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Aug 27, 2022Liked by Michael Huemer

Loans are usually issued to people who could reasonably pay them back, and the interest rate is adjusted for the level of risk. The government subsidizes student loans and makes them widely available so that many more students, regardless of major, has access to loans. These students shouldn't be given loans because not only are these degrees such bad investments that they can't reasonably pay for themselves, it's so bad that they have to be bailed out.

Rather than taking money from colleges, they take it from other people. And the issuing of loans is allowed to continue. They should stop supplying loans. No more money for universities. If the 18 year olds don't know what they're doing, then punish the universities for supplying a terrible product. Or ban the products which can't pay for themselves (gender studies, history, philosophy (sorry), etc.). What seems incoherent is to allow the system to continue.

My general take on transfers is that the money should be given to preventing worms and malaria in the developing countries if it's going to be spent at all.

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Aug 27, 2022Liked by Michael Huemer

“ is the author of the above article just forgetting that when the government gives one person money, they take it from someone else?”

Well, to be more accurate, government borrows the money, for the most part. And they seem to think they will never have to pay that back, either. That still takes resources from ordinary persons, since there are only so many resources available at any particular moment. Just not always in the form of explicit taxes. This causes Inflation and other economic distortions.

“Maybe Democrats think this move is going to help them win in 2024. “

Or maybe they think that it helped them when Biden and many of the also-rans campaigned on it, and for once they want to fulfill a campaign promise. But that seems implausible. Politicians almost never keep campaign promises, even simple and easy ones that would not cause disaster like this one. Why the exception in this case?

Why is it popular with anyone? The people who will gain might support it, but if the political scientists (and our friend Bryan Caplan) are correct, it is empirically rare that voters vote their direct individual interest. But putting that aside, how would even a leftist think this was a good idea? I suppose they could frame it as a sort of insurance against buyer's remorse, or just plain compassion; but many of those whose debts will be forgiven do not regret their deal, and those among them that truly deserve compassion do so for reasons other than having made a bad decision when purchasing education. A program targeting persons in need would at least make sense. This is just nuts.

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Aug 29, 2022Liked by Michael Huemer

Private well developed credit markets are a blessing. Apart from allowing you to finance projects that make sense (or so it seems), when they do their homework provide you an independent assestment of the viability of your project. And they have significant skin in the game.

Private-non-subsidized student loans would be wonderful to reduce the price of grades with very little market value. It does not make any sense to pay north of $70,000 per year to complete a degree with entrance level median earnings of $30,000 (an antropology degree at Columbia, acording to the WSJ). If you try to get a loan from a private lender to finance this nonsense they will let you know.

The main problem wiht college is, precisely, that they don't have any skin in the game in your future. There is no mechanism linking the cost of your degree and your future earnings.

If private markets can provide that. Why not let them doing so?

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The author just ignores or is completely ignorant of huge amounts of important context and historical background. Those who value actual knowledge enough to read a book should just stop reading my post and pick up Josh Mitchell's "The Debt Trap: How Student Loans Became A National Catastrophe." But for those with more limited time I'll just lay out that context. 1. Many students were the victims of for profit colleges, which were exploitative at best and fraudulent at worst. Yes, the current loan system enables that fraud, but since the government is at least partially responsible that actually provides an argument for relieving debt. 2. Even reputable schools have adopted policies that wring every penny they can out of naive students. Most colleges have policies where they charge students who are less savvy or have weaker bargaining positions due to fewer offers of admission much more than they do students who know how the "financial aid" system works and can game it and/or need enticement to attend due to multiple offers of admission. In effect, this means they penalize minority students and students lower down on economic ladder since they are less likely to have the social capital to know how the system works or have the bargaining power to get a better deal with more "aid" if they did. Mitchell does an excellent job laying this out, but so does this Slate article (https://slate.com/business/2022/07/college-financial-aid-sham.html). 3. Due to the Obama administration's woefully inadequate response to the Great Recession a lot of people were basically forced to use college loans to pay their bills. They didn't get the aid they needed from the government but they found they could borrow huge sums of money if they just enrolled in a few classes. 4. Unlike other forms of debt student loan debt is nearly impossible to discharge in bankruptcy. This creates a moral hazard since lenders don't have to do any due diligence. More than that it's simply inhuman since judges pretty much can't take into account life circumstances that make it impossible for borrowers to repay loans. Yes there's an "undue hardship"clause that theoretically allows discharge, but the law is written so that this is almost impossible to meet. 5. As Deaton and Case's "Deaths of Despair" documents it's not just that there are economic rewards for going to college, but there is increasingly a horrible penalty for not going to college. Years of bad-- that is libertarian-- economic policy in the U.S. have made it nearly impossible to have a decent middle class life without some level of college education. This pushes a lot of people who don't want to go to college and probably shouldn't to go since they have little other choice. Had Biden's "Build Back Better" passed it would have done a lot to address this. It included the sorts of wage supports, in the form of refundable tax credits, that Deaton and Case think vital to making it possible for those without college degrees to get by. (This isn't just a hand out or even primarily one. Deaton and Case advocate such subsidies since fewer people would have to work and it would drive up wages for everyone else in the labor market). BBB's free community college would have also done a massive amount to address the student loan problem. Partially simply because no one would have to borrow for community college tuition but also because four year colleges would have then been forced to cut tuition to compete.

One final point I'm so sick of libertarians citing that Caplan book like it's the indisputable truth handed down from heaven by God to man. At the most charitable the book's interpretation of the supposed lack of value of education is very much open to debate. Even if higher education is really as worthless as he claims one interpretation is that it's because the deep cuts to higher ed libertarian types have pushed have lead to steep declines in quality. Arum and Roksa make that case very powerfully in "Academically Adrift." But he's almost certainly wrong about the claims about its lack of value. As this Washington Post article demonstrates his own methods are pretty dubious to say the least. https://www.washingtonpost.com/outlook/is-education-a-waste-of-time-and-money/2018/02/16/7e3fdcfe-0a86-11e8-8890-372e2047c935_story.html?fbclid=IwAR1VXd14om62oiMNupi33dADT5CqbHAy99ouTJgWFHThqWymABpcRjpuA5A

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Great article, solid reasoning, changed my view. Well done.

A compromise solution might be to make the loans interest free. This would make we the adult taxpayers somewhat responsible for the fact that we set up the system which is trapping so many young people in debt. The students take some responsibility, and we the adults do as well.

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Oct 25, 2022·edited Oct 26, 2022

I'm against the loan forgiveness but these are the 3 reasons that I've heard from supporters:

1. We democrats would like to give more money to the 99% but Republicans stop us from doing that we can do this through executive order without the approval of Republicans. Briahna Joy Gray has used this reason.

2. The Student loan program enabled a lot of fraud and allowed the schools and the states to spend more when they should have and therefore the federal Government is partly responcible for the debt. Various supporters of the forgiveness in the MarginalRevolution comments have said that.

3. Student debt is causing a delay in buying homes having children and we need more children. The normally down to earth economist Noah Smith has used this reason.

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This article leaves out a lot of important context. Keep in mind, with my remarks, I'm mostly talking about private loans although some of my comments can be applied to government loans as well. Government loans have reasonable rates of interest, income based repayment options and forgiveness at 20 to 25 years or forgiveness for public service after 10 years and so are more defensible.

1. When I attended grade and high school, students were told by their parents, teachers and other authorities in their lives to go to college or you will work at McDonalds or some other low paying job. Students believed them.

2. Universities are so expensive that it’s extremely difficult to graduate without any loan debt. It’s uncontested that the costs of higher education have increased dramatically as compared to 40 or 50 years ago. So I don’t think the author’s experience about paying while in school is valid since it seems like he graduated in the early 90s. According to the graph he posted with his article, the costs of education have skyrocketed since he graduated. The average total cost for a year of college at a four-year school -- including tuition and fees, on-campus room and board, books, supplies, and other expenses -- is $35,551. It drops to $19,000 if you stay at home. When an 18 year old graduates high school, he has no job skills and would be lucky to get a job paying $12 an hour. Even if that 18 year old works part time at $12 an hour, he is going to have debt.

3. Students graduate from college and are unable to find jobs or these jobs don’t pay enough to have a reasonable standard of living and to pay back the debt. By “reasonable” I mean having a middle class standard of living without living from paycheck to paycheck. I think people who went to college would expect at least a middle class lifestyle, otherwise, why attend at all?

4. Unlike other purchases, you really don't know if you can pay for it. You are assuming that you can earn enough after obtaining your degree to pay for the cost. However, you don't actually know.

5.  Regarding the ability to pay back the debt, the interest rate of private loans are so high that you can spend years, decades even, paying these loans without reducing the principal. 

6. There is no reasonable way to get rid of these loans. These loans cannot be discharged in bankruptcy. Hence, you have to continue paying these loans or default, which can cause you to get sued, have a judgment filed against you, hurt your credit score and, in some cases, have professional licenses revoked. Hence, lenders give out these loans without caring whether borrowers can actually pay them back.

I think if students were fully informed, meaning there were entrance interviews for universities required for students and they were told that based on your selected major, here are your estimated earnings and the amount of debt you will pay and your estimated monthly payments,

Or if the cost of education was such that it were reasonable to have a part time job, go to school and have minimal to no loans

Or if students could reasonably find jobs to pay back their debts within a reasonable time while enjoying a reasonable standard of living

Or if the interest rates for private loans were set where a person would not have to spend decades paying for a loan without reducing the principal 

Or if students could discharge these loans in bankruptcy...

I’d be less understanding of loan forgiveness.

However, this is not the case. Students are not given informed consent and sign loans with usurious interest rates. They often cannot find jobs that pay enough to pay back the loans and have a decent standard of living. Further, these loans cannot be discharged in bankruptcy. If students defaulted en masse it would destroy the economy. I don’t believe in total forgiveness since students still reap the benefits of higher education. But I think some forgiveness is justified.

I don’t think the “problems” section is too convincing.

“Regarding fairness to taxpayers”, it's impossible to know whether something is fair or not unless the reason is given. Allowing business owners to buy expensive cars and lunches and write them off as a business expense is "unfair" but we judge that the benefits of business ownership outweigh this unfairness. Could it be the case that the benefits of partial forgiveness outweigh the negatives?

Regarding “making suckers of other students”, we wouldn’t apply that logic to any other situation. If I paid for a pizza from Pizza Hut on Monday and on Tuesday Pizza Hut offered pizzas for free, I can’t ask for a refund for the pizza I paid for on Monday. 

Regarding “moral hazard”, this criticism would be valid if the amount forgiven was so high that it caused people not to want to pay back their loans. Although possible, this is unknown at this point.

As far as the "cost of schooling", I think that this loan forgiveness solution by President Biden is like putting a band-aid on a shotgun wound. Nothing President Biden has done has addressed why there is a student loan crisis in the first place. That should have been addressed before any discussion of forgiveness took place. If I ran a university and knew that my students would receive guaranteed funding for the cost of attending, I would have every incentive to increase costs.  

But if government involvement is part of the reason why tuition is so high and students are in debt, then the government is partially to blame. It seems just to me for the government to alleviate some of the pain it helped cause. 

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