rayiner wrote: flem wrote:
rayiner wrote:Here is the problem with getting rid of government loans: it artificially insulates the upper middle class from competition. Right now, the upper middle class is feeling the heat of competition. Some of this is "bad competition", i.e. competition from tons of law school students who wouldn't be there if the market was rational. Some of this is "good competition", i.e. competition from students who are making a rational choice attending law school, but who would not be able to do so without student loans.
If the government got out of student loans, tuition would surely come down, but the T14 would become even more full with the kids of well-to-do people than they are now.
Couldn't this be alleviated through need-based aid like HY do?
Even schools that are economically rational to attend don't have the endowment that HY do. Beyond that, even solidly middle class people can't afford even a pretty reasonable law school tuition (say $20k/year) plus living expenses without loans. A household income of say $130k puts you at top 10% of households in the US, but such a household could not afford to pay $30-35k/year to support a law student, even one that worked part-time to defray the cost of living expenses. Yet, a system where a family with $130k/year of income qualifies for substantial need-based aid is probably not sustainable for any school other than Harvard. The simple fact is that there is a class of people for whom it statistically makes sense to borrow against future earnings for law school. Student loans allows that whole class of people to make the economically rational decision to go to law school. Eliminating student loans limits the class only to those who already have the money
I'm confused by this point -- no one is saying that student loans should be somehow outlawed. Rather, the government
shouldn't fund, distribute, and insure them with the policy goal of equalizing opportunity for all applicants. The only market participants with the necessary knowledge to delineate between those potential students who are members of "a class of people for whom it statistically makes sense to borrow against future earnings for law school" and those who are not, are private lenders. As we saw with the housing market collapse, when the federal government artificially stimulates demand by lowering the cost of capital and insuring the risk, incentives become grossly misaligned. People speak about the current state of legal education as a "market failure." That's ridiculous. The market can't fail when it's not allowed to operate freely.
Look - you're half right to say that scaling back government loans will hurt those who don't have the cash on hand (ie, anybody from a middle class family). The necessary caveat is that it only hurts those students who both don't have the cash and
whose plan of study (probably judged by rank of school/scholarship/evidence of work ethic/etc.) isn't demonstrably sound such that a private investor (namely, a bank) would choose to back it.
The reality is that, at least ITE, money would be available at much cheaper rates for students going to top schools if the government hadn't distorted the market. GradPlus is at 7.9% -- where else can you get a 7.9% return today??? 30-year T-Notes are trading at under 3%! If we let investors take on law school debt, priced adjusted for risk and compiled into liquid securities, the market would absolutely deliver a better value than is currently available.
And yes, if you were planning on attending a TTT and have never held a job before, you wouldn't get loans. But ask yourself -- is that so bad for the world?