, but it seems to me that downward pressure on education prices will ultimately have to be applied from the consumer side. I do my part by trying to dissuade my friends from going to graduate school.
Consumer pressure would be a good first step towards solving the problem. This may not be feasible because attending a brand name school, or even a Tier 3 law school, is now considered a ticket to belonging to a desirable level of society. But surely at some point, when Ivy League graduates are languishing without work, consumers might begin to balk at being bilked.
It is not surprising that Occupy Wall Street has embraced debt forgiveness. After all, this seems to be a movement founded on the proposition that rich people should give them some money. There are arguments for some kind of intervention, but debt forgiveness is a horrible idea. Bankruptcy, which at least has a taint, would be far better.
Richard Vedder of the Center for College Affordability and Productivity explains why debt forgiveness is a bad idea:
Economist Justin Wolfers recently opined that “this is the worst idea ever.” I think it is actually the second-worst idea ever — the worst was the creation of federally subsidized student loans in the first place. Under current law, when the feds (who have basically taken over the student-loan industry) make a loan, the size of the U.S. budget deficit rises and the government borrows additional funds, very often from foreign investors. We are borrowing from the Chinese to finance school attendance by a predominantly middle-class group of Americans.
Vedder also says that the availability of cheap loans contributed to the tuition cost explosion, which is the real issue here, not loans.
This just in: 66 percent of public disapprove of debt forgiveness. I think this may be a way of saying, "No, kids, we don't want to pay your debt."