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Old 02-07-2010, 12:54 PM   #21
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Originally Posted by samclem View Post
Why do scholarly journals increase in price by 200%? Because that's what colleges will pay.
The buyers of these journals have disappeared, yet the costs to produce them are the same. So if half the buyers disappear and the publisher wants to stay in business, they need to double the price.

This is just one of the consequences of the Internet age. Few folks go to the library to read journals anymore. Many folks get an electronic subscription that they share with all their colleagues which further reduces the number of real payers. In the end, the libraries are the only legitimate payers and so the price to them goes up astronomically.

And of course many of the journals charge the authors to publish their works.
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Old 02-08-2010, 12:56 PM   #22
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I'm not sure how they do it, but my college loan company (a non profit) has competed the pants off the the Direct Loan federal program. We have very high reductions in interest rate for maintaining on time repayment and doing automatic draft. The federal Direct Loan program (at the time at least) did not have the level of interest rate reductions in effect. So the DW who was forced to the Direct Loan program for grad school borrowing ended up consolidating with the local non-profit for the interest rate savings. So the competition is clearly there and has benefited us directly. Maybe the case is that the Direct Loan program could cut some fat and have similar incentives as private lenders.
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Old 02-08-2010, 01:29 PM   #23
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I'm not sure how they do it, but my college loan company (a non profit) has competed the pants off the the Direct Loan federal program. We have very high reductions in interest rate for maintaining on time repayment and doing automatic draft. The federal Direct Loan program (at the time at least) did not have the level of interest rate reductions in effect. So the DW who was forced to the Direct Loan program for grad school borrowing ended up consolidating with the local non-profit for the interest rate savings. So the competition is clearly there and has benefited us directly. Maybe the case is that the Direct Loan program could cut some fat and have similar incentives as private lenders.
It could be there are major subsidy incentives given to lenders offering student loan consolidation, which has little to do with private lenders being able to cut fat or provide greater efficiencies. There used to be a so-called Special Allowance Payment that the U.S. Dpeartment of Education would provide to lenders to the extent student loan debt was consolidated. See http://www.gao.gov/new.items/d05389r.pdf. In other words, the Government is probably subsidizing the loan consolidation, in any event.

Student finance on the macro-level, with government credit and grant programs, is a highly complicated area. It's very easy to think of simplistic reasons for how things work in this area.
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Old 02-08-2010, 01:57 PM   #24
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It could be there are major subsidy incentives given to lenders offering student loan consolidation, which has little to do with private lenders being able to cut fat or provide greater efficiencies. There used to be a so-called Special Allowance Payment that the U.S. Dpeartment of Education would provide to lenders to the extent student loan debt was consolidated. See http://www.gao.gov/new.items/d05389r.pdf. In other words, the Government is probably subsidizing the loan consolidation, in any event.

Student finance on the macro-level, with government credit and grant programs, is a highly complicated area. It's very easy to think of simplistic reasons for how things work in this area.
Agreed. It's highly complicated. It would not surprise me at all to learn that the feds are paying some subsidy to private student loan organizations that they don't offer through the Direct Lending channel. In our situation, the consolidation loans were available from Direct Lending or the local non-profit with similar (identical??) terms except for the rate decrease feature available at my local non-profit.

As with anything that involves competition, there will be some organizations that innovate and put forth a superior product and other organizations that fail to do so. Sometimes the winner of the competition is state provided (ie our local flagship public universities), sometimes private industry. Sometimes the extent of subsidies causes one competitor or the other to get the upper hand, and these subsidies aren't always visible to the consumer (thinking public universities here again). For me as a consumer, I'm looking for the best quality service or product at the best value.
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Old 02-08-2010, 03:00 PM   #25
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Are you referring to those government bureaucrats who probably contract out most of that work to the private sector anyway, from developing online portals, loan servicing (I bet Sallie has a major contract there) to debt collection? The naked truth about many aspects of government is that the private sector is already running most of these programs anyway.

It's ironic that one would believe the private sector has the incentive and ability to handle student loans, a consumer finance market that the banking industry avoided until the Federal Guaranteed Student Loan (now renamed as the Stafford Loan) program was created in 1965 -- created so that our middle class would have the greater opportunities to attend colleges and universities. The GSL program was virtually a no-brainer for the banking industry (and State Guarantee Agencies funded under the GSL program); the subsidy for in-payment-status loans was incredibly rich for many years (300 basis points above 90 day T-bill rates) and lenders had no incentive to reduce student loan defaults for many years as "bad student GSL paper" was guaranteed by the US Government. Effective collection, if at all, was with the Federal Government, not the private sector through IRS tax refund offsets and closing down many bankruptcy loopholes, after the private sector mishandled most of the debt collection. The GSL program, before the US Department of Education offered a direct student loan component, is a classic case of where the private sector actually lobbied the Government for a program with perverse incentives bestowed on the private sector, which enriched the private sector, and later when the Government attempted to right the perverse incentives and demonstrate that it could finance student loans cheaper and more effectively than the private sector, the private sector/ banking industry then complains about a Government take-over of a program!
Your right the original GSL program was a classic example of the private industry getting a sweetheart deal from the government. It took the government years to finally put incentives in (making vendors eat a few percent of loan losses) for the private lenders like Sallie Mae to actually work to collect loans.

One thing that is worth keeping mind in a discussion on student loans is the reason the private sector isn't in the market, is because it is very risky area for loaning money. For the most part you are loaning money to teenagers or young "adults", who have no work or credit history. There are no assurances that will get a degree, or if they get a degree that it will enable them make enough money to pay back the loan. Even if they do the vast majority of college graduates leave school with a negative net worth. Bankruptcy would be a tempting options (which is why student loans aren't and IMO shouldn't be discharged in bankruptcy) since you can't repossess a diploma. Even with the bankruptcy rule, Sallie Mae and a few banks tried several years ago making student loans without government guarantees and suffered massive losses.

In defense of student loans, I think probably more than any other type of credit there is a large benefit to society to loaning money to college students. We are far better off having 22 year olds with valuable skills like engineering or nursing, that forcing people to save up money and start school in their 30s. Still as many government programs, we have taken worthwhile idea (increasing college graduates) and have gone overboard. Obviously something wrong with a program, where people with the means to pay cash have financial incentive to borrow.

The only reasons I am complaining, is because in time when the skies are raining money from our most generous Uncle Sam and every possible group is getting subsidized, I'm annoyed that one of the few pieces of pork that I benefit is being cut.
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Old 02-08-2010, 05:25 PM   #26
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Why do scholarly journals increase in price by 200%? Because that's what colleges will pay. Upgrading to single-room apartments instead of multi-occupant dorms, building nicer gyms, etc, etc. These do not sound like institutions that are under tough price pressure from consumers out to get the very best bargain for their dollar. Its sounds like the consumers have a lot of money to spend on this education, and that the schools are upgrading so they can compete for the available students. Where is this money coming from? Look no farther than your local financial aid office and Sallie Mae.
Yep.

I'd also say that the willingness of parents and students to spend isn't just loans but is also driven by a belief that any degree is valuable. I've never seen serious research on this question, but I'm guessing that if you don't have good analytical skills (aka "like math"), there aren't a lot of programs out there with a good return on your investment for average students.
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Old 02-08-2010, 07:12 PM   #27
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I'd also say that the willingness of parents and students to spend isn't just loans but is also driven by a belief that any degree is valuable..
I think that the ability to communicate well, especially in writing, is another higher-level skill that employers are willing to pay for, but unfortunately I don't think a college degree is necessarily evidence of this skill.

There's a good case to be made that there are a lot of people going to four year colleges who shouldn't be there, and would be far better off doing something else. The schools accept students who are not prepared to do the work. They pay tuition for a year or three, struggle along, and never get a degree.

A college shouldn't be a vocational school, but a graduate with a BS in electrical engineering and 60K in debt is in a much better situation than a psych major with 60K in debt.

I heard this guy, Marty Nemko (web site) , on NPR a few months ago. He's a career counselor/coach in San Francisco, and he is definitely of the opinion that a lot of folks are hurting themselves by going to college.

An interesting article: "We Send Too Many Students to College."
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I have a hard time telling such people the killer statistic: According to the U.S. Department of Education, if you graduated in the bottom 40 percent of your high school class and went to college, 76 of 100 won’t earn a diploma, even if given 8 1/2 years. Yet colleges admit and take the money from hundreds of thousands of such students each year!
And, another thought-provoking article (not exactly related to this thread):
Do What You Love and Starve.
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Based on the 2,700 clients I’ve worked with over the past two decades . . . I’ve come to the conclusion that we’ve been sold a bill of goods when we’re told to “Follow your passion, “ or “Do what you love and the money will follow.” Fact is, if you do what you love, you’ll probably starve.
. . .
The problem is that too many people crave the same few careers, for example, the arts, environmental, and non-profit work. Employers in these fields get dozens if not hundreds of applications for each job. So, you have to be a star or extremely well connected to get the job.
In other cases, salaries tend to be low or non-existent. Do what you love and volunteer work may well follow.
. . .

In contrast, if your job is mundane, for example, marketing manager for the Western Widget Company, the employer knows there aren’t hundreds of competent people champing at the bit for your job. So, to keep you, the employer is more likely to offer decent working conditions, reasonable work hours, kind treatment, opportunities for learning, and pay you well. Those are the things that—much more than being in a “cool” career-- lead to career contentment.
Unconventional advice, but a breath of fresh air, I think.
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Old 02-09-2010, 09:09 AM   #28
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I think that the ability to communicate well, especially in writing, is another higher-level skill that employers are willing to pay for, but unfortunately I don't think a college degree is necessarily evidence of this skill.

There's a good case to be made that there are a lot of people going to four year colleges who shouldn't be there, and would be far better off doing something else. The schools accept students who are not prepared to do the work. They pay tuition for a year or three, struggle along, and never get a degree.

A college shouldn't be a vocational school, but a graduate with a BS in electrical engineering and 60K in debt is in a much better situation than a psych major with 60K in debt.

I heard this guy, Marty Nemko (web site) , on NPR a few months ago. He's a career counselor/coach in San Francisco, and he is definitely of the opinion that a lot of folks are hurting themselves by going to college.

An interesting article: "We Send Too Many Students to College."


And, another thought-provoking article (not exactly related to this thread):
Do What You Love and Starve.


Unconventional advice, but a breath of fresh air, I think.
Great article, I'm going to save that link. It covers lots of things that usually get swept under the rug.

I've thought that all college "viewbooks" should include three tables of actual history for that school.
1) Graduation rates and GPA distribution by high school grades.
2) Grants (not loans) from the school by family income.
3) Percent getting jobs "requiring their degree", and average salaries, by degree.

But, I'm one of those analytical types that hang out here. According to the article, if the students parents have college degrees themselves, there's a good chance they can't interpret a table. Oh well.
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