The Association just learned that the regulator finally admitted that the US student loans have created a crisis.  Cited in this article, the administrator mentioned three sources that have caused the student loan debt problems.

1. US higher ed institutions.
2. The borrowers irresponsible acts.
3. Past administrator’s policy.

AAEA has written many articles in the past on the first point–that the US higher ed institutions have to control their operational cost. Please click here to read more.  The regulator’s remark has directly or indirectly confirmed the research finding.

It is pretty interesting to note that while admitting about the crises are happening, there are no suggestions or future policy will be applied to curb or solve the crises.  This shows that even the regulator does not know what to do.  But, as the Association has shared to the American public that the inability to solve the problem is due to (1). There is no any policy instruments; (2).  It is not the branch of Executive to solve the issue; (3). There is no will or interest from all the three branches of government to solve the problem or (4).  Instead of solving the issues, the policies have indirectly let other parties to create or infused more systematic errors into the system.

This morning we learned the administrator has revived the accrediting group for-profit colleges, despite of their low track record.  Will it matter?  May be.  The public may need to read an exclusive report on this issue written by Senator Elizabeth Warren’s office.  Please click here.  This is just a classic example that shows how disarray the US education and public policy is.  How dysfunctional the relationships among the US Executive, Legislative and Judicial branches are.  When policies applied to benefit certain interest groups alone, it logically cannot be called a public policy.  Rather, an interest group policy, for it does not represent the American public. That is how the logic works.

By now the American public has more knowledge about the effects of going to college and the potential of creating debts that some and because of a lower ROI (Return on Investment), may not be able to take them off their shoulder, ever.  That being said, the impact may be minimal.  However, there are certain population groups who may take the baits.  If you care about your friends or family members and happened to visit the AAEA’s site or read articles in the BLOG, please share or forward the articles to them.  You may save them from taking loans which they may not be able to pay them back for the rest of their life.  Please click here for real life experience from others (One needs to scroll down to the bottom of the article).

The current administrator’s policy again confirmed what the Association has hypothesized and found in its recent research.  Systematic errors do occur and with this additional policy, perhaps, more of these kind of errors are (intentionally) infused in the system because of special interest groups, which may not necessarily represent the majority of the American public’s interest.  Consequently, the student loan debts and its growth will accelerate as well in the near future.

The Association starts with a pretty simple objective which is to revitalize the US Higher Ed.  Its first published article was written on March 13, 2013.  Today, on November 24, 2018 at around 10am, the 1 millionth magic number is reached.  There got to be clear reasons why the public keep coming back and spent time to read the articles written in the Blog.  It is not just a simple article, but it contained new ideas, logical thoughts surrounded education analytics, higher ed, and student loans.  AAEA is independent, honest, unbiased, and always used data in its analyses.  The Association does not side with anyone, except the truth alone.  DOE starts publishing the financially troubled colleges, universities and other types of education entities only after the Association has done it first.

While some college students take a couple of days off to visit their family, perhaps, this year, the forbidden topic to talk about while having the traditional Thanksgiving dinner may also include student loans, in addition to religious and politics. It is too scary and too painful for some to even think about it. No one in her or his right mind would like to ruin the once-a-year family gathering by bringing the student loans topic on the dinner table.  It is such a precious moment to be tainted.  But not discussing about it, does not mean it will bring the issue away.

However, in the real life that what million of American families have to deal with many years to come in their life.  If the US lawmakers do not have the will to deal with the biggest issue in the 21th century in the history of the country, it may impact the future of young generation’s well being.  While there are many other current problems facing by the US, such as immigration, oil price, the declining of the DOW, trade wars and others, it seems the student loans issues are not in the regulator’s priority list, at least for now.  Consequently, it may catch everyone eyes by surprise–one day in the (near) future.  However, citizens of the country need to be thankful for the support of Uncle Sam to educate them, just need a little tweak to make it more efficient.

The general public perceives it as the same.  If this is the case, may be the only option left is solving it through the deregulation.  Meaning the lawmakers need to do something meaningful.  The logic leads one to believe that they, the lawmakers are the one who can solve the issue, one-and-for-all.  So long they stand still, the problem will get worse.  So, Uncle Sam has to decide when to move.  The directions have been analyzed and shared pretty clear.  It is up to the Legislative and Judicative branch to take actions.  It is not, by any means can be solved by Executive.  Executive cannot solve the issue.  Especially when it does not have the interest to do so or it has sided toward the producers of the systematic errors. Until this happens, the American public will continue suffering.  Perhaps, other countries in the world are surprise to find out that the Uncle Sam is so powerless to solve its own problem associated with the skyrocketed student loans.  Perhaps, many economists astounded to learn that a country who has the most Nobel Laureates in Economics cannot solve this simple issue, especially when the examples can be found easily in many Asian countries, such as in Singapore, Japan, India, South Korea or China.

Unlike random errors, systematic errors are errors that fed into the system purposely.  Today, we learned from an article that confirms such errors do occur.  Based on researching and studying the US student loans historical data, the Association has written and hypothesized about it many times.  Now that, according to the published article, such issues have been proved to happen by the DOE, but was hiding from the public, until today (November 20th).  It is pretty obvious who will suffer from this classical example of moral hazard.  Even though, this malpractice obviously scattered all over the places, the administrator seems to go the other ways.

From the statistical, econometric or classical theory of measurements, increasing the sample size will solve issues related to random errors, but surely not for curing, minimizing or eliminating the systematic errors.  This kind of vital errors can only be fixed if the sources that produce them are completely removed. Otherwise, the results may not pass the reliability test.  Needless to say that the loan servicing companies are not the only source that may have infused the errors into the student loans system either by design, unintentionally or unknowingly as a compromise to a more important management goals such as making profit.  This is the caveat, if letting publicly own company, i.e., Wall Street to get involved on basic public interest area. The game of the student loans is more than a one-party game.  If the regulator is part of the issue, then things may not look so ………smart.  The American public is the only party and the judge who can test this maintained hypothesis.  Good luck!

The Association pulled some daily stock price from one of the public companies who has business on the student loans. Over the period of fifteen years, this company has done pretty well as measured by the stock price which is almost double during the period of analyses as shown below. Among many factors, one of the drivers of this company performance is its ability to make money or profit and then distributed part of it to its stakeholder and shareholders. Sharing of such a profit can be seen as wealth transfers from the students and their families to the Wall Street investors.  The company’s profit has a positive correlation with the increase in student loans i.e., as more students take the loans, the more profit and the more wealth is transferred.

There are several parties who have to deal with the burdens.  However, the entity that bare them the most in the macro level is the Country and all its citizen.  In addition to the country here are the additional lists of sustainers:

• Individual borrowers and their co-signers.
• US Higher Ed institutions.
• The hiring companies or employers.

The acts of moral hazard may not be easily or directly be observed, but their results are pretty obvious.  Many US families are waiting when the policy makers will do something meaningful for their own citizens.  Ignoring that such systematic errors exist, will not solve the existing problem, rather it may make it worse.  But, toward the end, the Uncle Sam may bill everyone out.  Hopefully, but do you know why?