NP:So we have a situation now on both sides of the Atlantic where there’s a disincentive to get educated.CD:Well, they share a certain common heritage. You mentioned for the first time there’s a disincentive to get an education, but what you don’t mention about the UK situation is that for the first time poor people have been given access to tertiary education. It’s not a coincidence that when tertiary education ceased to be the exclusive province of people who had a lot of political influence, that education ceased to be untouchable as an area for defunding by government. In other words, when universities were the exclusive province of rich people who were in close contact with the political classes, nobody took seriously the idea of defunding free education in this country. But when it became more broadly democratized, you could start talking about education as almost like a market proposition.NP:Right, it is a class issue. After having a fairly egalitarian system for three decades in the UK, with means tested grants being replaced by student loans 1998, we now have a situation where poor people are once again excluded from places like Cambridge.CD:Well, not just that…One of the reasons to let poor people into university was in the name of social mobility. So when we start talking about universities particularly –– I’m not talking about apprenticeships, I’m not talking about trade schools and I’m not talking about polytechnics –– when we start talking about universities as vocational programs that exist, not primary because of an interest in scholarship but because of a positive return on investment in the employment world, and also because of the perception that the best jobs leave you out if you haven’t gone through university...I’m leaving aside for the moment here a few parts of the university which are the tracks that lead into the professions, medicine, law and a couple of others. When you say the reason to go and get a double first in English and German at UCL is because having a double first degree is itself a ladder into –– not the professions –– but a better job, a white collar job, then it starts to become a market proposition. You are not funding the university because you value scholarship.
Scholarship is inherently not a market activity. You fund scholarships for the same reason you fund basic research. You could call scholarship basic research. It does have a positive return to the economy, but that return isn’t possible to recoup through normal investment. No rational market actor invests in pure research. No one wants to fund a super collider, and yet, super colliders actually do produce more money for the whole economy than they cost because of all the spin offs that come out of it. That’s why we fund scholarship. That’s why we fund basic research. The two of them are very closely related. But once you start funding it because it gets people better jobs, then all of a sudden you can talk about them returning a piece of their better job back to the economy.
When it was just rich people going, it wasn’t about just getting a better job, because you were already rich, you already had the entré into the better job. You could already do unfunded apprenticeships and your parents’ friends were the people offering you the unfunded apprenticeships. You had a good five ways within the system. But now it’s a market transaction, and once it’s a market transaction we start applying cost benefit analysis to it. We start saying, well if the university degree earns you so many pounds, then it makes sense to start talking about you paying so many pounds. And if the objective here is to take people whose lifetime income expectancy was so many pounds, and make it a little bit higher –– which is what we call social mobility –– then why shouldn’t that be a virtuous cycle and they pay back into it. That way the university can expand the number of students they take on and all the rest of it, right?
The problem with that is that it’s become a Ponzi scheme, especially in America. We haven’t quite gotten there here. But in America, you have this crazy thing where it is somewhat true and it’s also universally received as true, that you can’t get a good job without a university degree. It’s also the case that universities, including many state colleges –– that are actually owned by the public –– can act as loan originators, which is to say they lend you the money but where those loans are then backed by the federal government. They can lend you any amount of money because there’s no risk to them because the government will take the loan off their hands. Those loans are then further secured by the federal government when they float them as bonds. So you have this weird perverse incentive where the universities, the more they charge the more they get –– which is a bit weird right? Because in real market economies, the more you charge the more you get up to a point, and then people start going, wait a second, that’s not worth it anymore, and they stop paying in. But if I tell you that you can’t get a job unless you get a degree, and then I tell you that no matter how much the degree costs I can get you a loan for that much, all of a sudden you start getting takers for those crazy propositions and that starts to look like a bubble, like a pyramid scheme.
Then you get the bond traders who actually buy these loans and securitize them and turn them into bonds and float them around. Those people actually have it in their interest to keep tuition high and to keep the economy in such a state that indeed unless you have a degree you can’t get a good job, because that brings more people into the system who take out more loans. Those loans get bigger, that turns into more bonds, those bonds produce more coupons and those coupons continue to fund the private equity funds and whoever else is buying those bonds. And again, the federal government guarantees those bonds, and to the extent that the federal government is there guaranteeing the bonds, there’s a lot of money to be spent on lobbying the federal government to continue guaranteeing those bonds.
Also, the federal government can be successfully lobbied to do what they’ve done now over the last 10 years, which is make student debt the only kind of debt you can’t be relieved from in bankruptcy, and the only kind of debt that can be taken out of social security. This is a perfect storm of awful, where in order to get any kind of a good job you have to take a loan out for a hyper inflated university degree and that loan is then visited upon you forever.
You can’t be relieved of that debt through bankruptcy, even if it turns out you made the wrong decision, and the debt collection practices are set up so there’s almost no limits on them and they can impose arbitrary fees and penalties on you. Whatever your student loan was, you actually can never escape it because if you miss a single payment or even if a payment goes astray, suddenly you have these ballooning charges that could double or triple your student debt and those keep recurring through the life of your student debt, such that it becomes almost a form of indenture.
People also who carry a lot of debt are much more beholden to their employers. Especially a kind of debt where if you miss a payment you have ballooning charges and penalties, because you can’t afford to be made redundant, you can’t afford to be taken off the job, you certainly can’t afford to risk being fired. Those people become a more pliant workforce. So you have, again, this perfect storm of awfulness where all of these awful interests are aligned into making people indebted and unhappy and unable to fulfill their lives, fulfill their potential.
For one thing, people don’t start businesses if they can’t afford to quit their jobs. So all of that economic creativity that America has often benefited from…I mean, for all that America is a nation of military adventurism and conquest, it’s also a nation of entrepreneurship and an enormous amount of its economic mite has been driven not just by resource extraction from foreign economies, but also from the exporting of entrepreneurial ventures. You know, inventing stuff that other people in the world want a buy, that entrepreneurial zeal is increasingly locked up behind people who struggle with debt and can’t afford to quit their jobs to do something cool. This is why you have dot com millionaires who are actually offering cash prizes to people who have good grades not to go to university. They want those people unlocked from debt so they can go off and invent cool things and make jobs and unlock new economic growth for the country.
Monday, January 14, 2013
Cory Doctorow Spits Out What I Can't Manage to About the College Bubble
Cory Doctorow (on suicidegirls.com, probably blocked at your school):