Unfortunately no politician will have the guts to do this.
This is why people are skeptical of the federal government getting involved in just about anything.
They passed this program to help students afford school, and it’s done the opposite. It was also passed as a revenue neutral program of loans that would be repaid, now they’re increasingly being forgiven or put into forbearance.
Now to fix it, someone will have to feel significant pain, most likely both the educators and low-income students.
People are skeptical of the federal government getting involved because of decades of propaganda and underfunding. Bad roads? Well, Congress and the states won't raise the fuel tax. Bad education? Congress lets loans go to shite diploma mills that have owners who make big campaign contributions. Just look at how underfunded (intentionally) the IRS is. How audits are primarily focused on the bottom 50% of earners, while the top 50% skate. The Federal government does a great job at many things, when given clear legislation, and funding. Unfortunately, Reagan did a great job with his BS about "I'm from the government and I'm here to help."
> Bad roads? Well, Congress and the states won't raise the fuel tax.
We overbuilt infrastructure based on Government accounting practices that don't adhere to Generally Accepted Accounting Principles (GAAP or US GAAP). Representatives get elected based on promises of new roads and highways, not on successful stewardship of what we have. People realize this misaligned incentive, that isn't propaganda.
> Bad education? Congress lets loans go to shite diploma mills
For profit schools account for 10% of students[1] and 15% of loans[2]. They're a problem in several ways but not the root cause.
> Just look at how underfunded (intentionally) the IRS is. How audits are primarily focused on the bottom 50% of earners, while the top 50% skate.
I agree that the IRS wrongly targets working class people, but the rest of this is wrong. The tax to GDP ratio in the US has been constant for decades, and we have the most progressive tax code in the OECD[3]. The US obtains more of its revenue from income taxes than any other OECD nation by a factor of 2 in percentage terms. We have no VAT which is regressive, and almost every other OECD nation has one.
Americans distrust government for a lot of historical reasons. We are the 2nd largest democracy that was a former European colony, and our founders fought a revolution against a remote and disconnected government. Most large waves or immigrants to the US were fleeing some sort of government oppression. We also should remember that some 14% of the population was officially discriminated against by the government in living memory. The war on drugs also give people plenty of reasons to be suspicious about the government. We're an individualistic society that is multi-ethnic, multi-racial, multi-cultural and people practice a range of religions it should come as no surprise that people are wary of Washington.
1. Govt Reps get elected for a lot of things. Maintaining our roads, bridges and infrastructure are always buzzwords during elections.
2. Your link to Brookings just reinforces the issue. For profit schools account for 10% of students, borrow more often compared to public school students, and borrow more money. The Fed link shows that these students default more; they also are higher in pure dollar terms when it comes to Pell grants and Stafford loans. There's no good defense for profit schools.
3. Our tax to GDP has been constant for decades. Wow. I guess that wouldn't coincide with the Republican and Grover Norquist's efforts to "drown the baby in the bath tub?" A tax code can be "progressive" in theory while in practice it's regressive since the wealthy can shelter so much of their income. By underfunding the IRS, we're leaving money on the table. That's what the rich want, and since they largely control Congress, that's what they get.
4. If you look at trust in government, it was in the mid 70% range up until 1960. So obviously all the people in 1950 were so scarred by how poorly the British Parliament treated us in the 1700s. The drop in trust dropped during the Vietnam War when both parties continually lied to the American people, and since then has hovered in the 30% range for 40 years. But it's pretty clear that one party has had a platform for over 40 years to diminish the accomplishments of the Federal Government (except the Military), to starve it of funds, to politicize it's agencies. The other party sees the Government as a solution to many problems that are simply too large for individuals to solve.
> Govt Reps get elected for a lot of things. Maintaining our roads, bridges and infrastructure are always buzzwords during elections.
You're arguing against conventional political wisdom wrt the US, so I think the onus is on you to provide a better argument than sometimes the conventional wisdom is wrong.
> Your link to Brookings just reinforces the issue. For profit schools account for 10% of students, borrow more often compared to public school students, and borrow more money. The Fed link shows that these students default more; they also are higher in pure dollar terms when it comes to Pell grants and Stafford loans. There's no good defense for profit schools.
Your original comment was that loans to for profit colleges were the cause of bad education. I'm pointing out that they account for a tiny fraction of all degrees. You aren't making an argument here that shows the margins driving overall outcomes. The loan amounts aren't really relevant to the quality, or at least you aren't making that argument. I actually don't think the federal government should be in the lending game for education. It's too indirect and creates perverse incentives.
> Our tax to GDP has been constant for decades. Wow. I guess that wouldn't coincide with the Republican and Grover Norquist's efforts to "drown the baby in the bath tub?"
Yes, federal receipts as a percentage of GDP have vacillated between 14% and 19% since 1944 averaging around 17%. Grover Norquist's Tax Reform Act in '85 was followed by a 5 year uptick in federal tax receipts. Countries that capture more tax as a percentage of GDP do so through VAT.
> A tax code can be "progressive" in theory while in practice it's regressive since the wealthy can shelter so much of their income
The top 50% of earners pay 97% of federal income taxes in the US, which is the vast majority of federal revenue. That is definitionally a progressive tax scheme, in fact the most progressive globally by any measure. To argue otherwise is to deny basic confirmable facts. If your argument is about the 400 wealthiest families in America, then that's something else entirely, but it doesn't make the tax regime regressive.
> If you look at trust in government, it was in the mid 70% range up until 1960
You're looking at a measure that only starts after WWII, and probably in those early years excluded racial minorities.
> So obviously all the people in 1950 were so scarred by how poorly the British Parliament treated us in the 1700s.
This isn't an argument, it's jus reductio ad absurdum and misrepresents my argument about the cultural and historical roots of skepticism of government.
> The drop in trust dropped during the Vietnam War when both parties continually lied to the American people, and since then has hovered in the 30% range for 40 years
Can you blame anyone for being upset about Vietnam, Watergate, and the Cuban Missile Crisis?
> But it's pretty clear that one party has had a platform for over 40 years to diminish the accomplishments of the Federal Government (except the Military), to starve it of funds, to politicize it's agencies.
I think it's pretty clear that both political parties have been behind some rotten shit since Vietnam. Both parties were in favor of the drug war, needless foreign adventurism, the bungling of trade liberalization, and a raft of other stupid things.
I would argue that both parties see government as a cudgel to bludgeon their adversaries with, and not as a tool with witch to achieve social good. As far as I can tell they're both obsessed with fighting culture war battles and have very little interest in the practical concerns of governance.
The only reason that income tax is the primary source of revenue is because of the cap on payroll taxes that allows the rich to avoid paying as much as the middle class.
It primarily funds Social Security. How is that part of "our wacky welfare system?" If you consider it a secondary income tax, then it really shows how regressive our tax system is since the rich don't pay the same rate.
It’s a tiny portion of federal revenue, which as pointed out and cited is predominantly funded by income tax. It also doesn’t straightforwardly find Social Security. It funds a portion of pay outs to current recipients, something like ~90%, with the rest coming from general funds. That portion is decreasing as demographics shift. It’s sort of a weird cash transfer program that’s presented as some sort of lock box. We could lift the cap to make SS more solvent past the 2040s, but it would still be a small portion of federal revenue compared to income tax which is highly progressive.
I don’t understand how you’re even arguing that income tax isn’t highly progressive here, every tax expert and economist disagrees with you. It’s just basic accounting. Most federal revenue is from income tax and most of it comes from the top quintile of income earners.
"tiny portion of federal revenue?" It's 36% of all Federal revenue. It used to constitute almost 80% of Federal revenue in the 40's/50's, but the cap has made its contributions drop.
The Federal income tax is progressive, but only if you ignore that the payroll taxes are highly regressive income taxes. When you look at them as a whole, it's readily apparent that the overall Federal income tax system is regressive.
You're reading that chart incorrectly, it was like 5% in the 40s and 50s not 80%. I meant historically tiny, and should have been clear, though it is larger now. Yes, payroll tax is regressive, but only 6.2% and the cap rises every year.
> it's readily apparent that the overall Federal income tax system is regressive
It clearly is not, as 57% Americans paid no income tax last year (up from ~47%), and 19% (up from 17%) paid neither income tax nor payroll tax. So somewhere in the neighborhood of 38% of Americans paid payroll tax but not income tax meaning their federal tax burden was quite low. If you roll in the payroll tax the effective federal rates are still quite progressive[1]. Even Piketty and Saez note that the tax system when everything is accounted for is still progressive in the US[2] and they're accounting for wealth accumulation and not just income. If you want to include things like Piketty and Saez, you should probably include transfers, entitlements, and welfare, which makes the system look even more progressive in total. There's a good wikipedia article on the topic [3].
I'm not sure how you can argue against the conclusions of the CBO, Saez and Piketty who are the most prominent socialist economists in the world right now, and the Brookings Institute. Basically everyone who studies the topic disagrees with you, including people who greatly disagree with one another.
For example: forgive the first $10k of every student loan and offer every taxpayer who paid off their loans a refundable tax credit for the same. In the same stroke, make 10% of loans granted in the year following enactment dischargeable in bankruptcy, limit federal guarantees to 90% of the loan value and reduce subsidies by 10%. That goes to 20% (80%) the next year, 30% (70%) the next, et cetera.
You aren't changing the terms of an extant contract. Lenders and schools have time to adapt. The program pays for itself and then some.
This is a bad plan. Why would any 21 year old ever pay? Just ignore this debt until it is discharged. So you have to wait 7 years to buy a house? That sounds like no big deal.
What we should do is have the fed define a maximum allowable charge for the school loan that can be protected by the government. Pick some number, like $10K a year all in. Any other school loans can be discharged as they aren't protected or schools could try to force the parents to co-sign. But either way, the government stops propping up runaway tuition inflation.
We have to also look at why some of the cost is through the roof. When I was in school, housing was block buildings with bunk beds and a bathroom for the whole floor. Cafeteria was 2 choices and drinks. Now, everyone has a private bedroom and living room to hang out in and their own apartment bathroom. Cafeteria is like a commercial buffet with all you can eat Nutella. That money has to come from somewhere. People want it to feel like a 4 year cruise ship. That is one reason that the costs are out of control.
This is also one factor in our healthcare. Everyone wants lower prices but they also want an Urgent Care on every corner so they can go when it is convenient to them. Someone has to pay for that building and staff to sit there all day waiting for customers to show up. Everyone seems to want it both ways and never stop to consider their complicity.
The schools should also have some skin in the game. If a former student defaults on their loan then the school should have to eat part of the cost, and schools (or particular majors) with high default rates shouldn't be eligible for loans at all. This would fix the problem of irresponsible schools encouraging students to take on huge loans that leave them stuck in debt for decades.
Agreed but, if someone tried this you know the schools and media would blast this as "Party X Robbing from Education, hurting students, the next generation", etc. It's tiresome.
There's a reason the federal government is as involved as it is. When I started college, lots of students dropped out because they didn't have the money. My first semester, maybe five students I interacted with dropped out within a few weeks. "Going back home to work. The loan didn't come through." That was back in the old days, when tuition was cheap, before states decided to end support for university education.
The better policy would have two parts:
- A maximum (like 7%) of your after-tax income can go to student loan repayment.
- Colleges have to partially repay loans they took for tuition if after five years the student isn't on track to pay the loan off. This would align the incentives of the college with those of the student. It would bring a fast end to students that borrow to pay $75,000 a year for worthless programs.
This is the answer. Lenders would then have to do proper qualification on borrowers, would be more limited in their lending, and this would put downward pressure on tuition.
So unsecured personal loans? Those depend on your credit which most students don't have much/any and your debt-to-income which is normally infinite for students because they don't work. You would massively screw over kids whose parents cannot pay/co-sign a normal loan as it would force them to work and study.
Also, you normally cannot get very much with such low income and cherry on top, they have awful interest rates which range from about 6% to 36%. The APR on loans for borrowers with excellent credit is around 12%; it's about 29% for bad credit borrowers which students with no credit are likely to be.
As an example: say you work at target for 2 8 hour days on the weekend making 15 an hour and with a 36% debt-to-income ratio limit, you could afford a payment of $374.4 a month. $15,000 punched in a 30 year repayment at 29% interest rate equals a $362.57 payment. So you might be able to do it but I would hate to be working every single day between weekend work and weekly school and that is assuming an entire 4 year degree could be pushed to to $15,000.
Colleges already have a mechanism for determining chance of success in college, and degrees have data on the average income after graduation. It would be trivial for private lenders to take into account the school, factors in standard college applications, the degree, and expected income to make a loan decision instead of relying on credit, debt-to-income, etc.
And just hope students don't default right after they graduate? You realize how picky they'd have to get? 40% of undergrads drop out [0] who would probably all default alone which is completely unworkable to be profitable considering credit card default rates are between 1.5 and 7 percent [1] and look at the interest rates they charge.
It would also create a massive false negative problem where kids whom could have succeeded never got to go to college because banks would get so picky if they even were too somehow make a loan like that work.
This was very normal and possible when I went to college. I could work part time during the year, full time in the summer, and pay my tuition. It didn't leave much free time but it was possible and a lot of people did it.
These days tuition is so high at most universities that it just isn't possible. Yet they are not actually teaching anything more or any better than they were back then. It's just way more expensive.
This way, American universities have large amounts of funds available to provide the best education, best facilities, hire the best professors and that's why America simply has the best universities worldwide and it is paid by their students?
It also mostly only paid by students who can afford it. Students from weaker social backgrounds only have to pay a small fraction of the normal tuition fees.
As well, 77% of people with student loans have less than $40,000 in debt and 57% have below $20,000 in debt. $20,000 can be paid off within 2 years with a normal graduate job if one wants to pay them off early.
