Discover more from Rob Henderson's Newsletter
Loan Forgiveness for Luxury Goods
Louis Vuitton handbags and college student debt
For many people, the first thing they do when they have access to money is to buy status.
Public figures have been known to purchase social media followers.
In the “Varsity Blues” scandal, celebs and other rich people shelled out large sums of money to get their dim kids into college.
College debt is heavily concentrated among relatively wealthy households.
The highest-income 40 percent of U.S. households hold 60 percent of the outstanding education debt.
The lowest-income 40 percent of households hold less than 20 percent of outstanding debt.
Whether measured by income or wealth, student loan borrowers are better off than most Americans.
And well-off people tend to care a lot about social status.
As research has repeatedly indicated, relatively affluent people have the strongest desire for wealth and status. It is those who have more wealth and status to start with who are driven to obtain even more.
In his 1981 masterpiece Class: A Guide Through the American Status System, Paul Fussell dedicates a chapter to higher education.
He opens by writing:
“In the absence of a system of hereditary ranks and titles…Americans have had to depend for their mechanism of snobbery far more than other peoples on their college and university hierarchy.”
The idea is that paying tuition for the title of “college graduate” is equivalent to purchasing a title of petty nobility. Two hundred thousand dollars to be a modern earl or a countess.
Many people are more than happy to exchange economic capital for cultural capital. They will gladly go into debt in exchange for the status of being a “college graduate.”
In other words, college isn’t just about education.
In a 2020 interview, the NYU professor Scott Galloway has stated:
“The strongest brand in the world is not Apple. The strongest brands are MIT, Oxford, and Stanford. Academics and administrators at the top universities have decided over the last 30 years that we’re no longer public servants; we’re luxury goods. We get a lot of ego gratification every time our deans stand up in front of the faculty and say, ‘This year, we didn’t reject 85% of applicants; we rejected 87%!,’ and there’s a huge round of applause.”
Millennials and Gen Z adults are less well off than members of earlier generations when they were the same age. But they are (by far) the most educated generation to date.
That is, even though college graduates are finding it increasingly difficult to find jobs commensurate with their education, demand for college degrees has generally increased over time.
Despite this—or perhaps because of this—tuition has skyrocketed.
Relative to earlier generations when they were young, millennials and Gen Z adults have lower earnings, fewer assets, and less wealth.
But they have titles. And they are willing to pay for them. Even better if they don’t have to.
College is only valuable to the extent that others don’t go. This is why the value of a degree has declined—today there are more college graduates than ever before.
As the economist Bryan Caplan has written:
“Rising education automatically sparks credential inflation; as credentials proliferate, you must study harder and longer to convince employers to hire you. In an everyone-has-a-B.A. dystopia, an aspiring janitor might need a master’s to land a job.”
In 1992, about 20 percent of adults aged 25 and older in the U.S. had bachelor’s degrees.
Today, 37 percent of adults in the U.S. aged 25 and older are college graduates. As this number rises, more and more people will feel compelled to attend graduate school.
Economists have found that there are certain kinds of luxury goods for which, as price increases, so does demand. These are called “Veblen goods.”
That’s what a college degree is. It’s a positional good. Something that is valued because of its scarcity.
Of course, colleges ostensibly educate their students and improve their effectiveness in the workforce. But evidence doesn’t seem to support this. For example, researchers have found that today, the average college graduate has a considerably lower verbal IQ than the average college graduate 40 years ago.
They conclude that, “For employers, this means that a college degree does not have the same meaning as it once did for verbal ability.”
Many have asked why elite colleges, despite their billion dollar endowments, don’t expand the number of seats for all of the brilliant students they turn away each year.
That’s like asking why Louis Vuitton doesn’t produce more exclusive designer handbags. The scarcity is the point.
The whole point of paying tens of thousands of dollars for a Louis Vuitton handbag is that other people can’t.
Seen from this perspective, people take on student loan debt not just to obtain an education, but to buy a status symbol.
Asking for loan forgiveness for college debt is like asking for loan forgiveness for a Louis Vuitton handbag. It is a request for someone else to pay for your status symbol.
Those promoting student loan forgiveness have a good chance of succeeding—they already have.
Which is consistent with research indicating that when the middle class supports a policy change, they tend to succeed only 24 percent of the time.
But when the affluent (those in the top decile of socioeconomic status) support a policy change, they succeed about half the time.