Tag Archives: debt

Another College Cost: Lower Birth Rate

Originally posted at Open
Market

babies.jpg

 

The Washington Times takes
note
of the burgeoning higher
education bubble
in a recent editorial:

The
cost of a college education has soared far in excess of the cost of health
care. This is in spite of — or, more accurately, because of — massive
government involvement in subsidizing and running schools. . . Doing more of
the same isn’t a realistic answer. America is in the midst of what University
of Tennessee Prof. Glenn Reynolds calls the “higher education bubble.” As with
the housing bubble, cheap credit is the primary culprit in inflating the price
of schooling. Federal student loans subsidized by taxpayers have made learning
more expensive, not more affordable.

The
Cato Institute’s Neal McCluskey estimates federal student aid increased by 372
percent between 1985 and 2010, from just under $30 billion to almost $140
billion. To put it another way, as Mr. McCluskey explains, “Taxpayer-funded
outlays per degree rose from $58,755 in 1985 to $78,347 in 2010.” This flow of
cheap money corresponded with rapid growth in tuition at rates well above
average inflation. Mr. Reynolds reports that college tuition grew at almost 7.5
percent annually between 1980 and 2010, when average inflation was 3.8 percent.
At less than 6 percent annually, even health care costs grew at a slower rate
than the university tab.

Young
people aren’t getting much in exchange for this huge outlay. While enrollment
has increased, completion rates remain dismal. Barely a third of students
complete their degrees in four years, and less than 60 percent earn their
degree in six years, according to Mr. McCluskey. That means at least two out of
five enrollees don’t finish and fail to reap the benefits of a post-high-school
education. Even those who complete their programs of study and are fortunate
enough to find employment find that in one out of three cases, their degree
isn’t required for their work.

Continue reading Another College Cost: Lower Birth Rate

College Cost “Window Stickers”

How do you reduce the growing mountain of student loan debt?

Stop subsidizing higher education? End the notion that ‘any degree’ is better than ‘no degree’? Teach kids that paying off $12,000 in loans isn’t a cakewalk? No, no, let’s just tell them again how much it costs and hope they make the best of it.

The DOE has developed a nationally standardized financial award letter, the “Shopping Sheet”, that is supposed to help students better understand the costs of attending college, and compare the costs across different schools. This voluntary approach would have colleges adopt a uniform scheme of presenting the costs of attending their school.

Apparently, the problem is the “lack of uniformity in how schools provide [cost] information,” which confuses students who can’t make proper comparisons between schools. The future of this country can’t add up a few numbers and compare the results. Forget the artificially low interest rates sustained by federal aid, eerily similar to how the housing bubble started. That’s beside the point.

Sure, there are times when costs are obscured by confusing terms, fine print and ‘legalese’ – ever read your credit card agreement?

That doesn’t seem to be the case with college award letters, which very clearly present the costs per semester and/or year. Instead of trying to standardize where it isn’t needed, the DOE should focus on the real reasons that students take on so much debt – easy access to federally backed low interest loans – instead of sidestepping the issue.

A Proposal to Let Bankruptcy Discharge Private Student Loans

A Wall Street Journal editorial today took a very negative view–rightly, in my opinion–of President Obama’s proposal to let student borrowers discharge private student loans through bankruptcy. By law, repayment of federally guaranteed loans cannot be avoided this way. But the Journal wrote: “If there’s not a great outcry over letting borrowers stiff private lenders, eventually you can expect the rollout of a similar policy for government loans.”

And here’s another point: Even students who take out federally-guaranteed student loans first often need private loans also when they reach the cap applied to Direct Loans and still need to borrow for college expenses.  By raising the possibility of discharging some of these loans through bankruptcy – unlikely though it is that Congress will go along – President Obama will drive up the interest-rate cost of private student loans.  Private lenders do not need additional risk of default through easier student bankruptcy. They would raise rates and thereby make college less affordable.  

National Review Fumbles on Student Loans

Over at NRO yesterday Jay Hallen proposed a few solutions to easing
the student-loan bubble. Though his impulses are
correct his recommendations fall flat.

Hallen first proposes that the Department of Education
move to a “risk-based pricing” system in which it would consider a
student’s high-school GPA or intended major in determining the loan price.
Students with lower GPAs would not receive favorable terms on their loans and
would thus choose to attend a trade school rather than college; this, in turn,
would help ease the growth of loans and college tuition. 

There are two problems
with this argument. One, given the grade inflation that pervades American
schools, high-school GPA is hardly determinative of future success. Likewise,
the major students choose before they enroll indicates neither the major that
student ultimately chooses nor, even if the student sticks with the major, his
future success. One could instead imagine using standardized scores as a
benchmark, but the well-documented racial disparities in SAT and ACT scores
would translate into less 
favourable terms overall for blacks and Hispanics–an
outcome the DOE will never accept, much less the Office of Civil Rights. 

Continue reading National Review Fumbles on Student Loans

Elite College ($50,000 a Year) or Good State School ($20,000)?

vedder pictures.jpg

The new Sallie Mae-Gallup survey of attitudes toward higher education, “How America Pays for College 2012,” shows that Americans are becoming increasingly resistant to rising college prices. Some people who were saying “I want the best college money can buy” a few years ago, are now saying “We aren’t going to pay sky-high tuition when there are much cheaper colleges nearly as good.”

Continue reading Elite College ($50,000 a Year) or Good State School ($20,000)?

The 12 Reasons College Costs Keep Rising

When asked the question, “Why do colleges keep raising tuition fees?” I give answers ranging from three words (“because they can”), to 85,000 (my book, Going Broke By Degree). Avoiding both extremes, let’s evaluate two rival explanations for the college cost explosion, followed by 12 key expressions that add more detail.

Continue reading The 12 Reasons College Costs Keep Rising

Uh-Oh–The First Loophole in Student Loan Debt

Carol Todd of Nottingham, Maryland, persuaded a bankruptcy judge in Baltimore to “discharge”–that is, wipe the slate clean on–nearly $340,000 in student loan debt. The grounds were that she has Asperger’s Syndrome, a mild form of autism that apparently prevents her from getting or keeping a steady job. U.S. Bankruptcy Judge Robert Gordon ruled on May 17 that Todd, now in her mid-60s, had met the rigorous “undue burden” exemption from the usual rule that student loans can’t be discharged in bankruptcy.

Continue reading Uh-Oh–The First Loophole in Student Loan Debt

Cheaper Student Loans–A Bad Idea Whose Time Has Come

student-loan-debt.jpgWhen Victor Hugo claimed that all the world’s armies are powerless against an idea whose time has come, he probably had in mind good ideas. But the time can come for a bad idea also. Low-cost student loans, embraced by President Obama, Governor Romney, and Congressional leaders of both parties, is a bad idea. Students and prospective students love the prospect of paying less for college, and so do their parents. Moreover, some economists say that investing more in educating youngsters from low-income families will increase the ability of American workers to compete in the global marketplace.

But students don’t need cheaper loans. What they need are loans that give them an incentive to get good enough college educations to qualify for jobs – well-paying jobs that enable them to pay off their loans. The flaw in the federal guaranteed student-loan program – from its beginning in 1965 – has been its exclusive concern with whether or not students came from families with low-incomes, not whether loans would help launch careers.

Continue reading Cheaper Student Loans–A Bad Idea Whose Time Has Come

The Loan Defaults Are Coming–Here’s What to Do

coins for college.jpgNo modern-day Paul Revere is taking a midnight ride to warn about this, but the defaults are coming. Many are already here. They are coming from student loans given to the wrong students for the wrong reasons. The portfolio of federally guaranteed student loans passed the one trillion dollar mark in early 2012, and it continues to grow. The portfolio consists not only of loans for students from low-income families currently in college but also of hundreds of millions of dollars of education loans taken out by students who graduated from college or quit before graduating that have not been fully repaid. Such loans were extended either by the Department of Education directly or by financial institutions like Sallie Mae and banks and guaranteed by the United States Treasury. The total size of this loan portfolio exceeds the total credit card debt of the American population.

Continue reading The Loan Defaults Are Coming–Here’s What to Do

The Student Loan Debacle–What a Mess

Until recently, much talk about student loans was fact-free: There simply weren’t publicly available figures worth paying attention to.

The official balance of student loans from the NY Fed were unreliable:

There was a bucket of random obligations called “Miscellaneous”, which included things like utility bills, child support, and alimony. And it turns out that if you went burrowing in that miscellaneous debt, there was actually a pile of weirdly-categorized student loans in there. [AG: And these mis-categorized student loans were not included.]

Continue reading The Student Loan Debacle–What a Mess

Why They Seem to Rise Together:
Federal Aid and College Tuition

It’s called “the Bennett Hypothesis,” and it explains–or tries to explain–why the cost of college lies so tantalizingly out of reach for so many. In 1987, then Secretary of Education William J. Bennett launched a quarter century of debate by saying, in effect, “Federal aid doesn’t help; colleges and universities just cream off the extra money by raising tuition.” Now Andrew Gillen, research director of CCAP–the Center for College Affordability and Productivity–has tweaked the data and produced a sophisticated “2.0” version of the hypothesis. It’s filled with heavy math, game theory and terms like “inelastic fairly vertical curves.” You probably won’t read it. We know. But it’s important. So here are some smart people who have read it, and have something to say: Peter Wood, Hans Bader, Richard Vedder, George Leef and Herbert London. image for mtc.jpeg

Peter Wood: They Are Insatiable

Long before I knew it was called the “Bennett Hypothesis” I knew that colleges and universities increase tuition to capture increases in federal and state financial aid. I attended numerous meetings of university administrators where the topic of setting next year’s tuition was discussed.
The regnant phrase was “Don’t leave money sitting on the table.” The metaphoric table in question was the one on which the government had laid out a sumptuous banquet of increases of financial aid. Our job was to figure out how to consume as much of it as possible in tuition increases. This didn’t necessarily mean we were insensitive to the needs of financially less well-off students. A substantial portion of the money we captured would be reallocated as “tuition discounts” or “institutional aid.” That is to say, just as Andrew Gillen observes, we combined Bennett Hypothesis-style capture of external student financial aid with “price discrimination.” And we did all this in the pursuit of educational excellence. It was a large private university in the shadow of world-ranked neighbors and it was attempting to pull itself up in the world of prestige and influence by its bootstraps. There were townhouses that needed buying; laboratories that needed building; faculty stars that needed hiring; classrooms and residence halls that needed refurbishing; symphonies that needed performing; grotesque modern sculptures that needed displaying; and administrators that needed chauffeuring. So long before I heard of “Bowen’s Rule,” I was also familiar with the idea that “in the quest for excellence, prestige, and influence, there is virtually no limit to the amount of money” a university could spend. Familiar as these ideas are, I have never seen them as well elucidated as Andrew Gillen has in Introducing Bennett Hypothesis 2.0. If there is a fault in this remarkable policy paper it lies in the modesty of the title. Gillen has provided what by all rights should be a foundational document for any further analysis of the vexed issue of how federal (and state) financial aid interacts with the pricing strategies of colleges and universities. Gillen’s sophisticated revision of Bill Bennett’s idea explains many of the perplexities of the data. Yes, Pell Grants do not drive tuition increases the way general tuition assistance does. Yes, many colleges prefer to increase their selectivity rather than expand capacity. (He doesn’t mention, however, the strategy of doing both at once by creating highly selective “honors programs” and remedial tracts at the same institution.) Price discrimination in the form of variable tuition discounts ensures that no ordinary observer can figure out what is happening when federal aid mixes with pricing strategies. One of Gillen’s most compelling observations, however, is what he calls “the dynamic story,” which he introduces by way of game theory. This is his explanation of why a college cannot plausibly sit on the sidelines as its competitors raise tuition and use the increased income to raise their standing. Gillen’s theory, though highly plausible, remains to be tested. Let’s hope that comes soon.

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Richard Vedder: Market Discipline, Please

Andrew Gillen masterfully demonstrates that Bill Bennett is right–federal financial aid programs lead to higher tuition. The implications of this and related financial aid effects are profound:

1. The intended income transfers from taxpayers (and, increasingly bondholders) to students have been largely diverted to college coffers; swelling payrolls and leading to armies of new university bureaucrats, million-dollar college presidents, an academic arms race and other pathologies;

2. This, in turn, has thwarted university productivity growth and helps explain why higher education is vastly more expensive than in most other major developed countries;

3. The goal of helping low-income students has not been met, and a lower percent of recent college graduates come from less affluent students than was true in 1970 when Pell Grants did not exist;

4. To the extent that these aid programs have increased enrollments (read Gillen), they have added to the growing disconnect between labor-market realities and student job expectations, creating armies of college graduates who are bartenders, taxi drivers, etc.

5. Enrollment increases, in turn, have contributed to a dumbing down of higher education and to declining standards.

What to do? The federal government needs to wind down its financial aid commitment. Restrict eligibility for aid to truly low-income students. Impose performance criteria for aid recipients: mediocre students will lose aid. Make the college absorb some of the risk for loan defaults–a lesson we should have learned from the financial crisis. Give Pell Grants as vouchers directly to students, not schools. Reinstate private lending options. Unveil new human capital contract approaches that reduce debt reliance. Downsize and reinvent federal programs and allow market discipline to operate more.

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George Leef: Will Politicians Pay Attention?

William Bennett is no economist (in fact, he once told an interviewer that he never reads books on economics) but his instinct on the connection between federal aid and rising college costs was pretty accurate. While higher education establishment defenders have often tried to dismiss Bennett’s insight, it’s basically correct, Gillen shows.Not always, however. Gillen argues persuasively that student aid targeted at low-income students who otherwise wouldn’t have gone to college contributes little or nothing to rising costs because the institutions cannot “capture” the additional funds. That finding doesn’t mean that it would be a good policy to increase this kind of aid, of course.Government student-aid programs that are universally available, however, do lead to rising college costs. Gillen has worked through various differing scenarios to show how increasing student aid is apt to influence college officials. Particularly important in that regard is his emphasis on looking not just at short-run effects, but also what he calls “the dynamic story.” Here’s what he means. Even if some schools decide not to raise tuition when government aid puts more dollars in student pockets, those that do will spend the revenues gained on the zero-sum game of gaining prestige. Since most colleges won’t want to keep falling behind in that arms race, they’ll eventually give in and raise tuition. Not always, however. Gillen argues persuasively that student aid targeted at low-income students who otherwise wouldn’t have gone to college contributes little or nothing to rising costs because the institutions cannot “capture” the additional funds. That finding doesn’t mean that it would be a good policy to increase this kind of aid, of course.Gillen concludes that the only escape from Bennett 2.0 is for the nature of competition in higher education to change–away from seeking greater “prestige” and toward competing for consumer dollars by offering better value. He’s right and the rumblings of disaffection with mere credentials and the search for real education seems to presage just that.I applaud this work, but will it make any difference? After all, it is clear beyond any doubt that raising the minimum wage is counter-productive, but politicians keep doing that. Why should Gillen’s demonstration that the more politicians try to make college “affordable,” the more costly it becomes be any different?

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Hans Bader: Ever-growing Bureaucracies

You don’t need to be a Ph.D in economics, like Gillen is, to know that government subsidies usually lead to higher costs. That subsidies drive up costs is something I learned in introductory economics, long before I got my degree in economics or worked for the Education Department. The value of Gillen’s study is to show that this conclusion logically remains true even under widely-varying assumptions about educational markets. Gillen does not discuss certain Education Department rules that drive up tuition even more directly. For example, certain low-cost schools are affected by the Education Department’s 90-10 rule, which requires that the school keep tuition high enough for students that no more than 90 percent of its funding is covered by federal financial aid. So as financial aid rises, tuition necessarily rises even faster. But financial aid is not the only way that the government drives up tuition. State and federal regulations imposed on colleges have mushroomed in recent years, requiring colleges to hire ever-increasing numbers of administrators to comply with them. (There are now more college administrators than faculty at the California State University system and many other colleges). For example, colleges in New Jersey are subject to a costly and complicated anti-bullying law that has 18 pages of required components. Colleges in some states are subject to state sexual harassment laws that are more stringent than federal law, and hold colleges liable for uncapped damages for harassment by students, effectively requiring them to create specialized university bureaucracies to swiftly investigate and discipline students, rather than relying on ordinary campus disciplinary bodies that operate at a slower and more deliberative pace. Government regulations often require that a school be accredited, a condition that accreditors like the American Bar Association use to force law schools to use racial preferences in admissions or run costly diversity and sensitivity-training programs (despite the dubious legality of some such programs and admissions preferences). Such mandates have contributed to the growth of a vast and costly “diversity machine” in college administrations. Recent Education Department guidance documents have also made Title IX compliance more difficult and costly for colleges, by seeking to force them to process sexual harassment complaints against students in ways that differ from customary college procedures in disciplinary cases, and to give certain complainants the ability to appeal a school’s finding that an accused student was innocent. Gillen cites a study showing that for-profit colleges whose students received federal financial aid charged 75 percent more than those whose students were not eligible. I wonder if some fraction of this difference was the result of government mandates tied to the financial aid, rather than the aid itself. image for mtc.jpeg

Herbert I. London: We Need Controls

My experience in higher education confirms the opinion that federal aid has an influence, a profound influence, on tuition decisions and other aspects of university finances.

Clearly not all federal aid is the same and not all college responses to aid are the same. However, there is a dynamic quality to federal subsidies that cannot be ignored. Every federal dollar given to a university will be spent. This is a version of higher education’s Parkinson’s Law. The institution expands in multiple ways to accommodate government largesse. Derek Bok, former Harvard president, said, “Universities share one characteristic with compulsive gamblers and exiled royalty: there is never enough money to satisfy their desires.”

Every dollar given to a college goes through the turnstile of institutional improvement. Teaching loads could be reduced, new laboratories might be built, an academic “star” might be lured into a newly created position. But year one in this allocational arrangement is not always related to year two. If the initial costs are borne by government aid, the future costs may put pressure on the administration to seek additional revenue, very often in the form of tuition increases.

In fact, the process tends to be self-fulfilling. Aid producers reforms; reform leads to additional expense; additional expense very often translates into upward pressure on tuition rates. While President Obama has discussed controlling college costs, he overlooks the influence federal assistance has on college affordability. Nor is there any reason to assume a change of direction. There is political capital to be garnered by demanding cost controls and, at the same time, expanding access to tuition assistance. That these conditions may be contradictory is lost on a public increasingly frustrated with the inflated cost of a college education.

For Crippling Debt, Why Not Try Grad School?

student debt.gifThere’s something even worse than undergraduate debt. It’s graduate-school debt. According to the American Student Assistance website, which uses figures from such sources as the National Center for Education Statistics, the College Board, and the nonprofit Finaid.org, 60 percent of recipients of bachelor’s’ degrees borrowed to fund their education during the 2000s, with the average debt load per borrower on graduation close to $23,000 by 2007. By 2010 that figure had jumped to more than $25,000 per borrower, according to the Institute for College Access’s Project on Student Debt.

Those numbers sound bad, but what if you go on to obtain a master’s degree, adding another one or two years’ worth of education to your resume? According to American Student Assistance, nearly half of those who obtained master-of-science degrees during the late 2000s borrowed to finance their schooling, and their average cumulative debt load for those two years was $29,975–on top of what they already owed for their bachelor’s degrees. Of recipients of master-of-arts degrees, degrees that typically qualify their holders mostly for low-paying teaching jobs at community colleges and private high schools, 61 percent borrowed to finance their two additional years of education, with a per-borrower average debt of $29,975.

And what if you go all the way to a doctorate in the humanities or sciences? Fewer students have to borrow in order to earn Ph.D.’s (graduate schools typically subsidize tuition and pay modest stipends in exchange for on-campus teaching or research). Still, 35 percent of doctoral students in the humanities and sciences went into the red to pay for at least part of their education and living costs, racking up an average cumulative debt of $44,995, according to American Student Assistance. About 48 percent of doctoral students had borrowed for their undergraduate degrees, and the total average cumulative amount borrowed for both degrees was $45,455.

Now let’s factor in two additional pieces of data that bring home what it means to owe $45,000 for your Ph.D. after the ceremonies are over and you’ve stashed your doctoral gown inside its garment bag. First, you are likely to be as much as a decade older than your college classmates who collected only a bachelor’s degree before setting out on a career path. According to the National Science Foundation, the median time spent registered in graduate school in order to earn a doctorate is 7.5 years. The median age of recipients of Ph.D.’s in science and engineering is 31.8 years. Among recipients of Ph.D.’s in the humanities the median age is 34.6 years. That is because it takes an average of nine years in school to earn a doctorate in the humanities. The total average time from receipt of bachelor’s degree to receipt of doctoral degree is about eleven years in the humanities and nearly eight years in science and engineering.

Men and women outside academia who are in their early thirties are typically feeling ready, or even more than ready, to buy homes and start families. They are also typically feeling financially able to shoulder those new financial burdens, with careers nailed down and netting them decent incomes, most student loans paid off, and savings accumulated for down payments. Not so the members of their age cohorts who chose to go to graduate school instead. They are at the bottom of their career ladders and salary scales, just as their college classmates who didn’t attend graduate school were ten years ago–except that the Ph.D.-holders now owe on average nearly twice as much in student debt as their former classmates. Holders of doctorates do earn more than holders of bachelor’s and master’s degrees, but not much more. The average starting salary of an assistant professor on the tenure track, for example, can be as low as $37,500 a year and almost never tops $60,000. A study cited by the Economist in 2010 found that a Ph.D. gives its holder only a 3 percent earnings premium over a master’s degree, which takes only one or two years to complete. The study noted that in some fields, such as mathematics, computing, social sciences, and languages, holders of doctorates earn no more than holders of master’s degrees. They have also incurred the opportunity cost of foregoing years of income that would have helped them pay off existing student loans.

Think Twice about Doing This

It gets worse. Doctoral programs are essentially vocational training–for the job of college professor. But the training is so time-consuming and exacts such a psychic toll, with Ph.D. students struggling for years to squeeze in research on their dissertations as they cope with the backbreaking hours and abject penury of a teaching assistant, that the dropout rate is extraordinary. Only about 57 percent of students who enroll in doctoral programs complete their degrees, according to a 2007 report from the Council on Graduate Programs. Students in the humanities, especially English and history, fare the worst, with about a 49 percent completion rate. In the humanities the dropouts tend to cluster in the later years of the program when the students finally run out of money and hope. That translates into up to a decade wasted in academia with nothing to show for those years except forgone earnings elsewhere and in many cases, more debt.

Those who do manage to collect their doctorates–at about age 35 for the humanities–face a further horror. There are very few jobs, or at least very few of those full-time, tenure-track teaching jobs, even at $37,500 a year, for which their highly specialized education has prepared them. The humanities, as ever, occupy the bottom of the misery index. The Modern Language Association, the leading professional organization for English and foreign-language professors, projects one-third fewer professorial job openings during the academic year 2011-12 than during 2007-08–and that’s a slight improvement over last academic year. Yet the STEM fields (science, technology, engineering, and mathematics), where financial support from universities is higher and doctorates get completed more quickly, don’t offer significantly better job prospects for their newly minted Ph.D.’s. The typical career path for nearly half of them these days doesn’t start with a tenure-track assistant professorship but with two, four, or even more years as a lowly “postdoc” laboratory researcher earning a starting salary of about $42,000 a year. That doesn’t help pay down student loans very quickly.

What to do about this? “The gigantic indebtedness of graduate students threatens to turn them into intellectual sharecroppers,” Leonard Cassuto, an English professor at Fordham University, wrote recently in the Chronicle of Higher Education. Cassuto’s proffered suggestions–that the government pay for graduate education and that universities hire more tenure-track professors–don’t sound realistic in these economically pinched times. A more practical suggestion would be for more college graduates to think twice about enrolling in grad school. If $25,000 in student loans sounds daunting, why boost that figure to $45,000–especially since the jobs won’t be there to enable you to pay it back?

More College Aid for Low-Income Families, Please

college campus.pngWhen individuals seek higher education, why should all of us have to pay? After all, individuals decide whether to seek a college degree based on their own calculations of expected costs and benefits. That taxpayers must bear the burden of financial aid to these individuals seems unfair.

Given the billions of dollars governments pay individuals to help finance their college expenses, taxpayers must be assured that their investment is not wasted.

In short, we would rather not be sucked dry to pay for C students — whose weak academic preparation makes them unsuited for higher education — just so they can party hard for four or five years.

In a policy paper released this week, Andrew Gillen, the research director at the Center for College Affordability and Productivity, says he has the solution to creating rationality in our messy and unaccountable financial aid system.
Continue reading More College Aid for Low-Income Families, Please

How Federal Aid Drives Up College Tuition

At Bloomberg News, Virginia Postrel writes about how federal
subsidies intended to make college more affordable have instead encouraged
rapidly rising tuitions, in a column entitled, “U.S.
Universities Feast on Federal Student Aid
.” Education analyst Neal
McCluskey links to four studies showing that increased government spending on
student aid results
in large tuition increases
. As Postrel notes, talk of a “higher education bubble” is now common: “As veteran education-policy consultant
Arthur M. Hauptman notes in a recent essay: ‘There is a strong correlation over time
between student and parent loan availability and rapidly rising tuitions.
Common sense suggests that growing availability of student loans at
reasonable rates has made it easier for many institutions to raise their
prices, just as the mortgage interest deduction contributes to higher housing
prices.'”

Continue reading How Federal Aid Drives Up College Tuition

No, They Can’t Renege on Student Debt

Sometimes the left is onto something. Take, for example, the
latest twist in the “Occupy” movement: Occupy
Student Debt
. The new activism front, which began in with a Nov. 21 rally
at Occupy Ground Zero, New York’s Zuccotti Park, is trying to collect a million
online signatures from debtors pledging to refuse
to repay their student loans
. That’s supposed to be only the beginning.
Down the road, according to the campaign’s organizers (members of the student
debt subcommittee of Occupy Wall Street’s Empowerment and Education working
group) are proposals to pressure Congress into writing off all existing student
loans and making future student loans interest-free–or better yet, having the
federal government subsidize tuition completely at all public colleges and
universities.

Good luck, you might say. Still, the Occupy Student Debt people
have focused public attention on the alarming growth of the federal
student loan program
over the past few years. As USA Today recently
reported, the amount of student loans taken out in 2010 alone exceeded $100
million. Before the end of 2011, the total amount of outstanding student debt
is expected to exceed $1 trillion for the first time in history. Furthermore, USA
Today reported
, students are borrowing twice what they borrowed only a
decade ago, even adjusting for inflation….

Continue reading No, They Can’t Renege on Student Debt

Will English Departments Begin to Fade?

The executive council of the Modern Language Association (MLA), the leading organization for English and foreign-language professors, issued a statement on Wednesday decrying the rising debt levels of college students. Well, sure, who isn’t against student debt? But I think that the MLA statement is more than just pious boilerplate. It’s a statement of panic–that pretty soon both undergraduates and graduate students in language departments and elsewhere in the humanities are going to realize that their degrees are mostly worthless, especially when financed by mountainous loans. The MLA seems to realize that sometime very soon the bottom is going to fall out of all those English departments with their course offerings in such subjects as “Theorizing Intersectionality” and “Insecure: The Cultural Politics of Neoliberalism.” Students will simply vanish from humanities classrooms (many are leaving already), and departments will implode.

Continue reading Will English Departments Begin to Fade?

Average Taxpayers Are Heavily Supporting Elite Colleges

An elephant in the room that universities avoid is how their system is rigged to serve the rich over the poor.

An October study by the American Enterprise Institute (AEI) entitled “Cheap for Whom?” showed one way that  the university system is rigged in favor of the rich. It said:  “Average taxpayers provide more in subsidies to elite public and private schools than to the less competitive schools where their own children are likely being educated…. Among not-for-profit institutions, the amount of taxpayer subsidies hovers between $1,000 and $2,000 per student per year until we turn to the most selective institutions . . . Among these already well-endowed institutions, the taxpayer subsidy jumps substantially to more than $13,000 per student per year.”

Continue reading Average Taxpayers Are Heavily Supporting Elite Colleges

The IBR Student Loan Repayment Scheme is a Disaster

mixed-news-about-college-loans.jpgThe Income Based Repayment (IBR) program, which took effect in 2009, is designed to lighten the student-loan burden for some students. The basic idea is to limit monthly payments to less than 15% of disposable income. If a student makes these payments for 25 years, any remaining balance is forgiven, meaning that taxpayers essentially pay the rest off. President Obama just announced his intention to lower this to 10% of disposable income and 20 years of repayment before forgiveness. These proposed changes, as well as IBR in general, are bad for the following 6 reasons.

1. IBR treats the symptom rather than the disease.

Perhaps the most fundamental reason to end IBR is that it is treating the symptom (excessive college debt) rather than the disease (excessive college costs). IBR is essentially trying to fix the problem of students borrowing too much for college… without stopping students from borrowing too much for college. All it does is say that the government will pay for some portion of it in the distant future. To steal a line from Wolfgang

Are Student Debt Levels Ridiculous?

Megan McArdle of the Atlantic, with a few strokes of her blog pen, has just solved the problem of too much student debt and the college affordability dilemma — all while ensuring access to higher education for those who truly deserve it. That is, for folks like herself.

First, bowing to the widely circulated claim that student debt levels are out of control, McArdle would severely tighten access to credit markets for students and families. With tightened access to credit, that would force universities to tone down their greediness. As of now, McArdle argues, we should blame the rising costs of higher education on easy loan money, which fills student budgets only to be siphoned off by money-hungry institutions.

Continue reading Are Student Debt Levels Ridiculous?

Does Student Debt Really Matter?

IOU.jpgIn a recent essay in The Atlantic, Andrew Hacker and Claudia Dreifus lament that most students have to take out college loans. They write: “At colleges lacking rich endowments, budgeting is based on turning a generation of young people into debtors.”

While Hacker and Dreifus blame the universities for encouraging students to take on more debt to pay for lavish facilities and other non-educational amenities, others focus on student debt itself as perhaps the key barrier to college facing millions of students from families with low and modest incomes. Indeed, entire organizations have been founded on that very notion, such as the Project On Student Debt.

Analysts who belong to the debt-is-bad school of financial aid policy are correct in noting that student borrowing increased dramatically in the past decade, ballooning 128 percent to more than $96 billion, according to the College Board’s annual survey of financial aid trends. On the other hand, federal grants and institutional grants mitigated the rising student debt. From 2000 to 2010, federal financial aid shot up 136 percent to more than $146 billion; and institutional grants rose 69 percent to more than $33 billion.

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Unaffordable Universities: The High Cost of Chasing “Prestige”

The Center for College Affordability and Productivity has published an important report, “Faculty Productivity and Costs at the University of Texas at Austin,” based on data recently made available to the public, thanks to the efforts of reform-supporting regents at the UT system. Co-authored by Richard Vedder (the Ohio University economist), Christopher Matgouranis and Jonathan Robe, the report uses hard facts to document the real costs of skewing higher education toward prestige and “research” and away from its historic mission of teaching. In fact, Vedder et al. seriously understate the problem, pointing to the need for further analysis of this treasure trove of data.

Some highlights of the study:• The top 20 percent (measured by teaching load) of instructors teach 57 percent of student credit hours. These same faculty members also generate 18 percent of the campus’s research funding.
• The bottom 20 percent of faculty teach only 2 percent of all student credit hours and generate a disproportionately smaller percentage of external research funding.
• Research grant funds go almost entirely (99.8 percent) to a small minority (20 percent) of the faculty; in fact, only 2 percent of the faculty members conduct 57 percent of funded research.
• Non-tenured track faculty teach a majority of undergraduate student hours and a surprising 31 percent of graduate student hours.
• The top quintile (840 instructors out of a total faculty of 4200) teaches an average of 318 students per year. If the entire faculty were to teach at the same rate, UT Austin could teach an astonishing 133,560 students, more than 260% of its present size. If the current tuition burden were spread among such a number, the rate could be dropped by 63%, from $9816 per year (for residents) to only $3632.

Continue reading Unaffordable Universities: The High Cost of Chasing “Prestige”

Where’s All the Money Going?

By Andrew Gillen, Matthew Denhart, and Jonathan Robe

As they defend tuition increases to irate students and parents, college and university leaders often argue that tuition does not cover their costs and that they are therefore subsidizing their students’ educations. Take, for example, what Southwestern College President Dick Merriman said in an October 2010 piece for The Chronicle of Higher Education

“None of you, not even that very rare student who receives no financial aid from the college, will come close to paying what it is going to cost the college to educate you.”

However, this is emphatically not the view held by the students, parents, and many taxpayers who are paying the tuition bills. After paying thousands of dollars, students are often taught by adjuncts or stuffed into classrooms with hundreds of other students. This quite reasonably leads them to ask, “Where is all of our money going?”

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Gainful Employment: A Detriment to Competition

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Today the Obama Administration unveiled its long-anticipated and highly controversial final gainful employment (GE) regulation  that ties program eligibility for federal student aid to new metrics that are based on student loan repayment rates. Under the new GE rule, a vocational program can qualify as leading to gainful employment and remain eligible for federal aid if one of three metrics is met:

1.     At least 35% of former students are repaying their loans;

2.     The estimated annual loan payment of a typical graduate does not exceed 30% of discretionary income;

3.     The estimated annual loan payment of a typical graduate does not exceed 12% of total earnings.

The rule requires that a program fail to meet one of the three metric three times in a four year period before becoming ineligible for federal student aid, with 2015 being the first year that a program can lose eligibility. Education Secretary Arne Duncan defended the metrics as a “perfectly reasonable bar…that every for-profit program should be able to reach. We’re also giving poor performing for-profit programs every chance to improve. But if you get three strikes in four years, you’re out.”

Continue reading Gainful Employment: A Detriment to Competition