The Price Mechanism in Attending College

In 2019, Maxine Waters (D-CA) ascended to the chair of the House Financial Services Committee. In April, Waters conducted a hearing for which she had assembled the heads of some of America’s largest banks. Waters asked these titans of finance: “What are you guys doing to help us with this student loan debt? Who would like to answer first?” She then went down the line of bankers, who said they were no longer in the student loan business. Finally, she came to Jamie Dimon, CEO of JPMorgan Chase, who said, “When the government took over student lending in 2010 or so, we stopped doing student lending.”

Tail between her legs, Waters quickly moved on to other matters. What the exchange demonstrated is that Waters was at the very least unprepared to chair that hearing (about which, more coming up), but what may be even more vexing is that the government takeover Mr. Dimon referred to had received an aye vote from none other than Maxine Waters.

In February of 2018, Investor’s Business Daily ran an important editorial about the 2010 legislation Rep. Waters apparently forgot voting for. IBD asserted that the Act had “effectively nationalized” the student loan business:

“By cutting out the middleman, we'll save the American taxpayers $68 billion in the coming years,” Obama said when he signed this change into law. “That's real money.” …As a result, federal student loan debt shot up from $154.9 billion in 2009 to $1.1 trillion by the end of 2017… The problem is that at the same time Obama was getting the government into the lending business in a big way, he was making it easier for students to avoid paying back their loans.

As the IBD editorial outlines, the 2010 takeover of student loans was sold as a moneymaker for the government. Instead, it’s turning out to be a huge loser. The act also provides for a disturbing amount of student debt forgiveness. That’s on top of the Public Service Loan Forgiveness program enacted on 2007. Even so, Democrat presidential candidate Bernie Sanders urges that Congress enact legislation that would forgive all student loan debt.

In June of 2019, the New York Times ran “Canceling Student Loan Debt Doesnʼt Make Problems Disappear” by guest Kevin Carey, who wrote about another proposal of Sanders’: making all undergraduate programs at public universities and colleges “free.” But, as Carey shows, Sanders’ proposal doesn’t add up:

That’s because most student loan debt isn’t taken out to attend undergraduate programs at public colleges and universities. Most loans are used for private colleges, for-profit colleges and, most of all, graduate school.

Is it not remarkable that the federal government actually extends loans to attend for-profit colleges, not to mention private colleges that have multi-billion-dollar endowments? And then the feds forgive many of the loans by putting the taxpayer on the hook.

Carey also touched on the issue of the “pricing power” exercised by colleges, and how it would work under Sanders’ new regime of free undergraduate college: “The universities would have no pricing power, because there would be no prices.” We might also consider pricing power under the current system. Isn’t price discovery likely to get all bollixed up when an entity that can “print” money gets involved?

What the federal government should be doing is the exact opposite of what Bernie Sanders has proposed: Congress should end the federal student loan program for undergraduate education altogether. Too many young people are attending college who shouldn’t be attending. Also, it is undergraduate education where much harm is being done. It’s the undergraduates who are being turned into entitled little snowflakes who feel they can destroy property with impunity (as with Confederate statues). Let them pay for their indoctrination with their own money, not the taxpayers’.

However, if the federal government did end its loans for undergraduate education, wouldn’t that dash the hopes of youngsters who are indeed motivated and who should be in college -- wouldn’t they be priced out? One of the reasons prices for tuitions are so high is because so many kids are attending. If enough of them elected to forgo college, prices should fall.

On March 3 of 2020, the Boston Globe ran “The real story on the $1.6 trillion student loan debt crisis” by Josh Wright, who wrote:

Over half of student loan borrowers (around 25 million people) owe less than $20,000, but they have higher default rates than the borrowers who owe more. The student borrowers with over $100,000 in federal student debt (about 7 percent of borrowers) are, in fact, the least likely to default on their loans.

Since it’s much more expensive to attend graduate school, a good bet is that most of those kids who’ve racked up less than $20K in student loan debt did it attending undergraduate school. In the real world, any cohort that could be identified as being more likely to default on their loans than other groups would either not get loans or have their interest rates raised.

As for continuing to extend loans to grad students, that, too, needs to be tweaked. The feds don’t need to be extending credit to students pursuing graduate degrees in Art History, Philosophy, Literature, and other programs in the Arts and Humanities departments. And the feds certainly shouldn’t be making loans to students in Law School (we have enough lawyers as it is, thank you). Perhaps it’s time for the federal government to get completely out of the student loan business. The only areas where it makes sense are in medicine, pharmacology, dentistry, engineering, some sciences, and other disciplines that are undeniably in the “common weal.”

At Media Research Center, one can watch a 45-second clip of Maxine Waters’ “cringeworthy” hearing; it also includes a short article by Brittany Hughes worth reading. The legislation Waters forgot voting aye for was the Health Care and Education Reconciliation Act of 2010. The education part of the act started out as a stand-alone bill in 2009, but having been passed only by the House was attached as a rider to the larger bill, (which might account for Rep. Waters’ confusion). The main part of the bill was to amend the ACA, ObamaCare, which had been signed into law just one week earlier. When critics claim that ObamaCare was passed with the reconciliation process, they’re referring to this piece of legislation.

It was fitting that education funding was attached to the ObamaCare amendments of the reconciliation bill, because price inflation in both education and health care is largely due to government. (Just as with the price of health care, if you want the price of college to soar, make it free.) We’re also seeing attempts to attach “riders” to the legislation addressing the coronavirus pandemic that are entirely unrelated, such as funding for abortion. There ought to be a law against such legislative shenanigans, but that would require, uh, legislation.

It’s likely that in addition to not reading ObamaCare, Auntie Maxine also failed to read the reconciliation bill that followed. As for Obama’s claim, rather than government “cutting out the middleman,” what really happened is that government became the middleman. How’s that working out for you, America?

(The following clip takes eight seconds):

Jon N. Hall of ULTRACON OPINION is a programmer from Kansas City.

In 2019, Maxine Waters (D-CA) ascended to the chair of the House Financial Services Committee. In April, Waters conducted a hearing for which she had assembled the heads of some of America’s largest banks. Waters asked these titans of finance: “What are you guys doing to help us with this student loan debt? Who would like to answer first?” She then went down the line of bankers, who said they were no longer in the student loan business. Finally, she came to Jamie Dimon, CEO of JPMorgan Chase, who said, “When the government took over student lending in 2010 or so, we stopped doing student lending.”

Tail between her legs, Waters quickly moved on to other matters. What the exchange demonstrated is that Waters was at the very least unprepared to chair that hearing (about which, more coming up), but what may be even more vexing is that the government takeover Mr. Dimon referred to had received an aye vote from none other than Maxine Waters.

In February of 2018, Investor’s Business Daily ran an important editorial about the 2010 legislation Rep. Waters apparently forgot voting for. IBD asserted that the Act had “effectively nationalized” the student loan business:

“By cutting out the middleman, we'll save the American taxpayers $68 billion in the coming years,” Obama said when he signed this change into law. “That's real money.” …As a result, federal student loan debt shot up from $154.9 billion in 2009 to $1.1 trillion by the end of 2017… The problem is that at the same time Obama was getting the government into the lending business in a big way, he was making it easier for students to avoid paying back their loans.

As the IBD editorial outlines, the 2010 takeover of student loans was sold as a moneymaker for the government. Instead, it’s turning out to be a huge loser. The act also provides for a disturbing amount of student debt forgiveness. That’s on top of the Public Service Loan Forgiveness program enacted on 2007. Even so, Democrat presidential candidate Bernie Sanders urges that Congress enact legislation that would forgive all student loan debt.

In June of 2019, the New York Times ran “Canceling Student Loan Debt Doesnʼt Make Problems Disappear” by guest Kevin Carey, who wrote about another proposal of Sanders’: making all undergraduate programs at public universities and colleges “free.” But, as Carey shows, Sanders’ proposal doesn’t add up:

That’s because most student loan debt isn’t taken out to attend undergraduate programs at public colleges and universities. Most loans are used for private colleges, for-profit colleges and, most of all, graduate school.

Is it not remarkable that the federal government actually extends loans to attend for-profit colleges, not to mention private colleges that have multi-billion-dollar endowments? And then the feds forgive many of the loans by putting the taxpayer on the hook.

Carey also touched on the issue of the “pricing power” exercised by colleges, and how it would work under Sanders’ new regime of free undergraduate college: “The universities would have no pricing power, because there would be no prices.” We might also consider pricing power under the current system. Isn’t price discovery likely to get all bollixed up when an entity that can “print” money gets involved?

What the federal government should be doing is the exact opposite of what Bernie Sanders has proposed: Congress should end the federal student loan program for undergraduate education altogether. Too many young people are attending college who shouldn’t be attending. Also, it is undergraduate education where much harm is being done. It’s the undergraduates who are being turned into entitled little snowflakes who feel they can destroy property with impunity (as with Confederate statues). Let them pay for their indoctrination with their own money, not the taxpayers’.

However, if the federal government did end its loans for undergraduate education, wouldn’t that dash the hopes of youngsters who are indeed motivated and who should be in college -- wouldn’t they be priced out? One of the reasons prices for tuitions are so high is because so many kids are attending. If enough of them elected to forgo college, prices should fall.

On March 3 of 2020, the Boston Globe ran “The real story on the $1.6 trillion student loan debt crisis” by Josh Wright, who wrote:

Over half of student loan borrowers (around 25 million people) owe less than $20,000, but they have higher default rates than the borrowers who owe more. The student borrowers with over $100,000 in federal student debt (about 7 percent of borrowers) are, in fact, the least likely to default on their loans.

Since it’s much more expensive to attend graduate school, a good bet is that most of those kids who’ve racked up less than $20K in student loan debt did it attending undergraduate school. In the real world, any cohort that could be identified as being more likely to default on their loans than other groups would either not get loans or have their interest rates raised.

As for continuing to extend loans to grad students, that, too, needs to be tweaked. The feds don’t need to be extending credit to students pursuing graduate degrees in Art History, Philosophy, Literature, and other programs in the Arts and Humanities departments. And the feds certainly shouldn’t be making loans to students in Law School (we have enough lawyers as it is, thank you). Perhaps it’s time for the federal government to get completely out of the student loan business. The only areas where it makes sense are in medicine, pharmacology, dentistry, engineering, some sciences, and other disciplines that are undeniably in the “common weal.”

At Media Research Center, one can watch a 45-second clip of Maxine Waters’ “cringeworthy” hearing; it also includes a short article by Brittany Hughes worth reading. The legislation Waters forgot voting aye for was the Health Care and Education Reconciliation Act of 2010. The education part of the act started out as a stand-alone bill in 2009, but having been passed only by the House was attached as a rider to the larger bill, (which might account for Rep. Waters’ confusion). The main part of the bill was to amend the ACA, ObamaCare, which had been signed into law just one week earlier. When critics claim that ObamaCare was passed with the reconciliation process, they’re referring to this piece of legislation.

It was fitting that education funding was attached to the ObamaCare amendments of the reconciliation bill, because price inflation in both education and health care is largely due to government. (Just as with the price of health care, if you want the price of college to soar, make it free.) We’re also seeing attempts to attach “riders” to the legislation addressing the coronavirus pandemic that are entirely unrelated, such as funding for abortion. There ought to be a law against such legislative shenanigans, but that would require, uh, legislation.

It’s likely that in addition to not reading ObamaCare, Auntie Maxine also failed to read the reconciliation bill that followed. As for Obama’s claim, rather than government “cutting out the middleman,” what really happened is that government became the middleman. How’s that working out for you, America?

(The following clip takes eight seconds):

Jon N. Hall of ULTRACON OPINION is a programmer from Kansas City.