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Government relief of US college debt...

Have we reached the point predicted two hundred years ago where Congress has figured out how to bribe the American people with the people's own money??

We raise taxes (the people's money) and use it to subsidize everything from cheap oil and computer chips to bankrupt banks and auto makers. We use it to provide economic stimulus payments in down times and now to pay off student debts.

I know I've posted in the past about my support for access to abortion services and my support of marriage equality and transgender acceptance so many of you might consider me to be quite liberal across the board. And it's true that I support many liberal/progressive issues. But when it comes to economics and individual responsibility I tend to the fairly extreme right side of politics.

I don't support government subsidies. Period.

I think oil companies should pay fair market value for the land they drill on.
I think coal companies should pay the full life cycle cost of their ore.
I think solar electric should also should pay its full life cycle costs.
Same with wind.

If your car company can't make a profit, then maybe the guy who buys your factory from the bankruptcy court can.

If your bank is too big to fail, then take better care of it. Don't come to me with your hands out when you screw up.

And, if you borrow money to buy a home or get an education, then have a plan to pay it back.

It's called capitalism and, until it is replaced by something else, it is the system we have in place.

Let me tell you a story about one of my cousins. He's a couple years younger than I am. He's really a second cousin or maybe third, I'm not quite sure how all that works. In any case, he came to me when I was in my second year at university because he wanted to go to college and it wasn't looking possible for him. So we talked about it.

He wanted to go for the traditional four year bachelor's degree. He was really into theater arts and stage lighting and audio production. I asked him a simply question ... In that world would a bachelor's degree impact his income? In other words, how many years would it take for the increased income take to pay off the cost of a four year degree? A simple "return on investment" conversation (and no, I wasn't a business major).

He looked into it. What he found was stunning to us both. In that world, people with a degree and people without a degree made essentially the same money. It was crazy. He decided to take the savings he was able to blow on a first semester and instead bought some equipment. If I remember right, it was a trailer to cart stuff around and a bunch of lights and cables and speakers and some kind of board to control audio ... and he started going around to various venues and bars and clubs and offered to run events for them. He was 18.

My grandfather provided a lot of really good business advice and today he is 26 and has three crews running around Boston doing corporate events during the day and evening events at bars and clubs. No degree, no debt.

My point in bringing him up in this conversation about education debt is because he did assess (at my urging) what the debt of a four year degree would end up costing him and whether the benefit of that degree would support that debt. In his field it would not.

For other's the calculation may be different, but it is a basic calculation that anyone taking on any kind of debt (education, real estate, car, etc) should and could run. This is not advanced calculus.

So when I hear that people are strapped with huge debt and can't make their payments, I do feel bad. But I think it is fair to ask how they got into that situation and whether it is due to matters beyond their control or not.
- Took on loans and then got sick and couldn't finish school? Okay, legit issue and maybe some relief should be offered.
- Took on loans without thinking of payback and now don't make enough to support the debt? We have a process to handle this already in place. It is called bankruptcy. It comes with consequences, but it works and is fair to borrower and lender.

Am I too harsh here? Are we responsible for our decisions?

Edit: I became aware through the comments below and some personal research that student debt cannot be eliminated through bankruptcy. This is crazy. The concept of bankruptcy is critical to the smooth functioning of a capitalist economy. If someone truly took on too much debt through poor planning, then bankruptcy should be available to them and the federal guaranty would kick in and make the lender whole.

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irishmolly72 · 56-60, F

This is quite a long thread and I'm glad people are thinking about the problem. I wish I had time to read it all.

I think we should let the unfettered free market work on the problem of outrageously high educational costs. Most of college education these days is just woke indoctrination paid for by government anyway.

Some kind of balanced budget amendment would force government to consider tradeoffs in it budget priorities (both spending and taxation). Otherwise the current 30 trillion in debt will quickly become 40 and then 50 and so on. The student debt crisis must be seen in this context. It's a small but important part. The taxpayers will never really pay for it because it will be monetized away. We'lll all pay through higher inflation and a stagnant GDP.

BackyardShaman · 61-69, M

@irishmolly72 dislike education? I find many GOP supporters dislike advanced education since it threatens the GOP authoritarian platform.

room101 · 51-55, M

@irishmolly72 What you describe is the exact opposite of an unfettered free market. In fact, an unfettered free market is exactly why education costs and student loan costs are so high in America.

sarabee1995 · 26-30, F

@room101 Actually the costs are as high as they are because the government is meddling in the education market.

If the federal government completely pulled out of higher education, costs would plummet but also far fewer degrees would be issued and many if not most colleges and universities would close.

Before you get all huffy with me, I am NOT advocating this. Not at all. But, the reason costs are so high is because there is not anything close to a few market for higher education in the US.

room101 · 51-55, M

@sarabee1995 I'll try not to get huffy with you but please explain your reasoning to me.

Let's start with the basics. A university costs x to run. Federal government (or indeed the relevant state) provides y towards those costs.

Are you saying that x+y results in increased costs.

Bloody hell, and there's me thinking that the formula would be:
x-y=lower costs.

Once we've cleared that up, maybe we can look at how unfettered capitalism lowers the cost of student loans and the actual cost of running a university.

I wait with bated breath.

sarabee1995 · 26-30, F

@room101 What it costs to run a university is irrelevant.

Universities don't set their prices based on their operating budgets. They do what every other private business does: they set their prices based on what the market will bear.

So if you pour billions of dollars in subsidies into a marketplace, the price charged for services in that market will climb. Every single subsidized service experiences this.

This is capitalism 101.

room101 · 51-55, M

@sarabee1995 Honestly, I can't even begin. You asked me not to get huffy with you but, I can't think of a way of responding without getting "huffy".

OK, I'll try. What you've said above takes us back full circle to why unfettered capitalism is destructive. Sure, in general terms, subsidies can be (and often are) counter-productive. Remember when we used to talk about the EU and I would say that I've always been ambivalent about it? This is what started my ambivalence. EU agricultural subsidies that only resulted in the stock piling of agricultural products whilst doing nothing to improve farming efficiency. And, whilst millions starved in Africa and prices rose for ordinary Europeans.

But that's not the causal issue at play here. It's the lack of regulation.

In most European and basically all Scandinavian countries, we have both government financial support and effective regulations. And it works. Our students don't start their working lives drowning in debt and, they tend to have viable degrees which are of value both to their careers and to society as a whole.

How is it that we manage to make it work while you guys only manage to make cost and debt go through the roof? Are we mysterious alchemists that can turn lead into gold?

Or, is it because we've gone beyond Capitalism 101?

room101 · 51-55, M

@sarabee1995 BTW, what it costs to run a university, any enterprise for that matter, is the starting point of price setting. So no, not irrelevant.

I'm sure that you are familiar with this graph, a certain other may not be.

The area which begins at the nexus point of the total cost and sales revenue lines (ie the Break Even Point) and continues to widen the further along the x-axis we go is profit. The wider the gap between cost and revenue becomes is what we call super-profits. Caused by price gouging. Caused by a lack of regulations ie unfettered capitalism.

sarabee1995 · 26-30, F

@room101 Wait... You're changing topics again... Or returning to the prior topic... Or Idk.

You stated that subsidizing education would lower costs. I simply pointed out that one reason for the high cost was the billions in education subsidies.

In any market where money is poured in to subsidize demand, prices increase. Subsidies are inflationary. Capitalism 101.

room101 · 51-55, M

@sarabee1995 Nope, not changing the subject. Look at the BEP graph carefully. Governments inject money to either specifically lower the Fixed Cost line or to lower the Total Cost line (obviously lowering fixed costs will also lower total cost).

They do not do it to "subsidise" demand. They do not do it to stimulate demand. Or indeed supply. That's what the EU did wrong. That's why it failed.

This is why focusing on the price equilibrium graph (ie the supply and demand relationship) gives one a distorted view of how any enterprise functions.

BTW, the red line in the BEP graph is called the Variable Cost line on this side of the pond. Because it varies with production. Total cost is the addition of Fixed Cost (ie the blue line) and the red, Variable Cost line.

sarabee1995 · 26-30, F

@room101

Governments inject money to either specifically lower the Fixed Cost line ... They do not do it to "subsidise" demand.

Ummm... No, that's just a crazy statement.

Governments, at least here in the US, subsidize higher education in order to enable more people to attend colleges and universities.

More students equals increased demand for education services. The government is directly subsidizing the demand side of the equation.

They currently do nothing to assist universities with their operating costs (fixed or variable).

room101 · 51-55, M

@sarabee1995

"Governments, at least here in the US, subsidize higher education in order to enable more people to attend colleges and universities."

Yes, by reducing the cost of a university education. However, simply reducing the cost but doing nothing about what a university is supposed to be, what it's supposed to provide..........results in the likes of trump university (just an obvious example that we are all aware of). In other words, regulation is also necessary.

"They currently do nothing to assist universities with their operating costs (fixed or variable)."

No, totally wrong. It's simple arithmetic Sara. Government injects money into a given university. Said university uses that money to cover the cost of its very existence. Ergo, fixed or variable or even capital costs are partially, or maybe totally, covered. Ergo, cost to the student should be reduced. However, if the university in question can get away with NOT passing that saving on to the student body, it will. Unfettered capitalism at its worst.

Sara, you repeatedly use the phrase "Capitalism 101". if you mean the supply/demand graph, then that is not Capitalism 101. It's entry level economics. It's not even Economics 101. It's below that standard. At least it is in terms of how Economics is taught on this side of the pond.

Capitalism is fundamentally about business or enterprise or trade or whatever term that you (I mean YOU. Sara.) find easiest to comprehend.

If a business only looks at supply and demand, then that's akin to only learning to drive an automatic car. And then being expected to understand and talk about automotive mechanics. You can't even drive what you guys call stick shift. How the hell can you hope to understand the various elements of a car.

That's why I showed you the BEP graph. It is the 100% entry level graph for understanding business. And thereby understanding capitalism.

Conversely, the supply/demand graph (aka the Price Equilibrium graph) simply shows us how prices in a given market sector can be calculated so that the requirements of both supply and demand can be met. That's just not enough. Much more knowledge is involved and required.

room101 · 51-55, M

@sarabee1995 PS I would like to thank you for helping me to understand how economics, business, capitalism etc etc are taught to and understood by, Americans.

No wonder I'm forever at loggerheads when talking to Americans about such topics. I always knew that the emphasis in America is on creating, increasing and manipulating demand. Hence the obsession with advertising and marketing and PR. What I didn't appreciate is that that's all you guys are taught about.

No wonder you guys can't comprehend the mystical alchemy utilised over here.

sarabee1995 · 26-30, F

@room101 Roomie, Roomie, Roomie! 🤦‍♀️

The cost charged for higher education services is the "selling price" of that education service.

In your break even chart, the two cost lines refer to what it costs the university to provide that service, not what they charge for it!!

The government is providing a subsidy to the student's cost to attend university. Doing so increases the number of students who can afford to go (increases demand) and applies inflationary pressure on the price charged by colleges and universities.

Sales Revenue = what the university charges the student.

Fixed costs = costs of land and buildings and salaries, etc

Red line = total cost to the college or university to provide their education services

Red line - blue line = (variable costs) = lights & other utilities, teaching assistants, etc

The line that is being subsidized by education loans here in the US is the "sales revenue" line (the cost to the student to attend).

This increases the number of students who can attend and is therefore a subsidy on demand. Any time you subsidize demand you apply inflationary pressure.

sarabee1995 · 26-30, F

@room101 After 10+ years of friendship I'm a bit surprised at your tone here. I understand economics just fine. You know my background. I don't need to repeat it for you.

You disagreed with me when I said government demand-side education subsidies ("student loans") drive up the cost of a college or university education.

Everytime I've tried to clarify that statement for you, you've ignored what I said and gone off on another tangent and belittled me in the process.

I think I'm taking a break from this conversation.

room101 · 51-55, M

@sarabee1995 Sara, Sara, Sara student loans are created by the cost to the student ie the selling price charged by the university.

If the given university receives funds from government which reduce its costs but does not reduce its selling price accordingly, student debt will remain inequitably high. Factor in financial institutions (which provide said student loans) similarly charging what the hell they want..............and you've got a bankrupt population.

This is where I slightly disagree with what Biden has done. Forgiving student debt alone does nothing to solve the problem. It's a fairly insignificant Band-Aid measure in the long term. Having said that however, I understand the constraints that any POTUS has to work with. I understand how Reagonomics has impacted the American psyche. Consequently, I understand that suddenly regulating universities and financial institutions would go down like a lead balloon. So........🤷‍♂️

room101 · 51-55, M

@sarabee1995 I feel the same. After almost twelve years of being friends with you, I'm more than a little shocked and disappointed at your two recent posts.

Sorry, but there it is.

A couple of weeks ago, you posted two replies to me which I saw very late at night. I said that I would get back to you the next day. I drafted numerous replies but, when I read them back to myself, they came across as very harsh. I just couldn't tone down my reaction, not just to those two replies but to your overall stance on this topic and the topic of trump and sensitive documents. So, I didn't reply at all.

I really have tried this time but I just can't wrap my head around your perspective.