Friday, May 28, 2010

Student Loans

College education is a mess in this country. The institutions themselves are corrupt and the social norms (e.g. binge drinking) are like a cancer to getting an education. Those are probably the biggest problems, but a close third is student loan debt spiraling out of control

This "Your Money" article in the New York Times tackles the issue. It seemed like a good article at first, but by the end I was shaking my head. A relevant quote:
[NYU could] deputize a gang of M.B.A. candidates or alumni in the financial services industry to offer free financial planning to admitted students and their families. [An NYU official] also noted that the bigger problem here is one of financial literacy. Fine. He and N.Y.U. are in a great position to solve for that by making every financial aid recipient take a financial planning class. The students could even use their families as the case study.
The author seems to think NYU, in this case, and universities, in general, should step up to the plate and educate their students about personal finance. That sounds impractical to me--it would inevitably push many students toward community colleges and it would drive up administrative costs even more. I'm also confused about why universities should be teaching personal finance--shouldn't high schools do so? What about the large share of students who never go to college?

But my real question is this: if the problem is financial illiteracy, then shouldn't this personal finance column go through the trouble of explaining what options people have and what the trade-offs are?

I don't want to leave myself open to the same criticism so I'll list some key facts about student loans that everyone should know and would have been relevant to the girl in the article:

1. The average return to a college degree is in the hundreds of thousands (Barrow and Rouse and others)
2. Majoring in "women's and religious studies" (or similar) probably has a much lower return than a hard major (see PayScale data, but those differences are probably exaggerated by selection bias)
3. There is little evidence that going to a more prestigious college will get you a higher paying job (Krueger and Dale, with caveats)
4. It's almost impossible to default on student loans, as the article notes

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