Megan McArdle of the Atlantic, with a few strokes of her blog pen, has just solved the problem of too much student debt and the college affordability dilemma — all while ensuring access to higher education for those who truly deserve it. That is, for folks like herself.
First, bowing to the widely circulated claim that student debt levels are out of control, McArdle would severely tighten access to credit markets for students and families. With tightened access to credit, that would force universities to tone down their greediness. As of now, McArdle argues, we should blame the rising costs of higher education on easy loan money, which fills student budgets only to be siphoned off by money-hungry institutions.
Are debt levels ridiculous? Depends. Like any investment — whether a corporate decision to invest in new machinery or technology or a family’s decision to invest in new housing, debt payments get burdensome when the largery economy is in the doledroms. At present one would be hard pressed to find any debt market that isn’t suffering at least some discomfort.
That’s no reason to suggest that shutting down the student debt market is necessary for a healthy market for higher education, any more than suggesting we should respond to current economic conditions by making credit less available to firms wanting to invest in new tools and technology. Are some firms more “deserving” of credit than others? For most economists, that’s a non-sensical question.
Somehow, folks get morally indignant when in comes to student loans. Yet, there is good evidence suggesting that widely available student loans have been a force for social and economic good. Indeed, states having quite onerous student loan burdens compared to other states also boast some of the most impressive statistics regarding college attainment, participation of low-income students in higher education, and so on.
Are college costs ridiculous? That also depends. Rarely, except for the wealthiest of students, do families pay the full sticker price that colleges advertise. Sticker prices are ridiculous, but they are relevant only as market indicators for how wealthy and prestigious colleges are. The sticker price at Elite University X might be $50,000 a year. But to adequately compete for students, that university must discount the asking price by sufficient amounts, via price discounts and institutional grants, that make the university affordable for all students who are admitted. Otherwise its yield rates (the ratio of enrolled students to admitted ones) will decline and its reputation on college ranking guides will suffer because the institution will be perceived as less desirable and less prestigious. The wealthier the college, in terms of its endowment, the greater capacity the university has to offer steep discounts off its ridiculously high sticker price.
If the United States wants more educated and productive citizens — as is the stated goal of almost any policymaker one can find at the state and federal levels, then drying up student credit markets, without a wholesale re-engineering of the entire higher education marketplace, would be disastrous.
For her part, McArdle insists that restricting student credit would correctly narrow access to higher education only to those who can afford it and deserve it — giving us an unsubsidized, unadorned and simple, hard-money market for higher education.
“Whenever I suggest that not everyone should go to college, I am met with cries of classism and snobbery,” McArdle says. “But here’s the thing: I love studying in a way that most people just don’t.”
In other words, she suggests, some people do deserve the opportunity to strive for a college education.
People like us.
Does the average student pay a “discounted” rate? Yes, of course. But keep in mind that this isn’t like negotiating for the best deal at a car dealership. I looked at the student aid formulas, the calculations to determine the expected family contribution, and don’t find it credible that only the “wealthiest” of students pay full price. Once you reach a certain middle- or upper-middle-class income threshold, the EFC rises very quickly, on the assumption that nearly all your “excess” income can be dedicated to college tuition. Quite honestly, what bothers me tremendously about this approach to tuition-setting is that upper-middle class families are essentially obliged to indirectly fund their less-well-off peers college education. Why?
Here’s the reality: if student loans became less accessible, the no-frills community colleges + commuter State school combo would become an awful lot more attractive to students. And, quite honestly, I believe that we as a society have an obligation to provide access to this level of higher education — but NOT to a “residential college experience” and certainly not at a private school. If this shift were to actually happen, and private schools couldn’t find enough full-pay suckers to subsidize the others, then maybe they’d end up defaulting on the bonds they issued to build the upscale dorms, recreational facilities, and hi-tech classroom space, and they’d find ways to economize that, right now, they wouldn’t even dream of.