JONATHAN CHAIT APRIL 27, 2010
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Stephen Spruiell objects to my post about student loan reform:
I will repeat (for the five readers who still care about this topic) what I wrote in this post: 1) Chait, despite having written a great deal on the subject, still does not understand how the old system worked (he thinks the banks were allowed to reap windfall profits when their borrowing costs fell; they weren't). 2) Conservative opposition to the Democrats' student-loan "reform" was rooted in our understanding that federal subsidies for traditional forms of higher-ed are mostly captured by universities and also hurt students for whom college might not be a good fit by encouraging them to take on massive amounts of debt they may never be able to repay. The Democrats' student-loan bill entrenched and expanded a system that conservatives hate. That's why we opposed it.
A few points: First, I have no idea why Spruiell says I believe that banks reap windfall profits when their borrowing costs decline. I suppose it's possible I once wrote that -- Spruiell provides no quote or link to suggest I did -- but that's not the heart of the critique. The heart of the critique is that you're paying private banks to do what the government does just as well for less money. The banks provide no benefit for the considerable income they derive.
Second, Spriell says his true position, in the perfect world he'd love to inhabit, is to oppose any student loan support at all, and I'm sure that's true. But that's irrelevant to my point. My point is that he prefers expensive private subsidies that benefit banks over cheap loans that don't. The Democrats student loan reform cut out the private lenders, used some of the savings to cut the deficit, and some of the savings to expand Pell Grants. Conservatives like Spruiell could have proposed using all the savings to reduce the deficit, but they didn't. Instead, they focused on preserving subsidies for banks. Spruiell's mourning of the loss of jobs at Sallie Mae was a reductio ad absurdum of his own position.
To that, Spruiell cries hypocrisy:
Chait links to a post in which I noted the loss of 500 jobs at a Sallie Mae
call center. He writes, "Well, yeah. When you cut back on a wasteful government subsidy, some of the beneficiaries of that waste will lose their jobs." No kidding? Really? Because when I wrote that headline alluding to the whole "created or saved" mantra, I wasn't at all taking a jab at the kind of people who wrote long paeans to government waste back when the idea was to borrow and inefficiently deploy $800 billion in the name of boosting employment — e.g. "... if President Obama's economic stimulus fails to prevent a depression... it will be because he didn't waste enough money."
My column made perfectly clear that wasteful government spending is useful only during the limited circumstances of a liquidity trap. Nowhere did I suggest it's a useful long-term policy.
12 comments
Forget it JC. You're using logic and facts with a conservative. That won't work. You need to yell, lie and create a straw man more often to get through.
- tnmats
April 27, 2010 at 5:57pm
It's actually worse than you recount, Jonathan. Not only can the government save money by cutting out the middle man who's providing no added value whatsoever but, the government is also underwriting and guaranteeing those private loans if they go bad. The bank risks nothing. The bank loses nothing. How could any true conservative businessman defend this?
- desertdog
April 27, 2010 at 6:14pm
"How could any true conservative businessman defend this?" Desert, I guess it depends on what you define as a "true conservative" anything. The true conservatism of the Republican Party, whether of businessmen or of the blue collar variety, is to demand for services and refuse to pay; it is to support an ethos, in Wall Street, of ensuring that all risk is externalised or socialised and all benefits privatised; it is to subvert truth itself in the name of some higher objective.
- icarusr
April 27, 2010 at 6:44pm
Wow, so now Conservative have decided to limit the amount of money available to poor people based on their own preconceived ideas that they are somehow not fit for college, and he is claiming it is for their own good don't you know. "The Democrats' student-loan bill entrenched and expanded a system that conservatives hate." I mean, damn, he just up and admitted it: College should only be for the rich. Honestly, the guy seems like a total asshole.
- blackton
April 27, 2010 at 6:45pm
Not to defend this guy or anything, but he does have a small point that universities probably have been able to raise tuition so much in part because of government subsidies like student loans and grants. If there were not federal government loans, maybe more students would go to public universities (which are of course are government subsidized by another route), and this would eventually force private institutions to try to limit tuition increases by better controlling costs. Also a lot of people do go to college who probably shouldn't. We can tell, since so many don't finish. Maybe the federal government ought to make more loans available to schools who do a better job of graduating students. Sort of like the merit pay for teachers idea at the secondary school level.
- vips73
April 27, 2010 at 7:24pm
Finishing, aka student retention/graduation, is indeed a knotty problem, and it's sometimes the case that the public university in state X does well in bringing a high percentage through the system while the public university next door in state Y has noticeably lower graduation rates. Rather than either loan institutions or the feds being at fault, I think that local cultures do play a role: if the statewide high school system is weak, if there's a history of not really caring about higher ed, if the university doesn't have a good counseling or mentoring system for freshmen in particular, then the wheels begin to look shaky when the student reaches college.
- ironyroad
April 27, 2010 at 8:34pm
vips -- with the exception of very elite ones, private schools operate on a shoestring. Competition with other private schools and public schools does limit tuition increases. Bottom line, education is expensive. If you don't offer loans to everyone, then education is for the wealthy. I agree that college is not for everyone, but correlating that population to the population who doesn't finish is silly. Many people don't finish primarily because they can no longer afford it. Furthermore, tying loans to graduation rates will only serve to reduce standards.
- orangutan75
April 27, 2010 at 11:30pm
Plus that Obama stimulus money was overwhelmingly spent on high return investments and beneficial things like alternative energy and education. It was nothing like flushing hundreds of billions of dollars down the toilet per decade to get the same loans, or one's administered in an actually worse, more complicated and difficult way. And since this guy is so against government support for education, why not come out against any government provided education. You want your children to go to school, you pay for it. Obviously this guy doesn't understand even something so basic in economics as externalities.
- RHSerlin
April 27, 2010 at 11:45pm
vips is right: federal college aid, particularly student loans, have driven up college costs significantly since the 1970s. Which makes sense: If you gave every family a $10 weekly subsidy to buy milk, the price of a week's worth of milk would go up by something approaching $10. Private producers will always try to capture the maximum portion of any public subsidy. This is a real problem with the way we help people pay for college. (My alternative, and I honestly don't know if it could work, would be to establish a huge federal fund, a sort of endowment, designed so that the interest from the money would go to subsidizing schools directly if they agree to meet federal standards with regard to educational offerings and if they charge no or token tuition. Sort of a Federal Academy, involving vocational, community, and university institutions. It would be complex to administer, and would require significant federal borrowing over a decade or more to establish, so even if it could work in theory it may not be practical in fact. But the basic concept of directing federal aid to schools to lower tuition, rather than to individuals to pay for tuition, seems like the right direction for innovative education policy.)
- rhubarbs
April 28, 2010 at 10:00am
I love this part of Spruiell's post: "The Democrats' student-loan bill entrenched and expanded a system that conservatives hate." In other words, he would have loved to cut those 500 jobs, the loss of which he had just bemoaned in an earlier post. What a goofball. And in what way does cutting out the middle-man and reducing waste further entrench the system? Because an efficient system is harder to justify eliminating? Well, rightly so.
- Fishpeddler
April 28, 2010 at 10:06am
Rhubs: I agree with your subsidy comment; not sure about the solution. In a different life, I was a member of a committee on tuition fee policy, headed by the president of the university, at my alma mater. At the time, Ontario universities got about 80% of their funding directly from the provincial government, which in turn got some ten percent from the feds. I went in with the express objective of opposing tuition fee increases and, in fact, with the hope of coming out with a European model of low or minimal tuition fees. The report, with which I agreed and that I then proceeded to defend, landed on the side of tuition fee increases. Meeting weekly, we spent a year looking at different models. This was at a time when the province had a social democratic government - so fairly positive attitude to low tuition fee policies - but at the same time, the province was on the verge of bankruptcy, so the prospects of new money were not high. The policy questions - both educational and social - were quite complex. For example, the Arts Faculty reps pushed for higher fees for professional schools, on the theory that they earned more after they graduated, and that their education actually cost more (law students paid about 16% of their cost of education, while the figure for med students was about 8%, if I recall collectly); professional faculties objected that the higher earning potential of a class of graduates was neither a given (for nurses, for example) nor necessarily relevant (law students could just as easily end up working in legal aid clinics, and a heavy debt load should not persuade students to choose corporate law firms over their own social conscience; physicians' incomes, though relatively high, are capped in Ontario). And so on. Plus, we needed to make sure that students were aware of the costs of their own education. (The European example of people staying in school for years working on undergraduate degrees was instructive in this respect.) In the end, we opted for a model that addressed both tuition fees and aid: relaxation of professional faculty tuition increases up to a maximum, and smaller tuition fee increases for undergrads; and recommendation to the two levels of government for means-tested repayment schemes for student loans. I think we arrived at a 1/3-2/3 tuition/public funding formula, but there is no magic to the number. Of course, the system works only because there are no real private universities in Canada and tuition fee increases are subject to democratic regulation; and different models should be worked on elsewhere. I just don't think that you can disengage higher education from its costs without giving rise to perverse incentives.
- icarusr
April 28, 2010 at 11:02am
I didn't mean to suggest everyone who fails to finish should not have tried for higher education. So I agree with the others that there are many reasons students struggle to finish their degrees. And, unfortunately I also have no sure solutions for the college tuition problem. But I like the suggestions the other commenters are making. I think with regard to this blog post, bashing Mr. Spruiell while enjoyable doesn't really accomplish anything. Now that the Treatment is being retired, perhaps we can have a blog devoted to education reform and education policy? Modeled on the Treatment and the Vine blogs. I would enjoy reading that and I think it would prompt many interesting and useful discussions.
- vips73
April 28, 2010 at 1:42pm