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Old 05-20-2014, 11:29 AM  
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You can blame student debt for America’s inequality and shrinking middle class

http://qz.com/211061

There is a tendency among elite opinion makers to believe that debt accrued while gaining a college degree is “good debt” that isn’t problematic because, as the thought goes, those with college degrees tend to make enough money to recoup their debt over a lifetime. Student debt is supposedly an equalizer—a way for students to gain access to credit in order to get a degree that will give them an equal chance to enter the middle class and achieve the American Dream. Sadly, like many pundit platitudes, this assertion is grounded in fantasy, not fact.

In fact, this is only true for some students—those who were fairly wealthy in the first place. College is certainly worth the cost, but that at present it is saddling poor and middle-class students with student debt is actually preventing them from participating in the wealth-building processes that previous generations have enjoyed.

The debate over student debt usually focuses on those right out of school, but that masks that a substantial portion of those with student debt struggle mightily to pay off their loans in a timely manner, delaying (sometimes in perpetuity) their entry into the middle class. Research by the US Federal Reserve Bank of New York finds that many borrowers still haven’t paid off their student loans by their 40s and 50s.



For students just out of school, upward of 15% of their federal student loans are in default within three years of students leaving school, and delinquency rates for student loans have continued to rise during and after the recession, even as delinquencies in every other form of loan—including mortgages, home equity loans, credit cards, and auto loans—have declined.

The inability to pay off debt is a really big deal, because these students are more likely to take any job that comes their way to pay off their loans than invest in themselves. Research from Demos finds that if “current borrowing patterns continue, student debt levels will reach $2 trillion sometime around 2022. Another report concludes that, “an average student debt burden for a dual-headed household with bachelors leads to a lifetime wealth loss of nearly $208,000.” Given that wealth inequality has returned to Gilded Era heights, this finding should be disturbing.

The problem is that, rather than being seen as a social investment, college education is increasingly seen as a commodity—something that is accessible for the wealthy, but out of reach for the poor, and increasingly, the middle class. Sure enough, student debt is highly correlated to income level with the wealthiest having the lowest amount of debt as a portion of their income (see table).



Poor and middle class students are much more likely to take on student loans—in fact, nearly 9 in 10 graduates who receive Pell Grants also needed to borrow to finance their degree, compared to 53% of graduates who did not receive Pell Grants. These students will spend more time paying off their debt and less time saving for retirement or other needs, creating a vicious cycle of deepening wealth inequality.

There is a more tenuous, but equally important way in which rising inequality has increased student debt among the poor and middle class – through the political system. Recently, Martin Gilens and Benjamin Page sent the internet alight with their assertion that “economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while average citizens and mass-based interest groups have little or no independent influence.” This finding is corroborated by Larry Bartels, Dorian Warren, Jacob Hacker, Paul Pierson and Kay Lehman Schlozman who have all recorded similar findings.

Although this elite and corporate control of the political system is bad a priori, it has particular importance in the case of education. In their study of the political attitudes of the wealthiest 1%, Larry Bartels, Benjamin Page and Jason Seawright find that the wealthiest 1% have different policy priorities than average voters. For instance, while 78% of the general public agree with the statement, “The federal government should make sure that everyone who wants to go to college can do so,” only 28% of the wealthy agree. Elites are also far less likely to agree that, “The federal government should spend whatever is necessary to ensure that all children have really good public schools they can go to,” by a margin of 35% to 87%. They also believe that cutting deficits is a more important priority than funding education, and believe that education is a lower spending priority than the middle class.

This helps explain why states have slashed spending for education while also cutting taxes—those with the most influence over policy have little to gain from public education, but much to gain from cutting taxes. It also explains why there is very little national attention paid to community colleges, which educate 4 in 10 college students, and who are disproportionately impacted by state budget cuts. Research by Greg Duncan and Richard Murnane shows that wealthy spend far more supplementing their children’s incomes than the poor, which means that state level cuts have a devastating impact on the poor (see chart).



Robert Hiltonsmith and Tamara Draut find that in the aftermath of the Great Recession, 49 states (all but North Dakota) cut spending on higher education and that state spending on higher education hit an all-time low in the wake of the recession (see chart). This, essentially, results in higher tuition. Draut and Hiltonsmith find that, “Nationally, average tuition at 4-year public universities increased by 20% in the four years since 2008 after rising 14% in the four years prior.” Tuition continues to grow as a share of the median income, which means all families but the very rich have to take out large debts to pay for their education. This, in turn, means that recent graduates are paying off loans, rather than building wealth.



College is an important pathway to the middle class and one of the most effective ways to fight inequality. As it becomes increasingly difficult for students to gain an education, it closes gateways to upward mobility. The effect is particularly potent for blacks. A recent study by Bhashkar Mazumder finds that, “blacks have experienced substantially less upward intergenerational mobility and substantially more downward intergenerational mobility than whites.” He finds that this gap shrinks among those with 16 years of schooling.

One simple way to move away from the debt-for-diploma system is for the government to shift from a policy of loans to a policy of grants. There is no reason why college education should primarily be funded by expensive, high interest loans. In the past, Pell Grants helped the poor and middle class attend college, but Pell Grants make up an increasingly low percentage of the cost for college (see chart).



At a bare minimum the government could allow students to refinance their debts at a lower level; most other countries have policies that allow students to pay off debts as a portion of their income and eventually allow the debts to be forgiven. In Britain, students don’t begin paying off their loans until they find stable employment, and then they pay in proportion to their earnings. Australia similarly ties the cost of paying off the loan to the income of the graduate, and loans themselves come with no interest attached. In Denmark, education is considered a right by the people and an investment by the government, and is therefore free. Some students are even offered a stipend by the government to defray costs. Norway and Sweden have similar systems of higher education. The US has attempted to implement loan repayment schemes that allow students to pay in accordance with their income, but the default repayment plan on federal student loans is still an arbitrary 10-year time period—a time when borrowers tend to make less, and when saving for retirement could benefit them the most. But enrollment in these plans have been slow, likely due to the fact that our system is needlessly complex and opaque (to wit, there are upwards of 9 different repayment plans one can choose on student loans).

Education, and especially college education is a pathway to the middle class, and most Americans think it is more important than ever. But as society becomes more unequal, access to debt-free education becomes harder and harder.
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Old 05-24-2014, 07:23 AM   #106
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Originally Posted by BucEyedPea View Post
Yet, education has been in the hands of the left for decades. More shit results from their methods and policies. Plus the drive the cost of nearly everything up.
What a word salad.

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Old 05-24-2014, 07:28 AM   #107
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Originally Posted by Loneiguana View Post
What a word salad.

It's true. But you have nothing due to your denial.
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Old 05-24-2014, 10:22 AM   #108
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A college undergraduate degree is roughly equivalent of the high school degree of 40 years ago.

The majority of entry level jobs want one.

Unfortunately, unlike a high school degree, we have placed a massive financial burden on obtaining this degree entry level jobs require.
That is because due to loose student loan requirements, that the number of undergrad degrees has exploded. From a basic economic perspective the more you have of something (people with undergrad degrees) the less it is worth (becoming a requirement for entry level instead of say management).

The simple fix instead of having the government take over is to make the debt dischargeable through bankruptcy. That would tighten up lending standards very quickly.

Of course that didn't happen. We had the government take over the student loan industry and we are on the same course as before.
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Old 05-24-2014, 11:49 AM   #109
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That is because due to loose student loan requirements, that the number of undergrad degrees has exploded. From a basic economic perspective the more you have of something (people with undergrad degrees) the less it is worth (becoming a requirement for entry level instead of say management).

The simple fix instead of having the government take over is to make the debt dischargeable through bankruptcy. That would tighten up lending standards very quickly.

Of course that didn't happen. We had the government take over the student loan industry and we are on the same course as before.
Some new points I've not hear to date, but which make perfect sense from a supply and demand perspective.
Though student loans were dischargeable through bankruptcy prior to 1976. Difficult now. It should be reinstituted.
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Old 05-24-2014, 11:52 AM   #110
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It's interesting to me that subjects like this become a political potato. It doesn't matter if you're a complete socialist or all the way to the right. College costs have significantly increased, certainly at a much higher rate than people's salaries. I went to a state college, and tuition today is almost twice what it was a decade ago. What do you think is going to happen? It's simple math.

Certainly there's a vast wasteland of people making poor decisions. That's probably a entirely different discussion... you putting one of the biggest financial decisions in the hands of an 18 year old kid. But we always seem to aim for the lowest common denominator. There are also plenty of hard working people who aren't going to make as much money in the workforce because they are repaying significantly more to get the degree that landed them their job. I'm not sure if that's the biggest reason for inequality, but obviously someone from a wealthy background will have an easier time absorbing that blow.
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Old 05-24-2014, 11:57 AM   #111
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It's interesting to me that subjects like this become a political potato. It doesn't matter if you're a complete socialist or all the way to the right. College costs have significantly increased, certainly at a much higher rate than people's salaries. I went to a state college, and tuition today is almost twice what it was a decade ago. What do you think is going to happen? It's simple math.
Yes, it does matter if one is a socialist or all the way to the right, depending on what you mean by the latter. If we had a policy all the way to the right, aka very little govt involved particularly with such loans, there'd have been little govt involvement with easy student loans, whereby those who really wanted to go could and would work their way through due to less loans available. This alone would have reduced demand and costs maintained at a lower level.
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Old 05-24-2014, 12:20 PM   #112
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Yes, it does matter if one is a socialist or all the way to the right, depending on what you mean by the latter. If we had a policy all the way to the right, aka very little govt involved particularly with such loans, there'd have been little govt involvement with easy student loans, whereby those who really wanted to go could and would work their way through due to less loans available. This alone would have reduced demand and costs maintained at a lower level.
You can certainly make the argument that the system is what it is... and there is nothing wrong with our current education system, and that not everyone deserves the opportunity to go to college. If you can't afford it, then tough.

It's also a double-edged sword from the other direction. The reason my college tuition would be twice as much today as ten years ago is because the Republican-led state government cut education funding by hundreds of millions of dollars. Colleges passed those cuts onto students... and now the financial burden of a student loan is much more severe than it used to be.
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Old 05-24-2014, 02:06 PM   #113
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You can certainly make the argument that the system is what it is... and there is nothing wrong with our current education system, and that not everyone deserves the opportunity to go to college. If you can't afford it, then tough.
Not everyone needs to go to college. Vocational schools and certificate programs should be taking up the slack of people who want to get trained in a skill but can't afford college. The tech sector is much more about what certificates you have and your portfolio then what college you went to for example.

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It's also a double-edged sword from the other direction. The reason my college tuition would be twice as much today as ten years ago is because the Republican-led state government cut education funding by hundreds of millions of dollars. Colleges passed those cuts onto students... and now the financial burden of a student loan is much more severe than it used to be.
Because the loans were there they could pass that burden on to students instead of cutting unneeded staff and extraneous programs. If those easy loans weren't there and enrollment dropped off a cliff due to cost, then they would have to lower tuition by cutting unneeded staff and extraneous programs.
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Old 05-24-2014, 02:41 PM   #114
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You can certainly make the argument that the system is what it is... and there is nothing wrong with our current education system, and that not everyone deserves the opportunity to go to college. If you can't afford it, then tough.
I am not saying if they can't afford it --then tough. What I recommended makes it more affordable but kids would work their way through like they did in the past. Dr. Paul worked his way through it plus medical school. What I recommended prevents the inflationary costs which are 6% above inflation rates.

I don't know how you got --that's tough if you can't afford it--out of my post. I simply recommended another way. A way without crushing debt. Only thing that's "tough" about it, is one works for it while going--but it would cost less.

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It's also a double-edged sword from the other direction. The reason my college tuition would be twice as much today as ten years ago is because the Republican-led state government cut education funding by hundreds of millions of dollars. Colleges passed those cuts onto students... and now the financial burden of a student loan is much more severe than it used to be.
That's not it. It's the easy student loans. These also allow state govt's to make those cuts. However, I am talking about what the federal student loans have created making it all more expensive.

Another reason state govts have made cuts is due to loss of revenue from the depression, due to reduced economic activity which means less revenue. Yes, it is a depression--not the "great recession." State govts have to balance their budgets because they can't just print money like the federal govt. Someone has to cut something. If you raise taxes you may get even less revenue.

We're am paying more than we would have without the recession for my daughter's college. But our governor has balanced the state budget too.
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Old 05-24-2014, 08:27 PM   #115
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Here's a couple of ideas:

1. No, not everyone deserves to go to college. If you're already a dumbass ( low B average or less ), pick up a shovel.

2. If you do go to college, you should understand simple mathematics no matter your degree. Example - if your degree will only land you a 30k a year job at best but cost you $150k to obtain, you're a dumbass and should see item 1.
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Old 05-25-2014, 06:44 AM   #116
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Again, that's assuming that people only go to college for financial investment reasons.
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Old 05-25-2014, 07:52 AM   #117
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What you "but but government causes all this" fail to recognize, as always, is the demand side of the equation.

What happens when the price of something skyrockets? Well, demand should decrease.

Is the demand for college decreasing? No. Harvard still gets 35,000 plus applications a year and only accepts less than 6 percent with a tuition pushing 50,000 for an undergrad degree.

But But But federal loans. As if that is free money. As if students don't know they will be in debt for decades to come. As if the fact you can get a loan is somehow the big driver of demand for degrees... just the same as getting a loan for a car drives demand for cars... nope. A loan doesn't cause increases in demand.

Sky high tuition is not turning people away from getting a degree. Why is there so much demand then?

Because entry level jobs require that degree.
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Old 05-25-2014, 07:59 AM   #118
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Originally Posted by GloucesterChief View Post

Because the loans were there they could pass that burden on to students instead of cutting unneeded staff and extraneous programs. If those easy loans weren't there and enrollment dropped off a cliff due to cost, then they would have to lower tuition by cutting unneeded staff and extraneous programs.
As usually, you have no idea what you are talking about. But but but loans.


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Cut spending, often in ways that may diminish the quality of education. Tuition increases have made up only part of the revenue loss resulting from state funding cuts. Public colleges and universities also have cut faculty positions, eliminated course offerings, closed campuses, shut down computer labs, and reduced library services, among other cuts. For example, Arizona’s university system cut more than 2,100 positions; merged, consolidated or eliminated 182 colleges, schools, programs and departments; and closed eight extension campuses (local campuses that facilitate distance learning).[5]
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The University of California laid off 4,200 staff and eliminated or left unfilled another 9,500 positions; instituted a system-wide furlough program, reducing salaries by 4 to 10 percent; consolidated or eliminated more than 180 programs; and cut funding for campus administrative and academic departments by as much as 35 percent.[24]
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The University of Colorado system between 2009 and 2011 laid off 339 staff and faculty, even as enrollment grew by 2,100 students.[26]
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The University System of Louisiana furloughed 727 employees, laid off another 210 staff and faculty members, and cut 217 academic programs. In addition, campuses have reduced library services and cut funding for athletics, student scholarships, and research.[27]
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Since 2007, the University of Nevada-Las Vegas eliminated more than 700 faculty and staff positions, 15 academic programs, and 31 degree programs.[28]
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The University of New Hampshire eliminated nearly 200 staff positions, implemented a hiring freeze, and froze staff salaries.[29]
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The University of North Carolina-Chapel Hill eliminated 493 positions, cut 16,000 course seats, increased class sizes, cut its centrally supported computer labs from seven to three, and eliminated two distance education centers. [30]
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Since 2009, Highline Community College in Washington eliminated 72 staff positions, increased the number of courses taught by part-time faculty, and reduced Adult Basic Education and English-as-a-Second-Language programs by 10 percent.[31]
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Nationwide, employment at public colleges and universities has grown modestly since the start of the recession, but that growth has been well below the growth in the number of students. Between the 2007-08 and the 2011-12 school years the number of full-time equivalent instructional staff at public colleges and universities grew by about 6 percent, while the number of students at these institutions grew by 12 percent. As a result, the ratio of students to instructors grew from 19.7 to 1 to 20.9 to 1 during that period.
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Old 05-25-2014, 10:34 AM   #119
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Again, that's assuming that people only go to college for financial investment reasons.
True. I personally, don't think it's a good enough reason alone. Getting an education is important too. Continuing it as well is important, imo, too. Still, it should not cost so much and is, indeed, very inflated due to the perverse incentives created from market distortions created by too much govt interference in this area.
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Old 05-25-2014, 10:38 AM   #120
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Originally Posted by Loneiguana View Post
What you "but but government causes all this" fail to recognize, as always, is the demand side of the equation.

What happens when the price of something skyrockets? Well, demand should decrease.

Is the demand for college decreasing? No. Harvard still gets 35,000 plus applications a year and only accepts less than 6 percent with a tuition pushing 50,000 for an undergrad degree.

But But But federal loans. As if that is free money. As if students don't know they will be in debt for decades to come. As if the fact you can get a loan is somehow the big driver of demand for degrees... just the same as getting a loan for a car drives demand for cars... nope. A loan doesn't cause increases in demand.

Sky high tuition is not turning people away from getting a degree. Why is there so much demand then?

Because entry level jobs require that degree.
As usual, you are not getting it.

You have it all backwards. If the price went up strictly from market forces--demand would decrease. This would be due to alternatives being created in the market where the tuition rates could be undercut or others charging less. IOW's there'd be competition among schools and new alternatives. However, it doesn't because the loans, instead of creating less demand, keep demand pushed up for the same providers. These increases are not due to market forces alone--that's what you ignore. They are artificially kept high.

You still do NOT understand supply and demand. You think an artificially stimulated demand is a true demand. It's not. It's fake. It's what is called a market distortion due to govt intervention that leads to unintended consequences. The same thing happened with our health care/insurance industry. Such interventions create moral hazard and pervert indivicual incentives.
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