Monday, September 19, 2011

AEM's Response to FreakOnomics: Justin Wolfer's "Forgive Student Loans? Worst Idea Ever."

Over at FreakOnomics, Justin Wolfers is arguing that the call to forgive student loans is a bad idea. The piece is response to a recent petition drive by The argument in favor of student loan forgiveness has been espoused by many and for several years. In my view, the strongest argument thus far was made by economist Zeus Yiamouyiannis - that's why I included references to his work in my piece about Obama's Jobs Speech. While Yiamouyiannis was not writing specifically about student loan debt forgiveness in "Endgame: When Debt is Fraud, Debt Forgiveness is the Last and Only Remedy," his theories for a debt jubilee certainly apply. So, Mr. Wolfers, there are probably a few economists, like Yiamouyiannis, who would support this "idiotic idea." Yowser. Your piece is poorly researched.

But why exactly does Wolfers think this particular idea being promoted by, which, mind you, isn't nearly as strongly stated as Yiamouyiannis's, is so bad?

Wolfers has five arguments against it, and most of the assertions are highly questionable. The first one is about distribution.

Wolfers argues:
If we are going to give money away, why on earth would we give it to college grads? This is the one group who we know typically have high incomes, and who have enjoyed income growth over the past four decades.  The group who has been hurt over the past few decades is high school dropouts.
I'd like to see the figures on this claim. Please show me how much higher their incomes are. And even if they are making higher incomes, does it really help if they are saddled with 60k, 70k, 100k, 200k in student loan debt? When it comes to employment - and I am not really sure that's what Wolfers is even referring to - it is true that individuals with high school diplomas who are between the ages of 18 - 29 have a higher rate of unemployment than folks that same age who just have a high school diploma. But if the educated folks who are drowning in student loan debt have jobs flippin' burgers or selling Starbucks-slurpee-slop and earning minimum wage, then the fact that they are employed really isn't helping them. (In addition, minimum wage is far too low, especially when you're making payments to usurious companies like Sallie Mae and Nelnet).

But getting back to the claim that their incomes are higher, I want the evidence. I think his data is old or something. Give me data for this period of time that some refer to as the Great Recession. I prefer Great Depression Deux, but we're all talking about the same thing. We're talking about a shitty, shitty economy.

This also flies in the face of evidence that shows how wages have not only remained stagnant since the '70s for middle class homes, but are actually going down! So, Mr. Wolfers, provide me with some stats for this claim.

In another line, he writes, "This is a bunch of kids who don’t want to pay their loans back." Uh. Really?!? Are you kidding me?!? Wow. This is so off base, I don't know where to begin. The word "kids" is (a) condescending and (b) false. As I have argued over and over again, this is an inter-generational problem. And if you took any time, Mr. Wolfers, to read testimonials from student loan debtors, it's not that easy. Many of them feel humiliated by the fact that they can't pay their loans back. They want to be productive members of society, but they are struggling to make ends meet, and they are falling off the societal grid. So, when you make your point about poverty, we're talking about people who are fucking impoverished. That is a theme I have followed closely. I wonder if Wolfers is aware of the man with multiple master's AND a Ph.D. who is homeless? What about all the couch-hopping grads?!? So, you need to, again, do your friggin' research before writing such fluff. And don't forget the college grads who are becoming SEX WORKERS (see here and here) in order to pay off their student loans. How's that for poverty, Mr. Wolfers?!? Finally, are you aware that a huge portion of recent college grads have moved home? Are you aware of that figure? Well, if you're not, it's a whopping 85% of recent college grads who have had no choice but to move back home. EIGHTY-FIVE PERCENT, Mr. Wolfers. Are you seeing the picture yet? Are you seeing why people are calling for loan forgiveness? I bet you aren't even aware that by June of 2012, outstanding student loan debt will hit $1 TRILLION.

You see, we used to invest in higher education in this country. But we've gotten away from that. It's been turned into a fucking racket. That's what has happened, and that is why so many of us are pissed off. We feel duped. We were duped, and by institutions that should not have fucking duped us. We're all told that we must go to college, and so we did. And now what? We're homeless, living with our parents, jobless, and screwed. We're looking for jobs as sex workers. We're abusing alcohol. We're hating ourselves, when we should be angry at a system that has been rigged for a tiny percentage of rich assholes. We've been left behind, Mr. Wolfers, and we're not happy about it. You have the audacity to call us kids? Oh, and I bet we're "entitled," too? Give me a break. It's just dumb. You sound dumb here.

Your tone is condescending and you clearly haven't done a lick of research on the student lending crisis.


Anonymous said...

Cryn Johannsen said...

LSTB said...

The high school vs. jobs thing is an f'ing red herring. If Wolfers is so concerned about high school grads' prospects, he should be more concerned about (a) the trade deficit, (b) income inequality, (c) the necessity of a Newer Deal, (d) speeding up deflation of the housing bubble, (e) the need for higher inflation, (g) lack of union rights, (h) a poor lower education system, and (i) if he things technological innovation is a problem, he should advocate a guaranteed minimum income. The fact is, the college premium has only grown due to the high school degree's value plummeting. This is an issue mostly dealing with an over-valued currency and erosion of workers' rights. It has nothing to do with student debt.

Anonymous said...

What kind of crack is this guy smokin’?

I would love him to know my story:

It took me 2.5 years after earning a MA to get a fulltime job.

Before that I worked 60-80 hr work weeks holding down 3 pt jobs.

While I make too much money to be considered in poverty ($35k for family of 4), I make less than I did with just a bachelors. My husband has a Bachelors in Biochemistry and makes half of what I do. His student loans are twice what mine are. At this point, we feel blessed that we have jobs and benefits, but we pay our car payment before anything else so we have a place to live if we can no longer afford our rent. Seriously.

The in-school debt, the survival debt, the relocation that I self financed in combination with my student loans it an unmanageable burden. I can’t refinance my car because my debt-to-income ratio is too high. I don’t qualify for any government help besides WIC because of my income. Thank God for that because I can promise you we would have gone hungry some months without it.

Every time we think we might start to get ahead, life happens. I got pregnant this year, my husband needed new glasses/contacts, my daughter sprained her ankle. We know we should have a savings, but there is nothing to save. Last week, I paid $4 in dimes, nickels, and pennies to buy a gallon of gas to tie me over until payday 3 days away. It was humiliating to count out the change at the counter. It took me longer to count 100 pennies then to pump the gas.

Just because I know it’s on the minds of the neigh-sayers, we are not frivolous spenders. I haven’t had a hair cut in 6 mos. We do not have a flat screen TV nor cable. We do not have new cars. Our newest car is an ’05 that was purchased used. I get my shoes from Pay-less or Walmart. I actually got a lower rating (compared with the rest of my eval.) for my appearance because my professional clothes are well used and ill-fitting and I need a haircut and a color update. We drive one car illegally because we can’t afford the registration or the insurance on it.

How did I get so much student debt? Parties? Spending sprees? Nope. I just spent it on housing, child care, commuting costs, books – nothing exciting (unless you count the purple highlighter I just had to have). The saddest part is that I also worked and I received scholarships. The reason my student loan debt is so high is because of compounding interest and the compounding that occurs during deferments and forbearances.

I worked hard, studied harder, commuted, raised my daughter, but clearly I’m a spoiled, selfish rich KID and am therefore undeserving of any future at all.

Anonymous said...

There is absolutely no reason to bail out student loan deadbeats. They borrowed the money, spent it on themselves, and they should either repay it or face the consequences.

I donate $20k or so each election cycle to Republicans and their PACs just to try to be sure that student loan relief never comes to pass.

That's how the system works: you support your side of the issue and I support mine. My side may lose but I will keep pouring cash into the coffers to help prevent defeat.

Thanks for listening and may the better side win!

Anonymous said...

7:57 pm,

Keep sucking Albert Lord's dick. Make sure to brush your teeth and gums, afterward.

Cryn Johannsen said...

@Anonymous 7:57 PM - just so you know, God loves vicious, pathetic misanthropes! So, you should feel great about that.

Second, have you ever heard of David & Goliath? What about the French Revolution?

Third, AEM is non-partisan and works with Republican offices.

Have a great life! Thanks for sharing.

Anonymous said...

You're very welcome.

Life is indeed great.

And time may prove you correct - the student loan deadbeats may get legislative relief someday. I don't think it will happen but if it does, more power to them. I've been wrong before.

So, win or lose, for me it's a real pleasure just to have sufficient means to compete by contributing lots of cash to my favorite political causes.

Anonymous said...

Why does 4:35pm think that someone else should pay back the cash she borrowed, spent on herself, and now complains about repaying?

Perhaps having another child would help reduce her family's expenses. And we must all hope that her family keeps on driving a car without insurance - that makes perfect sense.

Anonymous said...

Forgiving student loans is a horrible idea. It doesn't get to the root of the problem, it is just another bailout. People will trust US currency less.

What needs to happens i more control of tuition costs and LESS LOANS. Financial aid should not be LOANS. Less govenrment loans and they should be merit-based!!
Need based...give me a break.

Anonymous said...

It looks to me like all 4:35 is guilty of is gambling. However, the gamble she took was what was socially espoused to be a sure thing. If anything, she strikes me as a bit of a bootstrapper. There but for the grace of God go everyone of us. The sad thing is a gambler could declare bankruptcy and start over. Perhaps equally sad, if not sadder, is the lack of educated understanding and sympathy for those in her predicament.

What about having the banks eat the student loans? They didn't/don't deserve a bailout and that way the expense of forgiving student loans doesn't go to taxpayers. The cost of forgiving ALL student loans is still less than the bailout they received.

I disagree that the pursuit of a college degree is simply for ones self and that the expenses spent to get an education count as being spent on ones self like one might associate with true gamblers. Education is a social good and should be a right funded on merit - not need.

Cryn Johannsen said...

@Anonymous 4:48 PM

Thanks for your moving comments. People are very cruel these days. They too have fallen victim to casino capitalism. They also relish this new culture of cruelty.

They have forgotten the notion of caring for one's neighbor, helping those in need. These ideas have been twisted and distorted.

Luckily, we're not all hardened, callous, and cruel. That's why we must remind ourselves that these nasty, almost subhuman creatures need to reminded of humanity (they are subhuman, because they are cruel and dehumanize others - this "breed" is not new. We've seen them crop up and assume power in terrifying ways in the past, and today). If we don't remind them of that, i.e., that they should not dehumanize their fellow human beings, we are headed towards disastrous times and sheer violence. They derive pleasure from their cruelty. It is sad, isn't it?

Kelly said...

Hi, I am the Zeus Yiamouyiannis from the article you use to counter Wolfer. You are largely on target with your criticisms of Wolfer. He likes to compare earning potential to times past, and as we all know "past returns are not a predictor of future performance".

In this case its positively the opposite: Past returns were subsidized by huge amounts of debt that inflated education costs WAY beyond normal inflation, and then the job market crashed. We are minus some 15-20 million jobs and falling still, and there has been a huge increase in low-pay, low-skill jobs, NOT promised uptick in high-tech, high-pay jobs.

I wrote an article on just this phenomenon, with excellent links in the comments section to support your perspective:

I make an argument in my latest posting ( that if debts are not forgiven then we should set up "service swaps" to trade pro-social work for debt obligation, services, and excess supply, thus alleviating much of the job problem, the student loan debt problem, waste problem, and many important unmet social needs in one fell swoop:

"And yet there are multitudes of real needs out there that need to be addressed beyond the purview of mere volunteerism, charity, or government agencies. There is a huge oversupply of indebted, educated, idealistic young people raring to use their skills and engage their passions. Let’s simply have a trade.

Make it the business of educational and community groups and institutions to identify, strategize, organize, and meet real needs. “Hire” people who are unemployed but eager to be active and create a currency exchange where debts, services, and surplus goods can be exchanged (perhaps with local currency) for this pro-social work.

This takes care of joblessness, waste, and unmet community needs in one fell swoop. Supermarkets alone throw out an ungodly amount of perfectly acceptable food, because it exceeds the sell-by date or its apples have a few spots on them. There is every reason to embrace such an obvious opportunity to integrate productivity and waste reduction."

Cryn Johannsen said...

@Zeus (if I may) - thanks for your response. I'm going to repost it as a piece on AEM.


Anonymous said...

My family and I read through material regarding the student loan petition. To be honest, I'm not entirely sure how their plan would work. It seems like they are focused on a lot of hypothetical possibilities rather than relying on concrete facts. There's no guarantee that just because people have a little bit more money that they would automatically increase spending in these as undefined "ailing sectors" or that jobs would begin to open up since that's not the only factor determining why businesses are currently not hiring.

One thing I am not sure they considered is this: while there are a few independent student loan programs from banks and other groups, a large majority of student loans come from the federal government through their direct loan program, which was created as a government reaction to the unfair lending practices of the aforementioned groups. Forgiving these loans would have the unfortunate side-effect of causing the current national debt to increase since all that money loaned out wouldn't be paid back to the government but still has to be accounted for since it was paid out.

While I understand this petition's popularity, nobody forced these people to take out student loans. They did so voluntarily in order to pay for their education, and now they are trying to get all that for free regardless of the detrimental impact this plan could have on the entire infrustructure of the higher education system. Unfortunately, I don't see it as very well thought out and I personally couldn't support this initiative in its current form.

Anonymous said...

The classical economist David Riccardo first explained what happens is an economy with a scarce resource (in this case college degrees) and rising demand; the price of the scarce resource increases.
When debt financing is added - 100% of the benefit of the higher price that students can now pay flows to the scarce resource: the college degree providers.
The government has exacerbated the problem with college affordability by providing financing, this has allowed college degree providers to price their good far above the levels justified by incomes.
Upon realizing income levels would not support college graduates repayment of the monies transferred to the degree providers, our congress passed legislation making student loans non-dischargeable in bankruptcy, thus removing the only possible negative feedback to the providers, feedback which might have lead them to increase the income productivity of the degrees they are awarding. Heads the providers win, tails the customer can never discharge the debt so the providers (and the debt providers) win.

James said...

You made the choice to go to school and borrow that money. Therefore, you should pay it back. Buyers remorse isn't a reason to skip out on our responsibility.

Demonizing the investment funds, pensions and public institutions that loaned you this money only distracts from your responsibility to repay and would hurt the underlying people - not evil corporations - that loaned you that money so they could save for retirement.

The bottom line is the error to spend that much is the borrowers and the borrower should pay it back. Period.