Go to School, Get a Loan, Risk Enslavement

I've written twice before about how Government student aid raises tuition rates and increases the debt carried by students. Those articles didn't cover some of the more pernicious dangers of such government help, which was made vivid by a recent movie (Default: The Student Loan Documentary) and Business Insider article about Nick Keith (This Bright-Eyed Young Man Was Utterly Demolished By Student Loans). In short, kids like Nick Keith have been promised a bright future if they spend heavily on education, are loaned the money to fund their tuition, then find that the jobs that result from their education don't cover the bills. Hence, the students are tricked into spending too much money on classes that have no effect on their employability. The schools have an incentive to lie about the effect of their classes, with little downside when they are caught.

Even worse, the funding for the overpriced classes comes from government-sponsored student loans, with high interest rates. Because the government is involved, these loans cannot be discharged in bankruptcy. The combination of high rates and lack of forgiveness means that students that get ripped off by schools that lie can find themselves permanently enslaved to their creditors and to the U.S. Government. Said Kieth: "My life has become a daily swim in a tar pit with very little hope of ever getting out."

Most types of consumer loans are far less risky. Credit card loans, auto loans, home mortgages, and even payday loans can be discharged by bankruptcy. You can get a second chance, and a clean start. It is not painless, but it does end and let's you try again. In contrast, education loans that are entangled by government involvement are permanent. A loan from a loanshark is permanent too. Same thing.

I keep seeing more and more articles about this problem. Here's another:  Indentured Students Rise as Loans Corrode College Ticket

Obviously, education is an investment in yourself, not to be taken lightly as it commits a great deal of time and capital. Now that the government is involved, you risk your liberty as well. Here's how to make education investment decisions the vorpal way.

First, insist that all promises the school makes about your education are in writing. If you cannot get it in writing, then assume that the claim is false. If you can make audio or video recordings legally in your state, do so when the school salesman makes his or her pitch. Let them know that you are making the recording, and that you consider the claims they are making part of a contract.

Second, turn down all government offers of assistance. This means voting against laws, policies, and politicians that make offers of government assistance with tuition. These measures tend to cause huge increases in tuition prices that erase the effect of the supposed financial assistance. Also, if the tuition isn't affordable without assistance, you should be leery that the price is already too steep to be a prudent investment.

Third, if the school has made documented claims about your education that turn out to be false or are substantially misrepresented, file a tort lawsuit alleging that the school committed fraud. You may also file a criminal complaint with your state, as fraud is both a crime and a civil tort.

Fourth, look around and investigate other methods of getting the same education and training. There are very few fields where the only way to learn is via schoolroom training. This is especially true of skilled trades. Our forefathers tended to pass knowledge to junior workers via apprenticeships. If you have a good work ethic, are truly eager and committed to learning a profession, and have even a moderate amount of aptitude for a field, you will be able to find a similar type of paid apprenticeship or entry level training position that will be a much better use of your time and will actually pay you for it.

Students Put Into Debt by Government Aid Part 2

Here is more evidence that gains of a college education are captured by the college itself, not its graduates, and therefore students loans from the Government causes a net transfer of money from students to the universities.

Trapped by $50K Degree in Low-Paying Job

Some of the motivation for the Occupy Wall Street protesters is the phenomenon where society and the university promise a good job upon graduation, and an even better job upon finishing graduate school, then don't deliver.

http://www.bloomberg.com/news/2011-12-07/trapped-by-50-000-degree-in-low-paying-job-is-increasing-lament.html

What? You say that better jobs aren't promised? Yes, they do promise. I'll quote the article:

Debra Stewart, president of the Washington-based Council of Graduate Schools, said advanced schooling is still the “pathway to success in the modern economy.”

“The more education you have, the more highly regarded you are going to be in the workplace,” she said.

There isn't a single person on this planet who doesn't translate "highly regarded" as "better pay."

College Costs Are Rising Faster Than Cost Of Living, Medical Expenses

This article features several graphs of prices relative to 1978 levels for medical care, college costs, and the general cost of living.

http://www.huffingtonpost.com/2011/10/28/college-costs-are-rising-_n_1063617.html

Rent-Seeking

I've put this link in not because it pertains specifically to tuition, but as general background education in the economics of rent-seeking behavior:

http://en.wikipedia.org/wiki/Rent-seeking

Some useful passages from the Wikipedia article on rent-seeking:

"From a theoretical standpoint, the moral hazard of rent-seeking can be considerable."

"Rent-seeking may be initiated by...firms that stand to gain from having special economic privileges, which opens up the possibility of exploitation of the consumer."

Students Put Into Debt by Government Aid

Judith Lynn Clayton reports in the NY Times piece Student Loan Debt: Who Are the 1%? on the state of student loans.

http://finance.yahoo.com/news/student-loan-debt-1-130033806.html

Along the way, she mentions a New Yorker article by James Surowiecki about student debt. Upon reading this, it struck me that some people ascribe too much credit to the "rational human" model of economics. The way Surowiecki puts it, you would think that students were making their own choices about how much tuition to pay:

"...the college wage premium—how much more a college graduate makes than someone without a degree—is at an all-time high. In fact, the spiralling cost of education has to some degree tracked the rising wage premium; as college has, in relative terms, become more valuable economically, people have become willing to pay more for it."

http://www.newyorker.com/talk/financial/2011/11/21/111121ta_talk_surowiecki

What Surowiecki is glossing over is that college tuition in this case isn't behaving like a commodity good. It is acting like a monopoly good. Colleges determine the advantages a degree will currently confer, then they carefully set their prices to capture most of that advantage. The student must take it or leave it. Loyalty and brand name count for more among universities than almost any product on the planet. If you have your heart set on getting into Princeton, you pay what they ask, and there are no discount holiday sales or outlet stores for a Princeton degree or a Princeton undergraduate experience.

The intent of Government aid is obvious: Make it easier to pay these onerous bills. But the net effect of Government aid is to cause an offset increase in tuition rates, since the universities will charge what the market will bear, and with Government aid in place the market is suddenly able to pay more, in total, than before.

The effect of Government aid for college is therefore to raise tuition and increase the number of students with outrageous student loans. There may be some studies that show that aid causes a shift of costs from less affluent to more affluent students, but along the way there will be some students who simply wind up paying more money overall.