A new survey of parents by Fidelity has found that only 31 percent with college-bound children are considering "the total cost" of college, defined as including graduating with debt, and the impact of college attended and program completed on earnings potential. Of families looking broadly at those issues, a majority are changing their plans due in part to concerns about student loan debt. More than a third are opting for less expensive colleges than they might have considered earlier.
Submitted by Paul Fain on August 24, 2012 - 3:00am
Republican delegates have drafted a preliminary version of the immigration plank in the platform for the party's national convention that would deny federal funding to colleges and universities that allow illegal immigrants to enroll as in-state students, according to The New York Times. The plank reportedly takes a hard line on immigration generally. Delegates will consider the full platform for approval at next week's convention in Tampa, Fla.
"No loans" policies -- in which students with family incomes below certain levels receive grants in place of loans --have resulted in colleges that adopted them seeing gains in the percentage of students eligible for Pell Grants, says a report being released today by the Institute for Higher Education Policy. Private institutions saw a 1.7 percentage point average gain in Pell-eligible students, while publics saw a 1.3 percentage point increase. While the report praises these programs, it also identifies dangers in them. "When well-publicized, these programs have the potential to generate greater interest among high-achieving low-income students," the report says. "When this occurs, enrollment management professionals may be tempted to use these aid programs as a marketing strategy that simply drums up interest among the highest-achieving low-income students. As a result of this increased demand, opportunistic colleges may try to 'skim' the top low-income students without actually changing the total proportion of low-income students on campus."
Our problem with the new reportThe College Advantage: Weathering the Economic Storm, on the employment of university graduates since the start of the Great Recession, begins even before the first word of text. In the first paragraph of the acknowledgments, speaking of those who financed the study, the Lumina and Gates Foundations, the authors -- Anthony Carnevale and associates at Georgetown University -- observe, "We are honored to be partners in the mission of promoting postsecondary access and completion for all Americans."
Thus this report is about promoting a mission, a policy position, not about achieving a dispassionate, objective and complete analysis of the evidence. It is thus better viewed as a piece of PR, agitprop musings as it were, not a serious academic study. Certainly, we doubt any peer-reviewed reputable academic journal in economics would touch this study in its current form.
This brings up a bigger problem: isn't there an inherent, huge conflict of interest in university researchers issuing reports favoring positions that are in their own self-interest? Is it not true that Georgetown and other universities gain marketing advantages (and maybe higher tuition fees) by promoting the idea that “it pays to go to college”? The subjective bias is further revealed as the authors at the very beginning decry "attacks" by higher education "cost-cutters,” as if trying to improve efficiency in a low productivity industry is somehow bad.
Getting to the evidence, the Georgetown team is probably correct, that, on average, college graduates fared better in labor markets in the Great Recession and its slow recovery than did those with lesser degrees or diplomas. But where are the control variables accounting for the fact that college graduates are, on average, brighter, more disciplined, and more ambitious than those with less education? A typical high school graduate is a less desirable employee than a typical college graduate for reasons independent of the formal postsecondary education acquired.
Moreover, while the members of the Carnevale team agree that those working only part-time jobs are not truly “employed,” they draw no such distinction with those trained for relatively highly skilled work now doing menial labor. College biology graduates driving taxi cabs are considered fully employed by the definitions that are used. Yet in a real economic sense, they are underemployed or mal-employed, and their human capital utilization is well below what the expectations of both the worker and arguably society as a whole.
“Employment” is not in any meaningful economic context a simple binary variable like pregnancy (you are, or you are not), but a continuum reflecting variations in both hours worked and the meaningfulness of the labor performed. Our guess, based on looking at other labor market data, is that “human capital utilization” among college graduates has fallen a fair amount more than “employment” in recent years, as college graduates increasingly take low-paying (reflecting low productivity) jobs. According to the most recent report by a Northeastern University professor for the Associated Press, using Current Population Survey data, roughly 53 percent of recent college graduates are underemployed, instead of the 8 percent reported in the Carnevale report.
All of this suggests that data are subject to an altogether different interpretation than used by the Georgetown team. Consider, for example, the argument advanced by the Georgetown group that "Even in traditionally blue-collar industries, better educated workers fared better." To us, that basically says overqualified people with college degrees appear to be crowding out others in the market for low-skilled jobs, showing that the "underemployment" problem amongst college graduates is considerable.
Similarly, the authors are lumping together those with a high school diploma and those with less than a high school diploma in the statistical comparisons -- so the analysis differs from the traditional comparisons of high school- and college-educated individuals.
Those who did not graduate from high school make up 24 percent of the sample for the “High school or less” category and 33 percent of the unemployed according to the May 2012 Bureau of Labor Statistics data. Those who attained only a high school diploma are much more likely to still have a job (8 percent unemployment) than are those with less than a high school education (13 percent unemployment).
But what is worse, the authors fail to seriously do what even undergraduate economics students writing papers would be expected to do -- relate costs to benefits. Suppose, even after controlling for everything under the sun, college graduates have a clear employment security advantage during turbulent economic times -- a conclusion that we acknowledge is plausible, maybe even expected, if colleges do what they claim to do.
Is the value of that job security advantage big enough to offset the costs of college attendance, where "costs" include not only cash outlays by students, and the income foregone while studying rather than working, but also the total cost to society from the various government subsidies associated with a college education, and the high risks related to the fact that a majority of college students either do not graduate at all, or fail to do so in the advertised (four-year) time needed to complete the degree?
All of that aside, however -- a huge "aside" -- there are hints in the data that the college advantage is becoming frayed. Look, for example, at Figure 2 in the executive summary, which seems to show that the college degree earnings advantage (to us a vastly overused and flawed statistic) peaked around 2005 or so and has declined modestly since. From 2008 and 2010, Census Bureau data show real earnings fell a good deal for full-time male college-educated workers, unlike, for example, those with less than a high school education. On September 7 the Census Bureau will release 2011 data which will give further indication whether the most recent data are the beginning of a longer-term trend.
Our reading of the evidence is that truly dispassionate examination of the data by those without any vested interest in the conclusions, controlling for other factors involved in determining unemployment and earnings, might well yield a radically different conclusion than found in this public relations effort of Tony Carnevale and his team at Georgetown. The assumptions of this report – that those with little education dramatically improve their job security by deciding to go to college -- are certainly not adequately demonstrated.
Richard Vedder directs the Center for College Affordability and Productivity, teaches economics at Ohio University, and is an adjunct scholar at the American Enterprise Institute. Daniel Garrett is an honors undergraduate economics major at Ohio University.
Let’s get one thing straight: Financial aid award letters can and should be improved to better help students understand the costs of higher education and the aid available to them.
Although Rachel Fishman’s Views article in Monday's Inside Higher Ed would have readers believe otherwise, the National Association of Student Financial Aid Administrators (NASFAA) and the 18,000 financial aid professionals we represent are committed to ensuring that students and families have the information they need to make good decisions about planning and paying for college.
Fishman’s opinion article not only oversimplifies and misrepresents NASFAA’s position, it wastes precious time drawing battle lines over a fight that doesn’t exist, instead of moving the policy discussion forward.
Here’s the reality:
All key stakeholders agree that improvement is needed in consumer disclosures about the cost of college. That’s why NASFAA convened a Consumer Information and Award Letter Task Force on this subject almost a year ago. In May, that task force released recommendations on how to improve award letters and consumer notification -- recommendations that align with the Department of Education’s recently released Shopping Sheet in several key areas.
NASFAA has never opposed or discouraged use of the Shopping Sheet. Rather, we have urged schools to carefully examine the Shopping Sheet to ensure it will effectively communicate important information. We’ve also encouraged members to – at a minimum – adopt the recommendations NASFAA issued in the spring. In a recent letter to members, I wrote, “Regardless of whether your institution adopts the Shopping Sheet, I urge you to strongly consider standardizing specific elements of the Shopping Sheet that are in correlation with NASFAA’s recommendations, as set forth by the Task Force and adopted by the NASFAA Board of Directors.”
NASFAA has been at the forefront of discussions about how to lead improvement of consumer disclosures. Rather than putting “entrenched institutional interests above students’ financial welfare” (as Fishman asserts) we’ve actually partnered with the Department of Education throughout this process, urging our members to offer feedback on preliminary versions of the Shopping Sheet as well as the final version. We were pleased to partner with key members of the Department of Education and White House to see aspects of our recommendations adopted in the final version.
Ignoring the existence of NASFAA’s detailed recommendations show at best a lack of research (or even cursory glance) on Fishman’s part, and at worst an intentional omission of facts in order to bolster her misguided assertions that do little to move this policy discussion forward.
The truth is that our recommendations align in many places with the goals of the Shopping Sheet. For instance, we concur with mandating the standardization of common terminology to avoid confusion and enhance comparability. We also recommend that self-help aid and student loans be clearly delineated from grants and scholarships. In fact, NASFAA’s recommendations go further than the shopping sheet, advocating for a one-stop online location where students can be shown all of their student loan indebtedness, both federal and private.
However, we do remain cautious about fully endorsing the Shopping Sheet because it hasn’t been consumer-tested against other models, including online and electronic models currently utilized successfully by leading institutions of higher education. Schools are already required to provide an overwhelming number of disclosures to students and parents. Without consumer testing, no one can assert that the Shopping Sheet is the best way to convey financial aid award information to all types of students. To ensure the Shopping Sheet is based on rigorous research rather than anecdote, NASFAA is planning a consumer test, to be conducted through an independent third-party evaluator.
In the absence of such empirical data, NASFAA encourages financial aid offices to “to carefully review the Shopping Sheet before adopting it to ensure it will effectively communicate this critical information to the students and families they serve.”
This statement of caution should not be misrepresented as opposition. NASFAA does not oppose the Shopping Sheet, but we do wish to circumvent unintended negative consequences, avoid additional confusion, and preserve the ability of schools to deliver information in ways that they have found best serve their particular populations.
Fishman states that “the Shopping Sheet may need to be altered in some circumstances.” We agree. Unfortunately, once a school agrees to use the Shopping Sheet in its current form, it cannot be altered to meet the unique needs of diverse higher education institutions -- and this inflexibility is one of NASFAA’s primary concerns.
For instance, some campuses send a different award letter to returning students than to incoming students. While the Shopping Sheet is designed to inform first-time or prospective students, the vast majority of college students are returning students.
Appropriate consumer disclosures that actually help students and families cannot be developed in a vacuum. Financial aid administrators are a key part of the ongoing dialogue. We agree that change is needed and some level of standardization is warranted, but this process must be deliberative and based on quantifiable data about what works for students and families. Anything less is a disservice to those we are trying to help.
Justin Draeger is president of the National Association of Student Financial Aid Administrators.
Imagine you’ve just been accepted to the college of your dreams. At first you feel elation, but then anxiety sets in — will you and your family be able to afford it? Since financial aid packages often blur the line between grants and loans, it might be hard to tell. A $40,000 "award" at one school might seem like a much better deal than a $20,000 package at another — unless you realize the larger "award" consists mostly of loans. With borrowing and loan default rates on the rise, aid packages have huge consequences for students’ educational and financial lives.
In response, the U.S. Department of Education recently unveiled a "Shopping Sheet" that standardizes the way financial aid packages are presented to students. This allows students and parents to easily compare the true cost of one college to another. But institutions don’t have to use the Shopping Sheet, and the National Association of Student Financial Aid Administrators (NASFAA), a powerful industry trade group, is trying to make sure they never do.
NASFAA should be an influential advocate for the Shopping Sheet. Part of its mission is to support policies that increase student access and success. But when the Shopping Sheet was recently unveiled by the Department of Education, NASFAA’s president, Justin Draeger, issued the following statement:
"We remain concerned with the inflexible standardization of the Shopping Sheet, and more broadly, with the multitude of consumer disclosure initiatives that have been introduced in recent months. Institutions need flexibility to design a financial aid award letter that best meets the needs of their unique student populations."
The Shopping Sheet might need to be altered in some circumstances, whether it be something as simple as how to classify the federal TEACH grant, or something much more complicated like how to accurately reflect cost of attendance and net price for part-time students. Financial aid administrators, however, are unlikely to experiment with it and provide invaluable feedback since their own professional organization signals that they shouldn’t. And a system in which every institution creates its own award letter ends up serving no students well.
As an example, here’s a real financial aid award letter, followed by a version of the Shopping Sheet containing the same information. I’ve indicated in red some key differences between the two versions to show how the Shopping Sheet would help students and families make better decisions (click on either image to zoom in):
The first letter combines work-study and loans into the “total award” the student will receive for the academic year, with no reference to the student’s cost of attendance. It goes on to say that “You have been awarded” several federal loans. “Award” is a generous term here since almost the entire cost of attendance will be financed by student loan debt. This amount will only grow larger as interest accrues over time. Even more worrisome, the package includes over $30,000 in a Parent PLUS loan. Of federal loan options, PLUS loans have the highest interest rate, and are not a guarantee — parents have to apply for one.
The Shopping Sheet, by contrast, makes this harsh reality perfectly clear by using the institution’s estimated full cost of attendance and displaying the student’s net price, after accounting for grant and scholarship aid. Federal loans are kept separate from grants and scholarships. Parent PLUS and private loans are only mentioned as a financing option that may be available depending on the student’s situation. The sheet also standardizes common terminology so that loans and grants aren’t cloaked in financial aid jargon — such as labeling a Perkins Loan as “Perkins” or “Perkins L.”
The Shopping Sheet makes this university’s award package look a lot less rosy. And that’s probably one of the main reasons why many institutions and NASFAA are so against it. With skyrocketing costs and persistent state disinvestment, revenue-hungry institutions will try anything to get accepted students in the door. This includes adding more loans to the bottom-line of the aid package, and adding PLUS loans where alternative private loans used to be. Packaging of financial aid is becoming increasingly strategic, and is often done with the institution’s goals, not a student’s need, in mind.
If NASFAA continues to put entrenched institutional interests above students’ financial welfare, it’s unlikely that the Shopping Sheet will be voluntarily adopted at a large scale. The best bet for getting clear, comparable, useful information into students’ hands is federal legislation. Senator Al Franken has introduced a bill with bipartisan support that would require the use of a model aid letter, similar to the Shopping Sheet. “Students today have enough obstacles keeping them from a quality education, deciphering the paperwork shouldn’t be one of them,” remarked Senator Ben Cardin, one of the bill's co-sponsors, “We need to make it easier to understand the options for financial aid and exactly what the full cost will be.”
That’s true, but legislation takes time. Students and their families need help understanding college costs now. If NASFAA is serious about institutional flexibility that actually helps students, then they should encourage institutions to adopt and experiment with the Shopping Sheet now. Otherwise, their flexibility will be legislated away.
Rachel Fishman is a policy analyst for the Education Policy Program at the New America Foundation. Before joining New America, she worked as a policy analyst at Education Sector.
Submitted by Alex Holt on August 17, 2012 - 3:00am
July 31 marked the 100th anniversary of the birth of the late economist Milton Friedman. As a champion of school vouchers and other well-known conservative ideas, Friedman is far more heralded on the right than the left. But Friedman is also widely cited as the father of one idea that many progressives love: income-contingent student loans, in which borrowers pay a certain percentage of their income and loans are often forgiven after a certain time.
There’s just one problem: Friedman didn’t propose income-contingent loans. In fact, his student financial aid ideas were more radical and progressive than the loan policies supported by Democrats today, and he probably wouldn't have liked how his ideas have been put into practice so far.
Supporters of income-contingent loans have long cited Friedman as their intellectual patriarch. A 1988 New York Times article claims that the key concept of Michael Dukakis’s student loan reform proposal was the income-contingent loan, “first proposed by Milton Friedman, guru to a generation of conservative economists.” That claim has been popping up ever since.
Friedman’s actual proposal was something closer to an equity investment: think stocks, not loans. Under his plan, the government would provide students with financial assistance to pay for college and, in return, the students would pay a percentage of their income back to the government each year regardless of the amount of money initially provided to them. In other words, income-contingent loans socialize losses and privatize gains. Friedman’s plan socializes losses and gains. Let’s walk through what that means:
When the government issues a loan, it is agreeing with the borrower that it will get back the principal plus interest, no more, no less. Once the borrower repays what the government initially lent her, plus interest, she’s free of the debt.
However, under our current income-contingent loan system borrowers who are consistently low-income will not pay back the full amount of their loan, meaning that taxpayers will bear the cost of that loan (socialized loss), whereas high-income borrowers will pay back the loan and then continue to personally reap the dividends of the initial loan (privatized gain).
Friedman’s plan isn’t a loan at all. It’s an investment, in the true sense of the word. Under an equity investment arrangement, a student who realizes a big return on her education investment shares it with taxpayers by repaying more than was originally invested in her (socialized gain), but if she never earns much, she won’t even pay a fraction of what taxpayers originally invested in her (socialized loss).
Yet despite the seeming fairness of the equity investment approach to funding higher education, it turns out that individuals hate paying more when their lives turn out well, especially when they feel like they are subsidizing the perceived failure of others. When Yale University tried something similar to Friedman’s proposal in the 1970s, the most prosperous students complained that they paid a lot more than others.
“The only significant way the program seems really to have gone awry is in misjudging the gratitude of those who would benefit from it,” wrote Timothy Noah in response to a Wall Street Journal piece about the program ending.
“Twenty to 30 years on, the richer ones are bitching about how much they've had to pay. ‘[E]asily the worst financial decision I ever made,’ gripes David Bettis, a physician in Boise.… An e-mail support group for self-made Yalie plutocrats who now regret opting into the repayment scheme was started by Juan Leon, ‘who now sells Gulfstream jets in Latin America.’ "
In the end, the program ended prematurely, and Yale ate the outstanding costs. It’s worth noting that the program varied from Friedman’s plan in a significant way. An entire cohort of a class was invested in, and the cohort would pay a percentage each year until that cohorts’ loan was paid off. Those Yale students were complaining because 30 years on, they were still subsidizing the perceived deadbeats of their class, and that wasn’t fair. By tying investment to a group of borrowers, the Yale program was seen as a socialist dream gone awry, instead of a return on investment per individual.
The Yale program demonstrates that people do not like it when they feel they are subsidizing others for their success. So it is essential, if Friedman’s plan were to ever be implemented, that the investment in an individual was not tied to any other, and the terms of the investment were fixed. For example, no matter how much you earn, you will pay a certain percent of your income for twenty years, no more, no less. The percentage would, ideally, be calculated so that the program paid for itself, but it’s important that the terms of the investment don’t change.
The equity investment proposal may have inspired liberals and progressives to create income-contingent loans, but the original idea proposed by Friedman, that prophet of conservative economic thought, is more progressive. The reason it has fallen flat thus far is not just that recipients hate paying their fair share, but also that it is such a departure from the status quo.
It is “the novelty of the idea,” wrote Friedman, “the reluctance to think of investment in human beings as strictly comparable to investment in physical assets” that prevents us from implementing this idea more than it is rich Yale graduates whining about a contract they themselves entered into and reaped the benefits from.
If the government were to ever attempt the equity investment program, we as a society would have to overcome that novelty. Both Republicans and Democrats speak of higher education as an investment in our nation’s future. Perhaps it’s time to socialize the gains and not just the losses and to truly “invest” in higher education.
Alex Holt is a research associate with the Education Policy Program at New America Foundation.