The Affordable Beer Act

I usually agree with Megan McArdle but I think, in this instance, she is off mark. From Don't Make Colleges Pay for Student-Loan Defaults by Megan McArdle.

Incentives matter. This is a fundamental tenet of economics: People respond to their incentives. If something in a market seems to be going wrong, it’s because the incentives have gotten screwed up.

Looking at the market for education, it’s hard not to think that there’s something wrong with the incentives. Tuition keeps going up and so does debt. The percentage of people who are not paying off that debt — either because they are in default, deferment, or an income-based repayment program — is staggering. Naturally, a lot of folks would like to get the government in there to start tweaking those incentives until the market stops being so crazy.

One issue involves the incentives that schools have to ensure that their graduates get value out of their degrees. At the moment, a school can enroll you in practically any program, and the government will lend you money for tuition and living expenses, whether or not that degree is likely to produce the means to repay the loan. Since schools are often in a better position to know the economic value of their degrees than naive potential students, that twists the incentives. Eventually, the student will pay, either with money or trashed credit. If the loan defaults, taxpayers will pay too. The school has the most information about the transaction and yet it has the least at stake. No wonder we have such high tuition, so many dubious degree programs and such a troubling rate of default.

So why not make the schools care? That’s the idea behind “risk sharing,” a reform plan that is hot in Washington. The details come in various flavors, but the core is the same: When graduates default, their schools would be on the hook. That's already true to a small degree, but a school’s default rate has to be egregious before the government will take action. Ideally, risk-sharing would remove those thresholds for government action. Every time a student defaults, the school would pay some fraction of the lost money.

It sounds like an economist’s dream: simple, elegant and even just. Unfortunately, when you start digging into the details, it starts looking less elegant and more complicated.

She's right, it is complicated. Her concern is that

Penalizing schools with high dropout rates would undoubtedly deter schools from preying on naive students with no college graduates in their family background. But it would probably also discourage schools from admitting those sorts of students, because they are the ones who are more likely to default.

True enough. But that's the point. We don't want schools admitting students who will end up in debt and without a productive degree to show for it. Yes, it will have a disparate impact. All that argues for, though, is some marginal degree of attentiveness. Is there a policy approach that can ensure that the very poorest have the ability to graduate with a worthwhile degree. If so, let's implement it. What we should not do is keep immiserating poor students by having them take on debt loads for activities that won't improve their lives.

I think McArdle has been diverted by trying to create a poor analogy to an aspect of healthcare. These are not comparable dynamics and therefore her conclusion, I think, is wrong.

All that being said, the reward for reading is in the comments section. McArdle has generally excellent commenters and they have fun with this proposition,

Fish Heads • 2 days ago

We need an Affordable College Act, or ACA, with a mandate that everyone pays tuition whether they are in school or not. The cost curve would be bent downward, saving the average family a whopping $2,500 per year. Professors could finally get the raises they deserve, and college football coaches would no longer be overworked and underpaid. I'll be in my safe spot.

Jeff R. Fish Heads • 2 days ago

I liked Bernie Sanders' plan: college is getting more expensive, therefore the federal government should make it free. Simple, effective, well-reasoned, unobjectionable.

evadderf • 2 days ago

CRAFT BEER is getting more expensive, therefore the federal government should make
it free. Simple, effective, well-reasoned, unobjectionable.

FIFY

Ron Bruno • 2 days ago

The Affordable Beer Act-- as it turns out the possibilities for affordable legislation are endless.


Sigivald • 2 days ago

The Affordable Affordable Act Act.

Act.


Ann_In_Illinois • 2 days ago

Venezuela has led the way! I've been wanting a flat screen TV. When should I start stockpiling toilet paper?


eyethink2 • 2 days ago

If the thought of free beer makes you want to stockpile toilet paper, I don't want any of what you're having to drink. :)


eyethink2 Ron Bruno 2 days ago

I'll drink to that.


Jeffn • 2 days ago

I think we should push for this, actually. I figure when they start rationing beer, 20 or 30 states will secede within a month.

You can have my Hoppy IPA when you pry it from my frosty, dead fingers.

oilman_15106 Fish Heads • 2 days ago

OH would that be the $2500 a year in health insurance savings I am supposed to be getting?

SgtFraggleRock oilman_15106 • 2 days ago

Hey, at least you got to keep your doctor, right?

Yancey Ward SgtFraggleRock • 2 days ago

Hello, Doctor Hibbard Nick!


SgtFraggleRock Yancey Ward • 2 days ago

"You've tried the best. Now try the rest."