I was already kind of exercised over this issue as I read a Barron's piece about the rising problem of young people leaving college being saddled with crushing debt. Then I saw that Sumner wrote a piece that touched on this issue.
http://www.themoneyillusion.com/?p=13919
"Let me start off by admitting that although I’ve taught at colleges in Australia and the UK, I’m no expert on foreign universities. But I’ve heard lots of anecdotal reports that foreign university systems are even more completely dominated by the state. In many systems tuition is quite low and there seems to be little competition for students."
This got me going a bit as it suggests that there is some sort of wide external economic and social benefit for high tuition. So I pointed out to Sumner:
"That’s one thing you don’t have to worry about in the US as a Baron’s piece this week showed-pg. 25. College tuition is up by 400% outstripping the inflation rate by a factor of 4.
Then there are the many students saddled with debt when they leave college. President Obama himself has discussed this and Bernanke revealed to Congress that his son will leave medical school with about $400,000."
"The real driver of student debt in the US is that student loans are the only kind of loans you can’t walk away from there is no bankruptcy protection from them."
"Evidently this was driven by the implosion of the student lenders after the 70s-between the high inflation rates and unstable banking system of the time-the saving and loans et al-students basically walked away from their loans."
"I know some might see that as reason to keep students in perpetual student debt slavery for the rest of their lives but I think the question begs whether or not the current status quo is superior to the one 30 years ago? At least we didn’t have huge parts of the younger generations who were unable to by a home car or even get a credit card. Surely this is a major drag on the economy."
"So while the student lenders may shudder about the old status quo the current one is pretty abysmal as well."
Sumner got back to me:
"I don’t see any need for those Americans who didn’t go to college (lucky duckies) to subsidize those that did. I worked my way through college and grad school, and borrowed funds as well. It seems to me that’s not an unreasonable thing to ask of college students. Admittedly the tuition is higher today, but so is the level of financial aid. (I got virtually none.) I talk to many PhD students today who get lots of financial aid. I don’t doubt some students are suffering, but that’s mostly because of our macroeconomic policies, not our education policies"
Now there are many things I could say in answer to that. However, what've I've learned when you're talking to Sumner, is your best to limit your points to the most important. If there is one point you want him to address then your best bet is to only make one point. Otherwise he'll likely choose something that is tangential or that misses the larger point. With this in mind I answered him thus:
"Whether or not there is a need or not that’s not what I’m asking here. My point is not a demand for a subsidy but rather question a current subsidy, namely that implicit government guarantee for student loans.
"Why are the student lenders the only class of lenders who receive a government guarantee. Lending is a risky activity and all the other lenders-auto, mortgage, credit card etc-bare considerable risks in making loans that the student lenders are exempt from by virtue of the government privileging student lenders."
"I think Peter N. nails it here when he says, “. If banks can’t issue ordinary student debt at an affordable rate with an ordinary risk structure, then they shouldn’t issue any.”
"Unless they can explain what’s different about student loans why they can’t make it work with a normal risk structure-and even if they can’t why that’s our problem as a society then the huge blanket government subsidy should end for the student lenders."
I deliberately didn't delve into other issues and just stuck to the point that I'm not asking for those who don't go to college to subsidize those who do. In reality the current system is that we all subsidize the student lenders. I left it there. I could have pointed out a few more things like that there are huge external costs in the current state of affairs were a large percentage of those of us-I'm right smack dab in this camp-between 34-49 are literally crushed by student loan debt much of it from private education institutiions that did not live up to their marketing.
It isn't just the loss to these individuals but that there are deep external losses both for the larger economy and society. With so much money being wasted just on college debt financing there is far less money for consumption.
I could also point out that it's all well and good to come out like a puritan against all "subsidies" by the government but in reality what you consider a subsidy or not is usually a political question. So the Republicans in Congress who supposedly oppose the idea of subsidies refuse to eliminate current tax subsidies to the oil companies but instead call proposals to eliminate them "tax hikes."
Futhermore, pace Santorum,-is President Obama a "snob" for wanting more Americans to go to college?
Again, I didn't ask him all of that as it would have given him more material to work with and he would have answered some tangential point that didn't really answer the question
This was his answer to my answer:
"OK, I don’t know enough about the student loan market to have an intelligent opinion."
He was reduced to admitting his ignorance-his last refuge if all else fails. That doesn't stop him from often making such assertions, whether he is adequately knowledgeable about the topic or not.
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