[kenberg]

Student loans: Let's start with a simple question:
Suppose that Sue and Stu both had Pell Grants, both borrowed 50K, and both finished college. Suppose Sue now makes 126K a year and Stu makes 124 K a year. Does the Biden plan give 20K to Stu and nothing to Sue? Did that 2K yearly raise that Sue got cost her 18K net?
I looked at https://www.npr.org/...an-announcement and could not see the answer.

A perhaps more complex question:
Are we permanently changing the meaning of the word "loan"?
Pell Grants, I believe, were grants. Money was given that was not expected to be repaid. Loans were given and the usual meaning of the word is that the loans are expected to be repaid. Are we now planning to keep the loan program as it is, putting students deeply in debt and then every few years forgiving a portion of the loan?

A further question:
With Pell Grants we could estimate the cost since the money was given with no expectation of it being repaid. The loan program now has an unplanned, or at least initially unacknowledged, cost. There will be estimates of what this particular forgiveness will cost. Maybe half a trillion, or maybe "just" a quarter of a trillion. If we are planning on continuing in this manner, lending large sums of money and then forgiving unplanned amounts at unplanned intervals, can we make even a rough guess as to what this will cost in the future? The answer here seems pretty obvious.

And of course a question that will not be answered:
Who thought up (if "thought" is a remotely correct word) a plan that now requires at least a quarter of a trillion to partially and temporarily solve some of the problems arising from it?

[pilowsky]

I think there's a difference between the situation when Ken loans me $10 and then sends his 'friend' round to collect it if its overdue.
When the government does it, it's a tax not a loan.

Government is meant to provide services that support the collective good and improve everyone's lives.
That's pretty much it's only function.
In most first world countries roads, hospitals, and even education are considered to be essential services.

Taxing individuals for a core function of government makes no sense at all.

[Gilithin]

 kenberg, on 2022-August-25, 08:59, said:

Who thought up (if "thought" is a remotely correct word) a plan that now requires at least a quarter of a trillion to partially and temporarily solve some of the problems arising from it?

The answer to that is really very simple Ken. Student loan schemes were thought up by people who understand that young adults vote less than pensioners and older workers. So stealing money from students and dishing it out to other sections of society is a nett vote-winner. Thus student grants were turned into mild tax cuts and handouts for pensioners in the UK, and to large tax cuts on the middle and upper classes in the States. You might feel happy about this - your generation benefitted greatly, perhaps one reason why so many world leaders have come from that generation.. The generation after yours though became a massive loser in the macro-politics game of government spending. The following generations probably will too, although the effect is slightly less and can perhaps be rectified somewhat still. But a simple rule is that countries putting their resources into the old rather than the youth are generally going to be in decline. America seems to be the very best example of that right now.

[kenberg]

I think the student loan program was/is ill-conceived. I had not thought of it as a way for me to steal money from the young or from anyone. If that is what it is, then I guess it's a bad deal all around.

[Winstonm]

Student loans really went into high gear with the advent of pay-for colleges like Trump University and myriad others that charged 5 times more than a comparable public institution for the same training.

[pilowsky]

 Winstonm, on 2022-August-25, 21:15, said:

... the advent of pay-for colleges like Trump University and myriad others that charged 5 times more than a comparable public institution for the same training.

If public institutions really provide comparable training to Trump University then the USA is in much worse shape than anyone could have imagined.

[y66]

Jonathan Crosby/Reuters

Andrew Ross Sorkin at NYT said:

Jay Powell, the Federal Reserve chairman, gets a half-hour slot (10 a.m. Eastern) this morning to deliver his annual address at the Jackson Hole Economic Symposium. On the agenda: an update on the economic outlook, the inflation picture and the path ahead for interest rates.

https://messaging-cu...6f-4e12d1a4493a

[kenberg]

 Winstonm, on 2022-August-25, 21:15, said:

Student loans really went into high gear with the advent of pay-for colleges like Trump University and myriad others that charged 5 times more than a comparable public institution for the same training.

I have known students who got the short end of the stick through such schools. No doubt the loan program was intended to help, but the help was often making it too easy for students to make bad choices. The ingredients are an eighteen-year-old who is not yet sure of their interests, a school run by people whose primary interest is profit, ad a loan program that will subsidize whatever they wish to do. The wasted money is bad enough but the wasted time is far worse. I regard the years seventeen to twenty-one as extremely important. Younger than seventeen society says you belong in school and most people do it. Older than twenty-one society expects you to take care of yourself. In between, a person is too old to be told what to do but still young enough that it is in the best interests of everyone that we give reasonable help with reasonable plans. This is tough. "We will tell him what to do" won't work, and "We will support whatever he chooses" might not go so well either.

Overall, I made the right choices in my own education but some luck was on my side. Skip over the fact that when I was thirteen or so I would listen to the Indy 500 on the radio and plan to drive race cars for a living. I like math and was good at it and a teacher explained that I should become an engineer. In my sophomore year of high school, we were given an interesting assignment. We were to select a career and then make an appointment to interview someone working at such a job. So I arranged for an interview with a guy, just random, I had never met him before, who worked as an electrical engineer. His job, as he described it to me, sounded incredibly boring. Not all engineers are fascinated by mathematics (that's an understatement) and I was not at all interested in the aspects of his job that he presented. Nonetheless, I figured it would be a place to start. Why not major in mathematics you might ask? I had no idea that you could. The mother of one of my friends had been to college but my father had never been to high school and that was more typical of the adults that I knew. I figured I might get my military responsibilities out of the way after high school and my mother advised that I join the Navy. She explained that ships don't go down all that often and anyway you get fed better than you do in the Army. That was typical. It was good advice, but not helpful in choosing a college major. It all worked out, but there was some luck involved.

As it happens, I had lunch yesterday with a grandson who is starting his last year of college at the University of Maryland. My wife and my daughter were also there but I will focus on the grandson. He asked about the financial issues of my college education, how much was tuition back then and other such matters. I explained that tuition at the University of Minnesota in 1956 was $72 a quarter and so $216 a year. I had a job delivering furniture for $1.25 an hour so yearly tuition came to around 173 hours of work. You can't do that today.

So yes, we have real problems today. Solving these problems is important for the young and for everyone. Pell Grants sound like a good idea although I don't know the details. The student loan program appears to have been a disaster.

[Winstonm]

 kenberg, on 2022-August-26, 07:17, said:

I have known students who got the short end of the stick through such schools. No doubt the loan program was intended to help, but the help was often making it too easy for students to make bad choices. The ingredients are an eighteen-year-old who is not yet sure of their interests, a school run by people whose primary interest is profit, ad a loan program that will subsidize whatever they wish to do. The wasted money is bad enough but the wasted time is far worse. I regard the years seventeen to twenty-one as extremely important. Younger than seventeen society says you belong in school and most people do it. Older than twenty-one society expects you to take care of yourself. In between, a person is too old to be told what to do but still young enough that it is in the best interests of everyone that we give reasonable help with reasonable plans. This is tough. "We will tell him what to do" won't work, and "We will support whatever he chooses" might not go so well either.

Overall, I made the right choices in my own education but some luck was on my side. Skip over the fact that when I was thirteen or so I would listen to the Indy 500 on the radio and plan to drive race cars for a living. I like math and was good at it and a teacher explained that I should become an engineer. In my sophomore year of high school, we were given an interesting assignment. We were to select a career and then make an appointment to interview someone working at such a job. So I arranged for an interview with a guy, just random, I had never met him before, who worked as an electrical engineer. His job, as he described it to me, sounded incredibly boring. Not all engineers are fascinated by mathematics (that's an understatement) and I was not at all interested in the aspects of his job that he presented. Nonetheless, I figured it would be a place to start. Why not major in mathematics you might ask? I had no idea that you could. The mother of one of my friends had been to college but my father had never been to high school and that was more typical of the adults that I knew. I figured I might get my military responsibilities out of the way after high school and my mother advised that I join the Navy. She explained that ships don't go down all that often and anyway you get fed better than you do in the Army. That was typical. It was good advice, but not helpful in choosing a college major. It all worked out, but there was some luck involved.

As it happens, I had lunch yesterday with a grandson who is starting his last year of college at the University of Maryland. My wife and my daughter were also there but I will focus on the grandson. He asked about the financial issues of my college education, how much was tuition back then and other such matters. I explained that tuition at the University of Minnesota in 1956 was $72 a quarter and so $216 a year. I had a job delivering furniture for $1.25 an hour so yearly tuition came to around 173 hours of work. You can't do that today.

So yes, we have real problems today. Solving these problems is important for the young and for everyone. Pell Grants sound like a good idea although I don't know the details. The student loan program appears to have been a disaster.

I think I mischaracterized the for-profit schools that I believe helped create the inflated costs of education. My own story is an example. When i was 52 I had to start again from scratch to find work and discovered not many places wanted 52 year olds. The want ads were all in medical so I went that way and got into an LPN program at a local Vo-tech, an 11-month program that cost $1600. An alternative was a for-profit college but their 1-year LPN program cost $10,000. The only way anyone could do that was with student loans. The for-profit colleges were not alternative choices but sausage-grinding grift for bodies they could lasso with student loans.

Whoever in government approved paying those places was either an idiot or in on the grift.

PS: the for-profit school had a lower pass rate for the NCLEX (licensing exam) than my vo -tech. Those that did not pass were still on the hook for their loans.

[hrothgar]

 kenberg, on 2022-August-26, 07:17, said:

The student loan program appears to have been a disaster.

Few observations here:

The reason that the student loan program is a disaster is a combination of two factors

1. Federal and State governments decided to gut support for state university system.

The main reason why the cost of college has exploded over the past few decades is that the a whole bunch of government subsidies very removed and costs sky rockets.

2. The government was forced to extend student loans for a whole bunch of fraudulent predatory private universities. (Think Kaplan, DeVry, and anyone else advertising on basic cable)

The combination of these two factors meant that a whole bunch of folks took out a significant amount of debate without getting anything in return.

Half a degree at the State School can add a lot of debt without much value.
A degree from DeVry is even worse...

The purpose of the Student Loan forgiveness is NOT to try and make college more affordable.

This is an attempt to provide direct relief to a bunch of folks who made a really bad mistake.

[kenberg]

 hrothgar, on 2022-August-26, 12:54, said:

Few observations here:

The reason that the student loan program is a disaster is a combination of two factors

1. Federal and State governments decided to gut support for state university system.

The main reason why the cost of college has exploded over the past few decades is that the a whole bunch of government subsidies very removed and costs sky rockets.

2. The government was forced to extend student loans for a whole bunch of fraudulent predatory private universities. (Think Kaplan, DeVry, and anyone else advertising on basic cable)

The combination of these two factors meant that a whole bunch of folks took out a significant amount of debate without getting anything in return.

Half a degree at the State School can add a lot of debt without much value.
A degree from DeVry is even worse...

The purpose of the Student Loan forgiveness is NOT to try and make college more affordable.

This is an attempt to provide direct relief to a bunch of folks who made a really bad mistake.

Let's first take a somewhat cynical but pretty realistic look at how this will play with voters. A guy is two years out of college making only 100K a year and has a 30K student loan debt. Jeez we really have to help this guy out. Let's give him 10K.

OK, that's not the guy you are talking about, I get that.

But a good part of my criticism is that the student loan program has not been well thought out. Yes, I think the idea was to help people and yes I imagine it did help people. But it also helped a lot of profiteers and punished a lot of people who, through youth or whatever the reason, were ill-prepared to see ahead to just how bad this could all go.


I, and I think most people, have known high school seniors who had no clear plan for the future and who were pretty unsavvy about money. I once talked to a young person who thought "grant" and "loan was simply two ways of saying the same thing. He expressed shock when I told him that lenders expected loans to be repaid. I don't think that he was putting me on. Often they know very little of what various jobs entail, how to prepare for such a job, and what it pays.

When I bought my first house, a townhouse of modest size, I of course took out a mortgage. I did not have the required 20% so there was a temporary add-on monthly fee until I reached 20%. The bank discussed the loan at length with me. They wanted to be as sure as possible that my plan was realistic. And, for this loan, they could at least take the house and sell it to get a decent portion of their money back if I defaulted. It is this realism that the bank displayed toward my mortgage that seems to have been largely lacking in student loans. It seems to be continuing. The Biden plan will cost a quarter trillion, Or maybe half a trillion. Or more. Or less. And yes, it would be inflationary but hey, there will be repayments of remaining loans next year so let's call it even.

How about: The program was poorly designed and poorly executed. A program that was supposed to give loans that, like other loans, were to be paid back now requires some truly large amount of money to partially relieve the stress. It's time for some realism.

[Winstonm]

I don’t see how relief from the burden of student loans can be inflationary.

[Gilithin]

 Winstonm, on 2022-August-27, 10:09, said:

I don’t see how relief from the burden of student loans can be inflationary.

Basic monetary theory says that if you give young adults making a comfortable living (say $100k to $125k) additional disposable income, there will be a mild inflationary effect.

[kenberg]

 Winstonm, on 2022-August-27, 10:09, said:

I don't see how relief from the burden of student loans can be inflationary.

If we reduce a 100K debt to 90K there might not be much change in behavior except to reduce monthly payments a bit. If you reduce a 10K debt to 0 it is reasonable to think that person might then go out and spend some money. Maybe buy a celebratory dinner and leave it at that, maybe buy a new car. bought a townhouse just a bit after my loan was paid off. The timing was not a coincidence. And somewhere in-between for others. How much of an effect does all this come to? I was very cautious in running up debt and very restrained in spending until I had paid off that debt, but that was me. So just how much of an effect I can't say but I imagine some effect. It seems unlikely that you can cancel a quarter trillion or so of debt without some side effects.

[y66]

Alex Tabarrok said:

The Student Loan Giveaway is Much Bigger Than You Think

[Winstonm]

 Gilithin, on 2022-August-27, 11:29, said:

Basic monetary theory says that if you give young adults making a comfortable living (say $100k to $125k) additional disposable income, there will be a mild inflationary effect.

I think everyone is grossly overestimating the earning power of these new to the workforce. I would venture to say the staring salaries in flyover country is 40-60 K.

[y66]

From A Democratic Economist’s Case Against Biden’s Student-Loan Plan by Annie Lowrey at The Atlantic:

Quote

One of the most prominent voices criticizing the move is Jason Furman, a Harvard economist who chaired the Council of Economic Advisers during President Barack Obama’s second term. Furman argues that Biden’s plan will lavish relief on individuals with high incomes or the prospect of high incomes, encouraging universities and colleges to jack up tuition rates and burdening future students with heavier loan burdens. He also worries about people who did not take out student loans—meaning most Americans—ultimately paying for the plan. I spoke with him by phone this week, and our conversation has been condensed and lightly edited for clarity.

Annie Lowrey: Joe Biden has just erased the student-loan debt of roughly 20 million people, and decreased monthly payments by an average of $250 for borrowers who will still have a balance on their loans. You’ve criticized the move, but can you give me your best case for it?

Jason Furman: The college-financing system has a lot of problems. We need to make a lot of reforms to it. Could I see a case for some form of debt relief for lower-income people? Maybe, but with a much lower income limit than the Biden administration has chosen.

Lowrey: With that, let’s hear the case against it.

Furman: With any public policy, you need to analyze the trade-offs. You can’t just say, “This person gets this, and therefore it’s good.” It’s always better for someone to get something rather than nothing. But that’s not how it works.

If you’re giving $500 billion to one group, where’s that money coming from? One possibility is that the economy grows much more quickly, and so spending that money doesn’t hurt anyone. I think that’s extremely unlikely, given the highly constrained state we are in. And so I think most of that $500 billion that one group is getting is coming at the expense of everyone else.

That doesn’t make it a bad idea. If we were covering a Medicaid-coverage gap, I’d say, “You know what? If everyone has to pay $50 more and poor people get health insurance and the inflation rate is a tenth of a percentage point higher, I’m all for that.” But we’re giving couples making up to $250,000, which is a lot of money, up to $40,000.

Lowrey: So one concern is that this is not targeted toward people who really need help.

Furman: Then, there’s the expectation that debt relief will happen again. That will lead to shifts in the college-financing system, toward loans and away from grants. It will also raise college tuition, as colleges move to capture some of this spending. Our goal should be getting more people into college. It is not obvious that Biden’s plan helps with that goal. It might even hurt that goal.

Finally, I’m uncomfortable with this level of presidential power. You know, President Trump was being pushed by some of his advisers to index capital-gains tax rates to inflation, and do it by executive order. He ultimately resisted. I think the indexation of capital gains is a much worse policy than this one. And it’s possible the legal grounds were weaker. But he actually said, No. I’m not going to just change tax law by myself without checking with Congress. I think that’s a good rule to live by, and one we’ve mostly had up until now.

Lowrey: This is the Biden administration forgiving debt by keystroke, without raising taxes. So how is the burden of that falling on everyone but the borrowers? Why is that problematic?

Furman: One group is getting $500 billion. And they’re going to spend more. They’re going to buy more housing. They’re going to be better off. The problem is that the economy is already producing the most it possibly can. If anything, the Fed wants it to produce less, not more. What will happen is that they will spend more and it will drive up the price of houses and everything else. Due to that inflation, every household will end up spending $200 more a year on what they need.

There isn’t free money out there. There are consequences. Once you frame it as 320 million people paying for a benefit for 30 million people, it makes you think a lot harder. You’re giving a benefit to someone making $200,000 a year. How important is it to give them relief?

Lowrey: You said one of your concerns is that universities will increase tuition, with the expectation that there’ll be more debt forgiveness in the future. But there’s an argument that this might actually create more pressure to fix the underlying system of financing.

Furman: We don’t control what universities do. They make their own choices, subject to incentives. The incentive of a diploma mill is to tell people, “Hey, you know what, it’s going to cost $10,000—but don’t worry, Biden’s going to do it again next year.”

Lowrey: Let’s go back to the distributional consequences. Surely most people who finish college or a two-year degree set themselves on a higher-earnings trajectory. But a lot of people aren’t finding themselves on an upward trajectory, given the pressure on wages in the past decade. And a lot of young people have concerns about taking on debt, given the rising cost pressures everywhere else in the economy.

Furman: I’d go back to the income limits here. If you’re a 24-year-old who makes $125,000 a year, you’re probably going to be okay in life. Even if what you just said was true, that’s an argument for a different plan, not for this plan. Make the limit $62,500 for a single person and $125,000 for a married couple.

I do think there’s evidence the college premium stopped rising. I haven’t seen any evidence that it has fallen. For the median person who goes to college, they are getting an incredible return on their debt. They’re borrowing $30,000. But their lifetime earnings go up $500,000. You just don’t need to do something for them to get relief to people for whom debt is a problem.

Lowrey: What about the Black–white wealth and income dynamics? As you know, Black students are more likely to have loans, and their loans tend to be larger. And Black students are much, much less likely to come from family wealth.

Furman: You also need to understand what this does to the wealth of the people who are ending up paying for it. They are disproportionately going to be Black, because a higher fraction of them have not attended college.

Lowrey: Would something based on the familial wealth of a higher-ed student be better? It would be very hard to do. But you could imagine steering relief toward the kids who did not have parents who could help them with school.

Furman: I’m not sure I agree with that. If somebody at age 30 is graduating from law school and is making $125,000 a year in their first job out there—even if they originally went to college on a Pell Grant—that’s someone who’s in a good position to pay their debt back. I’m worried about the 20 percent of students who are in a bad position. I don’t think you have to worry about the 80 percent.

Lowrey: How worried are you about the inflationary consequences? We’ve had a pause on student-loan repayments. So is this really going to stoke a lot of new inflation?

Furman: The plan is a $500 billion plan. I think the multiplier on it is less than 0.1—so for every dollar you spend, you are getting a dime in economic activity or less. People aren’t going to go out and spend $500 billion immediately. But even with that small multiplier, if you apply it to this huge initiative, you get about 0.2 or 0.3 percentage points of inflation. Some people could say that’s a small number. A rounding error. But for a typical family, you’re going to pay an additional $100 or $200 a year for everything you buy.

Lowrey: We haven’t talked about the emotional part of this, the human-welfare part. People hate having student loans. They hate having to pay a second mortgage, even if they know it might be working out for them on paper.

Furman: People hate college debt more than they hate other types of debt. It’s not 100 percent obvious to me why. We’re not talking about forgiving car debt or mortgage debt. I do think shifting to a world with more grants, or an Australian-type system—where they collect the [student-loan payment] on your tax return, and if your income is too low, they just don’t collect it—would be better. You barely have to think about it. That would be a really good system, and it would be great to do something like that.

I will say, of all the policy issues I’ve ever discussed, the level of vitriol directed against anyone who disagrees [with the debt-relief plan] is incredibly high. There is something that is so emotive for people. It has made it harder for analytic people to enter the conversation. And I think the odds of bad unintended consequences, imposed on people paying for the policy now or imposed on students in the future, have gone up a lot.

[kenberg]

 Winstonm, on 2022-August-27, 12:52, said:

I think everyone is grossly overestimating the earning power of these new to the workforce. I would venture to say the starting salaries in flyover country is 40-60 K.

Sure, there are many more 40-60s than there are 90-110s. Now to two of the points that I made;

1. I was speaking of how voters would see this. They will see that the 100K guys, however numerous, are getting 10K and ask why.

2. I was speaking of inflation. Very possibly the 100K guys say thanks and move on, there was nothing that they really need. The 40-60 guys might have a number of things that they need or at least strongly desire. If their debt goes from 10K to 0 they can easily spend, and if it goes from 30K to 20K they can maybe spend. And if they had a Pell, the debt might go from 20K to 0.

So the 10K debt reduction to the 100K guys might animate voters and the 10K, or 20K, debt reduction to the 50K guys might well increase spending. All pretty natural and predictable. We shall see.

[Winstonm]

 kenberg, on 2022-August-27, 16:23, said:

Sure, there are many more 40-60s than there are 90-110s. Now to two of the points that I made;

1. I was speaking of how voters would see this. They will see that the 100K guys, however numerous, are getting 10K and ask why.

2. I was speaking of inflation. Very possibly the 100K guys say thanks and move on, there was nothing that they really need. The 40-60 guys might have a number of things that they need or at least strongly desire. If their debt goes from 10K to 0 they can easily spend, and if it goes from 30K to 20K they can maybe spend. And if they had a Pell, the debt might go from 20K to 0.

So the 10K debt reduction to the 100K guys might animate voters and the 10K, or 20K, debt reduction to the 50K guys might well increase spending. All pretty natural and predictable. We shall see.

The 2006 bailout dwarfed this and the same cries were heard. We shall indeed see.

[kenberg]

I guess I will not think well of how he went at it no matter what comes of it. The approach seems clumsy.

Back in the 2006-2008 days you mention, I recall listening to the radio as I drove and NPR was interviewing some guy, a truck driver I think, who had bought maybe a five bedroom house on multiple acres with a mortgage with varying rates and he was in deep financial trouble. I thought "If I were he, I would not have made that purchase. If I were the bank loan manager, I would not have approved the loan. If I were setting the rules, I would not set them as they were set. The guy is having trouble? This is a surprise to someone?" That's pretty much the way I feel about the way the student loan program was set up and handled so far, and I don't feel all that much better about the way Biden is addressing the issue.

Also, I am not all that happy about Biden just being able to do it. If he can do it, others can do similar things. At least I voted for Biden and I approve of his general intentions. That will not always be the case.

So I am not so happy. So new?