Tag Archives: Student Loans

Puppetry vs. Engineering

A few years ago, Joe Therrien, a graduate of the NYC Teaching Fellows program, was working as a full-time drama teacher at a public elementary school in New York City. Frustrated by huge class sizes, sparse resources and a disorganized bureaucracy, he set off to the University of Connecticut to get an MFA in his passion—puppetry. Three years and $35,000 in student loans later, he emerged with degree in hand, and because puppeteers aren’t exactly in high demand…he’s working at his old school as a full-time “substitute”…[earning less than he did before].

…Like a lot of the young protesters who have flocked to Occupy Wall Street, Joe had thought that hard work and education would bring, if not class mobility, at least a measure of security…But the past decade of stagnant wages for the 99 percent and million-dollar bonuses for the 1 percent has awakened the kids of the middle class to a national nightmare: the dream that coaxed their parents to meet the demands of work, school, mortgage payments and tuition bills is shattered.

This is fairly uncommon example of wasted educational dollars – puppetry should replace basketweaving in our standard example of a useless college major – but offers a salient point: not all education is worth the price. In fact, the price of education has outpaced inflation due to both government subsidies for education and our mistaken belief that if some education is good, more must be better. That is not always true. We believe that if college is good for some, then it must be good for all. While the average college graduate makes more lifetime earnings than one with a high school degree alone, that scale may be tipping. And it should. (China is having the same problem.)

If the average college student was studying the works of classical Greece, the literature of the Western Canon, hard sciences like chemistry and physics, and advanced mathematics, the argument for more college for more students would be a strong one. But that is not the average college experience, which is usually associated with alcohol, drugs, sex, “finding yourself,” and classes slightly more rigorous than puppetry but a far cry from the rigor of an engineering curriculum. $200,000 to learn electrical engineering is a sound investment, if it is learned well. But $150,000 for a degree in sociology or “critical theory” (which for the un-indoctrinated is Marxism)?

When talking heads speak of how the rise of China and India’s educated classes will challenge our international and economic strength, they are not referring to China’s production of 24-year-olds with MAs in education or, to take the five examples Time used for their article on student debt, “I Owe U,” specialized studies, multimedia design, English, history, and global studies. China and India may overtake us, however, if they take the lead in educating top-rate engineers, scientists, and those with degrees in technical fields. This is not to deny the value of English, history or specializations – wait, what exactly is “specialized studies?” – but rather the returns on those investments, for an individual or society, will not be the same as a degree in biochemistry or chemical engineering.

A letter to the editor at Time put it this way:

Of the five young adults featured with large portraits in your article, there was not one with a major in science or math. Specialized studies, multimedia design, English, history and global studies? Give me a small break. Nothing wrong with an interest in these areas, but it’s pretty predictable that the people who major in them are unemployed or underemployed.

Three additional notes on higher education. 1, the myth of Chinese and Indian engineers overtaking us is just that, a myth. 2, We have the best technical graduate schools in the world… that do a fine job of educating foreigners. Those foreigners are often sent back home in what has been called a “reverse brain drain.” They should be allowed and encouraged to stay. 3, Charles Murray has argued for more education, which is different from more schooling.

“Nearly everyone needs more education after high school,” Mr. Murray said. “What they don’t need is to chase after this fraudulent, destructive, antediluvian thing called a B.A. The B.A. is really the work of the devil.”

The source of the quotation on puppetry was The Nation via Alex Tabarrok at Marginal Revolution. His comments are worth reading.

And for the record, my MA is in economics – somewhere between global studies and engineering in both rigor and value. As a financial decision, grad school was, as of now, not worth the money. Besides two years lost wages and the price of tuition, I returned to the job market at a lower salary then when I left due to a career change. I value the education I received though, which is more important to me than the money. It was an individual decision though, not one made because I felt I had to get an MA. Thus I have no right to complain about my “crushing” student loan payments.

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The Impact of Obama’s Student Loan Legislation

I previously blogged about how Obama’s student loan legislation proposals will have short-term benefits with long-term costs. Daniel Indiviglio examines the three major pieces of the proposed legislation – consolidation, payment limits, and loan forgiveness – and how they will affect the average borrower. The answer: not much. I may have been far too generous in saying it will have a short-term benefit. Perhaps it only offers long-term costs.

Consolidation

The first would clearly be the most significant, because it is aimed at helping more student loan borrowers. How much would an interest rate reduction of up to 0.5% affect payments?

For the average borrower, the impact would be small. In 2011, Bachelor’s degree recipients graduating with debt had an average balance of $27,204, according to an analysis done by finaid.org, based on Department of Education data. That average has ballooned from just $17,646 over the past decade.

Using these values as the high and low bounds of average student debt over the last ten years, the monthly savings for the average student loan borrower would be between $4.50 and $7.75 per month. Clearly, this isn’t going to save the economy. While borrowers with bigger balances would save more, this is the average. And even someone with $100,000 in loans would only cut their monthly payments by $28.50.

The provisions on payment limits and loan forgiveness will have an even smaller impact. Indiviglio concludes:

By calling for these measures, President Obama seeks to respond directly to young Americans stressed about their student loans. Indeed, one of the vague objectives of the Occupy Wall Street movement is for student debt forgiveness. But from a practical standpoint, these executive orders won’t have much of an impact on the economy. To take on the student debt problem more aggressively, the president would need some actual legislation that would shake the fundamental framework of the student loan system.

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Short-term Stimulus with Long-term Problems

As in the housing bubble, cheap credit on easy terms increases the amount of money chasing the product (in this case a diploma) allowing schools to increase prices. This inflation makes it harder for middle-class families to afford paying their own tuitions, driving them into the government financing program, which, you guessed it, drives up costs further still.

Obama’s goals, aside from continuing to encourage young people to spurn the private sector in favor of service jobs, is to try to juice the economy. Those who participate in the program could see their monthly incomes rise by hundreds of dollars, thereby increasing the money they have to buy stuff and try to juice the economy.

Young people generally don’t save, so money no longer spent on tuition loan repayments will most likely go to dining out, food, room furnishings, iPods, and other consumer goods. This increased is good for the economy and necessary for recovery.

But the long-term effect will only be to further increase the costs of education. The best way to control those costs is for the government to get out of the business of providing loans. Universities have increased their costs at four times the rate of inflation over the past 30 years and are notorious for wasteful spending. Students pay for that waste, as do the taxpayers via subsidized student loans. Under this new plan, they will pay more in the name of loan forgiveness. If students have less to pay off, they will be tempted to borrow more. If they are more willing to borrow and spend, the schools will surely raise their prices, with those costs passed on to the taxpayer.

The president is also advertising that this program will pay for itself: without the yolk of such heavy student loans, the young graduates will be able to earn, spend, and invest, which will stimulate the economy and lead to more tax receipts than expenditures. Plausible, but every other economic forecast of his has been wrong. I’m slow to believe his economic predictions, and would like to actually see the analysis that determined, as the article states, that “the president’s student loan action will ‘almost certainly reduce’ deficit spending because of the savings the administration says will be achieved by a 2010 federal college lending takeover and what the administration believes will be a lower rate of default among student debtors due to lower lending rates.”

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