College Loans? Flashcards
Every time the government increases student-loans, how much does college tuition rise?
By the authors’ calculation, there is about a 65 percent pass-through effect on federal student loans. In other words, for every $3 increase in such loans, colleges and universities raise tuition by $2.
What does the Fed believe will happen if the government tries to make college more affordable
Increasing student aid to make college “more affordable” is something of an impossibility. The more “generous” the government becomes with grants and loans, the more schools raise their rates.
What is the problem with “free” college?
Someone still has to pay for it and colleges will likely raise prices simply because they know the government will have to comply. It will cost Americans more overall, and people will be legally plundered to pay for other people’s college.
When did college tuition start to spike? When was the department of education created? What is the vast majority of the DOE’s budget used for?
In the early 1980s. In late 1979. The 2019 Budget also supports $129.8 billion in new postsecondary grants, loans, and work-study assistance to help an estimated 11.5 million students and their families pay for college (the total budget was actually $63.2 billion plus this $129.8 that the budget “supports.”)
How much would Bernie Sander’s free college for all cost? How would it be paid for?
The estimated cost of the program is $47 billion a year. That would cover, Sanders estimates, 67% of the $70 billion it costs for tuition at public colleges and universities. States, he proposes, would cover the remaining 33%.
(This assumes that the same amount of students would go to college)
With a “speculation tax” that would charge those in trade markets for each bond, stock or derivative they sell.
What is the total student debt in the U.S?
$1.56 trillion.
What are the problems with erasing student debt?
- It isn’t erased, other (responsible) people are forced to pay for the irresponsible decisions of others.
- Teaches people that they can make stupid investments and expect the government to bail them out.
- Colleges will raise prices and kids will take out more loans in the future with the assumption that they will never have to pay them back because the government will take care of it
- Leads to the question of why not other debts, such as mortgages ($8.9 trillion).
- We can’t afford it (would increase a single year of spending by 25%).
- Reinforces the idea that people aren’t accountable for their decisions and that someone else is always to blame.
- Increases reliance on government.
- Is a wealth transfer (taking from some to give to others)
- Discriminated against many Americans (the young who will have to pay even more for college, those who were responsible and paid off debts, those who chose not to go to college, those who didn’t go into debt).
- Is a literal example of candidates trying to buy votes
What is the basic argument for government student loans?
The basic argument in favor of government involvement is that the private sector will not loan money to students because their future earnings and, therefore, their ability to pay are too speculative. This first led to the government providing guarantees to private lenders and then to the government under President Obama eliminating the middleman and making the loans itself.
How expensive is Warren’s plan to forgive loans? How will it be paid?
Unfortunately, those of us who have been around for a while know just how “expensive” free stuff can be. Even Elizabeth Warren admits her plans would cost $1.2 trillion over ten years — a tab taxpayers are expected to handle on top of everything else.
Of course, there’s a plan to tax “those other folks” to pay for all of this — a “2% annual tax on the 75,000 families with $50 million or more in wealth,” according to Warren’s own details.
What does government intervention nearly always lead to according to Mises?
s we have (or should have) learned from the great economist Ludwig von Mises, government intervention nearly always has unanticipated consequences that create the apparent need for still more intervention.
What was the government approach to higher education before WW2?
Before World War II the federal government had virtually nothing to do with higher education. It had no regulations that colleges and universities had to obey and it paid for no one’s college attendance. Occasionally, it commissioned some scientific research from professors, but otherwise it played no role. Only a small percentage of the population pursued college studies; most people didn’t think it was worth the cost.
How did the college industry change in 1944?
Things changed with the passage of the GI Bill in 1944, since that law provided, among other things, that returning soldiers would be eligible for federal grants if they enrolled in college. Many took advantage of that subsidy, and the government’s interventionist course was set. Almost immediately, the heads of colleges realized that this new revenue source could be tapped endlessly. Expand the student body and rake in the dollars! What had been a quiet backwater of American society would become a sizzling growth industry.
What did LBJ do in 1965 regarding colleges?
So Congress passed and LBJ signed the Higher Education Act of 1965, which established several grant and loan programs to make it easier for students to go to college. In particular, the Act created what is now called the Stafford Loan program. Stafford loans are made by private institutions. The government sets the interest rate at a level that is supposed to keep higher education “affordable.” And to make these fairly risky loans interesting to lenders, the government guarantees repayment. Until recently, lenders could recover 97 cents on the dollar on defaulted loans, but in 2007 Congress cut that to only 95 cents.
What percentage of students enrolled in some sort of higher education before WW2? By the 1990s? How were American’s beginning to see a college degree?
Before World War II, only 10 percent of high-school graduates enrolled in some sort of higher education. By the 1990s that figure was 70 percent. Americans were getting hooked on higher education and the idea that without a college degree a person would be hopelessly mired at the bottom of the labor market. It didn’t particularly matter what one studied or how diligently. Simply having a college degree was assumed to guarantee at least a good middle-class job.
What is one reason so many kids go to college? How did employers cause this?
The college mania was also fed by employers. First, with an ever-growing pool of people with college degrees to choose from, many firms adopted personnel policies that made the possession of a college degree a requirement for applicants—even for jobs that could easily be learned by anyone with a decent high school education. “Another reason students and parents choose as they do is that the United States has become the most rigidly credentialized society in the world. A B.A. is required for jobs that by no stretch of the imagination need two years of full-time training, let alone four.”
What did Griggs v Duke Power do to the credential inflation in 1971?
The second reason for credential inflation is that in 1971 the U.S. Supreme Court issued a ruling (Griggs v. Duke Power) saying that if companies use aptitude testing to screen potential employees, they must be prepared to show that their tests are precisely calibrated to the needs of the job. Otherwise, they will be guilty of employment discrimination if their tests screen out minority workers who might have been able to do the work. Rather than face discrimination suits by the federal government, most employers started using a less precise but legally safe method of screening applicants—college degrees.
How do politicians benefit from the rising cost of college?
So thanks to the “generosity” of Congress and the Supreme Court’s willingness to unleash the demon of litigation, college degrees became more and more sought after. Politicians could not resist the urge to buy votes from families with college students (and children who might be heading for college) by increasing the size of federal grants and loans so as to make college “more affordable.” Not surprisingly, college administrators realized that when the subsidies went up, they could charge more in tuition. After a few years of tuition increases, politicians would proclaim that subsidies had to be raised to keep college “affordable” and to “increase access” for students. The subsidy dog was chasing its tuition tail. Our already bloated higher-education sector just kept happily growing, ingesting ever-increasing amounts of borrowed money.
How are the College Loan Debacle and the 2008 Financial Crisis similar?
In both, government policy was responsible for the overexpansion of an industry that became dependent on cheap credit.
Why will college’s raise prices whenever the government increases loans?
Students figure that the amount of money they take in loans is unimportant because they assume that the degree will more than pay for itself. As a result, they have no qualms about taking out a higher and higher amount of loans as they are allowed to. Because of this, colleges can raise prices without forcing the students to pay anymore or significantly more “out of pocket,” which is the only price that tends to be heavily considered.
Why will forgiving student loans cause college prices to rise?
Future generations of college goers will assume that the government will eventually pay off their own college loans and because of this, they will be even less concerned with the size of the loans they have to take out, and this will allow colleges to significantly raise their prices.
What is misleading about saying loans will be “forgiven?”
The loans will not just disappear, they will still be payed off, just by other people, and they will not be doing it voluntarily.
How are student loans different from most loans?
If the borrower fails to pay back most types of loans, the lender can repossess the physical item the loan purchased, such as a house or car.
Student loans are different. Education is abstract; if they’re not paid back, then there is little recourse for the lender. There is no physical object that can be seized.
What did the 1965 Higher Education Act do to loans?
Student loans did not exist in their present form until the federal government passed the Higher Education Act of 1965, which had taxpayers guaranteeing loans made by private lenders to students. While the program might have had good intentions, it has had unforeseen harmful consequences.
Why did student loans lead to higher college prices?
Secured financing (lower/perceived lower cost) of student loans resulted in a surge of students applying for college. This increase in demand was, in turn, met with an increase in price because university administrators would charge more if people were willing to pay it, just as any other business would (though to be fair, student loans do require more administration staff for processing).
