US student loans grotesquely high

[bilby]

Those who have studied my posting history know that I will take whichever "side" of a factual issue that I believe to be correct,

Indeed. But as beliefs aren't a good guide to factual accuracy, this means you occasionally say stuff that's completely unsupported by reality.

You may wish to note that, with the exception of people deliberately engaging in contrarianism, satire, or trolling (and these are fairly rare around here), literally everybody will take whichever "side" of a factual issue that they believe to be correct.

You're not at all special or different in this regard, and your implied belief that you are somehow unusual for this behaviour, itself suggests a gulf between your beliefs and reality of which you are embarrassingly unaware.

 

[bilby]

It is a question of overhead.

What percentage of tuition goes directly to teaching students and direct support staff, and what percentage goes to other things.

What percentage of the budget is consumed by research and programs not related to teaching?

Your questions appear to be based on a misconception of the purpose of an university. Universities engage in research, teaching and service, Different universities have different missions, so the relative effort in each category will be different.

Typically research is not funded through tuition though. Grants for research come from government, charitable, and corporate entities, and they typically require strict accounting to show that the money so granted doesn't get diverted to other purposes (teaching, maintenance, etc.) outside the terms of the grant.

One of my first jobs was with a UK company called Hyperdata (now defunct) whose entire business was the provision of computer accounting systems specifically designed for university departments. Back in the late '80s, it was such a niche market that we usually had to supply hardware as well as software, as the accountant's standard 286 machines weren't capable of running our core application, which needed a 386 processor and minimum 4MB of HDD storage.

Tuition was completely isolated from research grants back then by a small army of dedicated bean-counters; I suspect that the army is much smaller and more efficient today, but certainly no less effective in financial ring-fencing of the various activities.

Of course, things may be very different in the US, but I rather doubt that your grant issuing bodies are any more relaxed about the potential for their cash to be diverted to purposes other than their intended ones.

 

[Tigers!]

People without an education truly believe that the source of government money is, like, a big vault somewhere to which all of their tax checks are mailed.

I have too many people with an education who think like wise

 

[laughing dog]

It is a question of overhead.

What percentage of tuition goes directly to teaching students and direct support staff, and what percentage goes to other things.

What percentage of the budget is consumed by research and programs not related to teaching?

Your questions appear to be based on a misconception of the purpose of an university. Universities engage in research, teaching and service, Different universities have different missions, so the relative effort in each category will be different.

Typically research is not funded through tuition though. Grants for research come from government, charitable, and corporate entities, and they typically require strict accounting to show that the money so granted doesn't get diverted to other purposes (teaching, maintenance, etc.) outside the terms of the grant.

One of my first jobs was with a UK company called Hyperdata (now defunct) whose entire business was the provision of computer accounting systems specifically designed for university departments. Back in the late '80s, it was such a niche market that we usually had to supply hardware as well as software, as the accountant's standard 286 machines weren't capable of running our core application, which needed a 386 processor and minimum 4MB of HDD storage.

Tuition was completely isolated from research grants back then by a small army of dedicated bean-counters; I suspect that the army is much smaller and more efficient today, but certainly no less effective in financial ring-fencing of the various activities.

Of course, things may be very different in the US, but I rather doubt that your grant issuing bodies are any more relaxed about the potential for their cash to be diverted to purposes other than their intended ones.

Depending on the granting agency, some are more vigilant than others about "diversion". But money is fungible, so budgets that don't have outside restrictions but have items that fit within the grant purview can be used to essentially "divert" funds.

More importantly, research may involve teaching either that the graduate or undergraduate level. And, of course, research helps keep someone current in their field which usually makes them a better instructor.

 

[ZiprHead]

Typically research is not funded through tuition though. Grants for research come from government, charitable, and corporate entities, and they typically require strict accounting to show that the money so granted doesn't get diverted to other purposes (teaching, maintenance, etc.) outside the terms of the grant.

That was one of the sub plots of the movie Real Genius.

 

[Politesse]

If people want to know how tuition is being spent, they don't have to blindly guess (or accuse); ever since the Clinton era, all colleges in the US that accept federal funding have been required to complete an annual financial report to IPEDS.

 

[Jason Harvestdancer]

It would have been such a better idea to simply make student loan debt dischargeable through bankruptcy. The borrowers get a negative mark on their credit record for making a bad decision, the lenders get a loss for making a bad decision, and future bad decisions are discouraged all around. Instead we have a transference of debt to the government and neither the borrowers nor the lenders suffer any consequences for their decisions.

Not suffering consequences is progressive dogma though.

So while everyone is concentrating on whether or not people are ghouls to the borrowers, the fact is under this arrangement you are either choosing to be a ghoul to borrowers or choosing to be a ghoul to non-borrowers. The question isn't if you are going to be a ghoul, it is who you are going to be a ghoul towards.

Two words: Strategic bankruptcy.

If student loans were dischargeable they would cease to exist because most people would complete their education and then declare bankruptcy. People who take student loans almost certainly exit college with negative net worth.

You are correct, which is why this will work better in the long run. Lenders will be less likely to make the riskier loans. Right now Student Loans are absurdly safe because they can't be discharged. Fewer loans will force colleges to reduce their prices in order to attract students. Fewer loans also means people want more "bang for their buck" and will look at fields that are more likely to help getting a job after graduation. Lower prices also mean a reduced need for loans in the first place.

I would rather think that the world where 0 people have to suffer for a decision that is already clearly bad, wherein the result is "more money exists now" can be fairly safely ignored because "government debt" is literally just "the money supply".

Zero "government debt" is equivalent to "zero money exists".

The number of errors in that statement make me think an economics class should be a part of any comprehensive education.

 

[Toni]

It would have been such a better idea to simply make student loan debt dischargeable through bankruptcy. The borrowers get a negative mark on their credit record for making a bad decision, the lenders get a loss for making a bad decision, and future bad decisions are discouraged all around. Instead we have a transference of debt to the government and neither the borrowers nor the lenders suffer any consequences for their decisions.

Not suffering consequences is progressive dogma though.

So while everyone is concentrating on whether or not people are ghouls to the borrowers, the fact is under this arrangement you are either choosing to be a ghoul to borrowers or choosing to be a ghoul to non-borrowers. The question isn't if you are going to be a ghoul, it is who you are going to be a ghoul towards.

Two words: Strategic bankruptcy.

If student loans were dischargeable they would cease to exist because most people would complete their education and then declare bankruptcy. People who take student loans almost certainly exit college with negative net worth.

You are correct, which is why this will work better in the long run. Lenders will be less likely to make the riskier loans. Right now Student Loans are absurdly safe because they can't be discharged. Fewer loans will force colleges to reduce their prices in order to attract students. Fewer loans also means people want more "bang for their buck" and will look at fields that are more likely to help getting a job after graduation. Lower prices also mean a reduced need for loans in the first place.

I would rather think that the world where 0 people have to suffer for a decision that is already clearly bad, wherein the result is "more money exists now" can be fairly safely ignored because "government debt" is literally just "the money supply".

Zero "government debt" is equivalent to "zero money exists".

The number of errors in that statement make me think an economics class should be a part of any comprehensive education.

Yeah, re: your first paragraph response to Loren makes me think exactly the same thing. It's almost like you kinda sorta watched a youtube and now you think you know something.

 

[Swammerdami]

In the unlikely event anyone is curious about money creation, I recommend they crawl before walking by understanding the gold standards in use 100 years ago. With some (important) caveats, today's money creation is not so very different from 100 years ago!

This is simply nonsense.

Commodity money supply is entirely constrained by the amount of the relevant commodity that has been mined.

Wrong again. Have you never heard of fractional-reserve banking? Do you think it came into existence only AFTER the gold standard was abandoned?
Banks create money.

I didn't bother reading the rest of your comments. Curiously, money creation is one of those topics where otherwise-informed persons develop very confused ideas and then adamantly refuse to learn.


You're not quite 100% wrong. I did mention there were important differences. The point is that you need to crawl before you try to walk. Only when you understand fractional-reserve et cetera under the gold standard will your opinions on post-gold money creation be sensical.

 

[bilby]

In the unlikely event anyone is curious about money creation, I recommend they crawl before walking by understanding the gold standards in use 100 years ago. With some (important) caveats, today's money creation is not so very different from 100 years ago!

This is simply nonsense.

Commodity money supply is entirely constrained by the amount of the relevant commodity that has been mined.

Wrong again. Have you never heard of fractional-reserve banking? Do you think it came into existence only AFTER the gold standard was abandoned?
Banks create money.

I never suggested otherwise

But while reserve requirements are greater than zero, it remains true that the money supply is constrained by the amount of the relevant commodity that has been mined.

I didn't bother reading the rest of your comments.

That lack of desire to read anything that might inform you, probably explains your ignorance.

Curiously, money creation is one of those topics where otherwise-informed persons develop very confused ideas and then adamantly refuse to learn.

Well, the first step is admitting you have a problem.

Bravo!

 

[Loren Pechtel]

I really do not get the contempt that a lot of posters have for anyone who graduates with a degree in anything other than engineering. Engineers should be grateful more people don't pursue engineering because if everyone did, an engineering degree would not be worth very much.

The issue is not engineering only, but rather the demand for the degree. Too many people get easy degrees that they find are of little use in the labor market. Many degrees have little use other than in teaching the subject in question.

It’s always interesting what some people consider to be ‘easy’ degrees and how many people have opinions about how easy it is to find jobs ‘in those fields’ except to reach, as though that were an easy job. As far as I am aware, there are no labor economists posting on this board.

You are correct that there are no job postings that say ‘English Major wanted, starting salary $100K/year.’ But there is a great need for people who are able to compose a coherent paragraph or mage a cogent point, as I am reminded every time I read anything posted on the internet.

But you don't need to be an English major to be able to write decently. That's why you take English classes, not why you become an English major.

 

[Loren Pechtel]

Fun fact: At one point in time, interest on credit card debt was tax deductible.

I did not know that. When did this end?

I do not recall when it ended but it used to be that interest was deductible, period. Now it's only mortgage and investment interest.

 

[Swammerdami]

Since you've doubled down on your insults and ignorance, I'll read your post and put you in your place!
I've colored your insultings YELLOW, irrelevancies GREEN, and obvious mistakes RED.

This leaves just one short paragraph, which almost contradicts your previous ignorant claim. (You wrote that government "creates money" when it spends. Now you focus on "fiat" money being created or destroyed. By the way, are you even aware that the FRB was created almost 20 years BEFORE Roosevelt changed the price and rules of gold?)

I suggested you think about gold-standard finance because the mechanics of money creation are the same.. You seemed to infer that mine was an argument favoring gold, and you chose to indulge in that usual rant rather than learning about money creation.

Let me ummarize money creation again. To keep things simple we ignore the massive post-2008 debt purchases.

• Money is created by private banks, in a process called "fractional-reserve banking."
• Government attempts to steer bank and borrower behavior, but influencing spending and borrowing is not the same as "creating money."
• Tieing money to a precious metal does have problems — at least you got that much right! However things are not as simplistic as you imagine. The CBO has a chart showing real GDP growth per decade from 1790 to 2009. Setting aside the huge growth during World War II, 12 of the 14 highest-growth decades were during the Gold standard era; the remaining two were during the Bretton-Woods regime, itself a form of Gold standard.

I do NOT (and did NOT) claim that gold standard was appropriate in any way; just that the mechanics of money creation were essentially the same with or without that standard. I mention the growth rate above only because you seem obsessed with the issue and I hope to reduce your ignorance and confusion on that as well.

The only one of your paragraphs we haven't needed to paint red, yellow or green seems to be about gold, so read this:

Banks which create money have an obligation to redeem that money. In one case they redeem it for valuable gold. In the other case they redeem it for valuable pieces of cotton-linen showing portraits of Benjamin Franklin. The cases are quite similar from the standpoint of the bank. (The Benjamins are not printed by Treasury at will, by the way, but are backed 100% by FRB assets.)

I hope this leaves you less confused. If not, I give up.

In the unlikely event anyone is curious about money creation, I recommend they crawl before walking by understanding the gold standards in use 100 years ago. With some (important) caveats, today's money creation is not so very different from 100 years ago!

This is simply nonsense.

Commodity money supply is entirely constrained by the amount of the relevant commodity that has been mined.

It's OK-ish for medieval and pre-industrial economies that don't exhibit much growth, but even in their case it suffers from the complete decoupling between money supply and economic activity. If a new, large, and cheap supply of the commodity is found, whether that be untouched reserves in California or Australia; Refined gold stolen during the genocide of South and Central American peoples; Or Spanish galleons being plundered for their stolen American gold, the economy goes to shit.

Fiat money can be created and destroyed as required to match the demand for money in the economy. Of course, that's not always done very sensibly or effectively, but it has the advantage of being under the control of sovereign currency issuing states, rather than being arbitrarily imposed by the global availability of some shiny metal.

That's not so much an "important caveat", as it is "the total refutation of your wildly incorrect belief".

Today's money creation is completely and radically different from 100 years ago. The whole subject is highly complex (as befits a major control mechanism for a highly complex economic system), but suffers from interference by every Tom, Dick and Swammerdami who thinks that because they use money every day, it must be simple and easy to understand.

The level of Dunning-Kruger in macroeconomics is off the scale; But (rather like biological evolution) because so many utterly ignorant people are totally convinced that their absurd oversimplification of it must be a complete understanding, the volume of bullshit is vastly greater than the amount of knowledge.

It's as easy to find support for "today's money creation is not so very different from 100 years ago!" as it is to find support for "the Earth was created in six days, about 6,000 years ago"; And it's just as stupid to accept that 'evidence' at face value in both cases.

 

[bilby]

I hope this leaves you less confused.

I wasn't confused to begin with, you are not my teacher (nor would I want you to be), I am not your student, and you remain wrong - which makes your condescending tone pretty fucking laughable.

.

 

[bigfield]

As clearly seen in the violet line, FRB assets held steady at about 4 or 5% until about 2011: there was no "ex-nihilo" money creation. The U.S. government spent money it acquired by taxes or by borrowing from foreign or private investors.

There is no taxpayer money.

The money spent by the US federal government is created ex-nihilo at the time it is spent.

Reluctantly I must judge Mr. bilby's viewpoint to be at best misleading.

Why? It makes a lot of sense to equate money spent by the government to money creation, and to equate money collected by the government to money annihilation.

The government's bank account effectively has an unlimited balance - it cannot run out of money.

• When I pay my taxes to the (federal) government, my money goes into that account and effectively ceases to exist. When you add a finite amount of money to an infinite amount of money, you're just left with an infinite amount of money.
• When the government spends money they spend it out of this account. They spent a finite amount amount of money from an infinite amount, leaving behind an infinite amount, in effect creating the money they've spent.

In that sense, once I pay my taxes to the government, those dollars never see the light of day again.

In the unlikely event anyone is curious about money creation, I recommend they crawl before walking by understanding the gold standards in use 100 years ago. With some (important) caveats, today's money creation is not so very different from 100 years ago!

Setting aside coinage, postage stamps, etc. the U.S. government has three ways to pay for its spending. Please memorize this list: I refer to A, B and C below. And there WILL be a quiz!
(A) collecting taxes, and
(B) selling debt paper to private entities, foreign and domestic, and
(C) indirectly selling debt paper to the Federal Reserve Banks.

The Treasury does NOT sell debt to the FR Banks: The FRB buys debt paper on the secondary market. Things like the SocSec Trust Fund can be viewed as a hybrid: The funds are collected as tax and then invested in Treasury debt paper until needed.

Collecting taxes and issuing bonds are ways for the government to collect money, which is effectively the same as destroying that money.

The "money printing" rampage began during the "Great Recession" and now totals several trillion dollars.

As clearly seen in the violet line, FRB assets held steady at about 4 or 5% until about 2011: there was no "ex-nihilo" money creation. The U.S. government spent money it acquired by taxes or by borrowing from foreign or private investors.

There isn't really any substantial difference between these two types of spending. The only difference is that sometimes the government destroys as much money as it creates.

You've got a choice between two ways to model government spending:

1. Government spending is a combination of money from government revenue and money from nothing.
2. All government spending is money from nothing, and money from government revenue is annihilated.

I find the latter to be both a simple and accurate model of how government spending actually works. The government spends money first, and then collects taxes and issues bonds to keep inflation low.

On the other hand, I don't see any utility in imagining that government has to raise money before it can spend it. That doesn't reflect the way governments draw up budgets, and it leads people to compare government budgets to household budgets.

 

[Toni]

Fun fact: At one point in time, interest on credit card debt was tax deductible.

I did not know that. When did this end?

I do not recall when it ended but it used to be that interest was deductible, period. Now it's only mortgage and investment interest.

1986 Tax Reform Act. Posted upthread.

 

[Toni]

I really do not get the contempt that a lot of posters have for anyone who graduates with a degree in anything other than engineering. Engineers should be grateful more people don't pursue engineering because if everyone did, an engineering degree would not be worth very much.

The issue is not engineering only, but rather the demand for the degree. Too many people get easy degrees that they find are of little use in the labor market. Many degrees have little use other than in teaching the subject in question.

It’s always interesting what some people consider to be ‘easy’ degrees and how many people have opinions about how easy it is to find jobs ‘in those fields’ except to reach, as though that were an easy job. As far as I am aware, there are no labor economists posting on this board.

You are correct that there are no job postings that say ‘English Major wanted, starting salary $100K/year.’ But there is a great need for people who are able to compose a coherent paragraph or mage a cogent point, as I am reminded every time I read anything posted on the internet.

But you don't need to be an English major to be able to write decently. That's why you take English classes, not why you become an English major.

You don't need to major in some tech field or science field in order to earn a decent living, either.

It was really surprising to me just how poorly some people wrote, when clearly they really knew the subject extremely well. Part of it is a confidence thing (just as it is often with mathematics) but not all of it.

 

[laughing dog]

It would have been such a better idea to simply make student loan debt dischargeable through bankruptcy. The borrowers get a negative mark on their credit record for making a bad decision, the lenders get a loss for making a bad decision, and future bad decisions are discouraged all around. Instead we have a transference of debt to the government and neither the borrowers nor the lenders suffer any consequences for their decisions.

Not suffering consequences is progressive dogma though.

So while everyone is concentrating on whether or not people are ghouls to the borrowers, the fact is under this arrangement you are either choosing to be a ghoul to borrowers or choosing to be a ghoul to non-borrowers. The question isn't if you are going to be a ghoul, it is who you are going to be a ghoul towards.

Two words: Strategic bankruptcy.

If student loans were dischargeable they would cease to exist because most people would complete their education and then declare bankruptcy. People who take student loans almost certainly exit college with negative net worth.

You are correct, which is why this will work better in the long run. Lenders will be less likely to make the riskier loans. Right now Student Loans are absurdly safe because they can't be discharged. Fewer loans will force colleges to reduce their prices in order to attract students. Fewer loans also means people want more "bang for their buck" and will look at fields that are more likely to help getting a job after graduation. Lower prices also mean a reduced need for loans in the first place.

Except most institutions of higher learning are experiencing lower student enrollments. Yet for some reason, students are not seeing a reduction in the sticker price of higher education. Which suggests there is something missing in your application of the economics of demand and supply.

 

[Swammerdami]

As clearly seen in the violet line, FRB assets held steady at about 4 or 5% until about 2011: there was no "ex-nihilo" money creation. The U.S. government spent money it acquired by taxes or by borrowing from foreign or private investors.

There is no taxpayer money.

The money spent by the US federal government is created ex-nihilo at the time it is spent.

Reluctantly I must judge Mr. bilby's viewpoint to be at best misleading.

Why? It makes a lot of sense to equate money spent by the government to money creation, and to equate money collected by the government to money annihilation.

The government's bank account effectively has an unlimited balance - it cannot run out of money.

• When I pay my taxes to the (federal) government, my money goes into that account and effectively ceases to exist. When you add a finite amount of money to an infinite amount of money, you're just left with an infinite amount of money.
• When the government spends money they spend it out of this account. They spent a finite amount amount of money from an infinite amount, leaving behind an infinite amount, in effect creating the money they've spent.

In that sense, once I pay my taxes to the government, those dollars never see the light of day again.

Government spending is stimulative and may lead to an increase in the money supply. But what you and bilby ignore is that private spending is also stimulative and also leads to the same increase in money supply.

If the government taxes you and buys an automobile with the proceeds, the stimulative effect is essentially the same as if you were untaxed and bought an automobile for yourself. Sure, there will be different details at the corners, but not so as to alter the essential lesson.

The government has good credit and finds it easy to borrow? Sure. But lots of Americans find it easy to borrow if they pay credit-card rates. And if enough consumers spend on Chevrolets, GM will prosper and will find it easy to find lenders for a factory expansion.

It is your (and bilby's) insistence that government spending is fundamentally different from private spending that shows ignorance, and leads to confusion.

"The government's bank account effectively has an unlimited balance - it cannot run out of money."
Statements like this make me doubt that you (and bilby) have the slightest clue about the mechanics of money creation in the U.S.A. (Again, let's ignore the post-2008 regime whose implications for long-term dollar stability are still unknown.)

 

[bigfield]

As clearly seen in the violet line, FRB assets held steady at about 4 or 5% until about 2011: there was no "ex-nihilo" money creation. The U.S. government spent money it acquired by taxes or by borrowing from foreign or private investors.

There is no taxpayer money.

The money spent by the US federal government is created ex-nihilo at the time it is spent.

Reluctantly I must judge Mr. bilby's viewpoint to be at best misleading.

Why? It makes a lot of sense to equate money spent by the government to money creation, and to equate money collected by the government to money annihilation.

The government's bank account effectively has an unlimited balance - it cannot run out of money.

• When I pay my taxes to the (federal) government, my money goes into that account and effectively ceases to exist. When you add a finite amount of money to an infinite amount of money, you're just left with an infinite amount of money.
• When the government spends money they spend it out of this account. They spent a finite amount amount of money from an infinite amount, leaving behind an infinite amount, in effect creating the money they've spent.

In that sense, once I pay my taxes to the government, those dollars never see the light of day again.

Government spending is stimulative and may lead to an increase in the money supply. But what you and bilby ignore is that private spending is also stimulative and also leads to the same increase in money supply.

If the government taxes you and buys an automobile with the proceeds, the stimulative effect is essentially the same as if you were untaxed and bought an automobile for yourself. Sure, there will be different details at the corners, but not so as to alter the essential lesson.

The government has good credit and finds it easy to borrow? Sure. But lots of Americans find it easy to borrow if they pay credit-card rates. And if enough consumers spend on Chevrolets, GM will prosper and will find it easy to find lenders for a factory expansion.

It is your (and bilby's) insistence that government spending is fundamentally different from private spending that shows ignorance, and leads to confusion.

I don't know what your point is here, as it doesn't relate to my post. I'm well aware that private spending is stimulative, that's why governments are supposed to cut taxes when economic growth slows.

"The government's bank account effectively has an unlimited balance - it cannot run out of money."
Statements like this make me doubt that you (and bilby) have the slightest clue about the mechanics of money creation in the U.S.A. (Again, let's ignore the post-2008 regime whose implications for long-term dollar stability are still unknown.)

I am certain that the mechanics of money creation in the USA are immensely convoluted, like pretty much everything the US government does.

None of those details change the fact the the US government cannot run out of US dollars. They can always spend more. Whether they should is a different matter.

Perhaps I misunderstood what is you're sneering at, exactly, but if you disagree with the statement then you better explain why I'm wrong.