Tuesday, November 22, 2011

What To Do About the Student Loan Bubble

In his day job he teaches at NYU. In his free time he is trying out for a new role: community agitator.

I am thinking of radical professor Andrew Ross.

Described by the Huffington Post as: “… an active member of the Occupy Wall Street education and empowerment working group,” Ross is currently leading a campaign to turn college graduates into deadbeats.

He wants students to sign a pledge to stop paying their student loans. The pledge would only be triggered if a million of their fellows swear to do the same.

As of Monday, the signers were 999, 880 short of their goal. As with much of what is coming to us from the radical left, this is more histrionics than political action.

The working group has several other policy goals. According to the HuffPo, they are: “Further, the campaign aims to highlight the necessity of federally funded institutions of higher education, interest-free student loans and a requirement that for-profit and private universities reveal their internal finances -- not to mention the abolishment of all current student debt.”

Let’s see if we have this right. Prof. Ross earns a living receiving a salary that is somewhat, if not largely, supported by tuition payments.

Some students at uber-expensive NYU borrow money to attend classes taught by Andrew Ross.

Now, Ross has decided that, given the value of what he has been teaching, these students deserve to receive the benefit of his wisdom for free.

Maybe he’s just trying to tell us what his teaching is really worth. Has he ever considered that if he and his fellow professors and administrators take a steep reduction in pay, this would necessarily lead to cheaper tuition and fewer student loans?

Just a thought.

Anyway, Ross wants to abolish all current student debt and to have future students receive interest free loans.

One might ask why current debtors would not have to pay what they have borrowed while future students would have to pay back their loans… but that would require us to exercise our rational faculties.

And that would be wasting a valuable resource.

One doesn’t know whether Ross or the other members of his “working group” have given the matter any thought, but everyone else knows that student loans are guaranteed by the government. If students default on their loans, currently at $1,000,000,000,000 and counting, the federal government will ultimately be responsible for them. And that means the taxpayers will have to foot the bill.

In the current vernacular, this is called socializing loss.

Has one ever considered what might happen to the cost of borrowing, aka interest rates, if the government larded on an extra trillion in debt?

Apparently, the working group has not.

Nor has it thought very much about what happens when a student defaults on a student loan. The HuffPo reports that he can have his wages and tax refunds garnished and he can also incur penalties.

All of a sudden the big government that you thought was such a benevolent and caring thing will become a living nightmare.

For those who don’t relate to reality, Prof. Carl Van Horn explains the dire consequences: "Defaulting is considered a financial felony that will continue to haunt you…. Student loans are not something you can easily walk away from, and defaulting is hardly the same thing as missing a credit card payment. It really is a black mark."

Those who believe that the radical left is on the warpath against civic virtues like responsibility can find ample evidence in the mind of Andrew Ross.

It is too obvious to mention, but Mr. and Mrs. Taxpayer might themselves have cut back on their expenses or even gone into debt to pay for their children’s college education. Do you think that they will happily assume the debt incurred by their neighbors’ deadbeat children?

You can understand why people who propose these plans have no real use for democracy.


euquant said...

Perhaps more sensible would be for the kids to boycott higher education itself until they figure out how to make the investment pay off and get a handle on costs.

But then again, who can resist 5+ years of oversexed bacchanalia? Hey it's like trying to decide whether to boycott patronizing the restaurant that is charging too much for the filet mignon or "boycotting" payment when the bill comes.

n.n said...

Now it is clear why they have focused on alleged and confirmed corruption in the private sector. They have dreams of physical and material instant gratification through redistributive and retributive change. They do not care to learn if authoritarian interests were instigators or conspirators in distorting the economy, including the education sector. They supported this distortion while it served their interests. In this respect, they are no less corrupt than the individuals and cooperatives they protest.

They oppose fraudulent exploitation while embracing involuntary exploitation. There is no value in replacing one form of progressive corruption with another. Both are destabilizing factors in individual lives and society. The latter is especially debilitating as fraud committed by authoritarian interests represents the most corrosive form of corruption.

Well, I suppose it really doesn't matter who is right or wrong. Whether we like it or not, the end will be determined through the democratic process. The constraints imposed by our constitution and the guidance served through our "Declaration of Independence" are clearly insufficient to control progressive corruption of individuals and society. No one will be denied a beachfront property in Hawaii.

The tyranny of a majority is equally undesirable to a tyranny of a minority.

Mike Bray said...

Thanks for the excellent article. I picked up a new word (histrionics)

America does not have the appetite to add an additional trillion dollars to the existing 15 trillion in debt that we now carry. Radical crack pots like Andrew Ross will only make life harder for the hand full of students gullible enough to follow this jerk.

It's up to the individual borrower and / or their co-signers to do their due diligence. There are alternatives to default.

Jim said...

Thanks to the TEA party, the House won't approve any new funds for student loan guarantees. As far as the old loans, the government can offer partial or complete forgiveness for time in service in the Peace Corps or VISTA. Going forward, education loans must be based on the liklihood of repayment (engineer degree vs. "gender studies"). This will substantially reduce the funds available for the ivory tower set which will lead to reduced tuition and the elimination of useless major courses of study.

n.n said...

I would like to qualify "they are no less corrupt" comment. Many of them, under the current conditions of economic uncertainty, may have been left vulnerable, and are acting on a defensive reflex.

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