Thursday, October 6, 2011

Nontrepreneurism Part 2 - The Student Loan Example

Continuing the discussion of How Nontrepreneurism is Killing the U.S.

Charing Ball gives her insight in The Atlantic: Will Student Loan Forgiveness Stimulate the Economy.  
"Justin Wolfers, of Freakonomics, offered several reasons for why he believed that forgiving student loan debt will do little to stimulate the economy. For example, he argues that college grads typically have higher incomes than non-degreed workers and if the government eliminates their debts, the educated class would be more inclined to save their money as opposed to spending it within the market. However, the flaw of Wolfers’ argument is that even with a wage step back for college graduates, a college graduate is still expected to make double that of a high school graduate, who is slowly being pushed out the employment market."
Beyond the minor errors in the lifetime income argument, there is the complete omission of what happens to the lender. The "forgive student loan" argument: protects the schools - where tuition inflation should be as offensive as Health care inflation, protects the students - who may choose colleges above their means, study subjects with low economic return (I graduated with a liberal arts degree and will argue that the choice is valid, but complaining about job opportunities afterwards is not) and then have trouble securing a career to pay for their loans a reasonable lifestyle. 

There is also a complete omission of what happens to society - if the government pays tuition, how many fluff courses would be delivered? Would we then need a Curriculum Panel to determine which classes the Government will pay for? Why is it reasonable to expect the Government to make good decisions? Is it more reasonable to think that government subsidies cause more problems than they solve?

Let's Re-frame the Argument
Mom and Dad have triplets about to graduate high school. They have saved a small pot of money for college expenses. How should they divide their limited funds? What should they consider? Does a Government Loan agency consider any of the same facts? 

Ummmm, No
Sign here (get your parents to co-sign as well), we will send your check to the University. 

Bottom Line: 
College is an economic decision, one that I believe will better a person's outcome in life. Like all economic decisions a certain degree of cost-benefit analysis is needed. I'm totally OK if you want to go to an expensive school, pick a degree that is interesting to you, then get a job as a community organizer... just don's ask me (or my neighbor, or my bank, or my government) to foot the bill for the choices you freely made.

Articles about Student Loans in my "Blog This" folder.
So much material, so little time. 

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