What if Robert Smith had asked the college and its professors for some assistance in paying off the student debts?

Sir, I refer Andrew Edgecliffe-Johnson story on billionaire Robert Smith announcing during a graduation ceremony that he would pay off the for many students enormous debt. “Philanthropist with a gift for surprise” May 25

Indeed, it was a great initiative, at least for the fortunate students but, to evaluate its full significance, you would have to know what assets Smith had to sell, or what services he could not buy, in order to pay off those debts.

But, that said, had Robert Smith said he’d pay off 85% of all graduating Morehouse College’s students’ debts, if only their professors and that college, those who got all the money from that student debt, paid off the other 15%, that could really have been a game changer. 

PS. http://perkurowski.blogspot.com/2007/01/should-not-higher-education-be-more-of.html

@PerKurowski

If universities and professors had in payment to take a stake in their student’s future, you can bet students’ merits would mean more than parents’ wallets.

Sarah O’Connor writes: “Those in the top 1 per cent of the income distribution complain that the growing wealth of the “0.1 per cent” has priced their children out of the sort of private education and housing that they themselves enjoyed.”“We must stop fighting over scarce educational spoils” March 27.

They are wrong! All the income of the growing wealthy “0.1 per cent”, is immediately returned to the real economy, when they buy a lot of assets, like yachts, and services, like yacht crews, which are all really not of much real interest, or use, to the 99.9 per cent rest of the economy.

And if there is anything that really has helped price out private education and housing, that’s the excessive availability of financing. For instance if the risk weights for the bank capital requirements when financing residential mortgages, 35%, were the same as when financing an unrated entrepreneurs, 100%, houses would be more homes than investment assets, and people would have more jobs with which service mortgages or pay utilities.

But that truth does not stop polarization and redistribution profiteers from stoking the envy levels in the society, especially when it can often be done on social media in an anonymous way, and at zero marginal costs.

Now if you really want less discrimination against those who poor might use education better, align the incentives better, and don’t let universities and professors collect all upfront.

@PerKurowski

We need student debt service data, for each university, so as to allow the market to help correct some education failures.

Sir, Dennis Gerson, in reference to a recent article by Sheila Bair on student debts writes: “What she fails to address is the repayment of the income share agreements by college graduates earning the minimum wage, service industry minimum wage plus tips, or those who fail to graduate from college. A substantial portion of student debt and defaulted debt falls into these categories.” “US universities need to fix cost problem they created”

For a starter if university students end up earning too little or do not graduate, then that could be as much or more the failure of the university than the student’s. By just putting out information of each university indicating the respective overall default rate of their students, the market would help to correct much of what is going on... not all.

PS. Higher education should be much more of a joint venture.

@PerKurowski

Yes, higher education must be much more of a joint venture, for all involved.

Sir, Sheila Bair is absolutely right that “proceeds from student debts go to colleges, while the risk of repayment falls on borrowers and, if they default, on taxpayers provides little incentive for schools to contain costs [which] provides little incentive for schools to contain costs.” As a solution she refers to “income share agreements” where universities provide some funding and students pay back a small share of their income over some years. “An investment model to put US students through college”, March 15. 

Since in a 2007 Op-Ed I asked whether higher education should not be more of a joint venture, I fully agree with the orientation of these proposals. 

That said I would not leave it solely as a student to college/university level. I believe that professors should also have skin in the game, and so perhaps their retirement plans should include a clear linkage to how their students did.

And why leave it at that? Why not think of securitizing those possible future participations in earnings so as to provide some upfront money to cover expenses? And what about insurance companies investing in these? And what about some students crowdfunding their tuition fees?

Where I do part though from Bair’s opinion, is on the concept that high earning students could/should subsidize the study costs of lower earning professions. That could cause some unexpected distortions, and it is much more a general societal responsibility, which the higher earning - higher tax paying already share.

PS. Sir, over the years I have written several letters to you on this subject... but 😒

@PerKurowski

For better transparency should newspapers have a section of “Journalism” and one of “Political Activism”?

Sir, Rana Foroohar discussing the issue of ever growing student debt, ends her review of Devin Fergus’s book “Land of the Fee”, with: “Perhaps the new generation of millennial socialists rising in the US should make this the issue they tackle first”, "Slow bleed" August 18.’

What’s wrong with plain millennials? Do they have to be socialists? Or is Foroohar more than a journalist an activist?

Sir, since many years I have been arguing that higher education should be much more of a joint venture between the students and their Alma Maters; and that financing preferentially educational costs would just leave over-indebted students and enriched professors. Just as financing preferentially house purchases benefits those who have invested in houses, much more than those who want a house just to be their home.

Here below are two of my tweets that I think cut over political lines, but that therefore might not be of too much interest to redistribution or polarization profiteers.

1. “Instead of taking on debt, perhaps students should go for crowdfunding their study costs, offering to pay a percentage of their incomes during their first 15 after graduation years. If so would not investors want their professors to have some skin in the game too?”

2. “Would insurance companies be willing to invest in the future by financing students against a percentage of their first 15 after graduations years of income? Would IRS be willing to certificate the incomes of these students for the investors?”

I have now ordered, “Land of the Fee” and so I will keep my comments till after I read it. That said I am sure I will again have to ask: Where was FT when regulators risk weighted sovereigns 0% and citizens 100%? Where was FT when regulators allowed banks to leverage 62.5 times only because an AAA rating issued by human fallible rating agencies was present? Where is FT on that all the real benefits of securitization do not accrue those securitized, much the contrary securitization profits are maximized when hurting the most? 

@PerKurowski

Solving problems by raising taxes and having bureaucrats have a go at these, only risks to complicate matters further

Sir, Rana Foroohar writes: “College students who manage to graduate do so with the highest average levels of debt in the country, since state funding has been so dramatically cut over the past several years. Meanwhile, roughly half of the population has only a high-school degree, which guarantees them a $15-an-hour future.” “New Hampshire: a tale of two Americas” July 29., strangely in that FT’s Weekend Magazine I do not receive as a subscriber in Maryland, USA.

That begs two sets of questions: First, is not ample availability of student debt a much larger driver of high student debt than lack of state funding? Would university fees be nearly as high if these were not so easily financeable? Is not student debt a business driven more by financial profiteers than by pure educational considerations? If students already find it hard to repay their debt, is it logical for taxpayers to foot that same bill? In short should not higher education be reorganized more in terms of being joint ventures between students and universities?

Second, in these times of robots and automation, how on earth can Foroohar presuppose having more than a high school degree would guarantee the young a more than $15-an-hour future? And if she supports the idea of a $15 an hour minimum wage, what does she suggest to do with all those who with or without high school degree cannot reach up to that bar.

Sir, much of this easy talk of solving coming problems the usual statist way by raising taxes and having bureaucrats have a go at it, only risks to complicate matters much more. As a Venezuelan I know that to prevent social order from breaking down is always better than trying to reconstruct it. We are facing a new world, we now already need decent and worthy unemployments. A universal basic income, funded with real money, which provides a step stool to reach up to the gig economy, seems like the only real, peaceful tool at hands… though of course the redistribution profiteers hate it as it diminishes the value of their franchise.

Foroohar also writes: “My husband… employs cleaners, plumbers and tradesmen, some of whose parents worked in the same jobs for his mother. It’s hard not to think of this as a kind of neo-serfdom, given the lack of other options for those without a college degree.”

Well I am sure that there will come a day, quite soon, when many with a college degree will deeply envy the income of plumbers, especially if these are serving the one percenters.

PS. This article strangely appears only in that FT’s Weekend Magazine I do not receive as a subscriber in Maryland, USA.

@PerKurowski

Children, no matter what the redistributors promise, you cannot redistribute the future before it’s been created

Sir, Martin Wolf writes: “A case can be made for borrowing for high-quality investment, especially when real interest rates are so low… But the increased spending needs to be paid for by effective and efficient taxation… What is needed is honesty: the country can choose to raise spending. But, if it wants to run a sound fiscal policy, this will mean substantially higher taxes” “Austerity is dead. Long live austerity” June 16

Honesty? Are the low real interest rates on sovereign debt for true, or are these not much a function, an illusion, caused by the regulatory subsidies to sovereigns? Does a 0% risk weight for the sovereign, and a 100% for unrated citizens, which is what the Basel Committee’s standardized risk weights establish, really mean nothing when it comes to allocating bank credit to the real economy?

Yes, it would clearly have been better to launch different “high-quality” public investment programs, than that dumb kicking the crisis can down the road program financed with Tarps, QEs and what have you.

But, just like saying “risk-weighted” does not mean it has really been risk weighted, saying “high-quality” does not signify for one moment that it will be of “high-quality”. In fact, all around the world, what we continuously see is a reduction in the capacity of governments to deliver high-quality investments. Could that be because of their 0% risk weight, they are now less forced to do so?

Wolf also writes: “a quarter of Labour’s promised increase in spending goes to eliminate student debt, while leaving universities far worse off. This is an irresponsible and regressive benefit in favour of future winners.” Here again remember, mentioning “future winners”, does not guarantee one iota the students will be the future winners.

You young, please, don’t listen to siren songs. The future, no matter what the redistribution profiteers promise you, cannot be redistributed before it’s been created.

PS. Students, If you want universities to better help you be future winners, pay them 50% of what they actually charge you, with some basis points in you future earnings.

@PerKurowski

World Bank: How can we create decent and worthy unemployments to help face a worldwide structural lack of jobs?

Sir, Kristalina Georgieva, writes about the needs for jobs, the difficulties involved with creating these jobs, everywhere, and of how the World Bank is trying to help. “Job insecurity is a fact of life for young people” April 22.

That is all very commendable but what I truly miss, for instance during the 2017 Spring Meetings of the World Bank and IMF, is a discussion, long overdue, about what to do if sufficient jobs are nowhere to be found.

The very real possibility of hundred of millions of young people soon facing the prospects of a lifelong lack of employment, perhaps only eased by some few temporary gigs, is a monstrous social challenge, that must be tackled in time.

For instance if in order to create jobs, we invest so much that there is little left over for taking care of if we fail to do so, then perhaps our problems could compound.

And I am of course not talking about the normal set of social safety nets to take care of a temporary lack of jobs, but of much more fundamental measures… like perhaps the need of a well funded universal basic income paid out to all.

http://perkurowski.blogspot.com/2012/04/we-need-worthy-and-decent-unemployments.html

Education is of utmost importance for creating jobs, but business as usual will not suffice. For instance some of the remuneration of teachers and professors need to be contingent on how it goes for the students. The current way of loading up university students with debt, that has to be repaid no matter what, basically in order to pay professors great salaries up front, smells a lot like a scam… or like bankers’ bonuses based on short-term results.

http://perkurowski.blogspot.com/2007/01/should-not-higher-education-be-more-of.html

PS. Had the issue of how robots and automation is impacting the job market been raised earlier, we would perhaps not have to be listening to useless Wall construction proposals.

http://perkurowski.blogspot.com/2017/02/here-some-disorderly-lose-cannon.html

@PerKurowski

Is not graduation time a bit late to inform students: “There is more to university than money”?

Sir, Nancy Rothwell, the president and vice-chancellor of the University of Manchester, writes: “Each year I tell graduating students that if they leave university with only a degree and greater “earning power”, I consider we have failed them. A university experience should be about so much more than this.” “There is more to university than money” April 16.

Absolutely! But is not graduating time a bit late to disclose that? How much debt would students dare to take on in order to pay the tuition fees, if the request of admission papers contained a: “Warning, universities are more than about making money”.

By the way, has there recently been some academic research on the evolution of the remuneration of professors? These Piketty days, it would be interesting to see how that has evolved.

In 2007 I argued that higher education should be more of a joint venture between professors and students. Of course I did not mean all the professors’ salaries were to be based on the earning powers of students. As I said, I fully agree that universities are much more than that, but, some better alignment of incentives, seems to be much called for.

It would seem that just like easy house financing translates into higher house prices, easier education financing just translates into higher tuition fees. But, I may be wrong, so as I said research is needed… any papers coming up on this?

PS. Someone commented. "There must be a little sadism involved here, since graduation time is precisely when students most begin to think of money."

@PerKurowski ©

If the incentives are correctly aligned all bonuses make sense.

Sir, John Kay in “When a bonus culture is just a poor joke” April 28, that he would have felt insulted if as a teacher he were to receive a bonus from a student on the successful completion of a course.

Why should he feel that way if the incentives were well aligned? You see it is really not the completion of a course that matters, as Kay seems to believe, but what you do in life with that completion. In this respect let me share with Kay some brief paragraphs I posted on one of my umpteenth blogs a couple of years ago.

Don’t give your teacher an apple; offer him a couple of basis points in your earnings instead.

Parent and students need some way of sorting through the reams of college information in order to make rational investments, but may I remind you that even when finding the absolute perfect college that you might benefit from aligning the incentives better.

In this respect what I am currently recommending my young friends when they take off for their MBA is that they offer a couple of basis points on their first 10 years earnings to those teachers they feel could best advance their careers…it makes wonders! 

Aligning the incentives could in the long run also be the best way of getting information for the picking of a college to, as education should in fact be a joint venture between students, teachers, and colleges.

Should not Higher Education be more of a joint venture?

Sir, hearing so many young professionals in the USA describing their problems with debts they incurred while studying, I guess that soon some of them could be suing their Alma Maters for misrepresentation or plain failure in delivering the services offered.

Perhaps the incentive structure of the education system needs to be revised so that at least some of the higher education providers offer to collect a part of their fees through a profit participation scheme, like for instance by receiving a small percentage of the student’s future earned gross income that is above the level that the student could have been estimated to earn without further education, during his first 20 years of work.

How are then the universities going to pay for their professors now? Easy, that is what the financial markets are for. These participations in the future of our youngsters could be securitized and sold in the markets, perhaps even as a good investment for a professor’s retirement fund… of course, that is if the professor delivers on his promises.

For a university to show a willingness to invest in their own students, because they are sure of what they are giving them, might be a better marketing tool than outright grants and “we invest our money in your future” is my slogan. Also, for students, the question of what university offers to invests the most present dollars against the smallest percentage of the expected future earnings... should rank among the first when selecting an Alma Mater into which to invest their own future.