Should we have no student loans in the U.S.?

While I agree that in principal people really shouldn’t use student loans for college, I do not think we can totally abandon this concept purely from a legal perspective of free enterprise. Nor do I think the Bank of Ed will any time soon be shuttered since it represents the best macro monetary control ever conceived of in long while.

With that said, many believe there is a lot of free money out there but the sad truth these days is that many financial aid packages are nothing more than loan schemes (1). There have been some Ivy League universities who have used zero-loan policies for low income students to eliminate the use of college loans (2). This is primarily accomplished through the maximization of grants, scholarships and similar free moneys (2).

While the results of such policies have truly encouraged the lower income, and hence higher minority, attendance and retention it is not without its draw backs (2 & 3). Evidently, with zero-loan policy produces potential workers who are willing to accept lower paying public careers or jobs vs. those with loans who are forced due to expense to choose academic pathways which lead to higher paying fields of work (2). Although from an alumni donation perspective college loans will reduce the amount of gifting from those student loans recipients vs. the zero-loan students (3).

In 1992, Finland went off the student loan idea for college (4). Now I know Finland and the U.S. are totally different in many ways, but Finland’s experience is an interesting one. In Finland, evidently those entering college have to join a student union which would be akin to a professional organization in the U.S. and said membership includes health care (4). Ironically the switch to pure state support for college didn’t really change the average expenses students would incur (such as housing, food, and clothing) nor did it dramatically increase as the state expenditures (4). Further after going to this method student and parental financial support for higher education actually increased with an estimated 42% of students working during college career in 1995 (4). Students at that time in Finland were averaging 3 credits per month which is about a class month in U.S. terms (4). Current statistics on Finland indicate that 46.2% of people 25 to 34 hold a bachelor degree or higher as of 2010 in comparison to the U.S which has 32.8% or nations like Germany at 18.9% or Japan at 33% (5). As a percentage of GDP in 2010, Finland is paying about 6.3% to support its system currently, whereas the U.S. is at 5.3%, Germany was at 4.5% and Japan was at a mere 3.6% (5). Surprisingly in Finland in 2012 63.6% of their populace aged 25 to 34 did not hold a college degree, and even so their labor force participation rate for this age set for 2013 was 20% (6 & 7). This statistic is similar to the U.S. where the same age set had a 20.6% labor force participation rate for 2013 (8). In comparison the U.S. and Finland labor statistics appear to be similar to that of each with the exception of inactivity. The U.S. seems to have currently a slightly higher level of inactive working population overall (see Chart 1 and Chart 2).

% of 2013 Population by labor force status and age (Finland)
Age	Labor Force Participation	Employment rate, %	Unemployment rate, %	Inactive
25-34	20.0%	18.4%	1.6%	4.1%
35-44	20.3%	19.1%	1.2%	2.7%
45-54	23.2%	21.8%	1.4%	2.9%
55-64	16.8%	15.6%	1.2%	9.9%

Chart 1- Source: Statistics Finland (7)

% of 2013 Population by labor force status and age (U.S.)
Age	Labor Force Participation	Employment rate, %	Unemployment rate, %	Inactive
25-34	20.6%	19.1%	1.5%	4.8%
35-44	19.9%	18.8%	1.2%	4.3%
45-54	21.1%	19.9%	1.2%	5.4%
55-64	15.4%	14.5%	0.8%	8.5%

Chart 2- Source: Bureau of Labor Statistics (8)

In the U.S. the general claim to obtain a secondary education degree is for more money, better job security, and lower unemployment. While this may be true in some statistical sense for certain population groups, clearly Finland’s choice of having no loans has helped greater numbers achieve higher education overall, but labor wise it doesn’t seem to be translating into lower unemployment overall. It is clear that Finland has different work values than that of the U.S. since it has allowed culturally a greater diversity of work to flourish which includes work for those who for whatever reason have not pursued higher education. The real stark difference between the U.S. and Finland is the fact that those between 25 and 34 seem to be starting homes and are actually taking on housing debt more so in Finland than in the U.S. (9). In contrast nearly 60% of this populace was renting in the U.S. (10). Clearly the U.S. student loan method is having an impact on such things as 1st time housing starts, while in Finland those with less education are still able to find work to support a housing loan despite the burden.

The problem is with student loans is not necessarily the fact they exist but the fact that such a loan structure can be used for abuse economically. I do think overall it is better for education as a whole not to be fettered to loans because it can bring into question a whole host of problems and moral dilemmas. But America is not Finland, and as such we must allow the idea of educational loans to still exist but clearly one that must be seriously regulated so as to protect the inherent goodness of higher education. Such regulations should not be totally based on the free market ideologies or totally in control of the political machine of government, but something more or less in between.

It seems more important than eliminating student loans would be the job market itself being able to provide all peoples with the opportunity of work that supports the worker and their family needs regardless of educational attainment. While I fully believe that education is inherently good in nature, not all peoples will be gifted enough to maximize that potential for whatever reason. This puts a care burden on those who have obtained higher education to care for those of lower educational status socially and not to laud or rule over them with their higher status. It seems to me that these fundamental thoughts have been lost in the conversation of work in U.S. as we exit the Great Recession.

Citations
(1) Woodruff, M. (2014). When parents pay for college, student debt becomes a family affair. Yahoo Finance. Retrieved on 5/25/14 from http://finance.yahoo.com/news/student-debt-nearly-destroyed-this-family-s-finances-150749696.html?soc_src=copy


(2) Hillman, N. W. (2013). Economic Diversity in Elite Higher Education: Do No-Loan Programs Impact Pell Enrollments?. Journal Of Higher Education, 84(6), 806-831.

(3) Rothstein, J., & Rouse, C. (2011). Constrained after college: Student loans and early-career occupational choices. Journal Of Public Economics, 95(1/2), 149-163. doi:10.1016/j.jpubeco.2010.09.015

(4) Kivinen, O., & Hedman, J. (2000). From a Loan-Based to a Grant-Based Student Support System: the Finnish experience. European Journal Of Education, 35(1), 97.

(5) Snyder, Thomas D., Sally A. Dillow, and (ED) National Center for Education Statistics. "Digest Of Education Statistics, 2012. NCES 2014-015." National Center For Education Statistics (2014): ERIC. Web. 21 May 2014

(6) Statistics Finland (2013). Last year persons aged between 35 and 39 had the highest level of education. Data. Retrieved on 5/25/14 from http://www.stat.fi/til/vkour/2012/vkour_2012_2013-12-04_tie_001_en.html

(7) Statistics Finland (2014). Labour force survey. Data. Retrieved on 5/24/14 from http://www.stat.fi/til/tyti/index_en.html

(8) Bureau of Labor Statistics (2014). Employment status of the civilian noninstitutional population by age, sex, and race. Data. Labor Force Statistics from Current Population Survey. Retrieved on 5/25/2014 from http://www.bls.gov/cps/cpsaat03.htm

(9) Statistics Finland (2009). Young adults the most indebted. Data. Retrieved on 5/25/14 from http://www.stat.fi/til/vtutk/2009/vtutk_2009_2011-12-21_kat_004_en.html

(9) Statistics Finland (2011). Households’ assets. Data. Retrieved on 5/24/14 from http://www.stat.fi/til/vtutk/index_en.html

(10) Bureau of Labor Statistics (2012). Current combined expenditure, share, and standard error tables- Age of reference person . Data. Labor Force Statistics from Current Population Survey. Retrieved on 5/25/2014 from http://www.bls.gov/cex/