Wednesday, July 7, 2010

Student Loans

Note: I wrote the following a couple of days ago. I mentioned to my wife what I had written and she (in her normal Zen way) let me know that I was taking sides, and that really there are good arguments for both sides. Of course she was right. Students will have to pay less which will make them happier (I guess), and banks will get smaller (which may make them more manageable in times like these). In any case, life is too complex to be certain about the effect of any action (dependent origination in Buddhism).

Uncle Sam (US) is now taking over student loans from banks. They will be still making a profit, and will put that profit into supporting community colleges and other educational institutions. And they will never raise loan rates when interest rates go up, like the banks do.

The article in the UT newspaper claimed this was a win-win situation for both US and the students... and the public at large.

The apparent brilliance of this act raised a number of questions in my mind. If Uncle Sam can run the student loan business more efficiently than banks, then could they also run most other businesses more efficiently as well? Clothing, home improvement stores, toys, art, oil drilling. What is their track record?

I assume that the banks will need less workers now that they aren't doing student loans. Will these workers now be hired by Uncle Sam? I assume too that the banks will not need bailing out again, given that one of their income sources has been curtailed.

If US is not able to actually run this loan business more efficiently then we must assume that they are (or will be) subsidizing it, especially when interest rates rise and loan rates do not. Is this still going to be a win-win-win situation?

Who are these brilliant business people who have shunned bank CEO wages to work for US? What do they know that people being paid 100x as much do not know?

There is an implication, as well, that banks have been "screwing" students with high interest rates. This message is bothersome to me, especially as we start to believe that banks and all other institutions that make a profit are in essence taking advantage of their clientele. The banking industry has provided the possibility for education for millions of kids. They have done countless good and should not be labeled a thief.

I suspect that, in the end, this program will cost the taxpayers untold dollars.

Can the US really charge less and still turn a profit? Can I jump over the moon?


Anonymous said...

Uncle Miltie is smiling from ear to ear if he can still read! H.

Kate Freeman said...

So one might also say six of this or half a dozen of the other. The other question is why is education so costly that individuals would have to go into (in many cases) extreme dept in order to procure what many would call a necessary level of skill to compete in today’s market. (Though I also question if all this ‘competing’ might be a collective physiological issue that might also need addressed).

I took government loans. They had a lower interest rate. I also got grants. I don’t have to pay those back. That’s society’s investment in me. I wonder if the taxpayers feel their money went to use.

I know others who went to schools that didn’t accept government funding. These schools accepted funding from particular banks only. These students got a financial aid package usually from Chase (that incidentally I am indebted to for my mortgage payment). The cost of their education seemed over inflated to me and their interest rates are appalling and the students had to have their parents (and in one case a grandparent) cosign for these ridiculously high loans.

I think it is a bad idea when the government holds college funding in front of US citizens and says, “If you serve your country.” That’s when I talk to Chase again about those ridiculously financially devastating loans.

Kim Mosley said...

Kate, even the government loans (at subsidized rates) is an investment in Kate. The largest expenditure that educational institutions make is salaries... something like 80-90% if I remember. The only way to really make education cheaper is to have teachers teach more, or pay them less. In k-12 they teach all day long. And the burn-out is stupendous. I know a teacher who has been going at it for 4 years and he's the "senior" in his group of colleagues.

Kate Freeman said...

I don’t ever recall taking out a loan for my K – 12 education. That is not the education cost we are talking about here is it? I think people pay for that early education in various other ways, but they don’t take out a personal $50,000 loan for the first semester of 8th grade. So while I would agree that teaching in the public education system seems like a very demanding job, I don’t think students getting personal loans from a bank to pay for education is a better alternative than collecting taxes to fund a public system to which more people have access.

I think it is good to ask why the cost of a college education is so high when it seems that the current job market more and more requires people to have this costly education in order to work. Why do we have to buy financial security? I do not believe that the only way to cut the cost of college education is to cut teacher salaries. (You are really going to have to work to prove that one to me.) Why is it that our society can offer K-12 public education, but huge personal cost keeps people from higher education? Why do some colleges not accept federal funding available to students? Might there be benefit to a college if they push loans from a given financial institution even if they are not in the best interest of a student?

In a way, college education is mirroring the housing market. You got these educational institutions that are selling knowledge at a relatively high price and one can only obtain this knowledge if one takes out a loan. In many cases, you don’t have a ton of options as to what kind of loan you can get because the school dictates that; just like reverse redlining dictates what kind of loan you have to get in order to obtain shelter in a give area. And these kinds of situations lead to loans that in many cases are inflated and ridiculous.