Student Loan Pushers (2018 Dec)

by Barry A. Liebling

There is no question that graduating from college is advantageous. But counterbalancing the benefits of finishing college are costs. One cost is the time and effort required to succeed. Completing college takes focused attention, and some students are unable or unwilling to concentrate enough to finish their degree. But the most prominent cost is the tuition that colleges charge for the privilege of getting a degree. Look at the last half-century and observe that the money required for going to college has increased dramatically.

Certainly there are multiple factors that contribute to the growth of tuition, but the biggest is the availability of student loans. Television shows and movies that were made in the 1950s, 1960s, and even 1970s reveal a different world. It was common for students to take on low-paying part-time jobs and work their way through college. Higher education was not free, but it was affordable. Then the federal government increased its meddling. It took steps to make student loans easier to obtain and pretended that it was doing students a favor.

When college administrators realized that students with loans had more money to spend they scooped it up by raising tuition. And when “well-meaning” government junkies saw that students needed even more money to get a higher education, they increased the size and availability of the loans. Of course, this resulted in a vicious cycle which continues to this day. Students pay higher tuition, which leads to more student loans, which gives colleges the green light to increase tuition.

Who benefits? Not students. They are getting their degrees, but being a college graduate is no more valuable today than it was fifty years ago. Private lenders are doing fine. Even with a high default rate the interest they collect – as well as the safety cushion of government guarantees – encourages them to stay in the loan business. The colleges are the big winners since they are collecting more tuition money now than ever before.

Of course, the prime movers – government agencies – benefit tremendously. The state that makes loans available to students has students indebted to it. Once the state becomes a lender it has the power to “nudge” them into government-friendly actions. As I have written previously, “a 2007 law gives special privileges to students who decide to take a job in ‘public service.’ This refers to government agencies as well as to non-profits. Debtors who elect to avoid the profit-oriented private sector and go into one of the ‘socially conscious, nobly motivated, helping professions.’ can get their loans forgiven.”

What is the best course of action for today’s students? If possible, avoid borrowing money to finance your education. If you must borrow search for bargains. Select schools that have lower fees. Make sure the terms of your loan are the best deal you can obtain. Recognize, in advance, that student loan debt is a terrible burden. While this is common sense, there are student loan boosters who are eager to continue and expand the vicious circle.

Education Next, a publication by the Harvard University Kennedy School of Government, recently published the results of an experiment conducted by two economists Benjamin M. Marx and Lesley J. Turner. The purpose of the experiment is to demonstrate that – contrary to what ordinary common sense would suggest – students who take out loans – on balance – benefit.

Here is what the economists did. They split a large number of students who attend a two year college into an experimental group and a control group. In the experimental group the students were informed by their school in writing that they are eligible to apply for a loan. The control group students were also eligible, but the school did not inform them in writing. The authors report two significant results. First, students who were told about the loan in writing were more likely than their counterparts to apply for the loan. That is exactly what you would expect and is not newsworthy.

The second result is more interesting. Students who took out a loan (this includes those in the experimental condition and in the control condition) took more classes and had higher grade point averages. This outcome can be interpreted in several ways. Perhaps students who are motivated to do well will take advantage of every opportunity for assistance (including the offer to borrow money). Perhaps the act of borrowing money makes students sensitive to the importance of doing well in school and they try harder. Perhaps possessing borrowed money reduces student anxiety and makes it easier for them to concentrate on their studies.

The authors are undoubtedly pleased that they have uncovered empirical evidence that student borrowing leads to improved academic outcomes. Because the study was published in a prestigious journal it will likely be used as ammunition to persuade schools to push student loans and to discount criticism of runaway student debt.

But the experimental research does not override the prudent policy of avoiding borrower status. I suspect that a well-designed one-day seminar on how to succeed in school could also encourage students to take more classes and get higher grades. And that intervention would not contribute to debt. Here is an important take-away. When someone offers to lend you money, watch out.

*** See other entries at in “Monthly Columns.” ***

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