Can YOU Find the Incongruity? – Federal Student Loan Program Edition

It's a favorite past-time for many, I'm sure. Finding fallacies in the recent arguments made by Republican congressmen and women about these CRAZY Democrats taking over the country...well, it's like shooting fish in a barrel: "death panels", out of control debt (apparently the debt was under control until now), and my personal favorite "Keep the Government out of my Medicare".

Therefore, in what I'm sure will be a regular series (if I spent the time), let's play Find the Logical Fallacy!

I'm sure you are readily aware that a rather major piece of legislation was passed and signed into law this week. Well, as an added bonus, the Democrats added student loan reform to the bill. Well, the Republicans can't let this slide, can they? I mean, Big Banking is completely OPPOSED to any overhaul of the Federal Student Loan system. Is it possible that the Insurance Industry AND Big Banking might get hit with the same bill? Yes. Cue sputtering lawmaker. 

"The Democratic majority decided, well look, while we're at it, let's have another Washington takeover," said Senator Lamar Alexander, Republican of Tennessee and a former federal education secretary. "Let's take over the federal student loan program." 

Darn Democrats! What right does the government have getting itself involved in the Federal student loan program? I mean, really?! The absolute GALL. I'll bet they've got their eyes on food stamps next.

Let's take a peek at the, apparently, non-government run, privatized Federal Student Loan Program…

Background:

Interest Rates. The Federal Funds rate is at, what, 0.25%? My savings account is paying me less than half a percent. My long-term savings rate was just lowered to 1.2%. Hell, I got an email this week offering 3.25% mortgage from ING. I heard a lecture from a man at the NY Federal Reserve last week in which he noted that some economic indicators suggest a negative interest rate might be needed to correct our current situation. 

Yet student loans are capped at an astonishing 6.8%! And that's for the low-priced Stafford loan! If you need to borrow more than $20,000 per year – which, in case you're curious, is less than half the TUITION at Columbia this year (forget food, books, rent…) – you'll need a Federal PLUS loan, whose interest rate is, depending on your financial institution, around 8-9% interest, which starts accruing immediately. The math is astonishing.

Commercial banks and Student Loans: Essentially the Feds provide subsidies to commercial banks to get them to loan to students. In fact, the Feds ALSO assume the RISK of the loan. So the commercial bank is subsidized to (a) find students who need loans, (b) offer them a loan at 6-9% interest, (c) collect that interest, PLUS the Federal subsidy, and – finally – (d) should the student default, these banks then turn to the Feds, who reimburse them for the loan amount. Apparently this system is more efficient because it takes the overwhelming task of marketing and customer service from the Feds and gives it to these banks. If my tone isn't clear enough, I don't agree. Neither does Rep. George Miller, (D-CA), "Why are we paying people to lend the government's money and then the government guarantees the loan and the government takes back the loan?" Good question, Congressman.

When Obama signs this health care reconciliation package student loan reform becomes law. And it will become law without any support from Republicans. This may be attributed to the fact that it's tacked onto the reconciliation package for health care… which is the political equivalent to a basketball team comfortably leading a game, late, whose opponent insists on a full-court press with less than a minute. What do you do? Beat the press, toss the ball above the rim, and flush home a nice two-handed jam for ESPN, just in this case you make the NYT. 

The GOOD news about this reform is that it saves money (CBO says $61 billion), gets the profiteering out of paying for education (at least from the banks; school tuition is another ball-game), expands the Pell Grant program and makes it easier to pay back loans. In a move of shocking simplicity, students will no take out loans through the colleges' financial aid offices, instead of using a private bank. 

The bad news: it doesn't start to affect students until 2014. Nonetheless, I'd call this a net win.

As a parting thought, look at this little gem in the same article: "In lobbying fiercely against the overhaul, the private banks argued that it would eliminate jobs, even though the government will hire many of the same banks on a contract basis to service the loans and perform other back-office administration. Furthermore, the banks said that with the government as the only lender, students would not get the same level of service." 

Have they ever tried calling themselves?  Perhaps they have and are just still on hold.

Gummy Glory

It's an intriguing title for an exponentially more intriguing subject. Vague enough? First, points to Nicole for exposing me to the latest glory of teh intarwebs. This is not only mind-blowing, but crazy. We could also use the title: "When is a gummy bear actually a gummy Megatron?"

Next, cue deep-voiced movie announcer guy: In a land, where snack food is king… One man is on a journey to reshape the chewy, fruit-based candy industry.

Over at the website Pimp That Snack (oh yes, that's its title), there is a magical tale. A tale of ingenuity, of dedication and of too much free time.

I implore you to read it. Now. Right here.

When Statistics Blow Your Mind

I am an apologist for statistics. It's time for everyone to accept that. I have.

I love stats. I also fear stats. Statistics are easily manipulated – indeed, in this post-modern world one could argue that all statistics, by virtue of being measured, are manipulated. I'm sure that I'm not the first person to wonder about Heisenberg's Uncertainty Principle as it relates to social indicators. Concepts like "teaching to the test" and "gaming the statistics" exist because people attempt to achieve a statistical gain – in, let's say, student intelligence as measured by a test – at the expense of meaningful advancement. It's what happens when the numbers become more important than what they try to describe.

I think the power of statistics, though, is when they help us to understand a particular dimension of a difficult or complex problem. Hidden complicating variables can obscure a seemingly obvious connection between simple events. The challenge to consider all the complicating factors is a thrilling mental puzzle. Using 14^th Century England as an example – because, why not? – it would seem that the significant decline in exports witnessed in the middle of the century might be attributed to the outbreak of the Hundred Year's War. But with regression analysis, one can see that other factors include poor harvests from a changing climate and -- quite significantly -- over-taxation by the English Kings (Marriott, 1999, pg. 30).

Mostly what I love about statistics (and numbers and indicators and regressions and all of the rest of it) is that it is so interesting to find multi-dimensional connections between events or actions that seem, perhaps, intuitively related but are not proven to be related in that way. Then, with an intelligent model and some good data, suddenly everything becomes clear! It's that move -- from intuition to illustration – is where the magic is for me. It's where people have epiphanies that lead to brand-new research.

[Of course, when one suspects an intuitive link, and goes hunting for results, one will invariably suffer from confirmation bias and a myriad of other statistical ailments. Let us put those aside for another post.]

The reason I'm writing today [instead of studying for my macroeconomics midterm] is that I was recently reminded of Hans Rosling, a Swedish MD/MPH who does some pretty cool stuff at his site Gapminder. He speaks regularly to TED (the "Ideas Worth Spreading" people) about a number of global issues. In this particular video, he's discussing the relationship between HIV/AIDS prevalence and Income. I think it's a pretty good example of what happens when a compelling speaker finds persuasive data and develops a simple, elegant way to demonstrate an outcome. Essentially, this is the highest and best use of statistics, to my mind:

So carve out 10 minutes, and enjoy Hans Rosling.