[Paleopsych] Meme 048: Liberals and Conservatives Find Common Ground at Student-Debt Forum

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Sun Nov 27 17:11:09 UTC 2005

Meme 048: Liberals and Conservatives Find Common Ground at Student-Debt Forum
sent 5.11.27

I started making some various remarks, but there were so many of them, I 
decided to turn this into a meme. The main theme is the biggest drawback 
of student loans, but I also reflect on how Washington works. I shouldn't 
say I am angry about it, so much as reflective. My solution is pluralism, 
the realization that there is no universalist monopoly on truth, much less 
on political truth.

Hooray for Allan Carlson! In the article below, he speaks out against 
student loans as delaying family formation. He has no feeling for the 
heredity of ability, though. But he raised the most important drawback to 
student loans. When I worked on higher education issues, I asked that a 
study be made to determine whether the outlay for Federal student aid 
programs would get more kids through college if they took the form of 
grants or subsidized loans. Loans are indeed subsidized, to the tune of 
25% to 50% of the amount, depending on the loan and how the calculations 
were made, though some of the experts below think that loans are a free 
lunch. The fact is that even "unsubsidized" loans, at "market" interest 
rates, cost the taxpayers money, if only to sock them with defaulted loans 
that cannot or are not collected.

The liberals there, who have zero understanding of the economic concept of 
opportunity costs and trade-off responded, saying we "need" more of both! 
At the time the supposedly conservative Reagan administration's "policy" 
was to proportionately shift Federal monies from grants to loans. I urged 
that a study be conducted to find out what is in fact the case.

I once was called upon to estimate the present discounted lifetime 
earnings of high school vs. college graduates. The latter is higher, of 
course, but that is largely due to 1) the greater ability of those who 
complete college, 2) the show of a willingness to sit patiently behind 
desks, listen to a professor drone on, study, write papers, and generally 
display even more ability to follow orders, and 3) the positioning effects 
that help you get your first job (but you're on your own after that, as 
many studies have shown. So far down the list that my default hypothesis 
(still unrefuted by any study: we'd hear endless about such a study, even 
a bad one, if such a study existed) is that what one actually learns from 
these professors is minuscule. I am not popular due to my morbid 
attachment to reality. Our brains evolved, not to apprehend reality so 
much as to get along in social groups. This is the primary reason why the 
brains of primates (and humans esp.) are too big for what it would take to 
maneuver the purely physical environment. Truth-seeking is an accidental 
byproduct of gene-culture co-evolution, and it's an open question whether 
a critical mass of truth seekers necessary to keep science and liberty 

Anyhow, at one time I got the raw figures of earning by educational 
attainment for each age from a Labor Department report. They need to be 
massaged, since there's a discount rate and a predicted annual growth in 
GDP/capita rate, both of which must be supplied by the user of the data. 
Well, I supplied a number of alternative estimates, but the political 
appointee at the time simply selected a high one, since Secretary William 
Bennett would be able to show that college graduates could "afford" to 
repay their loans. I protested, saying that Bennett was also dubious of 
the value of higher education and wanted to reduce Federal aid. (During 
the last two years of his tenure, he had been so affected with the Beltway 
mentality, but this time to use the Federal government to promote 
"conservative values" rather than to take the Feds out of the education 
business, that his budget proposal was for an *increase* in Federal 
education spending! Because of this, I have regarded him ever since as 
Washington, DC's biggest hypocrite.) It would have been better to chose 
realistic estimates of the discount rate (3%) and GDP/capita growth (2%) 
*and* to further reduce the present discounted value of lifetime earnings 
to remove the three factors I mentioned above.

I was overridden. Bennett went on the air with inflated estimates, despite 
my warnings that his earlier questioning of the value of higher education 
contradicted what he said and that he'd be caught by reporters in this 
contradiction. So maybe the political appointee was not so dumb. He was 
unable to grasp what I said about these three factors, but he must have 
realized that, as the late Prime Minister of Great Britain, Harold Wilson, 
stated, "In politics, a week is a long time," and so there was no danger 
of Bennett's being trapped. (Actually, the political appointee in 
question, like so many others "burrowed in" and got a permanent Civil 
Service job. Talking to him years and years later, I came to respect his 
intelligence, in other areas. Oh, when Bill Clinton became President, the 
new Democratic political appointees were idealistic hotheads and fretted 
about all those Republicans who had burrowed in dubiously. Wiser hands 
prevailed. They were told to cool it, since in four or eight years, they 
too would want to burrow in.)

Time came much later to present lifetime earnings estimates again. I 
realized that the previous estimates were much too high, even as raw 
figures that do not take out ability and so on. By this time new data from 
Labor had come, and once again I chose alternate discount and growth 
rates. But somehow, it was felt that someone might actually remember the 
earlier figures. I was told that the same estimate as before must be 
handed out to the public and was asked to recalculate a 3 1/2% discount 
rate, since 3% was too low and 4% too high! (I don't remember if these 
were the actual figures, but it was a half percent in between and still 
above what I thought was realistic for a lifetime.)

Democrats, in my experience, are a little better. They are "good 
government" types and sometimes seek actual information on how programs 
will work, so as to improve them. What's amazing, or was amazing, for I've 
gotten used to it, is that Democrats can actually be more radical. It was 
a Brookings Institution report (by Moe and Chubb iirc) that beat a drum 
from private education, not Republican compromisers.

There are about 10-20 free market or conservative types where I work, out 
of 4700 employees. Many of these had burrowed in. The first Bush 
administration was less "conservative" than the Reagan one and was hostile 
to Reagan retreads. This is even more the case with the second Bush 
administration. They have fully bought into the egalitarian rhetoric of 
liberals but differ in that they say conservative *means* will better 
accomplish those liberal *ends*. Hence, the No Child Left Behind Act, 
whose biggest consequences will be to centralize education from the school 
district and county level to the State level and, this is the worst 
drawback, to leave the gifted behind.

The culture divide is very much at work here. Bush is widely admired (even 
now) for upholding moral absolutes and *standing firm*. And all his 
appointees have a huge loyalty to Bush and will *stand firm* he wants or 
what they think he wants.

Meanwhile, families are not being formed. Allan Carlson's voice will have 
little impact. Carlson--I read his stuff a long time ago--once deplored 
the vanishing of a "family wage," meaning that employers would 
"traditionally" pay fathers more than unmarried men. This shows a complete 
lack of understanding market processes, for any such premium would quickly 
vanish because of competition. I certainly have never heard of such a 
thing, and I stopped reading Carlson, though I'm glad he's still at it. It 
would be such a great anomaly that all economists would hear about it. 
Except for the still taboo area of innate differences in group 
intelligence, the profession is remarkably open. Indeed, the Journal of 
Economic Perspectives, one of the most prestigious and allegedly and not 
infrequently written for the lay reader, has a regular feature called 


Liberals and Conservatives Find Common Ground at Student-Debt Forum
The Chronicle of Higher Education, 5.11.25


Policy makers need to devote more attention to helping student-loan
borrowers with low incomes who have taken on unmanageable levels of
debt, several student-aid experts said last week at a conference here
about student indebtedness.

The gathering marked the official start of the Project on Student
Debt, an effort led by Robert M. Shireman, a former education-policy
adviser in the Clinton administration. The project is intended to
develop public-policy proposals to reduce the burden of student debt
for those least able to afford it. The conference was held at the
headquarters of the American Enterprise Institute, a leading
conservative think tank that co-sponsored it.

In an interview, Mr. Shireman, who has been a sharp critic of the
student-loan industry, emphasized his collaboration with scholars at
the institute. "Here is an effort in which conservatives and liberals
are both asking whether there are problems with rising student debt,
and if there are, how we might address them," he said.

Some speakers last week focused on the downside of borrowing. After
asking rhetorically whether students are borrowing too much, Tamara
Draut, director of the economic-opportunity program at Demos, an
independent think tank, said "absolutely yes."

Ms. Draut, whose book Strapped: Why America's 20- and 30-Somethings
Can't Get Ahead is scheduled to be published in January by Doubleday,
noted that the median earnings of 25- to 34-year-olds have generally
fallen over the past 30 years, while housing prices in major
metropolitan areas have soared. As a result, she said, high levels of
indebtedness are making it more difficult for student-loan borrowers
to pursue public-service careers, such as teaching; to seek graduate
degrees; and to save money for the future.

Loans as Contraception?

A speaker on the conservative side had similarly dire warnings. Allan
Carlson, president of the Howard Center for Family, Religion, and
Society, a nonprofit research institute in Rockford, Ill., said that
the rising level of debt is harmful to society because borrowers are
more likely to put off getting married and having children.

Citing studies that have correlated more education with having fewer
children, Mr. Carlson called student loans "a highly effective form of

"The anti-marriage and anti-natal effects of student-loan debt are the
consequences of poorly conceived public policy," he said.
"Accordingly, policy makers face a special moral imperative to set
things right."

As an example of how that might be done, he proposed that Congress use
student-loan forgiveness as an incentive for child bearing. Under his
plan, for every child born to or adopted by married parents, the
federal government would pay off one-fourth of their outstanding
student debt, up to $5,000 each for the mother and the father.
Families that had four children could erase as much as $20,000 per
parent, he said.

Several higher-education researchers, however, cautioned against a
blanket disapproval of student loans. They noted that loans enable
millions of students each year to pursue a higher education and, as a
result, to improve their lives and their standard of living

Instead, they said, policy makers should focus squarely on low-income
people who have assumed too much debt.

Sandy Baum, an economics professor at Skidmore College and a senior
policy analyst for the College Board, rejected the use of a common
standard for measuring debt burden. Student-aid experts tend to say
that student-loan borrowers have unmanageable levels of debt if they
are making payments in excess of 8 percent of their monthly incomes.
The measure is based on a loan-industry recommendation.

Ms. Baum argued that it makes no sense to use the same standard to
determine what is affordable for a borrower with an annual income of
$20,000 and one earning $100,000 per year. "Individuals with higher
incomes can afford to devote a higher proportion of their incomes to
debt payment," she said.

Using surveys of student-loan borrowers conducted by the Nellie Mae
Education Foundation from 1998 to 2003, Ms. Baum and a colleague set
out to determine acceptable levels of debt for borrowers at different
income levels. They concluded that borrowers with pretax incomes of
less than half the national median -- which is $37,543 for full-time
workers 25 and older -- cannot reasonably be expected to repay their

"Students who end up with very low post-schooling income," she said,
"should be allowed to suspend repayments and possibly have the
interest on their outstanding balance subsidized."

Borrowers with incomes near the median, Ms. Baum said, should not
devote more than about 10 percent of their incomes to student-loan
repayment. Those with higher incomes can afford a greater debt load,
she said, but their payments should never exceed 17 percent to 20
percent of their incomes.

Thomas J. Kane, a professor of education and economics at Harvard
University, also called on policy makers to do more to help those with
low incomes who are struggling to repay their student-loan debt.

He proposed that the federal government provide a tax credit to people
who devote a larger share of their incomes to student-loan payments.

Under his plan, for example, borrowers whose total payments for a year
exceeded 10 percent of the portion of their income above $10,000 would
receive a refundable tax credit. The maximum credit a borrower could
claim in any single year would be calculated based on the amount it
would cost to pay off the loan, with interest, over a 10-year period.

Mr. Kane said that his plan "would effectively cap repayments at a
reasonable proportion of income, without requiring borrowers to extend
their repayment indefinitely."

The Project on Student Debt is being supported primarily by the Pew
Charitable Trusts, which has started its own Partnership to Reduce the
Burden of Student Debt. The partnership is a two-year, $3.5-million
project that aims to identify "practical policy options" to deal with
families' concerns with the growing indebtedness of students.

[I am sending forth these memes, not because I agree wholeheartedly with 
all of them, but to impregnate females of both sexes. Ponder them and 
spread them.]

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