That is surprising.
I would have thought the NSA would want a higher minimum than that - especially in math.
Populist rhetoric at its best. Bernie Sanders better not get elected or he’ll bankrupt us all. This is the problem when we elect people who can’t do math to run the country.
Our compulsory, free K-12 education does not rank well internationally, whereas our private/public hybrid, paid university system ranks near the top internationally. Costs can be ratcheted down by stopping the subsidy of federal student loans which drive up college prices. But in general, making something “universal” lowers the quality, particularly at the top.
There are many voters that cannot do math and find populists like Bernie Sanders and Elizabeth Warren very appealing. Fortunately, so far, both have been elected in liberal fringe states (Vermont and Massachusetts). We can only hope that their appeal outside their home base remains limited.
Noone has been able to explain to me how a $5500 loan “drives up college prices”.
The reason is that any payment, e.g., a subsidy which is guaranteed by a third party, raises the the true price by said amount. In simplest terms, it is guaranteed money upfront, and the receiver (the school) has zero risk in not getting paid because the loan is not backed by the school. Therefore, irrespective of the true price, the price to the student will be the true price + subsidies. **
** It does not matter if the subsidies are student loans, which require no qualifying financials or a subsidy requiring financial qualification, i.e., Obamacare subsidies. Both have the same effect, which is prices are raised by the amount of the subsidy causing an artificially increased price for the product and an overall distorted marketplace.
Hypothetical Example 1: Start from a $0 price point, which is free:
Let’s take a company that has this product that people want and there is a competitive market for it. Now, imagine this company, for whatever reason, can give this product away free at no cost to the consumers wanting it. That is great, and the consumers who want the product line up for it and get it free, i.e., cost of $0. Since everything is finite and the company can make and give away but so much, there is a natural limit to the number of consumers receiving the product. So far, so good as the market for this $0 good reaches equilibrium.
Now, imagine a politician thinking he has a brilliant idea that more consumers should have this excellent product because it is so darn good. The politician gets a bill passed, which then gives everyone who wants the product a $5 loan to go buy the product. But wait, why $5, as the product is free right now? Yes, the product is free at the natural $0 equilibrium price point, however, to incentivize the company to get the product into the hands of more consumers the $5 is required to pay the company the costs to make above and beyond the number of free product it can afford. That makes perfect sense since the company has maximized what it can produce free already.
However, look at what happened. The cost of the product is no longer free for everyone, as each unit now costs $5 because that what the company should charge. And why should the company charge $5? Because the $5 is guaranteed money (subsidized by a third party) to paid to it for every product it can produce because everyone that wants it can get a $5 loan to buy the product.
Therefore, this seemingly nice subsidy idea to get the product in the hands of more consumers took something that was free for X consumers and now the company is guaranteed $5 from ALL consumers who want it. The result - a once free product is now $5 - the price, which was once zero, was artificially raised by the amount of the subsidy.
The market is now distorted because the true price for the consumer is really $0, if the market was left alone.
To be most accurate, the production costs were not increased on the product in real terms (in fact, production costs per unit most likely went down), but the increase is solely on the consumer. Recall, it is a loan. Therefore, it must be paid back with interest. Thus, X consumers who once got the product free, now have the cost of $5 + interest over the life of the loan. That is much higher than free.
However, the company does not care because it gets paid upfront (immediately) and a third party is on the hook if the consumer defaults. Hence, the company can always charge whatever the amount of the subsidy is that the politician gets passed. If over 10 years the subsidy gets increased to $15, guess what is the new price of the once free product? Yes, $15.
The economic effect of such a subsidy is to increase the producer surplus, while decreasing the consumer surplus, which in economic terms is the same as a price increase for the same or an inferior product.
Hypothetical Example 2: Start with any college’s true price
All one has to do is take the above example and instead of the $0 (free) price point plug in the college’s true price, i.e., tuition without subsidized loans.
The effect of subsidized education loans will be the same, as in the $5 loan example above. The price (tuition) charged the student will be artificially increased by the amount of the subsidized loans. The colleges lose nothing by doing as much because the market is competitive enough that there are enough students willing to take the loan risk, even for an artificially highly-priced product.
The market is distorted because the absolute floor price has been guaranteed to be $5500/yr when really the absolute floor theoretically should be $0 and then the true price (tuition charged student) calculated from there, using operating costs etc. With subsidies, whatever tuition a school charges is artificially $5500/yr higher than it should be because schools are guaranteed $5500/yr from each student who wants to attend.
In the starkest terms, loans are “free” money to the school, and any company given more money, while not having to improve its product to receive it, would be idiots not to take the money. In this case, colleges are not idiots.
And how do we know the education product is artificially price-inflated?
Many a student are finding they cannot efficiently trade the education value they paid for, i.e., their diploma, in the marketplace, and they are having trouble paying back loans. This is the market saying that the value of the diploma and acquired education skills are not equal to what was ultimately paid to purchase them. If the education value was at least equal to its true price, then the minimum result would be the ability to find a job to pay back that expenditure.
Community colleges were once free in California. CSUs were once only hundreds of dollars. UCs were once a mere couple thousand.
These colleges were created with the intent of being that inexpensive. Making college completely “free” by raising taxes or borrowing money is just feeding into the problem; we need to fix what created the price of tuition to skyrocket so quickly in the first place.
However, with UCs costing around $22,000 a year to attend for in state students I don’t think anyone can argue that the rate at which our university system is going is not sustainable. Sanders has the right concept, he just doesn’t have the greatest practice for it. I don’t support his ways, but it’s nice to see a candidate actually giving a damn about the education system when there’s literally no way it can continue for much longer at the rate it’s going.
^^
ha!
CSUs used to be about $50 per semester. UCs used to be about $100 per quarter.
These were called “fees”…not tuition. Tuition was free.
today, a UC costs about $31k to attend.
Federal Guaranteed Student Loans have been available since 1965. The CA school system was close to free long after that. I can’t find how the borrowing limits for that changed over time but with a $5500 Max now they can’t have changed much. Once again, how does the federal student loan drive up rates? I do agree that loose standards for private loans were a major contributor. But that has nothing to do with the Direct Loans.
The Parent Plus loans are the problem. Even if you personally avoid them, the fact that this pool of cheap money is out there causes colleges to pressure families to give it to them. This pressure is done simply by raising prices.
Bernie, we are already subsidizing college tuition. The FSA web site indicates a default rate of 13.7%. Multiply that by 1.2 trillion in outstanding loans and we get the taxpayers on the hook for $165 billion. The current 4.55% interest rate does not come close to covering the enormous default rate. I suppose that Bernie’s logic is we might as well forgive the debt.
The GI bill was put in place to thank veterans for their service and give them an opportunity to re-integrate into civilian life. The generation of students in school after every major war has been more serious successful and disciplined than their (younger) civilian counterparts. It is certainly not a giveaway. Same with the various DoD and government programs that trade years of service for college.
Removing price as a disciplinary tool is the height of idiocy. Colleges would have zero incentive to control costs, and students would major in economically useless areas. Despite its flaws, the current system pushes students into more market driven fields.
The college pricing problem lies with excessive administrative and regulatory costs, excessive salaries/low teaching load and poor resource utilization (10-3 M-Th are typical college hours) and insufficient legislative support from states for their state colleges. Why aren’t we utilizing new technology to reduces costs like everywhere else in the private sector?
The other problem is this plan is predicated on the flawed assumption that everyone should go to college, which is based on average projection of lifetime earnings, etc. What about skilled trades? Who is going to weld pipelines, fix cars, create molds, wire buildings, etc. etc…? Besides all of that, it is unconstitutional. Let the states handle it.
If you want to see true innovation, look at Georgia with their Zell Miller scholarships. For a student with a GPA > 3.7 and ACT> 26, tuition is completely free in the 14 Georgia state colleges. Georgia Tech (the flagship) admits 33% of students with a 30-33 ACT spread. Cal admits 18% of students with a 29-34 ACT spread. UVa admits 29% of students with a 28-33 ACT spread. What other states flagship school has both high average ACT’s and high admission rates and high minority participation based on merit? It seems Georgia has found a formula that works.
I do like what states like FL and GA have done with their Bright Futures and HOPE/Zell scholarships. Rewarding HS achievement is a good thing. One thing I don’t like about Pell Grants is that they’re awarded to students going to a CC no matter how lousy they did in high school.
^^ Re my Post #65:
I stuck strictly to the question of the $5500 subsidized loans, as to not confuse the question. However, mom2collegekids and others have mentioned Pell Grants etc. The effect is the same since a third party guarantees payment. Therefore, the price of standard college tuition is actually inflated by $5500/yr + Pell Grants + Any subsidized parental loan. I bet it is close to $20,000. And it is not an accident that colleges, such as Hillsdale and others, which do not partake in Federal programs have tuitions about $20k lower than same strata schools - yet they survive financially quite well.
Scholarships are not destructive in terms of raising prices and, in fact, often have the opposite effect. Why? Because scholarship students are a much healthier risk and need to qualify on the basis (academic achievement) that best determines whether they can benefit from college. Additionally, a student can lose a scholarship and thus a school has higher incentive to choose students who will make it through, i.e., keep money flowing into school for at least four years. Thus, raising tuition outside scholarship use range would not be a smart financial move.
Question: why not make one of the qualifiers for those guaranteed values keeping tuition under a certain bar that is evaluated each year and announced the year before? Spitballing here, because I don’t think the answer is removing all aid: the prices won’t go down.
Election time! Which “freebies” will buy the most votes?
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Removing price as a disciplinary tool is the height of idiocy. Colleges would have zero incentive to control costs, and students would major in economically useless areas.
Despite its flaws, the current system pushes students into more market driven fields.
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this is still a problem; one that our student loan system subsidizes (and Pell). Last year, I mentioned a young woman I know who has $50k of fed student loan debt (parents denied Plus), and she has a pretty useless Child Development degree…either a lowish paid job in that field, or abandon it all-together and do something else. She also was a full Pell student. She can’t pay her student loans; she can’t even afford the reduced payment that she has been offered based on her modest income. So far, she’s paid NOTHING back, and she graduated 4 years ago.
I don’t know what the solution is. We can’t just say that only 15 majors are worthwhile, but taxpayers also shouldn’t be lending/paying for degrees that won’t lead to a decent paying job. If families and students want to pay for those, then super. But, when it comes to tax dollars, certain majors are not good credit risks!
Availability and use are two totally different things.
There is an erroneous connection here with thinking that just because something was available that it had the same effect as today. In reality, the current college market is a different place, as compared to 1965.
I actually gave the answer in the first sentence of my Post #65 - the entire issue lies in the fact that colleges today, unlike 1965, is a competitive marketplace.
This is not an answer you “find,” as it is not written down somewhere or just spelled out for all to understand. It is something you deduce by understanding how competitive markets behave.
Add a subsidy, any subsidy, to a truly competitive marketplace, and the only result is a price rise, as there are already enough consumers willing to pay the non-subsidized rate. Therefore, all a subsidy does is raise the price because there is nowhere else for the subsidy to have an effect - for most colleges, there are already more than too many consumers and too few seats. Another way to think about it is it does not matter if a school gets 20,000 applications or 60,000 applications if it can only accept 2,000, i.e., the subsidy brings nothing new to the table supply-wise (i.e., there can be no overconsumption; therefore, no price drop), so it simply goes to a price rise for the 2,000 who get accepted.
Back in 1965, there was no similar rush for graduating seniors to go to college, and thus, no rush to borrow money to do so. The majority of colleges were, compared to present-day, rather non-selective, i.e., 1965 was essentially a non-competitive college marketplace. And in order to keep students in the schools, the tuition reflected directly what students could afford to pay without incurring debt. This was because, culturally, debt was not something people saw as necessary to get an education because the prices were lower, or better said, there was less demand for the college degree, so students and families did not need / desire subsidized loans to go to school. Basic supply and demand - colleges could not raise prices (tuition) because the demand was not there, regardless if there were federal subsidized loans available.
Circa 1980 and later, government steps in and announces that every student’s goal should be a college degree. This sends out the message that there is no useful societal advancement without a college degree. People heard that message, and the result was a societal shift in that a college degree is seen as a necessity by many more students and families. The overall effect is what we see today - colleges getting 9 to 20 times the number of applications than they can accept. This is a true shift in demand for a degree. And with many students believing they must get a college degree, the students see borrowing for that education as a necessity. That too is huge cultural shift in demand for education borrowing, as compared to 1965.
Today, since colleges have many times more applicants than spaces due to higher demand, the result is colleges raise their rates, rightly so - just like any product in high demand would experience. And subsidies and grants by a third party make it easier to continue to raise rates because colleges are guaranteed that money without any of the default risk; the borrower does not have to qualify financially or barely; demand is still high and climbing; yet, supply is flat. Economically, in a competitive market, there are no better conditions for continually rising prices.
Because you will create the opposite problem, a shortage.
No need to go into the economic reasoning, as there are several angles within. In a nutshell, price controls only reduce supply and lower quality; they have never produced the reverse.
I recommend a study of current-day Venezuela to see effect of price controls.
Naysayers remind me of the upper class’s reaction to the GI Bill after World War II.
They said it was too expensive.
They said there would be too many unqualified students.
They said it would put too much pressure on schools and professors.
And the GI Bill created the American middle class.
High costs and loan debt are undermining many young people’s future. This is a great idea.
I am a Democrat, but I am NOT for making 4-year universities (as Sanders proposes) or Community Colleges (as Obama proposes) free for all students. More students than should go to college today as it is, and if it is free, even more would attempt it. Since the highly-qualified student likely has some sort of scholarship or admission to a top university with great financial aid, free college would mainly attract the bottom of the barrel student. That doesn’t really help anyone. If there were lots of unfilled jobs that needed non-existent higher-education applicants, then perhaps I could get behind free college for everyone. This is not the case. What really should happen is a societal shift toward more respect given to those who enter the trades, who provide a service, who start their own businesses. College is not for everyone.