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| Jeffery Dorfman-Via Forbes |
The purported crisis of mounting student loan debt is one of the most overhyped problems of this young century. We were treated to thousands of news stories when student loan debt went above $1 trillion in total, more as it continued to rise, and a growing avalanche of stories designed to create sympathy for these poor indebted college graduates (and drop-outs). Yet, auto loan debt in the U.S. has now reached $1.1 trillion, up 30 percent from its pre-recession peak, without a similar mountain of press warning of the imminent catastrophe. This divergence in media coverage and analysis tells us much about how the student debt crisis is more manufactured than real.
Don’t worry everybody, even though these are two separate loans, for two separate purposes, with limited overlap, the comparison is still great.
The average college graduate who has any student loan debt graduates with between $25,000 and $30,000 in student loan debt. On a standard ten year repayment schedule, this means a monthly payment in the range of $280 to $330 per month. The average new car loan in the second quarter of 2015 averaged $28,500, was for five years, and carried a monthly payment of $483 month. Payments on student loans and auto loans both take up almost exactly the same percentage of income.
This argument is on shaky ground. First, Dorfman is talking mean not median. In both cases, the mean is likely driven higher by expensive outliers. Second, I don’t think I know a recent college graduate, who can pay $483 a month for a car payment without major assistance from family. Most recent college graduates that I’ve met are lucky if they can afford a 10-year-old Civic. Third, there is not 100% overlap here. I would speculate that someone buying a $20,000-30,000 car probably is, at least, employed full-time. Auto loans and student loans are also inherently different. Auto loans can be forgiven in bankruptcy, cars can be repossessed, and the debt can be settled. Student loans are not usually forgiven until full payment or death. Furthermore, if they are also carrying $30,000 in student loans in a job that doesn’t even pay $12 an hour, they aren’t getting any new loan for much at all.
Dorfman then gets to the real point of his article…
An organized effort is underway to convince the American taxpayers, or more accurately American voters, that college should be free. As part of that effort, student loan debt is being portrayed as somehow unfair and a heavy burden that college graduates cannot afford to repay. While college drop-outs with student loan debt have a more legitimate case for having difficulty paying their student loan debt and some thousands of students have been badly treated by for-profit colleges, a few sympathetic cases are not sufficient basis for a wholesale change in a program that would involve transferring over $1 trillion in wealth from taxpayers to college graduates, many of whom will have higher lifetime earnings than the taxpayers who would be forced to pay for their college degrees.
Ah yes, "fairness" that was the word I was looking for. Somehow the trillion dollar transfer of wealth from college students to student lenders before their careers have even started is more reasonable than say, taxing financial transactions. As for the earnings, on average, yes college graduates earn more, but that’s in large part because almost everyone else gets paid shit. The mean is influenced by majors in finance who might be paid six figures as much as it is those who majored in social work and make $30,000.
I’m sure Dorfman has ample personal experience navigating student debt with his P.H.D. and all. Why should we burden Dorfman and the benevolent overlords at the top of the income ladder with -gasp-, higher taxes? Afterall, Dorfman has responsibly navigated his student debt right?
I decided to dig deeper into the mystery that is Jeffrey Dorfman, so I decided to look at his CV. Dorfman graduated from University of California Davis in 1987. I did some digging to find out how much Dorfman was paying back in the day to go to school: $1,286 per year. If we adjust for inflation then in 2016 dollars Dorfman would have paid $2,684. Surely tuition today at UC Davis must be comparable right? Nope. Undergraduate tuition at UC Davis in 2016 is $13,951. It’s easy to responsibly navigate debt when you don’t have any.
So Dorfman went to college on the backs of taxpayers, paving the way to a life of cushy professorships and writing articles on the behalf of plutocrats, but when it comes chipping in a few dollars to help the next generation out, he feels that they should manage their money better. It’s the classic “I’ve got mine, now piss-off” philosophy of government. So what does this economic supergenius suggest as a solution?
...Perhaps student loan approvals should be contingent on likely ability to repay, which could include credit history, major, and current student loan balance. Second, while current disclosures try to make students aware of what they face in terms of repayments, maybe this process can be improved in hopes that student borrowers better understand what they are committing themselves to, to ensure they understand the full implications of their borrowing.
What a steaming pile those ideas are. First, I’m not sure if Dorfman is aware of this, but typically 18-year-olds don’t have credit. Does he want to ensure that the only students who get loans are those from well-off families? Second, how exactly do you base loans on major? Is it based on potential earnings or value to society or are those two things the same? Who would manage this and how do they know what jobs are going to be around? Do we just have businessmen choosing who gets a loan for a major? Thirdly, there is a limited ability to actually predict what you want to do, what it’s going to cost, and how much you’re going to earn years into the future. Again, Dorfman is talking about 18-year-olds here.
Dorfman goes on to reaffirm that there is no student loan debt crisis because of car loans (do the math on that).
More importantly comparing student loans to auto loans shows that there is no student loan crisis. The payments on almost all student loans are less than the payments on average-sized car loans. The student loan “crisis” exists because borrowers simply do not want to prioritize their loan repayments and they believe the political process might make their student loan debt go away. The student loan crisis is mostly politics and a sense of entitlement, not economics.
This bears repeating: Car loans and student loans are not the same thing and are not necessarily for the same people. People who take out car loans generally have full-time jobs, college students generally do not. Does Dorfman feel that his situation would have been improved by owing $55,804 instead of $10,736 coming out as an undergrad? If he does, he needs to brush up on his arithmetic.
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