A long rant on student loan debt.

A FB friend posts the following:

I have a long rant about the government, student loans, and the housing crisis.

Student loans are on pause. That means everyone’s (with non-private loans) payments are zero. If you go to apply for a mortgage they are requested to calculate your student loan payment at 1% of your loan. A $70,000 loan which you are paying zero on will make it look like you are paying $700/month. Throw a car loan and a few bills on top of that. Middle income people my age with student loans basically can’t get a mortgage.

There are already skyrocketing housing prices and a lack of available houses for sale. Imagine what it will be like when the student loan thing gets sorted out.

My rather long rant:

In general, especially when I think of cases like yours, I’m very much in favor of cancelling student debt, and I’m also in favor of the tuition-free public higher education idea.

To make the argument for both of these causes, however, it’s helpful to consider why some might object.

You mention one reason I hadn’t thought of – i.e. when/if students are unburdened from their student loans, they will want to buy houses, which will push up the cost of buying/owing a home. If we step back and look at the whole economy, when/if the government cancels student loans, are there any costs that we should take into consideration.

For example, if the government tells those who have loaned out money to students that their assets (i.e. their loans receivable) are now worthless, is that a problem. Maybe all of the entities owning student loan receivables are big corporations or rich people. In that case, many would say – who cares. It’s a transfer of wealth that makes sense. But, maybe some of those who own the loans have pensions or IRAs that will take a hit if the government simply cancels the loans.

Another scenario would be that the government says that it will pay off all of the student loans. How would the government do this. One way would be to print money – i.e. treat the federal reserve as a magic piggy bank. Does this idea scale? In other words, why does the government feel the need to tax people if we can simply print money. So, why not pay for everything this way. The German government did something like this after WWI when they printed money to pay of reparations. It resulted in hyper-inflation, which in turn led to the rise of Hitler. So, no, the government cannot simply treat the central bank like a magic piggy bank. That’s why governments need to collect money in with taxes to a certain extent. (They can print some money as the size of the economy expands.) But, who should be taxed. Some would like to think that we should tax the rich more, lots more. I’m in favor of this, too. But, once/if you’ve taxed the rich into oblivion so there are no rich people any more, then the government has to go back to taxing everyone else. If there are no rich to tax, then you cannot continue to tax them.

All of the above is an argument for moderation. Yes, we can print some money, but not too much. Yes, we can (and should) tax the rich more. But if we tax them into oblivion, then we have to go back to taxing normal people.

So, for the student debt issue (and many others) we need to consider how the government is going to pay for it. Further, when it comes to cancelling debt, then people will ask: Is this a one time thing, or is this an issue that will keep on coming back if we continue to rely on student loans to help pay for college. The same goes for making college “free.” Who will pay for this and how much will it cost. Further, if we make public colleges and universities tuition-free, then does the government have the right to start asking questions about how schools are run, how they go about automating their business, are they willing to automate their business, and what about private colleges and universities. Will tuition-free public education drive them out of business. Or, should the government make all colleges and universities “tuition-free?” And, if so, then will the government have a right to set policies for private colleges (e.g. if they get government funding to be “tuition-free” then they cannot start charging tuition or trying to charge fees that take the place of tuition. They have to rely on government funding – full stop.

While I was an EdTech staffer at UC Berkeley (1987-2007), I got interested in the cost of education debate when students started to complain (and rightly so) about the high cost of textbooks. I even testified before a House committee (chaired by congressman Wu) that was looking into the high cost of textbooks – way back in 2007.

My proposal at that committee meeting was that the US should consider developing its own public textbooks either by creating their own version of the British Open University (i.e. a US Open University) or working with the British Open University. In the latter case, I made a rough calculation of what it would cost to “buy out” the British Open University and put their content in the public domain. That was my idea for driving down the cost of commercial textbooks. By working with the British OU (or starting our own) we would have a very large economy of scale to develop course content that could be put in the public domain. Further, if we created our own US Open University, we would have the economy of scale (and governance structure) to reduce the cost of education itself.

Of course, although these moves might be popular with students and with those who pay for higher education, either through tuition or taxes, they might not be popular with existing institutions of education, especially if the US Open University was the only institution that was to be tuition-free. There’s a good chance that a US Open University would drive many other schools out of existence.

Now that I’ve taken the liberty of going on a real rant, I’ll just finish by providing a few links to more discussion on how the US could go about creating its own US Open University and why I think that – on balance – that would be a good approach to dealing with the student debt problem and the tuition-free education idea.

References by Date

The Polymath Professor’s Role in Online Education
by Fred M Beshears

How is educational technology integrated in the teaching and learning process?
by Fred M Beshears

Opposition To Academic Labor Saving Technology At UC Berkeley
by Fred M Beshears

The Cost Disease Problem in Higher Education and the Winner-Take-All Solution
by Fred M Beshears

How to Create a Tuition Free, Public, Online University to Produce Free Online Textbooks and Courses
by Fred M Beshears

Can online learning be a partial RX of Higher Education’s Cost Disease?
by Fred M Beshears

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