Financial aid?

9.15.2012 2 Comments

Are student loans financial aid? No, according to Mike Konczal of the Roosevelt Institute:

Student loans are an economic transaction, the same as if the government had contracted out to build a bridge or hired a person to serve in the military or police force or be a teacher. The money spent here isn’t “aid.” Hiring someone to build a bridge exchanges labor for cash. Student loans exchange cash now for cash later plus interest. Those student loans would be underprovided without the government, certainly, but in the same way that bridges and law enforcement and other goods would also be underprovided if they weren’t done by government.

Repayment plus interest entails the presence of a potential for-profit transaction between the loan-giver and loan-taker. Financial aid, such as a grant or waiver, is also an economic transaction, pace Konczal. But aid is a gift, not a money bet made by two contracting parties, one of whom wants to take profit from the exchange and another who wants to construct a better rewarded working life. Does the Federal Government earn a profit on these loans? Yes! The Federal Government earned money on Direct Student Loans, as Konczal points out (see also this, .pdf).

Aid — namely, help or a gift — does not need to be repaid. A loan, however, does.

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Go to school, young man….

3.23.2012 Leave a comment

While discussing the economic value of a college education in the labor market and for those who possess a college education, Jack Metzgar wrote:

Most people are surprised when I tell them that only about 30% of Americans over the age of 25 have bachelor’s degrees. This is especially true of professional middle-class folks who went to high schools where almost everybody went to college immediately after graduation and whose friends now are almost all college graduates. But it’s also true of people from working-class and poor backgrounds, who seem to think they are “abnormal” or “below average” because they haven’t graduated from college. They’re not. They are, in fact, the ones who are “typical.”

It’s even more surprising, however, when the Bureau of Labor Statistics (BLS) reports that in 2010 only 20% of jobs required a bachelor’s degree, whereas 26% of jobs did not even require a high school diploma, and another 43% required only a high school diploma or equivalent. And according to the BLS, this isn’t going to change much by 2020, since the overwhelming majority of jobs by then will still require only a high school diploma or less. What’s more, nearly ¾ths of “job openings due to growth and replacement needs” over the next 10 years will pay a median wage of less than $35,000 a year, with nearly 30% paying a median of about $20,000 a year (in 2010 dollars).

Put these two sets of numbers together, and it is hard to avoid the conclusion that Americans are over educated for the jobs that we have and are going to have.

In other words, supply does not create demand. It has not in the past and will not in the future. Unemployment and low wages are not due to an education deficit in the United States. American college graduates will not confront structural unemployment in the labor market [see this (pdf)], although the demand for labor today does express the structural problems which defines America’s chronically stagnant economy. Therefore, it follows that, while gaining an advanced education is worthy in principle and often proves to be so in practice, it is not always an economically sound decision for the prospective student to make. By opting for a post-secondary education, the student could spend his or her life burdened with a debt he or she must repay for an education he or she will never use.

Metzgar concludes his article by stating the obvious:

If we were serious about eliminating poverty or restoring the credibility of the American Dream or simply respecting lifetimes of hard work, we would be debating how to raise wages directly — how to make it easier for workers to organize themselves into unions, how to get the federal minimum wage higher and on a steady inflation-adjusted escalator, whether to require some kind of workers council for all employers, and then legally require that the benefits of productivity growth be shared with workers. We’d also be discussing how to use a more steeply progressive system of taxation to build a social wage that makes the basics of life — food, housing, mass transit, child care, education, and health care — cheaper for everyone, but most crucially for lower wage workers.

Those of us who have benefitted, financially and otherwise, from getting good educations should tell our stories and try to inspire others with the value of education in all its forms. But we need to stop fostering illusions that good educations can ever substitute for the organized collective action — in politics, in the workplace, and in the streets — that will be required to reverse the increasingly miserable wages and conditions most people are facing now and in the future.

 

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