College Loan Glut Worries Policy Makers
I was intrigued by this article, because both of my babysitters hoped to “go to college to improve themselves” but in my opinion, would have been more suited for a vocational program or apprenticeship.
I think that government continues to loan money to people who are poor risks (housing followed by education) because government is unwilling or unable to discern who is a worthy borrower without appearing racist or classist. Lending laws affecting banks and private lenders may or may not have similar effects, depending on how they are written and enforced. Lending money requires judging people and that’s hard for both social and policy reasons. Repayment depends in part on family/cultural background and not just on individual, statistical creditworthiness, which makes judgement even more complicated in a society where credit decisions are based solely on individual (or possibly married couple) attributes.
Agree or disagree? What do you think about a European-style approach to higher education, where slots are more subsidized but limited to applicants with higher demonstrated academic aptitude?
The U.S. government over the last 15 years made a trillion-dollar investment to improve the nation’s workforce, productivity and economy. A big portion of that investment has now turned toxic, with echoes of the housing crisis.
The investment was in “human capital,” or, more specifically, higher education. The government helped finance tens of millions of tuitions as enrollment in U.S. colleges and graduate schools soared 24% from 2002 to 2012, rivaling the higher-education boom of the 1970s. Millions of others attended trade schools that award career certificates.
The government financed a large share of these educations through grants, low-interest loans and loan guarantees. Total outstanding student debt—almost all guaranteed or made directly by the federal government—has quadrupled since 2000 to $1.2 trillion today. The government also spent tens of billions of dollars in grants and tax credits for students.
New research shows a significant chunk of that investment backfired, with millions of students worse off for having gone to school. Many never learned new skills because they dropped out—and now carry debt they are unwilling or unable to repay. Policy makers worry that without a bigger intervention, those borrowers will become trapped for years and will ultimately hurt, rather than help, the nation’s economy.
Treasury Deputy Secretary Sarah Bloom Raskin compares the 7 million student-loan borrowers in default—and millions of others who appear on the same path—to homeowners who found themselves underwater and headed toward foreclosure after the housing crash.
“We needed individual households to stabilize property values and help revive communities,” she said. “We want to stabilize this generation of student borrowers and revive their prospects for the future. I think students are essential to our future economic growth and contributions to productivity.”…
The Obama administration faced criticism that it was too slow to help ailing homeowners during the foreclosure crisis, which impeded the economy from recovering more quickly from the recession. The administration is determined to avoid similar criticism with student-loan borrowers.
It has already put forth an array of programs to help borrowers, including slashing monthly bills by tying payments to incomes, and forgiving some of their debt. But this time they face a different challenge: How to get borrowers to pay anything—even a penny—for an asset they never received.