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Culture War Roundup for the week of August 21, 2023

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Inspired by college loans discussion earlier, I'd like to apply a policy engineering lens:

  • What are the minimal changes necessary to get an epsilon away from the current model of "government guarantees the entire loan amount with no conditions and it's not dischargeable in bankruptcy, with private lenders available" and towards a model that incentivizes better behavior in schools and students?
  • Politically, what gets the nose under the tent most effectively, allowing further reforms?
  • More generally, it seems difficult to implement a series of small reversible reforms to explore a space; what drives that in a government implemented as largely autonomous opaque agencies, and is it itself reformable?

The problem is you can't do minimal changes except to make things worse. There's a ratchet which led to the current situation, so the only way back is a major change to break the ratchet.

It would require:

  1. Getting the government out of the loan business

  2. Making loans dischargeable in bankruptcy after x years.

The two changes would probably significantly reduce the capital available to young students / make borrowing more expensive. Doing so would lead to less students going to college. As demand drops, colleges would either fold or more likely cut non essential personnel (eg admin). Prices drop and people can now afford college (with some minor loans).

But that admin base is heavily democratic so one party has little incentive to change the system since it allocated money to a major voting bloc.

Yes, and those are major changes, not minor ones. There's no gradualist approach to get there; gradualism favors the incumbent here.

Off-the-cuff gradualist proposal to play with, and maybe be an existence proof: fedgov only guarantees 95% of a loan balance, measured as an amount of approved loan principle. Or whatever amount is needed to see a signal emerge (is part of your point that the minimum amount to see that is too large to be viable?). This paired with, I dunno, earmarks for grants for some of those who are impacted, to add palatability to lefty opposition and keep incentives straight for borrowers.

What doesn't work there?

The part where you expect the government to let the sorts of people who own debt take a haircut.

What doesn't work there?

Student loans already aren't guarantees any more; they went over to almost entirely direct loans from the government in the Obama administration. Just undoing that would be a big move.

If you did do it, the first time there were a lot of defaults, the percentage would be retroactively bumped back up to 100% because "too big to fail" or something like that.